Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - WESTAMERICA BANCORPORATION | Financial_Report.xls |
| EX-31.2 - EXHIBIT 31.2 - WESTAMERICA BANCORPORATION | exh_312.htm |
| EX-31.1 - EXHIBIT 31.1 - WESTAMERICA BANCORPORATION | exh_311.htm |
| EX-32.1 - EXHIBIT 32.1 - WESTAMERICA BANCORPORATION | exh_321.htm |
| EX-32.2 - EXHIBIT 32.2 - WESTAMERICA BANCORPORATION | exh_322.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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|
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For the quarterly period ended June 30, 2014
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|
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to __________.
Commission file number: 001-09383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in Its Charter)
| CALIFORNIA | 94-2156203 |
|
(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (707) 863-6000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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|||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:
| Title of Class | Shares outstanding as of July 23, 2014 |
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Common Stock,
No Par Value
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26,009,414 |
TABLE OF CONTENTS
-2-
This report on Form 10-Q contains forward-looking statements about Westamerica Bancorporation for which it claims the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or board of directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", "intends", "targeted", "projected", "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
These forward-looking statements are based on Management’s current knowledge and belief and include information concerning the Company’s possible or assumed future financial condition and results of operations. A number of factors, some of which are beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated. These factors include but are not limited to (1) the length and severity of difficulties in the global, national and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired businesses; (5) economic uncertainty created by terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the national and regional economies; (6) changes in the interest rate environment; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including a failure or breach in data processing systems or those of third party vendors and other service providers, including as a result of cyber attacks or fraud; (10) volatility of interest rate sensitive loans, deposits and investments; (11) asset/liability management risks and liquidity risks; (12) the effect of natural disasters, including earthquakes, fire, flood, drought, and other disasters, on the uninsured value of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values, and (13) changes in the securities markets. The reader is directed to the Company's annual report on Form 10-K for the year ended December 31, 2013, for further discussion of factors which could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report. The Company undertakes no obligation to update any forward-looking statements in this report.
-3-
PART I - FINANCIAL INFORMATION
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
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At June 30,
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At December 31,
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|||||||
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2014
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2013
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|||||||
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(In thousands)
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||||||||
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Assets:
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||||||||
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Cash and due from banks
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$ | 484,904 | $ | 472,028 | ||||
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Investment securities available for sale
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1,278,242 | 1,079,381 | ||||||
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Investment securities held to maturity, with fair values of: $1,073,793 at June 30, 2014 and $1,112,676 at December 31, 2013
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1,069,135 | 1,132,299 | ||||||
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Loans
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1,784,608 | 1,827,744 | ||||||
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Allowance for loan losses
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(32,398 | ) | (31,693 | ) | ||||
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Loans, net of allowance for loan losses
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1,752,210 | 1,796,051 | ||||||
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Other real estate owned
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8,543 | 13,320 | ||||||
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Premises and equipment, net
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37,424 | 37,314 | ||||||
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Identifiable intangibles, net
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16,394 | 18,557 | ||||||
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Goodwill
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121,673 | 121,673 | ||||||
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Other assets
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162,570 | 176,432 | ||||||
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Total Assets
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$ | 4,931,095 | $ | 4,847,055 | ||||
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Liabilities:
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||||||||
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Noninterest bearing deposits
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$ | 1,814,023 | $ | 1,740,182 | ||||
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Interest bearing deposits
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2,399,366 | 2,423,599 | ||||||
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Total deposits
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4,213,389 | 4,163,781 | ||||||
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Short-term borrowed funds
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68,962 | 62,668 | ||||||
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Federal Home Loan Bank advances
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20,296 | 20,577 | ||||||
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Term repurchase agreement
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10,000 | 10,000 | ||||||
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Other liabilities
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79,645 | 47,095 | ||||||
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Total Liabilities
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4,392,292 | 4,304,121 | ||||||
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Shareholders' Equity:
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||||||||
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Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 26,074 at June 30, 2014 and 26,510 at December 31, 2013
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382,182 | 378,946 | ||||||
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Deferred compensation
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2,711 | 2,711 | ||||||
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Accumulated other comprehensive income
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12,554 | 4,313 | ||||||
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Retained earnings
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141,356 | 156,964 | ||||||
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Total Shareholders' Equity
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538,803 | 542,934 | ||||||
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Total Liabilities and Shareholders' Equity
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$ | 4,931,095 | $ | 4,847,055 | ||||
See accompanying notes to unaudited consolidated financial statements.
-4-
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
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For the Three Months
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For the Six Months
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|||||||||||||||
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Ended June 30,
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||||||||||||||||
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2014
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2013
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2014
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2013
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|||||||||||||
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(In thousands, except per share data)
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||||||||||||||||
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Interest and Fee Income:
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||||||||||||||||
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Loans
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$ | 22,787 | $ | 26,180 | $ | 45,688 | $ | 53,579 | ||||||||
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Investment securities available for sale
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5,875 | 5,532 | 11,505 | 10,868 | ||||||||||||
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Investment securities held to maturity
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6,741 | 7,557 | 13,774 | 15,287 | ||||||||||||
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Total Interest and Fee Income
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35,403 | 39,269 | 70,967 | 79,734 | ||||||||||||
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Interest Expense:
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||||||||||||||||
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Deposits
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754 | 847 | 1,508 | 1,746 | ||||||||||||
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Short-term borrowed funds
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21 | 26 | 41 | 37 | ||||||||||||
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Term repurchase agreement
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24 | 25 | 49 | 49 | ||||||||||||
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Federal Home Loan Bank advances
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101 | 120 | 200 | 238 | ||||||||||||
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Debt financing
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- | 201 | - | 401 | ||||||||||||
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Total Interest Expense
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900 | 1,219 | 1,798 | 2,471 | ||||||||||||
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Net Interest Income
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34,503 | 38,050 | 69,169 | 77,263 | ||||||||||||
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Provision for Loan Losses
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1,000 | 1,800 | 2,000 | 4,600 | ||||||||||||
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Net Interest Income After Provision For Loan Losses
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33,503 | 36,250 | 67,169 | 72,663 | ||||||||||||
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Noninterest Income:
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||||||||||||||||
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Service charges on deposit accounts
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6,105 | 6,452 | 12,115 | 12,994 | ||||||||||||
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Merchant processing services
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1,820 | 2,413 | 3,744 | 4,822 | ||||||||||||
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Debit card fees
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1,534 | 1,478 | 2,939 | 2,836 | ||||||||||||
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Other service fees
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688 | 696 | 1,349 | 1,458 | ||||||||||||
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ATM processing fees
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634 | 721 | 1,254 | 1,426 | ||||||||||||
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Trust fees
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615 | 585 | 1,269 | 1,153 | ||||||||||||
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Financial services commissions
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221 | 284 | 392 | 464 | ||||||||||||
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Other
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1,581 | 1,655 | 3,126 | 3,409 | ||||||||||||
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Total Noninterest Income
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13,198 | 14,284 | 26,188 | 28,562 | ||||||||||||
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Noninterest Expense:
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||||||||||||||||
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Salaries and related benefits
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13,926 | 14,064 | 28,052 | 28,467 | ||||||||||||
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Occupancy
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3,746 | 3,638 | 7,473 | 7,524 | ||||||||||||
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Outsourced data processing services
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2,115 | 2,140 | 4,220 | 4,297 | ||||||||||||
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Amortization of identifiable intangibles
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1,058 | 1,165 | 2,163 | 2,384 | ||||||||||||
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Furniture and equipment
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1,005 | 1,021 | 2,010 | 1,901 | ||||||||||||
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Courier service
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665 | 737 | 1,275 | 1,478 | ||||||||||||
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Professional fees
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577 | 745 | 1,007 | 1,380 | ||||||||||||
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Other real estate owned
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(270 | ) | 278 | (620 | ) | 612 | ||||||||||
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Other
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4,135 | 4,404 | 8,250 | 8,826 | ||||||||||||
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Total Noninterest Expense
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26,957 | 28,192 | 53,830 | 56,869 | ||||||||||||
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Income Before Income Taxes
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19,744 | 22,342 | 39,527 | 44,356 | ||||||||||||
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Provision for income taxes
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4,587 | 5,230 | 9,063 | 9,973 | ||||||||||||
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Net Income
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$ | 15,157 | $ | 17,112 | $ | 30,464 | $ | 34,383 | ||||||||
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Average Common Shares Outstanding
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26,175 | 26,890 | 26,303 | 27,017 | ||||||||||||
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Diluted Average Common Shares Outstanding
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26,238 | 26,898 | 26,387 | 27,027 | ||||||||||||
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Per Common Share Data:
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||||||||||||||||
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Basic earnings
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$ | 0.58 | $ | 0.64 | $ | 1.16 | $ | 1.27 | ||||||||
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Diluted earnings
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0.58 | 0.64 | 1.15 | 1.27 | ||||||||||||
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Dividends paid
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0.38 | 0.37 | 0.76 | 0.74 | ||||||||||||
See accompanying notes to unaudited consolidated financial statements.
-5-
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
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For the Three Months
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For the Six Months
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|||||||||||||||
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Ended June 30,
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||||||||||||||||
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2014
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2013
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2014
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2013
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(In thousands)
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||||||||||||||||
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Net Income
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$ | 15,157 | $ | 17,112 | $ | 30,464 | $ | 34,383 | ||||||||
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Other comprehensive income:
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||||||||||||||||
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Increase (decrease) in net unrealized gains on securities available for sale
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6,366 | (18,733 | ) | 14,189 | (17,461 | ) | ||||||||||
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Deferred tax (expense) benefit
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(2,677 | ) | 7,876 | (5,966 | ) | 7,342 | ||||||||||
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Increase (decrease) in net unrealized gains on securities available for sale, net of tax
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3,689 | (10,857 | ) | 8,223 | (10,119 | ) | ||||||||||
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Post-retirement benefit transition obligation amortization
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15 | 15 | 30 | 30 | ||||||||||||
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Deferred tax expense
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(6 | ) | (6 | ) | (12 | ) | (12 | ) | ||||||||
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Post-retirement benefit transition obligation amortization, net of tax
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9 | 9 | 18 | 18 | ||||||||||||
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Total Other Comprehensive Income (Loss)
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3,698 | (10,848 | ) | 8,241 | (10,101 | ) | ||||||||||
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Total Comprehensive Income
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$ | 18,855 | $ | 6,264 | $ | 38,705 | $ | 24,282 | ||||||||
See accompanying notes to unaudited consolidated financial statements.
-6-
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
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Common
Shares |
Common
Stock |
Accumulated
Deferred |
Accumulated
Other |
Retained
Earnings |
Total
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|||||||||||||||||||
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(In thousands)
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||||||||||||||||||||||||
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Balance, December 31, 2012
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27,213 | $ | 372,012 | $ | 3,101 | $ | 14,625 | $ | 170,364 | $ | 560,102 | |||||||||||||
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Net income for the period
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34,383 | 34,383 | ||||||||||||||||||||||
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Other comprehensive loss
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(10,101 | ) | (10,101 | ) | ||||||||||||||||||||
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Exercise of stock options
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157 | 6,414 | 6,414 | |||||||||||||||||||||
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Tax benefit decrease upon exercise of stock options
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(201 | ) | (201 | ) | ||||||||||||||||||||
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Restricted stock activity
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15 | 1,068 | (390 | ) | 678 | |||||||||||||||||||
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Stock based compensation
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730 | 730 | ||||||||||||||||||||||
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Stock awarded to employees
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1 | 61 | 61 | |||||||||||||||||||||
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Purchase and retirement of stock
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(617 | ) | (8,586 | ) | (18,807 | ) | (27,393 | ) | ||||||||||||||||
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Dividends
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(20,051 | ) | (20,051 | ) | ||||||||||||||||||||
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Balance, June 30, 2013
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26,769 | $ | 371,498 | $ | 2,711 | $ | 4,524 | $ | 165,889 | $ | 544,622 | |||||||||||||
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Balance, December 31, 2013
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26,510 | $ | 378,946 | $ | 2,711 | $ | 4,313 | $ | 156,964 | $ | 542,934 | |||||||||||||
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Net income for the period
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30,464 | 30,464 | ||||||||||||||||||||||
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Other comprehensive income
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8,241 | 8,241 | ||||||||||||||||||||||
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Exercise of stock options
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252 | 12,178 | 12,178 | |||||||||||||||||||||
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Tax benefit decrease upon exercise of stock options
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(396 | ) | (396 | ) | ||||||||||||||||||||
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Restricted stock activity
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19 | 1,027 | 1,027 | |||||||||||||||||||||
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Stock based compensation
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700 | 700 | ||||||||||||||||||||||
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Stock awarded to employees
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1 | 69 | 69 | |||||||||||||||||||||
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Purchase and retirement of stock
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(708 | ) | (10,342 | ) | (26,013 | ) | (36,355 | ) | ||||||||||||||||
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Dividends
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(20,059 | ) | (20,059 | ) | ||||||||||||||||||||
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Balance, June 30, 2014
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26,074 | $ | 382,182 | $ | 2,711 | $ | 12,554 | $ | 141,356 | $ | 538,803 | |||||||||||||
See accompanying notes to unaudited consolidated financial statements.
-7-
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
For the Six Months
Ended June 30, |
||||||||
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2014
|
2013
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|||||||
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(In thousands)
|
||||||||
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Operating Activities:
|
||||||||
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Net income
|
$ | 30,464 | $ | 34,383 | ||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
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Depreciation and amortization
|
7,210 | 9,032 | ||||||
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Loan loss provision
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2,000 | 4,600 | ||||||
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Net amortization of deferred loan fees
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(134 | ) | (202 | ) | ||||
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Decrease in interest income receivable
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105 | 88 | ||||||
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Increase in net deferred tax asset
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(2,624 | ) | (2,644 | ) | ||||
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Decrease in other assets
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1,426 | 8,174 | ||||||
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Stock option compensation expense
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700 | 730 | ||||||
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Tax benefit decrease upon exercise of stock options
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396 | 201 | ||||||
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(Decrease) increase in income taxes payable
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(66 | ) | 30 | |||||
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(Decrease) increase in interest expense payable
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(1 | ) | 9 | |||||
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Increase (decrease) in other liabilities
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7,147 | (5,482 | ) | |||||
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Gain on sale of other assets
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(400 | ) | (548 | ) | ||||
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Net loss on sale of premises and equipment
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17 | 9 | ||||||
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Originations of mortgage loans for resale
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- | (240 | ) | |||||
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Proceeds from sale of mortgage loans originated for resale
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- | 241 | ||||||
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Net gain on sale of foreclosed assets
|
(810 | ) | (556 | ) | ||||
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Writedown of foreclosed assets
|
108 | 1,062 | ||||||
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Net Cash Provided by Operating Activities
|
45,538 | 48,887 | ||||||
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Investing Activities:
|
||||||||
|
Net repayments of loans
|
42,381 | 167,500 | ||||||
|
Proceeds from FDIC1 loss-sharing indemnification
|
6,703 | 4,039 | ||||||
|
Purchases of investment securities available for sale
|
(382,123 | ) | (275,460 | ) | ||||
|
Proceeds from sale/maturity/calls of securities available for sale
|
225,777 | 77,558 | ||||||
|
Purchases of investment securities held to maturity
|
(18,373 | ) | (87,643 | ) | ||||
|
Proceeds from maturity/calls of securities held to maturity
|
74,179 | 107,428 | ||||||
|
Purchases of premises and equipment
|
(1,696 | ) | (1,110 | ) | ||||
|
Net change in FRB2/FHLB3 securities
|
3,248 | 1,488 | ||||||
|
Proceeds from sale of foreclosed assets
|
6,080 | 9,401 | ||||||
|
Net Cash (Used in) Provided by Investing Activities
|
(43,824 | ) | 3,201 | |||||
|
Financing Activities:
|
||||||||
|
Net change in deposits
|
49,689 | (130,915 | ) | |||||
|
Net change in short-term borrowings and FHLB3 advances
|
6,105 | 12,952 | ||||||
|
Exercise of stock options
|
12,178 | 6,414 | ||||||
|
Tax benefit decrease upon exercise of stock options
|
(396 | ) | (201 | ) | ||||
|
Retirement of common stock including repurchases
|
(36,355 | ) | (27,393 | ) | ||||
|
Common stock dividends paid
|
(20,059 | ) | (20,051 | ) | ||||
|
Net Cash Provided by (Used in) Financing Activities
|
11,162 | (159,194 | ) | |||||
|
Net Change In Cash and Due from Banks
|
12,876 | (107,106 | ) | |||||
|
Cash and Due from Banks at Beginning of Period
|
472,028 | 491,382 | ||||||
|
Cash and Due from Banks at End of Period
|
$ | 484,904 | $ | 384,276 | ||||
|
Supplemental Cash Flow Disclosures:
|
||||||||
|
Supplemental disclosure of non cash activities:
|
||||||||
|
Loan collateral transferred to other real estate owned
|
$ | 968 | $ | 3,932 | ||||
|
Securities purchases pending settlement
|
(25,537 | ) | - | |||||
|
Supplemental disclosure of cash flow activities:
|
||||||||
|
Interest paid for the period
|
1,957 | 2,722 | ||||||
|
Income tax payments for the period
|
11,754 | 12,779 | ||||||
See accompanying notes to unaudited consolidated financial statements.
1 Federal Deposit Insurance Corporation ("FDIC")
2 Federal Reserve Bank ("FRB")
3 Federal Home Loan Bank ("FHLB")
-8-
Note 1: Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three and six months ended June 30, 2014 and 2013 are not necessarily indicative of the results expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as well as other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.
The Company has evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, the Company is not aware of any events or transactions that occurred subsequent to the balance sheet date but prior to filing that would require recognition or disclosure in its unaudited consolidated financial statements.
Note 2: Accounting Policies
The Company’s accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Certain amounts in prior periods have been reclassified to conform to the current presentation.
Certain accounting policies underlying the preparation of these financial statements require Management to make estimates and judgments. These estimates and judgments may significantly affect reported amounts of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Management exercises judgment to estimate the appropriate level of the allowance for credit losses and to evaluate the extent of other than temporary impairment of investment securities, which are discussed in the Company’s accounting policies.
Recently Adopted Accounting Standards
FASB ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, was issued July 2013 to provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar loss, or a tax credit carryforward exists. The update provides that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward, unless an exception applies. The adoption of the update did not have a material effect on the Company’s financial statements at January 1, 2014, the date adopted.
Recently Issued Accounting Standards
FASB ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, was issued on June 12, 2014. The Update improves the financial reporting of repurchase agreements and other similar transactions through a change in accounting for repurchase-to-maturity transactions and repurchase financings, and the introduction of two new disclosure requirements. New disclosures are required for (1) transfers accounted for as sales in transactions that are economically similar to repurchase agreements, in which the transferor retains substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction and (2) repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings about the nature of collateral pledged and the time to maturity of those transactions.
The Company will be required to adhere to new disclosure requirements when the Update is adopted April 1, 2015 for the interim period ending June 30, 2015.
FASB ASU 2014-01, Investments- Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects, was issued January 2014 to permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method investment or a cost method investment in accordance with GAAP. The policy election must be applied consistently to all qualified affordable housing project investments.
-9-
The update also requires a reporting entity to disclose information regarding its investments in qualified affordable housing projects, and the effect of the measurement of its investments in qualified affordable housing projects and the related tax credits on its financial position and results of operations.
Management is evaluating the impact that the change in accounting policy would have on the Company’s financial statements. Management does not expect the adoption of this update to have a material effect on the financial statements when adopted on January 1, 2015.
Note 3: Investment Securities
An analysis of the amortized cost, unrealized gains and losses accumulated in other comprehensive income, and fair value of investment securities available for sale follows:
|
Investment Securities Available for Sale
At June 30, 2014 |
||||||||||||||||
|
Amortized
Cost |
Gross
Unrealized |
Gross
Unrealized |
Fair
Value |
|||||||||||||
|
(In thousands)
|
||||||||||||||||
|
U.S. Treasury securities
|
$ | 3,499 | $ | 11 | $ | - | $ | 3,510 | ||||||||
|
Securities of U.S. Government sponsored entities
|
340,440 | 321 | (322 | ) | 340,439 | |||||||||||
|
Residential mortgage-backed securities
|
28,376 | 2,004 | (21 | ) | 30,359 | |||||||||||
|
Commercial mortgage-backed securities
|
3,118 | 19 | (2 | ) | 3,135 | |||||||||||
|
Obligations of states and political subdivisions
|
176,129 | 9,914 | (217 | ) | 185,826 | |||||||||||
|
Residential collateralized mortgage obligations
|
250,549 | 665 | (11,023 | ) | 240,191 | |||||||||||
|
Asset-backed securities
|
8,982 | 3 | (39 | ) | 8,946 | |||||||||||
|
FHLMC(1) and FNMA(2) stock
|
804 | 16,395 | - | 17,199 | ||||||||||||
|
Corporate securities
|
442,427 | 4,008 | (470 | ) | 445,965 | |||||||||||
|
Other securities
|
2,039 | 759 | (126 | ) | 2,672 | |||||||||||
|
Total
|
$ | 1,256,363 | $ | 34,099 | $ | (12,220 | ) | $ | 1,278,242 | |||||||
(1) Federal Home Loan Mortgage Corporation
(2) Federal National Mortgage Association
An analysis of the amortized cost, unrealized gains and losses, and fair value of investment securities held to maturity follows:
|
Investment Securities Held to Maturity
At June 30, 2014 |
||||||||||||||||
|
Amortized
Cost |
Gross
Unrealized |
Gross
Unrealized |
Fair
Value |
|||||||||||||
|
(In thousands)
|
||||||||||||||||
|
Securities of U.S. Government sponsored entities
|
$ | 1,287 | $ | - | $ | (2 | ) | $ | 1,285 | |||||||
|
Residential mortgage-backed securities
|
61,430 | 1,189 | (54 | ) | 62,565 | |||||||||||
|
Obligations of states and political subdivisions
|
721,818 | 10,263 | (5,219 | ) | 726,862 | |||||||||||
|
Residential collateralized mortgage obligations
|
284,600 | 1,990 | (3,509 | ) | 283,081 | |||||||||||
|
Total
|
$ | 1,069,135 | $ | 13,442 | $ | (8,784 | ) | $ | 1,073,793 | |||||||
-10-
An analysis of the amortized cost, unrealized gains and losses accumulated in other comprehensive income, and fair value of investment securities available for sale follows:
|
Investment Securities Available for Sale
At December 31, 2013 |
||||||||||||||||
|
Amortized
Cost |
Gross
Unrealized |
Gross
Unrealized |
Fair
Value |
|||||||||||||
|
(In thousands)
|
||||||||||||||||
|
U.S. Treasury securities
|
$ | 3,500 | $ | 9 | $ | (3 | ) | $ | 3,506 | |||||||
|
Securities of U.S. Government sponsored entities
|
131,080 | 75 | (663 | ) | 130,492 | |||||||||||
|
Residential mortgage-backed securities
|
32,428 | 1,763 | (15 | ) | 34,176 | |||||||||||
|
Commercial mortgage-backed securities
|
3,411 | 19 | (5 | ) | 3,425 | |||||||||||
|
Obligations of states and political subdivisions
|
186,082 | 5,627 | (323 | ) | 191,386 | |||||||||||
|
Residential collateralized mortgage obligations
|
266,890 | 730 | (14,724 | ) | 252,896 | |||||||||||
|
Asset-backed securities
|
14,653 | 3 | (101 | ) | 14,555 | |||||||||||
|
FHLMC and FNMA stock
|
804 | 12,568 | - | 13,372 | ||||||||||||
|
Corporate securities
|
430,794 | 2,901 | (1,264 | ) | 432,431 | |||||||||||
|
Other securities
|
2,049 | 1,251 | (158 | ) | 3,142 | |||||||||||
|
Total
|
$ | 1,071,691 | $ | 24,946 | $ | (17,256 | ) | $ | 1,079,381 | |||||||
An analysis of the amortized cost, unrealized gains and losses, and fair value of investment securities held to maturity follows:
|
Investment Securities Held to Maturity
|
||||||||||||||||
|
At December 31, 2013
|
||||||||||||||||
|
Amortized
Cost |
Gross
Unrealized |
Gross
Unrealized |
Fair
Value |
|||||||||||||
|
(In thousands)
|
||||||||||||||||
|
Securities of U.S. Government sponsored entities
|
$ | 1,601 | $ | - | $ | (4 | ) | $ | 1,597 | |||||||
|
Residential mortgage-backed securities
|
65,076 | 854 | (624 | ) | 65,306 | |||||||||||
|
Obligations of states and political subdivisions
|
756,707 | 6,211 | (21,667 | ) | 741,251 | |||||||||||
|
Residential collateralized mortgage obligations
|
308,915 | 1,209 | (5,602 | ) | 304,522 | |||||||||||
|
Total
|
$ | 1,132,299 | $ | 8,274 | $ | (27,897 | ) | $ | 1,112,676 | |||||||
The amortized cost and fair value of investment securities by contractual maturity are shown in the following tables at the dates indicated:
|
At June 30, 2014
|
||||||||||||||||
|
Securities Available
for Sale |
Securities Held
to Maturity |
|||||||||||||||
|
Amortized
Cost |
Fair
Value |
Amortized
Cost |
Fair
Value |
|||||||||||||
|
(In thousands)
|
||||||||||||||||
|
Maturity in years:
|
||||||||||||||||
|
1 year or less
|
$ | 22,823 | $ | 23,079 | $ | 11,873 | $ | 12,295 | ||||||||
|
Over 1 to 5 years
|
723,230 | 727,551 | 209,887 | 212,693 | ||||||||||||
|
Over 5 to 10 years
|
145,153 | 148,748 | 274,837 | 277,158 | ||||||||||||
|
Over 10 years
|
80,271 | 85,308 | 226,508 | 226,001 | ||||||||||||
|
Subtotal
|
971,477 | 984,686 | 723,105 | 728,147 | ||||||||||||
|
Mortgage-backed securities and residential collateralized mortgage obligations
|
282,043 | 273,685 | 346,030 | 345,646 | ||||||||||||
|
Other securities
|
2,843 | 19,871 | - | - | ||||||||||||
|
Total
|
$ | 1,256,363 | $ | 1,278,242 | $ | 1,069,135 | $ | 1,073,793 | ||||||||
-11-
|
At December 31, 2013
|
||||||||||||||||
|
Securities Available
for Sale |
Securities Held
to Maturity |
|||||||||||||||
|
Amortized
Cost |
Fair
Value |
Amortized
Cost |
Fair
Value |
|||||||||||||
|
(In thousands)
|
||||||||||||||||
|
Maturity in years:
|
||||||||||||||||
|
1 year or less
|
$ | 75,385 | $ | 75,609 | $ | 9,639 | $ | 9,900 | ||||||||
|
Over 1 to 5 years
|
536,333 | 538,111 | 187,051 | 189,827 | ||||||||||||
|
Over 5 to 10 years
|
66,669 | 68,166 | 314,630 | 310,104 | ||||||||||||
|
Over 10 years
|
87,722 | 90,484 | 246,988 | 233,017 | ||||||||||||
|
Subtotal
|
766,109 | 772,370 | 758,308 | 742,848 | ||||||||||||
|
Mortgage-backed securities and residential collateralized mortgage obligations
|
302,729 | 290,497 | 373,991 | 369,828 | ||||||||||||
|
Other securities
|
2,853 | 16,514 | - | - | ||||||||||||
|
Total
|
$ | 1,071,691 | $ | 1,079,381 | $ | 1,132,299 | $ | 1,112,676 | ||||||||
Expected maturities of mortgage-backed securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-backed securities. At June 30, 2014 and December 31, 2013, the Company had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.
An analysis of gross unrealized losses of investment securities available for sale follows:
|
Investment Securities Available for Sale
At June 30, 2014 |
||||||||||||||||||||||||||||||||||||
|
No. of
|
Less than 12 months
|
No. of
|
12 months or longer
|
No. of
|
Total
|
|||||||||||||||||||||||||||||||
|
Investment
|
Unrealized
|
Investment
|
Unrealized
|
Investment
|
Unrealized
|
|||||||||||||||||||||||||||||||
|
Positions
|
Fair Value
|
Losses
|
Positions
|
Fair Value
|
Losses
|
Positions
|
Fair Value
|
Losses
|
||||||||||||||||||||||||||||
|
($ in thousands)
|
||||||||||||||||||||||||||||||||||||
|
Securities of U.S. Government sponsored entities
|
7 | $ | 166,393 | $ | (286 | ) | 1 | $ | 9,964 | $ | (36 | ) | 8 | $ | 176,357 | $ | (322 | ) | ||||||||||||||||||
|
Residential mortgage- backed securities
|
- | - | - | 2 | 836 | (21 | ) | 2 | 836 | (21 | ) | |||||||||||||||||||||||||
|
Commercial mortgage- backed securities
|
- | - | - | 1 | 910 | (2 | ) | 1 | 910 | (2 | ) | |||||||||||||||||||||||||
|
Obligations of states and political subdivisions
|
12 | 5,188 | (75 | ) | 19 | 5,509 | (142 | ) | 31 | 10,697 | (217 | ) | ||||||||||||||||||||||||
|
Residential collateralized mortgage obligations
|
1 | 1 | - | 31 | 217,989 | (11,023 | ) | 32 | 217,990 | (11,023 | ) | |||||||||||||||||||||||||
|
Asset-backed securities
|
- | - | - | 1 | 3,898 | (39 | ) | 1 | 3,898 | (39 | ) | |||||||||||||||||||||||||
|
Corporate securities
|
15 | 35,071 | (243 | ) | 4 | 29,350 | (227 | ) | 19 | 64,421 | (470 | ) | ||||||||||||||||||||||||
|
Other securities
|
- | - | - | 1 | 1,874 | (126 | ) | 1 | 1,874 | (126 | ) | |||||||||||||||||||||||||
|
Total
|
35 | $ | 206,653 | $ | (604 | ) | 60 | $ | 270,330 | $ | (11,616 | ) | 95 | $ | 476,983 | $ | (12,220 | ) | ||||||||||||||||||
[The remainder of this page intentionally left blank]
-12-
An analysis of gross unrealized losses of investment securities held to maturity follows:
|
Investment Securities Held to Maturity
At June 30, 2014 |
||||||||||||||||||||||||||||||||||||
|
No. of
|
Less than 12 months
|
No. of
|
12 months or longer
|
No. of
|
Total
|
|||||||||||||||||||||||||||||||
|
Investment
|
Unrealized
|
Investment
|
Unrealized
|
Investment
|
Unrealized
|
|||||||||||||||||||||||||||||||
|
Positions
|
Fair Value
|
Losses
|
Positions
|
Fair Value
|
Losses
|
Positions
|
Fair Value
|
Losses
|
||||||||||||||||||||||||||||
|
($ in thousands)
|
||||||||||||||||||||||||||||||||||||
|
Securities of U.S. Government sponsored entities
|
1 | $ | 1,285 | $ | (2 | ) | - | $ | - | $ | - | 1 | $ | 1,285 | $ | (2 | ) | |||||||||||||||||||
|
Residential mortgage-backed securities
|
1 | 2,930 | (30 | ) | 2 | 3,403 | (24 | ) | 3 | 6,333 | (54 | ) | ||||||||||||||||||||||||
|
Obligations of states and political subdivisions
|
67 | 50,734 | (223 | ) | 220 | 186,639 | (4,996 | ) | 287 | 237,373 | (5,219 | ) | ||||||||||||||||||||||||
|
Residential collateralized mortgage obligations
|
7 | 47,807 | (266 | ) | 24 | 135,553 | (3,243 | ) | 31 | 183,360 | (3,509 | ) | ||||||||||||||||||||||||
|
Total
|
76 | $ | 102,756 | $ | (521 | ) | 246 | $ | 325,595 | $ | (8,263 | ) | 322 | $ | 428,351 | $ | (8,784 | ) | ||||||||||||||||||
The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments, particularly changes in risk-free interest rates. The Company evaluates securities on a quarterly basis including changes in security ratings issued by ratings agencies, changes in the financial condition of the issuer, and, for mortgage-related and asset-backed securities, delinquency and loss information with respect to the underlying collateral, changes in the levels of subordination for the Company’s particular position within the repayment structure and remaining credit enhancement as compared to expected credit losses of the security. Substantially all of these securities continue to be investment grade rated by a major rating agency. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset backed securities.
The Company does not intend to sell any investments and has concluded that it is more likely than not that it will not be required to sell the investments prior to recovery of the amortized cost basis. Therefore, the Company does not consider these investments to be other-than-temporarily impaired as of June 30, 2014.
The fair values of the investment securities could decline in the future if the general economy deteriorates, inflation increases, credit ratings decline, the issuer’s financial condition deteriorates, or the liquidity for securities declines. As a result, other than temporary impairments may occur in the future.
As of June 30, 2014, $870,761 thousand of investment securities were pledged to secure public deposits, short-term borrowed funds, and term repurchase agreements, compared to $778,588 thousand at December 31, 2013.
[The remainder of this page intentionally left blank]
-13-
An analysis of gross unrealized losses of investment securities available for sale follows:
|
Investment Securities Available for Sale
At December 31, 2013 |
||||||||||||||||||||||||||||||||||||
|
No. of
|
Less than 12 months
|
No. of
|
12 months or longer
|
No. of
|
Total
|
|||||||||||||||||||||||||||||||
|
Investment
|
Unrealized
|
Investment
|
Unrealized
|
Investment
|
Unrealized
|
|||||||||||||||||||||||||||||||
|
Positions
|
Fair Value
|
Losses
|
Positions
|
Fair Value
|
Losses
|
Positions
|
Fair Value
|
Losses
|
||||||||||||||||||||||||||||
|
($ in thousands)
|
||||||||||||||||||||||||||||||||||||
|
U.S. Treasury securities
|
1 | $ | 2,994 | $ | (3 | ) | - | $ | - | $ | - | 1 | $ | 2,994 | $ | (3 | ) | |||||||||||||||||||
|
Securities of U.S. Government sponsored entities
|
15 | 91,669 | (663 | ) | - | - | - | 15 | 91,669 | (663 | ) | |||||||||||||||||||||||||
|
Residential mortgage-backed securities
|
3 | 864 | (15 | ) | - | - | - | 3 | 864 | (15 | ) | |||||||||||||||||||||||||
|
Commercial mortgage-backed securities
|
1 | 1,072 | (5 | ) | - | - | - | 1 | 1,072 | (5 | ) | |||||||||||||||||||||||||
|
Obligations of states and political subdivisions
|
35 | 17,516 | (222 | ) | 11 | 3,214 | (101 | ) | 46 | 20,730 | (323 | ) | ||||||||||||||||||||||||
|
Residential collateralized mortgage obligations
|
34 | 187,848 | (12,326 | ) | 6 | 40,575 | (2,398 | ) | 40 | 228,423 | (14,724 | ) | ||||||||||||||||||||||||
|
Asset-backed securities
|
1 | 5,002 | (1 | ) | 1 | 4,475 | (100 | ) | 2 | 9,477 | (101 | ) | ||||||||||||||||||||||||
|
Corporate securities
|
25 | 117,751 | (1,087 | ) | 2 | 9,824 | (177 | ) | 27 | 127,575 | (1,264 | ) | ||||||||||||||||||||||||
|
Other securities
|
- | - | - | 1 | 1,842 | (158 | ) | 1 | 1,842 | (158 | ) | |||||||||||||||||||||||||
|
Total
|
115 | $ | 424,716 | $ | (14,322 | ) | 21 | $ | 59,930 | $ | (2,934 | ) | 136 | $ | 484,646 | $ | (17,256 | ) | ||||||||||||||||||
An analysis of gross unrealized losses of investment securities held to maturity follows:
|
Investment Securities Held to Maturity
At December 31, 2013 |
||||||||||||||||||||||||||||||||||||
|
No. of
|
Less than 12 months
|
No. of
|
12 months or longer
|
No. of
|
Total
|
|||||||||||||||||||||||||||||||
|
Investment
|
Unrealized
|
Investment
|
Unrealized
|
Investment
|
Unrealized
|
|||||||||||||||||||||||||||||||
|
Positions
|
Fair Value
|
Losses
|
Positions
|
Fair Value
|
Losses
|
Positions
|
Fair Value
|
Losses
|
||||||||||||||||||||||||||||
|
($ in thousands)
|
||||||||||||||||||||||||||||||||||||
|
Securities of U.S. Government sponsored entities
|
1 | $ | 1,597 | $ | (4 | ) | - | $ | - | $ | - | 1 | $ | 1,597 | $ | (4 | ) | |||||||||||||||||||
|
Residential mortgage-backed securities
|
13 | 38,396 | (616 | ) | 1 | 392 | (8 | ) | 14 | 38,788 | (624 | ) | ||||||||||||||||||||||||
|
Obligations of states and political subdivisions
|
530 | 355,797 | (14,893 | ) | 64 | 64,427 | (6,774 | ) | 594 | 420,224 | (21,667 | ) | ||||||||||||||||||||||||
|
Residential collateralized mortgage obligations
|
42 | 214,981 | (5,175 | ) | 5 | 14,120 | (427 | ) | 47 | 229,101 | (5,602 | ) | ||||||||||||||||||||||||
|
Total
|
586 | $ | 610,771 | $ | (20,688 | ) | 70 | $ | 78,939 | $ | (7,209 | ) | 656 | $ | 689,710 | $ | (27,897 | ) | ||||||||||||||||||
The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments, particularly rising risk-free interest rates causing bond prices to decline.
The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from regular federal income tax:
|
For the Three Months
|
For the Six Months
|
|||||||||||||||
|
Ended June 30,
|
||||||||||||||||
|
2014
|
2013
|
2014
|
2013
|
|||||||||||||
|
(In thousands)
|
||||||||||||||||
|
Taxable
|
$ | 5,876 | $ | 5,591 | $ | 11,559 | $ | 11,125 | ||||||||
|
Tax-exempt
|
6,740 | 7,498 | 13,720 | 15,030 | ||||||||||||
|
Total interest income from investment securities
|
$ | 12,616 | $ | 13,089 | $ | 25,279 | $ | 26,155 | ||||||||
-14-
Note 4: Loans and Allowance for Credit Losses
The FDIC indemnification expired February 6, 2014 for County Bank non-single-family residential collateralized purchased loans; accordingly, such loans have been reclassified from purchased covered loans to purchased non-covered loans.
A summary of the major categories of loans outstanding is shown in the following tables.
|
At June 30, 2014
|
||||||||||||||||||||||||
|
Commercial
|
Commercial
Real Estate |
Construction
|
Residential
Real Estate |
Consumer
Installment |
Total
|
|||||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||||
|
Originated loans
|
$ | 368,853 | $ | 584,058 | $ | 9,802 | $ | 163,287 | $ | 391,278 | $ | 1,517,278 | ||||||||||||
|
Purchased covered loans:
|
||||||||||||||||||||||||
|
Gross purchased covered loans
|
- | - | - | 3,298 | 15,400 | 18,698 | ||||||||||||||||||
|
Credit risk discount
|
- | - | - | (434 | ) | (95 | ) | (529 | ) | |||||||||||||||
|
Purchased non-covered loans:
|
||||||||||||||||||||||||
|
Gross purchased non-covered loans
|
23,114 | 185,497 | 3,147 | 985 | 47,611 | 260,354 | ||||||||||||||||||
|
Credit risk discount
|
(1,858 | ) | (7,544 | ) | (50 | ) | (262 | ) | (1,479 | ) | (11,193 | ) | ||||||||||||
|
Total
|
$ | 390,109 | $ | 762,011 | $ | 12,899 | $ | 166,874 | $ | 452,715 | $ | 1,784,608 | ||||||||||||
|
At December 31, 2013
|
||||||||||||||||||||||||
|
Commercial
|
Commercial
Real Estate |
Construction
|
Residential
Real Estate |
Consumer
Installment |
Total
|
|||||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||||
|
Originated loans
|
$ | 338,824 | $ | 596,653 | $ | 10,723 | $ | 176,196 | $ | 400,888 | $ | 1,523,284 | ||||||||||||
|
Purchased covered loans:
|
||||||||||||||||||||||||
|
Gross purchased covered loans
|
20,066 | 175,562 | 3,223 | 8,558 | 54,194 | 261,603 | ||||||||||||||||||
|
Credit risk discount
|
(1,530 | ) | (8,122 | ) | (50 | ) | (434 | ) | (797 | ) | (10,933 | ) | ||||||||||||
|
Purchased non-covered loans:
|
||||||||||||||||||||||||
|
Gross purchased non-covered loans
|
7,525 | 35,712 | - | 999 | 12,799 | 57,035 | ||||||||||||||||||
|
Credit risk discount
|
(726 | ) | (786 | ) | - | (262 | ) | (1,471 | ) | (3,245 | ) | |||||||||||||
|
Total
|
$ | 364,159 | $ | 799,019 | $ | 13,896 | $ | 185,057 | $ | 465,613 | $ | 1,827,744 | ||||||||||||
Changes in the carrying amount of impaired purchased loans were as follows:
|
For the
Six Months Ended |
|||||