Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

(Mark One)

 

[ X ]            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015.

 

Or

 

[    ]              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.

 

Commission File Number:  000-25020

 

 

(Exact name of registrant as specified in its charter)

 

 

 

(805) 369-5200

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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 [    ]

 

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 (§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).  YES [ X ]   NO [    ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [   ]	Accelerated filer [ X ]
Non-accelerated filer [   ] (Do not check if a smaller reporting company)	Smaller reporting company [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [    ]    NO [ X ]

 

As of July 29, 2015 there were 34,314,242 shares of the registrant’s common stock outstanding.

 

 

Table of Contents

 

Heritage Oaks Bancorp

and Subsidiaries

 

Table of Contents

 

		Page
Part I.	Financial Information
Item 1.	Financial Statements (unaudited).
	Condensed Consolidated Balance Sheets at June 30, 2015 and December 31, 2014	4
	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2015 and June 30, 2014	5
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2015 and June 30, 2014	6
	Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2015 and June 30, 2014	7
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and June 30, 2014	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 4.	Controls and Procedures	70
Part II.	Other Information
Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
	Signatures	74

 

 

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Part I.  Financial Information

 

Item 1. Financial Statements

 

Condensed Consolidated Financial Statements and the notes thereto begin on the next page.

 

 

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Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

 

			June 30,			December 31,
			2015			2014
			(dollars in thousands except per share data)
Assets
Cash and due from banks			$	16,085		$	12,548
Interest earning deposits in other banks			112,928			23,032
Total cash and cash equivalents			129,013			35,580
Investment securities available for sale, at fair value			379,824			355,580
Loans held for sale, at lower of cost or fair value			8,736			2,586
Gross loans held for investment			1,191,153			1,193,483
Net deferred loan fees			(1,157)			(1,445)
Allowance for loan and lease losses			(16,982)			(16,802)
Net loans held for investment			1,173,014			1,175,236
Premises and equipment, net			37,996			37,820
Premises held for sale			1,840			1,978
Bank-owned life insurance			25,032			24,711
Goodwill			24,885			24,885
Deferred tax assets, net			23,180			24,920
Federal Home Loan Bank stock			7,853			7,853
Other intangible assets			4,823			5,347
Other assets			12,183			13,631
Total assets			$	1,828,379		$	1,710,127
Liabilities
Non-interest bearing deposits			$	516,431		$	461,479
Interest bearing deposits			995,208			933,325
Total deposits			1,511,639			1,394,804
Short term FHLB borrowing			10,500			25,000
Long term FHLB borrowing			83,050			70,558
Junior subordinated debentures			13,338			13,233
Other liabilities			7,770			8,592
Total liabilities			1,626,297			1,512,187
Shareholders’ equity
Preferred stock, 5,000,000 shares authorized:
Series C preferred stock, $3.25 per share stated value; issued and outstanding: 0 shares and 348,697 shares at June 30, 2015, and December 31, 2014, respectively.			-			1,056
Common stock, no par value; authorized: 100,000,000 shares; issued and outstanding: 34,314,242 shares and 33,905,060 shares at June 30, 2015 and December 31, 2014, respectively.			165,415			164,196
Additional paid in capital			7,658			6,984
Retained earnings			28,800			24,772
Accumulated other comprehensive income, net of tax of $152 and $677 as of June 30, 2015 and December 31, 2014, respectively.			209			932
Total shareholders’ equity			202,082			197,940
Total liabilities and shareholders’ equity			$	1,828,379		$	1,710,127

 

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

 

 

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Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

 

		For the Three Months Ended						For the Six Months Ended
		June 30,						June 30,
		2015			2014			2015			2014
		(dollars in thousands, except per share data)
Interest Income
Loans, including fees		$	14,585		$	14,547		$	29,673		$	26,403
Investment securities		1,662			1,819			3,329			3,409
Other interest-earning assets		494			175			667			331
Total interest income		16,741			16,541			33,669			30,143
Interest Expense
Deposits		918			928			1,807			1,743
Other borrowings		581			416			1,122			752
Total interest expense		1,499			1,344			2,929			2,495
Net interest income before provision for loan losses		15,242			15,197			30,740			27,648
Provision for loan and lease losses		-			-			-			-
Net interest income after provision for loan and lease losses		15,242			15,197			30,740			27,648
Non-Interest Income
Fees and service charges		1,213			1,394			2,420			2,539
Net gain on sale of mortgage loans		484			364			870			552
Other mortgage fee income		118			105			256			159
Gain on sale of investment securities		-			101			505			99
Other income		456			512			1,221			877
Total non-interest income		2,271			2,476			5,272			4,226
Non-Interest Expense
Salaries and employee benefits		5,786			6,340			12,045			11,957
Occupancy and equipment		1,748			1,748			3,335			3,213
Professional services		1,702			1,038			3,108			1,771
Information technology		541			952			1,142			1,647
Regulatory assessments		300			307			597			511
Sales and marketing		295			190			612			363
Amortization of intangible assets		262			297			524			463
Loan department expense		260			285			546			461
Communication costs		144			161			285			267
Merger, restructure and integration		(2)			922			30			8,037
Other expense		393			746			1,018			1,334
Total non-interest expense		11,429			12,986			23,242			30,024
Income before income taxes		6,084			4,687			12,770			1,850
Income tax expense		2,284			1,738			4,901			664
Net income		3,800			2,949			7,869			1,186
Dividends and accretion on preferred stock		70			-			70			-
Net income available to common shareholders		$	3,730		$	2,949		$	7,799		$	1,186
Earnings Per Common Share
Basic		$	0.11		$	0.09		$	0.23		$	0.04
Diluted		$	0.11		$	0.09		$	0.23		$	0.04
Dividends Declared Per Common Share		$	0.06		$	-		$	0.11		$	-

 

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

 

 

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Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

		For the Three Months Ended,						For the Six Months Ended,
		June 30,						June 30,
		2015			2014			2015			2014
		(dollars in thousands)
Net income		$	3,800		$	2,949		$	7,869		$	1,186
Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains on securities arising during the period		(3,498)			2,422			(743)			5,223
Reclassification for net gains on investments included in net income		-			(101)			(505)			(99)
Other comprehensive (loss) income, before income tax (benefit) expense		(3,498)			2,321			(1,248)			5,124
Income tax (benefit) expense related to items of other comprehensive income		(1,471)			955			(525)			2,109
Other comprehensive (loss) income		(2,027)			1,366			(723)			3,015
Comprehensive income		$	1,773		$	4,315		$	7,146		$	4,201

 

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

 

 

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Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

 

																		Accumulated
						Common Stock						Additional						Other			Total
		Preferred				Number of						Paid-In			Retained			Comprehensive			Shareholders’
		Stock				Shares		Amount				Capital			Earnings			(Loss) Income			Equity
		(dollars in thousands, except per share data)
Balance, December 31, 2013		$	3,604			25,397,780		$	101,511			$	6,020		$	18,717		$	(3,425)		$	126,427
Issuance of common stock in MISN Transaction						7,541,326		60,255													60,255
Stock issuance costs												(290)									(290		)
Exercise of stock options						38,617		132													132
Share-based compensation												466									466
Tax benefit of share-based compensation												14									14
Net issuance of restricted share awards						54,713															-
Net income															1,186						1,186
Other comprehensive income																		3,015			3,015
Balance, June 30, 2014		$	3,604			33,032,436		$	161,898			$	6,210		$	19,903		$	(410)		$	191,205
Balance, December 31, 2014		$	1,056			33,905,060		$	164,196			$	6,984		$	24,772		$	932		$	197,940
Dividends declared ($0.11 per share)															(3,771)						(3,771		)
Repurchases of common stock						(3,696)		(28		)											(28		)
Exercise of stock options						40,344		191													191
Partial conversion of Series C preferred stock		(1,056		)		348,697		1,056				70			(70)						-
Share-based compensation												535									535
Tax benefit of share-based compensation												69									69
Net issuance of restricted share awards						23,837															-
Net income															7,869						7,869
Other comprehensive loss																		(723)			(723		)
Balance, June 30, 2015		$	-			34,314,242		$	165,415			$	7,658		$	28,800		$	209		$	202,082

 

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

 

 

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Heritage Oaks Bancorp

and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

		For the Six Months Ended
		June  30,
		2015			2014
		(dollars in thousands)
Cash Flows from Operating Activities
Net income		$	7,869		$	1,186
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		1,005			938
Write-downs on premises and equipment held for sale		138			799
Amortization of premiums / discounts		3,116			2,283
Amortization of intangible assets		524			463
Accretion of discount on acquired and purchased loans, net		(1,202)			(1,343		)
Share-based compensation expense		535			466
Gain on sale of available for sale securities		(505)			(99		)
Gain on sale of assets		(10)			(18		)
Gain on sale of loans held for sale		(870)			(552		)
Originations of loans held for sale		(76,630)			(40,674		)
Proceeds from sale of loans held for sale		71,350			35,203
Net increase in bank owned life insurance		(321)			(294		)
Decrease in deferred tax asset		2,265			3,170
Tax impact of share-based compensation		(69)			(14		)
Decrease in other assets and other liabilities, net		1,073			913
Net cash provided by operating activities		8,268			2,427
Cash Flows from Investing Activities
Net cash and cash equivalents acquired in MISN Transaction		-			28,298
Purchase of securities, available for sale		(97,489)			(103,232		)
Sale of securities, available for sale		46,528			78,389
Proceeds from principal paydowns of securities, available for sale		22,941			21,157
Proceeds from sale of premises and equipment		9			1,170
Purchase of FHLB stock		-			(941		)
Decrease in loans, net		2,591			10,507
Recoveries on previously charged-off loans		417			540
Proceeds from sale of foreclosed collateral		49			231
Purchase of property, premises and equipment, net		(1,191)			(2,689		)
Net cash (used in) provided by investing activities		(26,145)			33,430
Cash Flows from Financing Activities
Increase in deposits, net		116,849			48,805
Proceeds from Federal Home Loan Bank borrowing		36,000			15,000
Repayments of Federal Home Loan Bank borrowing		(38,000)			(42,000		)
Proceeds from exercise of stock options, including tax benefits		260			146
Stock issuance costs		-			(290		)
Dividends paid		(3,771)			-
Repurchases of common stock		(28)			-
Net cash provided by financing activities		111,310			21,661
Net increase in cash and cash equivalents		93,433			57,518
Cash and cash equivalents, beginning of period		35,580			26,238
Cash and cash equivalents, end of period		$	129,013		$	83,756
Supplemental Cash Flow Information
Cash Flow Information
Interest paid		$	2,860		$	2,420
Income taxes paid		$	560		$	600
Non-Cash Flow Information
Change in unrealized (loss) gain on available for sale securities		$	(743)		$	5,223
Loans transferred to foreclosed assets		$	416		$	396
Premises transferred to held for sale		$	-		$	1,730
Accretion on preferred stock		$	70		$	-
Common stock issued in MISN Transaction		$	-		$	60,255

 

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

 

 

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Note 1.  Summary of Significant Accounting Policies

 

Description of Business

 

Heritage Oaks Bancorp (“Bancorp”) is a California corporation organized in 1994 to act as the holding company for Heritage Oaks Bank (the “Bank”), which opened for business in 1983.  The Bank, which is the Company’s sole operating subsidiary, operates branches within San Luis Obispo and Santa Barbara Counties and has a loan production office in Ventura County.  The Bank offers traditional banking products such as checking, savings, money market accounts and certificates of deposit, as well as mortgage, commercial, and consumer loans to customers who are predominately small to medium-sized businesses and to individuals.  As such, the Company is subject to a concentration risk associated with its banking operations in San Luis Obispo and Santa Barbara Counties, and to a lesser degree Ventura County. No one customer accounts for more than 10% of revenue or assets in any period presented and the Company has no assets nor does it generate any revenue from outside of the United States. While the chief decision-makers of the Company monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis.  Operating segments are aggregated into one as operating results for all segments are similar.  Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for annual financial statements are not included herein. In the opinion of management, all adjustments (which consist solely of normal recurring accruals) considered necessary for a fair presentation of results for the interim periods presented have been included. These interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2014 Annual Report filed on Form 10-K with the Securities and Exchange Commission on March 6, 2015; file number 000-25020.

 

The condensed consolidated financial statements include the accounts of Bancorp and its wholly-owned financial subsidiary, Heritage Oaks Bank.  All significant inter-company balances and transactions have been eliminated. On February 28, 2014, the Company acquired 100% of the outstanding common shares of Mission Community Bancorp (“MISN”).  MISN’s results of operations are included in the Company’s results of operations beginning March 1, 2014.

 

Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

 

Investment in Non-Consolidated Subsidiaries

 

The Company accounts for its investment in Heritage Oaks Capital Trust II, Mission Community Capital Trust I, and Santa Lucia Bancorp (CA) Capital Trust, as unconsolidated subsidiaries using the equity method of accounting, as the Company is not the primary beneficiary of the trust.  Mission Community Capital Trust I and Santa Lucia Bancorp (CA) Capital Trust were acquired as part of the acquisition of Mission Community Bancorp on February 28, 2014.  The sole purpose of each of these trusts is for the issuance of trust preferred securities.

 

Reclassifications

 

Certain items in the prior year financial statements were reclassified to conform to the current presentation.  Reclassifications had no effect on prior year net income or shareholders’ equity.

 

Use of Estimates in the Preparation of Condensed Consolidated Financial Statements

 

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and general practices within the banking industry require management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

 

 

 

Heritage Oaks Bancorp | - 9 -

 

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Note 1.  Summary of Significant Accounting Policies - continued

 

Significant Accounting Policies

 

The significant accounting policies that the Company applies are detailed in Note 1. Summary of Significant Accounting Policies, of the Company’s 2014 Annual Report filed on Form 10-K.  There have been no changes to these policies or their application during the three or six months ended June 30, 2015.

 

Recent Accounting Standards Updates

 

Recent Accounting Guidance Adopted

 

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-14 Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40), Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. This update addresses classification of government-guaranteed mortgage loans, including those where guarantees are offered by the Federal Housing Administration (“FHA”), the U.S. Department of Housing and Urban Development (“HUD”), and the U.S. Department of Veterans Affairs (“VA”). Although current accounting guidance stipulates proper measurement and classification in situations where a creditor obtains from a debtor, assets in satisfaction of a receivable (such as through foreclosure), current guidance does not specify how to measure and classify foreclosed mortgage loans that are government-guaranteed. Under the provisions of this update, a creditor would derecognize a mortgage loan that has been foreclosed upon, and recognize a separate receivable if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. The amendments within this update are effective for interim and annual periods, beginning after December 15, 2014. The adoption of this Update did not have a material impact on the Company’s consolidated financial statements.

 

On January 17, 2014, the FASB issued ASU No. 2014-04, Receivables – Troubled Debt Restructurings by Creditors. This ASU provides clarification that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for interim and annual periods, beginning after December 15, 2014. The adoption of this Update did not have a material impact on the Company’s consolidated financial statements.

 

Recent Accounting Guidance Not Yet Effective

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This Update requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. The amendments within this update are effective for the quarter ending March 31, 2018. The Company is currently in the process of evaluating the impact of the adoption of this Update, but does not expect a material impact on the Company’s consolidated financial statements.

 

 

 

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Note 2.  Business Combination

 

On February 28, 2014, the Company acquired 100% of the outstanding common shares of Mission Community Bancorp (“MISN”) and all unexercised warrants and options to purchase MISN common stock were cancelled, in exchange for 7,541,326 shares of the Company’s common stock and $8.7 million in cash (the “MISN Transaction”).  In conjunction with the merger, MISN’s wholly-owned bank subsidiary, Mission Community Bank, was merged with and into Heritage Oaks Bank.  The transaction was valued at $69.0 million, based on the Company’s closing stock price of $7.99 on February 28, 2014.  With the acquisition, the Company believes it has created a more valuable community banking franchise, with a low-cost core deposit base, strong capital ratios, attractive net interest margins, lower operating costs, and better overall returns for the shareholders of the combined company.  The Company also believes it now has a banking platform that is well positioned for future growth, both organically and through acquisitions.  The operating results for MISN are included in the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2015, and from March 1, 2014 through June 30, 2014.  As of December 31, 2014, adjustments to the fair value of assets acquired and liabilities assumed in the MISN Transaction were complete.

 

The following table presents unaudited pro forma financial information for the three and six months ended June 30, 2014, as if the MISN Transaction were reflected in the Company’s operating results beginning on January 1, 2013. The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, interest expense on deposits and borrowings acquired, and the related income tax effects. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

 

		Three Months Ended			Six Months Ended
		June 30, 2014			June 30, 2014
		(dollars in thousands, except per share data)
Net interest income		$	15,002		$	30,380
Provision for loan and lease losses		-			-
Non-interest income		2,476			4,840
Non-interest expense		12,986			33,459
Income before income taxes		4,492			1,761
Income tax expense		1,645			632
Net income		$	2,847		$	1,129
Earnings Per Common Share
Basic		$	0.09		$	0.03
Diluted		$	0.09		$	0.03

 

 

 

Heritage Oaks Bancorp | - 11 -

 

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Note 3.  Fair Value of Assets and Liabilities

 

Recurring Basis

 

The following table provides a summary of the assets the Company measures at fair value on a recurring basis:

 

					Fair Value Measurements at the End of the Reporting Period Using
		As of			Quoted Prices in			Significant Other			Significant
		June 30, 2015			Active Markets for			Observable			Unobservable
		Assets At			Identical Assets			Inputs			Inputs
		Fair Value			(Level 1)			(Level 2)			(Level 3)
		(dollars in thousands)
Assets
Obligations of U.S. government agencies		$	47,421		$	-		$	47,421		$	-
Mortgage backed securities:
U.S government sponsored entities and agencies		206,311			-			206,311			-
Non-agency		12,983			-			12,983			-
State and municipal securities		96,562			-			96,562			-
Asset backed securities		16,547			-			16,547			-
Total assets measured on a recurring basis		$	379,824		$	-		$	379,824		$	-
					Fair Value Measurements at the End of the Reporting Period Using
		As of			Quoted Prices in			Significant Other			Significant
		December 31, 2014			Active Markets for			Observable			Unobservable
		Assets At			Identical Assets			Inputs			Inputs
		Fair Value			(Level 1)			(Level 2)			(Level 3)
		(dollars in thousands)
Assets
Obligations of U.S. government agencies		$	19,664		$	-		$	19,664		$	-
Mortgage backed securities:
U.S government sponsored entities and agencies		215,398			-			215,398			-
Non-agency		11,901			-			11,901			-
State and municipal securities		82,592			-			82,592			-
Asset backed securities		26,025			-			26,025			-
Total assets measured on a recurring basis		$	355,580		$	-		$	355,580		$	-

 

Non-recurring Basis

 

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis. These include assets and liabilities that are measured at the lower of cost or fair value, and were measured at fair value which was below cost. Certain impaired loans measured at fair value at December 31, 2014 are no longer recorded at fair value due to the borrower payments reducing the carrying value of these loans to less than fair value, and due to other impaired loans being evaluated under the discounted cash flow method versus the collateral method. The discounted cash flow method as prescribed by ASC 310 Receivables, is not a fair value measurement since the discount rate utilized is the loan’s effective interest rate, which is not a market rate. The discounted cash flow approach is used to measure impairment for certain impaired loans, because of their significant payment history and the global cash flow analysis performed on each borrower.

 

 

 

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