Document And Entity Information
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Document And Entity Information
3 Months Ended
Mar. 31, 2012
Apr. 30, 2012
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2012  
Document Fiscal Year Focus 2012  
Document Fiscal Period Focus Q1  
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   8,778,697

Condensed Consolidated Statements Of Condition
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Condensed Consolidated Statements Of Condition (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
ASSETS    
Cash and due from banks $ 33,116 $ 40,902
Federal Funds sold 5,000 5,000
Interest bearing deposits in banks 65,349 85,057
Total cash and cash equivalents 103,465 130,959
Restricted cash 150 150
Investment securities available for sale, at fair value 236,009 171,886
Investment securities held to maturity, at amortized cost 44,471 47,467
Federal Home Loan Bank stock, at cost 2,198 2,198
Loans, net of allowance for loan losses (3/31/12: $11,771 and 12/31/11: $11,101) 722,812 728,198
Accrued interest receivable 3,305 3,418
Premises and equipment, net 18,053 18,103
Goodwill 783 783
Other assets 35,854 36,802
Total Assets 1,167,100 1,139,964
LIABILITIES AND STOCKHOLDERS' EQUITY    
Non-interest bearing 261,692 280,042
Interest bearing 801,473 758,297
Total deposits 1,063,165 1,038,339
Accrued interest payable 177 164
Borrowings 10,360 10,200
Other liabilities 3,225 2,225
Total liabilities 1,076,927 1,050,928
Commitments and contingencies (Note 6)      
Stockholders' equity:    
Common stock $0.2083 par value; 48,000 shares authorized; 8,811 and 8,811 shares issued and 8,779 and 8,779 shares outstanding at 3/31/12 and 12/31/11, respectively 1,843 1,843
Additional paid-in capital 15,276 15,276
Retained earnings 72,930 71,861
Accumulated other comprehensive income 414 346
Stockholders' equity excluding treasury stock 90,463 89,326
Common stock in treasury, at cost (32 shares) (290) (290)
Total stockholders' equity 90,173 89,036
Liabilities and Equity $ 1,167,100 $ 1,139,964

Condensed Consolidated Statements Of Condition (Parenthetical)
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Condensed Consolidated Statements Of Condition (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Condensed Consolidated Statements Of Condition [Abstract]    
Loans, allowance for loan losses $ 11,771 $ 11,101
Common stock, par value $ 0.2083 $ 0.2083
Common stock, shares authorized 48,000,000 48,000,000
Common stock, shares issued 8,811,000 8,811,000
Common stock, shares outstanding 8,779,000 8,779,000
Common stock in treasury, shares 32,000 32,000

Condensed Consolidated Statements Of Income
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Condensed Consolidated Statements Of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Interest income:    
Loans $ 13,275 $ 11,230
Investment securities 1,222 1,186
Federal Funds sold 2 3
Deposits with banks 82 103
Total interest income 14,581 12,522
Interest expense:    
Time deposits 66 110
Savings deposits 1,178 1,137
Other borrowed funds 99 131
Total interest expense 1,343 1,378
Net interest income 13,238 11,144
Provision for loan losses 975 975
Net interest income, after provision for loan losses 12,263 10,169
Non-interest income:    
Service charges and fees 910 914
Investment securities gains, net 117 190
Income from merchant services 587 172
Income from cardholders 462 460
Telegraphic & cable fees 173 166
Trustee fees 146 143
Other income 973 481
Total non-interest income 3,368 2,526
Non-interest expenses:    
Salaries and employee benefits 5,891 5,321
Occupancy 1,533 1,365
Furniture and equipment 1,455 1,244
Insurance 431 426
Telecommunications 377 308
Federal Depository Insurance Corporation assessment 229 366
Contract services 404 241
Stationery & supplies 236 159
Professional services 90 149
Education 91 145
General, administrative and other 1,910 1,183
Total non-interest expenses 12,647 10,907
Income before income taxes 2,984 1,788
Income tax expense 818 365
Net income $ 2,166 $ 1,423
Earnings per share:    
Basic $ 0.25 $ 0.16
Diluted $ 0.25 $ 0.14
Dividends declared per share $ 0.125 $ 0.125
Basic weighted average shares 8,779 8,719
Diluted weighted average shares 8,779 10,499

Condensed Consolidated Statements Of Comprehensive Income
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Condensed Consolidated Statements Of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Condensed Consolidated Statements Of Comprehensive Income [Abstract]    
Net income $ 2,166 $ 1,423
Other comprehensive income, net of tax effects:    
Unrealized holding loss on available-for-sale securities arising during the period (99) (513)
Reclassification for gains realized on available-for-sale securities 117 190
Amortization of unrealized holding loss on held-to-maturity securities during the period 50 20
Total other comprehensive income 68 (303)
Comprehensive income $ 2,234 $ 1,120

Condensed Consolidated Statement Of Stockholders' Equity
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Condensed Consolidated Statement Of Stockholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Common Stock [Member]
Paid-In Capital [Member]
Accumulated Other Comprehensive Income [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Comprehensive Income [Member]
Total
Balance at Dec. 31, 2011 $ 1,843 $ 15,276 $ 346 $ 71,861 $ (290)   $ 89,036
Balance, shares at Dec. 31, 2011 8,778,697            
Comprehensive income:              
Net income 0 0 0 2,166 0 2,166 2,166
Other comprehensive income, net of tax:              
Unrealized gain on available for sale securities 0 0 68 0 0 68 68
Comprehensive income           2,234  
Common stock issued under Employee Stock Option Plan 0 0 0 0 0   0
Cash dividends on common stock 0 0 0 (1,097) 0   (1,097)
Balance at Mar. 31, 2012 $ 1,843 $ 15,276 $ 414 $ 72,930 $ (290)   $ 90,173
Balance, shares at Mar. 31, 2012 8,778,697            

Condensed Consolidated Statements Of Cash Flows
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Condensed Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Cash flows from operating activities:    
Net income $ 2,166 $ 1,423
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Provision for loan losses 975 975
Depreciation and amortization 757 724
Amortization of fees, discounts and premiums 627 388
Writedown and loss on sales of other real estate owned, net (58) 8
Proceeds from sales of loans 5,187 7,175
(Increase) decrease in mortgage servicing rights (193) (58)
Realized gain on sale of available-for-sale securities (117) (190)
Gain on disposal of premises and equipment 0 (12)
Net change in:    
Accrued interest receivable 113 (431)
Other assets 749 707
Accrued interest payable 13 13
Other liabilities 1,000 4,667
Net cash provided by operating activities 11,219 15,464
Cash flows from investing activities:    
Net change in restricted cash 0 1,000
Purchases of available-for-sale securities (90,054) (51,774)
Purchases of held-to-maturity securities 0 (30,373)
Proceeds from sales of available-for-sale securities 15,077 53,326
Maturities, prepayments and calls of available-for-sale securities 10,502 9,152
Maturities, prepayments and calls of held-to-maturity securities 2,906 2,851
Loan originations and principal collections, net (548) (20,790)
Proceeds from sales of other real estate owned 223 645
Proceeds from sales of premises and equipment 0 16
Additions to premises and equipment (707) (407)
Net cash (used in) provided by investing activities (62,601) (36,354)
Cash flows from financing activities:    
Net increase in deposits 24,825 36,648
Payment of Federal Home Loan Bank advances 0 (5,000)
Proceeds from other borrowings 160 0
Repayment of Federal Funds purchased 0 0
Proceeds from issuance of common stock 0 130
Dividends paid (1,097) (1,091)
Net cash provided by financing activities 23,888 30,687
Net change in cash and cash equivalents 27,494 (9,797)
Cash and cash equivalents at beginning of year 130,959 101,478
Cash and cash equivalents at end of year 103,465 111,275
Supplemental disclosure of cash flow information:    
Interest 1,343 1,378
Income taxes 88 76
Supplemental schedule of noncash investing and financing activities:    
Net change in unrealized loss on held-to-maturity securities, net of tax 50 20
Net change in unrealized loss on available-for-sale securities, net of tax 18 (323)
Other real estate owned transferred from loans, net 279 51
Other real estate owned transferred to loans, net $ (50) $ (575)

Nature Of Business
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Nature Of Business
3 Months Ended
Mar. 31, 2012
Nature Of Business [Abstract]  
Nature Of Business

Note 1 – Nature of Business

Organization

The accompanying consolidated financial statements include the accounts of BankGuam Holding Company ("the Company") and its wholly-owned subsidiary, Bank of Guam ("the Bank"). The Company is a Guam corporation organized on October 29, 2010 to act as a holding company of the Bank, a 24-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. On August 15, 2011, the Company acquired all of the outstanding common stock of the Bank in a holding company formation transaction. Refer to our Current Report on Form 8-K dated August 15, 2011 for a description of the transaction.

Other than holding 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 provides a variety of financial services to individuals, businesses and governments through its branches. The Bank's headquarters is located in Hagåtña, Guam, and it operates branches located on 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 the United States of America. The Bank currently has twelve branches in Guam, five in the CNMI, four in the FSM, one in the RMI, one in the ROP, and one in San Francisco, California. Its primary deposit products are demand deposits, savings and time certificate accounts, 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."


Summary Of Significant Accounting Policies And Recent Accounting Pronouncements
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Summary Of Significant Accounting Policies And Recent Accounting Pronouncements
3 Months Ended
Mar. 31, 2012
Summary Of Significant Accounting Policies And Recent Accounting Pronouncements [Abstract]  
Summary Of Significant Accounting Policies And Recent Accounting Pronouncements

Note 2 – Summary of Significant Accounting Policies and Recent Accounting Pronouncements

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all footnotes that would be required for a full presentation of financial position, results of operations, changes in cash flows and comprehensive income (loss) in accordance with generally accepted accounting principles in the United States ("GAAP"). However, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments and accruals) which, in the opinion of our management, are necessary for a fair presentation of our financial position and our results of operations for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2011 was derived from the Company's audited consolidated financial statements for the year ended December 31, 2011.

These unaudited consolidated financial statements have been prepared on a basis consistent with prior periods, and should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2011, and the notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934.

Our consolidated financial position at March 31, 2011, and the consolidated results of operations for the three month period ended March 31, 2012, are not necessarily indicative of what our financial position will be as of December 31, 2012, or of the results of our operations that may be expected for the full year ending December 31, 2012.

Use of Estimates

The preparation of consolidated financial statements in accordance with 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 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 other real estate owned, other than temporary impairment of securities and the fair value of financial instruments.


Earnings Per Common Share
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Earnings Per Common Share
3 Months Ended
Mar. 31, 2012
Earnings Per Common Share [Abstract]  
Earnings Per Common Share

Note 3 – 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 during 2011, 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:

 

     For the Three Months Ended
March 31,
 
     2012      2011  

Net income available for common stockholders

   $ 2,166       $ 1,423   

Weighted average number of common shares outstanding

     8,779         8,719   

Effect of dilutive options

     0         1,780   
  

 

 

    

 

 

 

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

     8,779         10,499   
  

 

 

    

 

 

 

Income per common share:

     

Basic

   $ 0.25       $ 0.16   
  

 

 

    

 

 

 

Diluted

   $ 0.25       $ 0.14   
  

 

 

    

 

 

 

During 2011, the Company terminated the 2001 Non-Statutory Stock Option Plan ("the Plan"). As a result of the Plan, the Company calculated the effect of the dilutive options to purchase shares of stock in the Company. As a result of the termination of the Plan, there is no dilutive effect in 2012.

Recent Accounting Pronouncements

On April 4, 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-02, "A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring" ("ASU No. 2011-02"). ASU No. 2011-02 requires a creditor to separately conclude that 1) the restructuring constitutes a concession and 2) the debtor is experiencing financial difficulties in order for a modification to be considered a troubled debt restructuring ("TDR"). The guidance was issued to provide clarification and to address diversity in practice in identifying TDR's. This standard was effective for the Company beginning in the third quarter of 2011 and was applied retrospectively to the beginning of the year. The adoption of this standard did not have a material impact on the Company's results of operations, financial condition, or disclosures.

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 did not have a material impact on the Company's statements of income and financial condition.

On May 12, 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 did not have a material impact on the Company's statements of income and financial 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 did not have a material impact on the Company's statements of income and financial 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 the first step 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. 2011-08 is not expected to have a material impact on the Company's statements of income and financial condition.


Investment Securities
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Investment Securities
3 Months Ended
Mar. 31, 2012
Investment Securities [Abstract]  
Investment Securities

Note 4 – Investment Securities

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

 

     March 31, 2012  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

Securities Available for Sale

          

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

   $ 34,942       $ 112       $ (52   $ 35,002   

U.S. government agency pool securities

     14,210         83         (2     14,291   

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

     185,643         1,403         (330     186,716   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 234,795       $ 1,598       $ (384   $ 236,009   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities Held to Maturity

          

U.S. government agency pool securities

   $ 2,103       $ 12       $ (17   $ 2,098   

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

     42,368         1,880         0        44,248   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 44,471       $ 1,892       $ (17   $ 46,346   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     December 31, 2011  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

Securities Available for Sale

          

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

   $ 19,955       $ 280       $ 0      $ 20,235   

U.S. government agency pool securities

     9,142         79         (1     9,220   

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

     141,602         1,028         (199     142,431   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 170,699       $ 1,387       $ (200   $ 171,886   
  

 

 

    

 

 

    

 

 

   

 

 

 

Securities Held to Maturity

          

U.S. government agency pool securities

   $ 2,147       $ 10       $ (25   $ 2,132   

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

     45,320         1,810         0        47,130   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 47,467       $ 1,820       $ (25   $ 49,262   
  

 

 

    

 

 

    

 

 

   

 

 

 

At March 31, 2012 and December 31, 2011, investment securities with a carrying value of $160,686 and $116,387, 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 March 31, 2012 and December 31, 2011, follows:

 

     March 31, 2012  
     Available for Sale      Held to Maturity  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 

Due after one but within five years

   $ 4,996       $ 5,109       $ 0       $ 0   

Due after five years

     29,946         29,893         0         0   

U.S. government agency pool securities

     14,210         14,291         2,103         2,098   

Mortgage-backed securities

     185,643         186,716         42,368         44,248   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 234,795       $ 236,009       $ 44,471       $ 46,346   

 

     December 31, 2011  
     Available for Sale      Held to Maturity  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 

Due after one but within five years

   $ 9,991       $ 10,156       $ 0       $ 0   

Due after five years

     9,964         10,079         0         0   

U.S. government agency pool securities

     9,142         9,220         2,147         2,132   

Mortgage-backed securities

     141,602         142,431         45,320         47,130   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 170,699       $ 171,886       $ 47,467       $ 49,262   

 

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 March 31, 2012 and December 31, 2011.

 

     March 31, 2012                
     Less Than Twelve Months      More Than Twelve Months      Total  
     Unrealized Loss      Fair Value      Unrealized Loss      Fair Value      Unrealized Loss      Fair Value  

Securities Available for Sale

                 

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

   $ 52       $ 19,890       $ 0       $ 0       $ 52       $ 19,890   

U.S. government agency pool securities

     1         407         1         84         2         491   

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

     330         55,804         0         0         330         55,804   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 383       $ 76,101       $ 1       $ 84       $ 384       $ 76,185   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities Held to Maturity

                 

U.S. government agency pool securities

   $ 1       $ 322       $ 16       $ 1,188       $ 17       $ 1,150   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011         
     Less Than Twelve Months      More Than Twelve Months      Total  
     Unrealized Loss      Fair Value      Unrealized Loss      Fair Value      Unrealized Loss      Fair Value  

Securities Available for Sale

                 

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

   $ 0       $ 0       $ 0       $ 0       $         -       $         -   

U.S. government agency pool securities

     0         422         1         87         1         509   

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

     199         41,534         0         0         199         41,534   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 199       $ 41,956       $ 1       $ 87       $ 200       $ 42,043   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities Held to Maturity

                 

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

   $ 7       $ 709       $ 18       $ 823       $ 25       $ 1,532   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Bank does not believe that any of the investment securities that were in an unrealized loss position as of March 31, 2012, which comprised a total of 26 securities, were other-than-temporarily impaired. Specifically, the 26 securities are comprised of the following: 9 Small Business Administration (SBA) Pool securities, 4 debt securities issued by the Federal Home Loan Mortgage Corporation (FHLMC), 7 mortgage-backed securities issued by the Federal National Mortgage Association (FNMA), and 6 mortgage-backed securities issued by 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 And Allowance For Loan Losses
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Loans And Allowance For Loan Losses
3 Months Ended
Mar. 31, 2012
Loans And Allowance For Loan Losses [Abstract]  
Loans And Allowance For Loan Losses

Note 5 – Loans and Allowance for Loan Losses

Outstanding loan balances are presented net of unearned income, net deferred loan fees, and net of unamortized discount and premium. Loans subject to ASC 310-30 are presented net of the related accretable yield and nonaccretable difference.

The loan portfolio consisted of the following at:

 

     March 31, 2012     December 31, 2011  
   Amount      Percent     Amount      Percent  
   (Dollars in thousands)  

Commercial

          

Commercial & Industrial

   $ 141,137         19.2   $ 149,123         20.1

Commercial Mortgage

     277,376         37.7     281,026         37.9

Commercial Construction

     7,732         1.1     7,154         1.0
  

 

 

      

 

 

    

Total Commercial

     426,245        58.0     437,303        59.0

Consumer

        

Residential mortgage

     176,747        24.0     176,736        23.9

Home equity

     1,661        0.2     1,717        0.2

Automobile

     9,478        1.3     9,620        1.3

Other Consumer Loans 1

     121,916        16.5     115,380        15.6
  

 

 

     

 

 

   

Total Consumer

     309,802        42.0     303,453        41.0
  

 

 

     

 

 

   

Gross loans

     736,047        100.0     740,756        100.0
    

 

 

     

 

 

 

Deferred fee (income) costs, net

     (1,464       (1,457  

Allowance for loan losses

     (11,771       (11,101  
  

 

 

     

 

 

   

Loans, net

   $ 722,812        $ 728,198     
  

 

 

     

 

 

   

 

1 

Comprised of other revolving credit, installment, and overdrafts.

At March 31, 2012 total gross loans decreased by $4.7 million to $736.0 million down from $740.8 million at December 31, 2011. The decrease in loans was largely attributed to an $11.1 million decrease in commercial loans to $426.2 million at March 31, 2012 from $437.3 million at December 31, 2011. The decline in commercial loans was due to significant loan payoffs in both the commercial & industrial and the commercial mortgage portfolios. This was partially offset by a $6.3 million increase in consumer loans to $309.8 million at March 31, 2012, up from $303.5 million at December 31, 2011.

At March 31, 2012, loans outstanding were comprised of approximately 59% variable rate loans and 41% fixed rate loans.

Allowance for Loan Losses

The allowance for loan losses is first determined by analyzing all classified loans (Substandard and Doubtful) in non-accrual for loss exposure and establishing specific reserves, as needed. ASC 310-10 defines loan impairment as the existence of uncertainty concerning collection of all principal and interest per the contractual terms of a loan. For collateral-dependent loans, impairment is typically measured by comparing the loan amount to the fair value of collateral, less costs to sell, with a specific reserve established for the "shortfall" amount. Other methods can be used in estimating impairment (market price or present value of expected future cash flows discounted at the loan's original interest rate).

The allowance for loan losses is evaluated on a regular basis by management, and is based upon management's periodic review of the collectability of loans in light of historical experience, the nature and 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 flow (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 the default probability 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.

Our loss migration analysis tracks a certain number of quarters of loan loss history and industry loss factors to determine historical losses by classification category for each loan type, except certain consumer loans. These calculated loss factors are then applied to outstanding loan balances for all loans on accrual designated as "Pass," "Special Mention," "Substandard" or "Doubtful" ("classified loans" or "classification categories"). Additionally, a qualitative factor that is determined utilizing external economic factors and internal assessments is applied to each homogeneous loan pool. We also conduct individual loan review analyses, as part of the allowance for loan loss allocation process, applying specific monitoring policies and procedures in analyzing the existing loan portfolios.

Credit Quality Indicators

The Bank uses several credit quality indicators to manage credit risk, including 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 and 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(s) of deposit, and 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 a 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 may be 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 favorable. 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 requiring 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 evince moderate to average levels of risk. Loans are considered to be collectable in full, but may 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 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, and thus do not become part of the formula classification. Real estate loans 90-days delinquent are in the foreclosure process and are typically completed within another 60 days, and thus are not formally classified during this period.

Doubtful: A loan with weaknesses well enough defined that eventual repayment 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 probability of some 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 can be determined.

Loss: Loans classified as "Loss" are considered uncollectible, and are either unsecured or are supported by collateral that is of little to no value. As such, their continuance as recorded 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 are 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 its internal collection division to continue collection efforts. Any subsequent recoveries are credited to the Allowance for Loan Losses.

Set forth below is a summary of the Company's activity in the allowance for loan losses during the quarter ended March 31, 2012 and the year ended December 31, 2011:

 

     March 31,
2012
    December 31,
2011
 
     (Dollars in thousands)  

Balance, beginning of period

   $ 11,101      $ 9,408   

Provision for loan losses

     975        4,617   

Recoveries on loans previously charged off

     917        1,596   

Charged off loans

     (1,222     (4,520
  

 

 

   

 

 

 

Balance, end of period

   $ 11,771      $ 11,101   
  

 

 

   

 

 

 

The allowance for loan losses for the three months ending March 31 2012, reflects an increase of $670 thousand from the allowance for loan losses at the end of 2011, based on the Bank's allowance for loan loss methodology. The allowance for loan losses should remain stable into the near future as the local economy and the increase in the loan portfolios settle.

 

Set forth below is information regarding loan balances and the related allowance for loan losses, by portfolio type, for the quarter and year ended March 31, 2012 and December 31, 2011, respectively.

 

     Commercial     Residential
Mortgages
    Consumer     Total  
     (Dollars in thousands)  

March 31, 2012

        

Allowance for loan losses:

        

Balance at beginning of quarter

     6,654      $ 318      $ 4,129      $ 11,101   

Charge offs

     —          0        (1,222     (1,222

Recoveries

     19        0        898        917   

Provision

     116        146        713        975   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of quarter

   $ 6,789      $ 464      $ 4,518      $ 11,771   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance balance at end of quarter related to:

        

Loans individually evaluated for impairment

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Loans collectively evaluated for impairment

   $ 6,789      $ 464      $ 4518      $ 11,771   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loan balances at end of quarter:

        

Loans individually evaluated for impairment

   $ 13,496      $ 2,900      $ 166      $ 16,562   

Loans collectively evaluated for impairment

     412,749        175,508        131,228        719,485   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 426,245      $ 178,408      $ 131,394      $ 736,047   
  

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2011

        

Allowance for loan losses:

        

Balance at beginning of year

   $ 6,517      $ 324      $ 2,567      $ 9,408   

Charge offs

     (697     (19     (3,804     (4,520

Recoveries

     70        13        1,513        1,596   

Provision

     764        0        3,853        4,617   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of year

   $ 6,654      $ 318      $ 4,129      $ 11,101   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance balance at end of year related to:

        

Loans individually evaluated for impairment

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Loans collectively evaluated for impairment

   $ 6,654      $ 318      $ 4,129      $ 11,101   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loan balances at end of year:

        

Loans individually evaluated for impairment

   $ 11,864      $ 2,106      $ 193      $ 14,163   

Loans collectively evaluated for impairment

     425,439        176,347        124,807        726,593   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 437,303      $ 178,453      $ 125,000      $ 740,756   
  

 

 

   

 

 

   

 

 

   

 

 

 

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-downs 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.

 

Credit Quality

The following table provides a summary of the delinquency status of the Bank's loans by portfolio type:

 

     30-59 Days
Past Due
     60-89 Days
Past Due
     90 Days and
Greater
     Total
Past Due
     Current      Total Loans
Outstanding
 
     (Dollars in thousands)  

March 31, 2012

                 

Commercial

                 

Commercial & industrial

   $ 1,057       $ 672       $ 334       $ 2063       $ 139,074       $ 141,137   

Commercial mortgage

     2,920         1,757         5,517         10,194         267,182         277,376   

Commercial construction

     —           —           2,272         2,272         5,460         7,732   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     3,977         2,429         8,123         14,529         411,716         426,245   

Consumer

                 

Residential mortgage

     10,964         2,594         4,289         17,847         158,900         176,747   

Home equity

     22         86         —           108         1,553         1,661   

Automobile

     299         73         0         372         9,106         9,478   

Other consumer 1

     3,516         1,154         1,228         5,898         116,018         121,916   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     14,801         3,907         5,517         24,225         285,577         309,802   

Total

   $ 18,778       $ 6,336       $ 13,640       $ 38,754       $ 697,293       $ 736,047   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011

                 

Commercial

                 

Commercial & industrial

   $ 266       $ 320       $ —         $ 586       $ 148,537       $ 149,123   

Commercial mortgage

     2,903         972         5,266         9,141         271,885         281,026   

Construction

     —           —           2,272         2,272         4,882         7,154   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     3,169         1,292         7,538         11,999         425,304         437,303   

Consumer

                 

Residential mortgage

     5,745         2,938         3,091         11,774         164,962         176,736   

Home equity

     92         —           —           92         1,625         1,717   

Automobile

     305         17         3         325         9,295         9,620   

Other consumer 1

     2,391         1,184         1,514         5,089         110,291         115,380   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

     8,533         4,139         4,608         17,280         286,173         303,453   

Total

   $ 11,702       $ 5,431       $ 12,146       $ 29,279       $ 711,477       $ 740,756   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1 

Comprised of other revolving credit, installment, and overdrafts.

As the above table indicates, total past due loans increased by $9.5 million to $38.8 million as of March 31, 2012, from $29.3 million as of December 31, 2011. Loans past due 30 to 59 days increased by $7.1 million to $18.8 million as of March 31, 2012, from $11.7 million as of December 31, 2011. Loans past due 60-89 days increased by $0.9 million to $6.3 million at March 31, 2012, from $5.4 million as of December 31, 2011. Loans past due 90 days or more increased by $1.5 million to $13.6 million as of March 31, 2012, from $12.1 million as of December 31, 2011.

Generally, the accrual of interest on a loan is discontinued when principal or interest payments become more than 90 days past due, unless management believes the loan is adequately collateralized and it is in the process of collection. When a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Non-accrual loans may be restored to accrual status when principal and interest become current and full repayment is expected. The following table provides information as of March 31, 2012 and December 31, 2011, with respect to loans on non-accrual status, by portfolio type:

 

     March 31,
2012
     December 31,
2011
 
     (Dollars in thousands)  

Non-accrual loans:

     

Commercial:

     

Commercial & industrial

   $ 245       $ 247   

Commercial mortgage

     9,700         7,597   

Commercial construction

     2,272         2,272   
  

 

 

    

 

 

 

Total commercial

     12,217         10,116   

Consumer:

     

Residential mortgage

     2,900         2,107   

Home equity

     —           —     

Automobile

     —           —     

Other consumer

     166         193   
  

 

 

    

 

 

 

Total consumer

     3,066         2.300   
  

 

 

    

 

 

 

Total non-accrual loans

   $ 15,283       $ 12,416   
  

 

 

    

 

 

 

 

The Company classifies its loan portfolios using internal credit quality ratings, as discussed above under Allowance for Loan Losses. The following table provides a summary of loans by portfolio type and the Company's internal credit quality ratings as of March 31, 2012 and December 31, 2011.

 

     March 31,
2012
     December 31,
2011
     Increase
(Decrease)
 
     (Dollars in thousands)  

Pass:

        

Commercial & industrial

   $ 123,635       $ 126,170       $ (2,535

Commercial mortgage

     254,618         240,447         14,171   

Commercial construction

     5,460         4,882         578   

Residential mortgage

     172,029         175,048         (3,019

Home equity

     1,661         1,717         (56

Automobile

     9,478         9,620         (142

Other consumer

     120,590         114,041         6,549   
  

 

 

    

 

 

    

 

 

 

Total pass loans

   $ 687,471       $ 671,925       $ 15,546   

Special Mention:

        

Commercial & industrial

   $ 14,393       $ 19,921       $ (5,528

Commercial mortgage

     8,520         19,380         (10,860

Commercial construction

     —           —           —     

Residential mortgage

     —           —           —     

Home equity

     —           —           —     

Automobile

     —           —           —     

Other consumer

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total special mention loans

   $ 22,913       $ 39,301       $ (16,388

Substandard:

        

Commercial & industrial

   $ 3,020       $ 3,031       $ (11

Commercial mortgage

     14,238         20,750         (6,512

Commercial construction

     2,272         2,272         —     

Residential mortgage

     506         663         (157

Home equity

     —           —           —     

Automobile

     —           —           —     

Other Consumer

     35         37        (2
  

 

 

    

 

 

    

 

 

 

Total substandard loans

   $ 20,071       $ 26,753       $ (6,682

Formula Classified:

        

Commercial & industrial

   $ 89       $ —         $ 89  

Commercial mortgage

        450         (450

Commercial construction

     —           —           —     

Residential mortgage

     4,212         1,025         3,187   

Home equity

     —           —           —     

Automobile

     —           —           —     

Other consumer

     1,291         1,302         (11
  

 

 

    

 

 

    

 

 

 

Total formula classified loans

   $ 5,592       $ 2,777       $ 2,815   
  

 

 

    

 

 

    

 

 

 

Total outstanding loans, gross:

   $ 736,047       $ 740,756       $ (4,709

 

As the above table indicates, the Company's total loans approximated $736 million at March 31, 2012, down from $741 million at December 31, 2011. The disaggregation of the portfolio by risk rating in the table reflects the following changes between March 31, 2012 and December 31, 2011:

 

   

Loans rated "pass" increased by $15.5 million to $687.4 million at March 31, 2012 up from $671.9 million at December 31, 2011. The bulk of the increase was in Commercial Mortgage which grew by $14.2 million due to the upgrade of a $10.6 million loan relationship from "special mention" and various large loans booked in the California region. New loan bookings also increased the Consumer "pass" category by $6.5 million. However, decreases were reported in the Residential Mortgage pass category by $3 million as a result of the downgrade of Wells Fargo loans to the Formula Classified category. Commercial & Industrial dropped by $2.5 million due to various loan payoffs and pay downs, which were partially offset by the upgrade of a $5.7 million loan relationship from "special mention."

 

   

The "special mention" category was $16.4 million lower at March 31, 2012 than at December 31, 2011. This is attributed to the upgrade of one borrower relationship to "pass," which was made up of the above described upgrade of the $10.6 million Commercial Mortgage loan relationship and the $5.7 million Commercial & Industrial loan relationship.

 

   

Loans classified "substandard" decreased by $6.7 million to $20.1 million at March 31, 2012 from $26.8 million at December 31, 2011. The decrease was comprised mainly of Commercial Mortgage loans dropping by $6.5 million due to loan payoffs in the California Region.

 

   

The "formula classified" category increased by $2.8 million resulting primarily due to the downgrade of $3 million of Wells Fargo loans from "pass."

Impaired Loans

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.

Impaired loans include loans that are in non-accrual 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 actions, and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions taken with the intention to maximize collections.

The following table sets forth information regarding non-accrual loans and restructured loans, at March 31, 2012 and December 31, 2011:

 

     March 31,
2012
     December 31,
2011
 
     (Dollars in thousands)  

Impaired loans:

  

Restructured Loans:

     

Non-accruing restructured loans

   $ 6,391       $ 6,433   

Accruing restructured loans

     1,279         1,747   
  

 

 

    

 

 

 

Total restructured loans

     7,670         8,180   

Other non-accruing impaired loans

     8,892         5,983   

Other accruing impaired loans

     —           —     
  

 

 

    

 

 

 

Total impaired loans

   $ 16,562       $ 14,163   
  

 

 

    

 

 

 

Impaired loans less than 90 days delinquent and included in total impaired loans

   $ 6,652       $ 5,119   
  

 

 

    

 

 

 

 

The table below contains additional information with respect to impaired loans, by portfolio type, for the years ended March 31, 2012 and December 31, 2011:

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (Dollars in thousands)  

March 31, 2012 With no related allowance recorded:

           

Commercial & industrial

   $ 245       $ 270       $ 248       $ 0   

Commercial mortgage

     10,979         14,017         10,046         169   

Commercial construction

     2,