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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 March 31, 2015
 
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 April 27, 2015
Common Stock,
No Par Value
 
25,550,676
 
 
 

 
TABLE OF CONTENTS


 
Page
PART I - FINANCIAL INFORMATION
 
PART II - OTHER INFORMATION
 
 
 
-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, 2014, 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 March 31,
   
At December 31,
 
   
2015
   
2014
 
   
(In thousands)
 
Assets:
           
Cash and due from banks
  $ 247,450     $ 380,836  
Investment securities available for sale
    1,777,320       1,600,781  
Investment securities held to maturity, with fair values of: $1,030,865 at March 31, 2015 and $1,048,562 at December 31, 2014
    1,015,231       1,038,658  
Loans
    1,683,884       1,700,290  
Allowance for loan losses
    (31,187 )     (31,485 )
Loans, net of allowance for loan losses
    1,652,697       1,668,805  
Other real estate owned
    9,233       6,374  
Premises and equipment, net
    38,313       37,852  
Identifiable intangibles, net
    13,286       14,287  
Goodwill
    121,673       121,673  
Other assets
    160,574       166,458  
Total Assets
  $ 5,035,777     $ 5,035,724  
                 
Liabilities:
               
Deposits:
               
Noninterest bearing deposits
  $ 1,902,904     $ 1,910,781  
Interest bearing deposits
    2,477,172       2,438,410  
Total deposits
    4,380,076       4,349,191  
Short-term borrowed funds
    82,960       89,784  
Federal Home Loan Bank advances
    -       20,015  
Other liabilities
    45,361       50,131  
Total Liabilities
    4,508,397       4,509,121  
                 
Shareholders' Equity:
               
Common stock (no par value), authorized - 150,000 shares
     Issued and outstanding - 25,563 at March 31, 2015 and 25,745 at December 31, 2014
    374,958       378,132  
Deferred compensation
    2,711       2,711  
Accumulated other comprehensive income
    9,600       5,292  
Retained earnings
    140,111       140,468  
Total Shareholders' Equity
    527,380       526,603  
Total Liabilities and Shareholders' Equity
  $ 5,035,777     $ 5,035,724  

See accompanying notes to unaudited consolidated financial statements.
 
 
-4-

 
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
   
For the
Three Months Ended
March 31,
 
   
2015
   
2014
 
   
(In thousands,
 
   
except per share data)
 
Interest and Fee Income:
           
Loans
  $ 20,230     $ 22,901  
Investment securities available for sale
    7,469       5,630  
Investment securities held to maturity
    6,218       7,033  
Total Interest and Fee Income
    33,917       35,564  
Interest Expense:
               
Deposits
    642       754  
Short-term borrowed funds
    16       20  
Federal Home Loan Bank advances
    1       99  
Term repurchase agreement
    -       25  
Total Interest Expense
    659       898  
Net Interest Income
    33,258       34,666  
Provision for Loan Losses
    -       1,000  
Net Interest Income After Provision For Loan Losses
    33,258       33,666  
Noninterest Income:
               
Service charges on deposit accounts
    5,707       6,010  
Merchant processing services
    1,703       1,924  
Debit card fees
    1,456       1,405  
Trust fees
    706       654  
Other service fees
    665       661  
ATM processing fees
    585       620  
Financial services commissions
    153       171  
Other
    1,325       1,545  
Total Noninterest Income
    12,300       12,990  
Noninterest Expense:
               
Salaries and related benefits
    13,338       14,126  
Occupancy
    3,727       3,727  
Outsourced data processing services
    2,108       2,105  
Furniture and equipment
    1,119       1,005  
Amortization of identifiable intangibles
    1,001       1,105  
Professional fees
    548       430  
Courier service
    543       610  
Other real estate owned
    315       (350 )
Other
    4,028       4,115  
Total Noninterest Expense
    26,727       26,873  
Income Before Income Taxes
    18,831       19,783  
Provision for income taxes
    4,274       4,476  
Net Income
  $ 14,557     $ 15,307  
                 
Average Common Shares Outstanding
    25,651       26,433  
Diluted Average Common Shares Outstanding
    25,655       26,537  
Per Common Share Data:
               
Basic earnings
  $ 0.57     $ 0.58  
Diluted earnings
    0.57       0.58  
Dividends paid
    0.38       0.38  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
-5-

 
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
   
For the Three Months Ended
March 31,
 
   
2015
   
2014
 
   
(In thousands)
 
Net income
  $ 14,557     $ 15,307  
Other comprehensive income:
               
Increase in net unrealized gains on securities available for sale
    7,418       7,823  
Deferred tax expense
    (3,119 )     (3,289 )
Increase in net unrealized gains on securities available for sale, net of tax
    4,299       4,534  
Post-retirement benefit transition obligation amortization
    15       15  
Deferred tax expense
    (6 )     (6 )
Post-retirement benefit transition obligation amortization, net of tax
    9       9  
Total other comprehensive income
    4,308       4,543  
Total comprehensive income
  $ 18,865     $ 19,850  
 
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
   
Retained
Earnings
   
Total
 
   
(In thousands)
 
                                     
Balance, December 31, 2013
    26,510     $ 378,946     $ 2,711     $ 4,313     $ 156,964     $ 542,934  
Net income for the period
                                    15,307       15,307  
Other comprehensive income
                            4,543               4,543  
Exercise of stock options
    225       10,853                               10,853  
Tax benefit decrease upon expiration/ exercise of stock options
            (369 )                             (369 )
Stock based compensation
            359                               359  
Stock awarded to employees
    1       52                               52  
Retirement of common stock including repurchases
    (437 )     (6,351 )                     (16,359 )     (22,710 )
Dividends
                                    (10,086 )     (10,086 )
Balance, March 31, 2014
    26,299     $ 383,490     $ 2,711     $ 8,856     $ 145,826     $ 540,883  
                                                 
Balance, December 31, 2014
    25,745     $ 378,132     $ 2,711     $ 5,292     $ 140,468     $ 526,603  
Net income for the period
                                    14,557       14,557  
Other comprehensive income
                            4,308               4,308  
Exercise of stock options
    -       -                               -  
Tax benefit decrease upon expiration of stock options
            (865 )                             (865 )
Stock based compensation
            354                               354  
Stock awarded to employees
    1       45                               45  
Retirement of common stock including repurchases
    (183 )     (2,708 )                     (5,159 )     (7,867 )
Dividends
                                    (9,755 )     (9,755 )
Balance, March 31, 2015
    25,563     $ 374,958     $ 2,711     $ 9,600     $ 140,111     $ 527,380  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
-7-

 
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
   
For the Three Months
Ended March 31,
 
   
2015
   
2014
 
   
(In thousands)
 
Operating Activities:
           
Net income
  $ 14,557     $ 15,307  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    3,930       4,103  
Loan loss provision
    -       1,000  
Net amortization of deferred loan fees
    (78 )     (30 )
Decrease in interest income receivable
    812       643  
Increase in deferred tax asset
    (421 )     (756 )
Increase in other assets
    (822 )     (185 )
Stock option compensation expense
    354       359  
Tax benefit decrease upon expiration/exercise of stock options
    865       369  
Increase in income taxes payable
    4,695       5,232  
Increase in interest expense payable
    21       5  
(Decrease) increase in other liabilities
    (6,850 )     8,507  
Gain on sale of other assets
    -       (400 )
Writedown/loss on sale of premises and equipment
    4       16  
Net gain on sale of foreclosed assets
    -       (493 )
Writedown of foreclosed assets
    243       69  
Net Cash Provided by Operating Activities
    17,310       33,746  
                 
Investing Activities:
               
Net repayments of loans
    13,805       9,598  
Proceeds from FDIC1 loss-sharing agreement
    -       44  
Purchases of investment securities available for sale
    (354,527 )     (237,948 )
Proceeds from sale/maturity/calls of securities available for sale
    185,073       99,350  
Purchases of investment securities held to maturity
    (10,359 )     (17,993 )
Proceeds from maturity/calls of securities held to maturity
    30,468       34,403  
Purchases of premises and equipment
    (1,326 )     (166 )
Proceeds from sale of FRB2/FHLB3 stock
    490       3,248  
Proceeds from sale of foreclosed assets
    100       2,159  
Net Cash Used in Investing Activities
    (136,276 )     (107,305 )
                 
Financing Activities:
               
Net change in deposits
    30,891       51,063  
Net change in short-term borrowings and FHLB3 advances
    (26,824 )     1,620  
Exercise of stock options/issuance of shares
    -       10,853  
Tax benefit decrease upon expiration/exercise of stock options
    (865 )     (369 )
Retirement of common stock including repurchases
    (7,867 )     (22,710 )
Common stock dividends paid
    (9,755 )     (10,086 )
Net Cash (Used in) Provided by Financing Activities
    (14,420 )     30,371  
Net Change In Cash and Due from Banks
    (133,386 )     (43,188 )
Cash and Due from Banks at Beginning of Period
    380,836       472,028  
Cash and Due from Banks at End of Period
  $ 247,450     $ 428,840  
                 
Supplemental Cash Flow Disclosures:
               
Supplemental disclosure of noncash activities:
               
Loan collateral transferred to other real estate owned
  $ 3,202     $ 968  
Securities purchases pending settlement
    1,478       (11,231 )
Supplemental disclosure of cash flow activities:
               
Interest paid for the period
    775       987  
Income tax payments for the period
    -       -  
 
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 in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission and follow general practices within the banking industry. 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 months ended March 31, 2015 and 2014 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, 2014.
 
Note 2: Accounting Policies

The most significant accounting policies followed by the Company are presented 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, 2014. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, Management has identified the allowance for loan losses accounting to be the accounting area requiring the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available. A discussion of the factors affecting accounting for the allowance for loan losses and purchased loans is included in the “Loan Portfolio Credit Risk” discussion below. Certain amounts in prior periods have been reclassified to conform to the current presentation.

Application of these principles requires the Company to make certain estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment writedown or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.

Recently Adopted Accounting Standards

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.

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.

The adoption of the update was limited to additional disclosures only and did not have a material effect on the Company’s financial statements at January 1, 2015, the date adopted.

 
-9-

 
FASB ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralizes Consumer Mortgage Loans upon Foreclosure, was issued on January 17, 2014, providing clarification that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.

The adoption of the update was limited to additional disclosures only and did not have a material effect on the Company’s financial statements at January 1, 2015, 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.
 
Note 3:  Investment Securities

An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio follows:

   
Investment Securities Available for Sale
At March 31, 2015
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
   
(In thousands)
 
U.S. Treasury securities
  $ 3,500     $ 4     $ -     $ 3,504  
Securities of U.S. Government sponsored entities
    631,974       1,637       (3 )     633,608  
Residential mortgage-backed securities
    22,625       1,682       (9 )     24,298  
Commercial mortgage-backed securities
    2,826       5       (11 )     2,820  
Obligations of states and political subdivisions
    165,063       10,756       (125 )     175,694  
Residential collateralized mortgage obligations
    220,397       644       (5,142 )     215,899  
Asset-backed securities
    3,015       -       (23 )     2,992  
FHLMC1 and FNMA2 stock
    775       5,685       -       6,460  
Corporate securities
    708,371       2,911       (2,025 )     709,257  
Other securities
    2,039       867       (118 )     2,788  
Total
  $ 1,760,585     $ 24,191     $ (7,456 )   $ 1,777,320  
 
1 Federal Home Loan Mortgage Corporation
2 Federal National Mortgage Association
 
 
-10-

 
An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities portfolio follows:

   
Investment Securities Held to Maturity
At March 31, 2015
 
   
Amortized
Cost
   
Gross
Unrecognized
Gains
   
Gross
Unrecognized
Losses
   
Fair
Value
 
   
(In thousands)
 
Securities of U.S. government sponsored entities
  $ 995     $ 12     $ -     $ 1,007  
Residential mortgage-backed securities
    57,259       1,319       (64 )     58,514  
Obligations of states and political subdivisions
    712,374       13,478       (1,062 )     724,790  
Residential collateralized mortgage obligations
    244,603       2,811       (860 )     246,554  
Total
  $ 1,015,231     $ 17,620     $ (1,986 )   $ 1,030,865  
 
An analysis of the amortized cost, gross unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio follows:

   
Investment Securities Available for Sale
At December 31, 2014
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
   
(In thousands)
 
U.S. Treasury securities
  $ 3,500     $ 5     $ -     $ 3,505  
Securities of U.S. Government sponsored entities
    635,278       937       (1,027 )     635,188  
Residential mortgage-backed securities
    24,647       1,776       (16 )     26,407  
Commercial mortgage-backed securities
    2,923       6       (10 )     2,919  
Obligations of states and political subdivisions
    171,907       10,015       (123 )     181,799  
Residential collateralized mortgage obligations
    230,347       634       (8,524 )     222,457  
Asset-backed securities
    8,349       -       (36 )     8,313  
FHLMC1 and FNMA2 stock
    775       4,393       -       5,168  
Corporate securities
    511,699       2,169       (1,629 )     512,239  
Other securities
    2,039       871       (124 )     2,786  
Total
  $ 1,591,464     $ 20,806     $ (11,489 )   $ 1,600,781  
 
1 Federal Home Loan Mortgage Corporation
2 Federal National Mortgage Association

An analysis of the amortized cost, gross unrecognized gains and losses, and fair value of the held to maturity investment securities portfolio follows:

   
Investment Securities Held to Maturity
At December 31, 2014
 
   
Amortized
Cost
   
Gross
Unrecognized
Gains
   
Gross
Unrecognized
Losses
   
Fair
Value
 
   
(In thousands)
 
Securities of U.S. government sponsored entities
  $ 1,066     $ 11     $ -     $ 1,077  
Residential mortgage-backed securities
    59,078       1,183       (137 )     60,124  
Obligations of states and political subdivisions
    720,189       11,350       (2,358 )     729,181  
Residential collateralized mortgage obligations
    258,325       2,236       (2,381 )     258,180  
Total
  $ 1,038,658     $ 14,780     $ (4,876 )   $ 1,048,562  

 
-11-

 
The amortized cost and fair value of investment securities by contractual maturity are shown in the following tables at the dates indicated:

   
At March 31, 2015
 
   
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
  $ 80,420     $ 80,658     $ 15,322     $ 15,829  
Over 1 to 5 years
    973,932       976,816       247,297       249,867  
Over 5 to 10 years
    409,874       416,005       270,191       275,665  
Over 10 years
    47,697       51,576       180,559       184,436  
Subtotal
    1,511,923       1,525,055       713,369       725,797  
Mortgage-backed securities and residential collateralized mortgage obligations
    245,848       243,017       301,862       305,068  
Other securities
    2,814       9,248       -       -  
Total
  $ 1,760,585     $ 1,777,320     $ 1,015,231     $ 1,030,865  
 
Securities available for sale at March 31, 2015 with maturity dates over one year but less than five years include $351,761 thousand (fair value) of securities of U.S. Government sponsored entities with call options on dates within one year or less, of which $71,129 thousand have interest coupons which will increase if the issuer does not exercise the call option.

   
At December 31, 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
  $ 57,891     $ 57,991     $ 15,355     $ 15,855  
Over 1 to 5 years
    629,200       630,797       228,380       230,248  
Over 5 to 10 years
    584,872       589,250       285,219       288,631  
Over 10 years
    58,770       63,006       192,301       195,524  
Subtotal
    1,330,733       1,341,044       721,255       730,258  
Mortgage-backed securities and residential collateralized mortgage obligations
    257,917       251,783       317,403       318,304  
Other securities
    2,814       7,954       -       -  
Total
  $ 1,591,464     $ 1,600,781     $ 1,038,658     $ 1,048,562  
 
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 March 31, 2015 and December 31, 2014, the Company had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.
 
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-12-

 
An analysis of the gross unrealized losses of the available for sale investment securities portfolio follows:

   
Investment Securities Available for Sale
At March 31, 2015
 
 
 
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     $ 9,997     $ (3 )     1     $ 9,997     $ (3 )
Residential mortgage-backed securities
    -       -       -       1       803       (9 )     1       803       (9 )
Commercial mortgage-backed securities
    1       921       (6 )     1       751       (5 )     2       1,672       (11 )
Obligations of states and political subdivisions
    5       2,380       (20 )     11       3,842       (105 )     16       6,222       (125 )
Residential collateralized mortgage obligations
    -       -       -       29       184,632       (5,142 )     29       184,632       (5,142 )
Asset-backed securities
    -       -       -       1       2,992       (23 )     1       2,992       (23 )
Corporate securities
    59       232,085       (1,769 )     6       33,078       (256 )     65       265,163       (2,025 )
Other securities
    -       -       -       1       1,882       (118 )     1       1,882       (118 )
Total
    65     $ 235,386     $ (1,795 )     51     $ 237,977     $ (5,661 )     116     $ 473,363     $ (7,456 )
 
An analysis of gross unrecognized losses of the held to maturity investment securities portfolio follows:

   
Investment Securities Held to Maturity
At March 31, 2015
 
 
 
No. of
   
Less than 12 months
   
No. of
   
12 months or longer
   
No. of
   
Total
 
 
 
Investment
   
 
   
Unrecognized
   
Investment
   
 
   
Unrecognized
   
Investment
   
 
   
Unrecognized
 
 
 
Positions
   
Fair Value
   
Losses
   
Positions
   
Fair Value
   
Losses
   
Positions
   
Fair Value
   
Losses
 
   
($ in thousands)
 
Residential  mortgage-backed securities
    2     $ 14,483     $ (60 )     1     $ 163     $ (4 )     3     $ 14,646     $ (64 )
Obligations of states and political subdivisions
    45       32,117       (177 )     83       70,639       (885 )     128       102,756       (1,062 )
Residential collateralized mortgage obligations
    4       13,767       (134 )     16       83,929       (726 )     20       97,696       (860 )
Total
    51     $ 60,367     $ (371 )     100     $ 154,731     $ (1,615 )     151     $ 215,098     $ (1,986 )
 
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 March 31, 2015.

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.

 
-13-

 
As of March 31, 2015, $720,036 thousand of investment securities were pledged to secure public deposits and short-term borrowed funds. As of December 31, 2014, $757,623 thousand of investment securities were pledged to secure public deposits, short-term borrowed funds and FHLB advances.

An analysis of gross unrealized losses of investment securities available for sale follows:

   
Investment Securities Available for Sale
At December 31, 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
    15     $ 253,632     $ (989 )     1     $ 9,963     $ (38 )     16     $ 263,595     $ (1,027 )
Residential mortgage-backed securities
    -       -       -       2       822       (16 )     2       822       (16 )
Commercial mortgage-backed securities
    1       942       (7 )     1       803       (3 )     2       1,745       (10 )
Obligations of states and political subdivisions
    7       2,548       (18 )     17       5,518       (105 )     24       8,066       (123 )
Residential collateralized mortgage obligations
    -       -       -       32       205,074       (8,524 )     32       205,074       (8,524 )
Asset-backed securities
    1       5,008       (7 )     1       3,305       (29 )     2       8,313       (36 )
Corporate securities
    53       165,026       (1,304 )     5       34,222       (325 )     58       199,248       (1,629 )
Other securities
    -       -       -       1       1,876       (124 )     1       1,876       (124 )
Total
    77     $ 427,156     $ (2,325 )     60     $ 261,583     $ (9,164 )     137     $ 688,739     $ (11,489 )
 
An analysis of gross unrecognized losses of investment securities held to maturity follows:

   
Investment Securities Held to Maturity
At December 31, 2014
 
 
 
No. of
   
Less than 12 months
   
No. of
   
12 months or longer
   
No. of
   
Total
 
 
 
Investment
   
 
   
Unrecognized
   
Investment
   
 
   
Unrecognized
   
Investment
   
 
   
Unrecognized
 
 
 
Positions
   
Fair Value
   
Losses
   
Positions
   
Fair Value
   
Losses
   
Positions
   
Fair Value
   
Losses
 
   
($ in thousands)
 
Residential  mortgage-backed securities
    4     $ 19,467     $ (132 )     1     $ 201     $ (5 )     5     $ 19,668     $ (137 )
Obligations of states and political subdivisions
    103       76,202       (439 )     138       123,370       (1,919 )     241       199,572       (2,358 )
Residential collateralized mortgage obligations
    5       13,932       (166 )     22       119,513       (2,215 )     27       133,445       (2,381 )
Total
    112     $ 109,601     $ (737 )     161     $ 243,084     $ (4,139 )     273     $ 352,685     $ (4,876 )
 
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
Ended March 31,
 
   
2015
   
2014
 
   
(In thousands)
 
             
Taxable
  $ 7,554     $ 5,683  
Tax-exempt
    6,133       6,980  
Total interest income from investment securities
  $ 13,687     $ 12,663  
 
 
-14-

 
Note 4: Loans and Allowance for Credit Losses

A summary of the major categories of loans outstanding is shown in the following tables.

   
At March 31, 2015
 
   
Commercial
   
Commercial
Real Estate
   
Construction
   
Residential
Real Estate
   
Consumer
Installment
& Other
   
Total
 
   
(In thousands)
 
Originated loans
  $ 391,863     $ 548,936     $ 12,438     $ 140,334     $ 371,975     $ 1,465,546  
Purchased covered loans:
                                               
Gross purchased covered loans
    -       -       -       2,574       13,955       16,529  
Credit risk discount
    -       -       -       (133 )     (67 )     (200 )
Purchased non-covered loans:
                                               
Gross purchased non-covered loans
    17,367       152,167       1,021       1,206       38,953       210,714  
Credit risk discount
    (1,255 )     (5,904 )     -       (262 )     (1,284 )     (8,705 )
Total
  $ 407,975     $ 695,199     $ 13,459     $ 143,719     $ 423,532     $ 1,683,884  
 
   
At December 31, 2014
 
   
Commercial
   
Commercial
Real Estate
   
Construction
   
Residential
Real Estate
   
Consumer
Installment
& Other
   
Total
 
   
(In thousands)
 
Originated loans
  $ 374,005     $ 567,594     $ 11,003     $ 146,925     $ 370,842     $ 1,470,369  
Purchased covered loans:
                                               
Gross purchased covered loans
    -       -       -       2,626       14,920       17,546  
Credit risk discount
    -       -       -       (434 )     (34 )     (468 )
Purchased non-covered loans:
                                               
Gross purchased non-covered loans
    19,166       157,502       2,919       972       41,656       222,215  
Credit risk discount
    (1,356 )     (6,492 )     (50 )     (262 )     (1,212 )     (9,372 )
Total
  $ 391,815     $ 718,604     $ 13,872     $ 149,827     $ 426,172     $ 1,700,290  
 
Changes in the carrying amount of impaired purchased loans were as follows:

   
For the
Three Months Ended
March 31, 2015
   
For the Year Ended
December 31, 2014
 
Impaired purchased loans
 
(In thousands)
 
Carrying amount at the beginning of the period
  $ 4,672     $ 4,936  
Reductions during the period
    (16 )     (264 )
Carrying amount at the end of the period
  $ 4,656     $ 4,672  
 
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-15-

 
Changes in the accretable yield for purchased loans were as follows:

   
For the
Three Months Ended
March 31, 2015
   
For the
Year Ended
December 31, 2014
 
Accretable yield:
 
(In thousands)
 
Balance at the beginning of the period
  $ 2,261     $ 2,505  
Reclassification from nonaccretable difference
    739       5,016  
Accretion
    (973 )     (5,260 )
Balance at the end of the period
  $ 2,027     $ 2,261  
                 
Accretion
  $ (973 )   $ (5,260 )
Change in FDIC indemnification
    141       1,110  
(Increase) in interest income
  $ (832 )   $ (4,150 )
 
The following summarizes activity in the allowance for credit losses:

   
Allowance for Loan Losses
For the Three Months Ended March 31, 2015
 
   
Commercial
   
Commercial
Real Estate
   
Construction
   
Residential
Real Estate
   
Consumer
Installment
and Other
   
Purchased
Non-covered
Loans
   
Purchased
Covered
Loans
   
Unallocated
   
Total
 
   
(In thousands)
 
Allowance for loan losses:
                                                     
Balance at beginning of period
  $ 5,460     $ 4,245     $ 644     $ 2,241     $ 7,717     $ 2,120     $ -     $ 9,058     $ 31,485  
Additions:
                                                                       
Provision
    (110 )     (137 )     86       (101 )     (281 )     247       -       296       -  
Deductions:
                                                                       
Chargeoffs
    (60 )             -               (995 )     (35 )     -       -       (1,090 )
Recoveries
    180       15       -       -       590       7       -       -       792  
Net loan recoveries (losses)
    120       15       -       -       (405 )     (28 )     -       -       (298 )
Total allowance for loan losses
  $ 5,470     $ 4,123     $ 730     $ 2,140     $ 7,031     $ 2,339     $ 0     $ 9,354     $ 31,187  
 
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 as well as the related allowance for credit losses.

   
Allowance for Credit Losses
For the Three Months Ended March 31, 2014
 
   
Commercial
   
Commercial
Real Estate
   
Construction
   
Residential
Real Estate
   
Consumer
Installment
and Other
   
Purchased
Non-covered
Loans
   
Purchased
Covered
Loans
   
Unallocated
   
Total
 
   
(In thousands)
 
Allowance for loan losses:
                                                     
Balance at beginning of period
  $ 4,005     $ 12,070     $ 602     $ 405     $ 3,198     $ -     $ 1,561     $ 9,852     $ 31,693  
Additions:
                                                                       
Provision
    130       (974 )     (160 )     86       214       1,272       -       432       1,000  
Deductions:
                                                                       
Chargeoffs
    (60 )     -       -       -       (999 )     (260 )     -       -       (1,319 )
Recoveries
    168       163       3       -       400       1       -       -       735  
Net loan recoveries (losses)
    108       163       3       -       (599 )     (259 )     -       -       (584 )
Indemnification expiration
    -       -       -       -       -       1,561       (1,561 )     -          
Balance at end of period
    4,243