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EX-32.1 - EXHIBIT 32.1 - WESTAMERICA BANCORPORATIONexh_321.htm
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EXCEL - IDEA: XBRL DOCUMENT - WESTAMERICA BANCORPORATIONFinancial_Report.xls
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 September 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
(State or Other Jurisdiction of
Incorporation or Organization)
94-2156203
(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 October 24, 2014
Common Stock,
No Par Value
25,886,994
 
 

 
TABLE OF CONTENTS

   
 
Page
Forward Looking Statements
 3
PART I - FINANCIAL INFORMATION
 
Item 1    4
   
 9
   
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)
59
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
60
Exhibit 32.1 - Certification of Chief Executive Officer Required by 18 U.S.C. Section 1350
61
Exhibit 32.2 - Certification of Chief Financial Officer Required by 18 U.S.C. Section 1350
62
 
 
 
2

 
FORWARD-LOOKING STATEMENTS
 
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
Item 1  Financial Statements

WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)

   
At September 30,
   
At December 31,
 
   
2014
   
2013
 
   
(In thousands)
 
Assets:
           
Cash and due from banks
  $ 524,338     $ 472,028  
Investment securities available for sale
    1,391,362       1,079,381  
Investment securities held to maturity, with fair values of: $1,041,385 at September 30, 2014 and $1,112,676 at December 31, 2013
    1,035,041       1,132,299  
Loans
    1,732,382       1,827,744  
Allowance for loan losses
    (31,769 )     (31,693 )
      Loans, net of allowance for loan losses
    1,700,613       1,796,051  
Other real estate owned
    7,273       13,320  
Premises and equipment, net
    37,335       37,314  
Identifiable intangibles, net
    15,338       18,557  
Goodwill
    121,673       121,673  
Other assets
    160,752       176,432  
Total Assets
  $ 4,993,725     $ 4,847,055  
                 
Liabilities:
               
Noninterest bearing deposits
  $ 1,893,480     $ 1,740,182  
Interest bearing deposits
    2,428,158       2,423,599  
    Total deposits
    4,321,638       4,163,781  
Short-term borrowed funds
    76,943       62,668  
Federal Home Loan Bank advances
    20,156       20,577  
Term repurchase agreement
    -       10,000  
Other liabilities
    41,593       47,095  
Total Liabilities
    4,460,330       4,304,121  
                 
Shareholders' Equity:
               
Common stock (no par value), authorized - 150,000 shares Issued and outstanding:  25,906 at September 30, 2014 and 26,510 at December 31, 2013
    380,195       378,946  
Deferred compensation
    2,711       2,711  
Accumulated other comprehensive income
    9,733       4,313  
Retained earnings
    140,756       156,964  
Total Shareholders' Equity
    533,395       542,934  
Total Liabilities and  Shareholders' Equity
  $ 4,993,725     $ 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 Nine Months
 
   
Ended September 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(In thousands, except per share data)
 
Interest and Fee Income:
                       
Loans
  $ 22,129     $ 25,116     $ 67,817     $ 78,696  
Investment securities available for sale
    6,350       5,426       17,855       16,293  
Investment securities held to maturity
    6,421       7,414       20,195       22,701  
Total Interest and Fee Income
    34,900       37,956       105,867       117,690  
Interest Expense:
                               
Deposits
    709       809       2,216       2,555  
Short-term borrowed funds
    23       20       64       58  
Term repurchase agreement
    11       25       60       73  
Federal Home Loan Bank advances
    103       122       304       360  
Debt financing
    -       200       -       601  
Total Interest Expense
    846       1,176       2,644       3,647  
Net Interest Income
    34,054       36,780       103,223       114,043  
Provision for Loan Losses
    600       1,800       2,600       6,400  
Net Interest Income After Provision For Loan Losses
    33,454       34,980       100,623       107,643  
Noninterest Income:
                               
Service charges on deposit accounts
    6,207       6,433       18,322       19,427  
Merchant processing services
    1,742       2,151       5,485       6,973  
Debit card fees
    1,543       1,467       4,482       4,302  
Other service fees
    695       716       2,044       2,174  
ATM processing fees
    637       701       1,891       2,128  
Trust fees
    629       567       1,899       1,720  
Financial services commissions
    194       150       585       614  
Other
    1,407       2,234       4,534       5,643  
Total Noninterest Income
    13,054       14,419       39,242       42,981  
Noninterest Expense:
                               
Salaries and related benefits
    13,639       13,826       41,691       42,293  
Occupancy
    3,811       3,829       11,284       11,353  
Outsourced data processing services
    2,093       2,139       6,314       6,436  
Amortization of identifiable intangibles
    1,056       1,163       3,219       3,547  
Furniture and equipment
    1,059       974       3,070       2,875  
Professional fees
    700       730       1,707       2,109  
Courier service
    663       725       1,938       2,204  
Other real estate owned
    (287 )     179       (908 )     791  
Other
    3,882       4,193       12,131       13,019  
Total Noninterest Expense
    26,616       27,758       80,446       84,627  
Income Before Income Taxes
    19,892       21,641       59,419       65,997  
Provision for income taxes
    4,738       4,903       13,801       14,876  
Net Income
  $ 15,154     $ 16,738     $ 45,618     $ 51,121  
                                 
Average Common Shares Outstanding
    25,973       26,670       26,192       26,900  
Diluted Average Common Shares Outstanding
    26,016       26,705       26,262       26,919  
Per Common Share Data:
                               
Basic earnings
  $ 0.58     $ 0.63     $ 1.74     $ 1.90  
Diluted earnings
    0.58       0.63       1.74       1.90  
Dividends paid
    0.38       0.37       1.14       1.11  

See accompanying notes to unaudited consolidated financial statements.

 
5

 
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
   
For the Three Months
   
For the Nine Months
 
   
Ended September 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(In thousands)
 
Net income
  $ 15,154     $ 16,738     $ 45,618     $ 51,121  
Other comprehensive (loss) income:
                               
    (Decrease) increase in net unrealized gains on securities available for sale
    (4,884 )     (712 )     9,305       (18,173 )
    Deferred tax benefit (expense)
    2,054       299       (3,912 )     7,641  
        (Decrease) increase in net unrealized gains on securities available for sale, net of tax
    (2,830 )     (413 )     5,393       (10,532 )
    Post-retirement benefit transition obligation amortization
    15       15       45       45  
    Deferred tax expense
    (6 )     (6 )     (18 )     (18 )
        Post-retirement benefit transition obligation amortization, net of tax
    9       9       27       27  
Total other comprehensive (loss) income
    (2,821 )     (404 )     5,420       (10,505 )
Total comprehensive income
  $ 12,333     $ 16,334     $ 51,038     $ 40,616  

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
                                    51,121       51,121  
Other comprehensive loss
                            (10,505 )             (10,505 )
Exercise of stock options
    221       9,219                               9,219  
Tax benefit decrease upon exercise of stock options
            (202 )                             (202 )
Restricted stock activity
    15       1,068       (390 )                     678  
Stock based compensation
            1,081                               1,081  
Stock awarded to employees
    2       84                               84  
Retirement of common stock including repurchases
    (873 )     (12,174 )                     (27,615 )     (39,789 )
Dividends
                                    (29,949 )     (29,949 )
Balance, September 30, 2013
    26,578     $ 371,088     $ 2,711     $ 4,120     $ 163,921     $ 541,840  
                                                 
Balance, December 31, 2013
    26,510     $ 378,946     $ 2,711     $ 4,313     $ 156,964     $ 542,934  
Net income for the period
                                    45,618       45,618  
Other comprehensive income
                            5,420               5,420  
Exercise of stock options
    256       12,396                               12,396  
Tax benefit decrease upon exercise of stock options
            (447 )                             (447 )
Restricted stock activity
    21       1,114                               1,114  
Stock based compensation
            1,009                               1,009  
Stock awarded to employees
    2       88                               88  
Retirement of common stock including repurchases
    (883 )     (12,911 )                     (31,899 )     (44,810 )
Dividends
                                    (29,927 )     (29,927 )
Balance, September 30, 2014
    25,906     $ 380,195     $ 2,711     $ 9,733     $ 140,756     $ 533,395  

See accompanying notes to unaudited consolidated financial statements.
 
 
7

 
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
   
For the Nine Months
Ended September 30,
 
   
2014
   
2013
 
   
(In thousands)
 
Operating Activities:
           
Net income
  $ 45,618     $ 51,121  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    12,275       13,325  
Loan loss provision
    2,600       6,400  
Net amortization of deferred loan fees
    (179 )     (333 )
Decrease in interest income receivable
    1,537       1,420  
Decrease in other assets
    1,390       7,344  
(Decrease) increase in income taxes payable
    (1,160 )     856  
Increase in net deferred tax asset
    (19 )     (3,719 )
(Decrease) increase in interest expense payable
    (102 )     50  
Decrease in other liabilities
    (3,841 )     (984 )
Stock option compensation expense
    1,009       1,081  
Tax benefit decrease upon exercise of stock options
    447       202  
Gain on sale of other assets
    (400 )     (548 )
Net loss on sale of premises and equipment
    22       16  
Originations of mortgage loans for resale
    -       (441 )
Proceeds from sale of mortgage loans originated for resale
    -       447  
Net gain on sale of foreclosed assets
    (1,014 )     (892 )
Writedown of foreclosed assets
    113       1,752  
Net Cash Provided by Operating Activities
    58,296       77,097  
Investing Activities:
               
Net repayments of loans
    93,115       231,002  
Proceeds from FDIC1 loss-sharing indemnification
    6,703       6,478  
Purchases of investment securities available for sale
    (747,630 )     (355,440 )
Proceeds from sale/maturity/calls of securities available for sale
    444,906       100,660  
Purchases of investment securities held to maturity
    (26,435 )     (152,116 )
Proceeds from maturity/calls of securities held to maturity
    115,799       164,369  
Purchases of premises and equipment
    (2,392 )     (1,581 )
Net change in FRB2/FHLB3 securities
    3,248       2,243  
Proceeds from sale of foreclosed assets
    7,549       14,986  
Net Cash (Used in) Provided by Investing Activities
    (105,137 )     10,601  
Financing Activities:
               
Net change in deposits
    157,947       (123,914 )
Net change in short-term borrowings and FHLB3 advances
    3,992       (5,866 )
Exercise of stock options
    12,396       9,219  
Tax benefit decrease upon exercise of stock options
    (447 )     (202 )
Retirement of common stock including repurchases
    (44,810 )     (39,789 )
Common stock dividends paid
    (29,927 )     (29,949 )
Net Cash Provided by (Used in) Financing Activities
    99,151       (190,501 )
Net Change In Cash and Due from Banks
    52,310       (102,803 )
Cash and Due from Banks at Beginning of Period
    472,028       491,382  
Cash and Due from Banks at End of Period
  $ 524,338     $ 388,579  
                 
Supplemental Cash Flow Disclosures:
               
Supplemental disclosure of non cash activities:
               
  Loan collateral transferred to other real estate owned
  $ 968     $ 5,404  
  Securities purchases pending settlement
    2,622       1,961  
Supplemental disclosure of cash flow activities:
               
  Interest paid for the period
    2,959       3,982  
  Income tax payments for the period
    14,981       17,931  

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

 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 nine months ended September 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 September 30, 2014
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
   
(In thousands)
 
U.S. Treasury securities
  $ 3,499     $ 10     $ -     $ 3,509  
Securities of U.S. Government sponsored entities
    442,482       214       (1,160 )     441,536  
Residential mortgage-backed securities
    26,574       1,799       (20 )     28,353  
Commercial mortgage-backed securities
    3,021       7       (7 )     3,021  
Obligations of states and political subdivisions
    176,614       10,203       (197 )     186,620  
Residential collateralized mortgage obligations
    240,091       594       (11,400 )     229,285  
Asset-backed securities
    8,674       -       (35 )     8,639  
FHLMC(1) and FNMA(2) stock
    804       13,798       -       14,602  
Corporate securities
    470,570       3,674       (1,106 )     473,138  
Other securities
    2,039       756       (136 )     2,659  
Total
  $ 1,374,368     $ 31,055     $ (14,061 )   $ 1,391,362  

(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 September 30, 2014
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
   
(In thousands)
 
Securities of U.S. Government sponsored entities
  $ 1,164     $ -     $ -     $ 1,164  
Residential mortgage-backed securities
    59,182       926       (86 )     60,022  
Obligations of states and political subdivisions
    703,554       11,483       (2,909 )     712,128  
Residential collateralized mortgage obligations
    271,141       1,673       (4,743 )     268,071  
Total
  $ 1,035,041     $ 14,082     $ (7,738 )   $ 1,041,385  
 
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 September 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
  $ 45,444     $ 45,671     $ 13,767     $ 14,233  
Over 1 to 5 years
    625,789       629,181       216,979       220,062  
Over 5 to 10 years
    362,884       366,119       270,071       273,124  
Over 10 years
    67,722       72,471       203,901       205,873  
Subtotal
    1,101,839       1,113,442       704,718       713,292  
Mortgage-backed securities and residential collateralized mortgage obligations
    269,686       260,659       330,323       328,093  
Other securities
    2,843       17,261       -       -  
Total
  $ 1,374,368     $ 1,391,362     $ 1,035,041     $ 1,041,385  

Securities available for sale at September 30, 2014 with maturity dates over five years but less than ten years include $255,634 (fair value) of securities of U.S. Government sponsored entities with call options on dates within one year or less, of which $89,821 have interest coupons which will increase if the issuer does not exercise the call option.

 
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 September 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 September 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
    24     $ 358,842     $ (1,103 )     1     $ 9,943     $ (57 )     25     $ 368,785     $ (1,160 )
Residential mortgage-backed securities
    -       -       -       2       828       (20 )     2       828       (20 )
Commercial mortgage-backed securities
    -       -       -       2       1,822       (7 )     2       1,822       (7 )
Obligations of states and political subdivisions
    8       2,783       (46 )     21       6,460       (151 )     29       9,243       (197 )
Residential collateralized mortgage obligations
    -       -       -       38       209,504       (11,400 )     38       209,504       (11,400 )
Asset-backed securities
    1       5,030       (1 )     1       3,609       (34 )     2       8,639       (35 )
Corporate securities
    31       93,716       (772 )     5       34,218       (334 )     36       127,934       (1,106 )
Other securities
    -       -       -       1       1,864       (136 )     1       1,864       (136 )
Total
    64     $ 460,371     $ (1,922 )     71     $ 268,248     $ (12,139 )     135     $ 728,619     $ (14,061 )

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12

 
An analysis of gross unrealized losses of investment securities held to maturity follows:

   
Investment Securities Held to Maturity
At September 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     $ 1,164     $ -       -     $ -     $ -       1     $ 1,164     $ -  
Residential  mortgage-backed securities
    2       9,658       (48 )     2       3,320       (38 )     4       12,978       (86 )
Obligations of states and political subdivisions
    14       10,434       (45 )     180       162,095       (2,864 )     194       172,529       (2,909 )
Residential collateralized mortgage obligations
    15       63,098       (787 )     23       132,175       (3,956 )     38       195,273       (4,743 )
Total
    32     $ 84,354     $ (880 )     205     $ 297,590     $ (6,858 )     237     $ 381,944     $ (7,738 )
 
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 September 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 September 30, 2014, $773,297 thousand of investment securities were pledged to secure public deposits, short-term borrowed funds and FHLB advances. As of December 31, 2013, $778,588 thousand of investment securities were pledged to secure public deposits, short-term borrowed funds, FHLB advances and term repurchase agreements.

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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 that is fully taxable and that is exempt from regular federal income tax:

   
For the Three Months
   
For the Nine Months
 
   
Ended September 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(In thousands)
 
Taxable
  $ 6,348     $ 5,502     $ 17,907     $ 16,626  
Tax-exempt
    6,423       7,338       20,143       22,368  
Total interest income from investment securities
  $ 12,771     $ 12,840     $ 38,050     $ 38,994  
 
 
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 September 30, 2014
 
   
Commercial
   
Commercial
Real Estate
   
Construction
   
Residential
Real Estate
   
Consumer
Installment
& Other
   
Total
 
   
(In thousands)
 
Originated loans
  $ 370,060     $ 573,179     $ 9,824     $ 156,794     $ 379,708     $ 1,489,565  
Purchased covered loans:
                                               
    Gross purchased covered loans
    -       -       -       2,905       15,119       18,024  
    Credit risk discount
    -       -       -       (434 )     (67 )     (501 )
Purchased non-covered loans:
                                               
    Gross purchased non-covered loans
    20,318       167,052       2,931       979       44,247       235,527  
    Credit risk discount
    (1,460 )     (7,060 )     (50 )     (262 )     (1,401 )     (10,233 )
        Total
  $ 388,918     $ 733,171     $ 12,705     $ 159,982     $ 437,606     $ 1,732,382  
 
   
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
Nine Months Ended
September 30, 2014