Attached files

file filename
EX-31.2 - EXHIBIT 31.2 - WESTAMERICA BANCORPORATIONexh_312.htm
EX-32.2 - EXHIBIT 32.2 - WESTAMERICA BANCORPORATIONexh_322.htm
EX-32.1 - EXHIBIT 32.1 - WESTAMERICA BANCORPORATIONexh_321.htm
EX-31.1 - EXHIBIT 31.1 - WESTAMERICA BANCORPORATIONexh_311.htm

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015

or

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   (I.R.S. Employer
Incorporation or Organization)   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 ☒   No ☐

 

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 ☒   No ☐

 

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 ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐
  (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 ☐   No ☒

 

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 23, 2015
     
Common Stock,   25,528,149
No Par Value    

 

 

 

TABLE OF CONTENTS

 

 

 

     Page
Forward Looking Statements 3

PART I - FINANCIAL INFORMATION

Item 1 Financial Statements 4
  Notes to Unaudited Consolidated Financial Statements 9
  Financial Summary 30
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 31
Item 3 Quantitative and Qualitative Disclosures about Market Risk 53
Item 4 Controls and Procedures 53
PART II - OTHER INFORMATION  
Item 1 Legal Proceedings 53
Item 1A Risk Factors 53
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 54
Item 3 Defaults upon Senior Securities 54
Item 4 Mine Safety Disclosures 54
Item 5 Other Information 54
Item 6 Exhibits 54
Signatures 55
Exhibit Index 56
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) 57
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a) 58
Exhibit 32.1 - Certification of Chief Executive Officer Required by 18 U.S.C. Section 1350 59
Exhibit 32.2 - Certification of Chief Financial Officer Required by 18 U.S.C. Section 1350 60

 

 

-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 September 30,  At December 31,
   2015  2014
   (In thousands)
Assets:          
Cash and due from banks  $268,587   $380,836 
Investment securities available for sale   1,571,710    1,600,781 
Investment securities held to maturity, with fair values of: $1,293,958 at September 30, 2015 and $1,048,562 at December 31, 2014   1,278,814    1,038,658 
Loans   1,571,843    1,700,290 
Allowance for loan losses   (30,036)   (31,485)
Loans, net of allowance for loan losses   1,541,807    1,668,805 
Other real estate owned   9,269    6,374 
Premises and equipment, net   39,244    37,852 
Identifiable intangibles, net   11,379    14,287 
Goodwill   121,673    121,673 
Other assets   158,912    166,458 
Total Assets  $5,001,395   $5,035,724 
Liabilities:          
Noninterest bearing deposits  $1,942,450   $1,910,781 
Interest bearing deposits   2,424,470    2,438,410 
Total deposits   4,366,920    4,349,191 
Short-term borrowed funds   57,063    89,784 
Federal Home Loan Bank advances   -    20,015 
Other liabilities   43,474    50,131 
Total Liabilities   4,467,457    4,509,121 
Shareholders' Equity:          
Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 25,530 at September 30, 2015 and 25,745 at December 31, 2014   378,649    378,132 
Deferred compensation   2,578    2,711 
Accumulated other comprehensive income   7,198    5,292 
Retained earnings   145,513    140,468 
Total Shareholders' Equity   533,938    526,603 
Total Liabilities and Shareholders' Equity  $5,001,395   $5,035,724 

 

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,
   2015  2014  2015  2014
   (In thousands, except per share data)
Interest and Fee Income:                    
Loans  $19,378   $22,129   $59,643   $67,817 
Investment securities available for sale   7,880    6,350    23,347    17,855 
Investment securities held to maturity   7,041    6,421    19,651    20,195 
Total Interest and Fee Income   34,299    34,900    102,641    105,867 
Interest Expense:                    
Deposits   573    709    1,816    2,216 
Short-term borrowed funds   12    23    44    64 
Term repurchase agreement   -    11    -    60 
Federal Home Loan Bank advances   -    103    1    304 
Total Interest Expense   585    846    1,861    2,644 
Net Interest Income   33,714    34,054    100,780    103,223 
Provision for Loan Losses   -    600    -    2,600 
Net Interest Income After Provision For Loan Losses   33,714    33,454    100,780    100,623 
Noninterest Income:                    
Service charges on deposit accounts   5,581    6,207    16,981    18,322 
Debit card fees   1,538    1,543    4,528    4,482 
Merchant processing services   1,485    1,742    4,971    5,485 
Other service fees   693    695    2,041    2,044 
Trust fees   682    629    2,061    1,899 
ATM processing fees   616    637    1,828    1,891 
Financial services commissions   177    194    527    585 
Other   1,221    1,407    3,625    4,534 
Total Noninterest Income   11,993    13,054    36,562    39,242 
Noninterest Expense:                    
Salaries and related benefits   12,761    13,639    39,795    41,691 
Occupancy   3,746    3,811    11,199    11,284 
Outsourced data processing services   2,115    2,093    6,334    6,314 
Furniture and equipment   1,075    1,059    3,353    3,070 
Amortization of identifiable intangibles   952    1,056    2,908    3,219 
Professional fees   746    700    1,876    1,707 
Courier service   604    663    1,744    1,938 
Other real estate owned   83    (287)   451    (908)
Other   4,091    3,882    12,136    12,131 
Total Noninterest Expense   26,173    26,616    79,796    80,446 
Income Before Income Taxes   19,534    19,892    57,546    59,419 
Provision for income taxes   4,677    4,738    13,371    13,801 
Net Income  $14,857   $15,154   $44,175   $45,618 
Average Common Shares Outstanding   25,530    25,973    25,565    26,192 
Diluted Average Common Shares Outstanding   25,565    26,016    25,585    26,262 
Per Common Share Data:                    
Basic earnings  $0.58   $0.58   $1.73   $1.74 
Diluted earnings   0.58    0.58    1.73    1.74 
Dividends paid   0.38    0.38    1.14    1.14 

 

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,
   2015  2014  2015  2014
   (In thousands)
Net Income  $14,857   $15,154   $44,175   $45,618 
Other comprehensive income:                    
Increase (decrease) in net unrealized gains on securities available for sale   5,522    (4,884)   3,242    9,305 
Deferred tax (expense) benefit   (2,321)   2,054    (1,363)   (3,912)
Increase (decrease) in net unrealized gains on securities available for sale, net of tax   3,201    (2,830)   1,879    5,393 
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 Income (Loss)   3,210    (2,821)   1,906    5,420 
Total Comprehensive Income  $18,067   $12,333   $46,081   $51,038 

 

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                       45,618    45,618 
Other comprehensive income                  5,420         5,420 
Exercise of stock options   256    12,396                   12,396 
Tax benefit decrease upon expiration/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 
Balance, December 31, 2014   25,745   $378,132   $2,711   $5,292   $140,468   $526,603 
Net income for the period                       44,175    44,175 
Other comprehensive income                  1,906         1,906 
Exercise of stock options   108    4,848                   4,848 
Tax benefit decrease upon expiration/exercise of stock options        (1,215)                  (1,215)
Restricted stock activity   17    874    (133)             741 
Stock based compensation        987                   987 
Stock awarded to employees   2    89                   89 
Retirement of common stock including repurchases   (342)   (5,066)             (9,962)   (15,028)
Dividends                       (29,168)   (29,168)
Balance, September 30, 2015   25,530   $378,649   $2,578   $7,198   $145,513   $533,938 

 

See accompanying notes to unaudited consolidated financial statements.

-7-
 

 

WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   For the Nine Months
Ended September 30,
   2015  2014
  (In thousands)
Operating Activities:          
Net income  $44,175   $45,618 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   12,379    12,275 
Loan loss provision   -    2,600 
Net amortization of deferred loan fees   (263)   (179)
Decrease in interest income receivable   757    1,537 
Decrease in other assets   107    1,390 
Decrease in income taxes payable   (257)   (1,160)
Decrease (increase) in net deferred tax asset   968    (19)
Decrease in interest expense payable   (56)   (102)
Decrease in other liabilities   (2,571)   (3,841)
Stock option compensation expense   987    1,009 
Tax benefit decrease upon expiration/exercise of stock options   1,215    447 
Gain on sale of other assets   -    (400)
Net loss on sale of premises and equipment   24    22 
Net gain on sale of foreclosed assets   (73)   (1,014)
Writedown of foreclosed assets   315    113 
Net Cash Provided by Operating Activities   57,707    58,296 
Investing Activities:          
Net repayments of loans   124,615    93,115 
Proceeds from FDIC1 loss-sharing indemnification   -    6,703 
Purchases of investment securities available for sale   (828,169)   (747,630)
Proceeds from sale/maturity/calls of securities available for sale   858,850    444,906 
Purchases of investment securities held to maturity   (366,247)   (26,435)
Proceeds from maturity/calls of securities held to maturity   117,877    115,799 
Purchases of premises and equipment   (4,049)   (2,392)
Net change in FRB2/FHLB3 securities   940    3,248 
Proceeds from sale of foreclosed assets   1,774    7,549 
Net Cash Used in Investing Activities   (94,409)   (105,137)
Financing Activities:          
Net change in deposits   17,737    157,947 
Net change in short-term borrowings and FHLB3 advances   (52,721)   3,992 
Exercise of stock options/issuance of shares   4,848    12,396 
Tax benefit decrease upon expiration/exercise of stock options   (1,215)   (447)
Retirement of common stock including repurchases   (15,028)   (44,810)
Common stock dividends paid   (29,168)   (29,927)
Net Cash (Used in) Provided by Financing Activities   (75,547)   99,151 
Net Change In Cash and Due from Banks   (112,249)   52,310 
Cash and Due from Banks at Beginning of Period   380,836    472,028 
Cash and Due from Banks at End of Period  $268,587   $524,338 
           
Supplemental Cash Flow Disclosures:          
Supplemental disclosure of non cash activities:          
Loan collateral transferred to other real estate owned  $4,911   $968 
Securities purchases pending settlement   -    24,276 
Supplemental disclosure of cash flow activities:          
Interest paid for the period   1,941    2,959 
Income tax payments for the period   12,596    14,981 

 

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 and nine months ended September 30, 2015 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” section in Item 2 of this document. 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 ASU 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 ASU 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 Collateralized 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 ASU 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.

 

FASB ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, was issued on June 12, 2014. The ASU 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 adoption of the ASU was limited to additional disclosures only and did not have a material effect on the Company’s financial statements at April 1, 2015, the date adopted.

 

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 September 30, 2015
   Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Fair
Value
   (In thousands)
U.S. Treasury securities  $3,000   $1   $-   $3,001 
Securities of U.S. Government sponsored entities   341,038    1,381    (10)   342,409 
Residential mortgage-backed securities   19,303    1,289    (2)   20,590 
Commercial mortgage-backed securities   2,547    11    (6)   2,552 
Obligations of states and political subdivisions   152,158    9,094    (97)   161,155 
Residential collateralized mortgage obligations   199,059    438    (4,945)   194,552 
Asset-backed securities   2,350    -    (20)   2,330 
FHLMC1 and FNMA2 stock   775    5,725    -    6,500 
Corporate securities   836,882    1,707    (2,750)   835,839 
Other securities   2,039    885    (142)   2,782 
Total  $1,559,151   $20,531   $(7,972)  $1,571,710 

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 September 30, 2015
   Amortized
Cost
  Gross
Unrecognized
Gains
  Gross
Unrecognized
Losses
  Fair
Value
   (In thousands)
Securities of U.S. government sponsored entities  $830   $10   $-   $840 
Residential mortgage-backed securities   362,925    2,194    (28)   365,091 
Commercial mortgage-backed securities   16,379    57    (174)   16,262 
Obligations of states and political subdivisions   682,818    12,486    (1,204)   694,100 
Residential collateralized mortgage obligations   215,862    2,404    (601)   217,665 
Total  $1,278,814   $17,151   $(2,007)  $1,293,958 

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 table s at the dates indicated:

 

   At September 30, 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  $111,972   $112,333   $19,012   $19,647 
Over 1 to 5 years   1,066,830    1,068,036    237,908    240,961 
Over 5 to 10 years   129,133    134,756    285,130    290,517 
Over 10 years   27,493    29,609    141,598    143,815 
Subtotal   1,335,428    1,344,734    683,648    694,940 
Mortgage-backed securities and residential collateralized mortgage obligations   220,909    217,694    595,166    599,018 
Other securities   2,814    9,282    -    - 
Total  $1,559,151   $1,571,710   $1,278,814   $1,293,958 

Securities available for sale at September 30, 2015 with maturity dates over one year but less than five years include $337,419  thousand (fair value) of securities of U.S. Government sponsored entities with call options on dates within one year or less, of which $43,121  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 September 30, 2015 and December 31, 2014, the Company had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.

 

 

 

[The remainder of this page intentionally left blank]

 

-12-
 

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

 

   Investment Securities Available for Sale
At September 30, 2015
   No. of  Less than 12 months  No. of  12 months or longer  No. of  Total
 
 
 
 
Investment
Positions
 
 
 
Fair Value
 
 
Unrealized
Losses
 
 
Investment
Positions
 
 
 
Fair Value
 
 
Unrealized
Losses
 
 
Investment
Positions
 
 
 
Fair Value
 
 
Unrealized
Losses
   ($ in thousands)
Securities of U.S. Government sponsored entities   1   $4,990   $(10)   -   $-   $-    1   $4,990   $(10)
Residential mortgage-backed securities   -    -    -    1    790    (2)   1    790    (2)
Commercial mortgage-backed securities   -    -    -    1    879    (6)   1    879    (6)
Obligations of states and political subdivisions   4    2,132    (31)   5    2,503    (66)   9    4,635    (97)
Residential collateralized mortgage obligations   2    13,280    (245)   29    168,927    (4,700)   31    182,207    (4,945)
Asset-backed securities   -    -    -    1    2,330    (20)   1    2,330    (20)
Corporate securities   71    379,170    (2,417)   19    63,206    (333)   90    442,376    (2,750)
Other securities   -    -    -    1    1,858    (142)   1    1,858    (142)
Total   78   $399,572   $(2,703)   57   $240,493   $(5,269)   135   $640,065   $(7,972)

An analysis of gross unrecognized losses of the held to maturity investment securities portfolio follows:

 

   Investment Securities Held to Maturity
At September 30, 2015
   No. of  Less than 12 months  No. of  12 months or longer  No. of  Total
   Investment
Positions
  Fair Value  Unrecognized
Losses
  Investment
Positions
  Fair Value  Unrecognized
Losses
  Investment
Positions
  Fair Value  Unrecognized
Losses
   ($ in thousands)
Residential mortgage-backed securities   2   $21,047   $(26)   1   $96   $(2)   3   $21,143   $(28)
Commercial mortgage-backed securities   1    7,562    (74)   1    6,597    (100)   2    14,159    (174)
Obligations of states and political subdivisions   45    29,242    (189)   70    63,195    (1,015)   115    92,437    (1,204)
Residential collateralized mortgage obligations   3    15,821    (60)   12    65,404    (541)   15    81,225    (601)
Total   51   $73,672   $(349)   84   $135,292   $(1,658)   135   $208,964   $(2,007)

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, 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 September 30, 2015, $715,879  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
Positions
  Fair Value  Unrealized
Losses
  Investment
Positions
  Fair Value  Unrealized
Losses
  Investment
Positions
  Fair Value  Unrealized
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
Positions
  Fair Value  Unrecognized
Losses
  Investment
Positions
  Fair Value  Unrecognized
Losses
  Investment
Positions
  Fair Value  Unrecognized
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  For the Nine Months
   Ended September 30,
   2015  2014  2015  2014
   (In thousands)
Taxable  $9,120   $6,348   $25,067   $17,907 
Tax-exempt   5,801    6,423    17,931    20,143 
Total interest income from investment securities  $14,921   $12,771   $42,998   $38,050 

 

-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 September 30, 2015
  Commercial  Commercial
Real Estate
  Construction  Residential
Real Estate
  Consumer
Installment
& Other
  Total
  (In thousands)
Originated loans  $354,853   $537,625   $3,461   $126,472   $354,494   $1,376,905 
Purchased covered loans:                              
Gross purchased covered loans   -    -    -    2,467    12,328    14,795 
Purchased loan discount   -    -    -    (133)   (22)   (155)
Purchased non-covered loans:                              
Gross purchased non-covered loans   15,443    136,600    984    237    34,116    187,380 
Purchased loan discount   (1,100)   (4,654)   -    (167)   (1,161)   (7,082)
Total  $369,196   $669,571   $4,445   $128,876   $399,755   $1,571,843 

 

  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 
Purchased loan discount   -    -    -    (434)   (34)   (468)
Purchased non-covered loans:                              
Gross purchased non-covered loans   19,166    157,502    2,919    972    41,656    222,215 
Purchased loan 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
Nine Months Ended
September 30, 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   (3)   (264)
Carrying amount at the end of the period  $4,669   $4,672 

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

 

   For the
Nine Months Ended
September 30, 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   2,327    5,016 
Accretion   (3,031)   (5,260)
Balance at the end of the period  $1,557   $2,261 
           
Accretion  $(3,031)  $(5,260)
Change in FDIC indemnification   506    1,110 
(Increase) in interest income  $(2,525)  $(4,150)

 

-15-
 

The following summarizes activity in the allowance for loan losses:

 

   Allowance for Loan Losses
For the Three Months Ended September 30, 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  $7,107   $4,896   $403   $2,058   $7,248   $1,244   $-   $7,872   $30,828 
Additions:                                             
Provision   1,246    (96)   (205)   (50)   367    (15)   65    (1,312)   - 
Deductions:                                             
Chargeoffs   (239)   (449)   -    -    (773)   -    -    -    (1,461)
Recoveries   300    27    -    -    336    6    -    -    669 
Net loan recoveries (losses)   61    (422)   -    -    (437)   6    -    -    (792)
Total allowance for loan losses  $8,414   $4,378   $198   $2,008   $7,178   $1,235   $65   $6,560   $30,036 

 

   Allowance for Loan Losses
For the Nine Months Ended September 30, 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   2,840    525    (446)   (233)   436    (689)   65    (2,498)   - 
Deductions:                                             
Chargeoffs   (700)   (449)   -    -    (2,344)   (431)   -    -    (3,924)
Recoveries   814    57    -    -    1,369    235    -    -    2,475 
Net loan recoveries (losses)   114    (392)   -    -    (975)   (196)   -    -    (1,449)
Total allowance for loan losses  $8,414   $4,378   $198   $2,008   $7,178   $1,235   $65   $6,560   $30,036 

 

   Allowance for Credit Losses
For the Three Months Ended September 30, 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  $5,297   $10,664   $442   $409   $2,055   $2,707   $-   $10,824   $32,398 
Additions:                                             
Provision   (269)   (640)   -    (17)   802    (184)   -    908    600 
Deductions:                                             
Chargeoffs   (905)   -    -    -    (916)   -    -    -    (1,821)
Recoveries   229    15    -    -    297    51    -    -    592 
Net loan (losses) recoveries   (676)   15    -    -    (619)   51    -    -    (1,229)
Balance at end of period   4,352    10,039    442    392    2,238    2,574    -    11,732    31,769 
Liability for off-balance sheet credit exposure   1,706    24    105    -    451    131    -    276    2,693 
Total allowance for credit losses  $6,058   $10,063   $547   $392   $2,689   $2,705   $-   $12,008   $34,462 

 

 

[The remainder of this page intentionally left blank]

 

-16-
 

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 Nine Months Ended September 30, 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   945    (2,224)   (163)   17    942    1,203    -    1,880    2,600 
Deductions:                                             
Chargeoffs   (1,114)   -    -    (30)   (3,217)   (260)   -    -    (4,621)
Recoveries   516    193    3    -    1,315    70    -    -    2,097 
Net loan (losses) recoveries   (598)   193    3    (30)   (1,902)   (190)   -    -    (2,524)
Indemnification expiration   -    -    -    -    -    1,561    (1,561)   -    - 
Balance at end of period   4,352    10,039    442    392    2,238    2,574    -    11,732    31,769 
Liability for off-balance sheet credit exposure   1,706    24    105    -    451    131    -    276    2,693 
Total allowance for credit losses  $6,058   $10,063   $547   $392   $2,689   $2,705   $-   $12,008   $34,462 

 

The allowance for credit losses and recorded investment in loans were evaluated for impairment as follows

 

   Allowance for Loan Losses and Recorded Investment in Loans Evaluated for Impairment
At September 30, 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:                                             
Individually evaluated for impairment  $4,477   $585   $-   $-   $-   $-   $-   $-   $5,062 
Collectively evaluated for impairment   3,937    3,793    198    2,008    7,178    1,235    65    6,560    24,974 
Purchased loans with evidence of credit deterioration   -    -    -    -    -    -    -    -    - 
Total  $8,414   $4,378   $198   $2,008   $7,178   $1,235   $65   $6,560   $30,036 
Carrying value of loans:                                             
Individually evaluated for impairment  $12,327   $5,864   $-   $-   $-   $10,008   $-   $-   $28,199 
Collectively evaluated for impairment   342,526    531,761    3,461    126,472    354,494    165,833    14,428    -    1,538,975 
Purchased loans with evidence of credit deterioration   -    -    -    -    -    4,457    212    -    4,669 
Total  $354,853   $537,625   $3,461   $126,472   $354,494   $180,298   $14,640   $-   $1,571,843 

 

   Allowance for Credit Losses and Recorded Investment in Loans Evaluated for Impairment
At December 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 credit losses:                                             
Individually evaluated for impairment  $496   $-   $-   $-   $-   $-   $-   $-   $496 
Collectively evaluated for impairment   7,372    4,245    988    2,241    8,154    2,120    -    8,562    33,682 
Purchased loans with evidence of credit deterioration   -    -    -    -    -    -    -    -    - 
Total  $7,868   $4,245   $988   $2,241   $8,154   $2,120   $-   $8,562   $34,178 
Carrying value of loans:                                             
Individually evaluated for impairment  $11,811   $2,970   $-   $574   $599   $12,364   $-   $-   $28,318 
Collectively evaluated for impairment   362,194    564,624    11,003    146,351    370,243    196,034    16,851    -    1,667,300 
Purchased loans with evidence of credit deterioration   -    -    -    -    -    4,445    227    -    4,672 
Total  $374,005   $567,594   $11,003   $146,925   $370,842   $212,843   $17,078   $-   $1,700,290 

The Bank’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. The Bank maintains a Loan Review Department which reports directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit risk grades to evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,” “doubtful,” and “loss.” Loan Review Department evaluations occur every calendar quarter. If the Bank becomes aware of deterioration in a borrower’s performance or financial condition between Loan Review Department examinations, assigned risk grades are re-evaluated promptly. Credit risk grades assigned by the Loan Review Department are subject to review by the Bank’s regulatory authorities during regulatory examinations.

 

-17-
 

The following summarizes the credit risk profile by internally assigned grade:

 

   Credit Risk Profile by Internally Assigned Grade
At September 30, 2015
   Commercial  Commercial Real Estate  Construction  Residential Real Estate  Consumer Installment and Other  Purchased Non-covered Loans  Purchased Covered Loans (1)  Total
   (In thousands)
Grade:                                        
Pass  $338,778   $512,570   $3,461   $123,753   $353,226   $155,312   $13,128   $1,500,228 
Substandard   16,075    25,055    -    2,719    900    32,049    1,667    78,465 
Doubtful        -    -    -    30    19    -    49 
Loss   -    -    -    -    338    -    -    338 
Purchased loan discount   -    -    -    -    -    (7,082)   (155)   (7,237)
Total  $354,853   $537,625   $3,461   $126,472   $354,494   $180,298   $14,640   $1,571,843 

 

(1) Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

 

   Credit Risk Profile by Internally Assigned Grade
At December 31, 2014
   Commercial  Commercial Real Estate  Construction  Residential Real Estate  Consumer Installment and Other  Purchased Non-covered Loans  Purchased Covered Loans (1)  Total
   (In thousands)
Grade:                                        
Pass  $366,487   $527,980   $11,003   $144,902   $369,618   $182,644   $15,509   $1,618,143 
Substandard   7,506    39,614    -    2,023    734    39,473    2,037    91,387 
Doubtful   12    -    -    -    12    77    -    101 
Loss   -    -    -    -    478    21    -    499 
Purchased loan discount   -    -    -    -    -    (9,372)   (468)   (9,840)
Total  $374,005   $567,594   $11,003   $146,925   $370,842   $212,843   $17,078   $1,700,290 

 

(1) Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

 

The following tables summarize loans by delinquency and nonaccrual status:

 

   Summary of Loans by Delinquency and Nonaccrual Status
At September 30, 2015
   Current and Accruing 

30-59 Days

Past Due and Accruing

 

60-89 Days

Past Due and Accruing

 

Past Due 90

days or More

and Accruing

  Nonaccrual  Total Loans
   (In thousands)
Commercial  $354,183   $417   $84   $-   $169   $354,853 
Commercial real estate   527,957    2,667    -    -    7,001    537,625 
Construction   3,461    -    -    -    -    3,461 
Residential real estate   124,305    1,360    471    -    336    126,472 
Consumer installment and other   350,289    2,834    818    481    72    354,494 
Total originated loans   1,360,195    7,278    1,373    481    7,578    1,376,905 
Purchased non-covered loans   168,816    1,736    878    -    8,868    180,298 
Purchased covered loans   14,473    137    30    -    -    14,640 
Total  $1,543,484   $9,151   $2,281   $481   $16,446   $1,571,843 

 

 

[The remainder of this page intentionally left blank]

 

-18-
 

 

   Summary of Loans by Delinquency and Nonaccrual Status
At December 31, 2014
   Current and Accruing 

30-59 Days

Past Due and Accruing

 

60-89 Days

Past Due and Accruing

 

Past Due 90

days or More

and Accruing

  Nonaccrual  Total Loans
   (In thousands)
Commercial  $372,235   $1,704   $36   $-   $30   $374,005 
Commercial real estate   557,041    6,500    -    -    4,053    567,594 
Construction   11,003    -    -    -    -    11,003 
Residential real estate   144,021    1,513    817    -    574    146,925 
Consumer installment and other   365,753    3,310    625    502    652    370,842 
Total originated loans   1,450,053    13,027    1,478    502    5,309    1,470,369 
Purchased non-covered loans   196,150    4,204    491    -    11,998    212,843 
Purchased covered loans   16,389    389    3    -    297    17,078 
Total  $1,662,592   $17,620   $1,972   $502   $17,604   $1,700,290 

 

The following is a summary of the effect of nonaccrual loans on interest income:

 

   For the Three Months  For the Nine Months
   Ended September 30,
   2015  2014  2015  2014
   (In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms  $315   $298   $969   $833 
Interest income reversed (recognized) on nonaccrual loans   17    15    (308)   (55)
Total reduction of interest income  $332   $313   $661   $778 

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at September 30, 2015 and December 31, 2014.

 

The following summarizes impaired loans:

 

   Impaired Loans
At September 30, 2015
   Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
   (In thousands)
Impaired loans with no related allowance recorded:               
Commercial  $3,073   $3,136   $- 
Commercial real estate   16,916    21,949    - 
Construction   -    -    - 
Residential real estate   566    597    - 
Consumer installment and other   428    534    - 
                
Impaired loans with an allowance recorded:               
Commercial   9,810    9,810    4,477 
Commercial real estate   4,660    5,109    585 
Construction   -    -    - 
Residential real estate   -    -    - 
Consumer installment and other   -    -    - 
                
Total:               
Commercial  $12,883   $12,946   $4,477 
Commercial real estate   21,576    27,058    585 
Construction   -    -    - 
Residential real estate   566    597    - 
Consumer installment and other   428    534    - 

 

-19-
 

 

   Impaired Loans
At December 31, 2014
   Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
   (In thousands)
Impaired loans with no related allowance recorded:               
Commercial  $2,031   $2,095   $- 
Commercial real estate   19,478    25,519    - 
Construction   1,834    1,884    - 
Residential real estate   574    574    - 
Consumer installment and other   1,518    1,628    - 
                
Impaired loans with an allowance recorded:               
Commercial   9,910    9,910    496 
Commercial real estate   -    -    - 
Construction   -    -    - 
Residential real estate   -    -    - 
Consumer installment and other   -    -    - 
                
Total:               
Commercial  $11,941   $12,005   $496 
Commercial real estate   19,478    25,519    - 
Construction   1,834    1,884    - 
Residential real estate   574    574    - 
Consumer installment and other   1,518    1,628    - 

Impaired loans include troubled debt restructured loans. Impaired loans at September 30, 2015, included $12,880 thousand of restructured loans, $6,772 thousand of which were on nonaccrual status. Impaired loans at December 31, 2014, included $4,837 thousand of restructured loans, none of which were on nonaccrual status.

 

   Impaired Loans
   For the Three Months Ended September 30,  For the Nine Months Ended September 30,
   2015  2014  2015  2014
   Average
Recorded
Investment
  Recognized
Interest
Income
  Average
Recorded
Investment
  Recognized
Interest
Income
  Average
Recorded
Investment
  Recognized
Interest
Income
  Average
Recorded
Investment
  Recognized
Interest
Income
   (In thousands)
Commercial  $12,750   $147   $3,885   $59   $12,513   $440   $4,388   $186 
Commercial real estate   21,923    142    20,787    103    19,985    546    19,961    373 
Construction   -    -    1,934    -    306    -    2,076    - 
Residential real estate   403    9    -    -    652    23    108    - 
Consumer installment and other   516    6    1,207    7    856    19    1,416    22 
Total  $35,592   $304   $27,813   $169   $34,312   $1,028   $27,949   $581 

 

 

[The remainder of this page intentionally left blank]

 

 

-20-
 

The following table provides information on troubled debt restructurings:

 

   Troubled Debt Restructurings
At September 30, 2015
   Number of
Contracts
  Pre-Modification
Carrying Value
  Period-End
Carrying Value
  Period-End
Individual
Impairment
Allowance
   (In thousands)
Commercial   6   $2,813   $2,517   $- 
Commercial real estate   7    10,305    10,133    - 
Residential real estate   1    242    230    - 
Total   14   $13,360   $12,880   $- 

 

   Troubled Debt Restructurings
At September 30, 2014
   Number of
Contracts
  Pre-Modification
Carrying Value
  Period-End
Carrying Value
  Period-End
Individual
Impairment
Allowance
   (In thousands)
Commercial   6   $3,465   $3,109   $259 
Commercial real estate   3    2,754    2,787    - 
Consumer installment and other   1    18    11    - 
Total   10   $6,237   $5,907   $259 

During the three and nine months ended September 30, 2015, the Company modified one loan with a carrying value of $6,330 thousand and seven loans with an aggregate carrying value of $8,150 thousand, respectively, that were considered troubled debt restructurings. The concessions granted in the seven restructurings completed in the first nine months of 2015 consisted of modification of payment terms to extend the maturity date to allow for deferred principal repayment, under-market terms and court order.

 

During the three and nine months ended September 30, 2014, the Company modified three loans with a total carrying value of $617 thousand and five loans with a total carrying value of $726 thousand, respectively, that were considered troubled debt restructurings. The concessions granted in the five restructurings completed in the first nine months of 2014 consisted of modification of payment terms to extend the maturity date to allow for deferred principal repayment.

 

During the three and nine months ended September 30, 2015 and 2014, no troubled debt restructured loans defaulted within 12 months of the modification date. A troubled debt restructuring is considered to be in default when payments are ninety days or more past due.

 

The Company repaid $20,015 thousand of Federal Home Loan Bank (“FHLB”) advances in January 2015, which had been collateralized by loans; the collateral requirements expired upon repayment of the debt. At December 31, 2014, the Company pledged loans to secure borrowings with a carrying value of $20,015 thousand from the FHLB. The loans restricted due to collateral requirements approximated $18,366 thousand at December 31, 2014.

 

There were no loans held for sale at September 30, 2015 and December 31, 2014.

 

At September 30, 2015 and September 30, 2014, the Company held total other real estate owned (OREO) of $9,269 thousand and $7,273 thousand, respectively, of which $-0-  thousand and $585  thousand, respectively, were foreclosed residential real estate properties. The amount of consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process totaled $-0- thousand and $595  thousand at September 30, 2015 and September 30, 2014, respectively.

 

-21-
 

Note 5: Concentration of Credit Risk

 

Under the California Financial Code, credit extended to any one person owing to a commercial bank at any one time shall not exceed the following limitations: (a) unsecured loans shall not exceed 15 percent of the sum of the shareholders' equity, allowance for loan losses, capital notes, and debentures of the bank, or (b) secured and unsecured loans in all shall not exceed 25 percent of the sum of the shareholders' equity, allowance for loan losses, capital notes, and debentures of the bank. At September 30, 2015, Westamerica Bank did not have credit extended to any one entity exceeding these limits. At September 30, 2015, Westamerica Bank had 38 lending relationships with aggregate loans exceeding $5 million. The Company has significant credit arrangements that are secured by real estate collateral. In addition to real estate loans outstanding as disclosed in Note 4, the Company had loan commitments related to real estate loans of $60,848 thousand and $66,086  thousand at September 30, 2015 and December 31, 2014, respectively. The Company requires collateral on all real estate loans with loan-to-value ratios at origination generally no greater than 75% on commercial real estate loans and no greater than 80% on residential real estate loans. At September 30, 2015, Westamerica Bank held corporate bonds in 45 issuing entities which exceeded $5 million of each issuer.

 

Note 6: Other Assets

 

Other assets consisted of the following:

 

   At September 30,
2015
  At December 31,
2014
   (In thousands)
Cost method equity investments:          
Federal Reserve Bank stock (1)  $14,069   $14,069 
Federal Home Loan Bank stock (2)   -    940 
Other investments   201    241 
Total cost method equity investments   14,270    15,250 
Life insurance cash surrender value   48,335    46,479 
Net deferred tax asset   47,046    50,903 
Limited partnership investments   15,934    18,673 
Interest receivable   18,637    19,394 
Prepaid assets   4,309    5,609 
Other assets   10,381    10,150 
Total other assets  $158,912   $166,458 

(1) A bank applying for membership in the Federal Reserve System is required to subscribe to stock in the Federal Reserve Bank of San Francisco (FRB) in a sum equal to six percent of the bank’s paid-up capital stock and surplus. One-half of the amount of the bank's subscription shall be paid to the FRB and the remaining half will be subject to call when deemed necessary by the Board of Governors of the Federal Reserve System.

 

(2) Borrowings from the FHLB must be supported by capital stock holdings. The minimum activity-based requirement is 4.7% of the outstanding advances. The requirement may be adjusted from time to time by the FHLB within limits established in the FHLB's Capital Plan.

 

The Company invests in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for low-income housing tax credits. At September 30, 2015, this investment totaled $15,934 thousand and $2,299 thousand of this amount represents outstanding equity capital commitments. These commitments are expected to be paid as follows, $453 thousand in 2015, $763 thousand in 2016, and $1,083 thousand in 2017 or thereafter.

 

The amounts recognized in net income for these investments include:

 

   For the Three Months  For the Nine Months
   Ended September 30,
   2015  2014  2015  2014
   (In thousands)
Investment loss included in pre-tax income  $750   $750   $2,175   $2,200 
Tax credits recognized in provision for income taxes   663    610    1,988    2,200 

 

-22-
 

Note 7: Goodwill and Identifiable Intangible Assets

 

The Company has recorded goodwill and other identifiable intangibles associated with purchase business combinations. Goodwill is not amortized, but is periodically evaluated for impairment. The Company did not recognize impairment during the three and nine months ended September 30, 2015 and year ended December 31, 2014. Identifiable intangibles are amortized to their estimated residual values over their expected useful lives. Such lives and residual values are also periodically reassessed to determine if any amortization period adjustments are indicated. During the nine months ended September 30, 2015 and year ended December 31, 2014, no such adjustments were recorded.

 

The carrying values of goodwill were:

 

   At September 30,
2015
  At December 31,
2014
   (In thousands)
Goodwill  $121,673   $121,673 

 

The gross carrying amount of identifiable intangible assets and accumulated amortization was:

 

  At September 30, 2015  At December 31, 2014
  Gross
Carrying
Amount
  Accumulated
Amortization
  Gross
Carrying
Amount
  Accumulated
Amortization
  (In thousands)
Core Deposit Intangibles  $56,808   $(45,897)  $56,808   $(43,188)
Merchant Draft Processing Intangible   10,300    (9,832)   10,300    (9,633)
Total Identifiable Intangible Assets  $67,108   $(55,729)  $67,108   $(52,821)

As of September 30, 2015, the current year and estimated future amortization expense for identifiable intangible assets was:

 

  Core
Deposit
Intangibles
  Merchant
Draft
Processing
Intangible
  Total
  (In thousands)
Nine months ended September 30, 2015 (actual)  $2,709   $199   $2,908 
Estimate for year ended December 31, 2015   3,594    262    3,856 
2016   3,292    212    3,504 
2017   2,913    164    3,077 
2018   1,892    29    1,921 
2019   538    -    538 
2020   287    -    287 

 

 

 

[The remainder of this page intentionally left blank]

 

-23-
 

Note 8: Deposits and Borrowed Funds

 

The following table provides additional detail regarding deposits.

 

   Deposits
   At September 30, 2015  At December 31, 2014
   (In thousands)
Noninterest-bearing  $1,942,450   $1,910,781 
Interest-bearing:          
Transaction   812,940    792,448 
Savings   1,310,985    1,260,819 
Time deposits less than $100 thousand   156,503    169,959 
Time deposits $100 thousand through $250 thousand   101,317    113,023 
Time deposits more than $250 thousand   42,725    102,161 
Total deposits  $4,366,920   $4,349,191 

Demand deposit overdrafts of $2,753  thousand and $3,173  thousand were included as loan balances at September 30, 2015 and December 31, 2014, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100 thousand was $164 thousand and $543 thousand in the third quarter of and first nine months of 2015, respectively and $219 thousand and $683 thousand in the third quarter of and first nine months of 2014, respectively.

 

The following table provides additional detail regarding short-term borrowed funds.

 

   Repurchase Agreements (Sweep)
Accounted for as Secured Borrowings
   At September 30, 2015  At December 31, 2014
   Remaining Contractual Maturity of the Agreements
   Overnight and Continuous  Overnight and Continuous
Repurchase agreements:  (In thousands)
Securities of U.S. Government sponsored entities  $110,541   $80,827 
Obligations of states and political subdivisions   3,975    14,251 
Corporate securities   54,832    52,936 
Total collateral carrying value  $169,348   $148,014 
Total short-term borrowed funds  $57,063   $89,784 

FHLB advances matured and were repaid in full in January 2015. At December 31, 2014, FHLB advances with a carrying value of $20,015 thousand were secured by residential real estate loans and securities of approximately $26,484  thousand.

 

The Company has a $35,000 thousand unsecured line of credit which had no outstanding balance at September 30, 2015 and December 31, 2014. The line of credit has a variable interest rate, which was 2.0%  per annum at September 30, 2015, with interest payable monthly on outstanding advances. Advances may be made up to the unused credit limit through March 18, 2016.

 

Note 9: Fair Value Measurements

 

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale investment securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as other real estate owned, impaired loans, certain loans held for investment, investment securities held to maturity, and other assets. These nonrecurring fair value adjustments typically involve the lower-of-cost-or-fair value accounting of individual assets.

 

In accordance with the Fair Value Measurement and Disclosure topic of the Codification, the Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in the principal market or most advantageous market for an asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. A fair value measurement reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance.

 

The Company groups its assets and liabilities measured at fair value into a three-level hierarchy, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. When the valuation assumptions used to measure the fair value of the asset or liability are categorized within different levels of the fair value hierarchy, the asset or liability is categorized in its entirety within the lowest level of the hierarchy. These levels are:

 

-24-
 

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active exchange markets, such as the New York Stock Exchange. Level 1 includes U.S. Treasury and equity securities, which are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

 

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 2 includes federal agency securities, mortgage-backed securities, corporate securities, asset-backed securities, municipal bonds and residential collateralized mortgage obligations.

 

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

 

The Company relies on independent vendor pricing services to measure fair value for investment securities available for sale and investment securities held to maturity. The Company employs three pricing services. To validate the pricing of these vendors, the Company compares vendors’ pricing for each of the securities for consistency; significant pricing differences, if any, are evaluated using all available independent quotes with the quote closely affecting the market is generally used as the fair value estimate. In addition, the Company conducts “other than temporary impairment (OTTI)” analysis on a quarterly basis; securities selected for OTTI analysis include all securities at a market price below 95 percent of par value and with a market to book ratio below 95:100. As with any valuation technique used to estimate fair value, changes in underlying assumptions used could significantly affect the results of current and future values. Accordingly, these fair value estimates may not be realized in an actual sale of the securities.

 

The Company regularly reviews the valuation techniques and assumptions used by its vendors and determines which valuation techniques are utilized based on observable market inputs for the type of securities being measured. The Company uses the information to determine the placement in the fair value hierarchy as level 1, 2 or 3. When the Company changes its valuation assumptions for measuring financial assets and financial liabilities at fair value, either due to changes in current market conditions or other factors, or reevaluates the valuation techniques and assumptions used by its vendors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new information. The Company recognizes these transfers at the end of the reporting period that the transfers occur. During the three months ended June 30, 2015, the Company reevaluated the valuation techniques and assumptions used by its vendors in valuing the Company’s available for sale securities, and based on the evaluation, transferred $437,715 thousand out of level 1 and transferred $437,715 thousand into level 2. There were no transfers into level 1 or into or out of level 3. For the three months ended September 30, 2015 and the year ended December 31, 2014, there were no transfers into or out of levels 1, 2 or 3.

 

 

 

[The remainder of this page intentionally left blank]

 

 

-25-
 

Assets Recorded at Fair Value on a Recurring Basis

 

The table below presents assets measured at fair value on a recurring basis.

 

   At September 30, 2015
   Fair Value  Quoted Prices in Active Markets for Identical Assets
(Level 1)
  Significant Other Observable Inputs
(Level 2)
  Significant Unobservable Inputs
(Level 3)
   (In thousands)
U.S. Treasury securities  $3,001   $3,001   $-   $- 
Securities of U.S. Government sponsored entities   342,409    -    342,409    - 
Residential mortgage-backed securities   20,590    -    20,590    - 
Commercial mortgage-backed securities   2,552    -    2,552    - 
Obligations of states and political subdivisions   161,155    -    161,155    - 
Residential collateralized mortgage obligations   194,552    -    194,552    - 
Asset-backed securities   2,330    -    2,330    - 
FHLMC and FNMA stock   6,500    10    6,490    - 
Corporate securities   835,839    -    835,839    - 
Other securities   2,782    924    1,858    - 
Total securities available for sale  $1,571,710   $3,935   $1,567,775   $- 

 

   At December 31, 2014
   Fair Value  Quoted Prices in Active Markets for Identical Assets
(Level 1)
  Significant Other Observable Inputs
(Level 2)
  Significant Unobservable Inputs
(Level 3)
   (In thousands)
U.S. Treasury securities  $3,505   $3,505   $-   $- 
Securities of U.S. Government sponsored entities   635,188    635,188    -    - 
Residential mortgage-backed securities   26,407    -    26,407    - 
Commercial mortgage-backed securities   2,919    -    2,919    - 
Obligations of states and political subdivisions   181,799    -    181,799    - 
Residential collateralized mortgage obligations   222,457    -    222,457    - 
Asset-backed securities   8,313    -    8,313    - 
FHLMC and FNMA stock   5,168    5,168    -    - 
Corporate securities   512,239    -    512,239    - 
Other securities   2,786    910    1,876    - 
Total securities available for sale  $1,600,781   $644,771   $956,010   $- 

 

 

 

[The remainder of this page intentionally left blank]

 

 

-26-
 

Assets Recorded at Fair Value on a Nonrecurring Basis

 

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost or fair-value accounting of individual assets. For assets measured at fair value on a nonrecurring basis that were recorded in the balance sheet at September 30, 2015 and December 31, 2014, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets at period end.

 

  At September 30, 2015 

For the Nine

Months Ended

September 30, 2015

  Fair Value  Level 1  Level 2  Level 3  Total Losses
  (In thousands)
Other real estate owned  $9,269   $-   $-   $9,269   $(315)
Impaired loans   15,738    -    -    15,738    (449)
Total assets measured at fair value on a nonrecurring basis  $25,007   $-   $-   $25,007   $(764)

 

Level 3 – Valuation is based upon independent market prices, estimated liquidation values of loan collateral or appraised value of the collateral as determined by third-party independent appraisers, less 10% for selling costs, generally. Level 3 includes other real estate owned that has been measured at fair value upon transfer to foreclosed assets and impaired loans collateralized by real property and other business asset collateral where a specific reserve has been established or a chargeoff has been recorded. Losses on other real estate owned represent losses recognized in earnings during the period subsequent to its initial classification as foreclosed assets. The unobservable inputs and qualitative information about the unobservable inputs are not presented due to the unavailability from third party evaluators.

 

 

At December 31, 2014

 

For the

Year Ended

December 31, 2014

  Fair Value  Level 1  Level 2  Level 3  Total Losses
  (In thousands)
Other real estate owned  $6,374   $-   $6,374   $-   $(358)
Impaired loans   17,085    -    7,670    9,415    (884)
Total assets measured at fair value on a nonrecurring basis  $23,459   $-   $14,044   $9,415   $(1,242)

 

Level 2 – Valuation is based upon independent market prices or appraised value of the collateral, less 10% for selling costs, generally. Level 2 includes other real estate owned that has been measured at fair value upon transfer to foreclosed assets and impaired loans collateralized by real property where a specific reserve has been established or a chargeoff has been recorded. Losses on other real estate owned represent losses recognized in earnings during the period subsequent to its initial classification as foreclosed assets.

 

Level 3 – Valuation is based upon estimated liquidation values of loan collateral. The value of level 3 assets can also include a component of real estate, which is valued as described for level 2 inputs, when collateral for the impaired loan includes both business assets and real estate. Level 3 includes impaired loans where a specific reserve has been established or a chargeoff has been recorded.

 

Disclosures about Fair Value of Financial Instruments

 

The following section describes the valuation methodologies used by the Company for estimating fair value of financial instruments not recorded at fair value in the balance sheet.

 

Cash and Due from Banks Cash and due from banks represent U.S. dollar denominated coin and currency, deposits at the Federal Reserve Bank and correspondent banks, and amounts being settled with other banks to complete the processing of customers’ daily transactions. Collectively, the Federal Reserve Bank and financial institutions operate in a market in which cash and due from banks transactions are processed continuously in significant daily volumes honoring the face value of the U.S. dollar.

 

Investment Securities Held to Maturity The fair values of investment securities were estimated using quoted prices as described above for Level 1 and Level 2 valuation.

 

Loans Loans were separated into two groups for valuation. Variable rate loans, except for those described below, which reprice frequently with changes in market rates were valued using historical cost. Fixed rate loans and variable rate loans that have reached their minimum contractual interest rates were valued by discounting the future cash flows expected to be received from the loans using current interest rates charged on loans with similar characteristics. Additionally, the allowance for loan losses of $30,036 thousand at September 30, 2015 and $31,485 thousand at December 31, 2014 and the purchased loan discount associated with purchased covered and purchased non-covered loans of $155 thousand and $7,082 thousand, respectively at September 30, 2015 and of $468 thousand and $9,372 thousand, respectively at December 31, 2014 were applied against the estimated fair values to recognize estimated future defaults of contractual cash flows. The Company does not consider these values to be a liquidation price for the loans.

 

-27-
 

Deposit Liabilities Deposits with no stated maturity such as checking accounts, savings accounts and money market accounts can be readily converted to cash or used to settle transactions at face value through the broad financial system operated by the Federal Reserve Bank and financial institutions. The fair value of deposits with no stated maturity is equal to the amount payable on demand. The fair values of time deposits were estimated by discounting estimated future contractual cash flows using current market rates for financial instruments with similar characteristics.

 

Short-Term Borrowed Funds The carrying amount of securities sold under agreement to repurchase and other short-term borrowed funds approximate fair value due to the relatively short period of time between their origination and their expected realization.

 

Federal Home Loan Bank Advances The fair values of FHLB advances were estimated by using redemption amounts quoted by the Federal Home Loan Bank of San Francisco.

 

The table below is a summary of fair value estimates for financial instruments and the level of the fair value hierarchy within which the fair value measurements are categorized, excluding financial instruments recorded at fair value on a recurring basis. The values assigned do not necessarily represent amounts which ultimately may be realized for assets or paid to settle liabilities. In addition, these values do not give effect to adjustments to fair value which may occur when financial instruments are sold or settled in larger quantities. The carrying amounts in the following table are recorded in the balance sheet under the indicated captions.

 

The Company has not included assets and liabilities that are not financial instruments, such as goodwill, long-term relationships with deposit, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and other assets and liabilities. The total estimated fair values do not represent, and should not be construed to represent, the underlying value of the Company.

 

  At September 30, 2015
  Carrying Amount  Estimated Fair Value  Quoted Prices in Active Markets for Identical Assets
(Level 1)
  Significant Other Observable Inputs
(Level 2)
  Significant Unobservable Inputs
(Level 3)
Financial Assets:  (In thousands)
Cash and due from banks  $268,587   $268,587   $268,587   $-   $- 
Investment securities held to maturity   1,278,814    1,293,958    -    1,293,958    - 
Loans   1,541,807    1,554,908    -    -    1,554,908 
                          
Financial Liabilities:                         
Deposits  $4,366,920   $4,365,831   $-   $4,066,375   $299,456 
Short-term borrowed funds   57,063    57,063    -    57,063    - 

 

  At December 31, 2014
  Carrying Amount  Estimated Fair Value  Quoted Prices in Active Markets for Identical Assets
(Level 1)
  Significant Other Observable Inputs
(Level 2)
  Significant Unobservable Inputs
(Level 3)
Financial Assets:  (In thousands)
Cash and due from banks  $380,836   $380,836   $380,836   $-   $- 
Investment securities held to maturity   1,038,658    1,048,562    1,077    1,047,485    - 
Loans   1,668,805    1,685,048    -    -    1,685,048 
Financial Liabilities:                         
Deposits  $4,349,191   $4,348,958   $-   $3,964,048   $384,910 
Short-term borrowed funds   89,784    89,784    -    89,784    - 
Federal Home Loan Bank advances   20,015    20,014    20,014    -    - 

 

-28-
 

The majority of the Company’s standby letters of credit and other commitments to extend credit carry current market interest rates if converted to loans. No premium or discount was ascribed to these commitments because virtually all funding would be at current market rates.

 

Note 10: Commitments and Contingent Liabilities

 

Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. Loan commitments are subject to the Company’s normal credit policies and collateral requirements. Unfunded loan commitments were $316,947 thousand and $312,694 thousand at September 30, 2015 and December 31, 2014, respectively. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Standby letters of credit are primarily issued to support customers’ short-term financing requirements and must meet the Company’s normal credit policies and collateral requirements. Financial and performance standby letters of credit outstanding totaled $27,117 thousand and $29,002 thousand at September 30, 2015 and December 31, 2014, respectively. The Company also had commitments for commercial and similar letters of credit of $40 thousand at September 30, 2015 and December 31, 2014. At September 30, 2015 and December 31, 2014, the Company had a reserve for unfunded commitments of $2,593 thousand and $2,693 thousand, respectively, included in other liabilities.

 

Due to the nature of its business, the Company is subject to various threatened or filed legal cases. Based on the advice of legal counsel, the Company does not expect such cases will have a material, adverse effect on its financial position or results of operations. Legal liabilities are accrued when obligations become probable and the amount is reasonably estimable.

 

Note 11: Earnings Per Common Share

 

The table below shows earnings per common share and diluted earnings per common share. Basic earnings per common share are computed by dividing net income by the average number of common shares outstanding during the period. Diluted earnings per common share are computed by dividing net income by the average number of common shares outstanding during the period plus the impact of common stock equivalents.

 

  For the Three Months  For the Nine Months
  Ended September 30,
   2015  2014  2015  2014
  (In thousands, except per share data)
Net income applicable to common equity (numerator)