SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
|
For the Quarterly Period Ended September 30, 2009 |
FNB BANCORP
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation)
|
|
|
000-49693 |
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92-2115369 |
(Commission File Number) |
|
(IRS Employer Identification No.) |
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975 El Camino Real, South San Francisco, California |
|
94080 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code: (650) 588-6800
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: Common Stock as of November 12, 2009: 3,030,418 shares.
PART IFINANCIAL INFORMATION
Item 1. Financial Statements.
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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(Dollar amounts in thousands) |
|
September 30, 2009 |
|
December 31, 2008 |
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||||
ASSETS |
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||||||
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|
|
|
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Cash and due from banks |
|
$ |
46,371 |
|
$ |
14,865 |
|
|
|
|
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||||
Cash and equivalents |
|
|
46,371 |
|
|
14,865 |
|
|
|
|
|
|
|
||
Securities available-for-sale |
|
|
94,264 |
|
|
99,221 |
|
Loans, net of allowance for loan losses of $9,424 and $7,075 on September 30, 2009 and December 31, 2008 |
|
|
506,537 |
|
|
497,984 |
|
Bank premises, equipment, and leasehold improvements, net |
|
|
12,040 |
|
|
13,030 |
|
Other real estate owned |
|
|
9,425 |
|
|
3,557 |
|
Goodwill |
|
|
1,841 |
|
|
1,841 |
|
Accrued interest receivable and other assets |
|
|
28,835 |
|
|
30,459 |
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|
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||||
Total assets |
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$ |
699,313 |
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$ |
660,957 |
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||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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||||||
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Deposits |
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|
|
|
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Demand, noninterest bearing |
|
$ |
120,903 |
|
$ |
121,237 |
|
Demand, interest bearing |
|
|
53,923 |
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|
58,451 |
|
Savings and money market |
|
|
279,696 |
|
|
179,382 |
|
Time |
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|
130,645 |
|
|
141,840 |
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Total deposits |
|
|
585,167 |
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|
500,910 |
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|
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|
|
|
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Federal Home Loan Bank advances |
|
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30,000 |
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|
86,100 |
|
Accrued expenses and other liabilities |
|
|
5,218 |
|
|
5,798 |
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|
|
|
||||
Total liabilities |
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|
620,385 |
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|
592,808 |
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Stockholders equity |
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Common stock, no par value, authorized 10,000,000 shares; issued and outstanding 3,030,000 shares at September 30, 2009 and 3,030,000 shares at December 31, 2008 |
|
|
44,974 |
|
|
43,827 |
|
Preferred stock - series A - no par value, authorized and outstanding 12,000 shares, issued on February 27, 2009 (liquidation preference of $1,000 per share plus accrued dividends) |
|
|
11,482 |
|
|
|
|
Preferred stock - series B - no par value, authorized and outstanding 600 shares, issued on February 27, 2009 (liquidation preference of $1,000 per share plus accrued dividends) |
|
|
632 |
|
|
|
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Retained earnings |
|
|
20,802 |
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|
22,960 |
|
Accumulated other comprehensive income |
|
|
1,038 |
|
|
1,362 |
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|
|
|
|
||||
Total stockholders equity |
|
|
78,928 |
|
|
68,149 |
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|
|
|
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||||
Total liabilities and stockholders equity |
|
$ |
699,313 |
|
$ |
660,957 |
|
|
|
|
|
See accompanying notes to consolidated financial statements.
2
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF EARNINGS
(UNAUDITED)
(Dollars
in thousands, except per share amounts)
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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||||||||||
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2009 |
|
2008 |
|
2009 |
|
2008 |
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||||
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|
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|
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|
||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
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Interest and fees on loans |
|
$ |
8,578 |
|
$ |
8,757 |
|
$ |
24,396 |
|
$ |
26,879 |
|
Interest on taxable securities |
|
|
389 |
|
|
618 |
|
|
1,359 |
|
|
1,640 |
|
Interest on tax-exempt securities |
|
|
298 |
|
|
378 |
|
|
1,004 |
|
|
1,193 |
|
Federal funds sold |
|
|
18 |
|
|
34 |
|
|
78 |
|
|
103 |
|
|
|
|
|
|
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||||||||
Total interest income |
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|
9,283 |
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|
9,787 |
|
|
26,837 |
|
|
29,815 |
|
|
|
|
|
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||||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
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Deposits |
|
|
1,911 |
|
|
2,011 |
|
|
5,298 |
|
|
6,522 |
|
Federal Home Loan Bank advances |
|
|
382 |
|
|
713 |
|
|
1,676 |
|
|
2,347 |
|
Federal funds purchased |
|
|
|
|
|
1 |
|
|
|
|
|
19 |
|
|
|
|
|
|
|
||||||||
Total interest expense |
|
|
2,293 |
|
|
2,725 |
|
|
6,974 |
|
|
8,888 |
|
|
|
|
|
|
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||||||||
Net interest income |
|
|
6,990 |
|
|
7,062 |
|
|
19,863 |
|
|
20,927 |
|
Provision for loan losses |
|
|
796 |
|
|
300 |
|
|
3,696 |
|
|
1,590 |
|
|
|
|
|
|
|
||||||||
Net interest income after provision for loan losses |
|
|
6,194 |
|
|
6,762 |
|
|
16,167 |
|
|
19,337 |
|
|
|
|
|
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Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale or impairment of securities available-for-sale |
|
|
659 |
|
|
(433 |
) |
|
905 |
|
|
(294 |
) |
Service charges |
|
|
707 |
|
|
749 |
|
|
2,134 |
|
|
2,160 |
|
Credit card fees |
|
|
179 |
|
|
211 |
|
|
517 |
|
|
566 |
|
Other income |
|
|
127 |
|
|
242 |
|
|
710 |
|
|
735 |
|
|
|
|
|
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|
||||||||
Total noninterest income |
|
|
1,672 |
|
|
769 |
|
|
4,266 |
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|
3,167 |
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|
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Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
3,250 |
|
|
3,642 |
|
|
10,000 |
|
|
10,770 |
|
Loss on impairment of other real estate owned |
|
|
296 |
|
|
|
|
|
1,659 |
|
|
136 |
|
Occupancy expense |
|
|
533 |
|
|
510 |
|
|
1,568 |
|
|
1,533 |
|
Equipment expense |
|
|
470 |
|
|
484 |
|
|
1,427 |
|
|
1,442 |
|
Professional fees |
|
|
277 |
|
|
295 |
|
|
902 |
|
|
840 |
|
Telephone, postage and supplies |
|
|
282 |
|
|
266 |
|
|
814 |
|
|
747 |
|
Bankcard expenses |
|
|
159 |
|
|
195 |
|
|
476 |
|
|
528 |
|
Other expense |
|
|
1,160 |
|
|
1,089 |
|
|
3,759 |
|
|
2,948 |
|
|
|
|
|
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|
||||||||
Total noninterest expense |
|
|
6,427 |
|
|
6,481 |
|
|
20,605 |
|
|
18,944 |
|
|
|
|
|
|
|
||||||||
Earnings before income tax expense |
|
|
1,439 |
|
|
1,050 |
|
|
(172 |
) |
|
3,560 |
|
Income tax expense (benefit) |
|
|
176 |
|
|
3 |
|
|
(250 |
) |
|
536 |
|
|
|
|
|
|
|
||||||||
Net earnings |
|
|
1,263 |
|
|
1,047 |
|
|
78 |
|
|
3,024 |
|
Dividends and discount accretion on preferred stock |
|
|
214 |
|
|
|
|
|
419 |
|
|
|
|
|
|
|
|
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|
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Net earnings (loss) available to common shareholders |
|
$ |
1,049 |
|
$ |
1,047 |
|
$ |
(341 |
) |
$ |
3,024 |
|
|
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Earnings per share data: |
|
|
|
|
|
|
|
|
|
|
|
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|
Basic |
|
$ |
0.35 |
|
$ |
0.34 |
|
$ |
(0.11 |
) |
$ |
0.98 |
|
Diluted |
|
$ |
0.35 |
|
$ |
0.34 |
|
$ |
(0.11 |
) |
$ |
0.97 |
|
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|
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|
|
|
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|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3,030 |
|
|
3,055 |
|
|
3,030 |
|
|
3,092 |
|
Diluted |
|
|
3,030 |
|
|
3,065 |
|
|
3,030 |
|
|
3,118 |
|
See accompanying notes to consolidated financial statements.
3
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(UNAUDITED)
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Three months ended |
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Nine months ended |
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September 30, |
|
September 30, |
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||||||||
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||||||||||
(Dollar amounts in thousands) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
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|
|
|
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|
||||||||
Net earnings |
|
$ |
1,263 |
|
$ |
1,047 |
|
$ |
78 |
|
$ |
3,024 |
|
Unrealized loss on AFS securities |
|
|
112 |
|
|
195 |
|
|
(324 |
) |
|
(72 |
) |
|
|
|
|
|
|
||||||||
Total comprehensive earnings |
|
$ |
1,375 |
|
$ |
1,242 |
|
$ |
(246 |
) |
$ |
2,952 |
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
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|
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Nine months ended September 30 |
|
||||
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|
|||||
(Dollar amounts in thousands) |
|
2009 |
|
2008 |
|
||
|
|
|
|
||||
Cash flow from operating activities: |
|
|
|
|
|
|
|
Net (loss) earnings |
|
$ |
78 |
|
$ |
3,024 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
(Gain) loss on sale of securities available-for-sale |
|
|
(905 |
) |
|
294 |
|
Depreciation, amortization and accretion |
|
|
1,595 |
|
|
1,380 |
|
Write-down of real estate owned |
|
|
1,659 |
|
|
136 |
|
Stock-based compensation expense |
|
|
87 |
|
|
82 |
|
Provision for loan losses |
|
|
3,696 |
|
|
1,590 |
|
Decrease (increase) in interest receivable and other assets |
|
|
1,624 |
|
|
(510 |
) |
Increase (decrease) in accrued expenses and other liabilities |
|
|
(356 |
) |
|
(190 |
) |
|
|
|
|
||||
Net cash provided by operating activities |
|
|
7,478 |
|
|
5,806 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchase of securities available-for-sale |
|
|
(56,302 |
) |
|
(56,762 |
) |
Proceeds from matured/called/sold securities available-for-sale |
|
|
61,189 |
|
|
46,095 |
|
Net increase in loans |
|
|
(20,134 |
) |
|
(5,175 |
) |
Proceeds from sale of bank equipment |
|
|
|
|
|
15 |
|
Sale of other real estate owned |
|
|
358 |
|
|
|
|
Purchases of bank premises, equipment, leasehold improvements |
|
|
(178 |
) |
|
(893 |
) |
|
|
|
|
||||
Net cash provided by investing activities |
|
|
(15,067 |
) |
|
(16,720 |
) |
|
|
|
|
||||
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Net increase in demand and savings deposits |
|
|
95,452 |
|
|
2,527 |
|
Net (decrease) increase in time deposits |
|
|
(11,195 |
) |
|
18,689 |
|
Net decrease in federal funds purchased |
|
|
|
|
|
(5,595 |
) |
Net decrease Federal Home Loan Bank advances |
|
|
(56,100 |
) |
|
|
|
Dividends paid on common stock |
|
|
(757 |
) |
|
(1,336 |
) |
Dividends paid on preferred stock series A and B |
|
|
(305 |
) |
|
|
|
Issuance of preferred stock series A |
|
|
11,360 |
|
|
|
|
Issuance of preferred stock series B |
|
|
640 |
|
|
|
|
Issuance of common stock |
|
|
|
|
|
215 |
|
Repurchases of common stock |
|
|
|
|
|
(1,463 |
) |
|
|
|
|
||||
Net cash provided by financing activities |
|
|
39,095 |
|
|
13,037 |
|
|
|
|
|
||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
31,506 |
|
|
2,123 |
|
Cash and cash equivalents at beginning of period |
|
|
14,865 |
|
|
15,750 |
|
|
|
|
|
||||
Cash and cash equivalents at end of period |
|
$ |
46,371 |
|
$ |
17,873 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
Additional cash flow information: |
|
|
|
|
|
|
|
Interest paid |
|
|
7,317 |
|
|
9,259 |
|
Income taxes paid |
|
|
218 |
|
|
1,530 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
Accrued dividends |
|
|
151 |
|
|
444 |
|
Change in fair value of available for-sale securities |
|
|
(324 |
) |
|
(72 |
) |
Loans transferred to other real estate ow ned |
|
|
7,885 |
|
|
3,515 |
|
Deemed dividends on preferred stock |
|
|
114 |
|
|
|
|
5
FNB BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
NOTE A BASIS OF PRESENTATION
FNB Bancorp (the Company) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California on February 28, 2001. The consolidated financial statements include the accounts of FNB Bancorp and its wholly owned subsidiary, First National Bank of Northern California (the Bank). The Bank provides traditional banking services in San Mateo and San Francisco counties.
All material intercompany transactions and balances have been eliminated in consolidation. The financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial results for the interim periods, as required by Regulation S-X, Rule 10-01.
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2008.
Results of operations for interim periods are not necessarily indicative of results for the full year.
NOTE B STOCK OPTION PLANS
Stock option expense is recorded based on the fair value of option contracts issued. The fair value is determined by the expected contract term, the risk free interest rate, the volatility of the Companys stock price and the level of dividends the Company is expected to pay.
The expected term of options granted is derived from historical plan behavior and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of the grant.
The amount of compensation expense for options recorded in the quarters ended September 30, 2009 and September 30, 2008 was $28,000 and $32,000, respectively. The income tax benefit recognized in the income statements for these amounts was $0 for the quarter ended September 30, 2009, and under $1,000 for the quarter ended September 30, 2008. The amount of compensation expense for options recorded in the nine months ended September 30, 2009 and September 30, 2008 was $87,000 and $82,000, respectively. The income tax benefit recognized in the income statements for these amounts was $0 and $11,000 for the nine months ended September 2009 and 2008, respectively.
6
The intrinsic value of options exercised during the quarter ended September 30, 2009 was $0. The intrinsic value of options exercised during the nine months ended September 30, 2009 was $0 under the 2008 Plan, $0 under the 2002 Plan and $0 under the 1997 Plan.
The amount of total unrecognized compensation expense related to non-vested options at September 30, 2009 was $334,000, and the weighted average period it will be amortized over is 2.3 years.
NOTE C EARNINGS PER SHARE CALCULATION
Earnings per common share (EPS) are computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings available to common stockholders (after deducting dividends and related accretion on preferred stock) by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. All common stock equivalents are anti-dilutive when a net loss occurs.
Earnings per share have been computed based on the following:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
|
||||||||||
(Dollar amounts in thousands) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
||||||||
Net earnings |
|
$ |
1,263 |
|
$ |
1,047 |
|
$ |
78 |
|
$ |
3,024 |
|
Dividends and discount accretion on preferred stock |
|
|
214 |
|
|
|
|
|
419 |
|
|
|
|
|
|
|
|
|
|
||||||||
Net earnings (loss) available to common shareholders |
|
$ |
1,049 |
|
$ |
1,047 |
|
$ |
(341 |
) |
$ |
3,024 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding |
|
|
3,030,000 |
|
|
3,055,000 |
|
|
3,030,000 |
|
|
3,092,000 |
|
Effect of dilutive options |
|
|
|
|
|
10,000 |
|
|
|
|
|
26,000 |
|
Average number of shares outstanding used to calculate diluted earnings per share |
|
|
3,030,000 |
|
|
3,065,000 |
|
|
3,030,000 |
|
|
3,118,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive options not included |
|
|
331,000 |
|
|
234,000 |
|
|
331,000 |
|
|
239,000 |
|
NOTE D COMPREHENSIVE EARNINGS
Comprehensive earnings is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income consists of net unrealized gains and losses on investment securities available-for-sale. Comprehensive earnings for the three months ended September 30, 2009 was $1,375,000 compared to $1,242,000 for the three months ended September 30, 2008. A comprehensive loss for the nine months ended September 30, 2009 was $246,000 compared to comprehensive earnings of $2,952,000 for the nine months ended September 30, 2008.
7
NOTE E SECURITIES AVAILABLE FOR SALE
The amortized cost and carrying values of securities available-for-sale as of September 30, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands) |
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Carrying |
|
||||
|
|
|
|
|
|
||||||||
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies |
|
$ |
63,111 |
|
$ |
590 |
|
$ |
(29 |
) |
$ |
63,672 |
|
Obligations of states and political subdivisions |
|
|
26,747 |
|
|
1,188 |
|
|
(5 |
) |
|
27,930 |
|
Corporate debt |
|
|
2,646 |
|
|
16 |
|
|
|
|
|
2,662 |
|
|
|
|
|
|
|
||||||||
Total |
|
$ |
92,504 |
|
$ |
1,794 |
|
$ |
(34 |
) |
$ |
94,264 |
|
|
|
|
|
|
|
An analysis of gross unrealized losses of the available for sale investment securities portfolio as of September 30, 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands) |
|
Total |
|
Less than |
|
Total |
|
12 Months |
|
Total |
|
Total |
|
||||||
|
|
|
|
|
|
|
|
||||||||||||
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies |
|
$ |
10,427 |
|
$ |
(29 |
) |
$ |
|
|
$ |
|
|
$ |
10,427 |
|
$ |
(29 |
) |
Obligations of states and political subdivisions |
|
|
241 |
|
|
|
|
|
446 |
|
|
(5 |
) |
|
687 |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
10,668 |
|
$ |
(29 |
) |
$ |
446 |
|
$ |
(5 |
) |
$ |
11,114 |
|
$ |
(34 |
) |
|
|
|
|
|
|
|
|
The amortized cost and carrying values of securities available-for-sale as of December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands) |
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Carrying |
|
||||
|
|
|
|
|
|
||||||||
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies |
|
$ |
57,995 |
|
$ |
1,447 |
|
$ |
|
|
$ |
59,442 |
|
Obligations of states and political subdivisions |
|
|
38,918 |
|
|
914 |
|
|
(53 |
) |
|
39,779 |
|
Corporate debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
$ |
96,913 |
|
$ |
2,361 |
|
$ |
(53 |
) |
$ |
99,221 |
|
|
|
|
|
|
|
An analysis of gross unrealized losses of the available for sale investment securities portfolio as of December 31, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands) |
|
Total |
|
Less than |
|
Total |
|
12 Months |
|
Total |
|
Total |
|
||||||
|
|
|
|
|
|
|
|
||||||||||||
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions |
|
|
3,039 |
|
|
(53 |
) |
|
|
|
|
|
|
|
3,039 |
|
|
(53 |
) |
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
3,039 |
|
$ |
(53 |
) |
$ |
|
|
$ |
|
|
$ |
3,039 |
|
$ |
(53 |
) |
|
|
|
|
|
|
|
|
8
At September 30, 2009, there were two securities in an unrealized loss position for greater than 12 consecutive months. These two securities continue to be of investment grade, and management believes their current position is an interest-related temporary valuation impairment caused by a lack of market for the affected issues. Management periodically evaluates each security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary. Management has determined that no investment security is other-than-temporarily impaired at September 30, 2009. The unrealized losses are due solely to interest rate changes and the Company does not intend to sell and will not be required to sell the securities with impairments prior to the earliest of forecasted recovery or the maturity of the underlying investment security.
The amortized cost and carrying value of debt securities as of September 30, 2009, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
(Dollar amounts in thousands) |
|
Amortized |
|
Carrying |
|
||
|
|
|
|
||||
Available-for-sale: |
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
9,317 |
|
$ |
9,382 |
|
Due after one through five years |
|
|
58,819 |
|
|
59,946 |
|
Due after five years through ten years |
|
|
8,652 |
|
|
8,933 |
|
Due after ten years |
|
|
15,716 |
|
|
16,003 |
|
|
|
|
|
||||
Total |
|
$ |
92,504 |
|
$ |
94,264 |
|
|
|
|
|
For the nine months ended September 30, 2009, gross realized gains amounted to $905,000 on $28,421,000 in securities sold or called. For the nine months ended September 30, 2009, there were no gross losses on the sale of investment securities.
NOTE F FAIR VALUE
Fair Value Measurement. The following tables present information about the Companys assets and liabilities measured at fair value as of September 30, 2009, and indicates the fair value techniques used by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
9
The following table presents the recorded amounts of assets measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands) |
|
|
|
|
Fair Value Measurements |
|
|||||||
|
|
|
|
|
|
||||||||
Description |
|
Fair Value |
|
Quoted Prices in |
|
Other |
|
Significant |
|
||||
|
|
|
|
|
|
||||||||
Available-for-sale securities |
|
$ |
94,264 |
|
$ |
|
|
$ |
94,264 |
|
$ |
|
|
|
|
|
|
|
|
||||||||
Total assets measured at fair value |
|
$ |
94,264 |
|
$ |
|
|
$ |
94,264 |
|
$ |
|
|
|
|
|
|
|
|
Fair values established for available-for-sale investment securities are based on estimates of fair values quoted for similar types of securities with similar maturities, risk and yield characteristics.
The following table presents the recorded amount of assets measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands) |
|
|
|
|
Fair Value Measurements |
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
||||||||
Description |
|
Fair Value |
|
Quoted Prices in |
|
Other |
|
Significant |
|
Total |
|
|||||
|
|
|
|
|
|
|
||||||||||
Impaired loans |
|
$ |
14,391 |
|
$ |
|
|
$ |
|
|
$ |
14,391 |
|
$ |
1,074 |
|
Other real estate owned |
|
|
9,425 |
|
|
|
|
|
|
|
|
9,425 |
|
|
1,659 |
|
|
|
|
|
|
|
|
||||||||||
Total impaired assets measured at fair value |
|
$ |
23,816 |
|
$ |
|
|
$ |
|
|
$ |
23,816 |
|
$ |
2,733 |
|
|
|
|
|
|
|
|
For assets measured at fair value on a nonrecurring basis using significant unobservable inputs (level 3) during the nine month period, this Statement requires a reconciliation of the beginning and ending balances separately for each major category of assets, which may be presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|||||||
|
|
|
||||||||
|
|
Impaired |
|
Other Real |
|
Losses |
|
|||
|
|
|
|
|
||||||
Balance 12/31/2008 |
|
$ |
13,440 |
|
$ |
3,557 |
|
$ |
678 |
|
Additions |
|
|
10,412 |
|
|
6,225 |
|
|
2,676 |
|
Deletions |
|
|
(9,461 |
) |
|
(357 |
) |
|
(621 |
) |
|
|
|
|
|
||||||
Balance 9/30/2009 |
|
$ |
14,391 |
|
$ |
9,425 |
|
$ |
2,733 |
|
|
|
|
|
|
The Bank does not record loans at fair value. However, from time to time, if a loan is considered impaired, a specific allocation within the allowance for loan losses may be required. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral exceed the recorded investments in such loans. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. If the fair value of the collateral is based on an observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records the impaired loans as nonrecurring Level 3.
10
Goodwill and premium on purchased deposits are subject to impairment testing. In evaluating the premium on purchased deposits, a projected cash flow valuation method is used in the completion of impairment testing. This valuation method requires a significant degree of management judgment. In the event the projected undiscounted net operating cash flows are less than the carrying value, the asset is recorded at fair value as determined by the valuation model. In evaluating goodwill, management initially uses a combination of discounted cash flows, capitalization rate, and recent merger and acquisition prices. If possible impairment is indicated, a second phase of impairment testing is performed, whereby all the Banks assets and liabilities are valued at fair value in a hypothetical sale situation. Goodwill valuation is highly subjective and is therefore valued as Level 3. As of September 30, 2009, there were no impairments of goodwill or the premium on purchased deposits.
Other real estate owned is carried at the lower of historical cost or fair market value. An appraisal (a level 3 valuation) is obtained at the time the Company acquires title to property through the foreclosure process. Any loan balance outstanding that exceeds the appraised value of the property is charged off against the allowance for loan loss at the time the property is acquired. Subsequent to acquisition, the Bank updates the propertys appraised value on at least an annual basis. If the value of the property has declined during the year, a loss due to valuation impairment charge is recorded along with a corresponding reduction in the book carrying value of the property.
Fair Values of Financial Instruments.
The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments:
Cash and Cash Equivalents.
The carrying amounts reported in the balance sheet for cash and short-term instruments are a reasonable estimate of fair value, which will approximate their historical cost.
Securities Available-for-Sale.
Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Loans Receivable.
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. For fixed rate loans, fair values are based on discounted cash flows.
Bank Owned Life Insurance.
The fair value of bank owned life insurance is the cash surrender value of the policies.
11
Deposit liabilities.
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are based on discounted cash flows.
Federal Home Loan Bank Advances.
The fair values of Federal Home Loan Bank Advances were based on discounted cash flows.
Undisbursed loan commitments, lines of credit, Mastercard line and standby letters of credit.
The fair value of these off-balance sheet items are based on discounted cash flows of expected fundings.
The following table provides summary information on the estimated fair value of financial instruments at September 30, 2009:
|
|
|
|
|
|
|
|
(Dollar amounts in thousands) |
|
Carrying |
|
Fair |
|
||
|
|
|
|
||||
Financial assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
46,371 |
|
$ |
46,371 |
|
Securities available for sale |
|
|
94,264 |
|
|
94,264 |
|
Loans, net |
|
|
506,530 |
|
|
532,152 |
|
Bank owned life insurance |
|
|
8,788 |
|
|
8,788 |
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
Deposits |
|
|
585,167 |
|
|
585,951 |
|
Federal Home Loan Bank advances |
|
|
30,000 |
|
|
30,677 |
|
|
|
|
|
|
|
|
|
Off-balance-sheet liabilities: |
|
|
|
|
|
|
|
Undisbursed loan commitments, lines of credit, Mastercard line and standby letters of credit |
|
|
|
|
|
3,276 |
|
The carrying amount of loans include $22,739,000 of nonaccrual loans (loans that are not accruing interest) as of September 30, 2009. Management has determined that primarily because of the uncertainty of predicting an observable market interest rate, excessive amounts of time and money would be incurred to estimate the fair values of nonperforming loans. As such, these loans are recorded at their carrying amount in the estimated fair value columns.
12
The following table provides summary information on the estimated fair value of financial instruments at December 31, 2008:
|
|
|
|
|
|
|
|
(Dollar amounts in thousands) |
|
Carrying |
|
Fair |
|
||
|
|
|
|
||||
Financial assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
14,865 |
|
$ |
14,865 |
|
Securities available for sale |
|
|
99,221 |
|
|
99,221 |
|
Loans, net |
|
|
497,984 |
|
|
533,277 |
|
Bank owned life insurance |
|
|
10,781 |
|
|
10,781 |
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
Deposits |
|
|
500,910 |
|
|
501,436 |
|
Federal Home Loan Bank advances |
|
|
86,100 |
|
|
86,753 |
|
|
|
|
|
|
|
|
|
Off-balance-sheet liabilities: |
|
|
|
|
|
|
|
Undisbursed loan commitments, lines of credit, Mastercard line and standby letters of credit |
|
|
|
|
|
4,343 |
|
NOTE G PREFERRED STOCK
Preferred Stock was issued to the U. S. Treasury as part of the Treasurys Capital Purchase Program. The Preferred Stock consists of two issues, Series A and Series B. The Series A and Series B Preferred Stock are both carried at liquidation value less discounts received plus premiums paid that are amortized over the expected timeframe that the Preferred Shares will be outstanding using the level yield method. The Series A and Series B Preferred Stock must be redeemed after ten years. The Series A Preferred Stock carries a dividend yield of 5% for the first five years. Beginning in year six, the dividend increases to 9% and continues at this rate until repaid. The Series B Preferred Stock pays a 9% dividend until repaid. Allocation of proceeds between the two issues was done in such a manner that the blended level yield of both issues would be 6.83% to the expected repayment date, which is currently anticipated to be three years from the date of issue. Operating restrictions related to the preferred stock are documented on the U. S. Department of the Treasurys website and include restrictions on dividend payments and executive compensation, the establishment of the requirement that the Preferred Stock be repaid first with the proceeds from any future capital offering before any other use of the proceeds is allowed, establishment of additional reporting requirements related to lending activity of the Bank during the time the Preferred Stock is outstanding, and the execution of documents that allow the U. S. Department of the Treasury to add or change the conditions related to the issuance of the Preferred Stock unilaterally, at their discretion.
NOTE H
An entity shall disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date that the financial statements were available to be issued. FNB Bancorp has evaluated subsequent events through November 13, 2009, the date the financial statements were issued, and determined that there were no recognized or non-recognized subsequent events that require recognition or disclosure in the financial statements.
13
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Information and Uncertainties Regarding Future Financial Performance.
This report, including managements discussion below, concerning earnings and financial condition, contains forward-looking statements. Forward-looking statements are estimates of or statements about expectations or beliefs regarding the Companys future financial performance or anticipated future financial condition that are based on current information and that are subject to a number of risks and uncertainties that could cause actual operating results in the future to differ significantly from those expected at the current time. Those risks and uncertainties include, although they are not limited to, the following:
Increased competition. Increased competition from other banks and financial service businesses, mutual funds and securities brokerage and investment banking firms that offer competitive loan and investment products could require us to reduce interest rates and loan fees to attract new loans or to increase interest rates that we offer on time deposits, either or both of which could, in turn, reduce interest income and net interest margins.
Possible Adverse Changes in Economic Conditions. Adverse changes in national or local economic conditions could (i) reduce loan demand which could, in turn, reduce interest income and net interest margins; (ii) adversely affect the financial capability of borrowers to meet their loan obligations, which, in turn, could result in increases in loan losses and require increases in provisions for loan losses, thereby adversely affecting operating results; and (iii) lead to reductions in real property values that, due to the Companys reliance on real property to secure many of its loans, could make it more difficult to prevent losses from being incurred on non-performing loans through the sale of such real properties.
Possible Adverse Changes in National Economic Conditions and Federal Reserve Board Monetary Policies. Changes in national economic policies, such as increases in inflation or declines in economic output often prompt changes in Federal Reserve Board monetary policies that could reduce interest income or increase the cost of funds to the Company, either of which could result in reduced earnings.
Changes in Regulatory Policies. Changes in federal and national bank regulatory policies, such as increases in capital requirements or in loan loss reserve or asset/liability ratio requirements, could adversely affect earnings by reducing yields on earning assets or increasing operating costs.
Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this report, which speak only as of the date of this report, or to make predictions based solely on historical financial performance. The Company also disclaims any obligation to update forward-looking statements contained in this report.
14
Critical Accounting Policies And Estimates
Managements discussion and analysis of its financial condition and results of operations are based upon the Companys financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to its loans and allowance for loan losses. The Company bases its estimates on current market conditions, historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected as required by Regulation S-X, Rule 10-01. The Company believes the following critical accounting policy requires significant judgments and estimates used in the preparation of the consolidated financial statements.
Allowance for Loan Losses
The allowance for loan losses is periodically evaluated for adequacy by management. Factors considered include the Companys loan loss experience, known and inherent risks in the portfolio, current economic conditions, known adverse situations that may affect the borrowers ability to repay, regulatory policies, and the estimated value of underlying collateral. The evaluation of the adequacy of the allowance is based on the above factors along with prevailing and anticipated economic conditions that may impact borrowers ability to repay loans. Determination of the allowance is in part objective and in part a subjective judgment by management based on the information it currently has in its possession. Adverse changes in any of these factors or the discovery of new adverse information could result in higher than expected charge-offs and loan loss provisions.
Goodwill
Goodwill arises from the Companys purchase price exceeding the fair value of the net assets of an acquired business. Goodwill represents the value attributable to intangible elements acquired. The value of this goodwill is supported ultimately by profit from the acquired business. A decline in earnings could lead to impairment, which would be recorded as a write-down in the Companys consolidated statements of income. Events that may indicate goodwill impairment include significant or adverse changes in results of operations of the acquired business or asset, economic or political climate; an adverse action or assessment by a regulator; unanticipated competition; and a more-likely-than-not expectation that a reporting unit will be sold or disposed of at a loss.
Provision for and Deferred Income Taxes
The Company is subject to income tax laws of the United States, California, and the municipalities in which it operates. The Company considers our income tax provision methodology to be critical to the reporting of current and deferred taxes. The provision for income taxes is based on complex analyses of many factors including interpretation of federal and state laws, the difference between tax and financial reporting bases of assets and liabilities (temporary differences), estimates of amounts due or owed, the timing of reversals of temporary differences and current financial standards. Actual results could differ significantly from the estimates due to tax law interpretations used in determining the current and deferred income tax liabilities. Additionally, there can be no assurances that estimates and interpretations used in determining income tax liabilities may not be challenged by federal and state taxing authorities.
15
Recent Accounting Pronouncements
The Company has adopted guidance as codified by the Financial Accounting Standards Board (FASB) which refers to Interim Disclosures about Fair Value of Financial Instruments which was issued in April 2009. This guidance amends earlier guidance on the same subject as well as guidance regarding Interim Financial Reporting by requiring disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements and requiring disclosures in summarized financial information at interim reporting periods. This guidance is effective for interim reporting periods ending after June 15, 2009; early adoption is permitted for periods ending after March 15, 2009. The Company does not expect this guidance to have a material impact on the Companys financial statements.
The Company has adopted guidance as codified by the Financial Accounting Standards Board (FASB) issued in April 2009, which amends the other-than-temporary impairment guidance in U. S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This guidance does not amend an existing recognition and measurement guidance related to other-than-temporary impairments of equity securities.
The Company has adopted guidance as codified by the Financial Accounting Standards Board (FASB) issued in April 2009, which was adopted to provide additional guidance for estimating fair value in accordance with guidance regarding Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This guidance also includes guidance on identifying circumstances that indicate a transaction is not orderly.
The Company has adopted guidance as codified by the Financial Accounting Standards Board (FASB) issued in May 2009, regarding Subsequent Events. This guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires an entity to recognize in the financial statements the effect of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Some unrecognized subsequent events may be of such a nature that they must be disclosed to keep the financial statements from being misleading. This guidance introduces the concept of financial statements being available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This guidance became effective for interim or annual financial periods ending after June 15, 2009. The Company does not expect this guidance to have a material impact on the Companys financial statements.
The Company has adopted guidance as codified by the Financial Accounting Standards Board (FASB) which was issued in June, 2009, Accounting for Transfers of Financial Assets. This is a revision to guidance on Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a qualifying special-purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosures. This guidance becomes effective at the start of a companys fiscal year after November 15, 2009. The Company does not expect this guidance to have a material impact on the Companys financial statements.
16
The Company has adopted guidance as codified by the Financial Accounting Standards Board (FASB) issued in June, 2009, Amendments to Previous Guidance Regarding Consolidation of Variable Interest Entities, and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entitys purpose and design and a companys ability to direct the activities of the entity that most significantly impact the entitys economic performance. This guidance becomes effective at the start of a companys fiscal year after November 15, 2009. The Company does not expect this guidance to have a material impact on the Companys financial statements.
The Company has adopted guidance as codified by the Financial Accounting Standards Board (FASB) issued in June 2009 regarding The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of an earlier guidance on the same subject. The FASB Accounting Standards Codification (Codification) will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritaive. This guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009.
Following this guidance, the Board will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates. The Board will not consider Accounting Standards Updates as authoritative in their own right. Accounting Standards Updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification.
Earnings Analysis
Net earnings for the quarter ended September 30, 2009 were $1,049,000, compared to net earnings of $1,047,000 for the quarter ended September 30, 2008, an increase of $2,000. Net losses for the nine months ended September 30, 2009 were $341,000 compared to net earnings of $3,024,000 for the nine months ended September 30, 2008, a decrease of $3,365,000, or 111%. Earnings before income tax expense for the quarter ended September 30, 2009 were $1,439,000, compared to $1,050,000 for the quarter ended September 30, 2008, an increase of $389,000, or 37%. Losses before income tax were $172,000 for the nine months ended September 30, 2009 compared to earnings of $3,560,000 for the nine months ended September 30, 2008, a decrease of $3,732,000, or 105%. Earnings for the quarter ended September 30, 2009 were positively affected by the recorded pre tax gain of $659,000 on the sale of $28,421,000 of available for sale investment securities.
17
Net interest income for the quarter ended September 30, 2009 was $6,990,000, compared to $7,062,000 for the quarter ended September 30, 2008, a decrease of $72,000, or 1%. Net interest income for the nine months ended September 30, 2009 was $19,863,000 compared to $20,927,000 for the nine months ended September 30, 2008, a decrease of $1,064,000, or 5%. The Federal Open Market Committee made a series of significant reductions in the intended federal funds rate in 2008, starting with a 4.25% rate on January 1, 2008. By January 1, 2009, the target rate was 0% to 0.25% and remained unchanged through September 30, 2009. This significant reduction in short term rates has negatively affected the Companys net interest margin. The rate of decrease in the rates paid for interest bearing liabilities has not kept pace with the rates earned on interest earning assets during the first three quarters of 2009, effectively causing a decrease in rate-related drop in net interest income for the nine months ended September 30, 2009, compared to the same period in 2008. An additional factor has been the increase in nonaccrual loans in 2009 when compared to 2008 levels.
Basic earnings per share were $0.35 for the third quarter of 2009 compared to $0.34 for the third quarter of 2008. Diluted earnings per share were $0.35 for the third quarter of 2009 compared to $0.34 for the third quarter of 2008. Basic losses per share were $0.11 for the nine months ended September 30, 2009 compared to basic earnings of $0.98 for the nine months ended September 30, 2008. Diluted losses per share were $0.11 for the nine months ended September 30, 2009 compared to diluted earnings per share of $0.97 for the nine months ended September 30, 2008.
18
The following table presents an analysis of net interest income and average earning assets and liabilities for the three-and nine-month periods ended September 30, 2009 compared to the three-and nine-month periods ended September 30, 2008.
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TABLE 1 |
|
NET INTEREST INCOME AND AVERAGE
BALANCES |
|
||||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
Three months ended September 30, |
|
||||||||||||||||
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|
|
|||||||||||||||||
|
|
2009 |
|
2008 |
|
||||||||||||||
|
|
|
|
||||||||||||||||
(Dollar amounts in thousands) |
|
Average |
|
Interest |
|
Annualized |
|
Average |
|
Interest |
|
Annualized |
|
||||||
|
|
|
|
|
|
|
|
||||||||||||
INTEREST EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, gross (1) (2) |
|
$ |
497,445 |
|
$ |
8,578 |
|
6.92 |
% |
|
$ |
489,112 |
|
$ |
8,757 |
|
7.12 |
% |
|
Taxable securities (3) |
|
|
57,111 |
|
|
389 |
|
2.73 |
% |
|
|
64,517 |
|
|
618 |
|
3.81 |
% |
|
Nontaxable securities (3) |
|
|
32,817 |
|
|
392 |
|
4.79 |
% |
|
|
40,860 |
|
|
495 |
|
4.82 |
% |
|
Fed funds sold |
|
|
27,909 |
|
|
18 |
|
0.26 |
% |
|
|
6,871 |
|
|
34 |
|
1.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total interest earning assets |
|
$ |
615,282 |
|
$ |
9,377 |
|
6.11 |
% |
|
$ |
601,360 |
|
$ |
9,904 |
|
6.55 |
% |
|
NONINTEREST EARNING ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
37,759 |
|
|
|
|
|
|
|
$ |
17,052 |
|
|
|
|
|
|
|
Premises and equipment |
|
|
12,249 |
|
|
|
|
|
|
|
|
13,581 |
|
|
|
|
|
|
|
Other assets |
|
|
29,516 |
|
|
|
|
|
|
|
|
29,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total noninterest earning assets |
|
$ |
79,524 |
|
|
|
|
|
|
|
$ |
59,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
TOTAL ASSETS |
|
$ |
694,806 |
|
|
|
|
|
|
|
$ |
661,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
INTEREST BEARING LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, interest bearing |
|
$ |
59,847 |
|
$ |
86 |
|
0.58 |
% |
|
$ |
59,928 |
|
$ |
78 |
|
0.52 |
% |
|
Money market |
|
|
217,363 |
|
|
1,169 |
|
2.16 |
% |
|
|
142,569 |
|
|
765 |
|
2.13 |
% |
|
Savings |
|
|
43,583 |
|
|
32 |
|
0.29 |
% |
|
|
48,256 |
|
|
32 |
|
0.26 |
% |
|
Time deposits |
|
|
131,946 |
|
|
624 |
|
1.90 |
% |
|
|
151,459 |
|
|
1,136 |
|
2.98 |
% |
|
Federal Home Loan Bank advances |
|
|
39,891 |
|
|
382 |
|
3.84 |
% |
|
|
63,541 |
|
|
713 |
|
4.46 |
% |
|
Federal funds purchased |
|
|
|
|
|
|
|
n/a |
|
|
|
155 |
|
|
1 |
|
2.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total interest bearing liabilities |
|
$ |
492,630 |
|
$ |
2,293 |
|
1.87 |
% |
|
$ |
465,908 |
|
$ |
2,725 |
|
2.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
NONINTEREST BEARING LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
116,875 |
|
|
|
|
|
|
|
|
120,112 |
|
|
|
|
|
|
|
Other liabilities |
|
|
6,776 |
|
|
|
|
|
|
|
|
8,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total noninterest bearing liabilities |
|
$ |
123,651 |
|
|
|
|
|
|
|
$ |
128,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
TOTAL LIABILITIES |
|
$ |
616,281 |
|
|
|
|
|
|
|
$ |
594,139 |
|
|
|
|
|
|
|
Stockholders equity |
|
$ |
78,525 |
|
|
|
|
|
|
|
$ |
67,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
694,806 |
|
|
|
|
|
|
|
|
661,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4) |
|
|
|
|
$ |
7,084 |
|
4.62 |
% |
|
|
|
|
$ |
7,179 |
|
4.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Interest on non-accrual loans is recognized into income on a cash received basis.
19
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
TABLE 2 |
|
NET INTEREST INCOME AND
AVERAGE BALANCES |
|
||||||||||||||||
|
|
|
|
||||||||||||||||
|
|
Nine months ended September 30, |
|
||||||||||||||||
|
|
|
|||||||||||||||||
|
|
2009 |
|
2008 |
|
||||||||||||||
|
|
|
|
||||||||||||||||
(Dollar amounts in thousands) |
|
Average |
|
Interest |
|
Annualized |
|
Average |
|
Interest |
|
Annualized |
|
||||||
|
|
|
|
|
|
|
|
||||||||||||
INTEREST EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, gross (1) (2) |
|
$ |
498,716 |
|
$ |
24,396 |
|
6.54 |
% |
|
$ |
495,573 |
|
$ |
26,879 |
|
7.24 |
% |
|
Taxable securities (3) |
|
|
54,287 |
|
|
1,359 |
|
3.35 |
% |
|
|
50,322 |
|
|
1,645 |
|
4.37 |
% |
|
Nontaxable securities (3) |
|
|
37,105 |
|
|
1,319 |
|
4.75 |
% |
|
|
43,802 |
|
|
1,558 |
|
4.75 |
% |
|
Fed funds sold |
|
|
17,954 |
|
|
78 |
|
0.58 |
% |
|
|
5,868 |
|
|
103 |
|
2.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Tot int earn assets |
|
$ |
608,062 |
|
$ |
27,152 |
|
5.97 |
% |
|
$ |
595,565 |
|
$ |
30,185 |
|
6.77 |
% |
|
|
|||||||||||||||||||
NONINTEREST EARNING ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
25,885 |
|
$ |
|
|
|
|
|
$ |
17,053 |
|
|
|
|
|
|
|
Premises and equipment |
|
|
12,590 |
|
|
|
|
|
|
|
|
13,792 |
|
|
|
|
|
|
|
Other assets |
|
|
28,950 |
|
|
|
|
|
|
|
|
28,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tot nonint earning assets |
|
$ |
67,425 |
|
|
|
|
|
|
|
$ |
59,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
TOTAL ASSETS |
|
$ |
675,487 |
|
|
|
|
|
|
|
$ |
655,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, int bearing |
|
$ |
58,563 |
|
$ |
242 |
|
0.55 |
% |
|
$ |
60,652 |
|
$ |
260 |
|
0.57 |
% |
|
Money market |
|
|
181,339 |
|
|
2,879 |
|
2.12 |
% |
|
|
140,660 |
|
|
2,501 |
|
2.38 |
% |
|
Savings |
|
|
43,631 |
|
|
95 |
|
0.29 |
% |
|
|
47,095 |
|
|
94 |
|
0.27 |
% |
|
Time deposits |
|
|
135,644 |
|
|
2,082 |
|
2.05 |
% |
|
|
139,999 |
|
|
3,667 |
|
3.50 |
% |
|
FHLB advances |
|
|
57,062 |
|
|
1,676 |
|
3.93 |
% |
|
|
72,370 |
|
|
2,347 |
|
4.33 |
% |
|
Fed funds purchased |
|
|
2 |
|
|
|
|
n/a |
|
|
|
705 |
|
|
19 |
|
3.60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Tot int bear liab |
|
$ |
476,241 |
|
$ |
6,974 |
|
1.96 |
% |
|
$ |
461,481 |
|
$ |
8,888 |
|
2.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|||||||||||||||||||
NONINTEREST BEARING LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
115,633 |
|
|
|
|
|
|
|
|
117,718 |
|
|
|
|
|
|
|
Other liabilities |
|
|
6,779 |
|
|
|
|
|
|
|
|
8,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tot nonint bear liabilities |
|
$ |
122,412 |
|
|
|
|
|
|
|
$ |
126,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|||||||||||||||||||
TOTAL LIABILITIES |
|
$ |
598,653 |
|
|
|
|
|
|
|
$ |
587,616 |
|
|
|
|
|
|
|
Stockholders equity |
|
$ |
76,834 |
|
|
|
|
|
|
|
$ |
67,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
675,487 |
|
|
|
|
|
|
|
$ |
655,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|||||||||||||||||||
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4) |
|
|
|
|
$ |
20,178 |
|
4.44 |
% |
|
|
|
|
$ |
21,297 |
|
4.78 |
% |
|
(1) Interest on non-accrual loans is recognized into income on a cash received basis.
Tables 1 and 2, above, show the various components that contributed to changes in net interest income for the three and nine months ended September 30, 2009 and 2008. The principal interest earning assets are loans, from a volume as well as from an earnings perspective. For the quarter ended September 30, 2009, average loans outstanding represented 80.8% of average earning assets. For the quarter ended September 30, 2008, they represented 81.3% of average earning assets. For the nine months ended September 30, 2009 and 2008, average loans outstanding represented 82.0% and 83.2%, respectively, of average earning assets.
20
The taxable equivalent yield on average interest earning assets for the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008 decreased from 6.55% to 6.11%, or 44 basis points. Average loans increased by $8,333,000, quarter to quarter, and the yield decreased from 7.12% to 6.92%, or 20 basis points. Interest income on total interest earning assets decreased $527,000 or 5.3%. The decrease in yield resulted from lower prevailing market rates on loans and increased nonaccrual loan volumes. During the third quarter of 2009, the Bank purchased approximately $19 million dollars in servicing released loans from another community bank in our service area. This loan purchase was funded with available cash and helped to improve yields that otherwise would have decreased further during the quarter.
For the three months ended September 30, 2009 compared to the three months ended September 30, 2008, the cost on total interest bearing liabilities decreased from 2.33% to 1.87%, a decrease of 46 basis points. During 2009, the Bank has promoted our Money Market Maximizer product that pays an adjustable interest rate tied to the number and types of Bank products utilized by the customer. This account has brought in significant amounts of new deposits during 2009. Our most expensive source of interest bearing liabilities during the three months ended September 30, 2009 came from Federal Home Loan Bank advances. Their average cost decreased from 4.46% to 3.84%, while their average balances outstanding decreased $23,650,000 and the expense on these advances decreased $331,000 for the three months ended September 30, 2009 compared to 2008. Time deposit interest cost decreased from 2.98% to 1.90%. Their average balance outstanding decreased by $19,513,000, or 12.9%, while their expense decreased $512,000. Money market deposits average volume increased $74,794,000, or 52.5%, while their cost increased 3 basis points, which resulted in a $404,000 increase in their interest expense.
For the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, interest income on interest earning assets decreased $3,033,000 or 10.05%, while average earning assets increased $12,497,000, or 2.1%. Average loans increased by $3,143,000, or 0.6%. Interest on loans decreased $2,483,000 or 9.2%, while yield decreased 70 basis points, or 9.7%. The cost on total interest bearing liabilities decreased from 2.57% to 1.96% caused primarily by new volumes in the Banks Money Market Maximizer product. Average Federal Home Loan Bank advances decreased $15,308,000 or 21.2%. Their yield decreased from 4.33% to 3.93%, and their cost decreased $671,000. Time deposit averages decreased $4,355,000 or 3.1%. Their yield decreased 145 basis points, or 41.4%. Money market deposit average balances increased $40,679,000, or 28.9%, and their cost increased $378,000, or 15.1%.
21
For the three and nine month periods ended September 30, 2009 and September 30, 2008, respectively, the following tables show the dollar amount of change in interest income and expense and the dollar amounts attributable to: (a) changes in volume (changes in volume at the current year rate), and b) changes in rate (changes in rate times the prior years volume). In this table, the dollar change in rate/volume is prorated to volume and rate proportionately.
|
|
|
|
|
|
|
|
|
|
|
Table 3 |
|
FNB BANCORP AND SUBSIDIARY |
|
|||||||
|
|
|
|
|||||||
|
|
Three Months Ended September 30, |
|
|||||||
|
|
|
||||||||
(Dollar amounts in thousands) |
|
Interest |
|
Variance |
|
|||||
|
|
|
|
|||||||
|
|
|
|
|
Rate |
|
Volume |
|
||
|
|
|
|
|
|
|
||||
INTEREST EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
(179 |
) |
$ |
(323 |
) |
$ |
144 |
|
Taxable securities |
|
|
(229 |
) |
|
(179 |
) |
|
(50 |
) |
Nontaxable securities |
|
|
(103 |
) |
|
(7 |
) |
|
(96 |
) |
Federal funds sold |
|
|
(16 |
) |
|
(120 |
) |
|
104 |
|
|
|
|
|
|
||||||
Total |
|
$ |
(527 |
) |
$ |
(629 |
) |
$ |
102 |
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
INTEREST BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
8 |
|
$ |
8 |
|
$ |
|
|
Money market |
|
|
404 |
|
|
2 |
|
|
402 |
|
Savings deposits |
|
|
0 |
|
|
3 |
|
|
(3 |
) |
Time deposits |
|
|
(512 |
) |
|
(365 |
) |
|
(147 |
) |
Federal Home Loan Bank advances |
|
|
(331 |
) |
|
(66 |
) |
|
(265 |
) |
Federal funds purchased |
|
|
(1 |
) |
|
0 |
|
|
(1 |
) |
|
|
|
|
|
||||||
Total |
|
$ |
(432 |
) |
$ |
(418 |
) |
$ |
(14 |
) |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
$ |
(95 |
) |
$ |
(211 |
) |
$ |
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 4 |
|
FNB BANCORP AND SUBSIDIARY |
|
|||||||
|
|
|
|
|||||||
|
|
Nine Months Ended September 30, |
|
|||||||
|
|
|
||||||||
(Dollar amounts in thousands) |
|
Interest |
|
Variance |
|
|||||
|
|
|
|
|||||||
|
|
|
|
|
Rate |
|
Volume |
|
||
|
|
|
|
|
|
|
||||
INTEREST EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
(2,483 |
) |
$ |
(2,654 |
) |
$ |
171 |
|
Taxable securities |
|
|
(286 |
) |
|
(416 |
) |
|
130 |
|
Nontaxable securities |
|
|
(239 |
) |
|
(1 |
) |
|
(238 |
) |
Federal funds sold |
|
|
(25 |
) |
|
(237 |
) |
|
212 |
|
|
|
|
|
|
||||||
Total |
|
$ |
(3,033 |
) |
$ |
(3,308 |
) |
$ |
275 |
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
INTEREST BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
(18 |
) |
$ |
(9 |
) |
$ |
(9 |
) |
Money market |
|
|
378 |
|
|
(345 |
) |
|
723 |
|
Savings deposits |
|
|
1 |
|
|
9 |
|
|
(8 |
) |
Time deposits |
|
|
(1,585 |
) |
|
(1,471 |
) |
|
(114 |
) |
Federal Home Loan Bank advances |
|
|
(671 |
) |
|
(175 |
) |
|
(496 |
) |
Federal funds purchased |
|
|
(19 |
) |
|
(19 |
) |
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
(1,914 |
) |
$ |
(2,010 |
) |
$ |
96 |
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
$ |
(1,119 |
) |
$ |
(1,298 |
) |
$ |
179 |
|
|
|
|
|
|
22
Noninterest income
The following table shows the principal components of noninterest income for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 5 |
|
NONINTEREST INCOME |
|
|
|
||||||||
|
|
|
|
|
|
||||||||
|
|
Three
months |
|
Variance |
|
||||||||
|
|
|
|
||||||||||
(Dollar amounts in thousands) |
|
2009 |
|
2008 |
|
Amount |
|
Percent |
|
||||
|
|
|
|
|
|
||||||||
Service charges |
|
$ |
707 |
|
$ |
749 |
|
$ |
(42 |
) |
-5.6 |
% |
|
Credit card fees |
|
|
179 |
|
|
211 |
|
|
(32 |
) |
-15.2 |
% |
|
Gain (loss) on sale or impairment of securities AFS |
|
|
659 |
|
|
(433 |
) |
|
1,092 |
|
252.2 |
% |
|
Other income |
|
|
127 |
|
|
242 |
|
|
(115 |
) |
-47.5 |
% |
|
|
|
|
|
|
|
|
|
||||||
Total noninterest income |
|
$ |
1,672 |
|
$ |
769 |
|
$ |
903 |
|
117.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months |
|
Variance |
|
||||||||
|
|
|
|
||||||||||
(Dollars in thousands) |
|
2009 |
|
2008 |
|
Amount |
|
Percent |
|
||||
|
|
|
|
|
|
||||||||
Service charges |
|
|
2,134 |
|
|
2,160 |
|
|
(26 |
) |
-1.2 |
% |
|
Credit card fees |
|
|
517 |
|
|
566 |
|
|
(49 |
) |
-8.7 |
% |
|
Gain (loss) on sale or impairment of securities AFS |
|
|
905 |
|
|
(294 |
) |
|
1,199 |
|
407.8 |
% |
|
Other income |
|
|
710 |
|
|
735 |
|
|
(25 |
) |
-3.4 |
% |
|
|
|
|
|
|
|
|
|
||||||
Total noninterest income |
|
$ |
4,266 |
|
$ |
3,167 |
|
$ |
1,099 |
|
34.7 |
% |
|
|
|
|
|
|
|
|
|
Noninterest income consists mainly of service charges on deposits. For the quarter ended September 30, 2009 compared to September 30, 2008, total noninterest income increased by $903,000 or 117.4%. For the nine months ended September 30, 2009 and September 30, 2008, total noninterest income increased by $1,099,000, or 34.7%. The primary reason for the increase in noninterest income for the three and nine month periods ended September 30, 2009 when compared to the same periods in 2008 is the gain on sale of securities. The security sales were primarily in our municipal securities and mortgage backed securities segments of our available for sale investment portfolio. Service charges decreased $42,000 for the quarter, and $26,000 for the nine months. Gain (loss) on sale or impairment of securities increased pretax income by $1,092,000 for the three months, and $1,199,000 for the nine months over 2008 levels.
Noninterest expense
The following table shows the principal components of noninterest expense for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6 |
|
NONINTEREST EXPENSE |
|
|
|
||||||||
|
|
|
|
|
|
||||||||
|
|
Three
months |
|
Variance |
|
||||||||
|
|
|
|
||||||||||
(Dollar amounts in thousands) |
|
2009 |
|
2008 |
|
Amount |
|
Percent |
|
||||
|
|
|
|
|
|
||||||||
Salaries and employee benefits |
|
$ |
3,250 |
|
$ |
3,642 |
|
$ |
(392 |
) |
-10.8 |
% |
|
Loss on impairment of other real estate owned |
|
|
296 |
|
|
|
|
|
296 |
|
|
|
|
Occupancy expense |
|
|
533 |
|
|
510 |
|
|
23 |
|
4.5 |
% |
|
Equipment expense |
|
|
470 |
|
|
484 |
|
|
(14 |
) |
-2.9 |
% |
|
Professional fees |
|
|
277 |
|
|
295 |
|
|
(18 |
) |
-6.1 |
% |
|
Telephone, postage & supplies |
|
|
282 |
|
|
266 |
|
|
16 |
|
6.0 |
% |
|
Bankcard expenses |
|
|
159 |
|
|
195 |
|
|
(36 |
) |
-18.5 |
% |
|
Other expense |
|
|
1,160 |
|
|
1,089 |
|
|
71 |
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
||||||
Total noninterest expense |
|
$ |
6,427 |
|
$ |
6,481 |
|
$ |
(54 |
) |
-0.8 |
% |
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months |
|
Variance |
|
||||||||
|
|
|
|
||||||||||
(Dollars in thousands) |
|
2009 |
|
2008 |
|
Amount |
|
Percent |
|
||||
|
|
|
|
|
|
||||||||
Salaries and employee benefits |
|
$ |
10,000 |
|
$ |
10,770 |
|
$ |
(770 |
) |
-7.1 |
% |
|
Loss on impairment of other real estate owned |
|
|
1,659 |
|
|
|
|
|
1,659 |
|
|
|
|
Occupancy expense |
|
|
1,568 |
|
|
1,533 |
|
|
35 |
|
2.3 |
% |
|
Equipment expense |
|
|
1,427 |
|
|
1,442 |
|
|
(15 |
) |
-1.0 |
% |
|
Professional fees |
|
|
902 |
|
|
840 |
|
|
62 |
|
7.4 |
% |
|
Telephone, postage & supplies |
|
|
814 |
|
|
747 |
|
|
67 |
|
9.0 |
% |
|
Bankcard expenses |
|
|
476 |
|
|
528 |
|
|
(52 |
) |
-9.8 |
% |
|
Other expense |
|
|
3,759 |
|
|
3,084 |
|
|
675 |
|
21.9 |
% |
|
|
|
|
|
|
|
|
|
||||||
Total noninterest expense |
|
$ |
20,605 |
|
$ |
18,944 |
|
$ |
1,661 |
|
8.8 |
% |
|
|
|
|
|
|
|
|
|
Noninterest expense consists mainly of salaries and employee benefits. For the three months ended September 30, 2009 compared to three months ended September 30, 2008, it represented 50.6% and 56.2% of total noninterest expenses. For the nine months ended September 30, 2009 and 2008 it was 48.5% and 56.9% respectively of total noninterest expense increases. The reduction in salaries and employee benefits year over year is primarily the result of a decrease in full time equivalent employees, primarily related to the elimination of the Banks call center. The expenses excluding Salaries and Benefits increased $338,000 for the quarter, and $2,431,000 for the nine months. The largest expense increases occurred in OREO expenses and loan collection expenses. Of these non-salary expenses, loss on impairment of other real estate owned increased by $296,000 for the quarter, and by $1,659,000 for the nine months. Real estate values have continued to decline in 2009 from levels existing in 2008. These declines are the primary reason for the increase in other real estate owned impairment charges.
Provision for Loan Losses
There was a provision for loan losses of $796,000 for the three-month period ended September 30, 2009 compared to a $300,000 provision for the same period in 2008. The increased provision was warranted given the level of nonperforming loans and the economic and business conditions that exist in our marketplace.
There was a provision for loan losses of $3,696,000 for the nine-month period ended September 30, 2009 compared to a provision for loan losses of $1,590,000 for the same period in 2008. The allowance for loan losses was approximately $9,424,000 or 1.83% of total gross loans at September 30, 2009, compared to $7,075,000 or 1.40% of total gross loans at December 31, 2008. The allowance for loan losses is maintained at a level considered adequate for management to provide for probable loan losses inherent in the loan portfolio. The provision for loan loss is increased when market conditions deteriorate and our borrowers demonstrate increased difficulty making their loan payments. The provision was increased during the three and nine months ended September 30, 2009 when compared to 2008 levels, which is understandable, given the depth of the recession we have experienced during this time frame.
24
Income Taxes
The effective tax rate for the quarter ended September 30, 2009 was a 12.2% compared to 0.3% for the quarter ended September 30, 2008. The effective tax rate for the nine months ended September 30, 2009 and September 30, 2008, respectively was a tax benefit of 145.3% compared to a tax expense of 15.1%. Items which usually affect the rate are changing amounts invested in Low Income Housing Credits, the amount of interest income on qualifying loans in Enterprise Zones, and the volume of non-taxable municipal bond interest received. Another significant reason for changes in the effective tax rate is the change in the relative proportion of tax -advantaged income in comparison to fully taxable income period over period. During the three and nine months ended September 30, 2009, projected full year taxable pretax income levels have exceeded actual results. Given the relatively fixed nature of the Banks nontaxable income levels, as pretax income declines, the Company experiences a corresponding decline in our effective tax rate.
Asset and Liability Management
Ongoing management of the Companys interest rate sensitivity limits interest rate risk through monitoring the mix and maturity of loans, investments and deposits. Management regularly reviews the Companys position and evaluates alternative sources and uses of funds as well as changes in external factors. Various methods are used to achieve and maintain the desired rate sensitivity position including the sale or purchase of assets and product pricing.
In order to ensure that sufficient funds are available for loan growth and deposit withdrawals, as well as to provide for general needs, the Company must maintain an adequate level of liquidity. Asset liquidity comes from the Companys ability to convert short-term investments into cash and from the maturity and repayment of loans and investment securities. Liability liquidity comes from Companys customer base, which provides core deposit growth. The overall liquidity position of the Company is closely monitored and evaluated regularly. Management believes the Companys liquidity sources at September 30, 2009 are adequate to meet its operating needs in 2009 and our liquidity positions are sufficient to meet our liquidity needs in the near term.
Financial Condition
Assets. Total assets increased to $699,313,000 at September 30, 2009 from $660,957,000 at December 31, 2008, an increase of $38,356,000. Most of this increase was in cash and equivalents, which increased by $31,506,000, a $8,553,000 increase in net loans, and a net decrease in all other assets of $1,703,000. This was funded by a $84,257,000 increase in deposits, and a $10,779,000 increase in stockholders equity, net of a decrease of $580,000 in other liabilities, and a reduction of $56,100,000 in Federal Home Loan Bank advances. The majority of the increase in deposits was derived from increased deposit volumes invested in our Money Market Maximizer product.
25
Loans. Gross loans at September 30, 2009 were $516,184,000, an increase of $10,948,000 or 2.17% from December 31, 2008. Gross real estate loans increased $39,541,000, construction loans decreased $13,957,000, commercial loans decreased $13,930,000 and consumer loans decreased by $706,000. During the third quarter of 2009, the Bank purchased approximately $19 million dollars of commercial real estate and multifamily residential loans from another community bank in our service area. The loans included in this purchase were individually underwritten, and priced to include a 2% credit reserve discount, offset by a 2% yield premium. The portfolio breakdown was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 7 |
|
LOAN PORTFOLIO |
|
||||||||||
|
|
|
|
||||||||||
(Dollar amounts in thousands) |
|
September 30, 2009 |
|
Percent |
|
December 31 2008 |
|
Percent |
|
||||
|
|
|
|
|
|
||||||||
Real Estate |
|
$ |
392,552 |
|
|
76.0 |
% |
$ |
353,011 |
|
|
69.9 |
% |
Construction |
|
|
51,690 |
|
|
10.0 |
% |
|
65,647 |
|
|
13.0 |
% |
Commercial |
|
|
69,512 |
|
|
13.5 |
% |
|
83,442 |
|
|
16.5 |
% |
Consumer |
|
|
2,430 |
|
|
0.5 |
% |
|
3,136 |
|
|
0.6 |
% |
|
|
|
|
|
|
||||||||
Gross loans |
|
|
516,184 |
|
|
100.0 |
% |
|
505,236 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
||||
Net deferred loan (fees) cost |
|
|
(223 |
) |
|
|
|
|
(177 |
) |
|
|
|
Allowance for loan losses |
|
|
(9,424 |
) |
|
|
|
|
(7,075 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loans |
|
$ |
506,537 |
|
|
|
|
$ |
497,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses. Management of the Company is responsible for assessing the overall risks within the Banks loan portfolio, assessing the specific loss expectancy, and determining the adequacy of the allowance for loan losses. The level of the allowance is determined by internally generated credit quality ratings, reviewing economic conditions in the Companys market area, and considering the Companys historical loan loss experience. The Companys management considers changes in national and local economic conditions in the Companys market area, as well as the conditions of various market segments. It also reviews any changes in the nature and volume of the portfolio. Management watches for the existence and effect of any concentrations of credit, and changes in the level of such concentrations. It also reviews the effect of external factors, such as competition and legal and regulatory requirements. Finally, the Company is committed to maintaining an adequate allowance, identifying credit weaknesses by consistent review of loans, and maintaining the ratings and changing those ratings in a timely manner as circumstances change.
A summary of activity in the allowance for loan losses for the nine months ended September 30, 2009 and the nine months ended September 30, 2008 is as follows:
|
|
|
|
|
|
|
|
TABLE 8 |
|
ALLOWANCE FOR LOAN LOSSES |
|
||||
|
|
|
|
||||
|
|
Nine months ended |
|
||||
|
|
|
|||||
(Dollar amounts in thousands) |
|
2009 |
|
2008 |
|
||
|
|
|
|
||||
Balance, beginning of period |
|
$ |
7,075 |
|
$ |
5,638 |
|
Provision for loan losses |
|
|
3,696 |
|
|
1,590 |
|
Recoveries |
|
|
68 |
|
|
47 |
|
Amounts charged off |
|
|
(1,415 |
) |
|
(1,244 |
) |
|
|
|
|
||||
Balance, end of period |
|
$ |
9,424 |
|
$ |
6,031 |
|
|
|
|
|
During the third quarter of 2009, the additional provision for loan losses was necessary due to increased inherent losses within the Companys loan portfolio. The additional expected loss reflects the difficult credit environment, current economic recession, and the level of nonperforming loans within the Banks loan portfolio.
In managements judgment, the allowance was adequate to absorb losses currently inherent in the loan portfolio at September 30, 2009. However, changes in prevailing economic conditions in the Companys markets or in the financial condition of its customers could result in changes in the level of nonperforming assets and charge-offs in the future and, accordingly, changes in the allowance.
26
The allowance is affected by a number of factors, and does not necessarily move in tandem with the level of gross loans outstanding. Management continues to monitor the factors that affect the allowance, and is prepared to make adjustments as they become necessary.
Nonperforming assets. Nonperforming assets consist of nonaccrual loans, loans that are 90 days or more past due but are still accruing interest and other real estate owned. At September 30, 2009, there was $32,164,000 in nonperforming assets, compared to $17,659,000 at December 31, 2008. Nonaccrual loans were $22,739,000 at September 30, 2009, consisting of $12,670,000 in construction loans, $2,633,000 in one to four family residential properties, $3,540,000 in multifamily residential properties, $2,802,000 in nonfarm, nonresisdential properties, and $1,094,000 in commercial and industrial loans. compared to $14,102,000 at December 31, 2008, consisting of $7,953,000 in construction loans, $1,404,000 in one to four family residential properties, $3,539,000 in multifamily residential properties, $886,000 in nonfarm, nonresidential properties, and $320,000 in commercial and industrial loans. There was $9,425,000 in Other Real Estate Owned at September 30, 2009, and $3,557,000 at December 31, 2008. There were no loans past due 90 days and still accruing at either date. During the first quarter of 2008, the Bank obtained a land development property consisting of 20 residential lots located in Martinez, California, that was recorded at the net realizable value of $3,200,000. This property was written down to $2,000,000 during the first quarter of 2009 based on an updated appraised property value. During the first quarter of 2009, the bank also obtained through foreclosure two single family residences in San Anselmo, California that had a combined value of $3,298,000 at the time the Bank obtained title to the properties. Management intends to aggressively market these properties. While management believes these properties will sell, there can be no assurance that these properties will sell quickly given the current real estate market, nor can the expected sales price be accurately predicted. During the first quarter of 2008, the Bank obtained through foreclosure a single family residence in San Jose valued at $357,000 which was sold for $356,412 in the third quarter of 2009.
Deposits. Total deposits at September 30, 2009 were $585,167,000 compared to $500,910,000 on December 31, 2008. Of these totals, noninterest-bearing demand deposits were $120,903,000 or 20.7% of the total on September 30, 2009 and $121,237,000 or 24.2% on December 31, 2008. Savings and money market accounts were $279,696,000 or 47.8% of the total on September 30, 2009, and $179,382,000 or 35.8% of the total on December 31, 2008. Time deposits were $130,645,000 on September 30, 2009 and $141,840,000 on December 31, 2008. During the first nine months of 2009, compared to the same period in 2008, the deposit mix has changed to include a higher proportion of deposits in money market accounts, which averaged $181,339,000 in the nine months ended September 30, 2009, compared to $140,660,000 in the same period last year. This change is being driven by an economic downturn and the desire by our depositors to place additional funds into the Banks Money Market Maximizer product that pays a tiered interest rate based on the number of other Bank products utilized.
27
The following table sets forth the maturity schedule of the time certificates of deposit on September 30, 2009:
TABLE 9
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands) |
|
Under |
|
$100,000 |
|
|
|
|
||
Maturities |
|
$100,000 |
|
or more |
|
Total |
|
|||
|
|
|
|
|||||||
Three months or less |
|
$ |
16,499 |
|
$ |
38,684 |
|
$ |
55,183 |
|
Over three through six months |
|
|
11,748 |
|
|
24,188 |
|
|
35,936 |
|
Over six through twelve months |
|
|
12,294 |
|
|
15,466 |
|
|
27,760 |
|
Over twelve months |
|
|
7,679 |
|
|
4,087 |
|
|
11,766 |
|
|
|
|
|
|
||||||
Total |
|
$ |
48,220 |
|
$ |
82,425 |
|
$ |
130,645 |
|
|
|
|
|
|
Federal Home Loan Bank advances. These advances declined by $56,100,000 or 65.2% on September 30, 2009 compared to December 31, 2008. Funds to repay these advances were primarily obtained from increased deposits generated during 2009.
The following table shows the risk-based capital ratios and leverage ratios at September 30, 2009 and December 31, 2008 for the Bank:
TABLE 10
|
|
|
|
|
|
|
|
|
|
|
Risk-Based Capital Ratios |
|
September 30, 2009 |
|
December 31, 2008 |
|
Minimum Well |
|
|||
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital |
|
12.49 |
% |
|
10.65 |
% |
|
> |
6.00 |
% |
Total Capital |
|
13.75 |
% |
|
11.84 |
% |
|
> |
10.00 |
% |
Leverage Ratios |
|
10.91 |
% |
|
9.68 |
% |
|
> |
5.00 |
% |
The primary increase in our capital positions during 2009 relates to the February 2009 investment of $12.6 million dollars stated value preferred stock by the U. S. Department of the Treasury, as part of their Capital Purchase Program.
Liquidity. Liquidity is a measure of the Companys ability to convert assets into cash with minimal loss. As of September 30, 2009, Liquid Assets were $140,635,000, or 20.1% of total assets. As of December 31, 2008, Liquid Assets were $114,086,000, or 17.3% of total assets. Liquidity consists of cash and due from banks, federal funds sold, and securities available-for-sale. The Companys primary uses of funds are loans, and the primary sources of funds are deposits. The relationship between total net loans and total deposits is a useful additional measure of liquidity. The Company also has federal funds borrowing facilities totaling $25,000,000, a Federal Home Loan Bank line up to 30% of total assets, and a Federal Reserve Bank borrowing facility.
A higher loan to deposit ratio may lead to a loss of liquid assets in the future. This must be balanced against the fact that loans represent the highest interest earning assets. A lower loan to deposit ratio means lower potential income. On September 30, 2009 net loans were at 87% of deposits. On December 31, 2008 net loans were at 99% of deposits.
28
Off-Balance Sheet Items
The Company has certain ongoing commitments under operating leases. These commitments do not significantly impact operating results. As of September 30, 2009 and December 31, 2008, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and letters of credit were $87,354,000 and $115,821,000 at September 30, 2009 and December 31, 2008, respectively. As a percentage of net loans, these off-balance sheet items represent 17.2% and 23.3% respectively.
Corporate Reform Legislation
President George W. Bush signed the Sarbanes-Oxley Act of 2002 (the Act) on July 30, 2002, in response to corporate accounting scandals. Among other matters, the Act increased the penalties for securities fraud, established new rules for financial analysts to prevent conflicts of interest, created a new independent oversight board for the accounting profession, imposed restrictions on the consulting activities of accounting firms that audit company records and required certification of financial reports by corporate executives. The SEC has adopted a number of rule changes to implement the provisions of the Act. The SEC has also approved new rules adopted by the New York Stock Exchange and the Nasdaq Stock Market to strengthen corporate governance standards for listed companies. The Company anticipates that it will continue to incur costs to comply with the Act and the rules and regulations promulgated pursuant to the Act by the Securities and Exchange Commission of approximately $200,000 annually.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk of loss to future earnings, to fair values of assets or to future cash flows that may result from changes in the price or value of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates and other market conditions. Market risk is attributed to all market-risk-sensitive financial instruments, including loans, investment securities, deposits and borrowings. The Company does not engage in trading activities or participate in foreign currency transactions for its own account. Accordingly, exposure to market risk is primarily a function of asset and liability management activities and of changes in market rates of interest. Changes in rates can cause or require increases in the rates paid on deposits that may take effect more rapidly or may be greater than the increases in the interest rates that the Company is able to charge on loans and the yields that it can realize on its investments.
The extent of that market risk depends on a number of variables including the sensitivity to changes in market interest rates and the maturities of the Companys interest earning assets and deposits (see discussion of comparative changes in the prime lending rate and the Federal Home Loan Bank of San Franciscos Weighted Monthly Cost of Funds, in the second paragraph under the Earnings Analysis section of this report).
Item 4T. Controls and Procedures.
(a) Disclosure Controls and Procedures: An evaluation of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) was carried out under the supervision and with the participation of the Companys Chief Executive Officer, Chief Financial Officer and other members of the Companys senior management as of the end of the Companys fiscal quarter ended September 30, 2009. The Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Companys management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms.
29
(b) Internal Control Over Financial Reporting: An evaluation of any changes in the Companys internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), that occurred during the Companys fiscal quarter ended September 30, 2009, was carried out under the supervision and with the participation of the Companys Chief Executive Officer, Chief Financial Officer and other members of the Companys senior management. The Companys Chief Executive Officer and Chief Financial Officer concluded that no change identified in connection with such evaluation has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
PART IIOTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings adverse to the Company or First National Bank to which any director, officer, affiliate of the Company, or 5% shareholder of the Company, or any associate of any such director, officer, affiliate or 5% shareholder of the Company are a party, and none of the foregoing persons has a material interest adverse to the Company or First National Bank.
From time to time, the Company and/or First National Bank are a party to claims and legal proceedings arising in the ordinary course of business. The Companys management is not aware of any material pending legal proceedings to which either it or First National Bank may be a party or has recently been a party, which will have a material adverse effect on the financial condition or results of operations of the Company and First National Bank, taken as a whole.
Item 1A. Risk Factors
There have been no material changes from risk factors previously disclosed by the Company in response to Item 1A, Part 1 of Form 10-K as of December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
c) ISSUER PURCHASES OF EQUITY SECURITIES
On August 24, 2007, the Board of Directors of the Company authorized a stock repurchase program which calls for the repurchase of up to five percent (5%) of the Companys then outstanding 2,863,635 shares of Common Stock, or 143,182 shares. There were no repurchases during the quarter ended September 30, 2009. There were 10,457 shares remaining that may be purchased under this Plan as of September 30, 2009. Effective February 27, 2009, based on the Purchase Agreement with the U. S. Treasury, the Company may not repurchase Company common stock so long as the Treasurys Preferred Stock investment is outstanding.
Item 6. Exhibits
|
|
|
Exhibits |
|
|
|
31: Rule 13a-14(a)/15d-14(a) Certifications |
|
|
|
32: Section 1350 Certifications |
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
FNB BANCORP |
|
|
(Registrant) |
|
|
|
|
Dated: November 13, 2009. |
By: |
/s/ Thomas C. McGraw |
|
|
|
|
|
Thomas C. McGraw |
|
|
Chief Executive Officer |
|
|
(Authorized Officer) |
|
|
|
|
By: |
/s/ David A. Curtis |
|
|
|
|
|
David A. Curtis |
|
|
Senior Vice President |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
31