Suncrest Leadership Team
Bob Moore
Chief Financial Officer
Ciaran McMullan
President & CEO
Doug Tribble
Chief Operating Officer
Peter Nutz
Chief Credit Officer
————————————————
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YEARS SERVED IN INDUSTRY:
30+
YEARS SERVED IN INDUSTRY:
22
YEARS SERVED IN INDUSTRY:
30+
YEARS SERVED IN INDUSTRY:
22
————————————————
————————————————
————————————————
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RELEVANT WORK EXPERIENCE:
RELEVANT WORK EXPERIENCE:
RELEVANT WORK EXPERIENCE:
RELEVANT WORK EXPERIENCE:
Instrumental in the
establishment of Suncrest Bank
•
Previously CFO of 1st Bank Yuma
•
SVP / Investment Officer
at Valley Independent Bank
Previously CEO of National
Australia Bank (NAB) Americas
$15B group operating in
the US and Brazil
•
Grew NAB Americas from zero
assets in 2006 to $6B+ in 2010
•
While CEO of NAB, completed four
acquisitions, two international
de-novo branches and one
major joint venture
•
Previously served as Chairman of
Great Western Bancorp (GWB)
Previously EVP of Great
Western Bank ($8B asset
bank in the Midwest)
•
Oversaw growth of GWB from
6 branches and $125M in assets
in 1995 to 185 branches and
$8B+ assets in 2012
•
Led 15 acquisitions and
9 de-novo branch start ups
while at GWB
Over 20 years of experience in
credit risk management
specializing in agribusiness
•
Previously EVP / Executive
Credit Risk Director with
Rabobank Group
•
Prior to Rabobank, Mr Nutz held
various senior roles including
Finance Director with the Offutt
Companies and as a Credit Officer
with the Farm Credit System
•
Led the post-acquisition
integration of multiple
credit divisions
Florencio “Frank” Paredez
A native of Tulare County, Frank graduated from College of the Sequoias and farms in
the Exeter area. He owns a packinghouse and the Hungry Hollow Borrow Pit in Porterville
and is active in local and San Francisco-based farmers’ markets. Frank has been active on
many boards of directors for organizations throughout Tulare County.
Marc R. Schuil
Marc is a co-founder of Schuil & Associates and has partnered with his two brothers,
Mike Schuil and Rick Schuil for over 30 years. Marc earned a Bachelor of Science degree
from Fresno State University and an MBA in Finance and Marketing from the University
of Southern California. In addition to holding his broker’s license in the state of California,
he is currently an active licensed broker in the states of California, Texas, Oklahoma,
Arizona, Iowa, South Dakota, Oregon, Kansas, Colorado, and New Mexico. Marc’s strong
investment and analytical skills have assisted him in evaluating profit potentials of various
agricultural opportunities. Marc has been involved in a variety of civic organizations.
Eric M. Shannon
Eric’s family has been farming in the area for more than 100 years and Eric
continues that tradition. A graduate of UC Davis, Eric farms and is active in real
estate development projects in the Visalia area. He served as president of his
Rotary Club and is active in many other organizations.
Michael E. Thurlow
Mike is a native of the Reedley/Kingsburg area, and is a graduate of Reedley High, Reedley
College and California Polytechnic University, San Luis Obispo. Mike is an owner/manager
of a produce company that stores, packs and ships fruit raised in the South Valley. Mike is
active in the community personally and through his business.
Darrell Tunnell
Darrell was born in Porterville and raised in Terra Bella. He moved to Visalia in 1979, where
he began working in the aircraft repair and maintenance field. In 1984 Darrell received his
airframe and power plant certificate from the Federal Aviation Administration. Darrell has
owned Aircraft Mechanical Services, Inc., which is the Visalia Airport fixed base operator
(FBO) since 1988. Darrell is active in many sports and is an active contributor to school
and civic organizations. He is also a proud supporter of the American Cancer Society and
Wounded Warrior Project.
3
Dear Shareholders and Customers
On behalf of the Suncrest Bank Board of Directors,
we are privileged to report our 2014 financial
results. This year those results were record
breaking, as we experienced strong growth in
loans, deposits and pre-tax income. We ended
2014 with total assets of $188.6 million, which
surpasses our 2013 year-end of $126.3 million
by 49.4%. This sharp increase set a record for
Suncrest Bank, placing us in the top 1.5% of all
US banks in terms of total asset growth, and
making us the fastest growing bank in the
Central Valley. Our portfolio grew 32.6% over the
prior year, ending the year at $125.2 million, while
our total deposits grew by 51.9%, ending the year
at $166.4 million. Our Pre-tax earnings for the year
are $745,621 which represents a 16.4% increase
over 2013, and continues our impressive trend of
profitable growth, which now extends to
thirteen consecutive quarters.
This year was a “Foundation” year for Suncrest
Bank as we established a new mission statement
and made important strategic investments in
people, products and services. Suncrest Bank’s
community oriented business philosophy is
encapsulated in our new Mission; “Helping to
Build and Sustain Local Communities”. Our future
success as an organization can only be attained
if the communities we serve are also successful.
The deposit dollars we raise locally are loaned
back out to local businesses to help create a
circle of success that is maximized when our
communities shop local, dine local, do business
local and bank local.
to its team. Mr. Peter Nutz was appointed as the
bank’s new Chief Credit Officer after spending 13
years with Rabobank where he held various senior
credit positions both here in the South Valley and
overseas. While with Rabobank, Mr. Nutz served as
EVP and Head of Ag Credit Risk for California and
Senior Ag Credit Officer for the entire US, chairing
12 nationwide regional credit committees based
out of Fresno. We are thrilled to have someone with
Peter’s experience and capabilities join our team.
Mr. Nutz commenced employment in January 2015.
This year we also hired two of the most talented
young leaders in our communities. In Visalia,
Mr. Nathan Halls joined us from Bank of the West
as our Visalia Market President, and in Porterville
Mr. Dustin Della joined us from Bank of the Sierra
as our Porterville Market President. Nathan and
Dustin did an outstanding job in 2014, helping
us produce the growth results noted above and
building a strong customer service culture in each
of their markets. Mr. Craig Howells also joined the
Suncrest family this year to head up our Government
Guaranteed Lending (GGL) Group, specializing in
SBA, USDA and a range of government supported
loan products. Craig has been the leading GGL
lending officer in our region for many years, and
in 2010 was the number one USDA B&I individual
lender for the entire state of California.
The investment we made in new products and
services also contributed to our outstanding growth
in 2014. Our new Online Banking system was a
great enhancement for our customers.
People are the most important ingredient to any
successful business and throughout 2014 Suncrest
Bank added a number of highly talented leaders
The new features and functionality enabled
us to double the number of users during the
year. Business customers can now enjoy payroll
4
6
In closing, we thank the Board of Directors for
their continued support and commitment to the
profitable growth of your bank. The foundation we
have built in 2014 will provide the platform upon
which we can continue our impressive momentum
into 2015 and beyond.
Thank you all for your continued support!
William A.Benneyan,
Chairman
bbenneyan@suncrestbank.com
Ciaran McMullan
President & CEO
cmcmullan@suncrestbank.com
processing, remote deposit capabilities, positive
pay, wire transfer and many other outstanding
“fingertip” features. We had exceptional response to
the launch of our new Mobile Banking and Mobile
Deposit products. Customers are now able to check
balances, transfer funds, pay bills, deposit checks
and much more from their smartphones.
In 2014 we became the first bank in California to
offer the highly successful Kasasa checking
account, with truly unique customer features
and the best interest rates in our markets.
Look for our next innovation, BaZing!, in 2015.
We initiated a campaign to raise new investment
capital in 2014, in order to support our continued
strong growth and plans for the future. Thanks to
many of you, this campaign has been a huge success
with nearly $12 million either funded or committed
to date. In order to help improve the liquidity of our
shares, the bank upgraded its stock listing to the
OTCQX in March 2015. This marketplace is the
top-tier market for over-the-counter stocks operated
by OTC Markets. Previously we had been listed on
the OTCQB which is primarily for venture stocks.
This move represents a significant milestone in the
history and evolution of our bank.
5
Our people
make the
difference
Meet Our Staff
All successful businesses have a common
characteristic; they have great people working for
them. In this regard, Suncrest Bank is no different.
What sets us apart from other banks is that every
Suncrest employee comes to work every day, not as an
employee but as an owner. Every Suncrest employee
owns shares in the company and annually shares in the
performance based bonus pool, a portion of which is
paid in the form of Suncrest Bank stock. As the bank
continues to enjoy success and grows, our employee
ownership stake will grow along with it.
As company owners, our employees take great pride
in providing a high level of service to the Suncrest
customer base. It is this High Touch service, together
with High Tech products, that forms the framework
of our commitment to our customers. As owners, our
employees also understand the commitment we must
make to our communities to ensure they continue
to thrive, grow stronger, and maintain a high quality
of life. In 2014 our bank Directors and employees
contributed over 2,300 hours of their time and talents
to various community organizations and outreach
efforts. The tremendous results achieved in 2014
reflect the efforts of our entire staff pulling together
as a cohesive team to ensure we make good on these
commitment to our communities.
Leadership at the line level of the company was
paramount to our success. Leaders like Dustin Della,
Market President in Porterville: Nathan Halls, Market
President in Visalia; Debbie Bombard, SVP Operations;
and Lori Carabay, Note Department Supervisor; all
contributed to a successful 2014.
All of us at Suncrest Bank
look forward to an exciting 2015!
6
Row 5: Nathan Halls, Ciaran McMullan, Dustin Della, William Benneyan, Frank Paredez, John Gossett, Doug Tribble
Row 4: Lori Buecheler, Vicki Evans, Elia Havner, Ericka Melo, Kimberly Zack, Jennifer Noel, Christine Catalina
Row 3: Cyndy Paulus, Barbra Hood, Kathleen Bernardo, Tracy Cizek, Brooke Reed, Robert Moore, Suzy Blanchard
Row 2: Craig Howells, Karen Snow, Heather Fiori, Debbie Bombard, Lori Carabay
Row 1: Michelle Gletne, Gary Gostanian, Rosemary Leon
Not Pictured: Peter Nutz, Ashton Freeman, Katrina Puerner, Charlie Glenn, Adriana Vidales
7
Committed to Community
Visalia Rescue Mission
CASA
YEA Program
Farm Bureau
Leadership Visalia
Family Services of Visalia
Success in Recovery
United Way
Porterville Fair
Fraternal Order of Eagles
Rotary Club
Habitat for Humanity
Visalia Unified School District
Kaweah Delta Health Care District
Visalia Community Church of Christ Women’s Ministry
Visalia Chamber After Hours
Octoberfest
Taste of Downtown
Visalia Community Church of Christ Worship Band
Strathmore High School Football Boosters
Porterville Mariachi Academy Foundation
City of Porterville Soccer
Porterville NJB
Porterville Academy of Business
Sequoia Chapter Trex Fraternity
Porterville Lions Club
Valley Children’s Hospital
Porterville Chamber of Commerce
Porterville National Junior Basketball
Family Crisis Center
Rotary Cancer Walk
Toys for Tots
Porterville Area Coordinating Council
Veterans Day 5k
Porterville Teach Children to Save Program
Amvets Post 56 Ladies Auxiliary
Veterans Activities
City of Hope
Kingsburg High School
Campus Crusade for Christ
Valley SBA Business Development Corporation
Clay School
Hume Lake Christian Camp
Kingsburg Ag Boosters
Visalia Community Rotary Foundation
California Wine Grape Inspection Committee
Imagine U Interactive Children’s Museum
Visalia Sunset Rotary
Downtown Visalia
Visalia Economic Development Corp
Sorotimist International of Visalia
Networking for Women
Tulare Kings Hispanic Chamber
Reaching Higher
Bible Study International
American Youth Soccer Organization
AWANA
Sierra View District Hospital
National Association of Guaranteed Govt Lenders
8
9
5 in 5 Growth Strategy
On course to $500 million in assets
The Suncrest goal of growing to $500 million in assets in five years is well underway. 2014 represented a
foundation building year as we raised the necessary capital to support this ambitious growth agenda. We also
hired top talent, improved our technology infrastructure and added new and exciting products. Our Executive
Management Team has significant experience not only in growing banks, but in building shareholder value in
the process. The Team’s experience in growing organically, through acquisitions, and de novo start-ups is truly
aligned with our Growth Strategy and with the objectives of our Board of Directors.
Successfully Executing New Long-Term Growth Strategy
The Company has established a detailed and highly executable
plan for achieving near and long-term growth initiatives
Growth in
Current
Locations
>
Open in New
Strategically
Attractive
Locations
>
Open
Businesses
not Branches
>
Specialize
in Critical
Sectors
>
Seek Out
Acquisitions
KEY INITIATIVE:
KEY INITIATIVE:
KEY INITIATIVE:
KEY INITIATIVE:
KEY INITIATIVE:
Grow market share to
8% - 10% by 2018
in both Visalia
and Porterville from
4.3% and 5.4%,
respectively as of
June 2014
FDIC survey.
Open new strategic
locations over the
next four years.
Local branch president
and decision
making authority.
•
Supported by founding
group of local business
people, investors and
community leaders.
Build expertise in sectors
critical to the Central
Valley economy.
•
In particular, SBA,
Agribusiness and
Hispanic Business.
Achieve scale and
improve operating
efficiencies
through M&A.
•
Identify community
banks that would be
a good fit for an
acquisition or a
strategic merger.
10
Growing through long-term customer relationships
Growth for growth’s sake does not create long-term shareholder value. Long Term Profitable Growth is creat-
ed through a discipline of building strong, primary and long-lasting customer relationships. Those customers
are the best advocates for our bank, and because of the value we provide to them, they readily refer us to their
friends, neighbors, family and business associates. Through the prudent deployment of our customers’
deposits in the local communities we serve, we’re able to make a significant contribution to both economic
development and quality of life. This philosophy is at the core of the Suncrest Bank community banking values.
New Team and Business Plan Exhibiting Real Progress
($ in thousands)
Source: SNL Financial, Company Management.
11
5 in 5 Growth Strategy
Building a strong loan portfolio in our local communities
By prudently putting customer deposits to work in our local communities, Suncrest Bank has enhanced
shareholder value over the long term. This has been the case even during some of the most difficult
economic times in our history. Our credit risk disciplines have remained strong, while we build a high
quality loan portfolio with local small business customers, across multiple industry sectors. With some of
the best lenders in Visalia and Porterville, the bank has achieved strong growth in a variety of industries.
Our commitment to local businesses has led to our diverse portfolio mix of agricultural production, farm
real estate, equipment finance, working capital lines, commercial real estate, SBA and USDA small business
loans. The successful completion of our private placement of $15 million of common stock will give us a well
capitalized balance sheet and the financial strength to achieve our strategic goals.
Prudent & Responsible Balance Sheet Growth
• Well capitalized balance sheet will enable Suncrest to pursue
both an organic and acquisitive growth strategy
• Loan portfolio grew by over 50% since new management
arrived, all during a period of stagnant loan growth nation-wide
Well Capitalized Balance Sheet
($ in thousands)
12/31/20141
Offering
Adjustments2
Pro Forma
Total Equity
$21,878
$9,417
$31,295
• Implemented stringent underwriting requirements to ensure
TCE / TA
11.60%
bank maintains excellent credit quality
• Total loan charge-offs since inception <$100k
Tier 1 Leverage Ratio
11.06%
Tier 1 RBC Ratio
Total RBC Ratio
13.52%
14.68%
15.80%
15.43%
19.59%
20.74%
High Quality Loan Growth has been a Focus for the Management Team
Source: SNL Financial, Company Call Reports, Company Management.
1 Includes $5.1 million closed as of 12/31/2014.
2 Remaining balance of $9.9 million, net of estimated 5% in offering
expenses. Assumes $7.00 offering price, and initial 20% risk
weighting on proceeds (risk weight of FHLB stock).
12
Growing efficiently and productively
The ability to leverage our employees, technology and infrastructure as we grow will continue to create an
operating environment that is efficient and productive. This will be a key aspect of our future growth and
will enable us to be highly competitive on loans and deposits, invest in new products and systems, add new
business lines, and continue to add talented bankers. As always, our consistent expense control measures
and continuous process improvement will remain key efficiency drivers.
Improving Operating Efficiencies Driving Bottom Line Growth
• Management’s emphasis on reducing operating expenses is helping drive bottom line growth
• Suncrest can achieve greater economies of scale through organic growth as well as strategic acquisitions
• Company has been able to keep overhead costs relatively flat, even during a period of rapid growth
• Assets per FTE has increased from $4,000M per at 12-31-2013 to $6,000M at 12-31-2014
Source: SNL Financial, Company Management.
13
Product Innovation
Leading the way
with popular
new products
In 2014 Suncrest Bank assumed a position of leadership
by offering a variety of groundbreaking new products.
We are proud to report that we were the first bank in
California to offer an exciting checking account called
Kasasa CASH. Kasasa CASH is a free checking account
that also pays the customer the highest interest rate
in our markets. In addition, Kasasa CASH offers many
free services including Online Banking, Mobile Banking,
Mobile Deposit and Mobile Bill Pay. During the first
quarter of 2015, Suncrest will become the first bank
in California to offer the BaZing Checking product.
BaZing Checking rewards customers with a wide range
of benefits, including a variety of discounts at local and
national stores. Watch for more Value Benefits for
Suncrest customers!
Technology Innovation was an important contributor to
the bank’s growth in 2014. Our website was significantly
enhanced and now includes a convenient feature for
customers to open accounts online without having to
make a trip to the bank. The Suncrest Online Banking
system was replaced with a modernized product that
is very user friendly for both consumer and business
customers. We are happy to report that since
implementing the new system we have doubled the
number of customers using the Online Banking product.
We’re also happy to report that our Cash Management
products are becoming much more widely used by
our business customers. The products, which include
Remote Deposit Capture, ACH Origination, Wire
Transfer, Positive Pay, Investment and Loan Sweep
accounts and Payroll Processing, are helping these
important customers run their businesses more
efficiently. Mobile Banking and Mobile Deposit were
also added to our product menu during the fourth
quarter of 2014 and the customer uptake of these
convenient services has been excellent.
1614
Reaching out
with effective
marketing
campaigns
Mobile Banking - Campaign ad
2015 will see even more
innovation as we continue
to enhance and improve our
customers’ experience with
beneficial products and
services that afford greater
convenience and satisfaction.
Kasasa CASH - Newspaper ad
15
In 2014 we regularly communicated
with our customers and stakeholders,
utilizing a variety of media including
local newspaper, magazines, Chamber
of Commerce publications and
direct mail channels. Particularly
compelling was our series of business
customer profiles. The colorful print
ads supported Suncrest’s position
as the local bank—helping individual
business succeed while strengthening
the overall local economy.
Customer - Campaign ad
Customer - Campaign ad
Customer - Campaign ad
16
Bank Local Buy Local - Campaign ad
Bank Local Buy Local - Campaign ad
Business Solutions - Campaign ad
Rawhide Congratulations - Newspaper ad
17
Table of Financial Statements
19
Independent auditor’s report
on the financial statements
20
22
23
24
25
26
Statements of Financial Condition
Statements of Income
Statements of Comprehensive Income
Statement of Changes in Shareholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
2 0 1 4
18
Vavrinek, Trine, Day & Co., LLP
Certified Public Accountants
INDEPENDENT AUDITOR’S REPORT
V A L U E T H E D I F F E R E N C E
Board of Directors and Shareholders of
Suncrest Bank
Report on Financial Statements
We have audited the accompanying financial statements of Suncrest Bank, which are comprised of the statements of
financial condition as of December 31, 2014 and 2013, and the related statements of income, comprehensive income,
changes in shareholders’ equity and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance
with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits
in accordance with auditing standards generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the
risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
Suncrest Bank as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended
in accordance with accounting principles generally accepted in the United States of America.
Laguna Hills, California
February 25, 2015
25231 Paseo De Alicia, Suite 100 Laguna Hills, CA 92653 Tel: 949.768.0833 Fax: 949.768.8408 www.vtdcpa.com
F R E S N O ° L A G U N A H I L L S ° P A L O A L T O ° P L E A S A N T O N ° R A N C H O C U C A M O N G A ° R I V E R S I D E ° S A C R A M E N T O
19
SUNCREST BANK
SUNCREST BANK
STATEMENTS OF FINANCIAL CONDITION
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2014 AND 2013
DECEMBER 31, 2014 AND 2013
ASSETS
Cash and Due from Banks
Federal Funds Sold
TOTAL CASH AND CASH EQUIVALENTS
2014
2013
4,648,094
15,821,000
20,469,094
2,637,057
11,744,000
14,381,057
Investment Securities Available for Sale
40,516,442
14,620,321
Loans:
Real Estate - Other
Construction and Land Development
Commercial and Industrial
Consumer
Deferred Loan Fees, Net of Costs
Allowance for Loan Losses
TOTAL LOANS
NET LOANS
Federal Home Loan Bank and Other Bank Stock, at Cost
Premises and Equipment
Net Deferred Tax Assets
Accrued Interest and Other Assets
93,374,513
3,858,822
26,469,066
1,534,781
125,237,182
(359,393)
(1,723,391)
123,154,398
637,510
583,396
2,217,000
1,059,812
69,831,369
2,247,079
21,167,596
1,181,442
94,427,486
(241,342)
(1,417,381)
92,768,763
591,489
698,604
2,601,000
616,968
$
188,637,652
$
126,278,202
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
20
2
SUNCREST BANK
SUNCREST BANK
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2014 AND 2013
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2014 AND 2013
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing Demand
Savings, NOW and Money Market Accounts
Time Deposits Under $250,000
Time Deposits $250,000 and Over
Accrued Interest and Other Liabilities
TOTAL DEPOSITS
TOTAL LIABILITIES
Commitments and Contingencies - Notes D and J
Shareholders' Equity:
Preferred Stock - No par value, 10,000,000 Shares
Authorized, None Outstanding
Common Stock - No par value, 10,000,000 Shares Authorized,
Shares Issued and Outstanding, 2,649,634 in 2014 and
1,915,902 in 2013
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive Income (Loss) - Net
Unrealized Gain (Loss) on Securities Available for Sale,
Net of Taxes of $(7,772) in 2014 and $(47,059) in 2013
TOTAL SHAREHOLDERS' EQUITY
2014
2013
$
55,502,263
69,994,695
19,355,396
21,564,510
166,416,864
342,596
166,759,460
$
34,162,947
47,783,592
25,708,209
1,875,000
109,529,748
397,481
109,927,229
-
-
-
-
24,126,478
1,614,538
3,851,640)
(
19,146,645
1,519,254
4,247,207)
(
(
11,184)
21,878,192
(67,719)
16,350,973
$
188,637,652
$
126,278,202
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
21
3
SUNCREST BANK
SUNCREST BANK
STATEMENTS OF INCOME
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
INTEREST INCOME
Interest and Fees on Loans
Interest on Investment Securities
Interest on Federal Funds Sold and Other
TOTAL INTEREST INCOME
2014
2013
$
5,988,234
415,522
76,308
6,480,064
$
4,965,566
128,804
42,500
5,136,870
INTEREST EXPENSE
Interest on Savings Deposits, NOW and Money Market Accounts
Interest on Time Deposits
Interest on Other Borrowings
TOTAL INTEREST EXPENSE
176,515
272,420
6
448,941
193,365
203,029
3,929
400,323
NET INTEREST INCOME
6,031,123
4,736,547
Provision for Loan Losses
314,400
36,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
5,716,723
4,700,547
NONINTEREST INCOME
Service Charges, Fees, and Other Income
Gain on Sale of Securities
Gain on Sale of Loans
NONINTEREST EXPENSE
Salaries and Employee Benefits
Occupancy Expenses
Equipment Expenses
Other Expenses
Income Taxes (Benefit)
INCOME BEFORE INCOME TAXES
133,908
11,485
237,084
382,477
3,018,770
641,153
175,592
1,518,064
5,353,579
745,621
350,054
179,354
-
36,730
216,084
2,351,011
577,022
171,168
1,176,894
4,276,095
640,536
2,553,000)
(
NET INCOME
$
395,567
$
3,193,536
NET INCOME PER SHARE - BASIC
$
0.18
$
1.67
NET INCOME PER SHARE - DILUTED
$
0.18
$
1.66
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
22
4
SUNCREST BANK
SUNCREST BANK
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Net Income
$
395,567
$
3,193,536
2014
2013
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized Gains and Losses on Securities Available for Sale:
Change in Net Unrealized Gain (Loss)
Reclassification of Gain Recognized in Net Income, Net
Income Taxes (Benefit):
Change in Net Unrealized Gain (Loss)
Reclassification of Gain Recognized in Net Income, Net
(
107,307
11,485)
95,822
(
43,996
4,709)
39,287
(
(
153,797)
-
153,797)
(
(
63,057)
-
63,057)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
56,535
(
90,740)
TOTAL COMPREHENSIVE INCOME
$
452,102
$
3,102,796
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
23
5
SUNCREST BANK
SUNCREST BANK
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Common Stock
Additional
Number of
Shares
Amount
Paid-in
Capital
Accumulated
Other
Accumulated Comprehensive
Deficit
Income (Loss)
Total
Balance January 1, 2013
1,911,777
$
19,117,770
$
1,479,306
$(
7,440,743)
$
23,021
$
13,179,354
Net Income
3,193,536
3,193,536
Stock-based Compensation
68,823
Issuance of Stock to Employees
in Exchange for Services Rendered
4,125
28,875
(
28,875)
Other Comprehensive
Income, Net of Taxes
68,823
-
(
90,740)
(
90,740)
Balance at December 31, 2013
1,915,902
19,146,645
1,519,254
(
4,247,207)
(
67,719)
16,350,973
Net Income
395,567
Stock-based Compensation
141,382
Issuance of Stock to Employees
in Exchange for Services Rendered
6,980
46,098
(
46,098)
Issuance of Common Stock, net
of Expenses of $153,529
726,752
4,933,735
395,567
141,382
-
4,933,735
Other Comprehensive
Income, Net of Taxes
56,535
56,535
Balance at December 31, 2014
2,649,634
$
24,126,478
$
1,614,538
$(
3,851,640)
$(
11,184)
$
21,878,192
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
6
24
SUNCREST BANK
SUNCREST BANK
STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
OPERATING ACTIVITIES
Net Income
Adjustments to Reconcile Net Income to Net Cash
From Operating Activities:
Depreciation and Amortization
Stock-based Compensation
Provision for Loan Losses
Deferred Tax Expense (Benefit)
Gain on Sale of Securities
Gain on Sale of Other Real Estate Owned
Gain on Sale of Loans
Loans Originated for Sale
Proceeds from Sale of Loans
Other Items
NET CASH FROM OPERATING ACTIVITIES
INVESTING ACTIVITIES
Purchase of Available-for-Sale Securities
Maturities of Available-for-Sale Securities
Proceeds from Sale of Available-for-Sale Securities
Net Increase in Loans
Purchase of Federal Home Loan Bank Stock
Proceeds from Sale of Other Real Estate Owned
Purchase of Premises and Equipment
NET CASH FROM INVESTING ACTIVITIES
FINANCING ACTIVITIES
Net Increase in Demand Deposits and Savings Accounts
Net Change in Time Deposits
Net Change in Federal Funds Purchased
Proceeds from Issuance of Common Stock, Net
NET CASH FROM FINANCING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Year
2014
2013
$
395,567
$
3,193,536
218,299
141,382
314,400
345,000
11,485)
-
237,084)
2,327,174)
2,578,580
433,553)
983,932
(
(
(
(
(
193,060
68,823
36,000
2,554,000)
-
19,366)
36,730)
408,750)
451,645
67,802)
856,416
(
(
(
(
(
(
(
38,733,211)
10,934,781
1,993,315
30,764,740)
43,800)
-
103,091)
56,716,746)
(
(
(
(
(
4,475,950)
4,416,373
-
13,931,119)
28,600)
270,910
20,866)
13,769,252)
(
(
43,550,419
13,336,697
-
4,933,735
61,820,851
6,088,037
14,381,057
(
16,616,396
8,130,939
700,000)
-
24,047,335
11,134,499
3,246,558
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
20,469,094
$
14,381,057
Supplemental Disclosures of Cash Flow Information:
Interest Paid
Taxes Paid
450,025
$
$
-
$
$
398,794
15,000
The accompanying notes are an integral part of these financial statements.
8
25
!
!
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE A - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Operations
The Bank has been incorporated in the State of California and
organized as a single operating segment that operates two
full-service branches in Visalia and Porterville, California.
The Bank’s primary source of revenue is providing loans
to customers, who are predominately small and middle-
market businesses and individuals located primarily in
the Southern Central Valley of California.
Subsequent Events
The Bank has evaluated subsequent events for recognition
and disclosure through February 25, 2015, which is the date
the financial statements were available to be issued.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America requires management to make estimates
and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash
equivalents include cash, due from banks and federal funds
sold. Generally, federal funds are sold for periods of less
than ninety days.
Cash and Due from Banks
Banking regulations require that banks maintain a percentage
of their deposits as reserves in cash or on deposit with the
Federal Reserve Bank. The Bank was in compliance with its
reserve requirements as of December 31, 2014.
The Bank maintains amounts due from banks, which
may exceed federally insured limits. The Bank has not
experienced any losses in such accounts.
Investment Securities
Bonds, notes, and debentures for which the Bank has the
positive intent and ability to hold to maturity are reported
at cost, adjusted for premiums and discounts that are
recognized in interest income using the interest method
over the period of maturity.
Investments not classified as trading securities nor as held-
to-maturity securities are classified as available-for-sale
securities and recorded at fair value. Unrealized gains or
losses on available-for-sale securities are excluded from net
income and reported as an amount net of taxes as a separate
component of other comprehensive income included in
shareholders’ equity. Premiums and discounts on held-to-
maturity and available-for-sale securities are amortized or
accreted into income using the interest method. Realized gains
or losses of held-to-maturity or available-for-sale securities
are recorded using the specific identification method.
Management evaluates securities for other-than-temporary
impairment (“OTTI”) on at least a quarterly basis, and more
frequently when economic or market conditions warrant
such an evaluation. For securities in an unrealized loss
position, management considers the extent and duration
of the unrealized loss, and the financial condition and near-
term prospects of the issuer. Management also assesses
whether it intends to sell, or it is more likely than not that
it will be required to sell, a security in an unrealized loss
position before recovery of its amortized cost basis. If either
of the criteria regarding intent or requirement to sell is met,
the entire difference between amortized cost and fair value
is recognized as impairment through earnings. For debt
securities that do not meet the aforementioned criteria,
the amount of impairment is split into two components
as follows; OTTI related to credit loss, which must be
recognized in the income statement and; OTTI related to
other factors, which is recognized in other comprehensive
income. The credit loss is defined as the difference between
the present value of the cash flows expected to be collected
and the amortized cost basis. For equity securities, the entire
amount of impairment is recognized through earnings.
Loans Held for Sale
Government Guaranteed loans originated and intended for
sale in the secondary market are carried at the lower of cost
or estimated market value in the aggregate. Net unrealized
losses are recognized through a valuation allowance by
charges to income.
Gains or losses realized on the sales of loans are recognized
at the time of sale and are determined by the difference
between the net sales proceeds and the carrying value of the
loans sold, adjusted for any servicing asset or liability. Gains
and losses on sales of loans are included in noninterest income.
Loans
Loans receivable that management has the intent and ability
to hold for the foreseeable future or until maturity or payoff
are reported at their outstanding unpaid principal balances
26
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE A - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - Continued
reduced by any charge-offs or specific valuation accounts
and net of deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of
the related loan.
Loans on which the accrual of interest has been discontinued
are designated as nonaccrual loans. The accrual of interest
on loans is discontinued when principal or interest is past
due 90 days based on the contractual terms of the loan or
when, in the opinion of management, there is reasonable
doubt as to collectability. When loans are placed on
nonaccrual status, all interest previously accrued but not
collected is reversed against current period interest income.
Income on nonaccrual loans is subsequently recognized
only to the extent that cash is received and the loan’s
principal balance is deemed collectible. Interest accruals
are resumed on such loans only when they are brought
current with respect to interest and principal and when, in
the judgment of management, the loans are estimated to be
fully collectible as to all principal and interest.
Allowance for Loan Losses
loan balance
The allowance for loan losses is a valuation allowance for
probable incurred credit losses. Loan losses are charged
against
the allowance when management believes
is confirmed.
the uncollectability of a
Subsequent recoveries, if any, are credited to the allowance.
Management estimates the allowance balance required
using past loan loss experience, the nature and volume of
the portfolio, information about specific borrower situations
and estimated collateral values, economic conditions, and
other factors. Allocations of the allowance may be made for
specific loans, but the entire allowance is available for any
loan that, in management’s judgment, should be charged
off. Amounts are charged-off when available information
confirms that specific
loans or portions thereof, are
uncollectible. This methodology for determining charge-
offs is consistently applied to each segment.
The Bank determines a separate allowance for each
portfolio segment. The allowance consists of specific and
general reserves. Specific reserves relate to loans that are
individually classified as impaired. A loan is impaired when,
based on current information and events, it is probable that
the Bank will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Factors
considered in determining impairment include payment
status, collateral value and the probability of collecting all
amounts when due. Measurement of impairment is based
on the expected future cash flows of an impaired loan, which
are to be discounted at the loan’s effective interest rate, or
measured by reference to an observable market value, if
one exists, or the fair value of the collateral for a collateral-
dependent loan. The Bank selects the measurement method
on a loan-by-loan basis except that collateral-dependent
loans for which foreclosure is probable are measured at the
fair value of the collateral.
The Bank recognizes interest income on impaired loans
based on its existing methods of recognizing interest income
on nonaccrual loans. Loans, for which the terms have been
modified resulting in a concession, and for which the
borrower is experiencing financial difficulties, are considered
troubled debt restructurings and classified as impaired with
measurement of impairment as described above.
If a loan is impaired, a portion of the allowance is allocated
so that the loan is reported, net, at the present value of
estimated future cash flows using the loan’s existing rate or
at the fair value of collateral if repayment is expected solely
from the collateral.
General reserves cover non-impaired loans and are based
on peer bank historical loss rates for each portfolio segment,
adjusted for the effects of qualitative or environmental
factors that are likely to cause estimated credit losses as of
the evaluation date to differ from the portfolio segment’s
historical
include
loss experience. Qualitative factors
consideration of the following: changes in lending policies
and procedures; changes in economic conditions; changes
in the nature and volume of the portfolio; changes in the
experience, ability and depth of lending management and
other relevant staff; changes in the volume and severity
of past due, nonaccrual and other adversely graded loans;
changes in the loan review system; changes in the value
of the underlying collateral for collateral-dependent loans;
concentrations of credit and the effect of other external factors
such as competition and legal and regulatory requirements.
Portfolio segments identified by the Bank include real estate
– other, construction and land development, commercial and
industrial, and consumer loans. Relevant risk characteristics
for these portfolio segments generally include debt service
coverage, loan-to-value ratios and financial performance
on non-consumer loans and credit scores, debt-to income,
collateral type and loan-to-value ratios for consumer loans.
27
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE A - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - Continued
Federal Home Loan Bank (“FHLB”) Stock
The Bank is a member of the FHLB system. Members are
required to own a certain amount of stock based on the
level of borrowings and other factors, and may invest in
additional amounts. FHLB stock is carried at cost, classified
as a restricted security, and periodically evaluated for
impairment based on the ultimate recovery of par value.
Both cash and stock dividends are reported as income.
Stock-Based Compensation
The Bank recognizes the cost of employee services received
in exchange for awards of stock options, or other equity
instruments, based on the grant-date fair value of those
awards. This cost is recognized over the period which an
employee is required to provide services in exchange for
the award, generally the vesting period. See Note K for
additional information on the Bank’s stock option plan.
Advertising Costs
The Bank expenses the costs of advertising in the period incurred.
Other Real Estate Owned
Income Taxes
Real estate acquired by foreclosure or deed in lieu of
foreclosure is recorded at fair value at the date of foreclosure,
establishing a new cost basis by a charge to the allowance
for loan losses, if necessary. Other real estate owned is
carried at the lower of cost or fair value, less estimated
costs to sell. Fair value is based on current appraisals less
estimated selling costs. Any subsequent write-downs are
charged against operating expenses. Operating expenses of
such properties, net of related income, and gains and losses
on their disposition are included in other operating expenses.
Premises and Equipment
Premises and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation is computed
using the straight-line method over the estimated useful
lives, which ranges from three to ten years for furniture and
equipment. Leasehold improvements are amortized using
the straight-line method over the estimated useful lives of
the improvements or the remaining lease term, whichever is
shorter. Expenditures for betterments or major repairs are
capitalized and those for ordinary repairs and maintenance
are charged to operations as incurred.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales,
when control over the assets has been relinquished. Control
over transferred assets is deemed to be surrendered when
the assets have been isolated from the Bank, the transferee
obtains the right (free of conditions that constrain it from
taking advantage of that right) to pledge or exchange the
transferred assets, and the Bank does not maintain effective
control over the transferred assets through an agreement to
repurchase them before their maturity.
Deferred income taxes are computed using the asset
and liability method, which recognizes a liability or asset
representing the tax effects, based on current tax law, of
future deductible or taxable amounts attributable to events
that have been recognized in the financial statements. A
valuation allowance is established to reduce the deferred
tax asset to the level at which it is “more likely than not” that
the tax asset or benefits will be realized. Realization of tax
benefits of deductible temporary differences and operating loss
carryforwards depends on having sufficient taxable income of
an appropriate character within the carryforward periods.
The Bank has adopted guidance issued by the Financial
Accounting Standards Board (“FASB”) that clarifies the
accounting for uncertainty in tax positions taken or expected
to be taken on a tax return and provides that the tax effects
from an uncertain tax position can be recognized in the
financial statements only if, based on its merits, the position
is more likely than not to be sustained on audit by the taxing
authorities. Interest and penalties related to uncertain tax
positions are recorded as part of income tax expense.
Earnings Per Share (“EPS”)
Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-
average number of common shares outstanding for the
period. 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 or resulted
in the issuance of common stock that then shared in the
earnings of the entity.
Comprehensive Income
Changes in unrealized gains and losses on available-for-
sale securities is the only component of accumulated other
comprehensive income for the Bank. The amount reclassified
28
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE A - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - Continued
out of other accumulated comprehensive income relating to
realized gains on sale of securities was $11,485 for 2014. The
related tax effect for the reclassification was $4,709 for 2014.
Financial Instruments
In the ordinary course of business, the Bank has entered
into off-balance sheet financial instruments consisting
of commitments to extend credit, commercial letters of
credit, and standby letters of credit as described in Note
J. Such financial instruments are recorded in the financial
statements when they are funded or related fees are
incurred or received.
Fair Value Measurement
Fair value is 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. Current accounting
guidance establishes a fair value hierarchy, which requires
an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring
fair value. The guidance describes three levels of inputs that
may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets
or liabilities in active markets that the entity has the
ability to access as of the measurement date.
Level 2: Significant other observable inputs other than
Level 1 prices such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be
corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect
a Bank’s own assumptions about the assumptions that
market participants would use in pricing an asset or liability.
See Note M for more information and disclosures relating to
the Bank’s fair value measurements.
Reclassifications
Certain reclassifications have been made in the 2013
financial statements to conform to the presentation used in
2014. These reclassifications had no impact of the Bank’s
previously reported financial statements.
Recent Accounting Guidance Not Yet Effective
In January 2014, the FASB issued Accounting Standards
Update (ASU) No. 2014-04, Receivables—Troubled
Debt Restructurings by Creditors (Subtopic 310-40):
Reclassification of Residential Real Estate Collateralized
Consumer Mortgage Loans upon Foreclosure, a consensus of
the FASB Emerging Issues Task Force. This Update provides
clarification as to when an in-substance repossession or
foreclosure has occurred, i.e., the creditor is considered to
have received physical possession of residential real estate
property collateralizing a consumer mortgage loan and,
therefore, the loan receivable should be derecognized and
the real estate property should be recognized. Under ASU
No. 2014-04, a creditor has received physical possession of
residential real estate property collateralizing a consumer
mortgage loan upon either (1) the creditor obtaining legal
title to theproperty upon completion of a foreclosure or
(2) the borrower conveying all interest in the property
to the creditor to satisfy the loan through completion of a
deed in lieu of foreclosure or a similar legal agreement. The
Update also will require disclosure in annual and interim
financial statements 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 Update
are effective for interim and annual periods beginning after
December 15, 2014. Adoption of this Update is not expected
to have a material impact on the Bank’s financial statements.
In May 2014, the FASB issued Accounting Standards
Update (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. This Update is effective for interim and annual
periods beginning after December 15, 2016 for public
business entities and after December 15, 2017 for non
public business entities. Early adoption of this Update is not
permitted. The Bank is currently in the process of evaluating
the impact of the adoption of this Update, but does not
expect a material impact on the Bank’s financial statements.
29
The
following
table
presents
the
activity
in
the
allowance
for
loan
losses
for
the
year
2014
and
2013
and
the
recorded
investment
in
loans
and
impairment
method
as
of
December
31,
2014
and
2013
by
portfolio
segment:
December 31, 2014
Real Estate -
Construction
Commercial
and Land
Development
Consumer
Industrial
Other
Total
and
Allowance for Loan Losses:
Beginning of Year
Provisions
Charge-offs
Recoveries
End of Year
Reserves:
Specific
General
Loans Evaluated for Impairment:
Individually
Collectively
December 31, 2013
Allowance for Loan Losses:
Beginning of Year
Provisions
Charge-offs
Recoveries
End of Year
Reserves:
Specific
General
Loans Evaluated for Impairment:
Individually
Collectively
-
-
-
-
-
-
-
-
$
1,094,629
$
34,659
$
275,196
$
12,897
$
1,417,381
72,857
14,017
207,390
(8,390)
-
20,136
-
-
314,400
(8,390)
-
$
1,167,486
$
48,676
$
474,196
$
33,033
$
1,723,391
$
-
$
-
$
35,100
$
-
$
35,100
1,167,486
48,676
439,096
33,033
1,688,291
$
1,167,486
$
48,676
$
474,196
$
33,033
$
1,723,391
$
-
$
313,322
$
35,100
$
-
$
348,422
93,374,513
3,545,500
26,433,966
1,534,781
124,888,760
$
93,374,513
$
3,858,822
$
26,469,066
$
1,534,781
$
125,237,182
$
1,025,687
$
84,186
$
248,992
$
13,016
$
1,371,881
68,942
(
49,527)
16,704
(
119)
-
9,500
-
-
36,000
-
9,500
$
1,094,629
$
34,659
$
275,196
$
12,897
$
1,417,381
$
-
$
-
$
-
$
-
$
-
1,094,937
34,659
275,273
12,502
1,417,371
$
1,094,937
$
34,659
$
275,273
$
12,502
$
1,417,371
$
-
$
441,114
$
-
$
-
$
441,114
69,831,369
1,805,965
21,167,596
1,181,442
93,986,372
$
69,831,369
$
2,247,079
$
21,167,596
$
1,181,442
$
94,427,486
financial
credit
documentation,
and
current
The
Bank
categorizes
loans
into
risk
categories
based
on
relevant
information
about
the
ability
of
borrowers
to
service
their
debt
such
as
current
information,
historical
payment
experience,
collateral
adequacy,
economic
trends,
among
other
factors.
The
Bank
analyzes
loans
individually
by
classifying
the
loans
as
to
credit
risk.
This
analysis
typically
includes
larger,
non-‐homogeneous
loans
such
as
commercial
real
estate
and
commercial
and
industrial
loans.
This
analysis
is
performed
on
an
ongoing
basis
as
new
information
is
obtained.
The
Bank
uses
the
following
definitions
for
risk
ratings:
Pass
-‐
Loans
classified
as
pass
include
loans
not
meeting
the
risk
ratings
defined
below.
Special
Mention
-‐
Loans
classified
as
special
mention
have
a
potential
weakness
that
deserves
management's
close
attention.
If
left
uncorrected,
these
deterioration
of
the
repayment
prospects
for
the
loan
or
of
the
institution's
credit
position
at
some
future
date.
potential
weaknesses
may
result
in
NOTE
B
-‐
INVESTMENT
SECURITIES
-‐
Continued
December 31, 2014:
U.S. Government and
Agency Securities
Mortgaged-Backed
Securities
Less than Twelve Months
Over Twelve Months
Total
Unrealized
Losses
Unrealized
Unrealized
Fair Value
Losses
Fair Value
Losses
Fair Value
$(
40,533)
$
10,208,813
$(
43,919)
$
4,955,780
$(
84,452)
$
15,164,593
(5,428)
2,131,386
-
-
(5,428)
2,131,386
$(
45,961)
$
12,340,199
$(
43,919)
$
4,955,780
$(
89,880)
$
17,295,979
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
96,891)
96,891)
$(
$(
December 31, 2013:
U.S. Government and
Agency Securities
$
9,877,549
$(
27,899)
$
971,700
$(
124,790)
$
10,849,249
$
9,877,549
$(
27,899)
$
971,700
$(
124,790)
$
10,849,249
NOTE
A
-‐
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
NOTE
A
-‐
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
-‐
Continued
POLICIES
-‐
Continued
NOTE
B
-‐
INVESTMENT
SECURITIES
NOTE
B
-‐
INVESTMENT
SECURITIES
NOTE B - INVESTMENT SECURITIES - Continued
foreclosure
or
a
similar
foreclosure
or
a
similar
jurisdiction.
The
amendments
property
collateralizing
a
consumer
mortgage
loan
loan
receivable
should
be
property
collateralizing
a
consumer
mortgage
loan
derecognized
and
the
real
estate
property
should
be
loan
receivable
should
be
recognized.
Under
ASU
No.
2014-‐04,
a
creditor
has
derecognized
and
the
real
estate
property
should
be
received
physical
possession
of
residential
real
estate
recognized.
Under
ASU
No.
2014-‐04,
a
creditor
has
property
collateralizing
a
consumer
mortgage
loan
received
physical
possession
of
residential
real
estate
upon
either
(1)
the
creditor
obtaining
legal
title
to
the
property
collateralizing
a
consumer
mortgage
loan
property
upon
completion
of
a
foreclosure
or
(2)
the
upon
either
(1)
the
creditor
obtaining
legal
title
to
the
borrower
conveying
all
interest
in
the
property
to
the
property
upon
completion
of
a
foreclosure
or
(2)
the
creditor
to
satisfy
the
loan
through
completion
of
a
borrower
conveying
all
interest
in
the
property
to
the
legal
creditor
to
satisfy
the
loan
through
completion
of
a
agreement.
The
Update
also
will
require
disclosure
in
legal
annual
and
interim
financial
statements
of
both
(1)
the
agreement.
The
Update
also
will
require
disclosure
in
amount
of
foreclosed
residential
real
estate
property
annual
and
interim
financial
statements
of
both
(1)
the
held
by
the
creditor
and
(2)
the
recorded
investment
amount
of
foreclosed
residential
real
estate
property
loans
collateralized
by
held
by
the
creditor
and
(2)
the
recorded
investment
residential
real
estate
property
that
are
in
the
process
loans
collateralized
by
of
foreclosure
according
to
local
requirements
of
the
residential
real
estate
property
that
are
in
the
process
in
this
jurisdiction.
The
amendments
of
foreclosure
according
to
local
requirements
of
the
Update
are
effective
for
interim
and
annual
periods
in
this
beginning
after
December
15,
2014.
Adoption
of
this
Update
are
effective
for
interim
and
annual
periods
Update
is
not
expected
to
have
a
material
impact
on
beginning
after
December
15,
2014.
Adoption
of
this
Update
is
not
expected
to
have
a
material
impact
on
Revenue
from
Contracts
In
May
2014,
the
FASB
issued
Accounting
Standards
Revenue
from
Contracts
In
May
2014,
the
FASB
issued
Accounting
Standards
.
This
Update
requires
an
as
performance
.
This
Update
requires
an
obligations
are
met,
in
order
to
reflect
the
transfer
of
as
performance
promised
goods
or
services
to
customers
in
an
amount
obligations
are
met,
in
order
to
reflect
the
transfer
of
that
reflects
the
consideration
the
entity
is
entitled
to
promised
goods
or
services
to
customers
in
an
amount
receive
for
those
goods
or
services.
The
following
that
reflects
the
consideration
the
entity
is
entitled
to
steps
are
applied
in
the
updated
guidance:
(1)
identify
receive
for
those
goods
or
services.
The
following
the
contract(s)
with
a
customer;
(2)
identify
the
steps
are
applied
in
the
updated
guidance:
(1)
identify
performance
obligations
in
the
contract;
(3)
determine
the
contract(s)
with
a
customer;
(2)
identify
the
the
transaction
price;
(4)
allocate
the
transaction
price
performance
obligations
in
the
contract;
(3)
determine
to
the
performance
obligations
in
the
contract;
and
the
transaction
price;
(4)
allocate
the
transaction
price
(5)
recognize
revenue
when,
or
as,
the
entity
satisfies
to
the
performance
obligations
in
the
contract;
and
a
performance
obligation.
This
Update
is
effective
for
(5)
recognize
revenue
when,
or
as,
the
entity
satisfies
interim
and
annual
periods
beginning
after
December
a
performance
obligation.
This
Update
is
effective
for
15,
2016
for
public
business
entities
and
after
interim
and
annual
periods
beginning
after
December
December
15,
2017
for
non
public
business
entities.
15,
2016
for
public
business
entities
and
after
Early
adoption
of
this
Update
is
not
permitted.
The
Bank
is
currently
in
the
process
of
evaluating
the
December
15,
2017
for
non
public
business
entities.
impact
of
the
adoption
of
this
Update,
but
does
not
Early
adoption
of
this
Update
is
not
permitted.
The
expect
a
material
impact
on
the
Bank's
financial
Bank
is
currently
in
the
process
of
evaluating
the
impact
of
the
adoption
of
this
Update,
but
does
not
expect
a
material
impact
on
the
Bank's
financial
and,
therefore,
the
and,
therefore,
the
deed
in
lieu
of
deed
in
lieu
of
in
consumer
mortgage
in
consumer
mortgage
applicable
applicable
the
Bank's
financial
statements.
the
Bank's
financial
statements.
with
Customers
(Topic
606)
Update
(ASU)
No.
2014-‐09,
with
Customers
(Topic
606)
Update
(ASU)
No.
2014-‐09,
recognize
to
revenue
entity
entity
to
recognize
revenue
statements.
statements.
financial
condition
according
financial
condition
according
Debt
and
equity
securities
have
been
classified
in
the
Debt and equity securities have been classified in the
to
statements
of
Debt
and
equity
securities
have
been
classified
in
the
statements of financial condition according to management’s
management's
intent.
The
amortized
cost
of
securities
to
statements
of
intent. The amortized cost of securities and their approximate
and
their
approximate
fair
values
at
December
31
management's
intent.
The
amortized
cost
of
securities
fair values at December 31 were as follows:
were
as
follows:
and
their
approximate
fair
values
at
December
31
Fair
Amortized
were
as
follows:
Value
Cost
Amortized
December 31, 2014
Cost
Available-for-Sale Securities:
December 31, 2014
U.S. Government and
Available-for-Sale Securities:
Agency Securities
U.S. Government and
Mortgaged-Backed
Agency Securities
Securities
Mortgaged-Backed
Securities
Gross
Unrealized
Gross
Losses
Unrealized
Losses
Gross
Unrealized
Gross
Gains
Unrealized
Gains
$
40,535,398
11,793,000
89,880)
5,428)
Fair
Value
28,742,398
11,793,000
28,742,398
28,686,887
11,829,555
40,516,442
28,686,887
11,829,555
$(
(
84,452)
84,452)
28,941
41,983
70,924
28,941
41,983
5,428)
(
$
$
$
$(
$(
$
$
$
$
$
December 31, 2013
Available-for-Sale Securities:
December 31, 2013
U.S. Government and
Available-for-Sale Securities:
Agency Securities
Mortgaged-Backed
U.S. Government and
Securities
Agency Securities
Mortgaged-Backed
Securities
$
40,535,398
$
70,924
$(
89,880)
$
40,516,442
$
14,462,690
$
8,274
$(
124,790)
$
14,346,174
$
272,409
14,462,690
$
8,274
1,738
$(
124,790)
-
$
14,346,174
274,147
$
14,735,099
272,409
$
10,012
1,738
$(
124,790)
-
$
14,620,321
274,147
$
14,735,099
$
10,012
$(
124,790)
$
14,620,321
The amortized cost and estimated fair value of all investment
The
amortized
cost
and
estimated
fair
value
of
all
securities as of December 31, 2014 by expected maturities
investment
securities
as
of
December
31,
2014
by
The
amortized
cost
and
estimated
fair
value
of
all
are shown below. Expected maturities may differ from
expected
maturities
are
shown
below.
Expected
investment
securities
as
of
December
31,
2014
by
contractual maturities because borrowers may have the
maturities
may
differ
from
contractual
maturities
expected
maturities
are
shown
below.
Expected
right to call or prepay obligations with or without call or
because
borrowers
may
have
the
right
to
call
or
maturities
may
differ
from
contractual
maturities
prepayment penalties.
prepay
obligations
with
or
without
call
or
prepayment
because
borrowers
may
have
the
right
to
call
or
penalties.
prepay
obligations
with
or
without
call
or
prepayment
penalties.
Due within One Year
Due from One Year to Five Years
Due within One Year
Due from Five to Ten Years
Due from One Year to Five Years
Due after Ten Years
Due from Five to Ten Years
Due after Ten Years
Available-for-Sale Securities
Fair
Amortized
Available-for-Sale Securities
Value
Cost
Fair
Amortized
Value
Cost
22,487,565
$
22,501,381
7,066,947
7,105,035
22,501,381
2,952,074
2,948,333
7,105,035
8,009,856
7,980,649
2,948,333
40,535,398
7,980,649
22,487,565
7,066,947
2,952,074
40,516,442
8,009,856
$
$
$
40,535,398
40,516,442
Gross realized gains in 2014 on sales of available-for-sale
securities were $11,485. No securities were sold in 2013.
Gross
realized
gains
in
2014
on
sales
of
available-‐for-‐
sale
securities
were
$11,485.
No
securities
were
sold
The gross unrealized loss and related estimated fair value
Gross
realized
gains
in
2014
on
sales
of
available-‐for-‐
in
2013.
of investment securities that have been in a continuous
sale
securities
were
$11,485.
No
securities
were
sold
loss position for less than twelve months and over twelve
in
2013.
The
gross
unrealized
loss
and
related
estimated
fair
months at December 31, 2014 and 2013, are as follows:
NOTE
B
-‐
INVESTMENT
SECURITIES
-‐
Continued
value
of
investment
securities
that
have
been
in
a
The
gross
unrealized
loss
and
related
estimated
fair
continuous
loss
position
for
less
than
twelve
months
and
over
twelve
months
at
December
31,
2014
and
value
of
investment
securities
that
have
been
in
a
2013,
are
as
follows:
December 31, 2014:
Fair Value
continuous
loss
position
for
less
than
twelve
months
U.S. Government and
and
over
twelve
months
at
December
31,
2014
and
Agency Securities
15,164,593
Mortgaged-Backed
2013,
are
as
follows:
2,131,386
Securities
Less than Twelve Months
Unrealized
Losses
Unrealized
Losses
Unrealized
Losses
Over Twelve Months
10,208,813
Fair Value
Fair Value
2,131,386
4,955,780
40,533)
43,919)
84,452)
(5,428)
(5,428)
$(
$(
Total
$(
$
$
$
-
-
12
12
December 31, 2013:
U.S. Government and
Agency Securities
$(
45,961)
$
12,340,199
$(
43,919)
$
4,955,780
$(
89,880)
$
17,295,979
$(
96,891)
$
9,877,549
$(
27,899)
$
971,700
$(
124,790)
$
10,849,249
$(
96,891)
$
9,877,549
$(
27,899)
$
971,700
$(
124,790)
$
10,849,249
As
of
December
31,
2014
the
Company
has
ten
U.S.
government
agency
securities
that
have
been
in
an
unrealized
loss
position
over
12
months.
Unrealized
losses
on
these
investment
securities
have
not
been
recognized
into
income
as
management
does
not
intend
to
sell,
and
it
is
not
"more
likely
than
not"
that
management
would
be
required
to
sell
the
securities
prior
to
their
anticipated
recovery,
and
the
decline
in
fair
value
is
largely
due
to
change
in
interest
rates.
The
fair
value
is
expected
to
recover
as
the
bonds
approach
maturity.
Securities
with
a
fair
value
of
approximately
$17.4
million
at
December
31,
2014
were
pledged
to
the
Federal
Home
Loan
Bank
to
secure
borrowings
as
discussed
in
Note
F.
NOTE
C
-‐
LOANS
The
Bank's
loan
portfolio
consists
primarily
of
loans
to
borrowers
within
the
Southern
Central
Valley
of
California.
Although
the
Bank
seeks
to
avoid
concentrations
of
loans
to
a
single
industry
or
based
upon
a
single
class
of
collateral,
real
estate
and
real
estate
associated
businesses
are
among
the
principal
industries
in
the
Bank's
market
area
and,
as
a
result,
the
Bank's
loan
and
collateral
portfolios
are,
to
some
degree,
concentrated
in
those
industries.
Balance at Beginning of Year
$
1,417,381
$
1,371,881
Additions to the Allowance Charged to Expense
Recoveries on Loans Charged-Off
314,400
-
1,731,781
36,000
9,500
1,417,381
Less Loans Charged-Off
(
8,390)
-
$
1,723,391
$
1,417,381
As of December 31, 2014 the Company has ten U.S.
As
of
December
31,
2014
the
Company
has
ten
U.S.
government agency securities that have been in an unrealized
government
agency
securities
that
have
been
in
an
loss position over 12 months. Unrealized losses on these
unrealized
loss
position
over
12
months.
Unrealized
investment securities have not been recognized into income
losses
on
these
investment
securities
have
not
been
as management does not intend to sell, and it is not “more
recognized
into
income
as
management
does
not
likely than not” that management would be required to sell the
intend
to
sell,
and
it
is
not
"more
likely
than
not"
that
securities prior to their anticipated recovery, and the decline
management
would
be
required
to
sell
the
securities
in fair value is largely due to change in interest rates. The fair
prior
to
their
anticipated
recovery,
and
the
decline
in
value is expected to recover as the bonds approach maturity.
fair
value
is
largely
due
to
change
in
interest
rates.
The
fair
value
is
expected
to
recover
as
the
bonds
Securities with a fair value of approximately $17.4 million at
approach
maturity.
December 31, 2014 were pledged to the Federal Home Loan
Bank to secure borrowings as discussed in Note F.
Securities
with
a
fair
value
of
approximately
$17.4
million
at
December
31,
2014
were
pledged
to
the
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
Federal
Home
Loan
Bank
to
secure
borrowings
as
discussed
in
Note
F.
NOTE
C
-‐
LOANS
NOTE C - LOANS
The Bank’s loan portfolio consists primarily of loans to
The
Bank's
loan
portfolio
consists
primarily
of
loans
to
borrowers within the Southern Central Valley of California.
borrowers
within
the
Southern
Central
Valley
of
Although the Bank seeks to avoid concentrations of loans to
Although
the
Bank
seeks
to
avoid
California.
a single industry or based upon a single class of collateral,
concentrations
of
loans
to
a
single
industry
or
based
real estate and real estate associated businesses are among
upon
a
single
class
of
collateral,
real
estate
and
real
the principal industries in the Bank’s market area and, as a
estate
associated
businesses
are
among
the
principal
result, the Bank’s loan and collateral portfolios are, to some
industries
in
the
Bank's
market
area
and,
as
a
result,
degree, concentrated in those industries.
the
Bank's
loan
and
collateral
portfolios
are,
to
some
degree,
concentrated
in
those
industries.
A summary of the changes in the allowance for loan losses
as of December 31 follows:
A
summary
of
the
changes
in
the
allowance
for
loan
losses
as
of
December
31
follows:
2013
2014
Balance at Beginning of Year
Additions to the Allowance Charged to Expense
Recoveries on Loans Charged-Off
$
1,417,381
314,400
-
1,731,781
$
1,371,881
36,000
9,500
1,417,381
Less Loans Charged-Off
(
8,390)
-
$
1,723,391
$
1,417,381
The following table presents the activity in the allowance
for loan losses for the year 2014 and 2013 and the recorded
investment in loans and impairment method as of December
31, 2014 and 2013 by portfolio segment:
13
The
following
table
presents
the
activity
in
the
allowance
for
loan
losses
for
the
year
2014
and
2013
and
the
recorded
investment
in
loans
and
impairment
method
as
of
December
31,
2014
and
2013
by
portfolio
segment:
December 31, 2014
Construction
and Land
Development
Commercial
and
Industrial
Real Estate -
Other
Consumer
Total
Allowance for Loan Losses:
Beginning of Year
Provisions
Charge-offs
Recoveries
End of Year
Reserves:
Specific
General
$
1,094,629
72,857
-
-
$
34,659
14,017
-
-
$
275,196
207,390
(8,390)
-
$
12,897
20,136
-
-
$
1,417,381
314,400
(8,390)
-
$
1,167,486
$
48,676
$
474,196
$
33,033
$
1,723,391
$
-
1,167,486
$
-
48,676
$
35,100
439,096
$
-
33,033
$
35,100
1,688,291
$
1,167,486
$
48,676
$
474,196
$
33,033
$
1,723,391
Loans Evaluated for Impairment:
Individually
Collectively
30
-
$
93,374,513
$
313,322
3,545,500
$
35,100
26,433,966
$
-
1,534,781
$
348,422
124,888,760
$
93,374,513
$
3,858,822
$
26,469,066
$
1,534,781
$
125,237,182
December 31, 2013
Allowance for Loan Losses:
Beginning of Year
Provisions
Charge-offs
Recoveries
End of Year
Reserves:
Specific
General
Loans Evaluated for Impairment:
Individually
Collectively
$
1,025,687
68,942
-
-
$
(
84,186
49,527)
-
-
$
248,992
16,704
-
9,500
$
(
13,016
119)
-
-
$
1,371,881
36,000
-
9,500
$
1,094,629
$
34,659
$
275,196
$
12,897
$
1,417,381
$
-
$
-
$
-
$
-
$
-
1,094,937
34,659
275,273
12,502
1,417,371
$
1,094,937
$
34,659
$
275,273
$
12,502
$
1,417,371
$
-
$
441,114
$
-
$
-
$
441,114
69,831,369
1,805,965
21,167,596
1,181,442
93,986,372
$
69,831,369
$
2,247,079
$
21,167,596
$
1,181,442
$
94,427,486
The
Bank
categorizes
loans
into
risk
categories
based
on
relevant
information
about
the
ability
of
borrowers
to
service
their
debt
such
as
current
financial
information,
historical
payment
experience,
collateral
adequacy,
credit
documentation,
and
current
economic
trends,
among
other
factors.
The
Bank
analyzes
loans
individually
by
classifying
the
loans
as
to
credit
risk.
This
analysis
typically
includes
larger,
non-‐homogeneous
loans
such
as
commercial
real
estate
and
commercial
and
industrial
loans.
This
analysis
is
performed
on
an
ongoing
basis
as
new
information
is
obtained.
The
Bank
uses
the
following
Loans
classified
as
pass
include
loans
not
meeting
the
risk
ratings
defined
below.
Special
Mention
-‐
Loans
classified
as
special
mention
have
a
potential
weakness
that
deserves
management's
close
attention.
If
left
uncorrected,
these
potential
weaknesses
may
result
in
deterioration
of
the
repayment
prospects
for
the
loan
or
of
the
institution's
credit
position
at
some
future
date.
13
A
summary
of
the
changes
in
the
allowance
for
loan
losses
as
of
December
31
follows:
2014
2013
definitions
for
risk
ratings:
Pass
-‐
NOTE
B
-‐
INVESTMENT
SECURITIES
-‐
Continued
December 31, 2014:
U.S. Government and
Agency Securities
Mortgaged-Backed
Securities
December 31, 2013:
U.S. Government and
Agency Securities
Less than Twelve Months
Over Twelve Months
Total
Unrealized
Losses
Unrealized
Fair Value
Losses
Fair Value
Unrealized
Losses
Fair Value
$(
40,533)
$
10,208,813
$(
43,919)
$
4,955,780
$(
84,452)
$
15,164,593
(5,428)
2,131,386
-
-
(5,428)
2,131,386
$(
45,961)
$
12,340,199
$(
43,919)
$
4,955,780
$(
89,880)
$
17,295,979
$(
96,891)
$
9,877,549
$(
27,899)
$
971,700
$(
124,790)
$
10,849,249
$(
96,891)
$
9,877,549
$(
27,899)
$
971,700
$(
124,790)
$
10,849,249
As
of
December
31,
2014
the
Company
has
ten
U.S.
government
agency
securities
that
have
been
in
an
unrealized
loss
position
over
12
months.
Unrealized
losses
on
these
investment
securities
have
not
been
recognized
into
income
as
management
does
not
intend
to
sell,
and
it
is
not
"more
likely
than
not"
that
management
would
be
required
to
sell
the
securities
prior
to
their
anticipated
recovery,
and
the
decline
in
fair
value
is
largely
due
to
change
in
interest
rates.
The
fair
value
is
expected
to
recover
as
the
bonds
approach
maturity.
Securities
with
a
fair
value
of
approximately
$17.4
million
at
December
31,
2014
were
pledged
to
the
Federal
Home
Loan
Bank
to
secure
borrowings
as
discussed
in
Note
F.
NOTE
C
-‐
LOANS
California.
The
Bank's
loan
portfolio
consists
primarily
of
loans
to
borrowers
within
the
Southern
Central
Valley
of
Although
the
Bank
seeks
to
avoid
concentrations
of
loans
to
a
single
industry
or
based
upon
a
single
class
of
collateral,
real
estate
and
real
estate
associated
businesses
are
among
the
principal
industries
in
the
Bank's
market
area
and,
as
a
result,
the
Bank's
loan
and
collateral
portfolios
are,
to
some
degree,
concentrated
in
those
industries.
A
summary
of
the
changes
in
the
allowance
for
loan
losses
as
of
December
31
follows:
2014
2013
Balance at Beginning of Year
Additions to the Allowance Charged to Expense
Recoveries on Loans Charged-Off
$
1,417,381
314,400
-
1,731,781
$
1,371,881
36,000
9,500
1,417,381
Less Loans Charged-Off
(
8,390)
-
$
1,723,391
$
1,417,381
13
Farmland
Real Estate Other:
Commercial
Farmland
Real Estate Other:
Commercial
December 31, 2014
December 31, 2014
Real Estate Other:
Real Estate Other:
Commercial
Commercial
Farmland
Farmland
1-4 Family Residential
1-4 Family Residential
Multifamily Residential
Multifamily Residential
Construction and Land Development
Construction and Land Development
Commercial and Industrial
Consumer
Commercial and Industrial
Consumer
December 31, 2013
December 31, 2013
30-59 Days
30-59 Days
Past Due
Past Due
Still Accruing
Still Accruing
60-89 Days
60-89 Days
Past Due
Past Due
Over 90 Days
Over 90 Days
Past Due
Past Due
Nonaccrual
Nonaccrual
$
$
-
-
$
$
-
-
$
$
-
-
$
$
-
-
180,000
180,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
313,322
313,322
35,100
35,100
441,114
441,114
$
$
23,947
23,947
$
$
180,000
180,000
$
$
-
-
$
$
348,422
348,422
$
$
49,544
49,544
$
$
-
-
$
$
-
-
$
$
-
-
196,196
196,196
250,000
250,000
$
$
245,740
245,740
$
$
250,000
250,000
$
$
-
-
$
$
441,114
441,114
23,947
23,947
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Unpaid
Unpaid
Principal
Principal
Balance
Balance
Recorded Without Specific With Specific
Recorded Without Specific With Specific
Related
Related
Investment
Investment
Allowance
Allowance
Allowance
Allowance
Allowance
Allowance
Investment Recognized
Investment Recognized
Average
Average
Recorded
Recorded
Interest
Interest
Income
Income
$
$
-
-
$
$
-
-
$
$
-
-
$
$
-
-
$
$
-
-
$
$
-
-
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
486,434
486,434
43,490
43,490
313,322
313,322
35,100
35,100
313,322
313,322
35,100
35,100
35,100
35,100
359,000
359,000
30,000
30,000
$
529,924
529,924
$
$
348,422
348,422
$
$
313,322
313,322
$
$
$
35,100
35,100
$
35,100
35,100
$
$
389,000
389,000
$
$
$
-
-
$
$
-
-
$
$
-
-
$
$
-
-
$
$
-
-
$
$
-
-
$
155,000
155,000
$
$
$
-
-
574,169
574,169
441,114
441,114
441,114
441,114
486,000
486,000
$
574,169
574,169
$
$
441,114
441,114
$
$
441,114
441,114
$
$
$
-
-
$
$
-
-
$
641,000
641,000
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1-4 Family Residential
Multifamily Residential
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Construction and Land Development
Commercial and Industrial
Consumer
Commercial and Industrial
Consumer
Information
relating
to
individually
impaired
loans
Information
relating
to
individually
impaired
loans
presented
by
class
of
loans
was
as
follows
as
of
presented
by
class
of
loans
was
as
follows
as
of
December
31,
2014
and
2013:
December
31,
2014
and
2013:
Impaired Loans
Impaired Loans
December 31, 2014
December 31, 2014
Real Estate Other:
Real Estate Other:
Commercial
Commercial
Farmland
Farmland
1-4 Family Residential
1-4 Family Residential
Multifamily Residential
Multifamily Residential
Construction and Land Development
Construction and Land Development
Commercial and Industrial
Commercial and Industrial
Consumer
Consumer
December 31, 2013
December 31, 2013
Real Estate Other:
Real Estate Other:
Commercial
Commercial
Farmland
Farmland
1-4 Family Residential
1-4 Family Residential
Multifamily Residential
Multifamily Residential
Construction and Land Development
Construction and Land Development
Commercial and Industrial
Commercial and Industrial
Consumer
Consumer
There
were
no
new
troubled
debt
restructurings
There
were
no
new
troubled
debt
restructurings
during
2014
and
2013.
during
2014
and
2013.
NOTE
D
-‐
PREMISES
AND
EQUIPMENT
NOTE
D
-‐
PREMISES
AND
EQUIPMENT
A
summary
of
premises
and
equipment
as
of
A
summary
of
premises
and
equipment
as
of
December
31
follows:
December
31
follows:
2014
2013
2014
2013
Leasehold Improvements
Furniture, Fixtures, and Equipment
Leasehold Improvements
Furniture, Fixtures, and Equipment
Less Accumulated Depreciation and Amortization
Less Accumulated Depreciation and Amortization
1,195,113
1,195,113
917,743
917,743
2,112,856
2,112,856
(1,529,460)
(1,529,460)
1,184,565
1,184,565
825,202
825,202
2,009,767
2,009,767
(1,311,163)
(1,311,163)
$
$
583,396
583,396
$
$
698,604
698,604
The
Bank
has
entered
into
two
leases
for
its
main
The
Bank
has
entered
into
two
leases
for
its
main
office
and
Porterville
office,
which
will
expire
in
office
and
Porterville
office,
which
will
expire
in
January
2017
and
July
2018,
respectively.
The
Bank
January
2017
and
July
2018,
respectively.
The
Bank
leases
its
Porterville
Office
from
a
Director
of
the
Bank.
leases
its
Porterville
Office
from
a
Director
of
the
Bank.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE
C
-‐
LOANS
-‐
Continued
NOTE
C
-‐
LOANS
-‐
Continued
Substandard
Substandard
that
that
jeopardize
jeopardize
-‐
Loans
classified
as
substandard
-‐
Loans
classified
as
substandard
are
inadequately
protected
by
the
current
net
worth
are
inadequately
protected
by
the
current
net
worth
and
paying
capacity
of
the
obligor
or
of
the
collateral
and
paying
capacity
of
the
obligor
or
of
the
collateral
pledged,
if
any.
Loans
so
classified
have
a
well-‐defined
pledged,
if
any.
Loans
so
classified
have
a
well-‐defined
the
weakness
or
weaknesses
weakness
or
weaknesses
the
liquidation
of
the
debt.
They
are
characterized
by
the
liquidation
of
the
debt.
They
are
characterized
by
the
distinct
possibility
that
the
institution
will
sustain
distinct
possibility
that
the
institution
will
sustain
some
loss
if
the
deficiencies
are
not
corrected.
some
loss
if
the
deficiencies
are
not
corrected.
Impaired - A loan is considered impaired, when, based
Impaired
Impaired
on current information and events, it is probable
that the Bank will be unable to collect all amounts
due according to the contractual terms of the loan
agreement. Additionally, all loans classified as troubled
debt restructurings are considered impaired.
-‐
A
loan
is
considered
impaired,
when,
-‐
A
loan
is
considered
impaired,
when,
is
information
and
events,
based
on
current
is
based
on
current
information
and
events,
probable
that
the
Bank
will
be
unable
to
collect
all
probable
that
the
Bank
will
be
unable
to
collect
all
amounts
due
according
to
the
contractual
terms
of
the
amounts
due
according
to
the
contractual
terms
of
the
loan
agreement.
Additionally,
all
loans
classified
as
loan
agreement.
Additionally,
all
loans
classified
as
troubled
debt
restructurings
are
considered
impaired.
troubled
debt
restructurings
are
considered
impaired.
The risk category of loans by class of loans was as follows as
of December 31, 2014:
The
risk
category
of
loans
by
class
of
loans
was
as
The
risk
category
of
loans
by
class
of
loans
was
as
follows
as
of
December
31,
2014:
follows
as
of
December
31,
2014:
Special
Special
Mention
Mention
Real Estate Other:
Real Estate Other:
Commercial
Commercial
Farmland
Farmland
1-4 Family Residential
1-4 Family Residential
Multifamily Residential
Multifamily Residential
Construction and Land Development
Construction and Land Development
Commercial and Industrial
Commercial and Industrial
Consumer
Consumer
-
$
-
$
-
-
-
-
-
-
313,322
313,322
35,100
35,100
-
-
44,602,318
$
44,602,318
26,836,159
26,836,159
14,549,706
14,549,706
5,225,084
5,225,084
3,545,500
3,545,500
26,423,240
26,423,240
1,534,781
1,534,781
46,763,564
46,763,564
26,836,159
26,836,159
14,549,706
14,549,706
5,225,084
5,225,084
3,858,822
3,858,822
26,469,066
26,469,066
1,534,781
1,534,781
156,158
-
-
-
-
-
-
156,158
-
-
-
-
-
-
-
-
-
-
10,726
10,726
-
-
$
2,005,088
-
December 31, 2014
December 31, 2014
2,005,088
-
Substandard
Substandard
it
it
Impaired
Impaired
Total
Total
Pass
Pass
$
$
$
$
$
$
122,716,788
$
122,716,788
$
$
156,158
156,158
$
$
2,015,814
2,015,814
$
$
348,422
348,422
$
$
125,237,182
125,237,182
$
December 31, 2013
December 31, 2013
The risk category of loans by class of loans was as follows as
of December 31, 2013:
The
risk
category
of
loans
by
class
of
loans
was
as
The
risk
category
of
loans
by
class
of
loans
was
as
follows
as
of
December
31,
2013:
follows
as
of
December
31,
2013:
Special
Special
Mention
Mention
Real Estate Other:
Real Estate Other:
Commercial
Commercial
Farmland
Farmland
1-4 Family Residential
1-4 Family Residential
Multifamily Residential
Multifamily Residential
Construction and Land Development
Construction and Land Development
Commercial and Industrial
Commercial and Industrial
Consumer
Consumer
36,665,202
$
36,665,202
23,775,360
23,775,360
3,836,525
3,836,525
2,284,613
2,284,613
1,805,965
1,805,965
21,110,298
21,110,298
1,181,442
1,181,442
39,934,871
39,934,871
23,775,360
23,775,360
3,836,525
3,836,525
2,284,613
2,284,613
2,247,079
2,247,079
21,167,596
21,167,596
1,181,442
1,181,442
-
$
-
-
-
441,114
-
-
-
$
-
-
-
441,114
-
-
$
1,196,402
-
-
-
-
-
-
1,196,402
-
-
-
-
-
-
-
-
-
-
57,298
57,298
-
-
$
2,073,267
-
2,073,267
-
Substandard
Substandard
Impaired
Impaired
Total
Total
Pass
Pass
$
$
$
$
$
$
90,659,405
90,659,405
$
$
1,196,402
1,196,402
$
$
2,130,565
2,130,565
$
$
441,114
441,114
$
$
94,427,486
94,427,486
$
Past due and nonaccrual loans presented by loan class were
as follows as of December 31, 2014 and 2013:
Past
due
and
nonaccrual
loans
presented
by
loan
class
Past
due
and
nonaccrual
loans
presented
by
loan
class
were
as
follows
as
of
December
31,
2014
and
2013:
were
as
follows
as
of
December
31,
2014
and
2013:
30-59 Days
Past Due
Still Accruing
60-89 Days
Past Due
Over 90 Days
Past Due
December 31, 2014
Nonaccrual
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
December 31, 2013
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
$
-
-
-
-
23,947
-
-
$
-
180,000
-
-
-
-
-
$
-
-
-
-
-
-
-
$
-
-
-
313,322
35,100
-
$
23,947
$
180,000
$
-
$
348,422
$
49,544
-
-
-
196,196
-
-
$
-
-
-
-
250,000
-
-
$
-
-
-
-
-
-
-
$
-
-
-
441,114
-
-
$
245,740
$
250,000
$
-
$
441,114
14
14
Information
relating
to
individually
impaired
loans
presented
by
class
of
loans
was
as
follows
as
of
December
31,
2014
and
2013:
Impaired Loans
December 31, 2014
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
December 31, 2013
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
Unpaid
Principal
Balance
Recorded Without Specific With Specific
Investment
Allowance
Allowance
-
$
-
-
-
486,434
43,490
-
529,924
$
-
$
-
-
-
313,322
35,100
-
348,422
$
-
$
-
-
-
313,322
-
-
313,322
$
-
$
-
-
-
-
35,100
-
35,100
$
Related
Allowance
-
$
-
-
-
-
35,100
-
35,100
$
Average
Recorded
Investment Recognized
Interest
Income
-
$
-
-
-
359,000
30,000
-
389,000
$
-
$
-
-
-
-
-
-
$
-
-
$
-
-
-
574,169
-
-
-
$
-
-
-
441,114
-
-
-
$
-
-
-
441,114
-
-
-
$
-
-
-
-
-
-
-
$
-
-
-
-
-
-
$
155,000
-
-
-
486,000
-
$
-
-
-
-
-
-
-
$
574,169
$
441,114
$
441,114
$
-
$
-
$
641,000
$
-
The
following
table
presents
the
activity
in
the
allowance
for
loan
losses
for
the
year
2014
and
2013
NOTE C - LOANS - Continued
and
the
recorded
investment
in
loans
and
impairment
method
as
of
December
31,
2014
and
2013
by
portfolio
segment:
December 31, 2014
Construction
and Land
Development
Commercial
and
Industrial
Real Estate -
Other
Consumer
Total
Allowance for Loan Losses:
Beginning of Year
Provisions
Charge-offs
Recoveries
End of Year
Reserves:
Specific
General
Loans Evaluated for Impairment:
Individually
Collectively
December 31, 2013
Allowance for Loan Losses:
Beginning of Year
Provisions
Charge-offs
Recoveries
End of Year
Reserves:
Specific
General
Loans Evaluated for Impairment:
Individually
Collectively
$
1,094,629
72,857
-
-
$
34,659
14,017
-
-
$
275,196
207,390
(8,390)
-
$
12,897
20,136
-
-
$
1,417,381
314,400
(8,390)
-
$
1,167,486
$
48,676
$
474,196
$
33,033
$
1,723,391
$
-
1,167,486
$
-
48,676
$
35,100
439,096
$
-
33,033
$
35,100
1,688,291
$
1,167,486
$
48,676
$
474,196
$
33,033
$
1,723,391
-
$
93,374,513
$
313,322
3,545,500
$
35,100
26,433,966
$
-
1,534,781
$
348,422
124,888,760
$
93,374,513
$
3,858,822
$
26,469,066
$
1,534,781
$
125,237,182
$
1,025,687
68,942
-
-
$
(
84,186
49,527)
-
-
$
248,992
16,704
-
9,500
$
(
13,016
119)
-
-
$
1,371,881
36,000
-
9,500
$
1,094,629
$
34,659
$
275,196
$
12,897
$
1,417,381
-
$
1,094,937
$
-
34,659
-
$
275,273
$
-
12,502
-
$
1,417,371
$
1,094,937
$
34,659
$
275,273
$
12,502
$
1,417,371
$
-
69,831,369
$
441,114
1,805,965
$
-
21,167,596
$
-
1,181,442
$
441,114
93,986,372
$
69,831,369
$
2,247,079
$
21,167,596
$
1,181,442
$
94,427,486
and
Substandard
credit
documentation,
The Bank categorizes loans into risk categories based
on relevant information about the ability of borrowers to
The
Bank
categorizes
loans
into
risk
categories
based
service their debt such as current financial information,
on
relevant
information
about
the
ability
of
borrowers
historical payment experience, collateral adequacy, credit
financial
to
service
their
debt
such
as
current
documentation, and current economic trends, among other
information,
historical
payment
experience,
collateral
factors. The Bank analyzes loans individually by classifying
current
adequacy,
the loans as to credit risk. This analysis typically includes larger,
economic
trends,
among
other
factors.
The
Bank
non-homogeneous loans such as commercial real estate and
analyzes
loans
individually
by
classifying
the
loans
as
NOTE
C
-‐
LOANS
-‐
Continued
commercial and industrial loans. This analysis is performed
to
credit
risk.
This
analysis
typically
includes
larger,
on an ongoing basis as new information is obtained. The Bank
non-‐homogeneous
loans
such
as
commercial
real
uses the following definitions for risk ratings:
estate
and
commercial
and
industrial
loans.
This
-‐
Loans
classified
as
substandard
analysis
is
performed
on
an
ongoing
basis
as
new
are
inadequately
protected
by
the
current
net
worth
information
is
obtained.
The
Bank
uses
the
following
and
paying
capacity
of
the
obligor
or
of
the
collateral
definitions
for
risk
ratings:
pledged,
if
any.
Loans
so
classified
have
a
well-‐defined
the
that
weakness
or
weaknesses
Loans
classified
as
pass
include
loans
not
liquidation
of
the
debt.
They
are
characterized
by
the
meeting
the
risk
ratings
defined
below.
distinct
possibility
that
the
institution
will
sustain
result
some
loss
if
the
deficiencies
are
not
corrected.
-‐
Loans
classified
as
special
mention
have
a
potential
weakness
that
deserves
-‐
A
loan
is
considered
impaired,
when,
management's
close
attention.
If
left
uncorrected,
is
information
and
events,
based
on
current
these
in
probable
that
the
Bank
will
be
unable
to
collect
all
deterioration
of
the
repayment
prospects
for
the
loan
amounts
due
according
to
the
contractual
terms
of
the
or
of
the
institution's
credit
position
at
some
future
loan
agreement.
Additionally,
all
loans
classified
as
date.
troubled
debt
restructurings
are
considered
impaired.
Pass: Loans classified as pass include loans not meeting
the risk ratings defined below.
Pass
-‐
Special Mention: Loans classified as special mention
have a potential weakness that deserves management’s
Special
Mention
close attention. If left uncorrected, these potential
weaknesses may
the
Impaired
repayment prospects for the loan or of the institution’s
credit position at some future date.
Substandard: Loans classified as substandard are
inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged,
if any. Loans so classified have a well-defined weakness
or weaknesses that jeopardize the liquidation of the
debt. They are characterized by the distinct possibility
The
risk
category
of
loans
by
class
of
loans
was
as
that the institution will sustain some loss if the
follows
as
of
December
31,
2014:
Special
deficiencies are not corrected.
December 31, 2014
Mention
potential
weaknesses
may
in deterioration of
jeopardize
result
Substandard
Impaired
it
Total
Pass
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
$
44,602,318
26,836,159
14,549,706
5,225,084
3,545,500
26,423,240
1,534,781
$
156,158
-
-
-
-
-
-
$
2,005,088
-
-
-
10,726
-
-
$
-
-
-
313,322
35,100
-
$
46,763,564
26,836,159
14,549,706
5,225,084
3,858,822
26,469,066
1,534,781
$
122,716,788
$
156,158
$
2,015,814
$
348,422
$
125,237,182
31
The
risk
category
of
loans
by
class
of
loans
was
as
follows
as
of
December
31,
2013:
Special
December 31, 2013
Pass
Mention
Substandard
Impaired
Total
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
23,775,360
3,836,525
2,284,613
1,805,965
21,110,298
1,181,442
$
36,665,202
$
1,196,402
$
2,073,267
$
-
$
39,934,871
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23,775,360
3,836,525
2,284,613
2,247,079
21,167,596
1,181,442
$
90,659,405
$
1,196,402
$
2,130,565
$
441,114
$
94,427,486
Past
due
and
nonaccrual
loans
presented
by
loan
class
were
as
follows
as
of
December
31,
2014
and
2013:
Leasehold Improvements
Furniture, Fixtures, and Equipment
441,114
57,298
during
2014
and
2013.
NOTE
D
-‐
PREMISES
AND
EQUIPMENT
There
were
no
new
troubled
debt
restructurings
A
summary
of
premises
and
equipment
as
of
December
31
follows:
2014
2013
Less Accumulated Depreciation and Amortization
(1,529,460)
1,195,113
917,743
2,112,856
1,184,565
825,202
2,009,767
(1,311,163)
$
583,396
$
698,604
The
Bank
has
entered
into
two
leases
for
its
main
office
and
Porterville
office,
which
will
expire
in
January
2017
and
July
2018,
respectively.
The
Bank
leases
its
Porterville
Office
from
a
Director
of
the
Bank.
14
it
it
jeopardize
jeopardize
-‐
Loans
classified
as
substandard
are
inadequately
protected
by
the
current
net
worth
and
paying
capacity
of
the
obligor
or
of
the
collateral
pledged,
if
any.
Loans
so
classified
have
a
well-‐defined
-‐
Loans
classified
as
substandard
the
are
inadequately
protected
by
the
current
net
worth
liquidation
of
the
debt.
They
are
characterized
by
the
and
paying
capacity
of
the
obligor
or
of
the
collateral
distinct
possibility
that
the
institution
will
sustain
pledged,
if
any.
Loans
so
classified
have
a
well-‐defined
some
loss
if
the
deficiencies
are
not
corrected.
the
liquidation
of
the
debt.
They
are
characterized
by
the
-‐
A
loan
is
considered
impaired,
when,
distinct
possibility
that
the
institution
will
sustain
is
information
and
events,
some
loss
if
the
deficiencies
are
not
corrected.
probable
that
the
Bank
will
be
unable
to
collect
all
amounts
due
according
to
the
contractual
terms
of
the
-‐
A
loan
is
considered
impaired,
when,
loan
agreement.
Additionally,
all
loans
classified
as
is
information
and
events,
troubled
debt
restructurings
are
considered
impaired.
probable
that
the
Bank
will
be
unable
to
collect
all
amounts
due
according
to
the
contractual
terms
of
the
The
risk
category
of
loans
by
class
of
loans
was
as
loan
agreement.
Additionally,
all
loans
classified
as
troubled
debt
restructurings
are
considered
impaired.
NOTE
C
-‐
LOANS
-‐
Continued
Substandard
NOTE
C
-‐
LOANS
-‐
Continued
Substandard
weakness
or
weaknesses
that
Impaired
weakness
or
weaknesses
that
based
on
current
Impaired
based
on
current
follows
as
of
December
31,
2014:
Special
December 31, 2014
Pass
Mention
Substandard
$
44,602,318
$
156,158
$
2,005,088
follows
as
of
December
31,
2014:
Multifamily Residential
5,225,084
Special
-
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Construction and Land Development
December 31, 2014
Real Estate Other:
Commercial and Industrial
Commercial
Consumer
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
26,836,159
14,549,706
Pass
3,545,500
26,423,240
$
44,602,318
1,534,781
26,836,159
122,716,788
14,549,706
$
5,225,084
3,545,500
26,423,240
1,534,781
Mention
Substandard
$
156,158
$
2,005,088
10,726
$
156,158
$
2,015,814
10,726
$
122,716,788
$
156,158
$
2,015,814
$
36,665,202
$
1,196,402
$
2,073,267
follows
as
of
December
31,
2013:
Multifamily Residential
2,284,613
Special
-
Construction and Land Development
December 31, 2013
Mention
Substandard
-
$
36,665,202
1,181,442
$
1,196,402
-
$
2,073,267
-
$
1,196,402
$
2,130,565
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Real Estate Other:
Commercial and Industrial
Commercial
Consumer
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
23,775,360
3,836,525
Pass
1,805,965
21,110,298
$
23,775,360
90,659,405
3,836,525
2,284,613
1,805,965
21,110,298
1,181,442
$
90,659,405
$
1,196,402
$
2,130,565
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
57,298
57,298
46,763,564
The
risk
category
of
loans
by
class
of
loans
was
as
26,836,159
14,549,706
5,225,084
Total
3,858,822
26,469,066
46,763,564
1,534,781
26,836,159
125,237,182
14,549,706
5,225,084
3,858,822
26,469,066
1,534,781
39,934,871
The
risk
category
of
loans
by
class
of
loans
was
as
23,775,360
3,836,525
2,284,613
Total
2,247,079
21,167,596
39,934,871
1,181,442
23,775,360
94,427,486
3,836,525
2,284,613
2,247,079
21,167,596
1,181,442
125,237,182
The
risk
category
of
loans
by
class
of
loans
was
as
follows
as
of
December
31,
2013:
Special
December 31, 2013
Pass
Mention
Substandard
Impaired
Total
-
$
-
-
-
Impaired
313,322
35,100
$
-
-
-
348,422
-
-
313,322
35,100
-
-
$
-
-
-
Impaired
441,114
-
$
-
-
-
441,114
-
-
441,114
-
-
94,427,486
Past
due
and
nonaccrual
loans
presented
by
loan
class
were
as
follows
as
of
December
31,
2014
and
2013:
Impaired
348,422
441,114
Total
$
$
$
$
$
$
$
$
$
$
$
$
December 31, 2014
Past Due
Past Due
Nonaccrual
Real Estate Other:
Commercial
$
-
$
-
$
-
$
-
Still Accruing
60-89 Days
Over 90 Days
30-59 Days
Past Due
30-59 Days
Past Due
-
-
-
23,947
$
-
-
$
23,947
-
-
-
23,947
49,544
-
-
23,947
-
-
196,196
49,544
-
$
$
$
December 31, 2014
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Real Estate Other:
Commercial and Industrial
Commercial
Consumer
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Real Estate Other:
Commercial and Industrial
Commercial
Consumer
Farmland
December 31, 2013
1-4 Family Residential
Multifamily Residential
December 31, 2013
Construction and Land Development
Real Estate Other:
Commercial and Industrial
Commercial
Consumer
Farmland
$
-
Still Accruing
180,000
60-89 Days
-
Past Due
-
-
$
-
-
-
180,000
180,000
-
-
-
-
$
-
-
-
180,000
-
-
250,000
$
-
-
-
250,000
-
-
-
250,000
-
$
$
-
-
Over 90 Days
-
Past Due
-
-
$
-
-
-
$
-
-
-
-
-
$
-
-
-
-
$
-
-
-
-
$
-
-
-
$
-
-
-
-
-
-
$
-
-
-
Nonaccrual
313,322
35,100
$
-
-
-
348,422
-
-
313,322
35,100
-
$
-
-
-
348,422
-
441,114
-
$
-
-
-
441,114
-
-
441,114
-
-
$
NOTE C - LOANS - Continued
$
$
Construction and Land Development
1-4 Family Residential
Multifamily Residential
Commercial and Industrial
Consumer
245,740
-
-
-
Information relating to individually impaired loans presented
196,196
-
by class of loans was as follows as of December 31, 2014
441,114
245,740
Information
relating
to
individually
impaired
loans
and 2013:
presented
by
class
of
loans
was
as
follows
as
of
December
31,
2014
and
2013:
$
-
Impaired Loans
250,000
$
$
$
December 31, 2014
Information
relating
to
individually
impaired
loans
presented
by
class
of
loans
was
as
follows
as
of
December
31,
2014
and
2013:
Allowance
Allowance
Recorded Without Specific With Specific
Investment
Related
Allowance
December 31, 2013
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
December 31, 2014
Commercial and Industrial
Real Estate Other:
Consumer
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Real Estate Other:
Construction and Land Development
Commercial
Commercial and Industrial
Farmland
Consumer
1-4 Family Residential
Multifamily Residential
Construction and Land Development
December 31, 2013
Commercial and Industrial
Consumer
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
Unpaid
Principal
Balance
-
$
-
-
Unpaid
-
Principal
486,434
Balance
43,490
-
$
-
529,924
$
-
-
-
486,434
-
$
43,490
-
-
-
-
529,924
574,169
-
-
$
$
-
$
574,169
-
-
-
574,169
-
-
Impaired Loans
-
$
-
$
-
-
-
-
-
-
Recorded Without Specific With Specific
313,322
-
Allowance
Investment
35,100
35,100
-
-
$
-
$
-
35,100
348,422
$
$
-
-
-
-
-
-
-
313,322
-
-
$
$
35,100
35,100
-
-
-
-
-
-
-
-
35,100
348,422
441,114
-
-
-
-
-
-
$
-
-
-
313,322
Allowance
-
-
$
-
313,322
$
-
-
-
313,322
-
$
-
-
-
-
-
313,322
441,114
-
-
$
$
$
$
-
$
441,114
-
-
-
441,114
-
-
$
-
$
441,114
-
-
-
441,114
-
-
$
-
$
-
-
-
-
-
-
-
-
$
-
-
-
Related
-
Allowance
35,100
-
$
-
35,100
$
-
-
-
-
-
$
35,100
-
-
-
-
35,100
-
-
-
$
$
-
$
-
-
-
-
-
-
-
Average
Recorded
Investment Recognized
Interest
Income
Interest
Income
-
$
-
$
-
-
-
-
Average
-
-
Recorded
359,000
-
Investment Recognized
30,000
-
-
-
$
-
$
-
-
389,000
$
$
-
-
-
-
-
-
-
359,000
-
155,000
$
-
30,000
-
-
-
-
-
-
-
-
$
-
389,000
486,000
-
-
-
$
$
-
$
$
155,000
641,000
-
-
-
486,000
$
-
$
-
-
-
-
-
-
-
-
$
$
$
$
641,000
441,114
441,114
574,169
$
-
$
-
There were no new troubled debt restructurings during
2014 and 2013.
There
were
no
new
troubled
debt
restructurings
during
2014
and
2013.
NOTE
D
-‐
PREMISES
AND
EQUIPMENT
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
There
were
no
new
troubled
debt
restructurings
during
2014
and
2013.
NOTE
D
-‐
PREMISES
AND
EQUIPMENT
A
summary
of
premises
and
equipment
as
of
NOTE D - PREMISES AND EQUIPMENT
December
31
follows:
2014
2013
$
-
A summary of premises and equipment as of December
Leasehold Improvements
1,184,565
31 follows:
Furniture, Fixtures, and Equipment
825,202
A
summary
of
premises
and
equipment
as
of
2,009,767
December
31
follows:
2013
Less Accumulated Depreciation and Amortization
(1,311,163)
1,195,113
917,743
2,112,856
2014
(1,529,460)
Past
due
and
nonaccrual
loans
presented
by
loan
class
were
as
follows
as
of
December
31,
2014
and
2013:
Leasehold Improvements
Furniture, Fixtures, and Equipment
Less Accumulated Depreciation and Amortization
$
1,195,113
583,396
917,743
2,112,856
(1,529,460)
$
1,184,565
698,604
825,202
2,009,767
(1,311,163)
$
583,396
$
698,604
The
Bank
has
entered
into
two
leases
for
its
main
office
and
Porterville
office,
which
will
expire
in
The Bank has entered into two leases for its main office and
January
2017
and
July
2018,
respectively.
The
Bank
Porterville office, which will expire in January 2017 and July
leases
its
Porterville
Office
from
a
Director
of
the
Bank.
2018, respectively. The Bank leases its Porterville Office
The
Bank
has
entered
into
two
leases
for
its
main
from a Director of the Bank.
office
and
Porterville
office,
which
will
expire
in
January
2017
and
July
2018,
respectively.
The
Bank
These leases include provisions for periodic rent increases
leases
its
Porterville
Office
from
a
Director
of
the
Bank.
as well as payment by the lessee of certain operating
expenses. These leases also include provisions for options
to extend the lease. The rental expense relating to these
leases and other short term rentals was approximately
$316,000 and $292,000 for the years ended December 31,
2014 and 2013, respectively.
14
14
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
adequate
and
other
the
Advances
and
other
adequate
borrow
up
to
approximately
$47.2
million
subject
to
providing
the
Advances
compliance
with
borrow
up
to
approximately
$47.2
million
subject
to
Agreement
providing
established
by
the
FHLB.
The
Bank
has
pledged
$17.4
compliance
with
million
of
investment
securities
for
this
line.
As
of
Agreement
December
31,
2014
the
Bank
had
no
amounts
established
by
the
FHLB.
The
Bank
has
pledged
$17.4
outstanding
under
this
arrangement.
The
Bank
has
million
of
investment
securities
for
this
line.
As
of
$16
million
of
letters
of
credit
that
is
secured
by
the
December
31,
2014
the
Bank
had
no
amounts
FHLB
line.
The
letters
of
credit
mature
December
30,
outstanding
under
this
arrangement.
The
Bank
has
2015.
NOTE
G
-‐
OTHER
EXPENSES
$16
million
of
letters
of
credit
that
is
secured
by
the
FHLB
line.
The
letters
of
credit
mature
December
30,
2015.
NOTE
G
-‐
OTHER
EXPENSES
Other
expenses
as
of
December
31
are
comprised
of
the
following:
Professional Fees
Data Processing
Other
expenses
as
of
December
31
are
comprised
of
Office Expenses
the
following:
Marketing and Business Promotion
Insurance
Regulatory Assessments
Professional Fees
OREO Expenses
Data Processing
Other Expenses
Office Expenses
Marketing and Business Promotion
Insurance
Regulatory Assessments
OREO Expenses
NOTE
H
-‐
INCOME
TAXES
Other Expenses
collateral
and
continued
and
Security
eligibility
collateral
requirements
continued
and
and
Security
eligibility
requirements
2014
2013
$
524,181
$
340,662
279,750
177,370
174,338
2014
43,416
126,283
$
524,181
0
279,750
192,726
177,370
174,338
43,416
126,283
0
192,726
269,848
166,426
162,018
2013
32,838
101,960
$
340,662
72
269,848
103,070
166,426
162,018
32,838
101,960
72
103,070
$
1,518,064
$
1,176,894
$
1,518,064
$
1,176,894
5,054
345,000
1,000
(2,554,000)
$
350,054
$
(2,553,000)
2014
2013
$
-
$
-
5,054
5,054
345,000
1,000
1,000
(2,554,000)
$
350,054
$
(2,553,000)
Deferred
The
provision
(benefit)
for
income
taxes
for
the
years
ended
December
31,
consists
of
the
following:
Current:
Federal
State
The
provision
(benefit)
for
income
taxes
for
the
years
NOTE
H
-‐
INCOME
TAXES
ended
December
31,
consists
of
the
following:
Current:
Federal
State
$
$
1,000
5,054
2014
2013
-
-
Deferred
Deferred
taxes
are
a
result
of
differences
between
income
tax
accounting
and
generally
accepted
accounting
principles
with
respect
to
income
and
expense
recognition.
The
following
is
a
summary
of
the
components
of
the
net
deferred
tax
asset
accounts
recognized
in
the
accompanying
statement
of
financial
Deferred
taxes
are
a
result
of
differences
between
condition
at
December
31:
income
tax
accounting
and
generally
accepted
accounting
principles
with
respect
to
income
and
expense
recognition.
The
following
is
a
summary
of
the
components
of
the
net
deferred
tax
asset
accounts
recognized
in
the
accompanying
statement
of
financial
condition
at
December
31:
NOTE
D
-‐
PREMISES
AND
EQUIPMENT
-‐
Continued
NOTE
D
-‐
PREMISES
AND
EQUIPMENT
-‐
Continued
leases
also
leases
also
These
leases
include
provisions
for
periodic
rent
increases
as
well
as
payment
by
the
lessee
of
certain
operating
expenses.
These
include
These
leases
include
provisions
for
periodic
rent
provisions
for
options
to
extend
the
lease.
The
rental
increases
as
well
as
payment
by
the
lessee
of
certain
expense
relating
to
these
leases
and
other
short
term
include
operating
expenses.
These
rentals
was
approximately
$316,000
and
$292,000
for
provisions
for
options
to
extend
the
lease.
The
rental
the
years
ended
December
31,
2014
and
2013,
expense
relating
to
these
leases
and
other
short
term
respectively.
At December 31, 2014, the future lease rental payable under
rentals
was
approximately
$316,000
and
$292,000
for
noncancellable operating lease commitments for the Bank’s
At
December
31,
2014,
the
future
lease
rental
payable
the
years
ended
December
31,
2014
and
2013,
main office and Porterville office was as follows:
under
noncancellable
operating
lease
commitments
respectively.
for
the
Bank's
main
office
and
Porterville
office
was
as
follows:
At
December
31,
2014,
the
future
lease
rental
payable
under
noncancellable
operating
lease
commitments
214,637
for
the
Bank's
main
office
and
Porterville
office
was
as
220,681
follows:
18,438
-
214,637
453,756
220,681
18,438
-
The minimum rental payments shown above are given for
the existing lease obligation and are not a forecast of future
rental expense.
135,254
140,664
146,291
87,295
135,254
140,664
146,291
87,295
2015
2016
2017
2018
2015
2016
2017
2018
Related Party
Related Party
509,504
453,756
Others
509,504
$
$
$
$
Others
$
$
$
$
The
minimum
rental
payments
shown
above
are
given
for
the
existing
lease
obligation
and
are
not
a
forecast
of
future
rental
expense.
NOTE
E
-‐
DEPOSITS
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
The
minimum
rental
payments
shown
above
are
given
for
the
existing
lease
obligation
and
are
not
a
forecast
NOTE E - DEPOSITS
At
December
31,
2014,
the
scheduled
maturities
of
of
future
rental
expense.
NOTE
E
-‐
DEPOSITS
time
deposits
are
as
follows:
2015
2016
2017
2018
2019
At
December
31,
2014,
the
scheduled
maturities
of
time
deposits
are
as
follows:
36,752,546
1,593,298
585,491
708,606
1,279,965
At December 31, 2014, the scheduled maturities of time
deposits are as follows:
$
NOTE
F
-‐
OTHER
BORROWINGS
2015
2016
2017
2018
2019
$
40,919,906
36,752,546
$
1,593,298
585,491
708,606
1,279,965
$
40,919,906
The
Bank
may
borrow
up
to
$9,400,000
overnight
on
an
unsecured
basis
from
its
correspondent
banks.
As
of
December
31,
2014,
the
Bank
has
no
amounts
outstanding
under
these
arrangements.
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
NOTE
F
-‐
OTHER
BORROWINGS
15
NOTE F - OTHER BORROWINGS
In
addition,
the
Bank
is
also
a
member
of
the
Federal
Home
Loan
Bank
(“FHLB”)
and
has
arranged
a
secured
The
Bank
may
borrow
up
to
$9,400,000
overnight
on
borrowing
line
with
that
institution,
secured
by
the
The Bank may borrow up to $9,400,000 overnight on
an
unsecured
basis
from
its
correspondent
banks.
As
assets
of
the
Bank.
Under
this
line,
the
Bank
may
of
December
31,
2014,
the
Bank
has
no
amounts
an unsecured basis from its correspondent banks. As of
outstanding
under
these
arrangements.
December 31, 2014, the Bank has no amounts outstanding
under these arrangements.
In
addition,
the
Bank
is
also
a
member
of
the
Federal
Home
Loan
Bank
(“FHLB”)
and
has
arranged
a
secured
borrowing
line
with
that
institution,
secured
by
the
assets
of
the
Bank.
Under
this
line,
the
Bank
may
In addition, the Bank is also a member of the Federal Home
Loan Bank (“FHLB”) and has arranged a secured borrowing
line with that institution, secured by the assets of the Bank.
Under this line, the Bank may borrow up to approximately
$47.2 million subject to providing adequate collateral and
continued compliance with the Advances and Security
Agreement and other eligibility requirements established by
the FHLB. The Bank has pledged $17.4 million of investment
securities for this line. As of December 31, 2014 the Bank
had no amounts outstanding under this arrangement. The
Bank has $16 million of letters of credit that is secured by the
FHLB line. The letters of credit mature December 30, 2015.
15
32
In
the
ordinary
course
of
business,
the
Bank
has
granted
loans
to
certain
directors
and
the
companies
with
which
they
are
associated.
The
total
outstanding
principal
and
commitment
of
these
loans
at
December
31,
2014
and
2013
was
approximately
$4,707,000
and
$4,036,000,
respectively.
Also,
in
the
ordinary
course
of
business,
certain
executive
officers,
directors
and
companies
with
which
they
are
associated
have
deposits
with
the
Bank.
The
balances
of
these
deposits
at
December
31,
2014
and
2013
$25,547,000
and
$16,140,000,
respectively.
NOTE
J
-‐
COMMITMENTS
approximately
amounted
to
In
the
ordinary
course
of
business,
the
Bank
enters
into
financial
commitments
to
meet
the
financing
needs
of
its
customers.
Those
instruments
involve
to
varying
degrees,
elements
of
credit
and
interest
rate
risk
not
recognized
in
the
Bank's
financial
statements.
letters
of
credit
The
Bank's
exposure
to
loan
loss
in
the
event
of
nonperformance
on
commitments
to
extend
credit
and
standby
contractual
amount
of
those
instruments.
The
Bank
uses
the
same
credit
policies
in
making
commitments
it
does
as
statements.
NOTE
J
-‐
COMMITMENTS
-‐
Continued
is
represented
by
the
loans
reflected
financial
in
the
for
As
of
December
31,
2014
and
2013,
the
Bank
had
the
following
outstanding
financial
commitments
whose
contractual
amount
represents
credit
risk:
2014
2013
Commitments to Extend Credit
$
17,072,000
$
13,274,000
Commitments
to
extend
credit
are
agreements
to
lend
to
a
customer
as
long
as
there
is
no
violation
of
any
condition
established
in
the
contract.
Since
many
of
the
commitments
are
expected
to
expire
without
being
drawn
upon,
the
total
amounts
do
not
necessarily
represent
future
cash
requirements.
evaluates
each
client's
credit
worthiness
on
a
case-‐by-‐
case
basis.
The
amount
of
collateral
obtained
if
deemed
necessary
by
management's
credit
evaluation
of
the
customer.
The
majority
of
the
Bank's
commitments
to
extend
credit
and
standby
letters
of
credit
are
secured
by
real
estate
or
cash,
respectively.
is
based
on
The
Bank
the
Bank
NOTE
D
-‐
PREMISES
AND
EQUIPMENT
-‐
Continued
Deferred Tax Assets:
Pre-Opening Expenses
Allowance for Loan Losses Due to Tax Limitations
Depreciation Differences
Operating Loss Carryforwards
Unrealized Loss on Available-for-Sale Securities
Stock-Based Compensation
Other Assets and Liabilities
Deferred Tax Liabilities:
Other Assets and Liabilities
2014
2013
$
367,000
$
411,000
694,000
192,000
481,000
8,000
352,000
233,000
568,000
147,000
975,000
47,000
349,000
223,000
2,327,000
2,720,000
(
110,000)
(
110,000)
(
119,000)
(
119,000)
Net Deferred Tax Assets (Liabilities)
$
2,217,000
$
2,601,000
leases
also
leases
also
NOTE
D
-‐
PREMISES
AND
EQUIPMENT
-‐
Continued
These
leases
include
provisions
for
periodic
rent
increases
as
well
as
payment
by
the
lessee
of
certain
include
These
leases
include
provisions
for
periodic
rent
provisions
for
options
to
extend
the
lease.
The
rental
increases
as
well
as
payment
by
the
lessee
of
certain
expense
relating
to
these
leases
and
other
short
term
include
rentals
was
approximately
$316,000
and
$292,000
for
provisions
for
options
to
extend
the
lease.
The
rental
the
years
ended
December
31,
2014
and
2013,
expense
relating
to
these
leases
and
other
short
term
rentals
was
approximately
$316,000
and
$292,000
for
the
years
ended
December
31,
2014
and
2013,
At
December
31,
2014,
the
future
lease
rental
payable
under
noncancellable
operating
lease
commitments
for
the
Bank's
main
office
and
Porterville
office
was
as
At
December
31,
2014,
the
future
lease
rental
payable
under
noncancellable
operating
lease
commitments
for
the
Bank's
main
office
and
Porterville
office
was
as
operating
expenses.
These
operating
expenses.
These
respectively.
respectively.
follows:
follows:
2015
2016
2017
2015
2018
2016
2017
2018
Related Party
$
135,254
Related Party
140,664
$
$
146,291
135,254
87,295
140,664
509,504
146,291
87,295
214,637
220,681
18,438
214,637
-
220,681
453,756
18,438
-
Others
Others
$
$
$
$
509,504
$
453,756
The
minimum
rental
payments
shown
above
are
given
for
the
existing
lease
obligation
and
are
not
a
forecast
of
future
rental
expense.
NOTE
E
-‐
DEPOSITS
The
minimum
rental
payments
shown
above
are
given
for
the
existing
lease
obligation
and
are
not
a
forecast
At
December
31,
2014,
the
scheduled
maturities
of
At
December
31,
2014,
the
scheduled
maturities
of
36,752,546
1,593,298
585,491
36,752,546
708,606
1,593,298
1,279,965
585,491
40,919,906
708,606
1,279,965
of
future
rental
expense.
NOTE
E
-‐
DEPOSITS
time
deposits
are
as
follows:
time
deposits
are
as
follows:
2015
2016
2017
2015
2018
2016
2019
2017
2018
2019
$
$
$
NOTE
F
-‐
OTHER
BORROWINGS
$
40,919,906
NOTE
F
-‐
OTHER
BORROWINGS
outstanding
under
these
arrangements.
The
Bank
may
borrow
up
to
$9,400,000
overnight
on
an
unsecured
basis
from
its
correspondent
banks.
As
of
December
31,
2014,
the
Bank
has
no
amounts
The
Bank
may
borrow
up
to
$9,400,000
overnight
on
an
unsecured
basis
from
its
correspondent
banks.
As
of
December
31,
2014,
the
Bank
has
no
amounts
In
addition,
the
Bank
is
also
a
member
of
the
Federal
Home
Loan
Bank
(“FHLB”)
and
has
arranged
a
secured
borrowing
line
with
that
institution,
secured
by
the
In
addition,
the
Bank
is
also
a
member
of
the
Federal
assets
of
the
Bank.
Under
this
line,
the
Bank
may
Home
Loan
Bank
(“FHLB”)
and
has
arranged
a
secured
borrowing
line
with
that
institution,
secured
by
the
assets
of
the
Bank.
Under
this
line,
the
Bank
may
outstanding
under
these
arrangements.
and
and
adequate
and
other
and
other
adequate
collateral
the
Advances
eligibility
collateral
the
Advances
eligibility
borrow
up
to
approximately
$47.2
million
subject
to
continued
providing
compliance
with
and
Security
borrow
up
to
approximately
$47.2
million
subject
to
Agreement
requirements
continued
providing
established
by
the
FHLB.
The
Bank
has
pledged
$17.4
NOTES TO FINANCIAL STATEMENTS
Security
and
compliance
with
million
of
investment
securities
for
this
line.
As
of
DECEMBER 31, 2014 AND 2013
requirements
Agreement
December
31,
2014
the
Bank
had
no
amounts
established
by
the
FHLB.
The
Bank
has
pledged
$17.4
outstanding
under
this
arrangement.
The
Bank
has
million
of
investment
securities
for
this
line.
As
of
$16
million
of
letters
of
credit
that
is
secured
by
the
December
31,
2014
the
Bank
had
no
amounts
FHLB
line.
The
letters
of
credit
mature
December
30,
outstanding
under
this
arrangement.
The
Bank
has
2015.
NOTE
G
-‐
OTHER
EXPENSES
NOTE G - OTHER EXPENSES
$16
million
of
letters
of
credit
that
is
secured
by
the
FHLB
line.
The
letters
of
credit
mature
December
30,
Other expenses as of December 31 are comprised of the
2015.
NOTE
G
-‐
OTHER
EXPENSES
following:
Other
expenses
as
of
December
31
are
comprised
of
the
following:
Bank
has
generated
taxable
income
in
2013
and
2012.
At
December
31,
2013,
management
believed
it
was
more
likely
than
not
that
the
deferred
tax
assets
would
be
realized
in
the
future
based
on
its
improving
profitability,
and
reversed
the
valuation
allowance.
As
of
December
31,
2014,
the
Bank
has
net
operating
loss
carryforwards
of
approximately
$1,169,000
for
federal
the valuation allowance. As of December 31, 2014, the Bank
for
California
income
purposes
and
$1,166,000
has net operating loss carryforwards of approximately
franchise
tax
purposes.
Federal
and
California
net
$1,169,000 for federal income purposes and $1,166,000 for
operating
loss
carryforwards,
to
the
extent
not
used
California franchise tax purposes. Federal and California
will
expire
in
2030.
NOTE
H
–
INCOME
TAXES
-‐
Continued
net operating loss carryforwards, to the extent not used will
expire in 2030.
2013
2014
$
$
Professional Fees
340,662
Other
expenses
as
of
December
31
are
comprised
of
269,848
Data Processing
the
following:
2013
166,426
Office Expenses
162,018
Marketing and Business Promotion
340,662
Professional Fees
32,838
Insurance
269,848
Data Processing
101,960
Regulatory Assessments
166,426
Office Expenses
72
OREO Expenses
162,018
Marketing and Business Promotion
103,070
Other Expenses
Insurance
32,838
101,960
Regulatory Assessments
1,176,894
72
OREO Expenses
103,070
Other Expenses
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
NOTE
H
-‐
INCOME
TAXES
524,181
279,750
2014
177,370
174,338
524,181
43,416
279,750
126,283
177,370
0
174,338
192,726
43,416
126,283
1,518,064
0
192,726
1,176,894
1,518,064
$
$
$
$
$
$
NOTE H - INCOME TAXES
NOTE
H
-‐
INCOME
TAXES
The
provision
(benefit)
for
income
taxes
for
the
years
The provision (benefit) for income taxes for the years ended
ended
December
31,
consists
of
the
following:
Current:
December 31, consists of the following:
-
$
Federal
The
provision
(benefit)
for
income
taxes
for
the
years
1,000
State
1,000
2013
ended
December
31,
consists
of
the
following:
Deferred
(2,554,000)
Current:
Federal
State
-
$
5,054
5,054
345,000
2014
2014
2013
$
-
350,054
$
5,054
5,054
345,000
$
-
(2,553,000)
$
1,000
1,000
(2,554,000)
Deferred
$
350,054
$
(2,553,000)
Deferred
taxes
are
a
result
of
differences
between
Deferred taxes are a result of differences between income tax
tax
accounting
and
generally
accepted
income
accounting and generally accepted accounting principles with
accounting
principles
with
respect
to
income
and
Deferred
taxes
are
a
result
of
differences
between
respect to income and expense recognition. The following is
expense
recognition.
The
following
is
a
summary
of
tax
accounting
and
generally
accepted
income
the
components
of
the
net
deferred
tax
asset
accounts
a summary of the components of the net deferred tax asset
accounting
principles
with
respect
to
income
and
recognized
in
the
accompanying
statement
of
financial
accounts recognized in the accompanying statement of
expense
recognition.
The
following
is
a
summary
of
condition
at
December
31:
financial condition at December 31:
the
components
of
the
net
deferred
tax
asset
accounts
recognized
in
the
accompanying
statement
of
financial
Deferred Tax Assets:
condition
at
December
31:
Pre-Opening Expenses
Allowance for Loan Losses Due to Tax Limitations
Depreciation Differences
Operating Loss Carryforwards
Unrealized Loss on Available-for-Sale Securities
Stock-Based Compensation
Other Assets and Liabilities
$
$
2014
2013
411,000
568,000
147,000
975,000
47,000
349,000
223,000
2,720,000
367,000
694,000
192,000
481,000
8,000
352,000
233,000
2,327,000
15
Deferred Tax Liabilities:
Other Assets and Liabilities
(
(
110,000)
110,000)
(
(
119,000)
119,000)
15
Net Deferred Tax Assets (Liabilities)
$
2,217,000
$
2,601,000
Bank has generated taxable income in 2013 and 2012. At
December 31, 2013, management believed it was more likely
than not that the deferred tax assets would be realized in
Bank
has
generated
taxable
income
in
2013
and
2012.
the future based on its improving profitability, and reversed
At
December
31,
2013,
management
believed
it
was
more
likely
than
not
that
the
deferred
tax
assets
would
be
realized
in
the
future
based
on
its
improving
profitability,
and
reversed
the
valuation
allowance.
As
of
December
31,
2014,
the
Bank
has
net
operating
loss
carryforwards
of
approximately
$1,169,000
for
federal
income
purposes
and
$1,166,000
for
California
franchise
tax
purposes.
Federal
and
California
net
operating
loss
carryforwards,
to
the
extent
not
used
will
expire
in
2030.
NOTE
H
–
INCOME
TAXES
-‐
Continued
33
The
Bank
is
subject
to
federal
income
tax
and
franchise
tax
of
the
state
of
California.
Income
tax
returns
for
the
periods
ended
after
December
31,
2010
are
open
to
audit
by
the
federal
authorities
and
income
tax
returns
for
the
years
ended
after
December
31,
2009
are
open
to
audit
by
state
authorities.
The
Bank
does
not
expect
the
total
amount
of
unrecognized
tax
benefits
to
significantly
increase
or
decrease
within
the
next
twelve
months.
A
comparison
of
the
federal
statutory
income
tax
rates
to
the
Company's
effective
income
tax
rates
follows:
2014
2013
Amount
Rate
Amount
Rate
Statutory Federal Tax
State Tax, Net of Federal Benefit
Reduction in Valuation Allowance
Stock-based Compensation
Other Items, Net
$
254,000
59,000
-
18,000
19,054
34.1%
7.9%
-
2.4%
2.6%
$
218,000
46,000
8,000
4,000
34.0%
7.2%
1.2%
0.6%
(2,829,000)
(
441.7%)
Actual Tax Expense (Benefit)
$
350,054
47.0%
$
(2,553,000)
(
398.7%)
NOTE
I
-‐
RELATED
PARTY
TRANSACTIONS
The Bank is subject to federal income tax and franchise tax
The
Bank
is
subject
to
federal
income
tax
and
of the state of California. Income tax returns for the periods
franchise
tax
of
the
state
of
California.
Income
tax
ended after December 31, 2010 are open to audit by the
returns
for
the
periods
ended
after
December
31,
2010
federal authorities and income tax returns for the years
are
open
to
audit
by
the
federal
authorities
and
ended after December 31, 2009 are open to audit by state
income
tax
returns
for
the
years
ended
after
December
authorities. The Bank does not expect the total amount
31,
2009
are
open
to
audit
by
state
authorities.
The
of unrecognized tax benefits to significantly increase or
total
amount
of
Bank
does
not
expect
decrease within the next twelve months.
unrecognized
tax
benefits
to
significantly
increase
or
decrease
within
the
next
twelve
months.
A comparison of the federal statutory income tax rates to
the Company’s effective income tax rates follows:
A
comparison
of
the
federal
statutory
income
tax
rates
to
the
Company's
effective
income
tax
rates
follows:
the
2014
2013
Amount
Rate
Amount
Rate
Statutory Federal Tax
State Tax, Net of Federal Benefit
Reduction in Valuation Allowance
Stock-based Compensation
Other Items, Net
$
254,000
59,000
-
18,000
19,054
34.1%
7.9%
-
2.4%
2.6%
$
218,000
46,000
(2,829,000)
8,000
4,000
(
34.0%
7.2%
441.7%)
1.2%
0.6%
Actual Tax Expense (Benefit)
$
350,054
47.0%
$
(2,553,000)
(
398.7%)
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
NOTE
I
-‐
RELATED
PARTY
TRANSACTIONS
NOTE I - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted
loans to certain directors and the companies with which
they are associated. The total outstanding principal and
commitment of these loans at December 31, 2014 and 2013
was approximately $4,707,000 and $4,036,000, respectively.
16
Also, in the ordinary course of business, certain executive
officers, directors and companies with which they are
In
the
ordinary
course
of
business,
the
Bank
has
associated have deposits with the Bank. The balances of
granted
loans
to
certain
directors
and
the
companies
these deposits at December 31, 2014 and 2013 amounted to
with
which
they
are
associated.
The
total
outstanding
approximately $25,547,000 and $16,140,000, respectively.
principal
and
commitment
of
these
loans
at
December
31,
2014
and
2013
was
approximately
$4,707,000
and
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
$4,036,000,
respectively.
Also,
in
the
ordinary
course
of
business,
certain
NOTE J - COMMITMENTS
executive
officers,
directors
and
companies
with
which
they
are
associated
have
deposits
with
the
In the ordinary course of business, the Bank enters into
Bank.
The
balances
of
these
deposits
at
December
31,
financial commitments to meet the financing needs of its
approximately
amounted
and
2013
2014
customers. Those instruments involve to varying degrees,
$25,547,000
and
$16,140,000,
respectively.
NOTE
J
-‐
COMMITMENTS
elements of credit and interest rate risk not recognized in
the Bank’s financial statements.
to
In
the
ordinary
course
of
business,
the
Bank
enters
into
financial
commitments
to
meet
the
financing
needs
of
its
customers.
Those
instruments
involve
to
varying
degrees,
elements
of
credit
and
interest
rate
risk
not
recognized
in
the
Bank's
financial
statements.
The
Bank's
exposure
to
loan
loss
in
the
event
of
nonperformance
on
commitments
to
extend
credit
and
standby
is
represented
by
the
contractual
amount
of
those
instruments.
The
Bank
uses
the
same
credit
policies
in
making
commitments
financial
loans
reflected
as
letters
of
credit
it
does
in
the
for
statements.
NOTE
J
-‐
COMMITMENTS
-‐
Continued
As
of
December
31,
2014
and
2013,
the
Bank
had
the
following
outstanding
financial
commitments
whose
contractual
amount
represents
credit
risk:
2014
2013
Commitments to Extend Credit
$
17,072,000
$
13,274,000
Commitments
to
extend
credit
are
agreements
to
lend
to
a
customer
as
long
as
there
is
no
violation
of
any
condition
established
in
the
contract.
Since
many
of
the
commitments
are
expected
to
expire
without
being
drawn
upon,
the
total
amounts
do
not
necessarily
represent
future
cash
requirements.
The
Bank
evaluates
each
client's
credit
worthiness
on
a
case-‐by-‐
case
basis.
The
amount
of
collateral
obtained
if
deemed
necessary
by
the
Bank
is
based
on
management's
credit
evaluation
of
the
customer.
The
majority
of
the
Bank's
commitments
to
extend
credit
and
standby
letters
of
credit
are
secured
by
real
estate
or
cash,
respectively.
16
Deferred Tax Assets:
Pre-Opening Expenses
Allowance for Loan Losses Due to Tax Limitations
Depreciation Differences
Operating Loss Carryforwards
Unrealized Loss on Available-for-Sale Securities
Stock-Based Compensation
Other Assets and Liabilities
Deferred Tax Liabilities:
Other Assets and Liabilities
2014
2013
$
367,000
$
411,000
694,000
192,000
481,000
8,000
352,000
233,000
568,000
147,000
975,000
47,000
349,000
223,000
2,327,000
2,720,000
(
110,000)
(
110,000)
(
119,000)
(
119,000)
Net Deferred Tax Assets (Liabilities)
$
2,217,000
$
2,601,000
Bank
has
generated
taxable
income
in
2013
and
2012.
At
December
31,
2013,
management
believed
it
was
more
likely
than
not
that
the
deferred
tax
assets
would
be
realized
in
the
future
based
on
its
improving
profitability,
and
reversed
the
valuation
allowance.
As
of
December
31,
2014,
the
Bank
has
net
operating
loss
carryforwards
of
approximately
$1,169,000
for
federal
for
California
franchise
tax
purposes.
Federal
and
California
net
operating
loss
carryforwards,
to
the
extent
not
used
income
purposes
and
$1,166,000
will
expire
in
2030.
NOTE
H
–
INCOME
TAXES
-‐
Continued
The
Bank
is
subject
to
federal
income
tax
and
franchise
tax
of
the
state
of
California.
Income
tax
returns
for
the
periods
ended
after
December
31,
2010
are
open
to
audit
by
the
federal
authorities
and
income
tax
returns
for
the
years
ended
after
December
31,
2009
are
open
to
audit
by
state
authorities.
The
total
amount
of
unrecognized
tax
benefits
to
significantly
increase
or
Bank
does
not
expect
the
decrease
within
the
next
twelve
months.
A
comparison
of
the
federal
statutory
income
tax
rates
to
the
Company's
effective
income
tax
rates
follows:
2013
Amount
Rate
2014
Amount
Rate
Statutory Federal Tax
State Tax, Net of Federal Benefit
Reduction in Valuation Allowance
Stock-based Compensation
Other Items, Net
$
254,000
59,000
-
18,000
19,054
34.1%
7.9%
-
2.4%
2.6%
$
218,000
46,000
(2,829,000)
8,000
4,000
(
34.0%
7.2%
441.7%)
1.2%
0.6%
Actual Tax Expense (Benefit)
$
350,054
47.0%
$
(2,553,000)
(
398.7%)
NOTE
I
-‐
RELATED
PARTY
TRANSACTIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
In
the
ordinary
course
of
business,
the
Bank
has
granted
loans
to
certain
directors
and
the
companies
with
which
they
are
associated.
The
total
outstanding
principal
and
commitment
of
these
loans
at
December
31,
2014
and
2013
was
approximately
$4,707,000
and
$4,036,000,
respectively.
Also,
in
the
ordinary
course
of
business,
certain
executive
officers,
directors
and
companies
with
which
they
are
associated
have
deposits
with
the
Bank.
The
balances
of
these
deposits
at
December
31,
and
2013
2014
$25,547,000
and
$16,140,000,
respectively.
NOTE
J
-‐
COMMITMENTS
amounted
to
approximately
In
the
ordinary
course
of
business,
the
Bank
enters
into
financial
commitments
to
meet
the
financing
needs
of
its
customers.
Those
instruments
involve
to
varying
degrees,
elements
of
credit
and
interest
rate
risk
not
recognized
in
the
Bank's
financial
statements.
NOTE J - COMMITMENTS - Continued
The
Bank's
exposure
to
loan
loss
in
the
event
of
nonperformance
on
commitments
to
extend
credit
and
The Bank’s exposure to
in the event of
is
represented
by
the
standby
nonperformance on commitments to extend credit and
contractual
amount
of
those
instruments.
The
Bank
standby letters of credit is represented by the contractual
uses
the
same
credit
policies
in
making
commitments
amount of those instruments. The Bank uses the same
financial
loans
reflected
it
does
as
credit policies in making commitments as it does for loans
statements.
NOTE
J
-‐
COMMITMENTS
-‐
Continued
reflected in the financial statements.
letters
of
credit
in
the
loan
loss
for
As of December 31, 2014 and 2013, the Bank had the
following outstanding financial commitments whose
As
of
December
31,
2014
and
2013,
the
Bank
had
the
contractual amount represents credit risk:
following
outstanding
financial
commitments
whose
contractual
amount
represents
credit
risk:
2014
2013
16
Commitments to Extend Credit
$
17,072,000
$
13,274,000
the
Bank
Commitments to extend credit are agreements to lend
NOTE
K
–
STOCK-‐BASED
COMPENSATION
PLANS
to a customer as long as there is no violation of any
Commitments
to
extend
credit
are
agreements
to
lend
condition established in the contract. Since many of the
to
a
customer
as
long
as
there
is
no
violation
of
any
commitments are expected to expire without being drawn
NOTE
K
–
STOCK-‐BASED
COMPENSATION
PLANS
condition
established
in
the
contract.
Since
many
of
upon, the total amounts do not necessarily represent
The
Bank's
2007
Stock
Option
Plan
was
approved
by
the
commitments
are
expected
to
expire
without
being
future cash requirements. The Bank evaluates each client’s
its
shareholders
in
July
2008.
Under
the
terms
of
the
drawn
upon,
the
total
amounts
do
not
necessarily
credit worthiness on a case-by-case basis. The amount
2007
Stock
Option
Plan,
officers
and
key
employees
The
Bank
represent
future
cash
requirements.
of collateral obtained if deemed necessary by the Bank is
The
Bank's
2007
Stock
Option
Plan
was
approved
by
may
be
granted
both
nonqualified
and
incentive
stock
evaluates
each
client's
credit
worthiness
on
a
case-‐by-‐
based on management’s credit evaluation of the customer.
its
shareholders
in
July
2008.
Under
the
terms
of
the
options
and
directors
and
organizers,
who
are
not
also
case
basis.
The
amount
of
collateral
obtained
if
2007
Stock
Option
Plan,
officers
and
key
employees
The majority of the Bank’s commitments to extend credit
an
officer
or
employee,
may
only
be
granted
is
based
on
deemed
necessary
by
may
be
granted
both
nonqualified
and
incentive
stock
and standby letters of credit are secured by real estate or
nonqualified
stock
options.
This
plan
was
replaced
by
management's
credit
evaluation
of
the
customer.
The
options
and
directors
and
organizers,
who
are
not
also
cash, respectively.
the
2013
Omnibus
Stock
Incentive
Plan.
majority
of
the
Bank's
commitments
to
extend
credit
an
officer
or
employee,
may
only
be
granted
and
standby
letters
of
credit
are
secured
by
real
estate
nonqualified
stock
options.
This
plan
was
replaced
by
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
The
Bank's
2013
Omnibus
Stock
Incentive
Plan
("2013
or
cash,
respectively.
the
2013
Omnibus
Stock
Incentive
Plan.
Plan")
was
approved
by
its
shareholders
in
May
2013.
Under
the
terms
of
the
2013
Plan,
officers
and
key
NOTE K – STOCK-BASED COMPENSATION PLANS
The
Bank's
2013
Omnibus
Stock
Incentive
Plan
("2013
employees
may
be
granted
both
nonqualified
and
Plan")
was
approved
by
its
shareholders
in
May
2013.
incentive
stock
options
and
directors
and
other
The Bank’s 2007 Stock Option Plan was approved by its
Under
the
terms
of
the
2013
Plan,
officers
and
key
consultants,
who
are
not
also
an
officer
or
employee,
shareholders in July 2008. Under the terms of the 2007
employees
may
be
granted
both
nonqualified
and
may
only
be
granted
nonqualified
stock
options.
The
Stock Option Plan, officers and key employees may be
incentive
stock
options
and
directors
and
other
2013
Plan
also
permits
the
grant
of
stock
appreciation
granted both nonqualified and incentive stock options and
consultants,
who
are
not
also
an
officer
or
employee,
rights
("SARs"),
restricted
shares,
deferred
shares,
directors and organizers, who are not also an officer or
may
only
be
granted
nonqualified
stock
options.
The
performance
shares
and
performance
unit
awards.
employee, may only be granted nonqualified stock options.
2013
Plan
also
permits
the
grant
of
stock
appreciation
The
2013
Plan
provides
for
the
total
number
of
This plan was replaced by the 2013 Omnibus Stock Incentive Plan.
rights
("SARs"),
restricted
shares,
deferred
shares,
awards
of
common
stock
that
may
be
issued
over
the
performance
shares
and
performance
unit
awards.
term
of
the
plan
not
to
exceed
573,533
shares,
of
The Bank’s 2013 Omnibus Stock Incentive Plan (“2013
The
2013
Plan
provides
for
the
total
number
of
which
a
maximum
of
400,000
shares
may
be
granted
Plan”) was approved by its shareholders in May 2013. Under
awards
of
common
stock
that
may
be
issued
over
the
as
incentive
stock
options.
The
aggregated
number
of
the terms of the 2013 Plan, officers and key employees may
term
of
the
plan
not
to
exceed
573,533
shares,
of
individual
awards
that
may
be
granted
to
an
be granted both nonqualified and incentive stock options
which
a
maximum
of
400,000
shares
may
be
granted
participant
may
not
exceed
100,000
shares
per
year.
and directors and other consultants, who are not also an
as
incentive
stock
options.
The
aggregated
number
of
Stock
options
and
performance
share
and
unit
awards
officer or employee, may only be granted nonqualified
individual
awards
that
may
be
granted
to
an
are
granted
at
a
price
not
less
than
100%
of
the
fair
stock options. The 2013 Plan also permits the grant of stock
participant
may
not
exceed
100,000
shares
per
year.
market
value
of
the
stock
on
the
date
of
grant.
The
appreciation rights (“SARs”), restricted shares, deferred
Stock
options
and
performance
share
and
unit
awards
2013
plan
provides
for
accelerated
vesting
if
there
is
a
shares, performance shares and performance unit awards.
are
granted
at
a
price
not
less
than
100%
of
the
fair
change
of
control
as
defined
in
the
2013
Plan.
Equity
The 2013 Plan provides for the total number of awards of
market
value
of
the
stock
on
the
date
of
grant.
The
awards
generally
vest
over
three
to
five
years.
Stock
common stock that may be issued over the term of the
2013
plan
provides
for
accelerated
vesting
if
there
is
a
options
expire
no
later
than
ten
years
from
the
date
of
plan not to exceed 573,533 shares, of which a maximum of
change
of
control
as
defined
in
the
2013
Plan.
Equity
grant.
awards
generally
vest
over
three
to
five
years.
Stock
options
expire
no
later
than
ten
years
from
the
date
of
The
Bank
recognized
stock-‐based
compensation
cost
grant.
of
$141,382
and
$68,823
for
the
periods
ended
The
Bank
also
December
31,
2014
and
2013.
The
Bank
recognized
stock-‐based
compensation
cost
recognized
income
tax
benefits
related
to
stock-‐based
of
$141,382
and
$68,823
for
the
periods
ended
compensation
of
$35,876
in
2014
and
$18,466
in
December
31,
2014
and
2013.
The
Bank
also
2013.
NOTE
K
–
STOCK-‐BASED
COMPENSATION
PLANS
-‐
recognized
income
tax
benefits
related
to
stock-‐based
Continued
compensation
of
$35,876
in
2014
and
$18,466
in
2013.
NOTE
K
–
STOCK-‐BASED
COMPENSATION
PLANS
-‐
Continued
The
fair
value
of
each
option
grant
was
estimated
on
the
date
of
grant
using
the
Black-‐Scholes
option
pricing
model
with
the
weighted-‐average
assumptions
The
fair
value
of
each
option
grant
was
estimated
on
presented
below:
the
date
of
grant
using
the
Black-‐Scholes
option
pricing
model
with
the
weighted-‐average
assumptions
presented
below:
400,000 shares may be granted as incentive stock options.
The aggregated number of awards that may be granted to
an individual participant may not exceed 100,000 shares
per year. Stock options and performance share and unit
awards are granted at a price not less than 100% of the fair
market value of the stock on the date of grant. The 2013
plan provides for accelerated vesting if there is a change of
control as defined in the 2013 Plan. Equity awards generally
vest over three to five years. Stock options expire no later
than ten years from the date of grant.
The Bank recognized stock-based compensation cost of
$141,382 and $68,823 for the periods ended December 31,
2014 and 2013. The Bank also recognized income tax
benefits related to stock-based compensation of $35,876 in
2014 and $18,466 in 2013.
The fair value of each option grant was estimated on the
date of grant using the Black-Scholes option pricing model
with the weighted-average assumptions presented below:
2013
2014
Expected Volatility
Expected Term
Expected Dividends
Expected Volatility
Risk Free Rate
Expected Term
Grant Date Fair Value
Expected Dividends
Risk Free Rate
Grant Date Fair Value
42.50%
2014
6.06 Years
None
42.50%
1.21%
6.06 Years
2.85
None
1.21%
2.85
$
$
36.00%
2013
5.80 Years
None
36.00%
1.10%
5.80 Years
2.42
None
1.10%
2.42
$
$
terms
the
expected
the
expected
is
based
on
Since
the
Bank
has
a
limited
amount
of
historical
stock
Since the Bank has a limited amount of historical stock
is
based
on
the
activity
the
expected
volatility
activity the expected volatility is based on the historical
historical
volatility
of
similar
banks
that
have
a
longer
volatility of similar banks that have a longer trading history.
Since
the
Bank
has
a
limited
amount
of
historical
stock
trading
history.
The
expected
term
represents
the
The expected term represents the estimated average
is
based
on
the
activity
the
expected
volatility
estimated
average
period
of
time
that
the
options
period of time that the options remain outstanding. Since
historical
volatility
of
similar
banks
that
have
a
longer
remain
outstanding.
Since
the
Bank
does
not
have
the Bank does not have sufficient historical data on the
trading
history.
The
expected
term
represents
the
sufficient
historical
data
on
the
exercise
of
stock
estimated
average
period
of
time
that
the
options
exercise of stock options, the expected terms is based on
the
options,
remain
outstanding.
Since
the
Bank
does
not
have
the “simplified” method that measures the expected term as
"simplified"
method
that
measures
the
expected
term
sufficient
historical
data
on
the
exercise
of
stock
the average of the vesting period and the contractual term.
as
the
average
of
the
vesting
period
and
the
the
options,
The risk free rate of return reflects the grant date interest
contractual
term.
The
risk
free
rate
of
return
reflects
"simplified"
method
that
measures
the
expected
term
rate offered for a comparable U.S. Treasury bonds over the
the
grant
date
interest
rate
offered
for
a
comparable
as
the
average
of
the
vesting
period
and
the
expected term of the options.
U.S.
Treasury
bonds
over
the
expected
term
of
the
contractual
term.
The
risk
free
rate
of
return
reflects
options.
A summary of the status of the Bank’s stock options as of
the
grant
date
interest
rate
offered
for
a
comparable
December 31, 2014 and changes during the year ended
U.S.
Treasury
bonds
over
the
expected
term
of
the
A
summary
of
the
status
of
the
Bank's
stock
options
as
thereon is presented below:
options.
of
December
31,
2014
and
changes
during
the
year
ended
thereon
is
presented
below:
A
summary
of
the
status
of
the
Bank's
stock
options
as
Aggregate
Weighted-
Intrinsic
Average
of
December
31,
2014
and
changes
during
the
year
Value
Exercise
in Thousands
Price
ended
thereon
is
presented
below:
Weighted-
Outstanding at Beginning of Year
$
9.49
Average
$
6.72
Granted
Exercise
-
Exercised
$
Price
$
8.84
Forfeited
Weighted-
Average
Remaining
Contractual
Term
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
in Thousands
is
based
on
406,980
8,000
-
43,000)
terms
Shares
Shares
(
Outstanding at Beginning of Year
Outstanding at End of Year
Granted
Exercised
Options Exercisable
Forfeited
406,980
371,980
8,000
-
335,280
43,000)
(
$
9.49
$
9.51
$
6.72
$
-
$
9.76
$
8.84
4.20 Years
$
-
3.72 Years
$
-
Outstanding at End of Year
371,980
$
9.51
4.20 Years
$
-
Options Exercisable
335,280
$
9.76
3.72 Years
$
-
34
As
of
December
31,
2014,
there
was
approximately
$66,000
of
total
unrecognized
compensation
cost
related
to
the
outstanding
stock
options
that
will
be
As
of
December
31,
2014,
there
was
approximately
recognized
over
a
weighted-‐average
period
of
1.7
$66,000
of
total
unrecognized
compensation
cost
years.
NOTE
K
–
STOCK-‐BASED
COMPENSATION
PLANS
-‐
related
to
the
outstanding
stock
options
that
will
be
Continued
recognized
over
a
weighted-‐average
period
of
1.7
years.
NOTE
K
–
STOCK-‐BASED
COMPENSATION
PLANS
-‐
Continued
A
summary
of
the
status
of
the
Bank's
deferred
share
awards
as
of
December
31,
2014
and
changes
during
the
year
ended
thereon
is
presented
below:
A
summary
of
the
status
of
the
Bank's
deferred
share
awards
as
of
December
31,
2014
and
changes
during
the
year
ended
thereon
is
presented
below:
17
17
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE K – STOCK-BASED COMPENSATION PLANS
- Continued
As of December 31, 2014, there was approximately $66,000
of total unrecognized compensation cost related to the
outstanding stock options that will be recognized over a
weighted-average period of 1.7 years.
A summary of the status of the Bank’s deferred share awards
NOTE
K
–
STOCK-‐BASED
COMPENSATION
PLANS
-‐
as of December 31, 2014 and changes during the year ended
Continued
thereon is presented below:
NOTE
K
–
STOCK-‐BASED
COMPENSATION
PLANS
-‐
NOTE
K
–
STOCK-‐BASED
COMPENSATION
PLANS
-‐
Continued
Continued
Nonvested at January 1, 2014
New Deferred Share Awards
Shares Vested and Issued
Nonvested at January 1, 2014
Shares Forfeited
Nonvested at January 1, 2014
New Deferred Share Awards
New Deferred Share Awards
Shares Vested and Issued
Nonvested at December 31, 2014
Shares Vested and Issued
Shares Forfeited
Shares Forfeited
Shares
Shares
(
(
34,980
2,444
Shares
6,980)
34,980
289)
34,980
2,444
2,444
6,980)
30,155
6,980)
289)
289)
(
(
(
(
Weighted-
Average
Grant-Date
Weighted-
Fair Value
Weighted-
Average
Average
Grant-Date
6.92
$
Grant-Date
Fair Value
$
7.00
Fair Value
6.60
$
$
6.92
$
7.00
$
7.00
$
6.60
$
7.00
$
7.00
$
$
$
$
6.92
7.00
6.60
7.00
7.00
7.00
30,155
30,155
$
$
issued
Nonvested at December 31, 2014
Nonvested at December 31, 2014
As of December 31, 2014 there was approximately $154,000
of unrecognized compensation cost related to the restricted
As
of
December
31,
2014
there
was
approximately
stock grants that will be recognized over a weighted-average
$154,000
of
unrecognized
compensation
cost
related
period of 1.4 years. The fair value of shares issued in 2014 and
to
the
restricted
stock
grants
that
will
be
recognized
As
of
December
31,
2014
there
was
approximately
2013 was approximately $51,000 and $29,000, respectively.
over
a
weighted-‐average
period
of
1.4
years.
The
fair
As
of
December
31,
2014
there
was
approximately
$154,000
of
unrecognized
compensation
cost
related
in
2014
and
2013
was
value
of
shares
$154,000
of
unrecognized
compensation
cost
related
to
the
restricted
stock
grants
that
will
be
recognized
approximately
$51,000
and
$29,000,
respectively.
to
the
restricted
stock
grants
that
will
be
recognized
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
NOTE
L
-‐
EARNINGS
PER
SHARE
("EPS")
over
a
weighted-‐average
period
of
1.4
years.
The
fair
over
a
weighted-‐average
period
of
1.4
years.
The
fair
in
2014
and
2013
was
value
of
shares
issued
in
2014
and
2013
was
issued
value
of
shares
approximately
$51,000
and
$29,000,
respectively.
NOTE
L
-‐
EARNINGS
PER
SHARE
("EPS")
NOTE L - EARNINGS PER SHARE (“EPS”)
approximately
$51,000
and
$29,000,
respectively.
NOTE
L
-‐
EARNINGS
PER
SHARE
("EPS")
The
following
is
a
reconciliation
of
net
income
and
The following is a reconciliation of net income and shares
shares
outstanding
to
the
income
and
number
of
outstanding to the income and number of shares used to
shares
used
to
compute
EPS:
The
following
is
a
reconciliation
of
net
income
and
Income
compute EPS:
The
following
is
a
reconciliation
of
net
income
and
shares
outstanding
to
the
income
and
number
of
Net Income as Reported
395,567
shares
outstanding
to
the
income
and
number
of
Shares Outstanding at Year-End
1,915,902
shares
used
to
compute
EPS:
Impact of Weighting Shares
Income
shares
used
to
compute
EPS:
Issued During the Year
Income
395,567
Net Income as Reported
395,567
Dilutive Effect of Outstanding
Shares Outstanding at Year-End
Net Income as Reported
Deferred Shares
Impact of Weighting Shares
Shares Outstanding at Year-End
Issued During the Year
Impact of Weighting Shares
Issued During the Year
Dilutive Effect of Outstanding
Deferred Shares
Used in Dilutive EPS
Used in Basic EPS
2,649,634
4,082
2,649,634
2,207,691
(446,025)
2,203,609
1,915,902
7,359
1,915,902
1,921,216
(2,045)
1,913,857
Shares
(446,025)
Shares
2,203,609
3,193,536
3,193,536
Used in Basic EPS
Used in Basic EPS
(2,045)
Shares
1,913,857
395,567
395,567
Income
3,193,536
3,193,536
3,193,536
2,649,634
3,193,536
3,193,536
395,567
395,567
Income
Income
Shares
Shares
Shares
2014
2014
2014
2013
2013
2013
$
$
$
$
$
$
$
$
(446,025)
2,203,609
4,082
2,207,691
4,082
2,207,691
$
3,193,536
$
3,193,536
(2,045)
1,913,857
7,359
1,921,216
7,359
1,921,216
Dilutive Effect of Outstanding
Deferred Shares
Used in Dilutive EPS
$
395,567
Used in Dilutive EPS
$
395,567
following
following
following
All
stock
options
were
excluded
from
the
computation
All stock options were excluded from the computation of
of
diluted
earnings
per
share
as
their
inclusion
would
diluted earnings per share as their inclusion would have
have
been
anti-‐dilutive.
NOTE
M
-‐
FAIR
VALUE
MEASUREMENT
All
stock
options
were
excluded
from
the
computation
been anti-dilutive.
All
stock
options
were
excluded
from
the
computation
of
diluted
earnings
per
share
as
their
inclusion
would
of
diluted
earnings
per
share
as
their
inclusion
would
have
been
anti-‐dilutive.
NOTE
M
-‐
FAIR
VALUE
MEASUREMENT
have
been
anti-‐dilutive.
NOTE
M
-‐
FAIR
VALUE
MEASUREMENT
The
is
a
description
of
valuation
methodologies
used
for
assets
and
liabilities
recorded
at
fair
value:
Securities
is
a
description
of
valuation
The
is
a
description
of
valuation
The
methodologies
used
for
assets
and
liabilities
recorded
methodologies
used
for
assets
and
liabilities
recorded
at
fair
value:
Securities
at
fair
value:
Securities
The
fair
values
of
securities
available
for
sale
are
determined
by
matrix
pricing,
which
is
a
mathematical
technique
used
widely
in
the
industry
to
value
debt
The
fair
values
of
securities
available
for
sale
are
securities
without
relying
exclusively
on
quoted
prices
The
fair
values
of
securities
available
for
sale
are
determined
by
matrix
pricing,
which
is
a
mathematical
for
specific
securities
but
rather
by
relying
on
the
determined
by
matrix
pricing,
which
is
a
mathematical
technique
used
widely
in
the
industry
to
value
debt
securities'
relationship
to
other
benchmark
quoted
technique
used
widely
in
the
industry
to
value
debt
securities
without
relying
exclusively
on
quoted
prices
securities
without
relying
exclusively
on
quoted
prices
for
specific
securities
but
rather
by
relying
on
the
for
specific
securities
but
rather
by
relying
on
the
securities'
relationship
to
other
benchmark
quoted
securities'
relationship
to
other
benchmark
quoted
35
18
18
18
NOTE M - FAIR VALUE MEASUREMENT
The following is a description of valuation methodologies
used for assets and liabilities recorded at fair value:
Securities
The fair values of securities available for sale are determined
by matrix pricing, which is a mathematical technique used
widely in the industry to value debt securities without relying
exclusively on quoted prices for specific securities but rather
securities
(Level
2).
by relying on the securities’ relationship to other benchmark
quoted securities (Level 2).
The
following
table
provides
the
hierarchy
and
fair
securities
(Level
2).
value
for
each
major
category
of
assets
and
liabilities
securities
(Level
2).
The following table provides the hierarchy and fair value for
measured
at
fair
value
at
December
31,
2014:
each major category of assets and liabilities measured at fair
The
following
table
provides
the
hierarchy
and
fair
Level 1
The
following
table
provides
the
hierarchy
and
fair
value at December 31, 2014:
December 31, 2014
value
for
each
major
category
of
assets
and
liabilities
Assets measured at fair value on
value
for
each
major
category
of
assets
and
liabilities
measured
at
fair
value
at
December
31,
2014:
Fair Value Measurements Using:
a recurring basis
measured
at
fair
value
at
December
31,
2014:
Level 2
Level 3
Level 1
Fair Value Measurements Using:
-
40,516,442
Securities Available for Sale
$
-
$
December 31, 2014
Level 3
Level 2
Level 1
Assets measured at fair value on
December 31, 2013
a recurring basis
Assets measured at fair value on
Securities Available for Sale
a recurring basis
Securities Available for Sale
Fair Value Measurements Using:
Level 2
$
-
-
$
40,516,442
14,620,321
$
40,516,442
14,620,321
$
$
-
-
$
Total
40,516,442
40,516,442
40,516,442
$
-
$
-
Level 3
Total
Total
$
$
$
$
$
$
December 31, 2014
Assets measured at fair value on
a recurring basis
Securities Available for Sale
December 31, 2013
Assets measured at fair value on
a recurring basis
Securities Available for Sale
December 31, 2013
Assets measured at fair value on
a recurring basis
Securities Available for Sale
NOTE
N
-‐
INSTRUMENTS
$
-
$
14,620,321
$
-
$
14,620,321
$
-
$
14,620,321
FAIR
VALUE
OF
$
-
$
14,620,321
FINANCIAL
FINANCIAL
FINANCIAL
FAIR
VALUE
OF
-‐
NOTE
N
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
FAIR
VALUE
OF
-‐
NOTE
N
INSTRUMENTS
INSTRUMENTS
The
fair
value
of
a
financial
instrument
is
the
amount
NOTE N - FAIR VALUE OF
at
which
the
asset
or
obligation
could
be
exchanged
in
FINANCIAL INSTRUMENTS
a
current
transaction
between
willing
parties,
other
The
fair
value
of
a
financial
instrument
is
the
amount
Fair
value
than
in
a
forced
or
liquidation
sale.
The
fair
value
of
a
financial
instrument
is
the
amount
at
which
the
asset
or
obligation
could
be
exchanged
in
The fair value of a financial instrument is the amount at
estimates
are
made
at
a
specific
point
in
time
based
on
at
which
the
asset
or
obligation
could
be
exchanged
in
a
current
transaction
between
willing
parties,
other
which the asset or obligation could be exchanged in a current
relevant
market
information
and
information
about
a
current
transaction
between
willing
parties,
other
Fair
value
than
in
a
forced
or
liquidation
sale.
transaction between willing parties, other than in a forced or
the
financial
instrument.
These
estimates
do
not
Fair
value
than
in
a
forced
or
liquidation
sale.
estimates
are
made
at
a
specific
point
in
time
based
on
liquidation sale. Fair value estimates are made at a specific
reflect
any
premium
or
discount
that
could
result
from
estimates
are
made
at
a
specific
point
in
time
based
on
relevant
market
information
and
information
about
point in time based on relevant market information and
offering
for
sale
at
one
time
the
entire
holdings
of
a
relevant
market
information
and
information
about
the
financial
instrument.
These
estimates
do
not
information about the financial instrument. These estimates
particular
financial
instrument.
Because
no
market
the
financial
instrument.
These
estimates
do
not
reflect
any
premium
or
discount
that
could
result
from
do not reflect any premium or discount that could result from
value
exists
for
a
significant
portion
of
the
financial
reflect
any
premium
or
discount
that
could
result
from
offering
for
sale
at
one
time
the
entire
holdings
of
a
offering for sale at one time the entire holdings of a particular
fair
value
estimates
are
based
on
instruments,
offering
for
sale
at
one
time
the
entire
holdings
of
a
particular
financial
instrument.
Because
no
market
instrument. Because no market value exists
financial
judgments
regarding
future
expected
loss
experience,
particular
financial
instrument.
Because
no
market
value
exists
for
a
significant
portion
of
the
financial
for a significant portion of the financial instruments, fair
current
economic
conditions,
risk
characteristics
of
value
exists
for
a
significant
portion
of
the
financial
fair
value
estimates
are
based
on
instruments,
value estimates are based on judgments regarding future
instruments,
and
other
factors.
various
financial
fair
value
estimates
are
based
on
instruments,
judgments
regarding
future
expected
loss
experience,
These
estimates
are
subjective
in
nature,
involve
expected loss experience, current economic conditions, risk
judgments
regarding
future
expected
loss
experience,
current
economic
conditions,
risk
characteristics
of
uncertainties
and
matters
of
judgment
and,
therefore,
characteristics of various financial instruments, and other
current
economic
conditions,
risk
characteristics
of
instruments,
and
other
factors.
various
financial
cannot
be
determined
with
precision.
Changes
in
instruments,
and
other
factors.
various
financial
factors. These estimates are subjective in nature, involve
These
estimates
are
subjective
in
nature,
involve
assumptions
could
significantly
affect
the
estimates.
These
estimates
are
subjective
in
nature,
involve
uncertainties and matters of judgment and, therefore, cannot
uncertainties
and
matters
of
judgment
and,
therefore,
uncertainties
and
matters
of
judgment
and,
therefore,
be determined with precision. Changes in assumptions could
cannot
be
determined
with
precision.
Changes
in
financial
Fair
value
estimates
are
based
on
cannot
be
determined
with
precision.
Changes
in
significantly affect the estimates.
assumptions
could
significantly
affect
the
estimates.
instruments
both
on
and
off
the
balance
sheet
without
assumptions
could
significantly
affect
the
estimates.
attempting
to
estimate
the
value
of
anticipated
future
financial
Fair
value
estimates
are
based
on
business
and
the
value
of
assets
and
liabilities
that
are
financial
Fair
value
estimates
are
based
on
instruments
both
on
and
off
the
balance
sheet
without
not
considered
financial
instruments.
Additionally,
tax
instruments
both
on
and
off
the
balance
sheet
without
attempting
to
estimate
the
value
of
anticipated
future
consequences
related
the
to
attempting
to
estimate
the
value
of
anticipated
future
business
and
the
value
of
assets
and
liabilities
that
are
unrealized
gains
and
losses
can
have
a
potential
effect
business
and
the
value
of
assets
and
liabilities
that
are
not
considered
financial
instruments.
Additionally,
tax
on
fair
value
estimates
and
have
not
been
considered
not
considered
financial
instruments.
Additionally,
tax
the
to
consequences
related
in
many
of
the
estimates.
the
to
consequences
related
unrealized
gains
and
losses
can
have
a
potential
effect
unrealized
gains
and
losses
can
have
a
potential
effect
on
fair
value
estimates
and
have
not
been
considered
The
following
methods
and
assumptions
were
used
to
on
fair
value
estimates
and
have
not
been
considered
in
many
of
the
estimates.
financial
the
estimate
in
many
of
the
estimates.
instruments
not
previously
presented:
The
following
methods
and
assumptions
were
used
to
The
following
methods
and
assumptions
were
used
to
financial
estimate
financial
estimate
instruments
not
previously
presented:
instruments
not
previously
presented:
fair
value
of
significant
fair
value
of
significant
the
realization
of
the
realization
of
fair
value
of
significant
the
realization
of
the
the
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE N - FAIR VALUE OF
FINANCIAL INSTRUMENTS - Continued
FAIR
VALUE
OF
Cash
and
Cash
Equivalents
NOTE
N
-‐
INSTRUMENTS
-‐
Continued
Fair value estimates are based on financial instruments both
FINANCIAL
on and off the balance sheet without attempting to estimate
the value of anticipated future business and the value
of assets and liabilities that are not considered financial
instruments. Additionally, tax consequences related to the
realization of the unrealized gains and losses can have a
potential effect on fair value estimates and have not been
The
carrying
amounts
reported
in
the
balance
sheet
considered in many of the estimates.
for
cash
and
cash
equivalents
approximate
the
fair
The following methods and assumptions were used to
values
of
those
assets
due
to
the
short-‐term
nature
of
estimate the fair value of significant financial instruments
the
assets.
Loans
not previously presented:
Cash and Cash Equivalents
Loans
For
variable
rate
loans
that
re-‐price
frequently
and
The carrying amounts reported in the balance sheet for cash
with
no
significant
change
in
credit
risk,
fair
values
are
and cash equivalents approximate the fair values of those
based
on
carrying
amounts.
The
fair
values
for
all
assets due to the short-term nature of the assets.
other
loans
are
estimated
using
discounted
cash
flow
analyses,
using
interest
rates
currently
being
offered
for
loans
with
similar
terms
to
borrowers
with
similar
For variable rate loans that re-price frequently and with
credit
quality.
Federal
Home
Loan
Bank
Stock
and
Other
Bank
Stock
no significant change in credit risk, fair values are based
on carrying amounts. The fair values for all other loans
are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar
The
fair
value
of
Federal
Home
Loan
Bank
Stock
and
other
Bank
stock
is
not
readily
determinable
due
to
terms to borrowers with similar credit quality.
the
lack
of
its
transferability.
Noninterest-‐Bearing
and
Interest
Bearing
Demand
Deposits
Federal Home Loan Bank Stock and Other Bank Stock
The fair value of Federal Home Loan Bank Stock and other
Bank stock is not readily determinable due to the lack of its
transferability.
The
fair
values
for
noninterest-‐bearing
deposits
and
interest-‐bearing
demand
deposits
are
equal
to
the
Noninterest-Bearing and Interest Bearing Demand Deposits
amount
payable
on
demand
at
the
reporting
date,
The fair values for noninterest-bearing deposits and
which
is
the
carrying
amount.
Interest-‐Bearing
Time
Deposits
interest-bearing demand deposits are equal to the amount
payable on demand at the reporting date, which is the
carrying amount.
Interest-Bearing Time Deposits
The
fair
values
for
fixed
rate
certificates
of
deposits
are
estimated
using
a
cash
flow
analysis,
discounted
at
interest
rates
being
offered
at
each
reporting
date
by
The fair values for fixed rate certificates of deposits are
the
Bank
for
certificates
with
similar
remaining
estimated using a cash flow analysis, discounted at interest
maturities.
Off-‐Balance
Sheet
Financial
Instruments
rates being offered at each reporting date by the Bank for
certificates with similar remaining maturities.
Off-Balance Sheet Financial Instruments
The
fair
value
of
commitments
to
extend
credit
and
standby
letters
of
credit
is
estimated
using
the
fees
The fair value of commitments to extend credit and standby
currently
charged
to
enter
into
similar
agreements.
letters of credit is estimated using the fees currently
The
fair
value
of
these
financial
instruments
is
not
material.
charged to enter into similar agreements. The fair value of
these financial instruments is not material.
The
fair
value
hierarchy
level
and
estimated
fair
value
of
significant
financial
instruments
at
December
31,
2014
and
2013
are
summarized
as
follows
(dollar
amounts
in
thousands):
The fair value hierarchy level and estimated fair value of
significant financial instruments at December 31, 2014
and 2013 are summarized as follows (dollar amounts
in thousands):
Financial Assets:
Cash and Cash Equivalents
Investment Securities
Loans, net
FHLB and Other Bank Stock
Financial Liabilities:
Noninterest-Bearing and Interest-Bearing
Demand Deposits
Interest-Bearing Time Deposits
2014
2013
Fair Value
Hierarchy
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Level 1
Level 2
Level 2
$
20,469
40,516
123,154
638
$
20,469
40,516
123,019
N/A
$
14,381
14,620
92,769
591
$
14,381
14,620
92,772
N/A
Level 1
Level 2
125,497
40,920
125,497
40,901
81,947
27,583
81,947
27,603
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
NOTE
O
-‐
EMPLOYEE
BENEFIT
PLAN
NOTE O - EMPLOYEE BENEFIT PLAN
The Bank adopted a 401(k) Plan for its employees in 2008.
The
Bank
adopted
a
401(k)
Plan
for
its
employees
in
Under the plan, eligible employees may defer a portion
2008.
Under
the
plan,
eligible
employees
may
defer
a
of their salaries. The plan also provides for a non-elective
portion
of
their
salaries.
The
plan
also
provides
for
a
discretionary contribution by the Bank. The Bank made no
non-‐elective
discretionary
contribution
by
the
Bank.
contributions for 2014 or 2013.
The
Bank
made
no
contributions
for
2014
or
2013.
NOTE
P
-‐
REGULATORY
MATTERS
-–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
Failure
NOTE P - REGULATORY MATTERS
The
Bank
is
subject
to
various
regulatory
capital
requirements
administered
by
the
federal
banking
to
meet
minimum
capital
agencies.
requirements
can
initiate
certain
mandatory
-‐
and
The Bank is subject to various regulatory capital requirements
-‐
actions
by
possibly
additional
discretionary
administered by the federal banking agencies. Failure to meet
regulators
that,
if
undertaken,
could
have
a
direct
minimum capital requirements can initiate certain mandatory
material
effect
on
the
Bank's
financial
statements.
- and possibly additional discretionary - actions by regulators
Under
capital
adequacy
guidelines
and
the
regulatory
that, if undertaken, could have a direct material effect on the
framework
for
prompt
corrective
action,
the
Bank
Bank’s financial statements. Under capital adequacy guidelines
must
meet
specific
capital
guidelines
that
involve
and the regulatory framework for prompt corrective action,
quantitative
measures
of
their
assets,
liabilities,
and
the Bank must meet specific capital guidelines that involve
certain
off-‐balance-‐sheet
items
as
calculated
under
quantitative measures of their assets, liabilities, and certain off-
regulatory
accounting
practices.
The
capital
amounts
balance-sheet items as calculated under regulatory accounting
and
classification
are
also
subject
to
qualitative
practices. The capital amounts and classification are also
judgments
by
the
regulators
about
components,
risk
subject to qualitative judgments by the regulators about
weightings,
and
other
factors.
components, risk weightings, and other factors.
Quantitative
measures
established
by
regulation
to
Quantitative measures established by regulation to ensure
ensure
capital
adequacy
require
the
Bank
to
maintain
capital adequacy require the Bank to maintain minimum
minimum
amounts
and
ratios
(set
forth
in
the
table
amounts and ratios (set forth in the table below) of total and
below)
of
total
and
Tier
1
capital
(as
defined
in
the
Tier 1 capital (as defined in the regulations) to risk-weighted
regulations)
to
risk-‐weighted
assets
(as
defined),
and
assets (as defined), and of Tier 1 capital (as defined) to
of
Tier
1
capital
(as
defined)
to
average
assets
(as
average assets (as defined). Management believes, as of
defined).
Management
believes,
as
of
December
31,
December 31, 2014 and 2013, that the Bank meets all capital
2014
and
2013,
that
the
Bank
meets
all
capital
adequacy requirements.
adequacy
requirements.
As
of
December
31,
2014,
the
most
recent
notification
from
the
FDIC
categorized
the
Bank
as
well
capitalized
under
the
regulatory
framework
for
prompt
corrective
action
(there
are
no
conditions
or
events
since
that
notification
that
management
believes
have
changed
the
Bank's
category).
To
be
categorized
as
well
36
19
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE P - REGULATORY MATTERS - Continued
As of December 31, 2014, the most recent notification from
the FDIC categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action (there
are no conditions or events since that notification that
management believes have changed the Bank’s category).
To be categorized as well capitalized, the Bank must
capitalized,
the
Bank
must
maintain
minimum
ratios
maintain minimum ratios as set forth in the table below.
as
set
forth
in
the
table
below.
The following table also sets forth the Bank’s actual capital
The
following
table
also
sets
forth
the
Bank's
actual
amounts and ratios (dollar amounts in thousands):
in
capital
amounts
and
ratios
(dollar
amounts
thousands):
Amount of Capital Required
Actual
For Capital
Adequacy
Purposes
To Be Well-
Capitalized
Under Prompt
Corrective
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
As of December 31, 2014:
Total Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Average Assets)
$21,860
$20,129
$20,129
14.7%
13.5%
11.1%
$11,914
$5,957
$7,281
As of December 31, 2013:
Total Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Average Assets)
$15,335
$14,158
$14,158
14.1%
13.0%
11.7%
$8,828
$4,414
$4,952
8.0%
4.0%
4.0%
8.0%
4.0%
4.0%
$14,893
10.0%
$8,936
$9,101
6.0%
5.0%
$11,035
10.0%
$6,621
$6,190
6.0%
5.0%
The California Financial Code provides that a Bank may
not make a cash distribution to its shareholders in excess
The
California
Financial
Code
provides
that
a
Bank
of the lesser of the Bank’s undivided profits or the Bank’s
may
not
make
a
cash
distribution
to
its
shareholders
net income for its last three fiscal years less the amount of
in
excess
of
the
lesser
of
the
Bank's
undivided
profits
any distribution made to the Bank’s shareholders during the
or
the
Bank's
net
income
for
its
last
three
fiscal
years
same period.
less
the
amount
of
any
distribution
made
to
the
Bank's
shareholders
during
the
same
period.
37
20
Visalia Branch
400 West Center Avenue
Visalia, CA 93291
559.802.1000
Porterville Branch
65 West Olive Avenue
Porterville, CA 93257
559.306.1300
Suncrestbank.com