SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

 

 

 

 

Yes  R                   No  £

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  R                   No  £

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  £                   No R

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Common stock, no par value, 14,170,119 shares outstanding as of July 31, 2013

 

 

 

 

 

 

(dollars in thousands)

 

		June 30, 2013			December 31, 2012
		(unaudited)			(audited)
ASSETS
Cash and due from banks		$	41,863		$	42,079
Interest-bearing deposits in banks			25,119			19,739
Total Cash & Cash Equivalents			66,982			61,818
Investment securities available for sale			393,576			380,188
Loans held for sale			523			210
Loans and leases:
Gross loans and leases			810,194			879,795
Allowance for loan and lease losses			(12,180)			(13,873)
Deferred loan and lease fees, net			1,237			1,156
Net Loans and Leases			799,251			867,078
Premises and equipment, net			20,932			21,830
Operating leases, net			-			12
Foreclosed assets			10,834			19,754
Goodwill			5,544			5,544
Other assets			80,782			81,469
TOTAL ASSETS		$	1,378,424		$	1,437,903
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing		$	357,540		$	352,597
Interest bearing			797,476			821,437
Total Deposits			1,155,016			1,174,034
Federal funds purchased and repurchase agreements			1,963			1,419
Short-term borrowings			-			36,650
Long-term borrowings			-			5,000
Junior subordinated debentures			30,928			30,928
Other liabilities			15,346			15,980
TOTAL LIABILITIES			1,203,253			1,264,011
SHAREHOLDERS' EQUITY
Common stock, no par value; 24,000,000 shares     authorized; 14,144,439 and 14,106,959 shares issued     and outstanding at June 30, 2013 and     December 31, 2012, respectively			64,855			64,384
Additional paid in capital			2,707			2,660
Retained earnings			107,566			103,128
Accumulated other comprehensive income			43			3,720
TOTAL SHAREHOLDERS' EQUITY			175,171			173,892
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	1,378,424		$	1,437,903

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Interest income:
Interest and fees on loans	$	11,368		$	11,154		$	22,275		$	22,297
Interest on investment securities:
Taxable		1,034			1,751			2,196			3,635
Tax-exempt		672			685			1,291			1,352
Interest on federal funds sold and interest-bearing     deposits		16			22			44			37
Total interest income		13,090			13,612			25,806			27,321
Interest expense:
Interest on deposits		628			809			1,288			1,694
Interest on short-term borrowings		8			13			12			18
Interest on long-term borrowings		-			49			33			180
Interest on mandatorily redeemable trust preferred securities		179			193			356			393
Total interest expense		815			1,064			1,689			2,285
Net Interest Income		12,275			12,548			24,117			25,036
Provision for loan losses		450			3,160			2,050			5,910
Net Interest Income after Provision for Loan Losses		11,825			9,388			22,067			19,126
Non-interest income:
Service charges on deposit accounts		2,215			2,417			4,288			4,704
Gains on investment securities available-for-sale		-			1			6			71
Other income, net		1,807			1,704			3,844			3,448
Total non-interest income		4,022			4,122			8,138			8,223
Non-interest expense:
Salaries and employee benefits		5,403			4,911			11,323			10,576
Occupancy expense		1,596			1,563			3,147			3,052
Other		3,718			4,009			8,068			8,894
Total non-interest expenses		10,717			10,483			22,538			22,522
Income before income taxes		5,130			3,027			7,667			4,827
Provision for income taxes		1,331			454			1,535			375
Net Income	$	3,799		$	2,573		$	6,132		$	4,452
PER SHARE DATA
Book value	$	12.38		$	12.23		$	12.38		$	12.23
Cash dividends	$	0.06		$	0.06		$	0.12		$	0.12
Earnings per share basic	$	0.27		$	0.18		$	0.43		$	0.32
Earnings per share diluted	$	0.27		$	0.18		$	0.43		$	0.32
Average shares outstanding, basic		14,128,146			14,103,209			14,120,865			14,102,544
Average shares outstanding, diluted		14,227,335			14,107,640			14,211,910			14,107,416
Total shareholder Equity (in thousands)	$	175,171		$	172,537		$	175,171		$	172,537
Shares outstanding		14,144,439			14,103,209			14,144,439			14,103,209
Dividends Paid	$	847,358		$	846,193		$	1,694,024		$	1,692,289

2

(dollars in thousands, unaudited)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2013			2012			2013			2012
Net Income		$	3,799		$	2,573		$	6,132		$	4,452
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding (losses) gains arising during period			(6,157)			604			(6,242)			1,709
Less: reclassification adjustment for gains (1)			-			(1)			(6)			(71)
Other comprehensive (loss) income, before tax			(6,157)			603			(6,248)			1,638
Income tax expense related to items of other     comprehensive (loss) income, net of tax			2,534			(246)			2,571			(678)
Other comprehensive (loss) income			(3,623)			357			(3,677)			960
Comprehensive income		$	176		$	2,930		$	2,455		$	5,412

 

⁽¹⁾ Amounts are included in net gains on investment securities available-for-sale on the Consolidated Statements of Income in non-interest revenue. Income tax expense associated with the reclassification adjustment for the quarter ended June 30, 2013 and 2012 was $0 for each period. Income tax expense associated with the reclassification adjustment for the six months ended June 30, 2013 and 2012 was $3 thousand and $29 thousand, respectively.

 

The accompanying notes are an integral part of these consolidated financial statements

  

 

		Six Months Ended June 30,
		2013			2012
Cash flows from operating activities:
Net income		$	6,132		$	4,452
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on investment of securities			(6)			(71)
Gain on sales of loans			(68)			(94)
Gain on disposal of fixed assets			(15)			-
Loss on sale on foreclosed assets			269			177
Writedowns on foreclosed assets			188			1,395
Share-based compensation expense			150			122
Provision for loan losses			2,050			5,910
Depreciation and amortization			1,151			1,190
Net amortization on securities premiums and discounts			4,337			4,019
Increase in unearned net loan fees			(81)			(324)
Increase in cash surrender value of life insurance policies			(933)			(861)
Proceeds from sales of loans portfolio			2,288			3,954
Net Increase in loans held-for-sale			(2,533)			(3,007)
Decrease (Increase) in interest receivable and other assets			3,641			(314)
Decrease in other liabilities			(633)			(172)
Net Decrease in FHLB Stock			438			634
Deferred Income Tax Provision			8			88
Excess tax benefit from equity based compensation			(103)			(36)
Net cash provided by operating activities			16,280			17,062
Cash flows from investing activities:
Maturities of securities available for sale			439			135
Proceeds from sales/calls of securities available for sale			1,221			7,000
Purchases of securities available for sale			(77,966)			(73,752)
Principal pay downs on securities available for sale			52,339			48,591
Net Decrease (Increase) in loans receivable, net			63,776			(80,230)
Purchases of premises and equipment, net			(226)			(2,481)
Proceeds from sales of foreclosed assets			10,546			10,569
Net cash provided by (used in) investing activities			50,129			(90,168)
Cash flows from financing activities:
(Decrease) Increase in deposits			(19,019)			63,265
Decrease in borrowed funds			(41,650)			(2,480)
Increase (Decrease) in repurchase agreements			544			(147)
Cash dividends paid			(1,694)			(1,692)
Stock options exercised			471			14
Excess tax benefit from equity based compensation			103			36
Net cash (used in) provided by financing activities			(61,245)			58,996
Increase (Decrease) in cash and due from banks			5,164			(14,110)
Cash and Cash Equivalents
Beginning of period			61,818			63,036
End of period		$	66,982		$	48,926

4

Note 1 – The Business of Sierra Bancorp

 

Sierra Bancorp (the "Company") is a California corporation headquartered in Porterville, California, and is a registered bank holding company under federal banking laws. The Company was formed to serve as the holding company for Bank of the Sierra (the "Bank"), and has been the Bank's sole shareholder since August 2001. The Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish. At the present time, the Company's only other subsidiaries are Sierra Statutory Trust II and Sierra Capital Trust III, which were formed in March 2004 and June 2006, respectively, solely to facilitate the issuance of capital trust pass-through securities (TRUPS). Pursuant to the Financial Accounting Standards Board's (FASB's) standard on the consolidation of variable interest entities, these trusts are not reflected on a consolidated basis in the financial statements of the Company. References herein to the "Company" include Sierra Bancorp and its consolidated subsidiary, the Bank, unless the context indicates otherwise.

 

The Bank is a California state-chartered bank headquartered in Porterville, California, that offers a full range of retail and commercial banking services primarily to communities in the central and southern regions of the San Joaquin Valley. Our branch footprint stretches from Fresno on the north to Bakersfield on the south, and on the southern end extends east through the Tehachapi plateau and into the northwestern tip of the Mojave Desert. The Bank was incorporated in September 1977 and opened for business in January 1978, and in the ensuing years has grown to be the largest independent bank headquartered in the South San Joaquin Valley. Our growth has primarily been organic, but includes the acquisition of Sierra National Bank in 2000. We currently operate 25 full service branch offices throughout our geographic footprint, as well as an internet branch which provides the ability to open deposit accounts online. The Bank's most recent branching activity includes a new branch which opened for business in the city of Selma in February 2011, and the relocation of our Clovis branch to a larger facility in a more convenient location in the third quarter of 2012. In addition to our full-service branches, the Bank has a real estate industries group, an agricultural credit division, an SBA lending unit, and offsite ATM's at six different non-branch locations. The Bank's deposit accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to maximum insurable amounts.

Note 2 – Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in a condensed format, and therefore do not include all of the information and footnotes required by U.S. generally accepted accounting principles (GAAP) for complete financial statements. The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for such period. Such adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. In preparing the accompanying consolidated financial statements, management has taken subsequent events into consideration and recognized them where appropriate. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter, or for the full year. Certain amounts reported for 2012 have been reclassified to be consistent with the reporting for 2013. The interim financial information should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission.

 

In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, with the objective of improving the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income, by component. In addition, if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period, an entity is required to present significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts.  For public entities, this update is effective prospectively for reporting periods beginning after December 15, 2012. We adopted ASU 2013-02 effective the first quarter of 2013, thus enhancing our disclosures with regard to items reclassified out of accumulated comprehensive income.

 

 

Note 4 – Supplemental Disclosure of Cash Flow Information

 

During the six months ended June 30, 2013 and 2012, cash paid for interest due on interest-bearing liabilities was $1.794 million and $2.117 million, respectively. There was no cash paid for income taxes during the six months ended June 30, 2013 and 2012. Assets totaling $2.622 million and $11.206 million were acquired in settlement of loans for the six months ended June 30, 2013 and June 30, 2012, respectively. We received $10.156 million in cash from the sale of foreclosed assets during the first six months of 2013 relative to $6.886 million during the first six months of 2012, which represents sales proceeds less loans extended to finance such sales totaling $390,000 for the first six months of 2013 and $3.684 million for the first six months of 2012.

Note 5 – Share Based Compensation

 

The 2007 Stock Incentive Plan (the "2007 Plan") was adopted by the Company in 2007. Our 1998 Stock Option Plan (the "1998 Plan") was concurrently terminated, although options to purchase 164,950 shares that were granted prior to the termination of the 1998 Plan were still outstanding as of June 30, 2013 and remain unaffected by the termination. The 2007 Plan provides for the issuance of both "incentive" and "nonqualified" stock options to officers and employees, and of "nonqualified" stock options to non-employee directors of the Company. The 2007 Plan also provides for the potential issuance of restricted stock awards to these same classes of eligible participants, on such terms and conditions as are established at the discretion of the Board of Directors or the Compensation Committee. The total number of shares of the Company's authorized but unissued stock reserved for issuance pursuant to awards under the 2007 Plan was initially 1,500,000 shares, although the number remaining available for grant as of June 30, 2013 was 762,620.  The dilutive impact of stock options outstanding is discussed below in Note 6, Earnings per Share. No restricted stock awards have been issued by the Company.

 

Pursuant to FASB's standards on stock compensation, the value of each option granted is reflected in our income statement as employee compensation or directors' expense, by amortizing the value over the vesting period of such option or by expensing it as of the grant date for immediately vested options. The Company is utilizing the Black-Scholes model to value stock options, and the "multiple option" approach is used to allocate the resulting valuation to actual expense. Under the multiple option approach, an employee's options for each vesting period are separately valued and amortized. This appears to be the preferred method for option grants with multiple vesting periods, which is the case for most options granted by the Company. A pre-tax charge of $57,000 was reflected in the Company's income statement during the second quarter of 2013 and $55,000 was charged during the second quarter of 2012, as expense related to stock options. For the first half, the charges amounted to $151,000 in 2013 and $122,000 in 2012.

Note 6 – Earnings per Share

 

The computation of earnings per share, as presented in the Consolidated Statements of Income, is based on the weighted average number of shares outstanding during each period. There were 14,128,146 weighted average shares outstanding during the second quarter of 2013, and 14,103,209 during the second quarter of 2012. There were 14,120,865 weighted average shares outstanding during the first six months of 2013, and 14,102,544 during the first six months of 2012.

 

Diluted earnings per share include the effect of the potential issuance of common shares, which for the Company is limited to shares that would be issued on the exercise of "in-the-money" stock options. The dilutive effect of options outstanding was calculated using the treasury stock method, excluding anti-dilutive shares and adjusting for unamortized expense and windfall tax benefits. For the second quarter and first six months of 2013 the dilutive effect of options outstanding calculated under the treasury stock method totaled 99,189 and 91,045, respectively, which were added to basic weighted average shares outstanding for purposes of calculating diluted earnings per share. Likewise, for the second quarter and first six months of 2012 shares totaling 4,431 and 4,872, respectively, were added to basic weighted average shares outstanding in order to calculate diluted earnings per share.

Note 7 – Comprehensive Income

 

Comprehensive income, as presented in the Consolidated Statements of Comprehensive Income, includes net income and other comprehensive income. The Company's only source of other comprehensive income is unrealized gains and losses on available-for-sale investment securities. Gains or losses on investment securities that were realized and included in net income of the current period, which had previously been included in other comprehensive income as unrealized holding gains or losses in the period in which they arose, are considered to be reclassification adjustments that are excluded from other comprehensive income of the current period.

 

 

 

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business, in order to meet the financing needs of its customers. Those financial instruments consist of unused commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of risk in excess of the amount recognized in the balance sheet. The Company's exposure to credit loss in the event of nonperformance by counterparties for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and issuing letters of credit as it does for originating loans included on the balance sheet. The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):

 

		June 30, 2013			December 31, 2012
Commitments to extend credit		$	387,241		$	225,400
Standby letters of credit		$	8,316		$	6,690
Commercial letters of credit		$	8,533		$	8,539

 

Commitments to extend credit consist primarily of the following: Unfunded home equity lines of credit; commercial real estate construction loans, which are established under standard underwriting guidelines and policies and are secured by deeds of trust, with disbursements made over the course of construction; commercial revolving lines of credit, which have a high degree of industry diversification; the unused portions of mortgage warehouse lines of credit; and the unused portions of formalized (disclosed) deposit account overdraft lines. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments are expected to expire without being drawn upon, the unused portions of committed amounts do not necessarily represent future cash requirements. Standby letters of credit are generally unsecured and are issued by the Company to guarantee the performance of a customer to a third party, while commercial letters of credit represent the Company's commitment to pay a third party on behalf of a customer upon fulfillment of contractual requirements. The credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers.

 

The Company is also utilizing a $79 million letter of credit issued by the Federal Home Loan Bank on the Company's behalf as security for certain deposits. The letter of credit is backed by specific loans which are pledged to the Federal Home Loan Bank by the Company.

 

FASB's standards on financial instruments, and on fair value measurements and disclosures, require all entities to disclose in their financial statement footnotes the estimated fair values of financial instruments for which it is practicable to estimate such values. In addition to those disclosure requirements, FASB's standard on investments requires that our debt securities, which are classified as available for sale, and our equity securities that have readily determinable fair values, be measured and reported at fair value in our statement of financial position. Certain impaired loans are also reported at fair value, as explained in greater detail below, and foreclosed assets are carried at the lower of cost or fair value.  FASB's standard on financial instruments permits companies to report certain other financial assets and liabilities at fair value, but we have not elected the fair value option for any additional financial assets or liabilities.

 

Fair value measurements and disclosure standards also establish a framework for measuring fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Further, they establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standards describe three levels of inputs that may be used to measure fair value:

 

 

 

  

 

Fair value estimates are made at a specific point in time based on relevant market data and information about the financial instruments. The estimates do not reflect any premium or discount that could result from offering the Company's entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to realized gains and losses could have a significant effect on fair value estimates but have not been considered in any estimates. Because no market exists for a significant portion of the Company's financial instruments, fair value disclosures are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. The estimates are subjective and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. The following methods and assumptions were used by the Company to estimate the fair value of its financial instruments disclosed at June 30, 2013 and December 31, 2012:

 

 

 

 

 

 

 

 

Estimated fair values for the Company's financial instruments at the periods noted are as follows:

 

 

 

Fair Value of Financial Instruments
(dollars in thousands, unaudited)		June 30, 2013
					Estimated Fair Value
		Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
Financial Assets:
Cash and cash equivalents		$	66,982		$	66,982		$	-		$	-		$	66,982
Investment securities available for sale			393,576			2,234			391,342			-			393,576
Loans and leases, net			785,219			-			831,835			-			831,835
Collateral dependent impaired loans			14,032			-			14,032			-			14,032
Loans held-for-sale			523			523			-			-			523
Cash surrender value of life insurance policies			38,940			-			38,940			-			38,940
Other investments			5,932			-			5,932			-			5,932
Investment in Limited Partnership			9,826			-			9,826			-			9,826
Accrued interest receivable			4,935			-			4,935			-			4,935
Financial Liabilities:
Deposits:
Noninterest-bearing		$	357,540		$	357,540		$	-		$	-		$	357,540
Interest-bearing			797,476			-			797,833			-			797,833
Fed Funds Purchased and Repurchase Agreements			1,963			-			1,963			-			1,963
Short-term borrowings			-			-			-			-			-
Long-term borrowings			-			-			-			-			-
Subordinated debentures			30,928			-			19,304			-			19,304
Limited partnership capital commitment			951			-			951			-			951
Accrued Interest Payable			200			-			200			-			200
		Notional Amount
Off-balance-sheet financial instruments:
Commitments to extend credit		$	387,241
Standby letters of credit			8,316
Commercial lines of credit			8,533

 

		December 31, 2012
					Estimated Fair Value
		Carrying Amount			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
Financial Assets:
Cash and cash equivalents		$	61,818		$	61,818		$	-		$	-		$	61,818
Investment securities available for sale			380,188			1,809			378,379			-			380,188
Loans and leases, net			839,629			-			873,309			-			873,309
Collateral dependent impaired loans			27,449			-			27,449			-			27,449
Loans held-for-sale			210			210			-			-			210
Cash surrender value of life insurance policies			38,007			-			38,007			-			38,007
Other Investments			6,370			-			6,370			-			6,370
Investment in Limited Partnership			10,316			-			10,316			-			10,316
Accrued Interest Receivable			5,095			-			5,095			-			5,095
Financial Liabilities:
Deposits:
Noninterest-bearing		$	352,597		$	352,597		$	-		$	-		$	352,597
Interest-bearing			821,437			-			821,911			-			821,911
Fed Funds Purchased and Repurchase Agreements			1,419			-			1,419			-			1,419
Short-term borrowings			36,650			-			36,650			-			36,650
Long-term borrowings			5,000			-			5,038			-			5,038
Subordinated debentures			30,928			-			12,141			-			12,141
Limited partnership capital commitment			962			-			962			-			962
Accrued Interest Payable			304			-			304			-			304
		Notional Amount
Off-balance-sheet financial instruments:
Commitments to extend credit		$	225,400
Standby letters of credit			6,690
Commercial lines of credit			8,539

 

 

 

For financial asset categories that were actually reported at fair value at June 30, 2013 and December 31, 2012, the Company used the following methods and significant assumptions:

 

 

 

 

 

 

Assets reported at fair value on a recurring basis are summarized below:

 

Fair Value Measurements - Recurring

(dollars in thousands, unaudited)

 

		Fair Value Measurements at June 30, 2013, Using
		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
Investment Securities
U.S. Government agencies		$	-		$	4,293		$	-		$	4,293
Obligations of states and political subdivisions			-			87,405			-			87,405
U.S. Government agencies collateralized     by mortgage obligations			-			299,644			-			299,644
Other Securities			2,234			-			-			2,234
Total availabe-for-sale securities		$	2,234		$	391,342		$	-		$	393,576

 

		Fair Value Measurements at December 31, 2012, Using
		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
Investment Securities
U.S. Government agencies		$	-		$	2,973		$	-		$	2,973
Obligations of states and political subdivisions			-			73,986			-			73,986
U.S. Government agencies collateralized     by mortgage obligations			-			301,389			-			301,389
Other Securities			1,809			31			-			1,840
Total availabe-for-sale securities		$	1,809		$	378,379		$	-		$	380,188

 

 

 

Note 10 – Investments

 

Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are classified as "available for sale" to allow maximum flexibility with regard to interest rate risk and liquidity management. Pursuant to FASB's guidance on accounting for debt and equity securities, available for sale securities are carried on the Company's financial statements at their estimated fair market values, with monthly tax-effected "mark-to-market" adjustments made vis-à-vis accumulated other comprehensive income in shareholders' equity. The Company's available-for-sale investment securities totaled $394 million at June 30, 2013, and $380 million at December 31, 2012.

 

 

 

Amortized Cost And Estimated Fair Value

 

The amortized cost and estimated fair value of investment securities available-for-sale are as follows

(dollars in thousands, unaudited):

 

		June 30, 2013
		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Estimated Fair Value
U.S. Government agencies		$	4,363		$	4		$	(74)		$	4,293
Obligations of state and political subdivisions			87,237			2,138			(1,970)			87,405
U.S. Government agencies collateralized     by mortgage obligations			300,565			2,096			(3,017)			299,644
Equity Securities			1,336			898			-			2,234
		$	393,501		$	5,136		$	(5,061)		$	393,576

 

		December 31, 2012
		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Estimated Fair Value
U.S. Government agencies		$	2,987		$	3		$	(17)		$	2,973
Obligations of state and political subdivisions			70,736			3,430			(180)			73,986
U.S. Government agencies collateralized     by mortgage obligations			298,806			3,547			(964)			301,389
Equity Securities			1,336			508			(4)			1,840
		$	373,865		$	7,488		$	(1,165)		$	380,188

 

At June 30, 2013 and December 31, 2012, the Company had 209 securities and 89 securities, respectively, with unrealized losses. Management has evaluated those securities as of the respective dates, and does not believe that any of the associated unrealized losses are other than temporary. Information pertaining to our investment securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is disclosed in the table below.

 

 

  

Investment Portfolio - Unrealized Losses

(dollars in thousands, unaudited)

 

		June 30, 2013
		Less than Twelve Months						Over Twelve Months
		Gross						Gross
		Unrealized						Unrealized
		Losses			Fair Value			Losses			Fair Value
U.S. Government Agencies		$	(74)		$	2,615		$	-		$	-
Obligations of State and Political Subdivisions			(1,948)			36,167			(22)			309
U.S. Government agencies collateralized by mortgage       obligations			(2,786)			179,242			(231)			12,838
Other Securities			-			-			-			-
Total		$	(4,808)		$	218,024		$	(253)		$	13,147

 

		December 31, 2012
		Less than Twelve Months						Over Twelve Months
		Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value
U.S. Government Agencies		$	(17)		$	1,996		$	-		$	-
Obligations of State and Political Subdivisions			(180)			9,324			-			-
U.S. Government agencies collateralized by mortgage       obligations			(903)			106,799			(61)			6,965
Other Securities			(4)			242			-			-
Total		$	(1,104)		$	118,361		$	(61)		$	6,965