Document And Entity Information
v4.2.117.0
Document And Entity Information
9 Months Ended
Sep. 30, 2011
Oct. 31, 2011
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2011
Document Fiscal Year Focus 2011  
Document Fiscal Period Focus Q3  
Entity Registrant Name BankGuam Holding Co  
Entity Central Index Key 0001527383  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   8,775,447

Condensed Consolidated Statements Of Condition
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Condensed Consolidated Statements Of Condition (USD $)
In Thousands
Sep. 30, 2011
Dec. 31, 2010
ASSETS    
Cash and due from banks $ 33,701 $ 32,102
Federal funds sold 5,000 10,000
Interest bearing deposits in banks 83,809 59,376
Total cash and cash equivalents 122,510 101,478
Interest bearing deposits in banks 150 1,150
Investment securities available for sale 259,744 191,312
Investment securities held to maturity 50,527 28,366
Federal Home Loan Bank stock, at cost 2,198 2,198
Loans, net of allowance for loan losses (9/30/11: $10,208 and 12/31/10: $9,408) 610,396 611,139
Accrued interest receivable 3,348 6,723
Premises and equipment, net 17,816 18,713
Goodwill 783 783
Other assets 35,755 28,739
Total Assets 1,103,227 990,601
LIABILITIES AND STOCKHOLDERS' EQUITY    
Non-interest bearing 254,875 232,956
Interest bearing 746,323 656,319
Total deposits 1,001,198 889,275
Accrued interest payable 286 233
Federal Home Loan Bank advances 10,000 15,000
Other liabilities 3,021 1,741
Total liabilities 1,014,505 906,249
Commitments and contingencies    
Stockholders' equity:    
Common stock $0.2083 par value; 48,000 shares authorized; 8,807 and 8,747 shares issued and 8,775 and 8,715 shares outstanding at 9/30/11 and 12/31/10, respectively 1,835 1,830
Additional paid-in capital 14,088 13,683
Retained earnings 71,976 70,532
Accumulated other comprehensive income (loss) 1,113 (1,403)
Stockholders' equity excluding treasury stock 89,012 84,642
Common stock in treasury, at cost (32 shares) (290) (290)
Total stockholders' equity 88,722 84,352
Liabilities and Equity $ 1,103,227 $ 990,601

Condensed Consolidated Statements Of Condition (Parenthetical)
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Condensed Consolidated Statements Of Condition (Parenthetical) (USD $)
In Thousands, except Share data
Sep. 30, 2011
Dec. 31, 2010
Condensed Consolidated Statements Of Condition [Abstract]    
Loans, allowance for loan losses $ 10,208 $ 9,408
Common stock, par value $ 0.2083 $ 0.2083
Common stock, shares authorized 48,000,000 48,000,000
Common stock, shares issued 8,807,000 8,747,000
Common stock, shares outstanding 8,775,000 8,715,000
Treasury stock, shares 32,000 32,000

Condensed Consolidated Statements Of Income
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Condensed Consolidated Statements Of Income (USD $)
In Thousands, except Share data
3 Months Ended 9 Months Ended
Sep. 30, 2011
Sep. 30, 2010
Sep. 30, 2011
Sep. 30, 2010
Interest income:        
Loans $ 10,974 $ 11,520 $ 33,480 $ 31,934
Investment securities 1,532 1,211 4,244 4,452
Federal funds sold 2 3 7 10
Deposits with banks 93 118 303 462
Total interest income 12,601 12,852 38,034 36,858
Interest expense:        
Time deposits 122 161 351 538
Savings deposits 1,218 1,110 3,537 3,653
Other borrowed funds 101 140 330 435
Total interest expense 1,441 1,411 4,218 4,626
Net interest income 11,160 11,441 33,816 32,232
Provision for loan losses 1,275 750 3,225 2,225
Net interest income, after provision for loan losses 9,885 10,691 30,591 30,007
Non-interest income:        
Service charges and fees 995 907 3,086 2,889
Other income 1,998 2,304 5,995 6,006
Total non-interest income 2,993 3,211 9,081 8,895
Non-interest expenses:        
Salaries and employee benefits 5,571 4,919 16,269 14,662
Occupancy 1,610 1,459 4,488 4,239
Furniture and equipment 1,151 1,105 3,590 3,870
General, administrative and other 2,953 2,960 9,302 9,283
Total non-interest expenses 11,285 10,443 33,649 32,054
Income before income taxes 1,593 3,459 6,023 6,848
Income tax expense 318 865 1,272 1,731
Net income $ 1,275 $ 2,594 $ 4,751 $ 5,117
Earnings per share:        
Basic $ 0.15 $ 0.30 $ 0.54 $ 0.59
Diluted $ 0.15 $ 0.29 $ 0.54 $ 0.58
Dividends Declared Per Share $ 0.125 $ 0.125 $ 0.375 $ 0.375
Basic Weighted Average Shares 8,773 8,699 8,744 8,686
Diluted Weighted Average Shares 8,784 8,824 8,748 8,811

Condensed Consolidated Statements Of Stockholders' Equity
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Condensed Consolidated Statements Of Stockholders' Equity (USD $)
In Thousands
Common Stock [Member]
Paid-In Capital [Member]
Accumulated Other Comprehensive Income/(Loss) [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Comprehensive Income [Member]
Total
Beginning Balances at Dec. 31, 2009 $ 1,820 $ 13,357 $ (1,781) $ 67,789 $ (290)   $ 80,895
Comprehensive income:              
Net income 0 0 0 5,117 0 5,117 5,117
Other comprehensive income, net of tax:              
Unrealized gain on available for sale securities 0 0 2,123 0 0 2,123 2,123
Comprehensive income           7,240  
Issuances under Employee Share Purchase Plan 7 240 0 0 0   247
Cash dividends on common stock 0 0 0 (3,260) 0   (3,260)
Ending Balances at Sep. 30, 2010 1,827 13,597 342 69,646 (290)   85,122
Beginning Balances at Dec. 31, 2010 1,830 13,683 (1,403) 70,532 (290)   84,352
Comprehensive income:              
Net income 0 0 0 4,751 0 4,751 4,751
Other comprehensive income, net of tax:              
Unrealized gain on available for sale securities 0 0 2,516 0 0 2,516 2,516
Comprehensive income           7,267  
Issuances under Employee Share Purchase Plan 5 405 0 0 0   410
Cash dividends on common stock 0 0 0 (3,307) 0   (3,307)
Ending Balances at Sep. 30, 2011 $ 1,835 $ 14,088 $ 1,113 $ 71,976 $ (290)   $ 88,722

Condensed Consolidated Statements Of Cash Flows
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Condensed Consolidated Statements Of Cash Flows (USD $)
In Thousands
9 Months Ended
Sep. 30, 2011
Sep. 30, 2010
Cash flows from operating activities:    
Net income $ 4,751 $ 5,117
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Provision for loan losses 3,225 2,225
Depreciation and amortization 2,230 2,286
Amortization of fees, discounts and premiums 1,296 1,267
Writedown and loss on sales of foreclosed assets, net 112 125
(Increase) decrease in mortgage servicing rights (80) 42
Realized gain on sale of available-for-sale securities (667) (1,854)
Gain on disposal of premises and equipment (87) (17)
Net change in:    
Accrued interest receivable 3,375 (1,241)
Other assets (8,568) 1,104
Accrued interest payable 53 (125)
Other liabilities 1,278 1,305
Net cash provided by operating activities 6,918 10,234
Cash flows from investing activities:    
Net change in interest bearing deposits with banks 1,000 6,150
Purchases of securities available for sale (247,495) (164,400)
Proceeds from sales of securities available for sale 114,713 211,416
Maturities, prepayments and calls of securities available for sale 37,370 15,561
Maturities, prepayments and calls of securities held to maturity 8,005 6,439
Loan originations and principal collections, net (23,077) (94,325)
Proceeds from sales of loans 20,733 23,534
Proceeds from sales of foreclosed real estate 85 50
Proceeds from sales of premises and equipment 446 24
Additions to premises and equipment (1,692) (864)
Net cash (used in) provided by investing activities (89,912) 3,585
Cash flows from financing activities:    
Net increase in deposits 111,923 66,269
Payment of FHLB advances (5,000) (20,000)
Repayment of Federal funds purchased 0 (10,000)
Proceeds from issuance of common stock 410 247
Dividends paid (3,307) (3,260)
Net cash provided by financing activities 104,026 33,256
Net change in cash and cash equivalents 21,032 47,075
Cash and cash equivalents at beginning of year 101,478 46,336
Cash and cash equivalents at end of year 122,510 93,411
Supplemental disclosure of cash flow information:    
Interest 4,164 4,752
Income taxes 129 243
Supplemental schedule of noncash investing and financing activities:    
Foreclosed assets transferred from loans, net 443 878
Transfer of foreclosed assets to loans $ (581) $ (77)

Summary Of Significant Accounting Policies
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Summary Of Significant Accounting Policies
9 Months Ended
Sep. 30, 2011
Summary Of Significant Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

Note 1 – Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements include the accounts of BankGuamHolding Company ("BankGuam" or "the Company") and its wholly-owned subsidiary, Bank of Guam ("Bank"). The Company is a Guam corporation organized on August 15, 2011 to act as a holding company of the Bank, a 22 branch bank serving the communities in Guam, the Commonwealth of the Northern Mariana Islands (CNMI), the Federated States of Micronesia (FSM), the Republic of the Marshall Islands (RMI), the Republic of Palau (ROP), and San Francisco, California USA. On August 15, 2011, the Company acquired all of the outstanding common stock of the Bank in a holding company formation transaction.

Other than holding of the shares of the Bank, the Company conducts no significant activities, although it is authorized, with the prior approval of its principal regulator, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") to engage in a variety of activities related to the business of banking. Currently, substantially all of the Company's operations are conducted and substantially all of the assets are owned by the Bank, which accounts for substantially all of our consolidated revenues, expenses and operating income. The Bank's headquarters is located in Hagatna, Guam and provides a variety of financial services to individuals, businesses and government entities through its branch network. The Bank's primary deposit products are demand deposits, savings and time certificates of deposit, and its primary lending products are consumer, commercial and real estate loans. For ease of reference we will sometimes refer to the Company as "we", "us" or "our."

All inter company balances and transactions have been eliminated in consolidation. Assets held by the Bank's Trust department in a fiduciary capacity are not assets of the Bank, and, accordingly, are not included in the accompanying unaudited condensed consolidated financial statements.

Certain information and note disclosures normally included in the Bank's annual financial statements have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Bank's Annual Report on Form 10-K for 2010 filed with the Federal Deposit Insurance Corporation on March 14, 2011. In addition to this filing, on August 15, 2011, the Bank filed with the Securities Exchange Commission Form 8-K12G3, in which the Bank's Annual Report on Form 10-K was included as an exhibit.

The results of operations for the periods ended September 30, 2011 and September 30, 2010 are not necessarily indicative of the operating results of the full year of 2011 or 2010. The accompanying unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of BankGuam's management, necessary to fairly present the financial position, results of operations and cash flows of BankGuam for the periods presented. Those adjustments consist only of normal recurring adjustments.

The preparation of unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of income and expenses during the periods presented. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, valuation of foreclosed assets, other-than-temporary impairment of securities, and the fair value of financial instruments.

 

Earnings Per Common Share

Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Bank relate solely to outstanding stock options, and are determined using the treasury stock method.

Earnings per common share have been computed based on reported net income and the following share data:

 

     Three Months ended September 30,      Nine months ended September 30,  
     2011      2010      2011      2010  

Weighted average number of common shares outstanding

     8,773         8,699         8,744         8,686   

Effect of dilutive options

     11         125         4         125   

Weighted average number of common shares outstanding used to calculate diluted earnings per common Share

     8,784         8,824         8,748         8,811   

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 9. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market condition could significantly affect the estimates.

Recent Accounting Pronouncements

Fair Value Measurements and Disclosures

In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06, "Improving Disclosures About Fair Value Measurements," which added disclosure requirements about transfers in and out of Levels 1 and 2, clarified existing fair value disclosure requirements about the appropriate level of disaggregation, and clarified that a description of valuation techniques and inputs used to measure fair value was required for recurring and nonrecurring Level 2 and 3 fair value measurements. The Bank adopted these provisions of this ASU in preparing the Consolidated Financial Statements for the year ended December 31, 2010. The adoption of these provisions, which was subsequently codified into ASC Topic 820, "Fair Value Measurements and Disclosures," only affected the disclosure requirements for fair value measurements and as a result had no impact on the Bank's statements of income and condition. See Note 9 for the disclosures required by this ASU.

This ASU also requires that Level 3 activity related to purchases, sales, issuances, and settlements be presented on a gross basis, rather than as a net number as currently permitted. This provision of the ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. As this provision amends only the disclosure requirements for Level 3 fair value measurements, the adoption will have no impact on the Bank's financial position or results of operations.

Disclosure about the Credit Quality

In July 2010, the FASB issued ASU No. 2010-20, "Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses," which requires the Company to provide a greater level of disaggregated information about the credit quality of the Company's loans and leases and the Allowance for Loan and Lease Losses (the "Allowance"). This ASU requires the Company to disclose additional information related to credit quality indicators, nonaccrual and past due information, and information related to impaired loans and loans modified in a troubled debt restructuring. The provisions of this ASU became effective for the Company's reporting period ended on September 30, 2011. As this ASU amends only the disclosure requirements for loans and leases and the Allowance, the adoption did not have any impact on the Company's statements of income and condition. In January 2011, the FASB issued ASU No. 2011-01, "Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20." The amendments in ASU No. 2011-01 deferred the effective date related to disclosures about troubled debt restructurings, enabling creditors to provide such disclosures after the FASB completed their project clarifying the guidance for determining what constitutes a troubled debt restructuring. In April 2011, the FASB issued ASU No. 2011-02, "A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring." The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibit creditors from using the borrower's effective rate test to evaluate whether a concession has been granted to the borrower, and adds factors for creditors to use in determining whether a borrower is experiencing financial difficulties. ASU No. 2011-02 also ended the FASB's deferral of the additional disclosures related to troubled debt restructurings as required by ASU No. 2010-20. The provisions of ASU No. 2011-02 are effective for the Company's reporting period ended September 30, 2011. The adoption of ASU No. 2011-02 did not have an impact on the Company's statements of income and condition.

Intangibles – Goodwill and Other

In December 2010, the FASB issued ASU No. 2010-28 "When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units With Zero or Negative Carrying Amounts", which requires entities that have one or more reporting units with a zero or negative carrying value to assess, considering qualitative factors, whether it is more likely than not that a goodwill impairment exists. If an entity concludes that it is more likely than not that goodwill impairment exists, the entity must perform step 2 of the goodwill impairment test. The Company adopted the provisions of this ASU in preparing the unaudited condensed consolidated financial statements for the period ended September 30, 2011. The adoption of this ASU has had no impact on the Company's statements of income and condition.

On September 15, 2011, the FASB issued ASU No. 2011-08 "Testing Goodwill for Impairment", which gives entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, on the basis of qualitative factors, that it is more likely than not that its fair value is less than the carrying amount. The ASU is effective for all entities for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU No. 2011-02 is not expected to have a material impact on the Company's statements of income and condition.

Other Recent Accounting Pronouncements

On April 29, 2011, the FASB issued ASU No. 2011-03 "Reconsideration of Effective Control for Repurchase Agreements", which modifies the criteria for determining when repurchase agreements would be accounted for as a secured borrowing rather than as a sale. The ASU eliminates from the assessment of effective control the requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms. This requirement was one of the criteria under ASC 860 that entities used to determine whether the transferor maintained effective control. Although entities must consider all the effective-control criteria under ASC 860, the elimination of this requirement may lead to more conclusions that a repurchase arrangement should be accounted for as a secured borrowing rather than as a sale. The ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The adoption of ASU No. 2011-03 is not expected to have a material impact on the Company's statements of income and condition.

In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs". The new guidance was issued to provide a consistent definition of fair value and ensure that fair value measurements and disclosure requirements are similar between US GAAP and International Financial Reporting Standards ("IFRS"). The guidance changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements. The adoption of ASU No. 2011-04 is not expected to have a material impact on the Company's statements of income and condition.

On June 16, 2011, the FASB issued ASU No. 2011-05 "Presentation of Comprehensive Income", which revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in ASC 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU No. 2011-05 is not expected to have a material impact on the Company's statements of income and condition.


Investment Securities
v4.2.117.0
Investment Securities
9 Months Ended
Sep. 30, 2011
Investment Securities [Abstract]  
Investment Securities

Note 2 – Investment Securities

The amortized cost and fair value of investment securities, with gross unrealized gains and losses, follows:

 

     September 30, 2011  
      Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

Securities Available for Sale

          

U.S. government agency and sponsored agencies (GSE) debt securities

   $ 76,925       $ 800       $ (1   $ 77,724   

U.S. government agency pool securities

     9,544         79         (1     9,622   

U.S. government agency or GSE mortgage-backed securities

     170,836         1,809         (247     172,398   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 257,305       $ 2,688       $ (249   $ 259,744   

Securities Held to Maturity

          

U.S. government agency pool securities

   $ 2,243       $ 11       $ (18   $ 2,236   

U.S. government agency or GSE mortgage-backed securities

     48,284         1,714         0        49,998   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 50,527       $ 1,725       $ (18   $ 52,234   

 

     December 31, 2010  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 
          
          

Securities Available for Sale

          

U.S. government agency and sponsored agencies (GSE) debt securities

   $ 85,004       $ 131       $ (636   $ 84,499   

U.S. government agency pool securities

     43,732         531         (67     44,196   

U.S. government agency or GSE mortgage-backed securities

     63,822         106         (1,311     62,617   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 192,558       $ 768       $ (2,014   $ 191,312   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities Held to Maturity

          

U.S. government agency pool securities

   $ 2,784       $ 28       $ (24   $ 2,788   

U.S. government agency or GSE mortgage-backed securities

     25,582         1,489         0        27,071   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 28,366       $ 1,517       $ (24   $ 29,859   
  

 

 

    

 

 

    

 

 

   

 

 

 

At September 30, 2011 and December 31, 2010, investment securities with a carrying value of $123,259 and $124,133, respectively, were pledged to secure various Government deposits and other public requirements.

The amortized cost and fair value of investment securities by contractual maturity at September 30, 2011 and December 31, 2010, follows:

 

     September 30, 2011  
     Available for Sale      Held to Maturity  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 
           

Due after one but within five years

   $ 61,962       $ 62,582       $ 0       $ 0   

Due after five years

     14,963         15,142         0         0   

U.S. government agency pool securities

     9,544         9,622         2,243         2,236   

Mortgage-backed securities

     170,836         172,398         48,284         49,998   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 257,305       $ 259,744       $ 50,527       $ 52,234   

 

     December 31, 2010  
     Available for Sale      Held to Maturity  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 
           

Due after one but within five years

   $ 85,004       $ 84,499       $ 0       $ 0   

U.S. government agency pool securities

     43,732         44,196         2,784         2,788   

Mortgage-backed securities

     63,822         62,617         25,582         27,071   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 192,558       $ 191,312       $ 28,366       $ 29,859   

Temporarily Impaired Securities

The following table shows the gross unrealized losses and fair value of the Bank's investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2011 and December 31, 2010.

 

     September 30, 2011  
     Less Than Twelve Months      Over Twelve Months  
     Unrealized Loss      Fair Value      Unrealized Loss      Fair Value  

Securities Available for Sale

           

U.S. government agency and sponsored agencies (GSE) debt securities

   $ 1       $ 9,994       $ 0       $ 0   

U.S. government agency pool securities

     0         0         1         90   

U.S. government agency or GSE mortgage-backed securities

     247         36,175         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 248       $ 46,169       $ 1       $ 90   
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities Held to Maturity

           

U.S. government agency pool securities

   $ 0       $ 0       $ 18       $ 1,620   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2010  
     Less Than Twelve Months      Over Twelve Months  
     Unrealized Loss      Fair Value      Unrealized Loss      Fair Value  

Securities Available for Sale

           

U.S. government agency and sponsored agencies (GSE) debt securities

   $ 636       $ 54,364       $ 0       $ 0   

U.S. government agency pool securities

     0         0         67         11,051   

U.S. government agency or GSE mortgage-backed securities

     1,311         55,363         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,947       $ 109,727       $ 67       $ 11,051   
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities Held to Maturity

           

U.S. government agency or GSE mortgage-backed securities

   $ 1       $ 18       $ 23       $ 1,008   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Bank does not believe that the investment securities that were in an unrealized loss position as of September 30, 2011, which comprised a total of 17 securities, were other-than-temporarily impaired. Specifically, the 17 securities are comprised of the following: 8 Small Business Administration (SBA) Pool securities, 2 debt securities issued by Federal National Mortgage Association (FNMA), 3 mortgage-backed securities issued by FNMA, 1 mortgage-backed security issued by Government National Mortgage Association and 3 mortgage-backed securities issued by Federal Home Loan Mortgage Corporation (FHLMC).

Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. The Bank does not intend to sell the investment securities that were in an unrealized loss position and it is not likely that the Bank will be required to sell the investment securities before recovery of their amortized cost bases, which may be at maturity.


Loans
v4.2.117.0
Loans
9 Months Ended
Sep. 30, 2011
Loans [Abstract]  
Loans

Note 3 – Loans

A summary of the balances of loans at September 30, 2011 and December 31, 2010 follows:

 

     September 31, 2011      December 31, 2010  

Commercial

   $ 371,406       $ 368,635   

Consumer

     114,819         112,462   

Real estate

     85,504         88,840   

Government

     48,487         47,904   

Other

     1,777         4,112   
  

 

 

    

 

 

 

Gross loans

     621,993         621,953   

Less: net deferred loan fees

     1,389         1,406   

Less: allowance for loan losses

     10,208         9,408   
  

 

 

    

 

 

 

Net loans

   $ 610,396       $ 611,139   
  

 

 

    

 

 

 

 

At September 30, 2011 and December 31, 2010, loans to directors and executive officers of the Bank amounted to $19,802 and $15,912, respectively. These loans were extended in the normal course of business and at prevailing interest rates. At September 30, 2011 and December 31, 2010, undisbursed commitments amounted to $7,906 and $7,130, respectively.


Allowance For Loan Losses
v4.2.117.0
Allowance For Loan Losses
9 Months Ended
Sep. 30, 2011
Allowance For Loan Losses [Abstract]  
Allowance For Loan Losses

Note 4 – Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management's periodic review of the collectability of the loan in light of historical experience, the nature of volume of the loan portfolio, adverse situations that may affect the borrower's 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.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of the loan. The general component covers unimpaired loans and is based on historical charge-off experience and expected loss given default derived from the Bank's internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, 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. 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 borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and real estate loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. The Bank performs direct write-down of impaired loans with a charge to the allocated component of the allowance, therefore reducing the allocated component of the reserve to zero at the end of each reporting period.

Impaired loans include loans that are in nonaccrual status and other loans that have been modified in Troubled Debt Restructurings (TDRs), where economic concessions have been granted to borrowers experiencing financial difficulties. These concessions typically result from the Company's loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions with the intention to maximize collections.

 

(dollars in thousands)    Commercial     Consumer     Total  

Three Months Ended September 30, 2011

      

Allowance for Loan and Lease Losses:

      

Balance at Beginning of Period 1

       $ 9,739   

Loans and Leases Charged-Off

     (142     (958     (1,100

Recoveries on Loans and Leases Previously Charged-Off

     8        286        294   

Net Loans and Leases Charged-Off

     (134     (672     (806

Provision for Credit Losses 1

         1,275   

Balance at End of Period 1

       $ 10,208   

Nine Months Ended September 30, 2011

      

Allowance for Loan and Lease Losses:

      

Balance at Beginning of Period 1

       $ 9,408   

Loans and Leases Charged-Off

     (398     (3,059     (3,457

Recoveries on Loans and Leases Previously Charged-Off

     35        997        1,032   

Net Loans and Leases Charged-Off

     (363     (2,062     (2,425

Provision for Credit Losses 1

         3,225   

Balance at End of Period 1

       $ 10,208   

As of September 30, 2011

      

Allowance for Loan and Lease Losses:

      

Individually Evaluated for Impairment 1

       $ 0   

Collectively Evaluated for Impairment 1

         10,208   

Total

       $ 10,208   

Recorded Investment in Loans and Leases:

      

Individually Evaluated for Impairment

   $ 14,453      $ 2,941      $ 17,394   

Collectively Evaluated for Impairment

     405,440        199,159        604,599   

Total

   $ 419,893      $ 202,100      $ 621,993   

 

1 

It is not currently feasible for the Bank to split these balances between commercial and consumer loans.

Credit Quality Indicators

The Bank uses several credit quality indicators to manage credit risk. The Bank uses an internal credit risk rating system that categorizes loans and leases into pass, special mention, substandard, doubtful or loss categories. Credit risk ratings are applied individually to those classes of loans and leases that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans and leases to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans and leases that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk-rated and monitored collectively. These are typically loans and leases to individuals in the classes which comprise the consumer portfolio segment.

The following are the definitions of the Bank's credit quality indicators:

Pass (A): Exceptional: Essentially risk free credit. These are loans of the highest quality that pose virtually no risk of loss to the Bank. This includes loans fully collateralized by means of a savings account(s) and time certificate of deposit(s) by at least 110% of the loan amount. Borrowers should have strong financial statements, good liquidity and excellent credit.

Pass (B): Standard: Multiple "strong sources of repayment". Loans to strong borrowers with demonstrated history of financial and managerial performance. Risk of loss is considered to be low. Loans are well structured with clearly identified primary and readily available secondary sources of repayment. Loans maybe secured by an equal amount of funds in a savings account or time certificate of deposit. Loans may be secured by marketable collateral whose value can be reasonably determined through outside appraisals. Very strong cash flow and relatively low leverage.

Pass (C): Acceptable: "Good" primary and secondary sources of repayment. Loans to borrowers of average financial strength, stability and management expertise. Borrower should be a well established individual or company with adequate financial resources to weather short-term fluctuations in the marketplace. Financial ratios and trends are positive. The loans may be unsecured or supported by non-real estate collateral for which the value is more difficult to determine reasonable credit risk and require an average amount of account officer attention. Unsecured credit is to be of unquestionable strength.

 

Pass (D): Monitor: "Sufficient" primary source of repayment and acceptable secondary source of repayment. Acceptable business or individual credit, but the borrower's operations, cash flow or financial conditions evidence moderate to average levels of risk. Loans are considered to be collectable in full but perhaps will require a greater-than-average amount of loan officer attention. Borrowers are capable of absorbing normal setbacks without failure.

Special Mention: A special mention asset has potential weaknesses that deserve close monitoring. These potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special Mention should neither be a compromise between a pass grade and substandard, nor should it be a "catch all" grade to identify any loan that has a policy exception.

Substandard: A substandard asset is inadequately protected by the current sound worth and payment capacity of the obligor or the collateral pledged. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Formula Classified: Formula classified loans are all loans and credit cards delinquent 90 days and over which have yet to be formally classified, ie., Special Mention, Substandard or Doubtful by the Bank's Loan Committee. In most instances, the monthly formula total is comprised primarily of real estate and consumer loans and credit cards. Commercial loans are typically formally classified by the Loan Committee no later than their 90-day delinquency, thus do not become part of the formula classification. Real estate loans 90-days delinquent are in the foreclosure process and is typically completed within another 60 days, thus is not formally classified during this period.

Doubtful: A loan with weaknesses well enough defined that eventual liquidation in full, on the basis of currently existing facts, conditions and values, is highly questionable, even though certain factors may be present which could improve the status of the loan. The possibility of loss is extremely high, but because of certain known factors, which may work to the advantage of strengthening of the assets, (i.e. capital injection, perfecting liens on additional collateral, refinancing plans, etc.) its classification as an estimated loss is deferred until its more exact status may be determined.

Loss: Loans classified as "Loss" are considered uncollectible, that are either unsecured or supported by collaterals of little to no value as such their continuance as bankable assets is not warranted. While this classification does not mandate that a loan has no ultimate recovery value, losses should be taken in the period these loans deemed to be uncollectible. Loans identified as loss are immediately approved for charge off. The Bank may refer loans to outside collection agencies, attorneys, or internal collection division to continue collection efforts. Any subsequent recoveries are credited to the Allowance for Loan Losses.

The Bank's credit quality indicators are periodically updated on a case-by-case basis. The following presents by class and by credit quality indicator, the recorded investment in the Bank's loans and leases as of September 30, 2011 and December 31, 2010.

 

     September 30, 2011  
     (dollars in thousands)  
     Commercial
and Industrial
     Commercial
Mortgage
     Construction      Lease
Financing
     Total
Commercial
 

Pass

   $ 139,458       $ 218,557       $ 2,130       $ 0       $ 360,145   

Special Mention

     15,423         17,175         0         0         32,598   

Classified (Substandard)

     3,773         16,521         6,856         0         27,150   

Classified (Formula)

     0         0         0         0         0   

Total

   $ 158,654       $ 252,253       $ 8,986       $ 0       $ 419,893   
     (dollars in thousands)  
     Residential
Mortgage
     Home
Equity
     Automobile      Other 1      Total
Consumer
 

Pass

   $ 82,669       $ 1,704       $ 9,534       $ 91,320       $ 185,227   

Pass (Credit Card)

     0         0         0         12,592         12,592   

Classified (Substandard)

     1,120         0         0         0         1,120   

Classified (Formula)

     1,836         0         0         1,325         3,161   

Total

   $ 85,625       $ 1,704       $ 9,534       $ 105,237       $ 202,100   
              

 

 

 

Total Recorded Investment in Loans and Leases

               $ 621,993   

 

1

Comprised of other revolving credit, installment, and overdraft.

 

     December 31, 2010  
     (dollars in thousands)  
     Commercial
and Industrial
     Commercial
Mortgage
     Construction      Lease
Financing
     Total
Commercial
 

Pass

   $ 151,551       $ 214,061       $ 0       $ 0       $ 365,612   

Special Mention

     585         0         0         0         585   

Classified (Substandard)

     11,381         26,850         12,111         0         50,342   

Classified (Formula)

     0         0         0         0         0   

Total

   $ 163,517       $ 240,911       $ 12,111       $ 0       $ 416,539   
     (dollars in thousands)  
     Residential
Mortgage
     Home
Equity
     Automobile      Other 1     

Total

Consumer

 

Pass

   $ 86,305       $ 1,516       $ 0       $ 101,818       $ 189,639   

Pass (Credit Card)

     0         0         0         11,235         11,235   

Classified (Substandard)

     667         0         0         0         667   

Classified (Formula)

     2,140         0         0         1,733         3,873   

Total

   $ 89,112       $ 1,516       $ 0       $ 114,786       $ 205,414   
              

 

 

 

Total Recorded Investment in Loans and Leases

               $ 621,953   

 

1 

Comprised of other revolving credit, installment, and overdraft.

Aging Analysis of Accruing and Non-Accruing Loans and Leases

The following presents by class, an aging analysis of the Bank's accruing and non-accruing loans and leases as of September 30, 2011 and December 31, 2010.

 

(dollars in thousands)    30 – 59
Days
Past
Due
     60 –89
Days
Past
Due
     Past Due
90 Days
or More
     Non-
Accrual
     Total Past
Due and
Non-Accrual
     Current      Total
Loans
    

Total

Non Accrual
Loans that
are Current 2

 

September 30, 2011

                       

Commercial

                       

Commercial and Industrial

     718         5         194         64         981         157,673         158,654         0   

Commercial Mortgage

     1,724         1,264         0         8,602         11,590         240,663         252,253         1,168   

Construction

     0         0         0         2,478         2,478         6,508         8,986         0   

Total Commercial

     2,442         1,269         194         11,144         15,049         404,844         419,893         1,168   

Consumer

                       

Residential Mortgage

     1,137         742         647         2,839         5,365         80,260         85,625         257   

Home Equity

     96         0         0         0         96         1,608         1,704         0   

Automobile

     289         59         15         0         363         9,171         9,534         0   

Other 1

     2,159         1,235         1,171         102         4,667         100,570         105,237         16   

Total Consumer

     3,681         2,036         1,833         2,941         10,491         191,609         202,100         273   

Total

     6,123         3,305         2,027         14,085         25,540         596,453         621,993         1,441   

December 31, 2010

                       

Commercial

                       

Commercial and Industrial

     399         118         0         381         898         162,619         163,517         142   

Commercial Mortgage

     19         0         0         8,190         8,209         232,702         240,911         2,651   

Construction

     0         0         0         2,982         2,982         9,129         12,111         0   

Total Commercial

     418         118         0         11,553         12,089         404,450         416,539         2,793   

Consumer

                       

Residential Mortgage

     4,271         1,059         0         3,636         8,966         80,146         89,112         136   

Home Equity

     10         0         0         26         36         1,480         1,516         0   

Automobile

     0         0         0         0         0         0         0         0   

Other 1

     2,965         1,736         1,548         95         6,344         108,442         114,786         3   

Total Consumer

     7,246         2,795         1,548         3,757         15,346         190,068         205,414         139   

Total

     7,664         2,913         1,548         15,310         27,435         594,518         621,953         2,932   

 

1

Comprised of other revolving credit, installment, and overdraft.

2

Represents nonaccrual loans that are not past due 30 days or more; however, full payment of principal and interest is still not expected.


Non-Performing Assets And Impaired Loans
v4.2.117.0
Non-Performing Assets And Impaired Loans
9 Months Ended
Sep. 30, 2011
Non-Performing Assets and Impaired Loans [Abstract]  
Non-Performing Assets and Impaired Loans

Note 5 – Non-Performing Assets and Impaired Loans

Impaired Loans

The following presents by class, information related to the Bank's impaired loans as of September 30, 2011 and December 31, 2010.

 

(dollars in thousands)    Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance for
Loan Losses
 

September 30, 2011

        

Impaired Loans with No Related Allowance Recorded:

        

Commercial

        

Commercial and Industrial

     428         463         0   

Commercial Mortgage

     11,547         14,624         0   

Construction

     2,478         4,448         0   

Total Commercial

     14,453         19,535         0   

Consumer

        

Residential Mortgage

     2,839         2,884         0   

Home Equity

     0         0         0   

Automobile

     0         0         0   

Other 1

     102         102         0   

Total Consumer

     2,941         2,986         0   

Total Impaired Loans with No Related Allowance Recorded

     17,394         22,521         0   

Impaired Loans with an Allowance Recorded:

        

Commercial

        

Commercial and Industrial

     0         0         0   

Commercial Mortgage

     0         0         0   

Total Commercial

     0         0         0   

Total Impaired Loans with an Allowance Recorded

     0         0         0   

Impaired Loans:

        

Commercial

     14,453         19,535         0   

Consumer

     2,941         2,986         0   

Total Impaired Loans

     17,394         22,521         0   

December 31, 2010

        

Impaired Loans with No Related Allowance Recorded:

        

Commercial

        

Commercial and Industrial

     381         428         0   

Commercial Mortgage

     11,243         14,297         0   

Construction

     2,982         4,952         0   

Total Commercial

     14,606         19,677         0   

Consumer

        

Residential Mortgage

     3,636         3,728         0   

Home Equity

     26         52         0   

Automobile

     0         0         0   

Other 1

     95         97         0   

Total Consumer

     3,757         3,877         0   

Total Impaired Loans with No Related Allowance Recorded

     18,363         23,554         0   

Impaired Loans with an Allowance Recorded:

        

Commercial

        

Commercial and Industrial

     0         0         0   

Commercial Mortgage

     0         0         0   

Construction

     0         0         0   

Total Commercial

     0         0         0   

Total Impaired Loans with an Allowance Recorded

     0         0         0   

Impaired Loans:

        

Commercial

     14,606         19,677         0   

Consumer

     3,757         3,877         0   

Total Impaired Loans

     18,363         23,554         0   

 

1 

Comprised of other revolving credit and installment financing.

The following presents by class, information related to the average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2011.

 

     Three Months Ended September 30, 2011      Nine Months Ended September 30, 2011  
(dollars in thousands)   

Average

Recorded
Investment

    

Interest

Income
Recognized

     Average
Recorded
Investment
    

Interest

Income
Recognized

 

Impaired Loans with No Related Allowance Recorded:

           

Commercial

           

Commercial and Industrial

     424         8         398         23   

Commercial Mortgage

     10,809         153         10,811         471   

Construction

     2,478         0         2,660         0   

Total Commercial

     13,711         161         13,869         494   

Consumer

           

Residential Mortgage

     2,913         7         3,275         29   

Home Equity

     15         0         23         0   

Automobile

     0         0         0         0   

Other 1

     98         0         95         0   

Total Consumer

     3,026         7         3,393         29   

Total Impaired Loans with No Related Allowance Recorded

     16,737         168         17,262         523   

Impaired Loans with an Allowance Recorded:

           

Commercial

           

Commercial and Industrial

     0         0         0         0   

Commercial Mortgage

     0         0         0         0   

Construction

     0         0         0         0   

Total Commercial

     0         0         0         0   

Total Impaired Loans with an Allowance Recorded

     0         0         0         0   

Impaired Loans:

           

Commercial

     13,711         161         13,869         494   

Consumer

     3,026         7         3,393         29   

Total Impaired Loans

     16,737         168         17,262         523   

 

1 

Comprised of other revolving credit and installment financing.


Commitments And Contingencies
v4.2.117.0
Commitments And Contingencies
9 Months Ended
Sep. 30, 2011
Commitments And Contingencies [Abstract]  
Commitments And Contingencies

Note 6 – Commitments and Contingencies

The Bank utilizes facilities, equipment and land under various operating leases with terms ranging from 1 to 99 years. Some of these leases include scheduled rent increases. The total amount of the rent is being charged to expense on the straight-line method over the lease terms in accordance with ASC Topic 840 "Leases." The Bank has recorded a deferred obligation of $610 and $554 as of September 30, 2011 and December 31, 2010, respectively, which has been included within other liabilities, to reflect the excess of rent expense over cash paid on the leases.

At September 30, 2011, annual lease commitments under the above noncancelable operating leases were as follows:

 

Period ending September 30,

      

2011

   $ 1,609   

2012

     1,190   

2013

     1,051   

2014

     892   

2015

     599   

Thereafter

     19,925   
  

 

 

 
   $ 25,266   
  

 

 

 

The Bank leases certain facilities from two separate entities in which two of its directors have separate ownership interests. Lease payments made to these entities during the periods ended September 30, 2011, and December 31, 2010 approximated $186 and $351, respectively.

 

Additionally, the Bank leases office space to third parties, with original lease terms ranging from 3 to 5 years with option periods ranging up to 15 years. At September 30, 2011, minimum future rents to be received under noncancelable operating sublease agreements were $56 for the period ended September 30, 2012.

A summary of rental activities for periods ended September 30, 2011, and September 30, 2010, is as follows:

 

     September 30,
2011
     September 30,
2010
 

Rent expense

   $ 1,717       $ 1,747   

Less: sublease rentals

     191         204   
  

 

 

    

 

 

 
   $ 1,526       $ 1,543   
  

 

 

    

 

 

 

The Bank is involved in certain legal actions and claims that arise in the ordinary course of business. Management believes that, as a result of its legal defenses and insurance arrangements, none of these matters has a material adverse effect on the Bank's financial position, results of operations or cash flows.


Minimum Regulatory Capital Requirements
v4.2.117.0
Minimum Regulatory Capital Requirements
9 Months Ended
Sep. 30, 2011
Minimum Regulatory Capital Requirements [Abstract]  
Minimum Regulatory Capital Requirements

Note 7 – Minimum Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the United States federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of September 30, 2011 and December 31, 2010, that the Bank met all capital adequacy requirements to which they are subject.

As of September 30, 2011, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables.

There are no conditions or events since the notification that management believes have changed the Bank's category. The Bank's actual capital amounts and ratios as of September 30, 2011 and December 31, 2010 are also presented in the table.

 

     Actual     For Capital Adequacy
Purposes
    To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
 
     Amount      Ratio     Amount      Ratio     Amount      Ratio  

As of September 30, 2011:

               

Total capital
(to Risk Weighted Assets)

   $ 95,405         13.85   $ 54,414         8.00   $ 68,018         10.00

Tier 1 capital
(to Risk Weighted Assets)

   $ 86,893         12.78   $ 27,207         4.00   $ 40,811         6.00

Tier 1 capital
(to Average Assets)

   $ 86,893         8.24   $ 44,325         4.00   $ 55,406         5.00

As of December 31, 2010:

               

Total capital
(to Risk Weighted Assets)

   $ 93,286         13.76   $ 54,228         8.00   $ 67,785         10.00

Tier 1 capital
(to Risk Weighted Assets)

   $ 84,813         12.21   $ 27,114         4.00   $ 40,671         6.00

Tier 1 capital
(to Average Assets)

   $ 84,813         8.52   $ 39,816         4.00   $ 49,771         5.00

Off-Balance Sheet Activities
v4.2.117.0
Off-Balance Sheet Activities
9 Months Ended
Sep. 30, 2011
Off-Balance Sheet Activities [Abstract]  
Off-Balance Sheet Activities

Note 8 – Off-Balance Sheet Activities

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, standby 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 reflected in the consolidated financial statements.

The Bank's exposure to credit loss, in the event of nonperformance by the other parties to financial instruments for loan commitments and letters of credit, is represented by the contractual amount of these instruments. The Bank follows the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

A summary of financial instruments with off-balance-sheet risk at September 30, 2011 and December 31, 2010 is as follows:

 

     9/30/11      12/31/10  

Commitments to extend credit

   $ 97,142       $ 94,979   
  

 

 

    

 

 

 

Letters of credit:

     

Standby letters of credit

   $ 25,641       $ 33,072   

Other letters of credit

     674         1,513   
  

 

 

    

 

 

 
   $ 26,315       $ 34,585   
  

 

 

    

 

 

 

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. The commitments for certain lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the customer.

 

Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party or shipment of merchandise from 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.

The Bank considers its standby letters of credit to be guarantees. At September 30, 2011, the maximum undiscounted future payments that the Bank could be required to make was $25,641. All of these arrangements mature within one year. The Bank generally has recourse to recover from the customer any amounts paid under these guarantees. Most of the guarantees are fully collateralized; however, several are unsecured. The Bank had not recorded any liabilities associated with these guarantees at September 30, 2011.

Mortgage loans serviced for others are not included in the accompanying consolidated statements of condition. The unpaid principal balances of mortgage loans serviced for others were $183,554 and $173,505 at September 30, 2011 and December 31, 2010, respectively. On September 30, 2011 and December 31, 2010, the Bank recorded mortgage servicing rights at their fair value of $1,022 and $942, respectively.

At September 30, 2011, loans outstanding were comprised of approximately 75% variable rate loans and 25% fixed rate loans.


Fair Value Of Assets And Liabilities
v4.2.117.0
Fair Value Of Assets And Liabilities
9 Months Ended
Sep. 30, 2011
Fair Value Of Assets And Liabilities [Abstract]  
Fair Value Of Assets And Liabilities

Note 9 – Fair Value of Assets and Liabilities

The Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with ASC Topic 820 "Fair Value Measurements and Disclosures," the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Bank's 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. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Bank groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

 

Level 1: Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

 

Level 2: Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3: Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions were used by the Bank in estimating fair value disclosures for financial instruments:

Cash and Cash Equivalents

The carrying amount of cash and short-term instruments approximates fair value based on the short-term nature of the assets.

Interest-Bearing Deposits in Banks

Fair values for other interest-bearing deposits are estimated using discounted cash flow analyses based on current rates for similar types of deposits.

Investment Securities

When quoted prices are available in an active market, the Bank classifies the securities within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid U.S. Government debt and equity securities.

If quoted market prices are not available, the Bank estimates fair values using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include GSE obligations, corporate bonds, and other securities. Mortgage-backed securities are included in Level 2 if observable inputs are available. In certain cases where there is limited activity or less transparency around inputs to the valuation, the Bank would classify those securities in Level 3. At September 30, 2011 and December 31, 2010, the Bank did not have any Level 3 securities.

Loans

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other 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. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

 

Mortgage Servicing Rights

The fair value of MSRs is determined using models which depend on estimates of prepayment rates and resultant weighted average lives of the MSRs and the option adjusted spread levels.

Deposit Liabilities

The fair values disclosed for demand deposits (for example, 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 (that is, their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings

The carrying amounts of federal funds purchased and FHLB advances maturing within ninety days approximate their fair values.

Long-Term Borrowings

Fair value of FHLB advances maturing after ninety days is determined based on expected present value techniques based on current market rates for advances with similar terms and remaining maturities.

Accrued Interest

The carrying amount of accrued interest approximates fair value.

Off-Balance Sheet Commitments and Contingent Liabilities

Management does not believe it is practicable to provide an estimate of fair value because of the uncertainty involved in attempting to assess the likelihood and timing of a commitment being drawn upon, coupled with a lack of an established market and the wide diversity of fee structures.

Financial assets measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010 are as follows:

 

     Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
     Significant
Other Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Total  

September 30, 2011