x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Washington
(State
or other jurisdiction of
incorporation
or organization)
|
91-1815009
(IRS
Employer Identification No.)
|
PART
I
|
FINANCIAL
INFORMATION
|
3
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
3
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
JUNE
30, 2009 AND DECEMBER 31, 2008
|
3
|
||
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
THREE
AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
|
4
|
||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX
MONTHS ENDED JUNE 30, 2009 AND 2008
|
5
|
||
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX
MONTHS ENDED JUNE 30, 2009 AND YEAR ENDED DECEMBER 31,
2008
|
6
|
||
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
7
|
||
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
19
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
29
|
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
30
|
|
PART
II
|
OTHER
INFORMATION
|
30
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
30
|
|
ITEM
1A.
|
RISK
FACTORS
|
30
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
|
31
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
31
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
31
|
|
ITEM
5.
|
OTHER
INFORMATION
|
31
|
|
ITEM
6.
|
EXHIBITS
|
31
|
|
SIGNATURES
|
31
|
June 30, 2009
|
December 31, 2008
|
|||||||
Assets
|
||||||||
Cash
and due from banks
|
$ | 16,025 | $ | 16,182 | ||||
Interest
bearing deposits in banks
|
11,704 | 582 | ||||||
Federal
funds sold
|
29,350 | 775 | ||||||
Investment
securities available-for-sale (amortized cost of $51,710 and
$52,930)
|
49,324 | 49,493 | ||||||
Investment
securities held-to-maturity (fair value of $7,714 and
$6,418)
|
7,623 | 6,386 | ||||||
Federal
Home Loan Bank stock, at cost
|
3,183 | 2,170 | ||||||
Loans
held for sale
|
14,837 | 11,486 | ||||||
Loans
|
481,310 | 486,318 | ||||||
Allowance
for credit losses
|
10,203 | 7,623 | ||||||
Loans,
net
|
471,107 | 478,695 | ||||||
Premises
and equipment
|
16,477 | 16,631 | ||||||
Foreclosed
real estate
|
10,985 | 6,810 | ||||||
Accrued
interest receivable
|
2,672 | 2,772 | ||||||
Cash
surrender value of life insurance
|
15,959 | 15,718 | ||||||
Goodwill
|
11,282 | 11,282 | ||||||
Other
intangible assets
|
1,516 | 1,587 | ||||||
Other
assets
|
6,982 | 5,266 | ||||||
Total
assets
|
$ | 669,026 | $ | 625,835 | ||||
Liabilities
and Shareholders' Equity
|
||||||||
Deposits:
|
||||||||
Demand,
non-interest bearing
|
$ | 80,175 | $ | 80,066 | ||||
Savings
and interest-bearing demand
|
202,507 | 213,277 | ||||||
Time,
interest-bearing
|
283,662 | 217,964 | ||||||
Total
deposits
|
566,344 | 511,307 | ||||||
Accrued
interest payable
|
1,140 | 1,002 | ||||||
Secured
borrowings
|
1,001 | 1,354 | ||||||
Short-term
borrowings
|
7,500 | 23,500 | ||||||
Long-term
borrowings
|
24,000 | 22,500 | ||||||
Junior
subordinated debentures
|
13,403 | 13,403 | ||||||
Other
liabilities
|
2,415 | 2,695 | ||||||
Total
liabilities
|
615,803 | 575,761 | ||||||
Commitments
and Contingencies (Note 6)
|
||||||||
Shareholders'
Equity
|
||||||||
Common
Stock (par value $1); 25,000,000 shares authorized; 8,435,786 shares
issued and outstanding at June 30, 2009 and 7,317,430 at December 31,
2008
|
8,436 | 7,318 | ||||||
Additional
paid-in capital
|
35,578 | 31,626 | ||||||
Retained
earnings
|
11,358 | 13,937 | ||||||
Accumulated
other comprehensive loss
|
(2,149 | ) | (2,807 | ) | ||||
Total
shareholders' equity
|
53,223 | 50,074 | ||||||
Total
liabilities and shareholders' equity
|
$ | 669,026 | $ | 625,835 |
Three
Months Ended
June
30,
|
Six Months
Ended
June
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Interest
and dividend income
|
||||||||||||||||
Loans
|
$ | 7,454 | $ | 7,681 | $ | 14,977 | $ | 16,033 | ||||||||
Investment
securities and FHLB dividends
|
718 | 593 | 1,473 | 1,169 | ||||||||||||
Deposits
with banks and federal funds sold
|
22 | 5 | 28 | 14 | ||||||||||||
Total
interest and dividend income
|
8,194 | 8,279 | 16,478 | 17,216 | ||||||||||||
Interest
Expense
|
||||||||||||||||
Deposits
|
2,556 | 2,214 | 4,841 | 5,208 | ||||||||||||
Other
borrowings
|
488 | 563 | 1,019 | 1,061 | ||||||||||||
Total
interest expense
|
3,044 | 2,777 | 5,860 | 6,269 | ||||||||||||
Net
Interest Income
|
5,150 | 5,502 | 10,618 | 10,947 | ||||||||||||
Provision
for credit losses
|
3,587 | 2,228 | 5,374 | 2,354 | ||||||||||||
Net
interest income after provision for credit
losses
|
1,563 | 3,274 | 5,244 | 8,593 | ||||||||||||
Non-interest
Income
|
||||||||||||||||
Service
charges on deposits
|
405 | 401 | 822 | 775 | ||||||||||||
Gain
on sales of loans
|
1,382 | 444 | 2,577 | 893 | ||||||||||||
Gain
on sale of investments available-for-sale
|
— | — | 303 | — | ||||||||||||
Other
operating income
|
467 | 447 | 827 | 834 | ||||||||||||
Total
non-interest income
|
2,254 | 1,292 | 4,529 | 2,502 | ||||||||||||
Non-interest
Expense
|
||||||||||||||||
Salaries
and employee benefits
|
3,489 | 3,269 | 6,949 | 6,411 | ||||||||||||
Occupancy
and equipment
|
670 | 693 | 1,326 | 1,387 | ||||||||||||
Write-down
of foreclosed real estate
|
1,734 | — | 2,517 | — | ||||||||||||
Professional
services
|
227 | 226 | 405 | 365 | ||||||||||||
FDIC
and State assessments
|
443 | 39 | 623 | 57 | ||||||||||||
Data
processing
|
301 | 112 | 548 | 165 | ||||||||||||
Other
|
1,266 | 1,166 | 2,384 | 2,277 | ||||||||||||
Total
non-interest expense
|
8,130 | 5,505 | 14,752 | 10,662 | ||||||||||||
Income
(loss) before income taxes
|
(4,313 | ) | (939 | ) | (4,979 | ) | 433 | |||||||||
Provision
(benefit) for income taxes
|
(2,048 | ) | (266 | ) | (2,400 | ) | 58 | |||||||||
Net
Income (Loss)
|
(2,265 | ) | $ | (673 | ) | $ | (2,579 | ) | $ | 375 | ||||||
Earnings
(loss) per common share:
|
||||||||||||||||
Basic
|
$ | (0.31 | ) | $ | (0.09 | ) | $ | (0.35 | ) | $ | 0.05 | |||||
Diluted
|
(0.31 | ) | (0.09 | ) | (0.35 | ) | 0.05 | |||||||||
Weighted
Average shares outstanding:
|
||||||||||||||||
Basic
|
7,335,496 | 7,312,054 | 7,284,984 | 7,305,322 | ||||||||||||
Diluted
|
7,335,496 | 7,344,814 | 7,284,984 | 7,335,902 |
2009
|
2008
|
|||||||
OPERATING
ACTIVITIES
|
||||||||
Net
income (loss)
|
$ | (2,579 | ) | $ | 375 | |||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Provision
for credit losses
|
5,374 | 2,354 | ||||||
Depreciation
and amortization
|
785 | 785 | ||||||
Deferred
income taxes
|
(1 | ) | — | |||||
Origination
of loans held for sale
|
(162,089 | ) | (50,735 | ) | ||||
Proceeds
of loans held for sale
|
161,375 | 53,416 | ||||||
Gain
on sales of loans
|
(2,577 | ) | (893 | ) | ||||
Gain
on sale of investments available for sale
|
(303 | ) | — | |||||
Decrease
in accrued interest receivable
|
100 | 585 | ||||||
Increase
(decrease) in accrued interest payable
|
138 | (393 | ) | |||||
Write-down
of foreclosed real estate
|
3,204 | 61 | ||||||
Other,
net
|
(2,421 | ) | (1,538 | ) | ||||
Net
cash provided by operating activities
|
1,006 | 4,017 | ||||||
INVESTING
ACTIVITIES
|
||||||||
Net
increase in federal funds sold
|
(28,575 | ) | — | |||||
Net
increase in interest bearing balances with banks
|
(11,122 | ) | (213 | ) | ||||
Purchase
of securities held-to-maturity
|
(1,314 | ) | (369 | ) | ||||
Purchase
of securities available-for-sale
|
(10,056 | ) | (6,533 | ) | ||||
Proceeds
from maturities of investments held-to-maturity
|
75 | 77 | ||||||
Proceeds
from sales of securities available-for-sale
|
6,679 | — | ||||||
Proceeds
from maturities of securities available-for-sale
|
3,919 | 3,473 | ||||||
Net
increase in loans
|
(5,198 | ) | (18,123 | ) | ||||
Additions
to premises and equipment
|
(466 | ) | (1,953 | ) | ||||
Net
cash used in investing activities
|
(46,058 | ) | (23,641 | ) | ||||
FINANCING
ACTIVITIES
|
||||||||
Net
increase in deposits
|
55,037 | 955 | ||||||
Net
increase (decrease) in short-term borrowings
|
(17,500 | ) | 21,405 | |||||
Net
decrease in secured borrowings
|
(353 | ) | (30 | ) | ||||
Proceeds
from issuance of long-term borrowings
|
3,000 | 6,500 | ||||||
Repayments
of long-term borrowings
|
— | (5,000 | ) | |||||
Issuance
of common stock
|
5,044 | 624 | ||||||
Repurchase
and retirement of common stock
|
— | (26 | ) | |||||
Payment
of cash dividends
|
(333 | ) | (4,955 | ) | ||||
Net
cash provided by financing activities
|
44,895 | 19,473 | ||||||
Net
decrease in cash and due from banks
|
(157 | ) | (151 | ) | ||||
Cash
and due from Banks
|
||||||||
Beginning
of period
|
16,182 | 15,044 | ||||||
End
of period
|
$ | 16,025 | $ | 14,893 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Cash
payments for:
|
||||||||
Interest
|
$ | 5,722 | $ | 6,662 | ||||
Income
taxes
|
90 | 1,073 | ||||||
SUPPLEMENTAL
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Change
in fair value of securities available-for-sale, net of tax
|
$ | 693 | $ | (522 | ) | |||
Foreclosed
real estate acquired in settlement of loans
|
(7,379 | ) | (341 | ) | ||||
Reclass
of long-term borrowings to short-term borrowings
|
1,500 | 2,500 |
Shares
of
Common
Stock |
Common
Stock
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss
|
Total
|
|||||||||||||||||||
Balance
January 1, 2008
|
6,606,545 | $ | 6,607 | $ | 27,163 | $ | 17,807 | $ | (878 | ) | $ | 50,699 | ||||||||||||
Other
comprehensive income (loss):
|
||||||||||||||||||||||||
Net
income
|
951 | 951 | ||||||||||||||||||||||
Unrealized
holding loss on securities of $2,106 (net of tax of $1,084) less
reclassification adjustment for net losses included in net income of $109
(net of tax of $56)
|
(1,997 | ) | (1,997 | ) | ||||||||||||||||||||
Amortization
of unrecognized prior service costs and net (gains)/losses
|
68 | 68 | ||||||||||||||||||||||
Comprehensive
income (loss)
|
(978 | ) | ||||||||||||||||||||||
Stock
options exercised
|
6,656 | 6 | 52 | 58 | ||||||||||||||||||||
Issuance
of common stock
|
41,672 | 42 | 524 | 566 | ||||||||||||||||||||
Common
stock repurchased and retired
|
(2,300 | ) | (2 | ) | (24 | ) | (26 | ) | ||||||||||||||||
Stock
compensation expense
|
87 | 87 | ||||||||||||||||||||||
Cash
dividends declared ($0.05 per share
|
(333 | ) | (333 | ) | ||||||||||||||||||||
Stock
dividends declared (10%)
|
664,857 | 665 | 3,823 | (4,488 | ) | — | ||||||||||||||||||
Tax
benefit from exercise of stock options
|
1 | 1 | ||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Balance
December 31, 2008
|
7,317,430 | $ | 7,318 | $ | 31,626 | $ | 13,937 | $ | (2,807 | ) | $ | 50,074 | ||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||
Net
loss
|
(2,579 | ) | (2,579 | ) | ||||||||||||||||||||
Unrealized
holding gain on securities of $893 (net of tax of $589) less
reclassification adjustment for net gains included in net income of $200
(net of tax of $103)
|
693 | 693 | ||||||||||||||||||||||
Amortization
of unrecognized prior service
costs and net (gains)/losses
|
(35 | ) | (35 | ) | ||||||||||||||||||||
Comprehensive
loss
|
(1,921 | ) | ||||||||||||||||||||||
Issuance
of common stock
|
1,118,356 | 1,118 | 3,926 | 5,044 | ||||||||||||||||||||
Stock
compensation expense
|
26 | 26 | ||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Balance
June 30, 2009
|
8,435,786 | $ | 8,436 | $ | 35,578 | $ | 11,358 | $ | (2,149 | ) | $ | 53,223 |
Three
Months Ended
June
30,
|
Six
Month Ended
June
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Basic:
|
||||||||||||||||
Net
income (loss)
|
$ | (2,265 | ) | $ | (673 | ) | $ | (2,579 | ) | $ | 375 | |||||
Weighted
average shares outstanding
|
7,335,496 | 7,312,054 | 7,284,984 | 7,305,322 | ||||||||||||
Basic
earnings (loss) per share
|
$ | (0.31 | ) | $ | (0.09 | ) | $ | (0.35 | ) | $ | 0.05 | |||||
Diluted:
|
||||||||||||||||
Net
income (loss)
|
$ | (2,265 | ) | $ | (673 | ) | $ | (2,579 | ) | $ | 375 | |||||
Weighted
average shares outstanding
|
7,335,496 | 7,312,054 | 7,284,984 | 7,305,322 | ||||||||||||
Effect
of dilutive stock options
|
— | 32,760 | — | 30,580 | ||||||||||||
Weighted
average shares outstanding assuming dilution
|
7,335,496 | 7,344,814 | 7,284,984 | 7,335,902 | ||||||||||||
Diluted
earnings (loss) per share
|
$ | (0.31 | ) | $ | (0.09 | ) | $ | (0.35 | ) | $ | 0.05 |
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair
Value
|
||||||||||||
Securities Held-to-Maturity
|
||||||||||||||||
June
30, 2009
|
||||||||||||||||
State
and municipal securities
|
$ | 7,064 | $ | 76 | $ | 6 | $ | 7,134 | ||||||||
Mortgage-backed
securities
|
559 | 21 | — | 580 | ||||||||||||
Total
|
$ | 7,623 | $ | 97 | $ | 6 | $ | 7,714 | ||||||||
December
31, 2008
|
||||||||||||||||
State
and municipal securities
|
$ | 5,750 | $ | 40 | $ | 12 | $ | 5,778 | ||||||||
Mortgage-backed
securities
|
636 | 5 | 1 | 640 | ||||||||||||
Total
|
$ | 6,386 | $ | 45 | $ | 13 | $ | 6,418 | ||||||||
Securities
Available-for-Sale
|
||||||||||||||||
June
30, 2009
|
||||||||||||||||
U.S.
Government securities
|
$ | 1,941 | $ | 61 | $ | — | $ | 2,002 | ||||||||
State
and municipal securities
|
19,630 | 347 | 300 | 19,677 | ||||||||||||
Mortgage-backed
securities
|
28,117 | 122 | 2,638 | 25,601 | ||||||||||||
Corporate
securities
|
2,022 | 29 | 7 | 2,044 | ||||||||||||
Total
|
$ | 51,710 | $ | 559 | $ | 2,945 | $ | 49,324 | ||||||||
December
31, 2008
|
||||||||||||||||
U.S.
Government securities
|
$ | 1,671 | $ | 88 | $ | — | $ | 1,759 | ||||||||
State
and municipal securities
|
19,876 | 158 | 450 | 19,584 | ||||||||||||
Mortgage-backed
securities
|
30,370 | 330 | 3,495 | 27,205 | ||||||||||||
Corporate
securities
|
1,013 | — | 68 | 945 | ||||||||||||
Total
|
$ | 52,930 | $ | 576 | $ | 4,013 | $ | 49,493 |
Less than 12 Months
|
12 months or More
|
Total
|
||||||||||||||||||||||
Fair
Value |
Unrealized
Losses
|
Fair
Value
|
Unrealized
Losses |
Fair
Value
|
Unrealized
Losses
|
|||||||||||||||||||
Held-to-Maturity
|
||||||||||||||||||||||||
June
30 2009
|
||||||||||||||||||||||||
State
and municipal securities
|
$ | 384 | $ | 6 | $ | — | $ | — | $ | 384 | $ | 6 | ||||||||||||
Mortgage-backed
securities
|
— | — | — | — | — | — | ||||||||||||||||||
Total
|
$ | 384 | $ | 6 | $ | — | $ | — | $ | 384 | $ | 6 | ||||||||||||
December
31, 2008
|
||||||||||||||||||||||||
State
and municipal securities
|
$ | 378 | $ | 12 | $ | — | $ | — | $ | 378 | $ | 12 | ||||||||||||
Mortgage-backed
securities
|
160 | 1 | — | — | 160 | 1 | ||||||||||||||||||
Total
|
$ | 538 | $ | 13 | $ | — | $ | — | $ | 538 | $ | 13 | ||||||||||||
Available-for-Sale
|
||||||||||||||||||||||||
June
30, 2009
|
||||||||||||||||||||||||
State
and municipal securities
|
$ | 5,287 | $ | 78 | $ | 3,027 | $ | 222 | $ | 8,314 | $ | 300 | ||||||||||||
Mortgage-backed
securities
|
8,784 | 307 | 8,192 | 2,331 | 16,976 | 2,638 | ||||||||||||||||||
Corporate
securities
|
— | — | 492 | 7 | 492 | 7 | ||||||||||||||||||
Total
|
$ | 14,071 | $ | 385 | $ | 11,711 | $ | 2,560 | $ | 25,782 | $ | 2,945 | ||||||||||||
December
31, 2008
|
||||||||||||||||||||||||
State
and municipal securities
|
$ | 8,756 | $ | 349 | $ | 889 | $ | 101 | $ | 9,645 | $ | 450 | ||||||||||||
Mortgage-backed
securities
|
10,522 | 3,006 | 4,302 | 489 | 14,824 | 3,495 | ||||||||||||||||||
Corporate
securities
|
945 | 68 | — | — | 945 | 68 | ||||||||||||||||||
Total
|
$ | 20,223 | $ | 3,423 | $ | 5,191 | $ | 590 | $ | 25,414 | $ | 4,013 |
Three
Months
Ended
June
30,
|
Six
Months
Ended
June
30,
|
Twelve
Months
Ended
Ended
December 31,
|
||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2008
|
||||||||||||||||
Balance
at beginning of period
|
$ | 8,040 | $ | 5,120 | $ | 7,623 | $ | 5,007 | $ | 5,007 | ||||||||||
Provision
for credit losses
|
3,587 | 2,228 | 5,374 | 2,354 | 4,791 | |||||||||||||||
Charge-offs
|
(1,430 | ) | (708 | ) | (2,808 | ) | (727 | ) | (2,226 | ) | ||||||||||
Recoveries
|
6 | 14 | 14 | 20 | 51 | |||||||||||||||
Net
charge-offs
|
(1,424 | ) | (694 | ) | (2,794 | ) | (707 | ) | (2,175 | ) | ||||||||||
Balance
at end of period
|
$ | 10,203 | $ | 6,654 | $ | 10,203 | $ | 6,654 | $ | 7,623 |
Shares
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contractual
Term ( Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
June
30, 2009
|
||||||||||||||||
Outstanding
beginning of period
|
684,527 | $ | 12.58 | |||||||||||||
Granted
|
— | — | ||||||||||||||
Exercised
|
— | — |
|
|
||||||||||||
Forfeited
|
(24,805 | ) | 14.05 | |||||||||||||
Expired
|
— | — | ||||||||||||||
Outstanding
end of period
|
659,722 | $ | 12.52 | 4.1 | — | |||||||||||
Exercisable
end of period
|
572,382 | $ | 12.37 | 3.5 | — | |||||||||||
June
30, 2008
|
||||||||||||||||
Outstanding
beginning of period
|
689,868 | $ | 12.55 | |||||||||||||
Granted
|
— | — | ||||||||||||||
Exercised
|
(7,322 | ) | 7.93 | |||||||||||||
Forfeited
|
(1,650 | ) | 14.85 | |||||||||||||
Outstanding
end of period
|
680,896 | $ | 12.59 | 5.2 | — | |||||||||||
Exercisable
end of period
|
549,337 | $ | 12.29 | 4.4 | — |
2009
|
2008
|
|||||||||||||||
Shares
|
Weighted
Average Fair Value |
Shares
|
Weighted
Average Fair Value |
|||||||||||||
Non-vested
beginning of period
|
126,940 | $ | 1.62 | 193,884 | $ | 1.80 | ||||||||||
Granted
|
— | — | — | — | ||||||||||||
Vested
|
(20,735 | ) | 2.01 | (61,114 | ) | 2.16 | ||||||||||
Forfeited
|
(18,865 | ) | 1.51 | (1,210 | ) | 1.85 | ||||||||||
Non-vested
end of period
|
87,340 | $ | 1.55 | 131,560 | $ | 1.63 |
·
|
FSP
FAS 107-1 and APB 28-1, Interim Disclosures about the
Fair Value of Financial Instruments, amends SFAS No. 107, Disclosures about Fair Value
of Financial Instruments, to require an entity to provide
disclosures about fair values of financial instruments in interim
financial statements. This FSP is effective for interim periods
ending after June 15, 2009 with early adoption permitted for periods
ending after March 15, 2009. The Company adopted the FSP as of
June 30, 2009. Adoption of this FSP did not have a material
impact on the Company’s consolidated financial
statements.
|
·
|
FSP
FAS 115-2 and FAS 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments, applies to investments in debt
securities for which other-than-temporary impairments may be
recorded. If any entity’s management asserts that it does not
have the intent to sell a debt security and it is more likely than not
that it will not have to sell the security before recovery of its cost
basis, then an entity may separate other-than-temporary impairments into
two components: 1) the amount related to credit losses recorded in
earnings, and 2) all other amounts recorded in other comprehensive
income. This FSP is effective for interim periods ending after
June 15, 2009 with early adoption permitted. The Company
adopted the FSP as of June 30, 2009. Adoption of this FSP did
not have a material impact on the Company’s consolidated financial
statements.
|
·
|
FSP
157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not
Orderly, provides additional guidance for estimating fair value in
accordance with SFAS No. 157, Fair Value
Measurements. This FSP also provides guidance on
identifying circumstances that indicate a transaction is not
orderly. The provisions of FSP FAS 157-4 are effective for
interim periods ending after June 15, 2009 with early adoption
permitted. The Company adopted the FSP as of June 30,
2009. Adoption of this FSP did not have a material impact on
the Company’s consolidated financial
statements.
|
Three
months ended
June
30,
|
Six
months ended
June
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
periodic pension cost:
|
||||||||||||||||
Service
cost
|
$ | 30 | $ | 23 | $ | 114 | $ | 46 | ||||||||
Interest
cost
|
18 | 12 | 61 | 24 | ||||||||||||
Amortization
of prior service cost
and
net (gains)/losses
|
20 | 18 | (35 | ) | 35 | |||||||||||
Net
periodic pension cost
|
$ | 68 | $ | 53 | $ | 140 | $ | 105 |
Readily Available
Market Prices Level 1
|
Observable
Market Prices Level 2
|
Significant
Unobservable Inputs
Level 3
|
Total
|
|||||||||||||
June
30, 2009
|
||||||||||||||||
Securities
available-for-sale
|
||||||||||||||||
U.S.
Government securities
|
$ | — | $ | 2,002 | $ | — | $ | 2,002 | ||||||||
State
and municipal securities
|
— | 19,677 | — | 19,677 | ||||||||||||
Mortgage-backed
securities
|
— | 25,601 | — | 25,601 | ||||||||||||
Corporate
securities
|
— | 2,044 | — | 2,044 | ||||||||||||
Total
|
$ | — | $ | 49,324 | $ | — | $ | 49,324 | ||||||||
December
31, 2008
|
||||||||||||||||
Securities
available-for-sale
|
||||||||||||||||
U.S.
Government securities
|
$ | — | $ | 1,759 | $ | — | $ | 1,759 | ||||||||
State
and municipal securities
|
— | 19,584 | — | 19,584 | ||||||||||||
Mortgage-backed
securities
|
— | 27,205 | — | 27,205 | ||||||||||||
Corporate
securities
|
— | 945 | — | 945 | ||||||||||||
Total
|
$ | — | $ | 49,493 | $ | — | $ | 49,493 |
Readily
Available
Market
Prices
Level
1
|
Observable
Market Prices Level
2
|
Significant
Unobservable Inputs
Level
3
|
Total
|
|||||||||||||
June
30, 2009
|
||||||||||||||||
Impaired
loans
|
$ | — | $ | — | $ | 5,063 | $ | 5,063 | ||||||||
OREO
|
$ | — | $ | — | $ | 12,111 | $ | 12,111 | ||||||||
December
31, 2008
|
||||||||||||||||
Impaired
loans
|
$ | — | $ | — | $ | 9,532 | $ | 9,532 | ||||||||
OREO
|
$ | — | $ | — | $ | 6,810 | $ | 6,810 |
2009
|
2008
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
Financial
Assets
|
||||||||||||||||
Cash
and due from banks, interest-bearing deposits in banks,
and federal funds sold
|
$ | 57,079 | $ | 57,079 | $ | 17,539 | $ | 17,539 | ||||||||
Securities
available for sale
|
49,324 | 49,324 | 49,493 | 49,493 | ||||||||||||
Securities
held to maturity
|
7,623 | 7,714 | 6,386 | 6,418 | ||||||||||||
Loans
held for sale
|
14,837 | 14,899 | 11,486 | 11,752 | ||||||||||||
Loans,
net
|
471,107 | 375,917 | 478,695 | 440,597 | ||||||||||||
Financial
Liabilities
|
||||||||||||||||
Deposits
|
$ | 566,344 | $ | 568,566 | $ | 511,307 | $ | 512,926 | ||||||||
Short-term
borrowings
|
7,500 | 7,636 | 23,500 | 23,779 | ||||||||||||
Long-term
borrowings
|
24,000 | 24,554 | 22,500 | 23,033 | ||||||||||||
Secured
borrowings
|
1,001 | 1,001 | 1,354 | 1,354 | ||||||||||||
Junior
subordinated debentures
|
13,403 | 6,732 | 13,403 | 7,113 |
|
·
|
Total
assets were $669,026,000 at June 30, 2009, an increase of $43,191,000, or
6.90%, over year-end 2008. Growth in interest bearing deposits
in banks and federal funds sold were the primary contributors to overall
asset growth.
|
|
·
|
The
Company remains well capitalized with a total risk based capital ratio of
12.19% at June 30, 2009, compared to 11.79% at December 31,
2008. During the second quarter, the Company raised capital by
issuing common shares and warrants in connection with the initial closings
of its private offering, with proceeds to the Company of $5,006,000,
further strengthening its capital ratios. See Footnote 10 to
the condensed consolidated financial statements for further
information.
|
|
·
|
Non-performing
assets increased $6,174,000, or 26.0%, to $29,934,000 at June 30,
2009. The increase is primarily attributable to non-performing
construction and land development loans, which represented $24,044,000, or
80.3%, of non-performing assets.
|
|
·
|
The
Company continues to be successful in reducing overall exposure to
construction, land acquisition and other land loans, which declined $9.1
million during the six months ended June 30, 2009. This segment
of the portfolio totaling $91.6 million at June 30, 2009, accounts for
approximately 18.5% of the loan
portfolio.
|
|
·
|
Total
deposits increased $55,037,000, or 10.8%, for the six months ended June
30, 2009, compared to December 31, 2008, which reflects management’s
continued focus on a strong deposit base and conditions in our market
area.
|
|
·
|
As
a result of deposit growth, lower borrowings and increased borrowing
capacity with the Federal Reserve, the Company’s liquidity ratio of
approximately 33% at June 30, 2009 translates into over $220 million in
available funding for general operations and to meet loan and deposit
needs.
|
|
·
|
Return
on average assets and return on average equity were (0.40%) and (5.16%),
respectively, for the six months ended June 30, 2009 due to increases in
the provision for credit losses and foreclosed real estate (“OREO”)
write-downs, which is reflective of the deterioration in credit
quality.
|
2009
|
2008
|
|||||||||||||||||||||||
|
Interest
|
Interest
|
||||||||||||||||||||||
(dollars
in thousands)
|
Average
|
Income
|
Avg
|
Average
|
Income
|
Avg
|
||||||||||||||||||
|
Balance
|
(Expense)
|
Rate
|
Balance
|
(Expense)
|
Rate
|
||||||||||||||||||
Interest
Earning Assets
|
||||||||||||||||||||||||
Loans
(1)
|
$ | 506,015 | $ | 15,095 | * | 5.97 | % | $ | 461,672 | $ | 16,121 | * | 6.98 | % | ||||||||||
Taxable
securities
|
33,400 | 962 | 5.76 | 31,126 | 790 | 5.08 | ||||||||||||||||||
Tax-exempt
securities
|
24,397 | 774 | * | 6.35 | 18,278 | 557 | * | 6.09 | ||||||||||||||||
Federal
Home Loan Bank Stock
|
3,087 | — | — | 1,956 | 11 | 1.12 | ||||||||||||||||||
Interest
earning balances with banks
|
25,665 | 28 | 0.22 | 1,074 | 14 | 2.61 | ||||||||||||||||||
Total
interest earning assets
|
$ | 592,564 | $ | 16,859 | 5.69 | % | $ | 514,106 | $ | 17,493 | 6.81 | % | ||||||||||||
Cash
and due from banks
|
10,285 | 11,545 | ||||||||||||||||||||||
Bank
premises and equipment (net)
|
16,590 | 16,101 | ||||||||||||||||||||||
Other
real estate owned
|
7,524 | — | ||||||||||||||||||||||
Other
assets
|
30,942 | 33,930 | ||||||||||||||||||||||
Allowance
for credit losses
|
(8,224 | ) | (5,108 | ) | ||||||||||||||||||||
Total
assets
|
$ | 649,681 | $ | 540,574 | ||||||||||||||||||||
Interest
Bearing Liabilities
|
||||||||||||||||||||||||
Savings
and interest bearing demand
|
$ | 202,572 | $ | (912 | ) | 0.90 | % | $ | 202,979 | $ | (1,558 | ) | 1.54 | % | ||||||||||
Time
deposits
|
265,779 | (3,929 | ) | 2.96 | 174,389 | (3,650 | ) | 4.19 | ||||||||||||||||
Total
deposits
|
468,351 | (4,841 | ) | 2.07 | 377,368 | (5,208 | ) | 2.76 | ||||||||||||||||
Short-term
borrowings
|
6,365 | (26 | ) | 0.82 | 17,316 | (239 | ) | 2.76 | ||||||||||||||||
Long-term
borrowings
|
36,497 | (668 | ) | 3.66 | 20,533 | (397 | ) | 3.87 | ||||||||||||||||
Secured
borrowings
|
1,338 | (42 | ) | 6.28 | 1,403 | (49 | ) | 6.99 | ||||||||||||||||
Junior
subordinated debentures
|
13,403 | (283 | ) | 4.22 | 13,403 | (376 | ) | 5.61 | ||||||||||||||||
Total
borrowings
|
57,603 | (1,019 | ) | 3.54 | 52,655 | (1,061 | ) | 4.03 | ||||||||||||||||
Total
interest-bearing liabilities
|
$ | 525,954 | $ | (5,860 | ) | 2.23 | % | $ | 430,023 | $ | (6,269 | ) | 2.92 | % | ||||||||||
Demand
deposits
|
71,782 | 82,964 | ||||||||||||||||||||||
Other
liabilities
|
1,928 | 5,433 | ||||||||||||||||||||||
Shareholders’
equity
|
50,017 | 52,154 | ||||||||||||||||||||||
Total
liabilities and shareholders’ equity
|
$ | 649,681 | $ | 570,574 | ||||||||||||||||||||
Net
interest income
|
$ | 10,999 | * | $ | 11,224 | * | ||||||||||||||||||
Net
interest spread
|
3.71 | % | 4.37 | % | ||||||||||||||||||||
Net
interest margin
|
3.58 | % | 4.26 | % | ||||||||||||||||||||
Tax
equivalent adjustment
|
$ | 381 | * | $ | 277 | * |
(in thousands)
|
June 30,
2009
|
December 31,
2008
|
June 30,
2008
|
|||||||||
Accruing
loans past due 90 days or more
|
$ | 1,778 | $ | 2,274 | $ | — | ||||||
Non-accrual
loans
|
17,171 | 14,676 | 8,485 | |||||||||
Foreclosed
real estate
|
10,985 | 6,810 | 280 | |||||||||
TOTAL
|
$ | 29,934 | $ | 23,760 | $ | 8,765 |
June
30,
2009
|
December
31,
2008
|
|||||||
Commercial
and industrial
|
$ | 88,671 | $ | 91,888 | ||||
Construction,
land development and other land loans
|
91,590 | 100,725 | ||||||
Real
estate residential
|
122,333 | 108,420 | ||||||
Real
estate commercial
|
185,380 | 188,444 | ||||||
Installment
|
7,223 | 7,293 | ||||||
Credit
cards and overdrafts
|
1,848 | 1,959 | ||||||
Less
unearned income
|
(898 | ) | (925 | ) | ||||
Total
Loans
|
496,147 | 497,804 | ||||||
Allowance
for credit losses
|
(10,203 | ) | (7,623 | ) | ||||
Net
Loans
|
$ | 485,944 | $ | 490,181 |
June
30,
2009
|
December
31,
2008
|
|||||||
Non-interest
bearing demand
|
$ | 80,175 | $ | 80,066 | ||||
Interest
bearing demand
|
78,538 | 68,113 | ||||||
Money
market deposits
|
80,523 | 93,216 | ||||||
Savings
deposits
|
43,446 | 51,948 | ||||||
Time
deposits
|
283,662 | 217,964 | ||||||
Total
deposits
|
$ | 566,344 | $ | 511,307 |
Company
|
Bank
|
Requirements
|
||||||||||||||||||||||
6/30/09
|
12/31/08
|
6/30/09
|
12/31/08
|
Adequately
Capitalized
|
Well
Capitalized
|
|||||||||||||||||||
Tier
1 leverage ratio
|
8.54 | % | 8.87 | % | 8.52 | % | 8.75 | % | 4 | % | 5 | % | ||||||||||||
Tier
1 risk-based capital ratio
|
10.93 | % | 10.54 | % | 10.90 | % | 10.40 | % | 4 | % | 6 | % | ||||||||||||
Total
risk-based capital ratio
|
12.19 | % | 11.79 | % | 12.16 | % | 11.65 | % | 8 | % | 10 | % |
PACIFIC
FINANCIAL CORPORATION
|
|||
DATED: August
10, 2009
|
By:
|
/s/
Dennis
A. Long
|
|
Dennis
A. Long
|
|||
Chief
Executive Officer
|
|||
By:
|
/s/
Denise
Portmann
|
||
Denise
Portmann
|
|||
Chief
Financial
Officer
|
EXHIBIT
NO.
|
EXHIBIT
|
|
31.1
|
Certification
of CEO under Rule 13a – 14(a) of the Exchange Act.
|
|
31.2
|
Certification
of CFO under Rule 13a – 14(a) of the Exchange Act.
|
|
32
|
Certification
of CEO and CFO under 18 U.S.C. Section
1350.
|