•Net loans outstanding increased 21.1% during 2012 while the Bank continued to maintain good credit quality.
•The Bank experienced no net charge-offs during 2012 and did not have any foreclosed real estate at any time during the year.
•Non-accrual loans totaled $1.4 million at December 31, 2012, equivalent to 0.59% of loans outstanding.
•Total deposits rose 15.3% during 2012, while transaction accounts increased from 83.4% of total deposits at December 31, 2011 to 89.4% of total deposits at December 31, 2012.
•The Bank's weighted average cost of deposits was 0.19% at December 31, 2012.
•The Bank concluded 2012 with a regulatory total risk-based capital ratio of 15.12%, substantially in excess of the 10.00% threshold to be categorized in the highest regulatory capital classification of "well capitalized".
•Tangible book value per share rose to a record $10.27 as of December 31, 2012.
Financial Condition Analysis
Funds held at the Federal Reserve Bank of San Francisco decreased from $60.1 million at December 31, 2011 to $21.0 million at December 31, 2012. This reduction resulted from the Bank's decision to invest excess on-balance sheet liquidity into time deposits with other financial institutions and securities in order to augment interest income. Therefore, time deposits with other financial institutions increased from $3.8 million at December 31, 2011 to $9.3 million at December 31, 2012; and securities rose from $13.7 million at December 31, 2011 to $41.8 million at December 31, 2012.
A majority of the Bank's security portfolio at December 31, 2012 was comprised of AA+ rated mortgage backed securities (fixed and floating) and floating rate tranches of collateralized mortgage obligations issued by U.S. Agencies. The interest rates on the collateralized mortgage obligations float at a margin over 1 month LIBOR, subject to lifetime caps, rendering these securities highly interest rate sensitive. The fair value of the Bank's $41.8 million in securities at December 31, 2012 exceeded its amortized cost basis by $686 thousand.
The Bank concluded 2012 with a very strong liquidity profile, consisting of a significant volume of on-balance sheet assets (including cash & cash equivalents and securities available for sale) and over $100 million in off-balance sheet borrowing capacity.
Net loans increased from $197.3 million at December 31, 2011 to $238.9 million at December 31, 2012. This 21.1% increase constitutes a strong performance versus industry averages and reflects a return on the significant investment in staff and infrastructure the Bank made during the second half of 2011. That investment included hiring a number of well known, experienced local bankers and moving the Monterey Branch to a larger and better located facility.
The Bank commenced 2013 with a stronger loan pipeline than a year earlier, including a number of potential loans under various government guaranteed lending programs such as those available through the U.S. Small Business Administration ("SBA"). The Bank plans to allocate more of its marketing and promotion budget during 2013 to various government lending programs (including those through the U.S. Department of Agriculture or "USDA") in order to be able to offer increased and / or longer term financing to newer stage businesses than would otherwise be available and in order to take advantage of the current attractive secondary market prices for the guaranteed portion of such loans.
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