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EX-32.2 - EXHIBIT 32.2 - WESTAMERICA BANCORPORATIONexh_322.htm


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2014
 
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the transition period from __________ to __________.

Commission file number: 001-09383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
CALIFORNIA 94-2156203
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
 
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):

Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes 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
   
Common Stock,
No Par Value
26,009,414
 


 
 

 
TABLE OF CONTENTS


 
Page
Forward Looking Statements
PART I - FINANCIAL INFORMATION  
Item 1
 
 
Item 2
Item 3
Item 4
PART II - OTHER INFORMATION  
Item 1
Item 1A
Item 2
Item 3
Item 4
Item 5
Item 6
Signatures
Exhibit Index
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 32.1 - Certification of Chief Executive Officer Required by 18 U.S.C. Section 1350
Exhibit 32.2 - Certification of Chief Financial Officer Required by 18 U.S.C. Section 1350
 
 
-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)
 
   
At June 30,
   
At December 31,
 
   
2014
   
2013
 
   
(In thousands)
 
Assets:
           
Cash and due from banks
  $ 484,904     $ 472,028  
Investment securities available for sale
    1,278,242       1,079,381  
Investment securities held to maturity, with fair values of: $1,073,793 at June 30, 2014 and $1,112,676 at December 31, 2013
    1,069,135       1,132,299  
Loans
    1,784,608       1,827,744  
Allowance for loan losses
    (32,398 )     (31,693 )
Loans, net of allowance for loan losses
    1,752,210       1,796,051  
Other real estate owned
    8,543       13,320  
Premises and equipment, net
    37,424       37,314  
Identifiable intangibles, net
    16,394       18,557  
Goodwill
    121,673       121,673  
Other assets
    162,570       176,432  
Total Assets
  $ 4,931,095     $ 4,847,055  
                 
Liabilities:
               
Noninterest bearing deposits
  $ 1,814,023     $ 1,740,182  
Interest bearing deposits
    2,399,366       2,423,599  
Total deposits
    4,213,389       4,163,781  
Short-term borrowed funds
    68,962       62,668  
Federal Home Loan Bank advances
    20,296       20,577  
Term repurchase agreement
    10,000       10,000  
Other liabilities
    79,645       47,095  
Total Liabilities
    4,392,292       4,304,121  
                 
Shareholders' Equity:
               
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
    382,182       378,946  
Deferred compensation
    2,711       2,711  
Accumulated other comprehensive income
    12,554       4,313  
Retained earnings
    141,356       156,964  
Total Shareholders' Equity
    538,803       542,934  
Total Liabilities and Shareholders' Equity
  $ 4,931,095     $ 4,847,055  
 
See accompanying notes to unaudited consolidated financial statements.
 
-4-

 
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
   
For the Three Months
   
For the Six Months
 
   
Ended June 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(In thousands, except per share data)
 
Interest and Fee Income:
                       
Loans
  $ 22,787     $ 26,180     $ 45,688     $ 53,579  
Investment securities available for sale
    5,875       5,532       11,505       10,868  
Investment securities held to maturity
    6,741       7,557       13,774       15,287  
Total Interest and Fee Income
    35,403       39,269       70,967       79,734  
Interest Expense:
                               
Deposits
    754       847       1,508       1,746  
Short-term borrowed funds
    21       26       41       37  
Term repurchase agreement
    24       25       49       49  
Federal Home Loan Bank advances
    101       120       200       238  
Debt financing
    -       201       -       401  
Total Interest Expense
    900       1,219       1,798       2,471  
Net Interest Income
    34,503       38,050       69,169       77,263  
Provision for Loan Losses
    1,000       1,800       2,000       4,600  
Net Interest Income After Provision For Loan Losses
    33,503       36,250       67,169       72,663  
Noninterest Income:
                               
Service charges on deposit accounts
    6,105       6,452       12,115       12,994  
Merchant processing services
    1,820       2,413       3,744       4,822  
Debit card fees
    1,534       1,478       2,939       2,836  
Other service fees
    688       696       1,349       1,458  
ATM processing fees
    634       721       1,254       1,426  
Trust fees
    615       585       1,269       1,153  
Financial services commissions
    221       284       392       464  
Other
    1,581       1,655       3,126       3,409  
Total Noninterest Income
    13,198       14,284       26,188       28,562  
Noninterest Expense:
                               
Salaries and related benefits
    13,926       14,064       28,052       28,467  
Occupancy
    3,746       3,638       7,473       7,524  
Outsourced data processing services
    2,115       2,140       4,220       4,297  
Amortization of identifiable intangibles
    1,058       1,165       2,163       2,384  
Furniture and equipment
    1,005       1,021       2,010       1,901  
Courier service
    665       737       1,275       1,478  
Professional fees
    577       745       1,007       1,380  
Other real estate owned
    (270 )     278       (620 )     612  
Other
    4,135       4,404       8,250       8,826  
Total Noninterest Expense
    26,957       28,192       53,830       56,869  
Income Before Income Taxes
    19,744       22,342       39,527       44,356  
Provision for income taxes
    4,587       5,230       9,063       9,973  
Net Income
  $ 15,157     $ 17,112     $ 30,464     $ 34,383  
                                 
Average Common Shares Outstanding
    26,175       26,890       26,303       27,017  
Diluted Average Common Shares Outstanding
    26,238       26,898       26,387       27,027  
Per Common Share Data:
                               
Basic earnings
  $ 0.58     $ 0.64     $ 1.16     $ 1.27  
Diluted earnings
    0.58       0.64       1.15       1.27  
Dividends paid
    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)
 
   
For the Three Months
   
For the Six Months
 
   
Ended June 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(In thousands)
 
Net Income
  $ 15,157     $ 17,112     $ 30,464     $ 34,383  
Other comprehensive income:
                               
Increase (decrease) in net unrealized gains on securities available for sale
    6,366       (18,733 )     14,189       (17,461 )
Deferred tax (expense) benefit
    (2,677 )     7,876       (5,966 )     7,342  
Increase (decrease) in net unrealized gains on securities available for sale, net of tax
    3,689       (10,857 )     8,223       (10,119 )
Post-retirement benefit transition obligation amortization
    15       15       30       30  
Deferred tax expense
    (6 )     (6 )     (12 )     (12 )
Post-retirement benefit transition obligation amortization, net of tax
    9       9       18       18  
Total Other Comprehensive Income (Loss)
    3,698       (10,848 )     8,241       (10,101 )
Total Comprehensive Income
  $ 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)
 
   
Common
Shares
Outstanding
   
Common
Stock
   
Accumulated
Deferred
Compensation
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Retained
Earnings
   
Total
 
   
(In thousands)
 
                                     
Balance, December 31, 2012
    27,213     $ 372,012     $ 3,101     $ 14,625     $ 170,364     $ 560,102  
Net income for the period
                                    34,383       34,383  
Other comprehensive loss
                            (10,101 )             (10,101 )
Exercise of stock options
    157       6,414                               6,414  
Tax benefit decrease upon exercise of stock options
            (201 )                             (201 )
Restricted stock activity
    15       1,068       (390 )                     678  
Stock based compensation
            730                               730  
Stock awarded to employees
    1       61                               61  
Purchase and retirement of stock
    (617 )     (8,586 )                     (18,807 )     (27,393 )
Dividends
                                    (20,051 )     (20,051 )
Balance, June 30, 2013
    26,769     $ 371,498     $ 2,711     $ 4,524     $ 165,889     $ 544,622  
                                                 
Balance, December 31, 2013
    26,510     $ 378,946     $ 2,711     $ 4,313     $ 156,964     $ 542,934  
Net income for the period
                                    30,464       30,464  
Other comprehensive income
                            8,241               8,241  
Exercise of stock options
    252       12,178                               12,178  
Tax benefit decrease upon exercise of stock options
            (396 )                             (396 )
Restricted stock activity
    19       1,027                               1,027  
Stock based compensation
            700                               700  
Stock awarded to employees
    1       69                               69  
Purchase and retirement of stock
    (708 )     (10,342 )                     (26,013 )     (36,355 )
Dividends
                                    (20,059 )     (20,059 )
Balance, June 30, 2014
    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,
 
   
2014
   
2013
 
   
(In thousands)
 
Operating Activities:
           
Net income
  $ 30,464     $ 34,383  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    7,210       9,032  
Loan loss provision
    2,000       4,600  
Net amortization of deferred loan fees
    (134 )     (202 )
Decrease in interest income receivable
    105       88  
Increase in net deferred tax asset
    (2,624 )     (2,644 )
Decrease in other assets
    1,426       8,174  
Stock option compensation expense
    700       730  
Tax benefit decrease upon exercise of stock options
    396       201  
(Decrease) increase in income taxes payable
    (66 )     30  
(Decrease) increase in interest expense payable
    (1 )     9  
Increase (decrease) in other liabilities
    7,147       (5,482 )
Gain on sale of other assets
    (400 )     (548 )
Net loss on sale of premises and equipment
    17       9  
Originations of mortgage loans for resale
    -       (240 )
Proceeds from sale of mortgage loans originated for resale
    -       241  
Net gain on sale of foreclosed assets
    (810 )     (556 )
Writedown of foreclosed assets
    108       1,062  
Net Cash Provided by Operating Activities
    45,538       48,887  
                 
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
Gains
   
Gross
Unrealized
Losses
   
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
Gains
   
Gross
Unrealized
Losses
   
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
Gains
   
Gross
Unrealized
Losses
   
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
Gains
   
Gross
Unrealized
Losses
   
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 )

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-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.
 
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-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
& Other
   
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
& Other
   
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
June 30, 2014
   
For the Year Ended</