UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-51556
GUARANTY BANCORP
(Exact name of registrant as specified in its charter)
DELAWARE |
|
41-2150446 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification Number) |
|
|
|
1331 Seventeenth St., Suite 345 Denver, CO |
|
80202 |
(Address of principal executive offices) |
|
(Zip Code) |
303-675-1194
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant 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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o |
|
Accelerated Filer x |
|
|
|
Non-accelerated Filer o (Do not check if smaller reporting company) |
|
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
As of July 29, 2013, there were 20,373,252 shares of the registrants voting common stock outstanding, including 519,682 shares of unvested stock awards, and excluding 1,019,000 shares of the registrants non-voting common stock outstanding.
Forward-Looking Statements and Factors That Could Affect Future Results
Certain statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the Act), notwithstanding that such statements are not specifically identified. In addition, certain statements may be contained in our future filings with the SEC, in press releases, and in oral and written statements made by or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or board of directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as believes, anticipates, expects, intends, targeted, projected, continue, remain, will, should, could, may and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
· Local, regional, national and international economic conditions and the impact they may have on us and our customers, and our assessment of that impact on our estimates including, but not limited to, the allowance for loan losses.
· The effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board.
· The ability to receive regulatory approval for the Bank to declare and pay dividends to the Company.
· Changes imposed by regulatory agencies to increase our capital to a level greater than the current level required for well-capitalized financial institutions (including the impact of the recent joint rule by the Federal Reserve Board, Office of the Comptroller of the Currency, and the FDIC to revise the regulatory capital rules, including the implementation of the Basel III standards), the failure to maintain capital above the level required to be well-capitalized under the regulatory capital adequacy guidelines, the availability of capital from private or government sources, or the failure to raise additional capital as needed.
· Changes in the level of nonperforming assets and charge-offs and other credit quality measures, and their impact on the adequacy of the Banks allowance for loan losses and the Banks provision for loan losses.
· Changes in sources and uses of funds, including loans, deposits and borrowings, including the ability for the Bank to retain and grow core deposits, to purchase brokered deposits and maintain unsecured federal funds lines and secured lines of credit with correspondent banks.
· The effects of inflation, as well as, interest rate, securities market and monetary supply fluctuations.
· Political instability, acts of war or terrorism and natural disasters.
· The timely development and acceptance of new products and services and perceived overall value of these products and services by customers.
· Revenues are lower than expected.
· Changes in consumer spending, borrowings and savings habits.
· Competition for loans and deposits and failure to attract or retain loans and deposits.
· Changes in the financial performance and/or condition of the Banks borrowers and the ability of the Banks borrowers to perform under the terms of their loans and terms of other credit agreements.
· Technological changes.
· Acquisitions and greater than expected costs or difficulties related to the integration of acquired businesses or other assets.
· The ability to increase market share and control expenses.
· Changes in the competitive environment among financial or bank holding companies and other financial service providers.
· Changes in business strategy or development plans.
· The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.
· Changes in our organization, compensation and benefit plans.
· Our ability to hire and retain qualified executive officers.
· The costs and effects of changes in laws and regulations and of other legal and regulatory developments, including, but not limited to, increases in FDIC insurance premiums, the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations, reviews or other inquires.
· Our success at managing the risks involved in the foregoing items.
Forward-looking statements speak only as of the date on which such statements are made. We do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.
PART I FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
GUARANTY BANCORP AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
|
|
June 30, |
|
December 31, |
|
||
|
|
2013 |
|
2012 |
|
||
|
|
(Dollars in thousands) |
|
||||
Assets |
|
|
|
|
|
||
Cash and due from banks |
|
$ |
30,613 |
|
$ |
163,217 |
|
Time deposits with banks |
|
5,000 |
|
8,000 |
|
||
Securities available for sale, at fair value |
|
432,218 |
|
413,382 |
|
||
Securities held to maturity (fair value of $33,657 and $32,290 at June 30, 2013 and December 31, 2012) |
|
34,772 |
|
31,283 |
|
||
Bank stocks, at cost |
|
17,981 |
|
14,262 |
|
||
Total investments |
|
484,971 |
|
458,927 |
|
||
|
|
|
|
|
|
||
Loans, net of unearned loan fees |
|
1,240,555 |
|
1,158,749 |
|
||
Less allowance for loan losses |
|
(20,218 |
) |
(25,142 |
) |
||
Net loans |
|
1,220,337 |
|
1,133,607 |
|
||
|
|
|
|
|
|
||
Premises and equipment, net |
|
46,265 |
|
46,918 |
|
||
Other real estate owned and foreclosed assets |
|
6,460 |
|
19,580 |
|
||
Other intangible assets, net |
|
7,935 |
|
9,348 |
|
||
Securities sold, not yet settled |
|
|
|
5,878 |
|
||
Bank owned life insurance |
|
30,902 |
|
15,564 |
|
||
Other assets |
|
33,645 |
|
25,899 |
|
||
Total assets |
|
$ |
1,866,128 |
|
$ |
1,886,938 |
|
|
|
|
|
|
|
||
Liabilities and Stockholders Equity |
|
|
|
|
|
||
Liabilities: |
|
|
|
|
|
||
Deposits: |
|
|
|
|
|
||
Noninterest-bearing demand |
|
$ |
505,782 |
|
$ |
564,215 |
|
Interest-bearing demand and NOW |
|
332,541 |
|
285,679 |
|
||
Money market |
|
319,957 |
|
312,724 |
|
||
Savings |
|
105,853 |
|
100,704 |
|
||
Time |
|
185,118 |
|
191,434 |
|
||
Total deposits |
|
1,449,251 |
|
1,454,756 |
|
||
Securities sold under agreement to repurchase and federal funds purchased |
|
24,894 |
|
67,040 |
|
||
Borrowings |
|
167,903 |
|
110,163 |
|
||
Subordinated debentures |
|
25,774 |
|
41,239 |
|
||
Securities purchased, not yet settled |
|
5,000 |
|
16,943 |
|
||
Interest payable and other liabilities |
|
7,982 |
|
8,597 |
|
||
Total liabilities |
|
1,680,804 |
|
1,698,738 |
|
||
|
|
|
|
|
|
||
Stockholders equity: |
|
|
|
|
|
||
Common stock (1)(2) |
|
24 |
|
117 |
|
||
Additional paid-in capital - common stock |
|
706,062 |
|
705,272 |
|
||
Accumulated deficit |
|
(412,389 |
) |
(417,957 |
) |
||
Accumulated other comprehensive income (loss) |
|
(5,910 |
) |
3,165 |
|
||
Treasury stock, at cost, 2,200,564 and 2,194,003 shares, respectively(2) |
|
(102,463 |
) |
(102,397 |
) |
||
Total stockholders equity |
|
185,324 |
|
188,200 |
|
||
Total liabilities and stockholders equity |
|
$ |
1,866,128 |
|
$ |
1,886,938 |
|
(1) Common stock$0.001 par value; 30,000,000 shares authorized; 23,593,049 shares issued and 21,392,485 shares outstanding at June 30, 2013 (includes 520,682 shares of unvested restricted stock); 23,363,524 shares issued and 21,169,521 shares outstanding at December 31, 2012 (includes 339,359 shares of unvested restricted stock).
(2) Share amounts for all periods presented reflect the Companys May 20, 2013 1-for-5 reverse stock split.
See Notes to Unaudited Condensed Consolidated Financial Statements.
GUARANTY BANCORP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
||||
|
|
(In thousands, except share and per share data) |
|
||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
||||
Loans, including fees |
|
$ |
14,104 |
|
$ |
14,511 |
|
$ |
28,186 |
|
$ |
28,993 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
||||
Taxable |
|
2,322 |
|
2,366 |
|
4,587 |
|
4,759 |
|
||||
Tax-exempt |
|
786 |
|
618 |
|
1,579 |
|
1,235 |
|
||||
Dividends |
|
170 |
|
153 |
|
326 |
|
311 |
|
||||
Federal funds sold and other |
|
67 |
|
58 |
|
101 |
|
100 |
|
||||
Total interest income |
|
17,449 |
|
17,706 |
|
34,779 |
|
35,398 |
|
||||
Interest expense: |
|
|
|
|
|
|
|
|
|
||||
Deposits |
|
615 |
|
711 |
|
1,250 |
|
1,488 |
|
||||
Securities sold under agreement to repurchase and federal funds purchased |
|
11 |
|
12 |
|
29 |
|
24 |
|
||||
Borrowings |
|
849 |
|
827 |
|
1,667 |
|
1,654 |
|
||||
Subordinated debentures |
|
235 |
|
773 |
|
716 |
|
1,549 |
|
||||
Total interest expense |
|
1,710 |
|
2,323 |
|
3,662 |
|
4,715 |
|
||||
Net interest income |
|
15,739 |
|
15,383 |
|
31,117 |
|
30,683 |
|
||||
Provision for loan losses |
|
|
|
500 |
|
|
|
1,500 |
|
||||
Net interest income, after provision for loan losses |
|
15,739 |
|
14,883 |
|
31,117 |
|
29,183 |
|
||||
Noninterest income: |
|
|
|
|
|
|
|
|
|
||||
Customer service and other fees |
|
3,018 |
|
2,382 |
|
5,638 |
|
4,653 |
|
||||
Gain on sale of securities |
|
54 |
|
342 |
|
54 |
|
964 |
|
||||
Gain on sale of SBA loans |
|
287 |
|
|
|
423 |
|
|
|
||||
Other |
|
352 |
|
187 |
|
546 |
|
393 |
|
||||
Total noninterest income |
|
3,711 |
|
2,911 |
|
6,661 |
|
6,010 |
|
||||
Noninterest expense: |
|
|
|
|
|
|
|
|
|
||||
Salaries and employee benefits |
|
7,213 |
|
6,614 |
|
14,654 |
|
13,471 |
|
||||
Occupancy expense |
|
1,598 |
|
1,972 |
|
3,210 |
|
3,991 |
|
||||
Furniture and equipment |
|
745 |
|
783 |
|
1,506 |
|
1,604 |
|
||||
Amortization of intangible assets |
|
706 |
|
761 |
|
1,413 |
|
1,523 |
|
||||
Other real estate owned, net |
|
(257 |
) |
461 |
|
77 |
|
813 |
|
||||
Insurance and assessments |
|
641 |
|
881 |
|
1,249 |
|
1,689 |
|
||||
Professional fees |
|
853 |
|
856 |
|
1,764 |
|
1,484 |
|
||||
Prepayment penalty on subordinated debentures |
|
|
|
|
|
629 |
|
|
|
||||
Impairment of long-lived assets |
|
|
|
2,750 |
|
|
|
2,750 |
|
||||
Other general and administrative |
|
2,380 |
|
2,438 |
|
4,569 |
|
4,673 |
|
||||
Total noninterest expense |
|
13,879 |
|
17,516 |
|
29,071 |
|
31,998 |
|
||||
Income before income taxes |
|
5,571 |
|
278 |
|
8,707 |
|
3,195 |
|
||||
Income tax expense (benefit) |
|
1,753 |
|
(5,914 |
) |
2,617 |
|
(5,914 |
) |
||||
Net income |
|
$ |
3,818 |
|
$ |
6,192 |
|
$ |
6,090 |
|
$ |
9,109 |
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
||||
Unrealized gains (losses) on securities: |
|
|
|
|
|
|
|
|
|
||||
Change in net unrealized gains (losses) |
|
$ |
(8,108 |
) |
$ |
(334 |
) |
$ |
(9,312 |
) |
$ |
248 |
|
Less: Reclassification adjustments for net losses (gains) included in net income |
|
(33 |
) |
(212 |
) |
(33 |
) |
(598 |
) |
||||
Unrealized gains (losses) on derivatives: |
|
|
|
|
|
|
|
|
|
||||
Change in net unrealized gains (losses) |
|
271 |
|
|
|
271 |
|
|
|
||||
Less: Reclassification adjustments for hedge ineffectiveness included in net income |
|
(1 |
) |
|
|
(1 |
) |
|
|
||||
Other comprehensive income (loss) |
|
(7,871 |
) |
(546 |
) |
(9,075 |
) |
(350 |
) |
||||
Total comprehensive income (loss) |
|
$ |
(4,053 |
) |
$ |
5,646 |
|
$ |
(2,985 |
) |
$ |
8,759 |
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per common sharebasic(1): |
|
$ |
0.18 |
|
$ |
0.30 |
|
$ |
0.29 |
|
$ |
0.44 |
|
Earnings per common sharediluted(1): |
|
0.18 |
|
0.30 |
|
0.29 |
|
0.44 |
|
||||
Dividends declared per common share(1): |
|
0.03 |
|
|
|
0.03 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding-basic(1): |
|
20,860,228 |
|
20,782,861 |
|
20,854,858 |
|
20,780,713 |
|
||||
Weighted average common shares outstanding-diluted(1): |
|
20,941,486 |
|
20,847,792 |
|
20,934,521 |
|
20,857,264 |
|
(1) All share and per share amounts reflect the Companys 1-for-5 reverse stock split May 20, 2013.
See Notes to Unaudited Condensed Consolidated Financial Statements.
GUARANTY BANCORP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Changes in Stockholders Equity
|
|
Common Stock
|
|
Common Stock
|
|
Treasury
|
|
Accumulated
|
|
Accumulated Other
|
|
Totals |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance, January 1, 2012 |
|
21,087,325 |
|
$ |
704,698 |
|
$ |
(102,354 |
) |
$ |
(433,016 |
) |
$ |
1,683 |
|
$ |
171,011 |
|
Net income |
|
|
|
|
|
|
|
9,109 |
|
|
|
9,109 |
|
|||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
(350 |
) |
(350 |
) |
|||||
Stock compensation awards, net of forfeitures |
|
156,820 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Earned stock award compensation, net |
|
|
|
360 |
|
|
|
|
|
|
|
360 |
|
|||||
Repurchase of common stock |
|
(1,007 |
) |
|
|
(9 |
) |
|
|
|
|
(9 |
) |
|||||
Balance, June 30, 2012 |
|
21,243,138 |
|
$ |
705,058 |
|
$ |
(102,363 |
) |
$ |
(423,907 |
) |
$ |
1,333 |
|
$ |
180,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance, January 1, 2013 |
|
21,169,521 |
|
$ |
705,389 |
|
$ |
(102,397 |
) |
$ |
(417,957 |
) |
$ |
3,165 |
|
$ |
188,200 |
|
Net income |
|
|
|
|
|
|
|
6,090 |
|
|
|
6,090 |
|
|||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
(9,075 |
) |
(9,075 |
) |
|||||
Stock compensation awards, net of forfeitures |
|
229,525 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Earned stock award compensation, net |
|
|
|
697 |
|
|
|
|
|
|
|
697 |
|
|||||
Repurchase of common stock |
|
(6,561 |
) |
|
|
(66 |
) |
|
|
|
|
(66 |
) |
|||||
Dividends paid |
|
|
|
|
|
|
|
(522 |
) |
|
|
(522 |
) |
|||||
Balance, June 30, 2013 |
|
21,392,485 |
|
$ |
706,086 |
|
$ |
(102,463 |
) |
$ |
(412,389 |
) |
$ |
(5,910 |
) |
$ |
185,324 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
GUARANTY BANCORP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
|
|
Six Months Ended June 30, |
|
||||
|
|
2013 |
|
2012 |
|
||
|
|
(In thousands) |
|
||||
Cash flows from operating activities: |
|
|
|
|
|
||
Net income |
|
$ |
6,090 |
|
$ |
9,109 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
2,461 |
|
3,141 |
|
||
Provision for loan losses |
|
|
|
1,500 |
|
||
Impairment of long-lived assets |
|
|
|
2,750 |
|
||
Stock compensation, net |
|
697 |
|
360 |
|
||
Gain on sale of securities |
|
(54 |
) |
(964 |
) |
||
Gain on sale of SBA loans |
|
(423 |
) |
|
|
||
Proceeds from the sale of loans originated with intent to sell |
|
2,992 |
|
|
|
||
Loss (gain), net and valuation adjustments on real estate owned |
|
(300 |
) |
1,174 |
|
||
Other |
|
(260 |
) |
(308 |
) |
||
Net change in: |
|
|
|
|
|
||
Other assets |
|
(1,686 |
) |
(8,439 |
) |
||
Interest payable and other liabilities |
|
(626 |
) |
(1,432 |
) |
||
Net cash from operating activities |
|
8,891 |
|
6,891 |
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Activity in available for sale securities: |
|
|
|
|
|
||
Sales, maturities, prepayments and calls |
|
48,631 |
|
71,894 |
|
||
Purchases |
|
(90,048 |
) |
(88,485 |
) |
||
Activity in held to maturity securities and bank stocks: |
|
|
|
|
|
||
Maturities, prepayments and calls |
|
3,592 |
|
2,119 |
|
||
Purchases |
|
(10,735 |
) |
(5,234 |
) |
||
Loan originations net of principal collections |
|
(84,129 |
) |
(21,024 |
) |
||
Redemption (purchase) of time deposits with banks |
|
3,000 |
|
(5,000 |
) |
||
Proceeds from sale of loans held for sale |
|
|
|
70 |
|
||
Purchase of life insurance contracts |
|
(15,000 |
) |
|
|
||
Proceeds from sales of other real estate owned and foreclosed assets |
|
7,774 |
|
5,404 |
|
||
Proceeds from sale of SBA loans transferred to held for sale |
|
1,779 |
|
|
|
||
Additions to premises and equipment |
|
(395 |
) |
(273 |
) |
||
Net cash from investing activities |
|
(135,531 |
) |
(40,529 |
) |
||
Cash flows from financing activities: |
|
|
|
|
|
||
Net change in deposits |
|
(5,505 |
) |
65,151 |
|
||
Net change in short-term borrowings |
|
57,748 |
|
|
|
||
Repayment of borrowings |
|
(8 |
) |
(7 |
) |
||
Redemption of subordinated debentures |
|
(15,465 |
) |
|
|
||
Stockholder dividends |
|
(522 |
) |
|
|
||
Net change in repurchase agreements and federal funds purchased |
|
(42,146 |
) |
(3,589 |
) |
||
Repurchase of common stock |
|
(66 |
) |
(9 |
) |
||
Net cash from financing activities |
|
(5,964 |
) |
61,546 |
|
||
Net change in cash and cash equivalents |
|
(132,604 |
) |
27,908 |
|
||
Cash and cash equivalents, beginning of period |
|
163,217 |
|
109,225 |
|
||
Cash and cash equivalents, end of period |
|
$ |
30,613 |
|
$ |
137,133 |
|
|
|
|
|
|
|
||
Supplemental disclosure of noncash activities: |
|
|
|
|
|
||
Financing of the sale of other real estate owned |
|
$ |
8,576 |
|
$ |
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
GUARANTY BANCORP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(1) Organization, Operations and Basis of Presentation
Guaranty Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and headquartered in Colorado.
Our principal business is to serve as a holding company for our subsidiaries. As of June 30, 2013, Guaranty Bancorp had a single bank subsidiary, Guaranty Bank and Trust Company, referred to as Guaranty Bank or the Bank.
References to we or Company mean Guaranty Bancorp on a consolidated basis with the Bank, if applicable. References to Guaranty Bancorp or to the holding company refer to the parent company on a stand-alone basis.
The Bank is a full-service community bank offering an array of banking products and services to the communities it serves along the Front Range of Colorado, including accepting time and demand deposits and originating commercial loans (including energy loans), real estate loans (including jumbo mortgages), Small Business Administration guaranteed loans and consumer loans. The Bank and its subsidiary, Private Capital Management, LLC (PCM) provide wealth management services, including private banking, investment management and trust services. Substantially all loans are secured by specific items of collateral, including business assets, consumer assets and commercial and residential real estate, including land or improved land. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. Our customers ability to repay their loans is generally dependent on the real estate market and general economic conditions prevailing in Colorado, among other factors.
(a) Basis of Presentation
The accounting and reporting policies of the Company conform to generally accepted accounting principles in the United States of America and prevailing practices within the financial services industry. All significant intercompany balances and transactions have been eliminated in consolidation. Our financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. All such adjustments are of a normal and recurring nature. We have evaluated all subsequent events through the date the financial statements were issued.
Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The interim operating results are not necessarily indicative of operating results for the year. For further information, refer to the consolidated financial statements and notes included in the Companys annual report on Form 10-K for the year ended December 31, 2012.
(b) Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated balance sheet and income and expense for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes include the assessment for impairment of certain investment securities, the allowance for loan losses, deferred tax assets and liabilities, impairment of other intangible assets and long-lived assets, stock compensation expense and other real estate owned. Assumptions and factors used in the estimates are evaluated on an annual basis or whenever events or changes in circumstance indicate that the previous assumptions and factors have changed. The result of the analysis could result in adjustments to the estimates.
(c) Time Deposits with Banks
The Company invests in short term, fully insured time deposits with other banks through the Certificate of Deposit Account Registry Service (CDARS).
(d) Loans, Loan Commitments and Related Financial Instruments
The Company extends commercial, real estate, agricultural and consumer loans to customers. A substantial portion of the loan portfolio consists of commercial and real estate loans throughout the Front Range of Colorado. The ability of the Companys borrowers to honor their contracts is generally dependent upon the real estate and general economic conditions prevailing in Colorado, among other factors.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances, adjusted for charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans. Accounting for our loans is performed consistently across all portfolio segments and classes.
A portfolio segment is defined in accounting guidance as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. A class is defined in accounting guidance as a group of loans having similar initial measurement attributes, risk characteristics and methods for monitoring and assessing risk.
Interest income is accrued on the unpaid principal balance. Loan origination fees, net of direct origination costs, are deferred and recognized as an adjustment to the related loan yield using the effective interest method without anticipating prepayments.
The accrual of interest on loans is discontinued (and the loan is put on nonaccrual status) at the time the loan is 90 days delinquent unless the credit is well secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
The interest on nonaccrual loans is accounted for on the cash-basis method, until qualifying for a return to the accrual basis of accounting, and payments received on nonaccrual loans are applied first to the principal balance of the loan. Loans are returned to accrual status after the borrowers financial condition has improved, when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
The Company recognizes a liability in relation to these commitments intended to represent estimated future losses on these commitments. In calculating this estimate, we consider the volume of off-balance sheet commitments, estimated utilization factors as well as risk factors determined based on the nature of the loan. Our liability for unfunded commitments is calculated quarterly with the balance presented in Other Liabilities in our Consolidated Balance Sheet.
(e) Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable incurred loan losses. The allowance for loan losses is reported as a reduction of outstanding loan balances.
The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. An
allowance for loan losses is maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the loan portfolio and other extensions of credit. Our methodology for estimating our allowance is consistent across all portfolio segments and classes of loans.
Loans deemed to be uncollectible are charged off and deducted from the allowance. Our loan portfolio primarily consists of non-homogeneous commercial and real estate loans where charge-offs are considered on a loan by loan basis based on the facts and circumstances, including managements evaluation of collateral values in comparison to book values on real estate-dependent loans. Charge-offs on smaller balance homogenous type loans such as overdrafts and ready reserves are recognized by the time the loan in question is 90 days past due. The provision for loan losses and recoveries on loans previously charged-off are added to the allowance.
The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. All loans are subject to individual impairment evaluation should the facts and circumstances pertinent to a particular loan suggest that such evaluation is necessary. Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. If a loan is impaired, a portion, if any, of the allowance is allocated so that the loan is reported at the present value of estimated future cash flows using the loans existing rate or at the fair value of collateral if repayment is expected solely from collateral. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loans effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.
The general component covers all other loans not identified as impaired and is based on historical losses adjusted for current factors. The historical loss component of the allowance is determined by calculating losses recognized by portfolio segment over the preceding four years. In calculating the historical component of our allowance, we aggregate our loans into one of three portfolio segments: Commercial, Real Estate and Consumer & Other. Risk factors impacting loans in each of the portfolio segments include broad deterioration of property values, reduced consumer and business spending as a result of continued high unemployment and reduced credit availability and lack of confidence in a sustainable recovery. The actual loss experience is adjusted for managements estimate of the impact of other factors based on the risks present for each portfolio segment. These other factors include consideration of the following: the overall level of concentrations and trends of substandard and watch loans, loan concentrations within a portfolio segment or division of a portfolio segment, identification of certain loan types with higher risk than other loans, existing internal risk factors, loan growth dynamics and managements evaluation of the impact of local and national economic conditions on each of our loan types.
(f) Other Real Estate Owned and Foreclosed Assets
Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating revenues and expenses of such assets and reductions in the fair value of the assets are included in noninterest expense. Gains and losses on their disposition are also included in noninterest expense.
(g) Other Intangible Assets
Intangible assets acquired in a business combination are amortized over their estimated useful lives to their estimated residual values and evaluated for impairment whenever changes in circumstances indicate that such an evaluation is necessary.
Core deposit intangible assets, referred to as CDI, are recognized at the time of acquisition based on valuations prepared by independent third parties or other estimates of fair value. In preparing such valuations, variables such as deposit servicing costs, attrition rates, and market discount rates are considered. CDI assets are amortized to expense over their useful lives, which we have estimated to range from 7 years to 15 years.
Customer relationship intangible assets are recognized at the time of acquisition based upon managements estimate of fair value. In preparing such valuations, variables such as growth in existing customer base, attrition rates and market discount rates are considered. The customer relationship asset is amortized to expense over its useful life, which we have estimated at 10 years. Our customer relationship intangible asset was recognized as a result of the acquisition of Private Capital Management in the third quarter 2012.
(h) Impairment of Long-Lived Assets
Long-lived assets, such as premises and equipment, and finite-lived intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying value of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying value of the asset exceeds the fair value of the asset, less costs to sell.
Assets to be disposed of are reported at the lower of the carrying value or fair value less costs to sell, and are no longer depreciated. In 2012, the Company recorded an impairment related to two bank buildings that were later transferred to assets held for sale. At June 30, 2013, one of these properties remains held for sale.
(i) Derivative Instruments
The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
(j) Stock Incentive Plan
The Companys Amended and Restated 2005 Stock Incentive Plan provides for up to 1,700,000 grants of stock options, stock awards, stock units awards, performance stock awards, stock appreciation rights, and other equity-based awards to key employees, nonemployee directors, consultants and prospective employees. As of June 30, 2013, the Company has only granted stock awards. The Company recognizes stock compensation cost for services received in a share-based payment transaction over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The compensation cost of employee
and director services received in exchange for stock awards is based on the grant date fair value of the award (as determined by quoted market prices). Stock compensation expense recognized reflects estimated forfeitures, adjusted as necessary for actual forfeitures. The Company has issued stock awards that vest based on service periods from one to four years, and stock awards that vest based on performance conditions. The maximum contractual term for the performance-based share awards is December 31, 2015. At the end of June 30, 2013, certain performance-based restricted stock awards were expected to vest prior to the end of the contractual term, while approximately 74,819 shares were not expected to vest prior to the end of the contractual term, based on current projections in comparison to performance conditions. Should these expectations change, additional expense could be recorded or reversed in future periods.
(k) Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of the enactment date.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income, taking into account applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. At June 30, 2013 and December 31, 2012, the Company had a net deferred tax asset of $18,030,000 and $14,990,000, respectively, which includes the net unrealized gain (loss) on securities. At June 30, 2013, after analyzing the composition of and changes in the deferred tax assets and liabilities, consideration of the Companys forecasted future taxable income, and various tax planning strategies, including the intent to hold the securities available for sale that are in a loss position until maturity, we determined that it is more likely than not that the net deferred tax asset will be fully realized. There is no valuation allowance as of June 30, 2013.
At June 30, 2013 and December 31, 2012, the Company did not have any uncertain tax positions for which a tax benefit was disallowed under current accounting guidance. A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely to be realized on examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded.
The Company and the Bank are subject to U.S. federal income tax and State of Colorado tax. The Company is no longer subject to examination by Federal or State taxing authorities for years before 2008 except to the extent of the amount of the 2009 carryback claim for a refund filed in 2010 with respect to 2004 through 2006. At June 30, 2013 and December 31, 2012, the Company did not have any unrecognized tax benefits. The Company does not expect the amount of any unrecognized tax benefits to significantly change in the next twelve months. The Company recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other noninterest expense. At June 30, 2013 and December 31, 2012, the Company did not have any amounts accrued for interest and/or penalties.
(l) Earnings per Common Share
Basic earnings per common share represents the earnings allocable to common stockholders divided by the weighted average number of common shares outstanding during the period. When there is a loss, generally there is no difference between basic and diluted loss per common shares as any potential additional common shares are typically anti-dilutive as they decrease the loss per common share. Dilutive common shares that may be issued by the Company relate to unvested common share grants subject to a service or performance condition for the three and six months ended June 30, 2013 and 2012. The earnings per common share has been computed based on the following:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding(1) |
|
20,860,228 |
|
20,782,861 |
|
20,854,858 |
|
20,780,713 |
|
Effect of dilutive unvested stock grants (1)(2) |
|
81,258 |
|
64,931 |
|
79,663 |
|
76,550 |
|
Average shares outstanding for calculated diluted earnings per common share |
|
20,941,486 |
|
20,847,792 |
|
20,934,521 |
|
20,857,263 |
|
(1)All share amounts reflect the Companys May 20, 2013 1-for-5 reverse stock split.
(2)The impact of unvested stock grants of 520,682 shares at June 30, 2013 had a dilutive impact of 81,258 and 79,663 shares in the diluted earnings per share calculation for the three and six months ended June 30, 2013, respectively. The impact of unvested stock grants of 456,184 shares at June 30, 2012 had a dilutive impact of 64,931 and 76,550 shares in the diluted earnings per share calculation for the three and six months ended June 30, 2012, respectively.
(m) Recently Issued Accounting Standards
Adoption of New Accounting Standards:
In February 2013, the FASB issued an accounting standards update to finalize the reporting requirements for reclassifications of amounts out of accumulated other comprehensive income (AOCI). Items reclassified out of AOCI to net income in their entirety must have the effect of the reclassification disclosed according to the respective income statement line item. This information must be provided either on the face of the financial statements by income statement line item, or in a footnote. For public companies, the amendments in the update became effective for interim and annual periods beginning on or after December 15, 2012. As of June 30, 2013, the impact of this update on the Companys disclosures was minimal.
(n) Reclassifications
Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications had no impact on the Companys consolidated financial position, results of operations or net change in cash and cash equivalents. All per share amounts and shares outstanding for all periods presented reflect the May 20, 2013 1-for-5 reverse stock split.
(2) Securities
The fair value of available for sale debt securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows at the dates presented:
|
|
June 30, 2013 |
|
||||||||||
|
|
Fair value |
|
Gross
|
|
Gross
|
|
Amortized
|
|
||||
|
|
(In thousands) |
|
||||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
||||
State and municipal |
|
$ |
58,083 |
|
$ |
143 |
|
$ |
(2,233 |
) |
$ |
60,173 |
|
Mortgage-backed - agency / residential |
|
279,619 |
|
1,202 |
|
(6,806 |
) |
285,223 |
|
||||
Mortgage-backed - private / residential |
|
634 |
|
|
|
(51 |
) |
685 |
|
||||
Asset-backed |
|
23,665 |
|
|
|
(1,310 |
) |
24,975 |
|
||||
Marketable equity |
|
1,535 |
|
|
|
|
|
1,535 |
|
||||
Trust preferred |
|
34,197 |
|
658 |
|
(1,119 |
) |
34,658 |
|
||||
Corporate |
|
34,485 |
|
138 |
|
(592 |
) |
34,939 |
|
||||
Total securities available for sale |
|
$ |
432,218 |
|
$ |
2,141 |
|
$ |
(12,111 |
) |
$ |
442,188 |
|
|
|
December 31, 2012 |
|
||||||||||
|
|
Fair value |
|
Gross
|
|
Gross
|
|
Amortized
|
|
||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
||||
State and municipal |
|
$ |
65,244 |
|
$ |
519 |
|
$ |
(116 |
) |
$ |
64,841 |
|
Mortgage-backed - agency / residential |
|
264,283 |
|
4,342 |
|
(411 |
) |
260,352 |
|
||||
Mortgage-backed - private / residential |
|
720 |
|
|
|
(5 |
) |
725 |
|
||||
Asset-backed |
|
20,511 |
|
147 |
|
(7 |
) |
20,371 |
|
||||
Marketable equity |
|
1,535 |
|
|
|
|
|
1,535 |
|
||||
Trust preferred |
|
32,840 |
|
794 |
|
(594 |
) |
32,640 |
|
||||
Corporate |
|
28,249 |
|
528 |
|
(91 |
) |
27,812 |
|
||||
Total securities available for sale |
|
$ |
413,382 |
|
$ |
6,330 |
|
$ |
(1,224 |
) |
$ |
408,276 |
|
The carrying amount, unrecognized gains/losses and fair value of securities held to maturity were as follows at the dates presented:
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
Fair value |
|
||||
June 30, 2013: |
|
|
|
|
|
|
|
|
|
||||
State and municipal |
|
$ |
19,278 |
|
$ |
4 |
|
$ |
(1,413 |
) |
$ |
17,869 |
|
Mortgage-backed - agency / residential |
|
15,494 |
|
385 |
|
(91 |
) |
15,788 |
|
||||
|
|
$ |
34,772 |
|
$ |
389 |
|
$ |
(1,504 |
) |
$ |
33,657 |
|
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2012: |
|
|
|
|
|
|
|
|
|
||||
State and municipal |
|
$ |
12,627 |
|
$ |
83 |
|
$ |
(44 |
) |
$ |
12,666 |
|
Mortgage-backed - agency / residential |
|
18,656 |
|
968 |
|
|
|
19,624 |
|
||||
|
|
$ |
31,283 |
|
$ |
1,051 |
|
$ |
(44 |
) |
$ |
32,290 |
|
The proceeds from sales and calls of securities and the associated gains are listed below:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
||||
|
|
(In thousands) |
|
||||||||||
Proceeds |
|
$ |
7,500 |
|
$ |
8,852 |
|
$ |
7,500 |
|
$ |
30,641 |
|
Gross Gains |
|
54 |
|
342 |
|
54 |
|
1,031 |
|
||||
Gross Losses |
|
|
|
|
|
|
|
(67 |
) |
||||
Net tax expense related to gains (losses) on sale |
|
21 |
|
130 |
|
21 |
|
366 |
|
||||
The amortized cost and estimated fair value of available for sale securities by contractual maturity at June 30, 2013 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.
|
|
Available for sale (AFS) |
|
||||
|
|
Amortized cost |
|
Fair value |
|
||
|
|
(In thousands) |
|
||||
Securities available for sale: |
|
|
|
|
|
||
Due in one year or less |
|
$ |
100 |
|
$ |
101 |
|
Due after one year through five years |
|
15,458 |
|
15,538 |
|
||
Due after five years through ten years |
|
28,521 |
|
28,026 |
|
||
Due after ten years |
|
110,666 |
|
106,765 |
|
||
Total AFS, excluding MBS and marketable equity securities |
|
154,745 |
|
150,430 |
|
||
Mortgage-backed and marketable equity securities |
|
287,443 |
|
281,788 |
|
||
Total securities available for sale |
|
$ |
442,188 |
|
$ |
432,218 |
|
|
|
Held to maturity (HTM) |
|
||||
|
|
Amortized cost |
|
Fair value |
|
||
|
|
(In thousands) |
|
||||
Securities held to maturity: |
|
|
|
|
|
||
Due after one year through five years |
|
$ |
1,432 |
|
$ |
1,435 |
|
Due after five years through ten years |
|
3,265 |
|
3,197 |
|
||
Due after ten years |
|
14,581 |
|
13,237 |
|
||
Total HTM, excluding MBS |
|
19,278 |
|
17,869 |
|
||
Mortgage-backed - agency / residential |
|
15,494 |
|
15,788 |
|
||
Total securities held to maturity |
|
$ |
34,772 |
|
$ |
33,657 |
|
The following tables present the fair value and the unrealized loss on securities that were temporarily impaired as of June 30, 2013 and December 31, 2012, aggregated by major security type and length of time in a continuous unrealized loss position:
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
||||||||||||
June 30, 2013 |
|
Fair value |
|
Unrealized
|
|
Fair value |
|
Unrealized
|
|
Fair value |
|
Unrealized
|
|
||||||
|
|
(In thousands) |
|
||||||||||||||||
Description of securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and municipal |
|
$ |
50,859 |
|
$ |
(2,233 |
) |
$ |
|
|
$ |
|
|
$ |
50,859 |
|
$ |
(2,233 |
) |
Mortgage-backed - agency / residential |
|
192,711 |
|
(6,658 |
) |
16,417 |
|
(148 |
) |
209,128 |
|
(6,806 |
) |
||||||
Mortgage-backed - private / residential |
|
634 |
|
(51 |
) |
|
|
|
|
634 |
|
(51 |
) |
||||||
Asset-backed |
|
23,665 |
|
(1,310 |
) |
|
|
|
|
23,665 |
|
(1,310 |
) |
||||||
Trust preferred |
|
13,727 |
|
(319 |
) |
9,200 |
|
(800 |
) |
22,927 |
|
(1,119 |
) |
||||||
Corporate |
|
17,970 |
|
(592 |
) |
|
|
|
|
17,970 |
|
(592 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and municipal |
|
16,434 |
|
(1,413 |
) |
|
|
|
|
16,434 |
|
(1,413 |
) |
||||||
Mortgage-backed - agency / residential |
|
7,233 |
|
(91 |
) |
|
|
|
|
7,233 |
|
(91 |
) |
||||||
Total temporarily impaired |
|
$ |
323,233 |
|
$ |
(12,667 |
) |
$ |
25,617 |
|
$ |
(948 |
) |
$ |
348,850 |
|
$ |
(13,615 |
) |
|
|
Less than 12 months |
|
12 months or more |
|
Total |
|
||||||||||||
December 31, 2012 |
|
Fair value |
|
Unrealized
|
|
Fair value |
|
Unrealized
|
|
Fair value |
|
Unrealized
|
|
||||||
|
|
(In thousands) |
|
||||||||||||||||
Description of securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and municipal |
|
$ |
5,732 |
|
$ |
(116 |
) |
$ |
|
|
$ |
|
|
$ |
5,732 |
|
$ |
(116 |
) |
Mortgage-backed - agency / residential |
|
38,419 |
|
(353 |
) |
6,038 |
|
(58 |
) |
44,457 |
|
(411 |
) |
||||||
Mortgage-backed - private / residential |
|
|
|
|
|
720 |
|
(5 |
) |
720 |
|
(5 |
) |
||||||
Asset-backed |
|
5,174 |
|
(7 |
) |
|
|
|
|
5,174 |
|
(7 |
) |
||||||
Trust preferred |
|
1,594 |
|
(21 |
) |
9,427 |
|
(573 |
) |
11,021 |
|
(594 |
) |
||||||
Corporate |
|
4,944 |
|
(91 |
) |
|
|
|
|
4,944 |
|
(91 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and municipal |
|
4,124 |
|
(44 |
) |
|
|
|
|
4,124 |
|
(44 |
) |
||||||
Total temporarily impaired |
|
$ |
59,987 |
|
$ |
(632 |
) |
$ |
16,185 |
|
$ |
(636 |
) |
$ |
76,172 |
|
$ |
(1,268 |
) |
In determining whether or not there is an other-than-temporary-impairment (OTTI) for securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected
by macroeconomic conditions, and (4) whether the Company has the intention to sell the security or more likely than not will be required to sell the security before its anticipated recovery. The assessment of whether an OTTI exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.
During the fourth quarter 2010, the Company recognized OTTI of $3,500,000. During the first quarter 2013, the Company foreclosed on the real estate securing the bond on which the OTTI was recognized. At the time of the transfer, no additional impairment was recognized.
The following table presents a rollforward of accumulated credit loss resulting from OTTI, recognized in earnings (in thousands):
Balance of accumulated credit losses on debt securities held at January 1, 2013 |
|
$ |
3,500 |
|
Changes in accumulated credit losses on debt securities during the period |
|
(3,500 |
) |
|
Balance of accumulated credit losses on debt securities held at June 30, 2013 |
|
$ |
|
|
At June 30, 2013, there were 127 individual securities in an unrealized loss position, including seven individual securities that have been in a continuous unrealized loss position for 12 months or longer. Management has evaluated these securities in addition to the remaining 120 securities in an unrealized loss position and has determined that the decline in value since their purchase dates was primarily attributable to changes in market interest rates. At June 30, 2013, the Company did not intend to sell any of the 127 securities in an unrealized loss position and did not consider it likely that it would be required to sell any of the securities in question prior to recovery in their fair value.
Approximately 57.8% of the Banks municipal bond securities are unrated and, along with the Banks rated investment securities, are subject to an internal review process by management, historically performed annually in the fourth quarter. The annual review process for non-rated securities considers a review of the issuers most recent financial statements, including the related cash flows and interest payments. In addition, management considers any interim information available that would prompt the need for more frequent review.
At June 30, 2013, there was a security of a single issuer with a book value of $35,755,000, or 19.3% of our stockholders equity. This security is a hospital revenue bond, secured by a pledge of revenues and deed of trust from a hospital within the Companys footprint. This amortizing tax-exempt bond carries an interest rate of 4.75% and matures December 1, 2031. At June 30, 2013, management determined the estimated fair value of this bond to be in a loss position utilizing the discounted cash flow method and an estimate of current market rates for similar bonds. At December 31, 2012, management determined the estimated fair value of this bond approximated its par value. In addition to its annual review of nonrated municipal bonds completed in the fourth quarter 2012, the Company reviews the financial statements of the hospital quarterly. To date, the bond has paid principal and interest in accordance with its contractual terms.
We concluded that the unrealized loss positions on securities are a result of the level of market interest rates and not a result of the underlying issuers ability to repay. Accordingly, we have not recognized any OTTI on the securities in our investment portfolio in 2013.
(3) Loans
A summary of net loans held for investment by loan type at the dates indicated is as follows:
|
|
June 30, |
|
December 31, |
|
||
|
|
2013 |
|
2012 |
|
||
|
|
(In thousands) |
|
||||
Commercial and residential real estate |
|
$ |
787,210 |
|
$ |
737,537 |
|
Construction |
|
71,833 |
|
72,842 |
|
||
Commercial |
|
270,069 |
|
237,199 |
|
||
Agricultural |
|
10,922 |
|
9,417 |
|
||
Consumer |
|
63,368 |
|
63,095 |
|
||
SBA |
|
35,548 |
|
37,207 |
|
||
Other |
|
2,625 |
|
3,043 |
|
||
Total gross loans |
|
1,241,575 |
|
1,160,340 |
|
||
Less: Allowance for loan losses |
|
(20,218 |
) |
(25,142 |
) |
||
Unearned loan fees |
|
(1,020 |
) |
(1,591 |
) |
||
Loans, net of unearned loan fees |
|
$ |
1,220,337 |
|
$ |
1,133,607 |
|
Activity in the allowance for loan losses for the period indicated is as follows:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
||||
|
|
(In thousands) |
|
||||||||||
Balance, beginning of period |
|
$ |
24,060 |
|
$ |
30,075 |
|
$ |
25,142 |
|
$ |
34,661 |
|
Provision for loan losses |
|
|
|
500 |
|
|
|
1,500 |
|
||||
Loans charged-off |
|
(4,996 |
) |
(2,062 |
) |
(6,519 |
) |
(8,433 |
) |
||||
Recoveries on loans previously charged-off |
|
1,154 |
|
794 |
|
1,595 |
|
1,579 |
|
||||
Balance, end of period |
|
$ |
20,218 |
|
$ |
29,307 |
|
$ |
20,218 |
|
$ |
29,307 |
|
Our additional disclosures relating to loans and the allowance for loan losses are broken out into two subsets, portfolio segment and class. The portfolio segment level is defined as the level where financing receivables are aggregated in developing the Companys systematic method for calculating its allowance for loan losses. The class level is the second level at which credit information is presented and represents the categorization of financing related receivables at a slightly less aggregated level than the portfolio segment level. Data presented according to class is dependent upon the underlying purpose of the loan, whereas loan data organized by portfolio segment is determined by the loans underlying collateral, and as a result, disclosures broken out by portfolio segment versus class may not be in agreement.
The following table provides detail for the ending balances in the Companys allowance for loan losses and loans held for investment, broken down by portfolio segment as of the dates indicated. In addition, the table also provides a rollforward by portfolio segment of our allowance for loan losses for the three and six months ended June 30, 2013 and for the three and six months ended June 30, 2012. The detail provided for the amount of our allowance for loan losses and loans individually versus collectively evaluated for impairment (i.e., the general component versus the specific component of the allowance for loan losses) corresponds to the Companys systematic methodology for estimating its allowance for loan losses.
|
|
Real Estate |
|
Consumer and
|
|
Commercial
|
|
Total |
|
||||
|
|
(In thousands) |
|
||||||||||
Allowance for Loan Losses |
|
|
|
|
|
|
|
|
|
||||
Balance as of December 31, 2012 |
|
$ |
19,550 |
|
$ |
76 |
|
$ |
5,516 |
|
$ |
25,142 |
|
Charge-offs |
|
(5,578 |
) |
(15 |
) |
(926 |
) |
(6,519 |
) |
||||
Recoveries |
|
1,465 |
|
18 |
|
112 |
|
1,595 |
|
||||
Provision (credit) |
|
1,658 |
|
57 |
|
(1,715 |
) |
|
|
||||
Balance as of June 30, 2013 |
|
$ |
17,095 |
|
$ |
136 |
|
$ |
2,987 |
|
$ |
20,218 |
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of March 31, 2013 |
|
$ |
19,663 |
|
$ |
208 |
|
$ |
4,189 |
|
$ |
24,060 |
|
Charge-offs |
|
(4,836 |
) |
(7 |
) |
(153 |
) |
(4,996 |
) |
||||
Recoveries |
|
1,093 |
|
(7 |
) |
68 |
|
1,154 |
|
||||
Provision (credit) |
|
1,175 |
|
(58 |
) |
(1,117 |
) |
|
|
||||
Balance as of June 30, 2013 |
|
$ |
17,095 |
|
$ |
136 |
|
$ |
2,987 |
|
$ |
20,218 |
|
|
|
|
|
|
|
|
|
|
|
||||
Balances at June 30, 2013: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Allowance for Loan Losses |
|
|
|
|
|
|
|
|
|
||||
Individually evaluated |
|
$ |
1,071 |
|
$ |
109 |
|
$ |
344 |
|
$ |
1,524 |
|
Collectively evaluated |
|
16,024 |
|
27 |
|
2,643 |
|
18,694 |
|
||||
Total |
|
$ |
17,095 |
|
$ |
136 |
|
$ |
2,987 |
|
$ |
20,218 |
|
|
|
|
|
|
|
|
|
|
|
||||
Loans |
|
|
|
|
|
|
|
|
|
||||
Individually evaluated |
|
$ |
21,382 |
|
$ |
224 |
|
$ |
583 |
|
$ |
22,189 |
|
Collectively evaluated |
|
985,776 |
|
4,271 |
|
228,319 |
|
1,218,366 |
|
||||
Total |
|
$ |
1,007,158 |
|
$ |
4,495 |
|
$ |
228,902 |
|
$ |
1,240,555 |
|
|
|
Real Estate |
|
Consumer and
|
|
Commercial
|
|
Total |
|
||||
|
|
(In thousands) |
|
||||||||||
Allowance for Loan Losses |
|
|
|
|
|
|
|
|
|
||||
Balance as of December 31, 2011 |
|
$ |
29,080 |
|
$ |
136 |
|
$ |
5,445 |
|
$ |
34,661 |
|
Charge-offs |
|
(2,646 |
) |
(55 |
) |
(5,732 |
) |
(8,433 |
) |
||||
Recoveries |
|
1,517 |
|
25 |
|
37 |
|
1,579 |
|
||||
Provision (credit) |
|
(4,404 |
) |
(14 |
) |
5,918 |
|
1,500 |
|
||||
Balance as of June 30, 2012 |
|
$ |
23,547 |
|
$ |
92 |
|
$ |
5,668 |
|
$ |
29,307 |
|
|
|
|
|
|
|
|
|
|
|
||||
Balance as of March 31, 2012 |
|
$ |
24,672 |
|
$ |
82 |
|
$ |
5,321 |
|
$ |
30,075 |
|
Charge-offs |
|
(591 |
) |
(31 |
) |
(1,440 |
) |
(2,062 |
) |
||||
Recoveries |
|
753 |
|
15 |
|
26 |
|
794 |
|
||||
Provision (credit) |
|
(1,287 |
) |
26 |
|
1,761 |
|
500 |
|
||||
Balance as of June 30, 2012 |
|
$ |
23,547 |
|
$ |
92 |
|
$ |
5,668 |
|
$ |
29,307 |
|
|
|
|
|
|
|
|
|
|
|
||||
Balances at June 30, 2012: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Allowance for Loan Losses |
|
|
|
|
|
|
|
|
|
||||
Individually evaluated |
|
$ |
1,739 |
|
$ |
|
|
$ |
120 |
|
$ |
1,859 |
|
Collectively evaluated |
|
21,808 |
|
92 |
|
5,548 |
|
27,448 |
|
||||
Total |
|
$ |
23,547 |
|
$ |
92 |
|
$ |
5,668 |
|
$ |
29,307 |
|
|
|
|
|
|
|
|
|
|
|
||||
Loans |
|
|
|
|
|
|
|
|
|
||||
Individually evaluated |
|
$ |
18,732 |
|
$ |
5 |
|
$ |
2,554 |
|
$ |
21,291 |
|
Collectively evaluated |
|
916,523 |
|
4,935 |
|
167,412 |
|
1,088,870 |
|
||||
Total |
|
$ |
935,255 |
|
$ |
4,940 |
|
$ |
169,966 |
|
$ |
1,110,161 |
|
|
|
|
|
|
|
|
|
|
|
||||
Balances at December 31, 2012: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Allowance for Loan Losses |
|
|
|
|
|
|
|
|
|
||||
Individually evaluated |
|
$ |
1,656 |
|
$ |
|
|
$ |
998 |
|
$ |
2,654 |
|
Collectively evaluated |
|
17,894 |
|
76 |
|
4,518 |
|
22,488 |
|
||||
Total |
|
$ |
19,550 |
|
$ |
76 |
|
$ |
5,516 |
|
$ |
25,142 |
|
|
|
|
|
|
|
|
|
|
|
||||
Loans |
|
|
|
|
|
|
|
|
|
||||
Individually evaluated |
|
$ |
16,223 |
|
$ |
6 |
|
$ |
1,525 |
|
$ |
17,754 |
|
Collectively evaluated |
|
953,429 |
|
4,419 |
|
183,147 |
|
1,140,995 |
|
||||
Total |
|
$ |
969,652 |
|
$ |
4,425 |
|
$ |
184,672 |
|
$ |
1,158,749 |
|
The following table provides additional detail of impaired loans broken out according to class as of the dates indicated. The recorded investment included in the following table represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. As nearly all of our impaired loans at June 30, 2013 and December 31, 2012 were on nonaccrual status, recorded investment excludes any insignificant amount of accrued interest receivable on loans 90-days or more past due and still accruing. The unpaid balance represents the recorded balance prior to any partial charge-offs. Interest income recognized year-to-date may exclude an insignificant amount of interest income on matured loans that are 90 days or more past due, but that are still accruing as they are in the process of being renewed.
June 30, 2013 |
|
Recorded
|
|
Unpaid
|
|
Related
|
|
Average
|
|
Interest
|
|
|||||
|
|
(In thousands) |
|
|||||||||||||
Impaired loans with no related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and residential real estate |
|
$ |
5,339 |
|
$ |
6,132 |
|
$ |
|
|
$ |
6,075 |
|
$ |
10 |
|
Construction |
|
10,812 |
|
10,938 |
|
|
|
3,604 |
|
|
|
|||||
Commercial |
|
239 |
|
311 |
|
|
|
345 |
|
|
|
|||||
Consumer |
|
340 |
|
596 |
|
|
|
406 |
|
|
|
|||||
Other |
|
927 |
|
1,262 |
|
|
|
869 |
|
|
|
|||||
Total |
|
$ |
17,657 |
|
$ |
19,239 |
|
$ |
|
|
$ |
11,299 |
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Impaired loans with a related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and residential real estate |
|
$ |
3,262 |
|
3,872 |
|
769 |
|
7,164 |
|
41 |
|
||||
Construction |
|
|
|
|
|
|
|
3,646 |
|
|
|
|||||
Commercial |
|
710 |
|
849 |
|
500 |
|
1,415 |
|
|
|
|||||
Consumer |
|
470 |
|
503 |
|
195 |
|
631 |
|
|
|
|||||
Other |
|
90 |
|
185 |
|
60 |
|
90 |
|
|
|
|||||
Total |
|
$ |
4,532 |
|
$ |
5,409 |
|
$ |
1,524 |
|
$ |
12,946 |
|
$ |
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and residential real estate |
|
$ |
8,601 |
|
10,004 |
|
769 |
|
13,239 |
|
51 |
|
||||
Construction |
|
10,812 |
|
10,938 |
|
|
|
7,250 |
|
|
|
|||||
Commercial |
|
949 |
|
1,160 |
|
500 |
|
1,760 |
|
|
|
|||||
Consumer |
|
810 |
|
1,099 |
|
195 |
|
1,037 |
|
|
|
|||||
Other |
|
1,017 |
|
1,447 |
|
60 |
|
959 |
|
|
|
|||||
Total impaired loans |
|
$ |
22,189 |
|
$ |
24,648 |
|
$ |
1,524 |
|
$ |
24,245 |
|
$ |
51 |
|
December 31, 2012 |
|
Recorded
|
|
Unpaid
|
|
Related
|
|
Average
|
|
Interest
|
|
|||||
|
|
(In thousands) |
|
|||||||||||||
Impaired loans with no related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and residential real estate |
|
$ |
7,897 |
|
$ |
8,352 |
|
$ |
|
|
$ |
7,983 |
|
$ |
188 |
|
Construction |
|
|
|
|
|
|
|
104 |
|
|
|
|||||
Commercial |
|
204 |
|
284 |
|
|
|
3,247 |
|
|
|
|||||
Consumer |
|
616 |
|
668 |
|
|
|
1,136 |
|
|
|
|||||
Other |
|
1,231 |
|
1,959 |
|
|
|
839 |
|
|
|
|||||
Total |
|
$ |
9,948 |
|
$ |
11,263 |
|
$ |
|
|
$ |
13,309 |
|
$ |
188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Impaired loans with a related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and residential real estate |
|
4,199 |
|
5,000 |
|
831 |
|
7,121 |
|
18 |
|
|||||
Construction |
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial |
|
2,801 |
|
4,279 |
|
1,531 |
|
2,218 |
|
|
|
|||||
Consumer |
|
716 |
|
978 |
|
232 |
|
545 |
|
|
|
|||||
Other |
|
90 |
|
185 |
|
60 |
|
513 |
|
|
|
|||||
Total |
|
$ |
7,806 |
|
$ |
10,442 |
|
$ |
2,654 |
|
$ |
10,397 |
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and residential real estate |
|
12,096 |
|
13,352 |
|
831 |
|
15,104 |
|
206 |
|
|||||
Construction |
|
|
|
|
|
|
|
104 |
|
|
|
|||||
Commercial |
|
3,005 |
|
4,563 |
|
1,531 |
|
5,465 |
|
|
|
|||||
Consumer |
|
1,332 |
|
1,646 |
|
232 |
|
1,681 |
|
|
|
|||||
Other |
|
1,321 |
|
2,144 |
|
60 |
|
1,352 |
|
|
|
|||||
Total impaired loans |
|
$ |
17,754 |
|
$ |
21,705 |
|
$ |
2,654 |
|
$ |
23,706 |
|
$ |
206 |
|
The gross year-to-date interest income that would have been recorded had the nonaccrual loans been current in accordance with their original terms was $682,000 for the six months ending June 30, 2013 and $736,000 for the six months ending June 30, 2012.
The following tables summarize by class our loans classified as past due in excess of 30 days or more in addition to those loans classified as non-accrual:
June 30, 2013 |
|
30-89
|
|
90 days +
|
|
Non-Accrual
|
|
Total
|
|
Total
|
|
|||||
|
|
(In thousands) |
|
|||||||||||||
Commercial and residential real estate |
|
$ |
3,762 |
|
$ |
|
|
$ |
5,926 |
|
$ |
9,688 |
|
$ |
786,563 |
|
Construction |
|
|
|
|
|
10,812 |
|
10,812 |
|
71,774 |
|
|||||
Commercial |
|
2,958 |
|
84 |
|
865 |
|
3,907 |
|
269,847 |
|
|||||
Consumer |
|
153 |
|
|
|
810 |
|
963 |
|
63,316 |
|
|||||
Other |
|
|
|
|
|
1,017 |
|
1,017 |
|
49,055 |
|
|||||
Total |
|
$ |
6,873 |
|
$ |
84 |
|
$ |
19,430 |
|
$ |
26,387 |
|
$ |
1,240,555 |
|
December 31, 2012 |
|
30-89
|
|
90 days +
|
|
Non-Accrual
|
|
Total
|
|
Total
|
|
|||||
|
|
(In thousands) |
|
|||||||||||||
Commercial and residential real estate |
|
$ |
832 |
|
$ |
224 |
|
$ |
8,034 |
|
$ |
9,090 |
|
$ |
736,524 |
|
Construction |
|
|
|
|
|
|
|
|
|
72,742 |
|
|||||
Commercial |
|
2,671 |
|
|
|
3,005 |
|
5,676 |
|
236,874 |
|
|||||
Consumer |
|
140 |
|
|
|
1,332 |
|
1,472 |
|
63,009 |
|
|||||
Other |
|
627 |
|
|
|
1,321 |
|
1,948 |
|
49,600 |
|
|||||
Total |
|
$ |
4,270 |
|
$ |
224 |
|
$ |
13,692 |
|
$ |
18,186 |
|
$ |
1,158,749 |
|
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company uses the following definitions for risk ratings, which are consistent with the definitions used in supervisory guidance:
Substandard . Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful . Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above are considered to be non-classified loans.
The following tables provide detail for the risk category of loans by class of loans based on the most recent credit analysis performed as of the dates indicated:
June 30, 2013 |
|
Commercial
|
|
Construction |
|
Commercial
|
|
Consumer |
|
Other |
|
Total |
|
||||||
|
|
(In thousands) |
|
||||||||||||||||
Non-classified |
|
$ |
774,272 |
|
$ |
61,021 |
|
$ |
268,321 |
|
$ |
61,348 |
|
$ |
46,490 |
|
$ |
1,211,452 |
|
Substandard |
|
12,938 |
|
10,812 |
|
1,748 |
|
2,020 |
|
2,605 |
|
30,123 |
|
||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Subtotal |
|
787,210 |
|
71,833 |
|
270,069 |
|
63,368 |
|
49,095 |
|
1,241,575 |
|
||||||
Less: Unearned loan fees |
|
(647 |
) |
(59 |
) |
(222 |
) |
(52 |
) |
(40 |
) |
(1,020 |
) |
||||||
Loans, net of unearned loan fees |
|
$ |
786,563 |
|
$ |
71,774 |
|
$ |
269,847 |
|
$ |
63,316 |
|
$ |
49,055 |
|
$ |
1,240,555 |
|
December 31, 2012 |
|
Commercial
|
|
Construction |
|
Commercial
|
|
Consumer |
|
Other |
|
Total |
|
||||||
|
|
(In thousands) |
|
||||||||||||||||
Non-classified |
|
$ |
709,281 |
|
$ |
72,842 |
|
$ |
232,751 |
|
$ |
60,517 |
|
$ |
46,720 |
|
$ |
1,122,111 |
|
Substandard |
|
28,256 |
|
|
|
4,448 |
|
2,578 |
|
2,947 |
|
38,229 |
|
||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Subtotal |
|
737,537 |
|
72,842 |
|
237,199 |
|
63,095 |
|
49,667 |
|
1,160,340 |
|
||||||
Less: Unearned loan fees |
|
(1,013 |
) |
(100 |
) |
(325 |
) |
(86 |
) |
(67 |
) |
(1,591 |
) |
||||||
Loans, net of unearned loan fees |
|
$ |
736,524 |
|
$ |
72,742 |
|
$ |
236,874 |
|
$ |
63,009 |
|
$ |
49,600 |
|
$ |
1,158,749 |
|
The book balance of troubled debt restructurings at June 30, 2013 and December 31, 2012 was $5,541,000 and $8,497,000, respectively. Approximately $605,000 and $1,551,000 in specific reserves have been established with respect to these loans as of June 30, 2013 and December 31, 2012. As of both June 30, 2013 and December 31,
2012, the Company had insignificant additional amounts committed on loans classified as troubled debt restructurings.
During the second quarter 2013, two loan modifications were made with respect to outstanding troubled debt restructurings. The modifications involved an interest rate reduction, a payment restructure, and no charge-offs to the allowance for loan losses.
During the six months ending June 30, 2013, three loan modifications were made, including the two modifications discussed above and a third which occurred in the first quarter 2013, which, involved debt forgiveness and a payment restructure. As a result of these modifications, the Bank recognized charge-offs of approximately $174,000.
The following tables present loans by class modified as troubled debt restructurings that occurred during the three and six months ended June 30, 2013 and June 30, 2012 (in thousands):
Three Months ended June 30, 2013: |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
Troubled Debt Restructurings |
|
Number of
|
|
Pre-Modification
|
|
Post-Modification
|
|
||
|
|
|
|
|
|
|
|
||
Commercial and residential real estate |
|
1 |
|
$ |
1,422 |
|
$ |
1,422 |
|
Construction |
|
|
|
|
|
|
|
||
Commercial |
|
1 |
|
184 |
|
184 |
|
||
Consumer |
|
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
|
||
Total |
|
2 |
|
$ |
1,606 |
|
$ |
1,606 |
|
Six Months ended June 30, 2013: |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
Troubled Debt Restructurings |
|
Number of
|
|
Pre-Modification
|
|
Post-Modification
|
|
||
|
|
|
|
|
|
|
|
||
Commercial and residential real estate |
|
2 |
|
$ |
2,472 |
|
$ |
2,298 |
|
Construction |
|
|
|
|
|
|
|
||
Commercial |
|
1 |
|
184 |
|
184 |
|
||
Consumer |
|
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
|
||
Total |
|
3 |
|
$ |
2,656 |
|
$ |
2,482 |
|
Three Months ended June 30, 2012: |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
Troubled Debt Restructurings |
|
Number of
|
|
Pre-Modification
|
|
Post-Modification
|
|
||
|
|
|
|
|
|
|
|
||
Commercial and residential real estate |
|
1 |
|
$ |
381 |
|
$ |
266 |
|
Construction |
|
|
|
|
|
|
|
||
Commercial |
|
1 |
|
2,144 |
|
1,034 |
|
||
Consumer |
|
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
|
||
Total |
|
2 |
|
$ |
2,525 |
|
$ |
1,300 |
|
Six Months ended June 30, 2012: |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
Troubled Debt Restructurings |
|
Number of
|
|
Pre-Modification
|
|
Post-Modification
|
|
||
|
|
|
|
|
|
|
|
||
Commercial and residential real estate |
|
6 |
|
$ |
5,782 |
|
$ |
4,566 |
|
Construction |
|
|
|
|
|
|
|
||
Commercial |
|
1 |
|
2,144 |
|
1,034 |
|
||
Consumer |
|
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
|
||
Total |
|
7 |
|
$ |
7,926 |
|
$ |
5,600 |
|
A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. A single default occurred on troubled debt restructurings during the six months ended June 30, 2013, and as a result, a $133,000 charge-off was taken on the loan. There were no defaults on troubled debt restructurings during the three months ended June 30, 2013.
(4) Other Real Estate Owned
Changes in the carrying amount of the Companys other real estate owned for June 30, 2013 and June 30, 2012 were as follows (in thousands):
Balance, January 1, 2012 |
|
$ |
29,027 |
|
Additions to OREO |
|
2,191 |
|
|
Dispositions of OREO |
|
(5,404 |
) |
|
Net loss on sale and valuation adjustments |
|
(1,174 |
) |
|
Balance, June 30, 2012 |
|
$ |
24,640 |
|
|
|
|
|
|
Balance, January 1, 2013 |
|
$ |
19,580 |
|
Additions to OREO |
|
2,930 |
|
|
Dispositions of OREO |
|
(16,350 |
) |
|
Net gain on sale and valuation adjustments |
|
300 |
|
|
Balance, June 30, 2013 |
|
$ |
6,460 |
|
Expenses related to foreclosed assets include:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
||||
|
|
(In thousands) |
|
||||||||||
Net (gain)/loss on sale and valuation adjustments |
|
$ |
(419 |
) |
$ |
997 |
|
$ |
(300 |
) |
$ |
1,174 |
|
Operating expenses, net of rental income |
|
162 |
|
(536 |
) |
377 |
|
(361 |
) |
||||
Total expenses related to foreclosed assets |
|
$ |
(257 |
) |
$ |
461 |
|
$ |
77 |
|
$ |
813 |
|
(5) Other Intangible Assets
Other intangible assets with finite lives are amortized over their respective estimated useful lives to their estimated residual values. As of June 30, 2013, the Company has intangible assets comprised of its core deposit intangible and customer relationship intangible.
The following table presents the gross amounts of core deposit intangible and customer relationship intangible assets and the related accumulated amortization at the dates indicated:
|
|
|
|
June 30, |
|
December 31, |
|
||
|
|
Useful life |
|
2013 |
|
2012 |
|
||
|
|
|
|
(In thousands) |
|
||||
Core deposit intangible assets |
|
7 - 15 years |
|
$ |
62,975 |
|
$ |
62,975 |
|
Core deposit intangible assets accumulated amortization |
|
|
|
(57,333 |
) |
(56,046 |
) |
||
Core deposit intangible assets, net |
|
|
|
$ |
5,642 |
|
$ |
6,929 |
|
|
|
|
|
|
|
|
|
||
Customer relationship intangible asset |
|
10 years |
|
2,524 |
|
2,524 |
|
||
Customer relationship intangible asset accumulated amortization |
|
|
|
(231 |
) |
(105 |
) |
||
Customer relationship intangible asset, net |
|
|
|
$ |
2,293 |
|
$ |
2,419 |
|
|
|
|
|
|
|
|
|
||
Total other intangible assets, net |
|
|
|
$ |
7,935 |
|
$ |
9,348 |
|
Following is the aggregate amortization expense recognized in each period:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
||||
|
|
(In thousands) |
|
||||||||||
Amortization expense |
|
$ |
706 |
|
$ |
761 |
|
$ |
1,413 |
|
$ |
1,523 |
|
(6) Borrowings
At June 30, 2013, our outstanding borrowings were $167,903,000 as compared to $110,163,000 at December 31, 2012. These borrowings at June 30, 2013 consisted of $110.2 million of term notes and $57.7 million of advances on our line of credit, both with the Federal Home Loan Bank (FHLB). At December 31, 2012, our outstanding borrowings consisted only of term borrowings with the FHLB.
The Bank has an advance, pledge and security agreement with the FHLB and has pledged qualifying loans and securities in the amount of $358,084,000 at June 30, 2013 and $316,996,000 at December 31, 2012. The maximum credit allowance for future borrowings, including term notes and advances on the line of credit, was $190,181,000 at June 30, 2013 and $206,833,000 at December 31, 2012.
The interest rate on the line of credit varies with the federal funds rate, and was 0.18% at June 30, 2013. The term notes have fixed interest rates that range from 2.52% to 4.43%, with a weighted average rate of 2.97%, and remaining maturities ranging from 4 to 5 5 months.
(7) Income Taxes
At June 30, 2013 and December 31, 2012, the Company had net deferred tax assets of $18,030,000 and $14,990,000, respectively. A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more likely-than-not that some portion of the entire deferred tax asset will not be realized. The ultimate realization of a deferred tax asset is dependent upon the generation of future taxable income during the periods in which the temporary differences responsible for the deferred tax asset become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making an assessment regarding the realizability of deferred tax assets. Based upon the historical levels of taxable income and projections of future taxable income over the periods in which existing deferred tax assets, including net operating loss carryforwards, are expected to become deductible, management determined that the realization of deferred tax asset was more likely-than-not and as a result, the Company has not recognized a valuation allowance. The Company recorded tax expense for the first six months of 2013 of $2,617,000. The amount of deferred tax assets considered realizable, however, could be reduced in a subsequent quarter if unexpected losses are realized or if estimates of future taxable income are reduced.
(8) Subordinated Debentures and Trust Preferred Securities
At June 30, 2013, our outstanding subordinated debentures were $25,774,000 compared to $41,239,000 at December 31, 2012. During the first quarter 2013, the Company redeemed the subordinated debentures issued by CenBank Trusts I and II. As a result of the early redemption of these instruments, the Company recognized an aggregate prepayment penalty of $629,000. Prior to their early redemption on March 7, 2013 and February 22, 2013, the CenBank Trusts I and II accrued interest at 10.60% and 10.20%, respectively.
The Companys remaining subordinated debentures are issued in two separate series. Each issuance has a maturity of thirty years from its date of issue. The subordinated debentures were issued to trusts established by us, which in turn issued $25,000,000 of trust preferred securities. Generally and with certain limitations, the Company is permitted to call the debentures subsequent to the first five or ten years, as applicable, after issue, if certain conditions are met, or at any time upon the occurrence and continuation of certain changes in either the tax treatment or the capital treatment of the trusts, the debentures or the preferred securities. The Guaranty Capital Trust III trust preferred issuance became callable at each quarterly interest payment date starting on July 7, 2008. The CenBank Trust III trust preferred issuance became callable at each quarterly interest payment date starting on April 15, 2009.
As of June 30, 2013, the Company was in compliance with all financial covenants of these remaining subordinated debentures.
At June 30, 2013 and December 31, 2012, the Company had accrued, unpaid interest of approximately $202,000 and $707,000, respectively, on its subordinated debentures, which is included in interest payable and other liabilities, on the consolidated balance sheets. Under the terms of each subordinated debentures agreement, the Company has the ability to defer interest on the debentures for a period of up to sixty months as long as it is in compliance with all covenants of the agreement. Such a deferral is not an event of default under each subordinated debentures agreement and interest on the debentures continues to accrue during the deferral period. No interest is being deferred at this time.
The Company is not considered the primary beneficiary of these trusts (variable interest entities), therefore the trusts are not consolidated in the Companys financial statements, but rather the subordinated debentures are shown as a liability. The Companys investment in the common stock of each trust is included in other assets in the Companys consolidated balance sheets.
Although the securities issued by each of the trusts are not included as a component of stockholders equity in the consolidated balance sheets, the securities are treated as capital for regulatory purposes. Specifically, under applicable regulatory guidelines, the $25,000,000 of trust preferred securities issued by the trusts qualify as Tier 1 capital, up to a maximum of 25% of capital on an aggregate basis. Any amount that exceeds 25% qualifies as Tier 2 capital. At June 30, 2013, the full $25,000,000 of the trusts preferred securities qualified as Tier 1 capital.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, certain trust preferred securities will no longer be eligible to be included as Tier 1 capital for regulatory purposes. However, an exception to this statutory prohibition applies to securities issued prior to May 19, 2010 by bank holding companies with less than $15 billion of total assets. As we have less than $15 billion in total assets and issued all of our trust preferred securities prior to May 19, 2010, our trust preferred securities will continue to be eligible to be treated as Tier 1 capital, subject to other rules and limitations.
The following table summarizes the terms of each outstanding subordinated debenture issuance at June 30, 2013 (dollars in thousands):
|
|
Date Issued |
|
Amount |
|
Maturity
|
|
Call Date * |
|
Fixed or
|
|
Rate
|
|
Current
|
|
Next Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CenBank Trust III |
|
4/8/2004 |
|
15,464 |
|
4/15/2034 |
|
10/15/2013 |
|
Variable |
|
LIBOR + 2.65 |
% |
2.93 |
% |
10/15/2013 |
|
Guaranty Capital Trust III |
|
6/30/2003 |
|
10,310 |
|
7/7/2033 |
|
10/7/2013 |
|
Variable |
|
LIBOR + 3.10 |
% |
3.38 |
% |
10/7/2013 |
|
* Call date represents the earliest or next date the Company can call the debentures
(9) Commitments
The Bank is a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, stand-by letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Banks exposure to credit loss is represented by the contractual amount of these commitments. The Bank follows the same credit policies in making commitments as it does for on-balance sheet instruments.
At the dates indicated, the following financial instruments were outstanding whose contract amounts represented credit risk:
|
|
June 30,
|
|
December 31,
|
|
||
|
|
(In thousands) |
|
||||
Commitments to extend credit: |
|
|
|
|
|
||
Variable |
|
$ |
277,509 |
|
$ |
268,703 |
|
Fixed |
|
43,994 |
|
52,176 |
|
||
Total commitments to extend credit |
|
$ |
321,503 |
|
$ |
320,879 |
|
|
|
|
|
|
|
||
Standby letters of credit |
|
$ |
11,261 |
|
$ |
14,315 |
|
At June 30, 2013, the rates on the fixed rate commitments to extend credit ranged from 2.36% to 7.00%.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Several of the commitments may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies used for loans are used to make such commitments, including obtaining collateral, if necessary, at exercise of the commitment.
Commitments to extend credit under overdraft protection agreements are commitments for possible future extensions of credit to existing deposit customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.
Stand-by letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments if deemed necessary.
(10) Fair Value Measurements and Fair Value of Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets.
Level 2 - Significant other observable inputs other than Level 1 prices such as quoted prices in markets that are not active, quoted prices for similar assets, or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset.
Level 3 Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participants would use in pricing an asset or liability.
A financial instruments level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers of financial instruments between levels within the fair value hierarchy are recognized on the date management determines that the underlying circumstances or assumptions have changed.
The fair values of securities available for sale are generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2 inputs). For securities where market values of similar securities are not available we utilize a discounted cash flow model or other model requiring unobservable inputs to estimate fair value (Level 3 inputs). We consider the valuation of the Level 3 bonds as being highly sensitive to changes in unobservable inputs.
Currently, the Company uses interest rate swaps to manage interest rate risk. The fair value of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2 inputs). The Company considers the value of the swap to be highly sensitive to fluctuations in interest rates.
Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value. Fair value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy. Collateral values are determined based on appraisals performed by qualified licensed appraisers hired by the Company and then further adjusted if warranted based on relevant facts and circumstances. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above. Because of the high degree of judgment required in estimating the fair value of collateral underlying impaired loans and because of the relationship between fair value and general economic conditions we consider the fair value of impaired loans to be highly sensitive to changes in market conditions.
Other real estate owned (OREO) is valued at the time the loan is foreclosed upon and the asset is transferred to other real estate owned. The value is based primarily on third party appraisals, less costs to sell. The appraised value may be further adjusted if warranted based on relevant facts and circumstances. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. OREO is reviewed and evaluated on at least an annual basis for additional impairment and adjusted accordingly, based on the same factors identified above. Because of the high degree of judgment required in estimating the fair value of OREO properties and because of the relationship between fair value and general economic conditions we consider the fair value of OREO to be highly sensitive to changes in market conditions.
Financial Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
Quoted Prices in
|
|
Significant
|
|
Significant
|
|
Balance |
|
||||
|
|
(In thousands) |
|
||||||||||
Assets/Liabilities at June 30, 2013 |
|
|
|
|
|
|
|
|
|
||||
State and municipal |
|
$ |
|
|
$ |
17,254 |
|
$ |
40,829 |
|
$ |
58,083 |
|
Mortgage-backed securities agency / residential |
|
|
|
279,619 |
|
|
|
279,619 |
|
||||
Mortgage-backed securities private / residential |
|
|
|
634 |
|
|
|
634 |
|
||||
Asset-backed securities |
|
|
|
23,665 |
|
|
|
23,665 |
|
||||
Marketable equity |
|
|
|
1,535 |
|
|
|
1,535 |
|
||||
Trust preferred |
|
|
|
34,197 |
|
|
|
34,197 |
|
||||
Corporate |
|
|
|
34,485 |
|
|
|
34,485 |
|
||||
Interest rate swaps - cash flow hedge |
|
|
|
341 |
|
|
|
341 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Assets/Liabilities at December 31, 2012 |
|
|
|
|
|
|
|
|
|
||||
State and municipal |
|
$ |
|
|
$ |
15,355 |
|
$ |
49,889 |
|
$ |
65,244 |
|
Mortgage-backed securities agency / residential |
|
|
|
264,283 |
|
|
|
264,283 |
|
||||
Mortgage-backed securities private / residential |
|
|
|
720 |
|
|
|
720 |
|
||||
Asset-backed securities |
|
|
|
20,511 |
|
|
|
20,511 |
|
||||
Marketable equity |
|
|
|
1,535 |
|
|
|
1,535 |
|
||||
Trust preferred |
|
|
|
32,840 |
|
|
|
32,840 |
|
||||
Corporate |
|
|
|
28,249 |
|
|
|
28,249 |
|
There were no transfers of financial assets and liabilities among Level 1, Level 2 and Level 3 during the six months ended June 30, 2013. As discussed in footnote (2) Securities, the single municipal security for which an OTTI was recognized during the fourth quarter of 2010 was foreclosed upon during the first quarter 2013 and is now included as a Level 3 OREO property.
The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2013 and June 30, 2012:
|
|
State and Municipal Securities |
|
||||
|
|
Three Months
|
|
Six Months
|
|
||
|
|
(In thousands) |
|
||||
Beginning Balance |
|
$ |
49,053 |
|
$ |
49,889 |
|
Total unrealized gains (losses) included in: |
|
|
|
|
|
||
Net income (loss) |
|
|
|
|
|
||
Other comprehensive income (loss) |
|
(724 |
) |
(746 |
) |
||
Purchases, sales, issuances and settlements, net |
|
(7,500 |
) |
(8,314 |
) |
||
Transfers in and (out) of Level 3 |
|
|
|
|
|
||
Balance end of period |
|
$ |
40,829 |
|
$ |
40,829 |
|
|
|
State and Municipal Securities |
|
||||
|
|
Three Months
|
|
Six Months
|
|
||
|
|
(In thousands) |
|
||||
Beginning Balance |
|
$ |
50,720 |
|
$ |
50,336 |
|
Total unrealized gains (losses) included in: |
|
|
|
|
|
||
Net income (loss) |
|
|
|
|
|
||
Other comprehensive income (loss) |
|
(371 |
) |
13 |
|
||
Purchases, sales, issuances and settlements, net |
|
(55 |
) |
(55 |
) |
||
Transfers in and (out) of Level 3 |
|
|
|
|
|
||
Balance end of period |
|
$ |
50,294 |
|
$ |
50,294 |
|
For the six months ended June 30, 2013 and June 30, 2012, the entire amount of other comprehensive income for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) consisted of changes in unrealized gains and losses on the mark to market of securities designated as available-for-sale.
The following tables present quantitative information about Level 3 fair value measurements on our state and municipal securities at June 30, 2013 and December 31, 2012:
June 30, 2013 |
|
|
Fair Value |
|
Valuation Technique |
|
Unobservable Inputs |
|
Range |
|
||
|
|
(In thousands) |
|
|||||||||
State and municipal securities |
|
$ |
39,792 |
|
discounted cash flow |
|
discount rate |
|
4%-5% |
|
||
State and municipal securities |
|
1,037 |
|
matrix pricing |
|
discount rate or yield |
|
N/A* |
|
|||
Total |
|
$ |
40,829 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
||
December 31, 2012 |
|
|
Fair Value |
|
Valuation Technique |
|
Unobservable Inputs |
|
Range |
|
||
|
|
(In thousands) |
|
|||||||||
State and municipal securities |
|
$ |
48,025 |
|
discounted cash flow |
|
discount rate |
|
4%-5% |
|
||
State and municipal securities |
|
814 |
|
appraisal |
|
adjustment to comparable sales |
|
29% |
|
|||
State and municipal securities |
|
1,050 |
|
matrix pricing |
|
discount rate or yield |
|
N/A* |
|
|||
Total |
|
$ |
49,889 |
|
|
|
|
|
|
|
||
* The Company relies on a third-party pricing service to value non-rated municipal securities. Because of the lack of credit ratings, we consider the relationship between rates on these securities and benchmarks rates to be unobservable. The unobservable adjustments used by the third-party pricing service were not readily available.
Financial Assets and Liabilities Measured on a Nonrecurring Basis
The following represent impaired loans measured at fair value on a non-recurring basis as of June 30, 2013 and December 31, 2012. The valuation methodology used to measure the fair value of these loans is described earlier in this Note.
June 30, 2013 |
|
Quoted Prices in
|
|
Significant
|
|
Significant
|
|
Balance |
|
||||
|
|
(In thousands) |
|
||||||||||
Impaired loans: |
|
|
|
|
|
|
|
|
|
||||
Commercial and residential real estate |
|
$ |
|
|
$ |
|
|
$ |
2,729 |
|
$ |
2,729 |
|
Commercial |
|
|
|
|
|
211 |
|
211 |
|
||||
Consumer |
|
|
|
|
|
510 |
|
510 |
|
||||
Other |
|
|
|
|
|
254 |
|
254 |
|
||||
Total impaired loans |
|
$ |
|
|
$ |
|
|
$ |
3,704 |
|
$ |
3,704 |
|
December 31, 2012 |
|
Quoted Prices in
|
|
Significant
|
|
Significant
|
|
Balance |
|
||||
|
|
(In thousands) |
|
||||||||||
Impaired loans: |
|
|
|
|
|
|
|
|
|
||||
Commercial and residential real estate |
|
$ |
|
|
$ |
|
|
$ |
7,467 |
|
$ |
7,467 |
|
Commercial |
|
|
|
|
|
1,270 |
|
1,270 |
|
||||
Consumer |
|
|
|
|
|
484 |
|
484 |
|
||||
Other |
|
|
|
|
|
1,152 |
|
1,152 |
|
||||
Total impaired loans |
|
$ |
|
|
$ |
|
|
$ |
10,373 |
|
$ |
10,373 |
|
Impaired loans, which are generally measured for impairment using the fair value of collateral, had a carrying amount of $22,189,000 at June 30, 2013, after partial charge-off of $1, 175,000 . In addition, these loans have a specific valuation allowance of $1,524,000 at June 30, 2013. These specific reserves generally represent the deficiency between the net realizable value of the underlying collateral and the amount of our recorded investment. Of the $22,189,000 impaired loan portfolio at June 30, 2013, $5,228,000 were carried at fair value as a result of the aforementioned charge-offs and specific valuation allowances. The remaining $16,961,000 of impaired loans were carried at cost at June 30, 2013, as the fair value of the collateral on these loans exceeded the book value for each individual credit. During the six months ended June 30, 2013, charge-offs and changes in specific valuation allowances on impaired loans carried at fair value resulted in an additional specific provision for loan losses of $3,794,000.
Impaired loans had a carrying amount of $17,754,000 at December 31, 2012, after a partial charge-off of $3,951,000. In addition, these loans had a specific valuation allowance of $2,654,000 at December 31, 2012. Of the $17,754,000 impaired loan portfolio at December 31, 2012, $13,027,000 were carried at fair value as a result of the aforementioned charge-offs and specific valuation allowances. The remaining $4,727,000 of impaired loans were carried at cost at December 31, 2012, as the fair value of the collateral on these loans exceeded the book value for each individual credit.
Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.
The following tables present quantitative information about Level 3 fair value measurements for impaired loans measured at fair value on a non-recurring basis as of June 30, 2013 and December 31, 2012.
June 30, 2013 |
|
Fair Value |
|
Valuation Technique |
|
Unobservable Inputs |
|
Range |
|
|
|
|
(In thousands) |
|
|||||||
Impaired loans: |
|
|
|
|
|
|
|
|
|
|
Commercial and residential real estate |
|
$ |
2,729 |
|
sales comparison |
|
adjustment to comparable sales |
|
8% - 20% |
|
|
|
|
|
discounted cash flow |
|
discount rate |
|
1%-2% |
|
|
Commercial |
|
211 |
|
discounted cash flow |
|
discount rate |
|
5% - 6% |
|
|
Consumer |
|
510 |
|
sales comparison |
|
adjustment to comparable sales |
|
10% - 20% |
|
|
Other |
|
254 |
|
sales comparison |
|
adjustment to comparable sales |
|
5% -10% |
|
|
Total impaired loans |
|
$ |
3,704 |
|
|
|
|
|
|
|
* The Company evaluates offers made by buyers for our impaired loans based on the economic facts and circumstances impacting each loan. Because purchase offers are not always based on observable market data it is not always feasible to disclose an adjustment from observable market data to the recorded fair value of these loans.
December 31, 2012 |
|
Fair Value |
|
Valuation Technique |
|
Unobservable Inputs |
|
Range |
|
|
|
|
(In thousands) |
|
|||||||
Impaired loans: |
|
|
|
|
|
|
|
|
|
|
Commercial and residential real estate |
|
$ |
7,467 |
|
income approach |
|
capitalization rate |
|
8% - 10% |
|
|
|
|
|
sales comparison |
|
adjustment to comparable sales |
|
8% - 25% |
|
|
Commercial |
|
1,270 |
|
discounted cash flow |
|
discount rate |
|
10% |
|
|
Consumer |
|
484 |
|
sales comparison |
|
adjustment to comparable sales |
|
19% - 26% |
|
|
Other |
|
1,152 |
|
sales comparison |
|
adjustment to comparable sales |
|
5% - 25% |
|
|
|
|
|
|
income approach |
|
capitalization rate |
|
10% |
|
|
Total impaired loans |
|
$ |
10,373 |
|
|
|
|
|
|
|
Nonfinancial Assets and Liabilities Measured on a Nonrecurring Basis
Nonfinancial assets and liabilities measured at fair value on a nonrecurring basis are summarized below:
|
|
Quoted Prices in
|
|
Significant
|
|
Significant
|
|
Balance |
|
||||
|
|
(In thousands) |
|
||||||||||
June 30, 2013 |
|
|
|
|
|
|
|
|
|
||||
Other real estate owned and foreclosed assets: |
|
|
|
|
|
|
|
|
|
||||
Commercial real estate |
|
$ |
|
|
$ |
|
|
$ |
2,612 |
|
$ |
2,612 |
|
Land |
|
|
|
|
|
3,848 |
|
3,848 |
|
||||
Total other real estate owned and foreclosed assets |
|
$ |
|
|
$ |
|
|
$ |
6,460 |
|
$ |
6,460 |
|
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2012 |
|
|
|
|
|
|
|
|
|
||||
Other real estate owned and foreclosed assets: |
|
|
|
|
|
|
|
|
|
||||
Commercial real estate |
|
$ |
|
|
$ |
|
|
$ |
15,507 |
|
$ |
15,507 |
|
Land |
|
|
|
|
|
4,073 |
|
4,073 |
|
||||
Total other real estate owned and foreclosed assets |
|
$ |
|
|
$ |
|
|
$ |
19,580 |
|
$ |
19,580 |
|
Other real estate owned had a carrying amount of $6,460,000 at June 30, 2013, which is made up of an outstanding balance of $15,558,000, with a valuation allowance of $9,098,000. OREO write-downs and sales resulted in the valuation allowance decreasing by $838,000 in the second quarter 2013.
Other real estate owned had a carrying amount of $19,580,000 at December 31, 2012, which was made up of an outstanding balance of $36,012,000, with a valuation allowance of $16,432,000.
The following table presents quantitative information about Level 3 fair value measurements for other real estate owned measured at fair value on a non-recurring basis as of June 30, 2013.
June 30, 2013 |
|
Fair Value |
|
Valuation Technique |
|
Unobservable Inputs |
|
Range |
|
|
|
|
(In thousands) |
|
|||||||
Other real estate owned and foreclosed assets: |
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
2,612 |
|
income approach |
|
capitalization rate |
|
8% - 12% |
|
|
|
|
|
contract negotiations |
|
buyers offer |
|
N/A |
|
|
Land |
|
3,848 |
|
sales comparison |
|
adjustment to comparable sales |
|
18% - 55% |
|
|
Total other real estate owned and foreclosed assets |
|
$ |
6,460 |
|
|
|
|
|
|
|
December 31, 2012 |
|
Fair Value |
|
Valuation Technique |
|
Unobservable Inputs |
|
Range |
|
|
|
|
(In thousands) |
|
|||||||
Other real estate owned and foreclosed assets: |
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
15,507 |
|
income approach |
|
capitalization rate |
|
6% - 11% |
|
|
|
|
|
contract negotiations |
|
adjustment to appraised value |
|
34% |
|
|
Land |
|
4,073 |
|
sales comparison |
|
adjustment to comparable sales |
|
18% - 55% |
|
|
Total other real estate owned and foreclosed assets |
|
$ |
19,580 |
|
|
|
|
|
|
|
Fair Value of Financial Instruments
The estimated fair values, and related carrying amounts, of the Companys financial instruments are as follows:
|
|
Fair Value Measurements at June 30, 2013: |
|
|||||||||||||
|
|
Carrying
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|||||
|
|
(In thousands) |
|
|||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
30,613 |
|
$ |
30,613 |
|
$ |
|
|
$ |
|
|
$ |
30,613 |
|
Time deposits with banks |
|
5,000 |
|
5,000 |
|
|
|
|
|
5,000 |
|
|||||
Securities available for sale |
|
432,218 |
|
|
|
391,389 |
|
40,829 |
|
432,218 |
|
|||||
Securities held to maturity |
|
34,772 |
|
|
|
33,657 |
|
|
|
33,657 |
|
|||||
Bank stocks |
|
17,981 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
|||||
Loans, net |
|
1,220,337 |
|
|
|
|
|
1,246,913 |
|
1,246,913 |
|
|||||
Accrued interest receivable |
|
5,284 |
|
|
|
5,284 |
|
|
|
5,284 |
|
|||||
Interest rate swap - cash flow hedge |
|
341 |
|
|
|
341 |
|
|
|
341 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
$ |
1,449,251 |
|
$ |
|
|
$ |
1,447,709 |
|
$ |
|
|
$ |
1,447,709 |
|
Federal funds purchased and sold under agreements to repurchase |
|
24,894 |
|
|
|
24,894 |
|
|
|
24,894 |
|
|||||
Subordinated debentures |
|
25,774 |
|
|
|
|
|
18,432 |
|
18,432 |
|
|||||
Long-term borrowings |
|
167,903 |
|
|
|
175,970 |
|
|
|
175,970 |
|
|||||
Accrued interest payable |
|
594 |
|
|
|
594 |
|
|
|
594 |
|
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Companys various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
Certain financial instruments and all nonfinancial instruments are excluded from the disclosure requirements. Therefore, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
(a) Cash and Cash Equivalents and Time Deposits with Banks
The carrying amounts of cash and short-term instruments approximate fair values (Level 1).
(b) Securities and Bank Stocks
Fair values for securities available for sale and held to maturity are generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2). For positions that are not traded in active markets or are subject to transfer restrictions (i.e., bonds valued with Level 3 inputs), management uses a combination of reviews of the underlying financial statements, appraisals and managements judgment regarding credit quality and intent to sell in order to determine the value of the bond.
It is not practical to determine the fair value of bank stocks due to restrictions placed on the transferability of FHLB stock, Federal Reserve Bank stock and Bankers Bank of the West stock. These three stocks comprise the majority of the balance of bank stocks .
(c) Loans
For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values (Level 3). Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial loans) are estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit quality (Level 3). Impaired loans are valued at the lower of cost or fair value as described above in this note. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
(d) Deposits
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) (Level 2). The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date (Level 2). Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits (Level 2).
(e) Short-term Borrowings
The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values (Level 2).
(f) Long-term Borrowings
The fair values of the Companys long-term borrowings are estimated using discounted cash flow analyses based on the Companys current incremental borrowing rates for similar types of borrowing arrangements (Level 2).
(g) Subordinated Debentures
The fair values of the Companys Subordinated Debentures are estimated using discounted cash flow analyses based on the Companys current incremental borrowing rates for similar types of borrowing arrangements (Level 3).
(h) Accrued Interest Receivable/Payable
The carrying amounts of accrued interest approximate fair value (Level 2).
(i) Interest Rate Swaps, net
The fair value of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2).
Off-balance Sheet Instruments
Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing. The fair value of commitments is not material.
(11) Derivatives and Hedging Activities
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company utilizes derivative financial instruments to assist in the management of interest rate risk, primarily helping to secure long term borrowing rates. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment or receipt of future known and uncertain cash amounts, the value of which are determined by interest rates. The Companys derivative financial instruments are used to manage differences in the amount, timing, and duration of the Companys known or expected cash payments or receipts principally related to certain variable-rate borrowings. The Company does not use derivatives for trading or speculative purposes.
The table below presents the fair value of the Companys derivative financial instruments as well as their classification on the Balance Sheet as of June 30, 2013 and December 31, 2012.
|
|
Balance |
|
Fair Value |
|
||||
|
|
Sheet
|
|
June 30,
|
|
December 31,
|
|
||
|
|
(In thousands) |
|
||||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
||
Assets: |
|
|
|
|
|
|
|
||
Interest Rate Swaps |
|
Other Assets |
|
$ |
341,000 |
|
$ |
|
|
Liabilities: |
|
|
|
|
|
|
|
||
Interest Rate Swaps |
|
Other Liabilities |
|
$ |
|
|
$ |
|
|
The Companys objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. For hedges of the Companys variable-rate borrowings, interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments. As of June 30, 2013, the Company had one interest rate swap with a notional amount of $25,000,000 that was designated as cash flow hedge associated with the Companys forecasted variable-rate borrowings. The swap is forward-starting and is not effective until June 2015.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (AOCI) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Companys cash flow hedges are used to hedge the forecasted variable cash outflows associated with forecasted issuances of FHLB Advances. During the three months ended June 30, 2013, the income statement effect of hedge ineffectiveness was immaterial.
Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Companys variable-rate liabilities. During the next twelve months, no amounts will be reclassified as an adjustment to interest expense related to interest rate swaps as the related borrowings which correspond to the hedge are anticipated to be entered into during June of 2015.
The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The impact of these customer interest rate swaps on the companys financial statements was insignificant for all periods covered by this report.
The table below presents the effect of the Companys derivative financial instruments on both comprehensive income and net income for the three and six months ended June 30, 2013 and 2012.
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
Interest Rate Swaps with |
|
Income Statement |
|
June 30, |
|
June 30, |
|
||||||||
Hedge Designation |
|
Location |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
||||
|
|
|
|
(In thousands) |
|
||||||||||
Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) |
|
Not Applicable |
|
$ |
438,000 |
|
$ |
|
|
$ |
438,000 |
|
$ |
|
|
Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |
|
Interest Expense |
|
|
|
|
|
|
|
|
|
||||
The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.
The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted $1,092,000 against its obligations under these agreements. If the Company had breached any of these provisions at June 30, 2013, it could have been required to settle its obligations under the agreements at the termination value.
(12) Stock-Based Compensation
Under the Companys Amended and Restated 2005 Stock Incentive Plan (the Incentive Plan), the Companys Board of Directors may grant stock-based compensation awards to nonemployee directors, key employees, consultants and prospective employees under the terms described in the Incentive Plan. The allowable stock-based compensation awards include the grant of Options, Restricted Stock Awards, Restricted Stock Unit Awards, Performance Stock Awards, Stock Appreciation Rights and other Equity-Based Awards. The Incentive Plan provides that eligible participants may be granted shares of Company common stock that are subject to forfeiture until the grantee vests in the stock award based on the established conditions, which may include service conditions, established performance measures or both.
Prior to vesting of the stock awards with a service vesting condition, each grantee has the rights of a stockholder with respect to voting of the granted stock. The recipient is not entitled to dividend rights with respect to the shares of granted stock until vesting occurs. Prior to vesting of the stock awards with performance vesting conditions, each grantee has the rights of a stockholder with respect to voting of the granted stock. The recipient is generally not entitled to dividend rights with respect to unvested shares. Other than the stock awards with service and performance based vesting conditions, no other grants have been made under the Incentive Plan.
The Incentive Plan authorizes grants of stock-based compensation awards of up to 1,700,000 shares of Company voting common stock, subject to adjustments provided by the Incentive Plan. As of June 30, 2013 and December 31, 2012, there were 520,682 and 339,359 shares of unvested stock granted (net of forfeitures), with 857,590 and 1,087,087 shares available for grant under the Incentive Plan, respectively.
Of the 520,682 unvested shares at June 30, 2013, approximately 417,000 shares are expected to vest. At June 30, 2013, there were 2 20,454 shares of restricted stock outstanding with a performance condition. We expect that 1 45,635 of these 220,454 shares will vest and that the remaining shares will expire unvested. The performance shares that are expected to vest relate to shares granted to various key employees. The grant dates of these shares range from February 2011 through February 2013. These performance shares are contingent upon the meeting of certain return on asset and income-related performance measures. The specific number of performance-based shares expected to vest (those that are subject to return on asset and, in some cases, net income performance measures) is determined by actual performance in consideration of the established range of the performance target. Management expects that the targeted performance goals will be met with respect to these performance-based shares, which is consistent with the level of expense currently being recognized over the vesting period. Should this expectation change, additional compensation expense could be recorded in future periods or previously recognized expense could be reversed.
A summary of the status of unearned stock awards and the change during the period is presented in the table below:
|
|
Shares |
|
Weighted Average Fair
|
|
|
Unearned at January 1, 2013 |
|
339,359 |
|
$ |
7.40 |
|
Awarded |
|
235,099 |
|
10.14 |
|
|
Forfeited |
|
(5,520 |
) |
8.99 |
|
|
Vested |
|
(48,256 |
) |
7.86 |
|
|
Unearned at June 30, 2013 |
|
520,682 |
|
$ |
8.57 |
|
The Company recognized $697,000 and $360,000 in stock-based compensation expense for services rendered for the six months ended June 30, 2013 and June 30, 2012, respectively. The total income tax effect recognized on the consolidated balance sheet for share-based compensation arrangements was a $265,000 expense for the six
months ended June 30, 2013. At June 30, 2013, compensation cost of $2,807,000 related to nonvested awards not yet recognized is expected to be recognized over a weighted-average period of 1.8 years. The fair value of awards that vested in the six months ended June 30, 2013 was approximately $494,000.
(13) Capital Ratios
The following table provides the capital ratios of the Company and Bank as of the dates presented, along with the applicable regulatory capital requirements:
|
|
Ratio at
|
|
Ratio at
|
|
Minimum
|
|
Minimum
|
|
Total Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
Consolidated |
|
14.96 |
% |
16.27 |
% |
8.00 |
% |
N/A |
|
Guaranty Bank and Trust Company |
|
14.37 |
% |
15.52 |
% |
8.00 |
% |
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
Tier 1 Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
Consolidated |
|
13.71 |
% |
15.02 |
% |
4.00 |
% |
N/A |
|
Guaranty Bank and Trust Company |
|
13.12 |
% |
14.26 |
% |
4.00 |
% |
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
Leverage Ratio |
|
|
|
|
|
|
|
|
|
Consolidated |
|
11.46 |
% |
11.93 |
% |
4.00 |
% |
N/A |
|
Guaranty Bank and Trust Company |
|
10.97 |
% |
11.35 |
% |
4.00 |
% |
5.00 |
% |
(14) Total Comprehensive Income
The following tables present the components of other comprehensive income (loss) and total comprehensive income for the periods presented:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
||||
|
|
(In thousands) |
|
||||||||||
Net income |
|
$ |
3,818 |
|
$ |
6,192 |
|
$ |
6,090 |
|
$ |
9,109 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
||||
Change in net unrealized gains (losses) on investment securities |
|
(13,080 |
) |
(539 |
) |
(15,021 |
) |
400 |
|
||||
Less: Reclassification adjustments for net losses (gains) included in net income |
|
(54 |
) |
(342 |
) |
(54 |
) |
(964 |
) |
||||
Change in net unrealized gains (losses) on derivative instruments |
|
438 |
|
|
|
438 |
|
|
|
||||
Less: Reclassification adjustments for hedge ineffectiveness included in net income |
|
(1 |
) |
|
|
(1 |
) |
|
|
||||
Net unrealized holding gains (losses) |
|
(12,697 |
) |
(881 |
) |
(14,638 |
) |
(564 |
) |
||||
Income tax benefit (expense) |
|
4,826 |
|
335 |
|
5,563 |
|
214 |
|
||||
Other comprehensive income (loss) |
|
(7,871 |
) |
(546 |
) |
(9,075 |
) |
(350 |
) |
||||
Total comprehensive income (loss) |
|
$ |
(4,053 |
) |
$ |
5,646 |
|
$ |
(2,985 |
) |
$ |
8,759 |
|
The tax effect for the amounts reclassified out of accumulated other comprehensive income (loss) are reflected in the income tax expense (benefit) line item on the income statement.
|
|
Three Months Ended June 30, 2013 |
|
Three Months Ended June 30, 2012 |
|
||||||||||||||
|
|
Pre-Tax
|
|
Tax Effect |
|
Net-of-Tax
|
|
Pre-Tax
|
|
Tax Effect |
|
Net-of-Tax
|
|
||||||
|
|
(In thousands) |
|
||||||||||||||||
Unrealized gains and losses on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in net unrealized gains (losses), net |
|
$ |
(13,080 |
) |
$ |
4,972 |
|
$ |
(8,108 |
) |
$ |
(539 |
) |
$ |
205 |
|
$ |
(334 |
) |
Less: Reclassification adjustments for net losses (gains) included in net income |
|
(54 |
) |
21 |
|
(33 |
) |
(342 |
) |
130 |
|
(212 |
) |
||||||
Unrealized gains and losses on derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in net unrealized gains (losses), net |
|
438 |
|
(167 |
) |
271 |
|
|
|
|
|
|
|
||||||
Less: Reclassification adjustments for hedge ineffectiveness included in net income |
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
||||||
Other comprehensive income (loss) |
|
$ |
(12,697 |
) |
$ |
4,826 |
|
$ |
(7,871 |
) |
$ |
(881 |
) |
$ |
335 |
|
$ |
(546 |
) |
|
|
Six Months Ended June 30, 2013 |
|
Six Months Ended June 30, 2012 |
|
||||||||||||||
|
|
Pre-Tax
|
|
Tax Effect |
|
Net-of-Tax
|
|
Pre-Tax
|
|
Tax Effect |
|
Net-of-Tax
|
|
||||||
|
|
(In thousands) |
|
||||||||||||||||
Unrealized gains and losses on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in net unrealized gains (losses), net |
|
$ |
(15,021 |
) |
$ |
5,709 |
|
$ |
(9,312 |
) |
$ |
400 |
|
$ |
(152 |
) |
$ |
248 |
|
Less: Reclassification adjustments for net losses (gains) included in net income |
|
(54 |
) |
21 |
|
(33 |
) |
(964 |
) |
366 |
|
(598 |
) |
||||||
Unrealized gains and losses on derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in net unrealized gains (losses), net |
|
438 |
|
(167 |
) |
271 |
|
|
|
|
|
|
|
||||||
Less: Reclassification adjustments for hedge ineffectiveness included in net income |
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
||||||
Other comprehensive income (loss) |
|
$ |
(14,638 |
) |
$ |
5,563 |
|
$ |
(9,075 |
) |
$ |
(564 |
) |
$ |
214 |
|
$ |
(350 |
) |
(15) Legal Contingencies
In the ordinary course of our business, we are party to legal actions at various points of the legal process, including appeals. Although the ultimate outcome and amount of liability, if any, including associated costs to defend, of these legal actions cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, and discussions with our legal counsel, it is not probable that the outcome of current legal actions will result in a material liability. In the event that such legal action results in an unfavorable outcome, the resulting liability could have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows.
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This MD&A should be read together with our unaudited Condensed Consolidated Financial Statements and unaudited Statistical Information included elsewhere in this Report, Part II, Item 1A of this Report, and Items 1, 1A, 7, 7A and 8 of our 2012 Annual Report on Form 10-K. Also, please see the disclosure in the Forward-Looking Statements and Factors That Could Affect Future Results section in this Report for certain other factors that could cause actual results or future events to differ materially from those anticipated in the forward-looking statements included in this Report or from historical performance.
Overview
Guaranty Bancorp is a bank holding company with its principal business to serve as a holding company to its Colorado-based bank subsidiary, Guaranty Bank and Trust Company. The Bank owns several single-member limited liability companies that hold real estate as well as an investment advisory firm, Private Capital Management LLC. Unless the context requires otherwise, the terms Company, us, we, and our refer to Guaranty Bancorp on a consolidated basis. References to the Bank refer to Guaranty Bank and Trust Company, our bank subsidiary.
Through the Bank, we provide banking and other financial services throughout our targeted Colorado markets to consumers and primarily small and medium-sized businesses, including the owners and employees of those businesses. These banking products and services include accepting time and demand deposits, originating commercial loans (including energy loans), real estate loans (including construction loans), Small Business Administration guaranteed loans, and consumer loans. The Bank and its subsidiary, Private Capital Management LLC (PCM), also provide wealth management services, including private banking, investment management, jumbo mortgage loans and trust services. We derive our income primarily from interest (including loan origination fees) received on loans and, to a lesser extent, interest on investment securities and other fees received in connection with servicing loan and deposit accounts, personal trust and investment management services. Our major operating expenses include interest we pay on deposits and borrowings and general operating expenses. We rely primarily on locally generated deposits to provide us with funds for making loans.
In addition to building growth through our existing branches, we seek opportunities to acquire small to medium-sized banks or specialty finance companies that will allow us to expand our franchise in a manner consistent with our community-banking focus. Ideally, the financial institutions we seek to acquire will be in or contiguous to the existing footprint of the current branch network of our Bank, which would allow us to consolidate duplicative costs and administrative functions and to rationalize operating expenses. We believe that by streamlining the administrative and operational functions of an acquired financial institution, we are able to substantially lower operating costs, improve performance and quickly integrate the acquired financial institution while maintaining the stability of our franchise as well as that of the financial institution we acquire. We also seek opportunities which will allow us to further diversify our noninterest income base, including adding to our wealth management platform.
We are subject to competition from other financial institutions and our operating results, like those of other financial institutions operating exclusively or primarily in Colorado, are significantly influenced by economic conditions in Colorado, including the strength of the real estate market. In addition, both the fiscal and regulatory policies of the federal government and regulatory authorities that govern financial institutions and market interest rates impact our financial condition, results of operations and cash flows.
Earnings Summary
The following table summarizes certain key financial results for the periods indicated:
Table 1
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||||||||
|
|
|
|
|
|
Change |
|
|
|
|
|
Change |
|
||||||
|
|
|
|
|
|
Favorable |
|
|
|
|
|
Favorable |
|
||||||
|
|
2013 |
|
2012 |
|
(Unfavorable) |
|
2013 |
|
2012 |
|
(Unfavorable) |
|
||||||
|
|
(In thousands, except share data and ratios) |
|
||||||||||||||||
Results of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest income |
|
$ |
17,449 |
|
$ |
17,706 |
|
$ |
(257 |
) |
$ |
34,779 |
|
$ |
35,398 |
|
$ |
(619 |
) |
Interest expense |
|
1,710 |
|
2,323 |
|
613 |
|
3,662 |
|
4,715 |
|
1,053 |
|
||||||
Net interest income |
|
15,739 |
|
15,383 |
|
356 |
|
31,117 |
|
30,683 |
|
434 |
|
||||||
Provision for loan losses |
|
|
|
500 |
|
500 |
|
|
|
1,500 |
|
1,500 |
|
||||||
Net interest income after provision for loan losses |
|
15,739 |
|
14,883 |
|
856 |
|
31,117 |
|
29,183 |
|
1,934 |
|
||||||
Noninterest income |
|
3,711 |
|
2,911 |
|
800 |
|
6,661 |
|
6,010 |
|
651 |
|
||||||
Noninterest expense |
|
13,879 |
|
17,516 |
|
3,637 |
|
29,071 |
|
31,998 |
|
2,927 |
|
||||||
Income before income taxes |
|
5,571 |
|
278 |
|
5,293 |
|
8,707 |
|
3,195 |
|
5,512 |
|
||||||
Income tax expense |
|
1,753 |
|
(5,914 |
) |
(7,667 |
) |
2,617 |
|
(5,914 |
) |
(8,531 |
) |
||||||
Net income |
|
$ |
3,818 |
|
$ |
6,192 |
|
$ |
(2,374 |
) |
$ |
6,090 |
|
$ |
9,109 |
|
$ |
(3,019 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Common Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic earnings per common share |
|
$ |
0.18 |
|
$ |
0.30 |
|
$ |
(0.12 |
) |
$ |
0.29 |
|
$ |
0.44 |
|
$ |
(0.15 |
) |
Diluted earnings per common share |
|
$ |
0.18 |
|
$ |
0.30 |
|
$ |
(0.12 |
) |
$ |
0.29 |
|
$ |
0.44 |
|
$ |
(0.15 |
) |
Average common shares outstanding |
|
20,860,228 |
|
20,782,861 |
|
77,367 |
|
20,854,858 |
|
20,780,713 |
|
74,145 |
|
||||||
Diluted average common shares outstanding |
|
20,941,486 |
|
20,847,792 |
|
93,694 |
|
20,934,521 |
|
20,857,264 |
|
77,257 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Average equity to average assets |
|
10.33 |
% |
10.31 |
% |
0.2 |
% |
10.35 |
% |
10.34 |
% |
0.1 |
% |
||||||
Return on average equity |
|
8.02 |
% |
14.15 |
% |
(43.3 |
)% |
6.47 |
% |
10.50 |
% |
(38.4 |
)% |
||||||
Return on average assets |
|
0.83 |
% |
1.46 |
% |
(43.2 |
)% |
0.67 |
% |
1.09 |
% |
(38.5 |
)% |
||||||
Dividend payout ratio |
|
13.67 |
% |
N/A |
|
13.7 |
% |
8.57 |
% |
N/A |
|
8.6 |
% |
|
|
June 30, |
|
June 30, |
|
Percent |
|
|
|
2013 |
|
2012 |
|
Change |
|
Selected Balance Sheet Ratios: |
|
|
|
|
|
|
|
Total risk-based capital to risk-weighted assets |
|
14.96 |
% |
16.50 |
% |
(9.3 |
)% |
Leverage ratio |
|
11.46 |
% |
12.55 |
% |
(8.7 |
)% |
Loans, net of unearned loan fees to deposits |
|
85.60 |
% |
80.51 |
% |
6.3 |
% |
Allowance for loan losses to loans, net of unearned loan fees |
|
1.63 |
% |
2.64 |
% |
(38.3 |
)% |
Allowance for loan losses to nonperforming loans |
|
103.61 |
% |
137.65 |
% |
(24.7 |
)% |
Classified assets to allowance and Tier 1 capital (1) |
|
16.48 |
% |
33.79 |
% |
(51.2 |
)% |
Noninterest bearing deposits to total deposits |
|
34.90 |
% |
39.61 |
% |
(11.9 |
)% |
Time deposits to total deposits |
|
12.77 |
% |
13.31 |
% |
(4.1 |
)% |
(1) Based on Bank only Tier 1 capital
Second quarter 2013 net income was $3.8 million as compared to $6.2 million for the same quarter in 2012. The second quarter 2012 net income was impacted by two significant non-cash items a $5.7 million reversal of the remaining deferred tax valuation allowance, partially offset by a $2.8 million impairment on bank facilities. Excluding these two items, second quarter 2013 net income improved significantly compared to second quarter 2012 evidenced by a $0.4 million increase in net interest income, a $0.4 million increase in investment advisory income generated by PCM, a $0.3 million increase in gain on sale of SBA loans and a $0.8 net reduction in noninterest expense. These improvements were partially offset by a $0.3 million decline in gains on sales of securities as
compared to the second quarter 2012.
For the six months ending June 30, 2013, net income was $6.1 million as compared to $9.1 million for the same period in 2012. As discussed above, 2012 year-to-date net income was significantly impacted by the non-cash reversal of the remaining deferred tax valuation allowance, partially offset by the impairment on bank facilities. Excluding these two items, 2013 year-to-date net income improved due to a $0.6 million increase in noninterest income, mostly due to investment advisory income generated by PCM and gains on sales of SBA loans; a $1.5 million reduction in provision for loan losses, due to improved credit quality; a $0.4 million increase in net interest income; and a $0.2 million net reduction in noninterest expense. These improvements were partially offset by a $0.9 million reduction in gains on sales of securities, a $0.6 million prepayment penalty on the early redemption of certain TruPs in the first quarter 2013 and recognition of income tax expense subsequent to the reversal of the remaining deferred tax valuation allowance in the second quarter 2012.
Net Interest Income and Net Interest Margin
Net interest income, which is the Companys primary source of income, represents the difference between interest earned on assets and interest paid on liabilities. The interest rate spread is the difference between the yield on our interest-bearing assets and liabilities. Net interest margin is net interest income expressed as a percentage of average interest-earning assets.
The following table summarizes the Companys net interest income and related spread and margin for the current quarter and prior four quarters:
Table 2
|
|
Three Months Ended |
|
|||||||||||||
|
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
June 30, |
|
|||||
|
|
2013 |
|
2013 |
|
2012 |
|
2012 |
|
2012 |
|
|||||
|
|
(Dollars in thousands) |
|
|||||||||||||
Net interest income |
|
$ |
15,739 |
|
$ |
15,378 |
|
$ |
15,217 |
|
$ |
14,511 |
|
$ |
15,383 |
|
Interest rate spread |
|
3.41 |
% |
3.35 |
% |
3.21 |
% |
3.15 |
% |
3.53 |
% |
|||||
Net interest margin |
|
3.61 |
% |
3.61 |
% |
3.48 |
% |
3.46 |
% |
3.86 |
% |
|||||
Net interest margin, fully tax equivalent |
|
3.72 |
% |
3.72 |
% |
3.57 |
% |
3.55 |
% |
3.95 |
% |
|||||
Second quarter 2013 net interest income increased by $0.4 million to $15.7 million from $15.4 million recognized in the first quarter 2013, and increased by $0.4 million compared to the second quarter 2012. The Companys net interest margin of 3.61% remained consistent with the prior linked quarter and reflected a decline of 25 basis points from 3.86% in the second quarter 2012. The Companys stable net interest margin in the second quarter 2013 as compared to the prior linked quarter was due to a favorable change in the mix of our earning assets combined with a reduction in the cost of interest bearing liabilities, offset by lower yields on earning assets. The decline in net interest margin as compared to the second quarter 2012 was the result of a 43 basis point decline in the yield on earnings assets, partially offset by a 31 basis point favorable decline in the cost of interest bearing liabilities.
Net interest income increased by $0.4 million in the second quarter 2013 compared to the same quarter in 2012, primarily due to a $0.6 million decline in interest expense, partially offset by a $0.2 decline in interest income. The decline in interest expense was attributable to favorable rate and volume variances of $0.4 and $0.2 million, respectively, mostly related to the redemption of $15.0 million of fixed, high-cost TruPS and related subordinated debentures during the first quarter 2013 combined with the payment of previously deferred interest payments on each of our subordinated debentures during the third quarter 2012. The decline in interest income was primarily due to an unfavorable rate variance of $3.3 million, partially offset by a favorable volume variance of $3.1 million. The favorable volume variance was primarily attributable to the $105.1 million increase in average loan balances, while the rate variance was mostly due to a 60 basis point decrease in loan yields during the second quarter 2013 compared to the same quarter in 2012.
On a linked quarter basis, net interest income increased by $0.4 million in the second quarter 2013 due a $0.2 million decrease in interest expense combined with a $0.2 million increase in interest income. This increase in interest income was primarily attributable to a $50.7 million increase in average loans during the quarter, partially
offset by a 24 basis point decrease in yield. The decrease in interest expense was primarily attributable to the early redemption of certain TruPs and related subordinated debentures in the first quarter 2013.
Table 3
|
|
Six Months Ended |
|
||||
|
|
June 30, |
|
June 30, |
|
||
|
|
2013 |
|
2012 |
|
||
|
|
(Dollars in thousands) |
|
||||
Net interest income |
|
$ |
31,117 |
|
$ |
30,683 |
|
Interest rate spread |
|
3.38 |
% |
3.57 |
% |
||
Net interest margin |
|
3.61 |
% |
3.90 |
% |
||
Net interest margin, fully tax equivalent |
|
3.72 |
% |
3.99 |
% |
||
For the six month period ended June 30, 2013, net interest income increased by $0.4 million, or 1.4%, as compared to the same period in 2012. This increase was comprised of a $1.1 million favorable decrease in interest expense, partially offset by a $0.6 million decrease in interest income.
The $1.1 million decrease in interest expense was primarily the result of a $0.8 million decline in interest expense on subordinated debentures, mostly related to the redemption of $15.0 million of fixed, high-cost TruPS and related subordinated debentures during the first quarter 2013 combined with the payment of previously deferred interest payments on each of our subordinated debentures during the third quarter 2012. The remainder of the decrease in interest expense was attributable to a favorable decline in the cost of deposits. The decrease in interest income for the six months ending June 30, 2013 compared to the same period in 2012 was due to a $4.4 favorable volume variance, offset by a $5.0 million unfavorable rate variance. The favorable volume variance was the result of a $153.9 million increase in average earning assets, primarily due to an $82.5 million increase in average loans during the six months ended June 30, 2013 as compared to the same period in 2012. The unfavorable rate variance was the result of a 44 basis point decline in yield on average earning assets.
The following table presents, for the periods indicated, average assets, liabilities and stockholders equity, as well as the net interest income from average interest-earning assets and the resultant annualized yields and costs expressed in percentages.
Table 4
(1) Yields on loans and securities have not been adjusted to a tax-equivalent basis. Net interest margin on a fully tax-equivalent basis would have been 3.72% and 3.95% for the three months ended June 30, 2013 and 2012, respectively. The tax-equivalent basis was computed by calculating the deemed interest on municipal bonds and tax-exempt loans that would have been earned on a fully taxable basis to yield the same after-tax income, net of the interest expense disallowance under Internal Revenue Code Sections 265 and 291, using a combined federal and state marginal tax rate of 38%.
(2) The loan average balances and rates include nonaccrual loans.
(3) Net loan fees of $0.3 million and $0.4 million for the three months ended June 30, 2013 and 2012, respectively, are included in the yield computation.
(4) Includes Bankers Bank of the West stock, Federal Agricultural Mortgage Corporation (Farmer Mac) stock, Federal Reserve Bank stock and Federal Home Loan Bank stock.
(5) The interest expense related to federal funds purchased for the second quarter 2013 and 2012 rounded to zero.
(6) June 30, 2012 includes accrued interest, resulting from deferred payments on Trust Preferred Securities.
Table 4 (Continued)
(1) Yields on loans and securities have not been adjusted to a tax-equivalent basis. Net interest margin on a fully tax-equivalent basis would have been 3.72% and 3.99% for the six months ended June 30, 2013 and 2012, respectively. The tax-equivalent basis was computed by calculating the deemed interest on municipal bonds and tax-exempt loans that would have been earned on a fully taxable basis to yield the same after-tax income, net of the interest expense disallowance under Internal Revenue Code Sections 265 and 291, using a combined federal and state marginal tax rate of 38%.
(2) The loan average balances and rates include nonaccrual loans.
(3) Net loan fees of $0.6 million and $0.8 million for the six months ended June 30, 2013 and 2012, respectively, are included in the yield computation.
(4) Includes Bankers Bank of the West stock, Federal Agricultural Mortgage Corporation (Farmer Mac) stock, Federal Reserve Bank stock and Federal Home Loan Bank stock.
(5) The interest expense related to federal funds purchased for the six months ended June 30, 2013 and 2012 rounded to zero.
(6) The six months ended June 30, 2012 includes accrued interest, resulting from deferred payments on Trust Preferred Securities.
The following table presents the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
Table 5
|
|
Three Months Ended June 30, 2013
|
|
Six Months Ended June 30, 2013
|
|
||||||||||||||
|
|
Net Change |
|
Rate |
|
Volume |
|
Net Change |
|
Rate |
|
Volume |
|
||||||
|
|
(In thousands) |
|
||||||||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross Loans, net of unearned loan fees |
|
$ |
(407 |
) |
$ |
(2,616 |
) |
$ |
2,209 |
|
$ |
(807 |
) |
$ |
(3,707 |
) |
$ |
2,900 |
|
Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Taxable |
|
(44 |
) |
(650 |
) |
606 |
|
(172 |
) |
(1,171 |
) |
999 |
|
||||||
Tax-exempt |
|
168 |
|
(82 |
) |
250 |
|
344 |
|
(159 |
) |
503 |
|
||||||
Bank Stocks |
|
17 |
|
(7 |
) |
24 |
|
15 |
|
(7 |
) |
22 |
|
||||||
Other earning assets |
|
9 |
|
12 |
|
(3 |
) |
1 |
|
2 |
|
(1 |
) |
||||||
Total interest income |
|
(257 |
) |
(3,343 |
) |
3,086 |
|
(619 |
) |
(5,042 |
) |
4,423 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing demand and NOW |
|
(34 |
) |
(55 |
) |
21 |
|
(90 |
) |
(107 |
) |
17 |
|
||||||
Money market |
|
(19 |
) |
(54 |
) |
35 |
|
(37 |
) |
(118 |
) |
81 |
|
||||||
Savings |
|
3 |
|
|
|
3 |
|
6 |
|
(1 |
) |
7 |
|
||||||
Time certificates of deposit |
|
(46 |
) |
(43 |
) |
(3 |
) |
(117 |
) |
(102 |
) |
(15 |
) |
||||||
Repurchase agreements |
|
(1 |
) |
(7 |
) |
6 |
|
5 |
|
(2 |
) |
7 |
|
||||||
Federal funds purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Subordinated debentures |
|
(538 |
) |
(249 |
) |
(289 |
) |
(833 |
) |
(346 |
) |
(487 |
) |
||||||
Borrowings |
|
22 |
|
(42 |
) |
64 |
|
13 |
|
(50 |
) |
63 |
|
||||||
Total interest expense |
|
(613 |
) |
(450 |
) |
(163 |
) |
(1,053 |
) |
(726 |
) |
(327 |
) |
||||||
Net interest income |
|
$ |
356 |
|
$ |
(2,893 |
) |
$ |
3,249 |
|
$ |
434 |
|
$ |
(4,316 |
) |
$ |
4,750 |
|
Provision for Loan Losses
The provision for loan losses represents a charge against earnings. The provision is the amount required to maintain the allowance for loan losses at a level that, in our judgment, is adequate to absorb probable incurred loan losses in the loan portfolio. The provision for loan losses is based on our allowance methodology and reflects our judgments about the adequacy of the allowance for loan losses. In determining the amount of the provision, we consider certain quantitative and qualitative factors, including our historical loan loss experience, the volume and type of lending we conduct, the results of our credit review process, the amounts and severity of classified, criticized and nonperforming assets, regulatory policies, general economic conditions, underlying collateral values and other factors regarding collectability and impairment. The amount of expected loss on our loan portfolio is influenced by the collateral value associated with our loans. Loans with greater collateral values, as a percentage of the outstanding loan balance, lessen our exposure to loan loss provision.
In the second quarter 2013, the Company did not record a provision for loan losses, compared to $0.5 million in the second quarter 2012. The Company determined that no provision for loan losses was necessary during the second quarter 2013 to maintain its allowance for loan losses at a level which reflects the probable incurred losses inherent in the loan portfolio as of June 30, 2013.
Net charge-offs in the second quarter 2013 were $3.8 million, as compared to $1.3 million for the same quarter in 2012. Net charge-offs for the first six months of 2013 were $4.9 million as compared to $6.9 million for
the same period in 2012. The net charge-offs in the second quarter 2013 primarily consisted of a charge-off on a single out-of-state purchased participation loan of $4.6 million, partially offset by recoveries of $1.1 million during the quarter. This charge-off was a specific allowance allocation as of March 31, 2013. Our exposure to future declines in credit quality related to this type of participation has greatly diminished, as only $10.0 million of pass-rated, out-of-state loan participations remain in our loan portfolio at June 30, 2013, as compared to $32.9 million at December 31, 2012 and $70.0 million at June 30, 2012.
For a discussion of impaired loans and associated collateral values, see Balance Sheet AnalysisNonperforming Assets and Other Impaired Loans below.
For further discussion of the methodology and factors impacting managements estimate of the allowance for loan losses, see Balance Sheet Analysis Allowance for Loan Losses below.
Noninterest Income
The following table presents the major categories of noninterest income for the current quarter and prior four quarters:
Table 6
|
|
Three Months Ended |
|
||||||||||||||
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
||||||
|
|
(In thousands) |
|
||||||||||||||
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer service and other fees |
|
$ |
3,018 |
|
$ |
2,620 |
|
$ |
2,640 |
|
$ |
2,616 |
|
$ |
2,382 |
|
|
Gain on sale of securities |
|
54 |
|
|
|
817 |
|
746 |
|
342 |
|
||||||
Gain on sale of SBA loans |
|
287 |
|
136 |
|
|
|
203 |
|
|
|
||||||
Other |
|
352 |
|
194 |
|
309 |
|
250 |
|
187 |
|
||||||
Total noninterest income |
|
$ |
3,711 |
|
$ |
2,950 |
|
$ |
3,766 |
|
$ |
3,815 |
|
$ |
2,911 |
|
|
Noninterest income increased $0.8 million to $3.7 million in the second quarter 2013 as compared to the prior linked quarter and increased $0.8 million as compared to the same quarter in 2012. The increase in noninterest income as compared to the prior linked quarter was mostly due to a $0.4 million improvement in customer service fees, including a $0.1 million in investment advisory fees generated by PCM; a $0.2 million increase in net gains on sales of SBA loans; and a $0.1 million increase in tax-exempt income related to the second quarter 2013 purchase of $15.0 million in bank-owned life insurance contracts (BOLI).
During the second quarter 2013 PCM increased its assets under management by $20.6 million, or 9.7%, to $232.8 million compared to $212.2 million at March 31, 2013. Since the Companys acquisition of PCM in July 2012, PCM has contributed approximately $1.3 million to noninterest income.
The following table presents the major categories of noninterest income for the year-to-date periods presented:
Table 7
|
|
Six Months Ended |
|
||||
|
|
June 30,
|
|
June 30,
|
|
||
|
|
(In thousands) |
|
||||
Noninterest income: |
|
|
|
|
|
||
Customer service and other fees |
|
$ |
5,638 |
|
$ |
4,653 |
|
Gain on sale of securities |
|
54 |
|
964 |
|
||
Gain on sale of SBA loans |
|
423 |
|
|
|
||
Other |
|
546 |
|
393 |
|
||
Total noninterest income |
|
$ |
6,661 |
|
$ |
6,010 |
|
For the six month period ended June 30, 2013, noninterest income increased by $0.7 million compared to the same period in 2012. This increase was primarily the result of our July 2012 acquisition of PCM, which has
contributed $0.7 million in investment advisory fees in the first six months of 2013, a $0.3 million increase in deposit service charges, and a $0.4 million increase in the gain on sale of SBA loans resulting from the Companys continued focus on this component of our non-interest income. These favorable variances were partially offset by a $0.9 million decrease in gains recognized on the sale of securities.
Noninterest Expense
The following table presents, for the quarters indicated, the major categories of noninterest expense:
Table 8
|
|
Three Months Ended |
|
||||||||||||
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
||||
|
|
(In thousands) |
|
||||||||||||
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
||||
Salaries and employee benefits |
|
$ |
7,213 |
|
$ |
7,441 |
|
6,832 |
|
$ |
6,466 |
|
$ |
6,614 |
|
Occupancy expense |
|
1,598 |
|
1,612 |
|
1,550 |
|
1,712 |
|
1,972 |
|
||||
Furniture and equipment |
|
745 |
|
761 |
|
760 |
|
779 |
|
783 |
|
||||
Amortization of intangible assets |
|
706 |
|
707 |
|
812 |
|
803 |
|
761 |
|
||||
Other real estate owned |
|
(257 |
) |
334 |
|
3,209 |
|
348 |
|
461 |
|
||||
Insurance and assessment |
|
641 |
|
608 |
|
677 |
|
771 |
|
881 |
|
||||
Professional fees |
|
853 |
|
911 |
|
1,543 |
|
1,062 |
|
856 |
|
||||
Prepayment penalty on long term debt |
|
|
|
629 |
|
|
|
|
|
|
|
||||
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
2,750 |
|
||||
Other general and administrative |
|
2,380 |
|
2,189 |
|
2,539 |
|
2,253 |
|
2,438 |
|
||||
Total noninterest expense |
|
$ |
13,879 |
|
$ |
15,192 |
|
17,922 |
|
$ |
14,194 |
|
$ |
17,516 |
|
Noninterest expense decreased $3.6 million to $13.9 million in the second quarter 2013 as compared to $17.5 million in the second quarter of 2012. The primary cause of the decrease was the non-cash impairment of $2.8 million related to two bank facilities in the second quarter 2012. In addition, OREO-related expenses declined from $0.5 million in the second quarter 2012 to a net benefit of $0.3 million in the second quarter 2013, mostly due to net gains recognized on the sale of several OREO properties in the second quarter 2013. Occupancy expense declined $0.4 million to $1.6 million in the second quarter 2013 compared to $2.0 million in the second quarter 2012, primarily due to the 2012 closure of six branches. Partially offsetting these decreases was a $0.6 million increase in salaries and benefits expense in the second quarter 2013 compared to the second quarter 2012, largely due to increases in base salaries and timing differences in our self-funded medical plan.
The $1.3 million decrease in the noninterest expense in the second quarter 2013 compared to the first quarter 2013 was mostly the result of a $0.6 million prepayment penalty recognized on the early redemption of $15.0 million of TruPS and related subordinated debentures in the first quarter 2013, a $0.6 million net decrease in OREO-related expenses as a result of gains recognized on sales, and a $0.2 million decrease in payroll taxes resulting from the annual payroll cycle.
Table 9
|
|
Six Months Ended |
|
||||
|
|
June 30,
|
|
June 30,
|
|
||
|
|
(In thousands) |
|
||||
Noninterest expense: |
|
|
|
|
|
||
Salaries and employee benefits |
|
$ |
14,654 |
|
$ |
13,471 |
|
Occupancy expense |
|
3,210 |
|
3,991 |
|
||
Furniture and equipment |
|
1,506 |
|
1,604 |
|
||
Amortization of intangible assets |
|
1,413 |
|
1,523 |
|
||
Other real estate owned |
|
77 |
|
813 |
|
||
Insurance and assessment |
|
1,249 |
|
1,689 |
|
||
Professional fees |
|
1,764 |
|
1,484 |
|
||
Prepayment penalty on long term debt |
|
629 |
|
|
|
||
Impairment of long-lived assets |
|
|
|
2,750 |
|
||
Other general and administrative |
|
4,569 |
|
4,673 |
|
||
Total noninterest expense |
|
$ |
29,071 |
|
$ |
31,998 |
|
Noninterest expense for the six months ended June 30, 2013 decreased by $2.9 million to $29.1 million as compared to $32.0 million in the same period in 2012 primarily due to the $2.8 million impairment on long-lived assets in 2012, partially offset by the $0.6 million prepayment penalty on the early redemption of certain TruPS and related subordinated debentures in 2013. Other favorable reductions in noninterest expense include a $0.8 million decline in occupancy expense, mostly as a result of the six branch closures which occurred in 2012; a $0.7 million decline in OREO-related expenses, primarily as a result of the gains recognized on the sale of several OREO properties in 2013; and a $0.4 million decline in insurance and assessment expense as a result of changes in rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act effective April 1, 2012 as well as an improvement in our risk rating during the third quarter 2012. Partially offsetting these reductions in noninterest income were an increase of $1.2 million in salaries and employee benefits, primarily due to increased base salaries and incentives, increases in equity compensation expense and timing differences in our self-funded medical plan.
Income Taxes
The Company recorded tax expense of $2.6 million for the first six months of 2013 as compared to a $5.9 million tax benefit in the first six months of 2012 related to the reversal of the Companys remaining deferred tax asset valuation allowance at June 30, 2012. The effective tax rate for the six months period ending June 30, 2013 was 30.0% as compared to 5.2% for the same period in 2012. The increase in the effective tax rate was primarily due to the deferred tax asset valuation allowance reversal in 2012.
BALANCE SHEET ANALYSIS
The following sets forth certain key consolidated balance sheet data:
Table 10
|
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
June 30, |
|
|||||
|
|
2013 |
|
2013 |
|
2012 |
|
2012 |
|
2012 |
|
|||||
|
|
(In thousands) |
|
|||||||||||||
Cash and cash equivalents |
|
$ |
30,613 |
|
$ |
55,891 |
|
$ |
163,217 |
|
$ |
147,823 |
|
$ |
137,133 |
|
Time deposits with banks |
|
5,000 |
|
5,000 |
|
8,000 |
|
20,000 |
|
5,000 |
|
|||||
Total investments |
|
484,971 |
|
512,188 |
|
458,927 |
|
436,386 |
|
398,151 |
|
|||||
Total loans |
|
1,240,555 |
|
1,180,607 |
|
1,158,749 |
|
1,118,968 |
|
1,110,161 |
|
|||||
Total assets |
|
1,866,128 |
|
1,836,840 |
|
1,886,938 |
|
1,834,978 |
|
1,750,539 |
|
|||||
Earning assets |
|
1,753,654 |
|
1,745,385 |
|
1,780,447 |
|
1,715,200 |
|
1,642,669 |
|
|||||
Deposits |
|
1,449,251 |
|
1,442,317 |
|
1,454,756 |
|
1,395,096 |
|
1,378,937 |
|
|||||
At June 30, 2013, the Company had total assets of $1.9 billion, which represented a $20.8 million decrease as compared to December 31, 2012 and a $115.6 million increase as compared to June 30, 2012. The decrease in assets from December 31, 2012 consisted primarily of decreases in cash and time deposits with banks of $135.6 million and in OREO of $13.1 million. These declines were mostly offset by an increase in loans, net of unearned discount, of $81.8 million and an increase in investments of $26.0 million. The decline in cash and time deposits at banks funded the growth in both loans and investments, the $15.0 million redemption of TruPS and related subordinated debentures and a $15.0 million purchase of BOLI. The decline in OREO of $13.1 million was primarily related to the sale of our single largest property during the first quarter 2013. The year-to-date increase in loans as compared to prior year end consisted of growth in both commercial and residential real estate as well as commercial loans. Year-to-date investment growth was the result of managements plan to reduce low yielding overnight funding and invest in higher yielding securities.
As compared to June 30, 2012, the increase in total assets of $115.6 million was primarily due to an increase in loans net of unearned discount of $130.4 million, an increase in investments of $86.8 million, a decrease in allowance for loan losses of $9.1 million and an increase in BOLI of $15.0 million. These increases were partially offset by declines in cash and time deposits at banks of $106.5 million and OREO of $18.2 million.
The following table sets forth the amount of our loans outstanding at the dates indicated:
Table 11
|
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
June 30, |
|
|||||
|
|
2013 |
|
2013 |
|
2012 |
|
2012 |
|
2012 |
|
|||||
|
|
(In thousands) |
|
|||||||||||||
Commercial and residential real estate |
|
$ |
787,210 |
|
$ |
760,735 |
|
$ |
737,537 |
|
$ |
725,498 |
|
$ |
730,324 |
|
Construction |
|
71,833 |
|
63,732 |
|
72,842 |
|
53,172 |
|
46,413 |
|
|||||
Commercial |
|
270,069 |
|
246,883 |
|
237,199 |
|
226,205 |
|
216,974 |
|
|||||
Consumer |
|
63,368 |
|
62,828 |
|
63,095 |
|
63,612 |
|
64,976 |
|
|||||
Other |
|
49,095 |
|
47,819 |
|
49,667 |
|
52,198 |
|
53,259 |
|
|||||
Total gross loans |
|
$ |
1,241,575 |
|
$ |
1,181,997 |
|
$ |
1,160,340 |
|
$ |
1,120,685 |
|
$ |
1,111,946 |
|
Less: Allowance for loan losses |
|
(20,218 |
) |
(24,060 |
) |
(25,142 |
) |
(28,597 |
) |
(29,307 |
) |
|||||
Unearned loan fees |
|
(1,020 |
) |
(1,390 |
) |
(1,591 |
) |
(1,717 |
) |
(1,785 |
) |
|||||
Loans, net of unearned loan fees |
|
$ |
1,220,337 |
|
$ |
1,156,547 |
|
$ |
1,133,607 |
|
$ |
1,090,371 |
|
$ |
1,080,854 |
|
For the quarter ending June 30, 2013, loans net of unearned fees, grew $59.9 million as compared to the prior linked quarter and grew $81.8 million, or 14.2% on an annualized basis as compared to December 31, 2012. As compared to the same quarter last year, loans net of unearned fees, increased $130.4 million, or 11.8%. The growth in loans was primarily the result of new customer acquisition, reflected in continued growth in new commitments, supplemented by increased utilization of existing lines of credit and declining loan payoffs. Loan growth during the second quarter consisted of $26.5 million in commercial and residential real estate loans, primarily attributable to growth in jumbo mortgages of $25.2 million. Commercial loan growth of $23.2 million during the second quarter 2013 was mostly attributable to growth in middle market and energy. Construction loans also grew by $8.2 million during the quarter mostly due to draws on existing lines.
Under joint guidance from the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency on sound risk management practices for financial institutions with concentrations in commercial real estate lending, a financial institution may have elevated concentration risk if it has, among other factors, (i) total reported loans for construction, land development, and other land representing 100% or more of capital, or (ii) total reported loans secured by multifamily and non-farm residential properties, loans for construction, land development and other land and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, representing 300% or more of total capital and an increase in its non-owner occupied real estate loan portfolio of 50 percent or more during the preceding 36 months. For the Bank, the total reported loans for construction, land development and land represented 59% of capital at June 30, 2013 as compared to 57% at December 31, 2012, and 47% at June 30, 2012. For the Bank, the total reported commercial real estate loans represented 291% of capital at June 30, 2013, as compared to 278% at December 31, 2012, and 267% at June 30, 2012. Further, the Banks non-owner occupied real estate loan portfolio declined 7.7% during the previous 36 months. Management employs heightened risk management practices with respect to commercial real estate lending, including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. Loans secured by commercial real estate are recorded on the balance sheet as either a commercial real estate loan or commercial loan depending on the purpose of the loan, regardless of the underlying collateral.
With respect to group concentrations, most of the Companys business activity is with customers in the state of Colorado. At June 30, 2013, the Company did not have any significant concentrations in any particular industry.
Nonperforming Assets and Other Impaired Loans
Credit risk related to nonperforming assets arises as a result of lending activities. To manage this risk, we utilize frequent monitoring procedures and take prompt corrective action when necessary. We employ a risk rating system that identifies the potential risk associated with loans in our loan portfolio. This monitoring and rating system is designed to help management determine current and potential problems so that corrective actions can be taken promptly.
Generally, loans are placed on nonaccrual status when they become 90 days or more past due or at such earlier time as management determines timely recognition of interest to be in doubt. Accrual of interest is discontinued on a
loan when we believe, after considering economic and business conditions and analysis of the borrowers financial condition and the underlying collateral value, that the collection of interest is doubtful.
The following table summarizes the loans for which the accrual of interest has been discontinued, loans with payments more than 90 days past due and still accruing interest and other real estate owned. For reporting purposes, other real estate owned consists of all real estate, other than bank premises, actually owned or controlled by us, including real estate acquired through foreclosure.
Table 12
|
|
Quarter Ended |
|
|||||||||||||
|
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
June 30, |
|
|||||
|
|
2013 |
|
2013 |
|
2012 |
|
2012 |
|
2012 |
|
|||||
|
|
(Dollars in thousands) |
|
|||||||||||||
Nonaccrual loans and leases |
|
$ |
16,564 |
|
$ |
27,684 |
|
$ |
9,033 |
|
$ |
9,358 |
|
$ |
6,473 |
|
Nonperforming troubled debt restructurings |
|
2,866 |
|
3,798 |
|
4,659 |
|
11,827 |
|
14,818 |
|
|||||
Accruing loans past due 90 days or more |
|
84 |
|
40 |
|
224 |
|
543 |
|
|
|
|||||
Total nonperforming loans |
|
$ |
19,514 |
|
$ |
31,522 |
|
$ |
13,916 |
|
$ |
21,728 |
|
$ |
21,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other real estate owned and foreclosed assets |
|
6,460 |
|
8,606 |
|
19,580 |
|
23,532 |
|
24,640 |
|
|||||
Total nonperforming assets |
|
$ |
25,974 |
|
$ |
40,128 |
|
$ |
33,496 |
|
$ |
45,260 |
|
$ |
45,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total classified assets |
|
$ |
36,590 |
|
$ |
52,535 |
|
$ |
58,635 |
|
$ |
74,514 |
|
$ |
77,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Nonperforming loans |
|
$ |
19,514 |
|
$ |
31,522 |
|
$ |
13,916 |
|
$ |
21,728 |
|
$ |
21,291 |
|
Performing troubled debt restructurings |
|
2,675 |
|
1,268 |
|
3,838 |
|
|
|
|
|
|||||
Allocated allowance for loan losses |
|
(1,524 |
) |
(6,474 |
) |
(2,654 |
) |
(3,774 |
) |
(1,859 |
) |
|||||
Net investment in impaired loans |
|
$ |
20,665 |
|
$ |
26,316 |
|
$ |
15,100 |
|
$ |
17,954 |
|
$ |
19,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loans past due 30-89 days |
|
$ |
6,873 |
|
$ |
3,686 |
|
$ |
4,270 |
|
$ |
7,678 |
|
$ |
18,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Allowance for loan losses |
|
$ |
20,218 |
|
$ |
24,060 |
|
$ |
25,142 |
|
$ |
28,597 |
|
$ |
29,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
For the three months ended: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loans charged-off |
|
$ |
4,996 |
|
$ |
1,523 |
|
$ |
1,199 |
|
$ |
1,067 |
|
$ |
2,062 |
|
Recoveries |
|
(1,154 |
) |
(441 |
) |
(1,244 |
) |
(357 |
) |
(794 |
) |
|||||
Net charge-offs |
|
$ |
3,842 |
|
$ |
1,082 |
|
$ |
(45 |
) |
$ |
710 |
|
$ |
1,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Provision for loan losses |
|
$ |
|
|
$ |
|
|
$ |
(3,500 |
) |
$ |
|
|
$ |
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loan Portfolio Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Allowance for loan losses to loans, net unearned of loan fees |
|
1.63 |
% |
2.04 |
% |
2.17 |
% |
2.56 |
% |
2.64 |
% |
|||||
Allowance for loan losses to nonaccrual loans |
|
104.06 |
% |
76.42 |
% |
183.63 |
% |
134.99 |
% |
137.65 |
% |
|||||
Allowance for loan losses to nonperforming loans |
|
103.61 |
% |
76.33 |
% |
180.67 |
% |
131.61 |
% |
137.65 |
% |
|||||
Annualized net charge-offs to average loans |
|
1.27 |
% |
0.38 |
% |
(0.02 |
)% |
0.26 |
% |
0.46 |
% |
|||||
Nonperforming assets to total assets |
|
1.39 |
% |
2.18 |
% |
1.78 |
% |
2.47 |
% |
2.62 |
% |
|||||
Nonperforming loans to loans, net of unearned loan fees |
|
1.57 |
% |
2.67 |
% |
1.20 |
% |
1.94 |
% |
1.92 |
% |
|||||
Loans 30-89 days past due to loans, net unearned of loan fees |
|
0.55 |
% |
0.31 |
% |
0.37 |
% |
0.69 |
% |
1.66 |
% |
At June 30, 2013, classified assets as a percentage of capital and allowance for loan losses were 16.5%, a favorable decrease from 25.2% at December 31, 2012 and 33.8% at June 30, 2012. Overall classified assets declined by $22.0 million, or 37.6% in the six months ending June 30, 2013, and decreased by $41.3 million, or 53.0%, as compared to June 30, 2012.
During the second quarter 2013, nonperforming assets decreased $14.2 million as compared to the prior quarter primarily due to the decrease in nonaccrual loans of $12.1 million. The decline in nonaccrual loans was
mostly related to the negotiated payoff and partial charge-off of a single $10.8 million out-of-state, purchased loan participation.
On a year-to-date basis, nonperforming assets decreased by $7.5 million, primarily as a result of the sale of our single largest OREO property of $10.9 million in the first quarter 2013, partially offset by an increase in nonperforming loans of $5.6 million, mostly due to the migration of a $10.8 million out-of-state loan participation, purchased nearly five years ago into non-accrual status during 2013. Our exposure to future declines in credit quality related to this type of participation has greatly diminished, as only $10.0 million of pass-rated, out-of-state loan participations remain in our loan portfolio at June 30, 2013, as compared to $32.9 million at December 31, 2012 and $70.0 million at June 30, 2012. As of June 30, 2013 and December 31, 2012, no additional funds were committed to be advanced in connection with non-performing loans.
The Company categorized loans into risk categories of pass, watch, special mention, substandard, doubtful and loss. These internal categories are based on the definitions in the Uniform Agreement on the Classification of Assets and Appraisal of Securities Held by Banks and Thrifts issued by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve System. In particular, loans internally rated as substandard, doubtful or loss are considered adversely classified loans. The amount of accruing loans that the Company has internally considered to be adversely classified was $10.7 million at June 30, 2013, as compared to $24.3 million at December 31, 2012 and $30.5 million at June 30, 2012.
In addition to adversely classified loans, the Company has loans that are considered to be special mention or watch loans. The amount of loans that the Company has internally considered to be special mention or watch decreased by $28.8 million, or 52.9%, to $25.6 million as compared to $54.4 million at December 31, 2012 and decreased by $47.3 million, or 64.9%, as compared to $72.9 million at June 30, 2012. Each internal risk rating is judgmental, but based on both objective and subjective factors/criteria. The internal risk ratings focus on an evaluation of the borrowers ability to meet future debt service and performance to plan and consider potential adverse market or economic conditions. As described below under Allowance for Loan Losses, the Company adjusts the general component of its allowance for loan losses for trends in the volume and severity of adversely classified and watch list loans.
Net charge-offs in the second quarter 2013 were $3.8 million as compared to $1.1 million in the first quarter 2013 and $1.3 million in the second quarter 2012. The second quarter 2013 net charge-offs were primarily comprised of a $4.6 million out-of-state, purchased participation previously provided for in our allowance for loan losses, partially offset by $1.1 million in recoveries. As detailed above, the Company made significant progress towards reducing this type of exposure in our loan portfolio as of June 30, 2013.
Other real estate owned was $6.5 million at June 30, 2013 compared to $19.6 million at December 31, 2012 and $24.6 million at June 30, 2012. The decline in OREO as compared to the prior linked quarter was primarily the result of several smaller OREO sales. The decline since December 31, 2012 reflects the first quarter sale of our largest OREO property valued at $10.9 million. The balance of other real estate owned at June 30, 2013 was comprised of 19 separate properties, of which $3.9 million was land and $2.6 million was commercial real estate, including multi-family units. The balance of other real estate owned at June 30, 2012, was comprised of approximately 31 separate properties, of which $4.5 million were land and $20.2 million were commercial real estate.
As of June 30, 2013, we had $5.5 million of loans with terms that were modified in troubled debt restructurings, with a total allocated allowance for loan loss of $0.6 million. As of December 31, 2012, we had $8.5 million of loans with terms that were modified in troubled debt restructurings, with a total allocated allowance for loan loss of $1.6 million. The troubled debt restructurings are included in impaired loans above. The Company has no unfunded commitments to borrowers whose loans are classified as troubled debt restructurings.
Table 13
|
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
June 30, |
|
|||||
|
|
2013 |
|
2013 |
|
2012 |
|
2012 |
|
2012 |
|
|||||
|
|
(In thousands) |
|
|||||||||||||
Troubled Debt Restructurings (TDRs): |
|
|
|
|
|
|
|
|
|
|
|
|||||
Performing TDRs |
|
$ |
2,675 |
|
$ |
1,268 |
|
$ |
3,838 |
|
$ |
|
|
$ |
|
|
Allocated allowance for loan losses on performing TDRs |
|
(89 |
) |
(29 |
) |
(12 |
) |
|
|
|
|
|||||
Net Investment in performing TDRs |
|
$ |
2,586 |
|
$ |
1,239 |
|
$ |
3,826 |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Nonperforming TDRs |
|
$ |
2,866 |
|
$ |
3,798 |
|
$ |
4,659 |
|
$ |
11,827 |
|
$ |
14,818 |
|
Allocated allowance for loan losses on nonperforming TDRs |
|
(516 |
) |
(529 |
) |
(1,539 |
) |
(1,846 |
) |
(565 |
) |
|||||
Net Investment in nonperforming TDRs |
|
$ |
2,350 |
|
$ |
3,269 |
|
$ |
3,120 |
|
$ |
9,981 |
|
$ |
14,253 |
|
The following provides a rollforward of troubled debt restructurings for the six month periods ending June 30,2013 and June 30, 2012.
Table 14
|
|
Performing
|
|
Nonperforming
|
|
Total |
|
|||
|
|
(In thousands) |
|
|||||||
Troubled Debt Restructuring Rollforward: |
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012 |
|
$ |
|
|
$ |
11,692 |
|
$ |
11,692 |
|
Principal repayments / advances |
|
|
|
(2,512 |
) |
(2,512 |
) |
|||
Charge-offs, net |
|
|
|
(2,288 |
) |
(2,288 |
) |
|||
New modifications |
|
|
|
7,926 |
|
7,926 |
|
|||
Balance at June 30, 2012 |
|
$ |
|
|
$ |
14,818 |
|
$ |
14,818 |
|
|
|
|
|
|
|
|
|
|||
Balance at January 1, 2013 |
|
$ |
3,838 |
|
$ |
4,659 |
|
$ |
8,497 |
|
Principal repayments / advances |
|
(18 |
) |
(1,071 |
) |
(1,089 |
) |
|||
Charge-offs, net |
|
(174 |
) |
(906 |
) |
(1,080 |
) |
|||
New modifications |
|
2,472 |
|
184 |
|
2,656 |
|
|||
Transfers |
|
(3,443 |
) |
|
|
(3,443 |
) |
|||
Balance at June 30, 2013 |
|
$ |
2,675 |
|
$ |
2,866 |
|
$ |
5,541 |
|
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that, in our judgment, is adequate to absorb probable incurred loan losses in the loan portfolio. The amount of the allowance is based on managements evaluation of the collectability of the loan portfolio, historical loss experience, and other significant factors affecting loan portfolio collectability, including the level and trends in delinquent, nonaccrual and adversely classified loans, trends in volume and terms of loans, levels and trends in credit concentrations, effects of changes in underwriting standards, policies, procedures and practices, national and local economic trends and conditions, changes in capabilities and experience of lending management and staff, and other external factors including industry conditions, competition and regulatory requirements.
The ratio of allowance for loan losses to total loans was 1.63% at June 30, 2013, as compared to 2.17% at December 31, 2012 and 2.64% at June 30, 2012.
Our methodology for evaluating the adequacy of the allowance for loan losses has two basic elements: first, the specific identification of impaired loans and the measurement of an estimated loss for each individual loan identified; and second, estimating a nonspecific allowance for probable losses on all other loans.
The specific allowance for impaired loans and the allowance calculated for probable incurred losses on other loans are combined to determine the required allowance for loan losses. The amount calculated is compared to the actual allowance for loan losses balance at each quarter end and any shortfall is charged against income as an additional provision for loan losses. For further discussion of the provision for loan losses, see Provision for Loan Losses above.
In estimating the allowance for probable incurred losses on other loans, we group the balance of the loan portfolio into segments that have common characteristics, such as loan type or risk rating. For each nonspecific allowance portfolio segment, we apply loss factors to calculate the required allowance based upon actual historical loss rates over the past two to four years adjusted for qualitative factors affecting loan portfolio collectability as described above. Management also looks at risk ratings of loans and computes a factor for the volume and severity of classified loans using assigned risk ratings under regulatory definitions of watch, special mention, substandard, doubtful and loss. Loans graded as either doubtful or loss are treated as impaired and are included as part of the specific reserve computed above. Loans segregated by risk rating categories watch, special mention or substandard are evaluated for trends in volume and severity.
For the first six months of 2013, no provision for loan losses was required in order for the Company to maintain the allowance for loan losses at a level necessary to absorb the probable incurred losses inherent in the loan portfolio as of June 30, 2013. For further discussion of the provision for loan losses, see Provision for Loan Losses above.
Approximately $1.5 million, or 7.5%, of the $20.2 million allowance for loan losses at June 30, 2013, relates to loans with specific allowance allocations. This compares to a specific reserve of $2.7 million, or 10.6%, of the total allowance for loan losses at December 31, 2012. This decrease was primarily the result of a $0.8 million charge-off during first quarter 2013 of a loan with a specific reserve in that amount at December 31, 2012.
The general component of the allowance for loan losses as a percent of loans that are not impaired, net of unearned discount, was 1.51% at June 30, 2013, as compared to 1.94% at December 31, 2012 and 2.47% at June 30, 2012. The decrease in the general component of the allowance as a percentage of performing loans was generally due to an improvement in local economic conditions, less remaining risk in our portfolio, declines in watch loans, and declines in net charge-offs, partially offset by the growth in loans. Net charge-offs for the previous four quarters as a percentage of average loans was .47% at June 30, 2013, as compared to 1.18% at June 30, 2012.
Management continues to monitor the allowance for loan losses closely and will adjust the allowance when necessary, based on its analysis, which includes an ongoing evaluation of substandard loans and their collateral positions.
The following table provides a summary of the activity within the allowance for loan losses account for the periods presented:
Table 15
|
|
Six Months Ended June 30, |
|
||||
|
|
2013 |
|
2012 |
|
||
|
|
(In thousands) |
|
||||
Balance, beginning of period |
|
$ |
25,142 |
|
$ |
34,661 |
|
Loan charge-offs: |
|
|
|
|
|
||
Commercial and residential real estate |
|
5,343 |
|
2,524 |
|
||
Construction |
|
235 |
|
122 |
|
||
Commercial |
|
776 |
|
5,331 |
|
||
Consumer |
|
15 |
|
55 |
|
||
Other |
|
150 |
|
401 |
|
||
Total loan charge-offs |
|
6,519 |
|
8,433 |
|
||
|
|
|
|
|
|
||
Recoveries: |
|
|
|
|
|
||
Commercial and residential real estate |
|
1,028 |
|
359 |
|
||
Construction |
|
437 |
|
1,158 |
|
||
Commercial |
|
26 |
|
17 |
|
||
Consumer |
|
18 |
|
25 |
|
||
Other |
|
86 |
|
20 |
|
||
Total loan recoveries |
|
1,595 |
|
1,579 |
|
||
Net loan charge-offs |
|
4,924 |
|
6,854 |
|
||
Provision for loan losses |
|
|
|
1,500 |
|
||
Balance, end of period |
|
$ |
20,218 |
|
$ |
29,307 |
|
Securities
We manage our investment portfolio principally to provide liquidity, balance our overall interest rate risk and to provide collateral for public deposits and customer repurchase agreements.
The carrying value of our portfolio of investment securities at June 30, 2013 and December 31, 2012 was as follows:
Table 16
|
|
June 30, |
|
December 31, |
|
|
|
|
|
|||
|
|
2013 |
|
2012 |
|
Increase |
|
Percent |
|
|||
|
|
(In thousands) |
|
|||||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|||
State and municipal |
|
$ |
58,083 |
|
$ |
65,244 |
|
$ |
(7,161 |
) |
(11.0 |
)% |
Mortgage-backed - agency / residential |
|
279,619 |
|
264,283 |
|
15,336 |
|
5.8 |
% |
|||
Mortgage-backed - private / residential |
|
634 |
|
720 |
|
(86 |
) |
(11.9 |
)% |
|||
Asset-backed |
|
23,665 |
|
20,511 |
|
3,154 |
|
15.4 |
% |
|||
Marketable equity |
|
1,535 |
|
1,535 |
|
|
|
|
% |
|||
Trust preferred |
|
34,197 |
|
32,840 |
|
1,357 |
|
4.1 |
% |
|||
Corporate |
|
34,485 |
|
28,249 |
|
6,236 |
|
22.1 |
% |
|||
Total securities available for sale |
|
$ |
432,218 |
|
$ |
413,382 |
|
$ |
18,836 |
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|||
State and municipal |
|
19,278 |
|
12,627 |
|
6,651 |
|
52.7 |
% |
|||
Mortgage-backed - agency / residential |
|
15,494 |
|
18,656 |
|
(3,162 |
) |
(16.9 |
)% |
|||
Total securities held to maturity |
|
$ |
34,772 |
|
$ |
31,283 |
|
$ |
3,489 |
|
11.2 |
% |
The carrying value of our available for sale investment securities at June 30, 2013 was $432.2 million, compared to the December 31, 2012 carrying value of $413.4 million. At June 30, 2013, the effective duration of the investment securities portfolio was approximately 6.0 years. Year-to-date purchase activity in our available for sale investment portfolio has been a combination of U.S. government sponsored agency mortgage-backed securities, other asset-backed securities, municipal bonds, trust preferred securities and corporate bonds. The year-to-date purchase activity in our held-to-maturity investment portfolio consisted mostly of rated municipal bonds.
Fair values for municipal securities are generally determined by matrix pricing, which is a mathematical technique widely used in the banking industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities. Characteristics utilized by matrix pricing include insurer, credit support, state of issuance, and bond rating. These factors are used to incorporate additional spreads and municipal curves. A separate curve structure is used for bank-qualified municipal bonds versus general market municipals. For the bank-qualified municipal bonds, active quotes are obtained when available.
Fair values for U.S. Treasury securities, U.S. government agencies and government-sponsored entities and mortgage-backed securities are determined using a combination of daily closing prices, evaluations, income data, security master (descriptive) data, and terms and conditions data. Additional data used to compute the fair value of U.S. mortgage-backed pass-through issues (FHLMC, FNMA, GNMA, and SBA pools) includes daily composite seasoned, pool-specific, and generic coupon evaluations, and factors and descriptive data for individual pass-through pools. Additional data used to compute the fair value of U.S. collateralized mortgage obligations include daily evaluations and descriptive data. Independent bond ratings were also used to compute the fair value of mortgage-backed securities private/residential.
Two municipal bond issuances were priced using significant unobservable inputs as of June 30, 2013. The first revenue bond has a par value of $35.8 million and repayment is based on cash flows from a local hospital. Management reviewed the financials of the hospital, had discussions with hospital management and reviewed the underlying collateral of the municipal bond to determine an appropriate benchmark risk-adjusted interest rate based on bonds with similar risks. At June 30, 2013, primarily as a result of the recent increase in comparable market interest rates, management determined that this hospital bond reflected an unrealized loss of approximately $0.5 million. The second revenue bond had a book value of $4.5 million and repayment is based on operating income
from a senior living facility. Management purchased this bond in November 2011, after performing a thorough credit review. The bond had an unrealized gain of approximately $0.1 million based on a discounted cash flow valuation utilizing an estimated market interest rate for comparable instruments.
At June 30, 2013, there were 127 individual securities in an unrealized loss position, consisting of seven individual securities that have been in a continuous unrealized loss position for 12 months or longer. Management has evaluated these securities in addition to the remaining 120 securities in an unrealized loss position and has determined that the decline in value since their purchase dates is primarily attributable to changes in market interest rates. At June 30, 2013, the Company did not intend to sell any of the 127 securities in an unrealized loss position and did not consider it likely that it would be required to sell any of the securities in question prior to recovery in their fair value.
At June 30, 2013 and December 31, 2012, we held $18.0 million and $14.3 million, respectively, of other equity securities consisting primarily of bank stocks with no maturity date, which are not reflected in the above table (Table 16). Bank stocks are comprised of stock of the Federal Reserve Bank of Kansas City, the Federal Home Loan Bank of Topeka and Bankers Bank of the West. These stocks have restrictions placed on their transferability as only members of the entities can own the stock. Management reviews the equity securities quarterly for potential impairment. No impairment has been recognized on these equity securities.
Deposits
The following table sets forth the amounts of our deposits outstanding at the dates indicated:
Table 17
|
|
At June 30, 2013 |
|
At December 31, 2012 |
|
||||||
|
|
Balance |
|
Percent
|
|
Balance |
|
Percent
|
|
||
|
|
(Dollars in thousands) |
|
||||||||
Noninterest bearing deposits |
|
$ |
505,782 |
|
34.90 |
% |
$ |
564,215 |
|
38.78 |
% |
Interest-bearing demand and NOW |
|
332,541 |
|
22.95 |
% |
285,679 |
|
19.64 |
% |
||
Money market |
|
319,957 |
|
22.08 |
% |
312,724 |
|
21.50 |
% |
||
Savings |
|
105,853 |
|
7.30 |
% |
100,704 |
|
6.92 |
% |
||
Time |
|
185,118 |
|
12.77 |
% |
191,434 |
|
13.16 |
% |
||
Total deposits |
|
$ |
1,449,251 |
|
100.00 |
% |
$ |
1,454,756 |
|
100.00 |
% |
Deposits, other than time deposits, decreased by $5.5 million at June 30, 2013 as compared to December 31, 2012, and increased by $70.3 million as compared to June 30, 2012. The increase in non-maturing deposits over the last twelve months was mostly due to the continued success of our business and retail strategic deposit gathering campaign.
Noninterest bearing deposits as a percent of total deposits declined to approximately 34.9% at June 30, 2013, as compared to 38.8% at December 31, 2012. The decline in noninterest bearing deposits was primarily due to several of our commercial customers redeploying excess funds into their business operations, as expected. Noninterest bearing deposits help reduce overall deposit funding costs, but due to the extremely low rate environment, the impact of noninterest bearing deposits on the overall cost of funds is currently less significant than in a higher rate environment.
Time deposit balances declined $6.3 million as compared to December 31, 2012 and represent 12.8% of total deposits at June 30, 2013. The majority of the time deposit balance represents deposits of local customers, with only $20.6 million representing brokered deposits, as compared to $16.1 million at December 31, 2012 and $0.1 million at June 30, 2012. Management monitors time deposit maturities and renewals on a daily basis and will raise rates on local time deposits if necessary to grow such deposits.
Securities Sold under Agreement to Repurchase
During the second quarter 2013, securities sold under agreement to repurchase decreased $42.1 million from March 31, 2013 and increased $11.9 million from June 30, 2012 to $24.9 million at June 30, 2013. The decrease
from the first quarter 2013 was primarily related to a single depositor whose balance was re-deployed into the depositors operations during the second quarter 2013, as expected.
Borrowings and Subordinated Debentures
At June 30, 2013, our outstanding borrowings were $167.9 million as compared to $110.2 million at December 31, 2012. At June 30, 2013, the Companys borrowings consisted of $110.2 million in FHLB term borrowings and $57.7 million in FHLB line of credit advances. The total commitment, including balances outstanding, for borrowings at the FHLB for the term notes and line of credit at June 30, 2013 and December 31, 2012 was $358.1 million and $317.0 million, respectively.
The term borrowings at June 30, 2013 consisted of five separate fixed-rate term notes with the FHLB at our Bank level, with remaining maturities ranging from 4 to 55 months and interest rates that range from 2.52% to 4.43%. The weighted-average rate on the FHLB term notes was 2.97% at June 30, 2013. Four of the five notes have Bermudan conversion options to a variable rate. Each of these notes is convertible on a quarterly basis by the FHLB. If the notes are converted by the FHLB, the Bank has the option to prepay the advance without penalty. The interest rate on the line of credit varies with the federal funds rate, and was 0.18% at June 30, 2013.
Under an advance, pledge, and security agreement with the FHLB, the Bank has additional borrowing capacity of approximately $190.2 million at June 30, 2013, which can be utilized for term or line of credit advances, or a combination of both.
During the first quarter 2013, the CenBank Trust I issuance of $10.3 million with a fixed rate of 10.6% and the CenBank Trust II issuance of $5.2 million with a fixed rate of 10.2% were redeemed by the Company with an aggregate pre-payment penalty of approximately $0.6 million.
At June 30, 2013, we had a $25.8 million aggregate principal balance of junior subordinated debentures outstanding with a weighted average cost of 3.11%. The subordinated debentures are issued in two separate series. Each issuance has a maturity of thirty years from its date of issue. The subordinated debentures were issued to trusts established by us, which in turn issued $25.0 million of trust preferred securities. Generally and with certain limitations, the Company is permitted to call the debentures subsequent to the first five or ten years, as applicable, after issue if certain conditions are met, or at any time upon the occurrence and continuation of certain changes in either the tax treatment or the capital treatment of the trusts, the debentures or the preferred securities. The Guaranty Capital Trust III issuance of $10.3 million has a variable rate of LIBOR plus 3.10% and has been callable without penalty each quarter since July 7, 2008, and continues to be callable quarterly. The CenBank Trust III issuance of $15.5 million has a variable rate of LIBOR plus 2.65% and has been callable without penalty since April 15, 2009, and continues to be callable quarterly. Management did not call any of these securities on the latest call date, but will continue to evaluate whether to call these debentures each quarter.
Under the terms of each subordinated debentures agreement, the Company has the ability to defer interest on the debentures for a period of up to sixty months as long as it is in compliance with all covenants of the agreement. On July 31, 2009, the Company deferred regularly scheduled interest payments on each series of its junior subordinated debentures. During the third quarter 2012, the Company paid off all previously deferred interest and began payment of regularly scheduled interest payments.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the recent joint rule from the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, certain trust preferred securities will no longer be eligible to be included as Tier 1 capital for regulatory purposes. However, an exception to this statutory prohibition applies to securities issued prior to May 19, 2010 by bank holding companies with less than $15 billion of total assets. As we have less than $15 billion in total assets and had issued all of our trust preferred securities prior to May 19, 2010, our trust preferred securities will continue to be eligible to be treated as Tier 1 capital, subject to other rules and limitations.
Capital Resources
Current risk-based regulatory capital standards generally require banks and bank holding companies to maintain a ratio of core or Tier 1 capital (consisting principally of common equity) to risk-weighted assets of at least 4%, a ratio of Tier 1 capital to average total assets (leverage ratio) of at least 4% and a ratio of total capital
(which includes Tier 1 capital plus certain forms of subordinated debt, a portion of the allowance for loan and lease losses, and preferred stock) to risk-weighted assets of at least 8%. Risk-weighted assets are calculated by multiplying the balance in each category of assets by a risk factor, which ranges from zero for cash assets and certain government obligations to 100% for most loans, and adding the products together.
For regulatory purposes, the Company maintains capital above the minimum core standards. The Company actively monitors its regulatory capital ratios to ensure that the Company and the Bank are more than well-capitalized under the applicable regulatory framework. Under the regulations adopted by the federal regulatory authorities, a bank is well-capitalized if the institution has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure. The Bank is required to maintain similar capital levels under capital adequacy guidelines. At June 30, 2013, the Banks capital ratios are well above the regulatory capital threshold of well-capitalized.
The Company is evaluating the impact of the final Basel III capital rules issued recently by the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. Based on managements initial review, we expect to exceed all capital requirements under the new rules. We will continue to evaluate and monitor our capital ratios under the new rules prior to the initial implementation date of January 1, 2015.
The following table provides the capital ratios of the Company and Bank as of the dates presented, along with the applicable regulatory capital requirements:
Table 18
|
|
Ratio at
|
|
Ratio at
|
|
Ratio at
|
|
Minimum
|
|
Minimum
|
|
Total Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
14.96 |
% |
16.27 |
% |
16.50 |
% |
8.00 |
% |
N/A |
|
Guaranty Bank and Trust Company |
|
14.37 |
% |
15.52 |
% |
15.67 |
% |
8.00 |
% |
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
13.71 |
% |
15.02 |
% |
15.24 |
% |
4.00 |
% |
N/A |
|
Guaranty Bank and Trust Company |
|
13.12 |
% |
14.26 |
% |
14.41 |
% |
4.00 |
% |
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
11.46 |
% |
11.93 |
% |
12.55 |
% |
4.00 |
% |
N/A |
|
Guaranty Bank and Trust Company |
|
10.97 |
% |
11.35 |
% |
11.84 |
% |
4.00 |
% |
5.00 |
% |
Our consolidated total risk-based capital ratio and our Tier 1 risk-based capital ratio declined by approximately one percentage point and our leverage ratio declined by approximately one half of a percentage point due to the early redemption of $15.0 million in trust preferred securities in the first quarter 2013. The redemption of the trust preferred securities was funded by a dividend from the Bank.
In December 2012, the Company filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission (SEC) to register up to $100 million in securities. The SEC declared the registration statement effective on April 4, 2013. The Company does not have any current plans to raise additional capital; however, the shelf registration provides us with the ability to raise capital, subject to SEC rules and limitations, if the Board of Directors decides to do so.
Dividends
Holders of voting common stock are entitled to dividends out of funds legally available for such dividends, when, and if, declared by the Board of Directors. On May 7, 2013 the Company announced that the Board of Directors declared a cash dividend of 2.5 cents per share, paid on May 31, 2013 to stockholders of record on May 28, 2013.
The Companys ability to pay dividends is subject to the restrictions of the Delaware General Corporation Law. Because we are a bank holding company with no significant assets other than our bank subsidiary, we currently depend upon dividends from our bank subsidiary for a substantial portion of our revenues. Various banking laws applicable to the Bank limit the payment of dividends, management fees and other distributions by the Bank to the Company, and may therefore limit our ability to pay dividends on our common stock. Under these laws, the Bank is currently required to request permission from the Federal Reserve prior to payment of a dividend to the Company.
Under the terms of each of our two outstanding trust preferred financings, including our related subordinated debentures, which occurred on June 30, 2003 and April 8, 2004, respectively, we cannot declare or pay any dividends or distributions (other than stock dividends) on, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of our capital stock if (1) an event of default under any of the subordinated debenture agreements has occurred and is continuing, or (2) we defer payment of interest on the trust preferred securities for a period of up to sixty consecutive months as long as we are in compliance with all covenants of the agreement. At June 30, 2013, interest payments on our two trust preferred financings were current.
Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including general business conditions, our financial results, our future prospects, capital requirements, contractual, legal, and regulatory restrictions on the payment of dividends by us to our stockholders or by the Bank to the holding company, and such other factors as our Board of Directors may deem relevant.
Contractual Obligations and Off-Balance Sheet Arrangements
The Company is a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, stand-by letters of credit, and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Companys exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.
At the dates indicated, the following commitments were outstanding:
Table 19
|
|
June 30,
|
|
December 31,
|
|
||
|
|
(In thousands) |
|
||||
Commitments to extend credit: |
|
|
|
|
|
||
Variable |
|
$ |
277,509 |
|
$ |
268,703 |
|
Fixed |
|
43,994 |
|
52,176 |
|
||
Total commitments to extend credit |
|
$ |
321,503 |
|
$ |
320,879 |
|
|
|
|
|
|
|
||
Standby letters of credit |
|
$ |
11,261 |
|
$ |
14,315 |
|
Liquidity
The Bank relies on deposits as its principal source of funds and, therefore, must be in a position to service depositors needs as they arise. Fluctuations in the balances of a few large depositors may cause temporary increases and decreases in liquidity from time to time. We deal with such fluctuations by using existing liquidity sources.
The Banks primary sources of liquidity are its liquid assets. At June 30, 2013, the Company had $30.6 million of cash and cash equivalents, including $23.8 million of interest-bearing deposits at banks (most of which were held at the Federal Reserve Bank of Kansas City) and $5.0 million in short-term time deposits due from banks that could be used for the Banks immediate liquidity needs. Further, the Company had $12.8 million of excess pledging related to customer accounts that require collateral at June 30, 2013 and $219.1 million of unencumbered securities that are available for pledging.
When the level of liquid assets (our primary liquidity) does not meet our liquidity needs, other available sources of liquid assets (our secondary liquidity), including the purchase of federal funds, sales of loans, including jumbo mortgage loans, brokered and internet certificates of deposit, one-way purchases of certificates of deposit through the Certificates of Deposit Account Registry Service (CDARS), discount window borrowings from the Federal Reserve, and our lines of credit with FHLB and other correspondent banks are employed to meet current and presently anticipated funding needs. At June 30, 2013, the Bank had approximately $190.2 million of availability on its FHLB line, $65.0 million of availability on its secured and unsecured federal funds lines with correspondent banks, and $1.8 million of availability with the Federal Reserve discount window.
At June 30, 2013, the Bank had $20.6 million of brokered deposits, $16.0 million that will mature in the third quarter 2017 and $4.6 million that will mature in the second quarter 2018. The Bank continues to evaluate new brokered deposits as a source of low-cost, longer-term funding.
The holding company relies primarily on cash flow from the Bank as a primary source of liquidity. The holding company requires liquidity for the payment of interest on the subordinated debentures, for operating expenses, principally salaries and benefits, for repurchases of our common stock, and, if declared by our Board of Directors, for the payment of dividends to our stockholders. The Bank pays a management fee for its share of expenses paid by the holding company, as well as for services provided by the holding company. As discussed in the Capital Resources section above, v arious banking laws applicable to the Bank limit the payment of dividends by the Bank to the Company.
As of June 30, 2013, the holding company had approximately $4.9 million of cash on hand. Based on current cash flow projections for the holding company, we estimate that cash balances maintained by the holding company are sufficient to meet the operating needs of the holding company through 2015.
Application of Critical Accounting Policies and Accounting Estimates
Managements Discussion and Analysis of Financial Condition and Results of Operations discusses the Companys condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to customers and suppliers, allowance for loan losses, bad debts, investments, financing operations, derivatives, long-lived assets, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which have formed the basis for making such judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from the recorded estimates under different assumptions or conditions. A summary of critical accounting policies and estimates are listed in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of the Companys 2012 Annual Report Form 10-K for the fiscal year ended December 31, 2012. There have been no changes to the critical accounting policies listed in the Companys 2012 Annual Report Form 10-K during 2013.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Our market risk arises primarily from interest rate risk inherent in our lending and deposit taking activities. To that end, management actively monitors and manages our interest rate risk exposure. We have not entered into any market risk sensitive instruments for trading purposes. We manage our interest rate sensitivity by matching the re-pricing opportunities on our earning assets to those on our funding liabilities. We use various asset/liability strategies to manage the re-pricing characteristics of our assets and liabilities designed to ensure that exposure to interest rate fluctuations is limited to our guidelines of acceptable levels of risk-taking. Balance sheet hedging strategies, including the terms and pricing of loans and deposits and managing the deployment of our securities, are used to reduce mismatches in interest rate re-pricing opportunities of portfolio assets and their funding sources.
Net Interest Income Modeling
Our Asset Liability Management Committee, or ALCO, addresses interest rate risk. The committee is composed of members of our senior management. The ALCO monitors interest rate risk by analyzing the potential impact on the net portfolio of equity value and net interest income from potential changes in interest rates, and considers the impact of alternative strategies or changes in balance sheet structure. The ALCO manages our balance sheet in part to maintain the potential impact on net portfolio value and net interest income within acceptable ranges despite changes in interest rates.
Our exposure to interest rate risk is reviewed on at least a quarterly basis by the ALCO and our Board of Directors. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our change in net portfolio value and net interest income in the event of hypothetical changes in interest rates. If potential changes to net portfolio value and net interest income resulting from hypothetical interest rate changes are not within board-approved limits, the board may direct management to adjust the asset and liability mix to bring interest rate risk within board-approved limits.
We monitor and evaluate our interest rate risk position on at least a quarterly basis using net interest income simulation analysis under 100, 200 and 300 basis point change scenarios (see below). Each of these analyses measures different interest rate risk factors inherent in the financial statements.
The Companys primary interest rate risk tool, the Net Interest Income Simulation Analysis, measures interest rate risk and the effect of interest rate changes on net interest income. This analysis incorporates all of the Companys assets and liabilities together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment. Through these simulations, management estimates the impact on net interest income of an immediate change in market rates of 100, 200 and 300 basis point upward or downward over a one year period. Assumptions are made to project rates for new loans and deposits based on historical analysis, management outlook and repricing strategies. Asset prepayments and other market risks are developed from industry estimates of prepayment speeds and other market changes. Since the results of these simulations can be significantly influenced by assumptions utilized, management evaluates the sensitivity of the simulation results to changes in assumptions.
The following table shows the net interest income increase or decrease over the next twelve months as of June 30, 2013 and 2012:
Table 20
MARKET RISK:
|
|
Annualized Net Interest Income |
|
||||
|
|
June 30, 2013 |
|
June 30, 2012 |
|
||
|
|
Amount of Change |
|
Amount of Change |
|
||
|
|
(In thousands) |
|
||||
Rates in Basis Points |
|
|
|
|
|
||
300 |
|
$ |
1,882 |
|
$ |
8,549 |
|
200 |
|
1,034 |
|
5,735 |
|
||
100 |
|
327 |
|
3,138 |
|
||
Static |
|
|
|
|
|
||
(100) |
|
(2,392 |
) |
(3,655 |
) |
||
(200) |
|
(4,236 |
) |
(3,710 |
) |
||
(300) |
|
(4,067 |
) |
(3,297 |
) |
||
Overall, the Company believes it is asset sensitive. At June 30, 2013, the Company is positioned to have a short-term favorable interest income impact in an immediate 300 basis point, 200 basis point or 100 basis point increase in market interest rates. Our asset sensitivity is mostly due to the amount of variable rate loans on the books. The sensitivity in our variable rate loan portfolio is partially mitigated by loan floors, or minimum rates. As rates rise, the loan rate may continue to be at the minimum rate. Management also anticipates that deposit rates, other than time deposit rates, would increase immediately in a rising rate environment, but to a lesser degree than overnight fund rates. In addition to net interest income modeling, management also monitors the impact an instantaneous change in interest rates would have on the economic value of equity. Management anticipates a reduction in the economic value of equity in a raising rate environment as the reduction in the value of fixed rate earning assets would outweigh the increase in value of our low cost deposits.
In a falling rate environment, the Company is projected to have a decrease in net interest income in a 100, 200 or 300 basis point falling rate environment. This is consistent with the expected asset sensitivity of the Company. Because it is not possible for many of the Companys deposit rates to fall 100 to 300 basis points due to most deposit rates already being below 100 basis points at June 30, 2013, the loss of gross interest income in a falling rate environment is expected to exceed the reduction in interest expense in a falling rate environment. Management believes that this scenario is very unlikely. The target federal funds rate is currently set by the Federal Open Market Committee at a rate between 0 and 25 basis points. The prime rate has historically been set at a rate of 300 basis points over the target federal funds rate. The Companys interest rate risk modeling has an assumption that prime would continue to be set at a rate of 300 basis points over the target federal funds rate, therefore, a 200 basis point decline in overall rates would only have between a 0 and 25 basis point decline in both federal funds and the prime rate. Further, other rates that are currently below 1% or 2% (e.g. U.S. Treasuries, LIBOR, etc.) are modeled to not fall below 0% with an overall 100 or 200 basis point decrease in rates. Many of our variable rate loans are set to an index tied to prime, federal funds or LIBOR, therefore, a further decrease in rates would not have a substantial impact on loan yields.
ITEM 4. Controls and Procedures
As of the end of the period covered by this Report, an evaluation was carried out by the Companys management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Companys disclosure controls and procedures (as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934). The Companys disclosure controls were designed to provide reasonable assurance that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, the controls have been designed to provide reasonable assurance of achieving the controls stated goals. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures were effective at June 30, 2013 to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 was (i) accumulated and communicated to management, including the Companys Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
There have been no changes in the Companys internal control over financial reporting (as defined in Rule 15d-15(f) under the Securities Exchange Act of 1934) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
In the ordinary course of our business, we are party to legal actions at various points of the legal process, including appeals. Although the ultimate outcome and amount of liability, if any, including associated costs to defend, of these legal actions cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, and discussions with our legal counsel, it is not probable that the outcome of current legal actions will result in a material liability. In the event that such legal action results in an unfavorable outcome, the resulting liability could have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows.
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) None.
(c) The following table provides information with respect to purchases made by or on behalf of the Company or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our voting common stock during the second quarter 2013. These purchases relate to the net settlement by employees related to vested, restricted stock awards. The Company does not have any existing publicly announced repurchase plans or programs.
|
|
Total shares |
|
Average Price |
|
|
|
|
Purchased (1) |
|
Paid per Share |
|
|
April 1 to April 30 |
|
|
|
$ |
|
|
May 1 to May 31 |
|
249 |
|
13.35 |
|
|
June 1 to June 30 |
|
|
|
|
|
|
|
|
249 |
|
$ |
13.35 |
|
(1) These shares relate to the net settlement by employees related to vested, restricted stock awards.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosure
Not applicable.
None.
Exhibit
|
|
Description |
|
|
|
3.1 |
|
Second Amended and Restated Certification of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrants Form 8-K filed on August 12, 2009). |
|
|
|
3.2 |
|
Certificate of Amendment to the Registrants Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrants Form 8-K filed on October 3, 2011). |
|
|
|
3.3 |
|
Certificate of Amendment to the Registrants Second Amended and Restated Certificate of Incorporation (filed herewith). |
|
|
|
3.4 |
|
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to Registrants Form 8-K filed on May 7, 2008). |
|
|
|
31.1 |
|
Section 302 Certification of Chief Executive Officer. |
|
|
|
31.2 |
|
Section 302 Certification of Chief Financial Officer. |
|
|
|
32.1 |
|
Section 906 Certification of Chief Executive Officer. |
|
|
|
32.2 |
|
Section 906 Certification of Chief Financial Officer. |
|
|
|
101.INS |
|
XBRL Interactive Data File* |
101.SCH |
|
XBRL Interactive Data File* |
101.CAL |
|
XBRL Interactive Data File* |
101.LAB |
|
XBRL Interactive Data File* |
101.PRE |
|
XBRL Interactive Data File* |
101.DEF |
|
XBRL Interactive Data File* |
* As provided in Rule 406T in Regulation S-T, this information is furnished and not filed for purposes of sections 11 and 12 of the Securities and Exchange Act of 1933 and section 18 of the Securities and Exchange Act of 1934.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: July 31, 2013 |
GUARANTY BANCORP |
|
|
|
/s/ CHRISTOPHER G. TREECE |
|
Christopher G. Treece |
|
Executive Vice President, Chief Financial Officer and Secretary
|
Exhibit 3.3
|
CERTIFICATE OF AMENDMENT OF SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF GUARANTY BANCORP GUARANTY BANCORP, a corporation duly organized and existing under the Delaware General Corporation Law (the "Company"), does hereby certify: 1. The first paragraph of Article FOURTH of the Company's Second Amended and Restated Certificate of Incorporation, as amended, is hereby amended in its entirety to read as follows: "FOURTH. The total number of shares of all classes of stock that the corporation shall have authority to issue is 40,000,000, of which 28,750,000 shares of the par value of one-tenth of one cent ($0.001) per share shall be a separate class designated as Voting Common Stock ("Voting Common Stock"), 1,250,000 shares of the par value of one-tenth of one cent ($0.001) shall be a separate class designated as Non-Voting Common Stock ("Non-Voting Common Stock," and together with Voting Common Stock, "Common Stock") and 10,000,000 shares of the par value of one-tenth of one cent ($0.001) shall be a separate class designated as Preferred Stock. Upon the filing and effectiveness (the "Effective Time") pursuant to the General Corporation Law of the State of Delaware of this Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation, each five (5) shares of the Company's issued and outstanding shares of Voting Common Stock, par value $0.001 per share, and Non-Voting Common Stock, par value $0.001 per share, shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one (1) share of Voting Common Stock, par value $0,001 per share, and Non-Voting Common Stock, par value $0,001 per share, respectively, of the Company (the "Reverse Stock Split"). No fractional shares shall be issued in connection with the Reverse Stock Split and, in lieu thereof, any holder of less than one share of Common Stock shall be entitled to receive cash for such holder's fractional share equal to the product obtained by multiplying (a) the closing price per share of the Company's Voting Common Stock as reported on the NASDAQ Stock Market, as of the date this Certificate of Amendment is filed with the Secretary of State of the State of Delaware, by (b) the fraction of one share owned by the stockholder." 2. The foregoing amendment was duly adopted in accordance with the provisions of Sections 242 of the General Corporation Law of the State of Delaware. 3. The foregoing amendment shall be effective as of 5:00 p.m., Eastern Time, on the date this Certificate of Amendment is filed with the Secretary of State of the State of Delaware. IN WITNESS WHEREOF, the Company has caused this certificate to be signed by its duly authorized officer on this 20th day of May, 2013. GUARANTY BANCORP By: Name: Paul W. Taylor Title: President and Chief Executive Officer |
Exhibit 31.1
Section 302 Certification
I, Paul W. Taylor, certify that:
1. I have reviewed this report on Form 10-Q for the quarter ended June 30, 2013 of Guaranty Bancorp;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Dated: July 31, 2013
|
/s/ Paul W. Taylor |
|
Paul W. Taylor |
|
President and Chief Executive Officer |
Exhibit 31.2
Section 302 Certification
I, Christopher G. Treece, certify that:
1. I have reviewed this report on Form 10-Q for the quarter ended June 30, 2013 of Guaranty Bancorp;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Dated: July 31, 2013
|
/s/ Christopher G. Treece |
|
Christopher G. Treece |
|
Executive Vice President, Chief Financial Officer and Secretary |
Exhibit 32.1
Section 906 Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), the undersigned officer of Guaranty Bancorp (the Company ) hereby certifies to his individual knowledge that (1) the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (the Report ) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and (2) that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: July 31, 2013
|
/s/ Paul W. Taylor |
|
Name: Paul W. Taylor |
|
Title: President and Chief Executive Officer |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2
Section 906 Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), the undersigned officer of Guaranty Bancorp (the Company ) hereby certifies to his individual knowledge that (1) the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (the Report ) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and (2) that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: July 31, 2013
|
/s/ Christopher G. Treece |
|
Name: Christopher G. Treece |
|
Title: Executive Vice President, Chief Financial Officer and Secretary |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) and is not being filed as part of the Report or as a separate disclosure document.