HispanicBusiness

As of December 31, 2012, the Bank had $329,000 in loans, or 0.13% of total loans, that were past due over 30 days and still accruing interest.

During 2012 the Bank had $1.8 million in loan charge-offs relative to $1.6 million in loan recoveries, or net charge-offs of $180,000 for the year; compared to 2011 when net charge-offs were $1.8 million. The considerable recoveries during the year along with a general improvement in other credit matrices within the loan portfolio allowed the bank to negative loan provision $750,000 for 2012 compared to 2011 when it had a loan loss provision expense of $1.4 million. As a result of the strengthening loan portfolio and negative provision expense, the allowance for loan losses as of December 31, 2012 at $6.2 million, was 2.51% of loans compared to year-end 2011 when it was $7.1 million, or 2.97% of loans.

Non-performing assets consist of loans on nonaccrual status and other real estate owned (OREO) which totaled $17.7 million as of December 31, 2012 and are down $1.3 million compared to year-end 2011 when they were $19.0 million. During 2012 the Bank reduced non-performing assets through pay downs on nonaccrual loans and the liquidation of OREO properties by $7.1 million while additions to nonaccrual loans (which were primarily from two existing relationships) were $5.8 million. OREO at year-end 2012 consisted of nine properties totaling $7.3 million which was 41.2% of non-performing assets while nonaccrual loans consisted of nine relationships totaling $10.4 million, or 58.8% of non-performing assets.

Deposits

Total deposits for the Bank at $228.0 million as of December 31, 2012 were down $11.1 million, or 4.6% for the year when compared to deposits of $239.1 million at year-end 2011. And Mr. Ekblad comments, "The reduction in deposits over the past year was certainly not reflective of our efforts to grow local deposits, in fact, local deposit growth for 2012 was quite successful at almost $11.1 million and the reason for the overall deposit decline was due to an intentional $10.0 million reduction in brokered deposits and another $12.2 million reduction in nontraditional out-of-area deposits during 2012." As of December 31, 2012, the Bank had $5.0 million in brokered deposits which was 2.2% of total deposits compared to $15.0 million and $27.7 million in brokered deposits as of December 31, 2011 and 2010 when they were 6.3% and 10.9% of total deposits, respectively. The Bank has $4.6 million in brokered deposits that mature throughout 2013 which will not be renewed.

Earnings

Asset income for full year 2012 at $14.7 million was down $1.2 million, or 7.2%, compared to the $15.9 million for 2011 due substantially from lower yields on both the loan and investment portfolios. In addition, asset income was also down for 2012 due to a $3.8 million reduction in average outstanding loans during 2012 relative to 2011 (even though year-end 2012 outstanding loans were higher than year-end 2011 outstanding loans). However, the reduction in asset income of $1.2 million was offset by a $1.3 million, or 20.2%, reduction in interest expenses from 2012 relative to 2011. This reduction in interest expense relates to reductions in outstanding deposits, repurchase agreements, and FHLB borrowings; as well as a general downward trend in overall deposit rates paid by the Bank. Net interest income for 2012 at $9.5 million was therefore up slightly, $181,000 or 1.9%, over net interest income for 2011. However, also included in the 2012 interest expense was a $144,000 prepayment penalty during fourth quarter related to the early pay-off of $6.9 million of FHLB borrowings that had an average rate of 4.23%. Net interest margin for the full year of 2012 at 3.24% was 16 basis points higher than the 3.08% for 2011. Mr. Roby adds, "And blended in with the deleveraging done during 2012 will be a considerable improvement in our net interest income and margins for 2013 as the Company has retired significant amounts of high cost deposits and FHLB borrowings during 2012 which were paid off from lower yielding cash and investments."