Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-20293

 

 

UNION FIRST MARKET BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

VIRGINIA   54-1598552

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1051 East Cary Street

Suite 1200

Richmond, Virginia 23219

(Address of principal executive offices) (Zip Code)

(804) 633-5031

(Registrant’s telephone number, including area code)

 

 

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  x    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  x    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.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    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  x

The number of shares of common stock outstanding as of November 5, 2012 was 25,965,424

 

 

 


Table of Contents

UNION FIRST MARKET BANKSHARES CORPORATION

FORM 10-Q

INDEX

 

ITEM         PAGE  
   PART I - FINANCIAL INFORMATION   
Item 1.    Financial Statements   
  

Condensed Consolidated Balance Sheets as of September 30, 2012,

December 31, 2011 and September 30, 2011

  

 

1

  

     
  

Condensed Consolidated Statements of Income for the three and nine months

ended September 30, 2012 and 2011

  

 

2

  

     
   Condensed Consolidated Statements of Comprehensive Income for the three
and nine months ended September 30, 2012 and 2011
  

 

3

  

     
   Condensed Consolidated Statements of Changes in Stockholders’
Equity for the nine months ended September 30, 2012 and 2011
  

 

4

  

     
  

Condensed Consolidated Statements of Cash Flows for the nine

months ended September 30, 2012 and 2011

  

 

5

  

     
   Notes to Condensed Consolidated Financial Statements      6   
   Report of Independent Registered Public Accounting Firm      39   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      40   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      62   
Item 4.    Controls and Procedures      64   
   PART II - OTHER INFORMATION   
Item 1.    Legal Proceedings      65   
Item 1A.    Risk Factors      65   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      65   
Item 6.    Exhibits      66   
   Signatures      67   

 

ii


Table of Contents

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

     September 30,      December 31,      September 30,  
     2012      2011      2011  
     (Unaudited)      (Audited)      (Unaudited)  

ASSETS

        

Cash and cash equivalents:

        

Cash and due from banks

   $ 52,095       $ 64,412       $ 57,171   

Interest-bearing deposits in other banks

     10,081         31,930         92,247   

Money market investments

     1         155         199   

Federal funds sold

     157         162         160   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

     62,334         96,659         149,777   
  

 

 

    

 

 

    

 

 

 

Securities available for sale, at fair value

     622,067         620,166         584,668   

Restricted stock, at cost

     20,687         20,661         21,817   

Loans held for sale

     141,965         74,823         61,786   

Loans, net of unearned income

     2,908,510         2,818,583         2,818,342   

Less allowance for loan losses

     39,894         39,470         41,290   
  

 

 

    

 

 

    

 

 

 

Net loans

     2,868,616         2,779,113         2,777,052   
  

 

 

    

 

 

    

 

 

 

Bank premises and equipment, net

     87,305         90,589         90,936   

Other real estate owned, net of valuation allowance

     34,440         32,263         34,464   

Core deposit intangibles, net

     16,966         20,714         22,162   

Goodwill

     59,400         59,400         59,400   

Other assets

     114,413         112,699         112,395   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 4,028,193       $ 3,907,087       $ 3,914,457   
  

 

 

    

 

 

    

 

 

 

LIABILITIES

        

Noninterest-bearing demand deposits

   $ 604,274       $ 534,535       $ 542,692   

Interest-bearing deposits:

        

NOW accounts

     418,988         412,605         395,822   

Money market accounts

     898,625         904,893         858,426   

Savings accounts

     204,317         179,157         176,531   

Time deposits of $100,000 and over

     534,797         551,349         561,303   

Other time deposits

     538,778         592,566         600,102   
  

 

 

    

 

 

    

 

 

 

Total interest-bearing deposits

     2,595,505         2,640,570         2,592,184   
  

 

 

    

 

 

    

 

 

 

Total deposits

     3,199,779         3,175,105         3,134,876   
  

 

 

    

 

 

    

 

 

 

Securities sold under agreements to repurchase

     94,616         62,995         70,450   

Other short-term borrowings

     59,500         —           —     

Trust preferred capital notes

     60,310         60,310         60,310   

Long-term borrowings

     136,260         155,381         155,258   

Other liabilities

     34,779         31,657         41,982   
  

 

 

    

 

 

    

 

 

 

Total liabilities

     3,585,244         3,485,448         3,462,876   
  

 

 

    

 

 

    

 

 

 

STOCKHOLDERS’ EQUITY

        

Preferred stock, $10.00 par value, $1,000 liquidation value, shares authorized 500,000; issued and outstanding, 35,595 shares at September 30, 2011 and zero at December 31, 2011 and September 30, 2012.

     —           —           35,595   

Common stock, $1.33 par value, shares authorized 36,000,000; issued and outstanding, 25,967,705 shares, 26,134,830 shares, and 26,057,500 shares, respectively.

     34,433         34,672         34,581   

Surplus

     186,224         187,493         186,505   

Retained earnings

     209,308         189,824         184,845   

Discount on preferred stock

     —           —           (982

Accumulated other comprehensive income

     12,984         9,650         11,037   
  

 

 

    

 

 

    

 

 

 

Total stockholders’ equity

     442,949         421,639         451,581   
  

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 4,028,193       $ 3,907,087       $ 3,914,457   
  

 

 

    

 

 

    

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

 

     Three Months Ended     Nine Months Ended  
     September 30     September 30  
     2012     2011     2012      2011  
     (Unaudited)     (Unaudited)     (Unaudited)      (Unaudited)  

Interest and dividend income:

         

Interest and fees on loans

   $ 40,836      $ 42,664      $ 121,743       $ 126,999   

Interest on Federal funds sold

     1        1        1         1   

Interest on deposits in other banks

     6        24        64         60   

Interest and dividends on securities:

         

Taxable

     2,846        3,146        9,482         10,400   

Nontaxable

     1,814        1,771        5,391         5,294   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest and dividend income

     45,503        47,606        136,681         142,754   
  

 

 

   

 

 

   

 

 

    

 

 

 

Interest expense:

         

Interest on deposits

     4,726        5,924        15,084         18,774   

Interest on Federal funds purchased

     28        —          29         7   

Interest on short-term borrowings

     69        92        160         258   

Interest on long-term borrowings

     1,918        2,144        6,212         5,846   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest expense

     6,741        8,160        21,485         24,885   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net interest income

     38,762        39,446        115,196         117,869   

Provision for loan losses

     2,400        3,600        8,900         14,400   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net interest income after provision for loan losses

     36,362        35,846        106,296         103,469   
  

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest income:

         

Service charges on deposit accounts

     2,222        2,294        6,643         6,568   

Other service charges, commissions and fees

     3,655        3,254        10,692         9,529   

Gains (losses) on securities transactions, net

     (1     499        4         483   

Other-than-temporary impairment losses

     —          (400     —           (400

Gains on sales of mortgage loans

     8,918        4,861        21,529         14,132   

Gains (losses) on bank premises, net

     (309     (16     34         (644

Other operating income

     1,067        919        3,084         2,715   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total noninterest income

     15,552        11,411        41,986         32,383   
  

 

 

   

 

 

   

 

 

    

 

 

 

Noninterest expenses:

         

Salaries and benefits

     21,279        18,076        61,204         53,310   

Occupancy expenses

     3,262        2,885        9,001         8,307   

Furniture and equipment expenses

     1,809        1,756        5,440         5,097   

Other operating expenses

     11,968        11,787        36,252         38,891   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total noninterest expenses

     38,318        34,504        111,897         105,605   
  

 

 

   

 

 

   

 

 

    

 

 

 

Income before income taxes

     13,596        12,753        36,385         30,247   

Income tax expense

     3,970        3,682        10,416         8,162   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income

   $ 9,626      $ 9,071      $ 25,969       $ 22,085   

Dividends paid and accumulated on preferred stock

     —          462        —           1,386   

Accretion of discount on preferred stock

     —          66        —           195   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income available to common shareholders

   $ 9,626      $ 8,543      $ 25,969       $ 20,504   
  

 

 

   

 

 

   

 

 

    

 

 

 

Earnings per common share, basic

   $ 0.37      $ 0.33      $ 1.00       $ 0.79   
  

 

 

   

 

 

   

 

 

    

 

 

 

Earnings per common share, diluted

   $ 0.37      $ 0.33      $ 1.00       $ 0.79   
  

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

 

     Three Months Ended     Nine Months Ended  
     September 30     September 30  
     2012     2011     2012     2011  
     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
Net income    $ 9,626      $ 9,071      $ 25,969      $ 22,085   

Other comprehensive income:

        

Change in fair value of interest rate swap (cash flow hedge)

     (202     (1,827     (492     (2,826

Unrealized gains on securities:

        

Unrealized holding gains arising during period (net of tax, $1,172 and $2,062 for three and nine months ended 2012)

     2,176        3,230        3,829        10,346   

Reclassification adjustment for (gains) losses included in net income (net of tax, $0 and $1 for three and nine months ended 2012)

     1        (64     (3     (54
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     1,975        1,339        3,334        7,466   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 11,601      $ 10,410      $ 29,303      $ 29,551   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

UNION FIRST MARKET BANKSHARES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(Dollars in thousands)

(Unaudited)

 

     Preferred
Stock
     Common
Stock
    Surplus     Retained
Earnings
    Discount on
Preferred
Stock
    Accumulated
Other
Comprehensive
Income
     Total  

Balance - December 31, 2010

   $ 35,595       $ 34,532      $ 185,763      $ 169,801      $ (1,177   $ 3,571       $ 428,085   

Net income - 2011

            22,085             22,085   

Other comprehensive income (net of tax, $5,542)

                7,466         7,466   

Dividends on Common Stock ($.21 per share)

            (5,460          (5,460

Tax benefit from exercise of stock awards

          1               1   

Dividends on Preferred Stock

            (1,386          (1,386

Accretion of discount on Preferred Stock

            (195     195           —     

Issuance of common stock under Dividend Reinvestment Plan (18,135 shares)

        24        243               267   

Issuance of common stock under Stock Incentive Plan (6,450 shares)

        9        47               56   

Vesting of restricted stock under Stock Incentive Plan (12,243 shares)

        16        (16            —     

Stock-based compensation expense

          467               467   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance - September 30, 2011

   $ 35,595       $ 34,581      $ 186,505      $ 184,845      $ (983   $ 11,037       $ 451,581   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance - December 31, 2011

   $ —         $ 34,672      $ 187,493      $ 189,824      $ —        $ 9,650       $ 421,639   

Net income - 2012

            25,969             25,969   

Other comprehensive income (net of tax, $2,060)

                3,334         3,334   

Dividends on Common Stock ($.25 per share)

            (6,058          (6,058

Stock purchased under stock repurchase plan (220,265 shares)

        (293     (2,570            (2,863

Issuance of common stock under Dividend Reinvestment Plan (31,179 shares)

        41        386        (427          —     

Issuance of common stock under Stock Incentive Plan (1,165 shares)

        2        14               16   

Vesting of restricted stock under Stock Incentive Plan (9,647 shares)

        13        (13            —     

Net settle for taxes on Restricted Stock Awards (1,818 shares)

        (2     (24            (26

Stock-based compensation expense

          938               938   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance - September 30, 2012

   $ —         $ 34,433      $ 186,224      $ 209,308      $ —        $ 12,984       $ 442,949   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

(Dollars in thousands)

 

     2012     2011  

Operating activities:

    

Net income

   $ 25,969      $ 22,085   

Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:

    

Depreciation of bank premises and equipment

     5,049        5,005   

Other-than-temporary impairment recognized in earnings

     —          400   

Amortization, net

     7,658        5,300   

Provision for loan losses

     8,900        14,400   

(Gains) losses on the sale of investment securities

     (4     (483

(Increase) decrease in loans held for sale, net

     (67,142     12,188   

(Gains) losses on sales of other real estate owned, net

     442        328   

(Gains) losses on sales of bank premises, net

     (34     644   

Stock-based compensation expense

     938        467   

(Increase) decrease in other assets

     (634     4,263   

Increase in other liabilities

     2,630        11,048   
  

 

 

   

 

 

 

Net cash and cash equivalents provided by (used in) operating activities

     (16,228     75,645   
  

 

 

   

 

 

 

Investing activities:

    

Purchases of securities available for sale

     (131,262     (130,160

Proceeds from sales of securities available for sale

     2,186        18,365   

Proceeds from maturities, calls and paydowns of securities available for sale

     125,988        87,585   

Net (increase) decrease in loans

     (109,812     69,306   

Net increase in bank premises and equipment

     (1,731     (3,742

Proceeds from sales of other real estate owned

     9,148        10,557   

Improvements to other real estate owned

     (358     —     

Cash paid in bank acquisition

     —          (26,437

Cash acquired in bank and branch acquisitions

     —          230   
  

 

 

   

 

 

 

Net cash and cash equivalents provided by (used in) investing activities

     (105,841     25,704   
  

 

 

   

 

 

 

Financing activities:

    

Net increase in noninterest-bearing deposits

     69,739        53,459   

Net decrease in interest-bearing deposits

     (45,065     (37,511

Net increase (decrease) in short-term borrowings

     91,121        (22,517

Net (decrease) increase in long-term borrowings(1)

     (19,121     366   

Cash dividends paid - common stock

     (6,058     (5,460

Cash dividends paid - preferred stock

     —          (1,386

Repurchase of common stock

     (2,862     —     

Taxes paid related to net share settlement of equity awards

     (26     —     

Issuance of common stock

     16        324   
  

 

 

   

 

 

 

Net cash and cash equivalents provided by (used in) financing activities

     87,744        (12,725
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (34,325     88,624   

Cash and cash equivalents at beginning of the period

     96,659        61,153   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 62,334      $ 149,777   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information

    

Cash payments for:

    

Interest

   $ 22,495      $ 25,265   

Income taxes

     4,300        4,238   

Supplemental schedule of noncash investing and financing activities

    

Unrealized gain on securities available for sale

   $ 5,887      $ 15,834   

Changes in fair value of interest rate swap

     (492     (2,826

Transfers from loans to other real estate owned

     11,409        9,236   

Transactions related to bank and branch acquisitions

    

Increase in assets and liabilities:

    

Loans

   $ —        $ 70,817   

Other assets

     —          4,324   

Noninterest bearing deposits

     —          4,366   

Interest bearing deposits

     —          44,503   

Other liabilities

     —          65   

 

(1) 

See Note 6. Borrowings related to 2012 activity

See accompanying notes to consolidated financial statements.

 

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UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2012

 

1. ACCOUNTING POLICIES

The condensed consolidated financial statements include the accounts of Union First Market Bankshares Corporation and its subsidiaries (collectively, the “Company”). Significant inter-company accounts and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2011 Annual Report on Form 10-K. If needed, certain previously reported amounts have been reclassified to conform to current period presentation.

 

2. BUSINESS COMBINATIONS

Harrisonburg Branch Acquisition

On May 20, 2011, the Company completed the purchase of the former NewBridge Bank branch in Harrisonburg, Virginia, assets and liabilities related to the branch business, and a potential branch site in Waynesboro, Virginia. Under the parties’ agreement, the Company purchased loans of $72.5 million, assumed deposit liabilities of $48.9 million, and purchased the related fixed assets of the branch. The Company operates the acquired bank branch under the name Union First Market Bank (the “Harrisonburg branch”). The acquisition, which allowed the Company to establish immediately a meaningful presence in a new banking market, is consistent with the Company’s secondary growth strategy of expanding operations along the Interstate Route 81 corridor. The Company’s consolidated statements of income include the results of operations of the Harrisonburg branch from the closing date of the acquisition.

In connection with the acquisition, the Company recorded $1.8 million of goodwill and $9,500 of core deposit intangibles. The core deposit intangible of $9,500 was expensed immediately upon completion of the acquisition. The recorded goodwill was allocated to the community banking segment of the Company and is deductible for tax purposes.

The Company acquired the $72.5 million loan portfolio at a fair value discount of $1.7 million. The discount represents expected credit losses, adjustments to market interest rates and liquidity adjustments. The performing loan portfolio fair value estimate was $70.5 million and the impaired loan portfolio fair value estimate was $276,000.

 

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In the third quarter, interest income of approximately $640,000 was recorded on loans acquired in the Harrisonburg branch acquisition. The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet at September 30, 2012 and December 31, 2011 are as follows (dollars in thousands):

 

September 30, 2012:

  

Outstanding principal balance

   $ 47,658   

Carrying amount

   $ 47,131   

December 31, 2011:

  

Outstanding principal balance

   $ 54,953   

Carrying amount

   $ 53,359   

Loans obtained in the acquisition of the Harrisonburg branch for which there is specific evidence of credit deterioration and for which it was probable that the Company would be unable to collect all contractually required principal and interest payments are not considered to be material to the Company’s consolidated assets.

First Market Bank Acquisition

In February 2010, the Company completed the acquisition of First Market Bank, FSB (“FMB”). Interest income on acquired loans for the third quarter of 2012 was approximately $6.5 million. The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet at September 30, 2012 and December 31, 2011 are as follows (dollars in thousands):

 

September 30, 2012:

  

Outstanding principal balance

   $ 471,557   

Carrying amount

   $ 462,552   

December 31, 2011:

  

Outstanding principal balance

   $ 632,602   

Carrying amount

   $ 620,048   

Loans obtained in the acquisition of FMB for which there is specific evidence of credit deterioration and for which it was probable that the Company would be unable to collect all contractually required principal and interest payments are not considered to be material to the Company’s consolidated assets.

During the second quarter of 2012, the Company compared the expected prepayments at acquisition to actual payments and anticipated future payments on four purchased performing loan pools. The slower prepayment speed noted on real estate, commercial real estate, land, and auto pools during this assessment resulted in an adjustment to the fair value discount accretion rate. This is considered a change in accounting estimate and resulted in a lower effective yield in each pool and had an immaterial impact on the financial statements.

 

3. STOCK-BASED COMPENSATION

The Company’s 2011 Stock Incentive Plan (the “2011 Plan”) and the 2003 Stock Incentive Plan (the “2003 Plan”) provide for the granting of incentive stock options, non-statutory stock options, and nonvested stock awards to key employees of the Company and its subsidiaries. The 2011 Plan makes available 1,000,000 shares, which may be awarded to employees of the Company and its subsidiaries in the form of incentive stock options intended to comply with the requirements of Section 422 of the Internal Revenue Code of 1986 (“incentive stock options”), non-statutory stock options, and nonvested stock. Approximately 26,400 shares remain available for grant under the 2003 Plan, which expires in 2013. Under both plans, the option price cannot be less than the fair market value of the stock on the grant date. The Company issues new shares to satisfy stock-based awards. A stock option’s maximum term is ten years from the date of grant and vests in equal annual installments of 20% over a five year vesting schedule. Collectively, there remain approximately 746,500 shares available as of September 30, 2012 for issuance under the 2011 and 2003 Plans.

 

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For the three month and nine month periods ended September 30, 2012 and 2011, respectively, the Company recognized stock-based compensation expense of approximately $324,000 and $938,000 ($242,000 and $707,000, net of tax), respectively, and $244,000 and $467,000, ($182,000 and $374,000, net of tax), respectively. These expenses were less than $0.01 per common share for both periods ended September 30, 2011, and $0.01 and $0.04 for the three and nine month periods, respectively, ended September 30, 2012.

Stock Options

The following table summarizes the stock option activity for the nine months ended September 30, 2012:

 

     Number of Stock
Options
    Weighted
Average
Exercise Price
 

Options outstanding, December 31, 2011

     422,750      $ 17.70   

Granted

     131,657        14.40   

Exercised

     (1,165     12.11   

Forfeited

     (19,029     14.58   

Expired

     (16,775     22.53   
  

 

 

   

Options outstanding, September 30, 2012

     517,438        16.83   
  

 

 

   

Options exercisable, September 30, 2012

     222,301        20.50   
  

 

 

   

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table for the nine months ended September 30, 2012 and 2011:

 

     Nine Months Ended September 30,  
             2012                     2011          

Dividend yield (1)

     2.47     2.36

Expected life in years (2)

     7.0        7.0   

Expected volatility (3)

     41.53     41.02

Risk-free interest rate (4)

     1.24     2.71

Weighted average fair value per option granted

   $ 4.76      $ 4.31   

 

(1) Calculated as the ratio of historical dividends paid per share of common stock to the stock price on the date of grant.
(2) Based on the average of the contractual life and vesting schedule for the respective option.
(3) Based on the monthly historical volatility of the Company’s stock price over the expected life of the options.
(4) Based upon the U.S. Treasury bill yield curve, for periods within the contractual life of the option, in effect at the time of grant.

 

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The following table summarizes information concerning stock options issued to the Company’s employees that are vested or are expected to vest and stock options exercisable as of September 30, 2012:

 

     Stock Options
Vested or
Expected to Vest
     Exercisable  

Stock options

     492,196         222,301   

Weighted average remaining contractual life in years

     6.47         3.81   

Weighted average exercise price on shares above water

   $ 13.23       $ 12.23   

Aggregate intrinsic value

   $ 257,186       $ 28,561   

There was one stock option award exercised during the third quarter of 2012; the total intrinsic value for the stock option award exercised during both three and nine month periods ended September 30, 2012 was $3,367, and the total fair value for the stock option award exercised during both three and nine month periods ended September 30, 2012 was $14,108. The fair value of stock options vested during the nine months ended September 30, 2012 was approximately $279,000.

Nonvested Stock

The 2003 and the 2011 Stock Incentive Plans permit the granting of nonvested stock but are limited to one-third of the aggregate number of total awards granted. This equity component of compensation is divided between restricted (time-based) stock grants and performance-based stock grants. Generally, the restricted stock vests 50% on each of the third and fourth anniversaries from the date of the grant. The performance-based stock is subject to vesting on the fourth anniversary of the date of the grant based on the performance of the Company’s stock price. The value of the nonvested stock awards was calculated by multiplying the fair market value of the Company’s common stock on grant date by the number of shares awarded. Employees have the right to vote the shares and to receive cash or stock dividends (restricted stock), if any, except for the nonvested stock under the performance-based component (performance stock).

The following table summarizes the nonvested stock activity for the nine months ended September 30, 2012:

 

     Number of
Shares of
Restricted Stock
    Performance
Stock
    Weighted
Average Grant-
Date Fair Value
 

Balance, December 31, 2011

     140,557        6,000      $ 12.62   

Granted

     73,414        —          14.28   

Vested

     (7,497     —          15.81   

Forfeited

     (14,310     (1,500     12.95   
  

 

 

   

 

 

   

Balance, September 30, 2012

     192,164        4,500        12.85   
  

 

 

   

 

 

   

The estimated unamortized compensation expense, net of estimated forfeitures, related to nonvested stock and stock options issued and outstanding as of September 30, 2012 that will be recognized in future periods is as follows (dollars in thousands):

 

     Stock Options      Restricted
Stock
     Total  

For the remaining three months of 2012

   $ 90       $ 230       $ 320   

For year ending December 31, 2013

     366         699         1,065   

For year ending December 31, 2014

     360         366         726   

For year ending December 31, 2015

     268         98         366   

For year ending December 31, 2016

     155         13         168   

For year ending December 31, 2017

     25         —           25   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,264       $ 1,406       $ 2,670   
  

 

 

    

 

 

    

 

 

 

 

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4. LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their face amount, net of unearned income, and consist of the following at September 30, 2012 and December 31, 2011 (dollars in thousands):

 

     September 30,
2012
     December 31,
2011
 

Commercial:

     

Commercial Construction

   $ 200,032       $ 185,359   

Commercial Real Estate - Owner Occupied

     492,715         452,407   

Commercial Real Estate - Non-Owner Occupied

     693,679         655,083   

Raw Land and Lots

     212,316         214,284   

Single Family Investment Real Estate

     206,090         192,437   

Commercial and Industrial

     209,401         212,268   

Other Commercial

     40,307         44,403   

Consumer:

     

Mortgage

     221,474         219,646   

Consumer Construction

     27,488         20,757   

Indirect Auto

     159,495         162,708   

Indirect Marine

     31,314         39,819   

HELOCs

     286,348         277,101   

Credit Card

     20,332         19,006   

Other Consumer

     107,519         123,305   
  

 

 

    

 

 

 

Total

   $ 2,908,510       $ 2,818,583   
  

 

 

    

 

 

 

The following table shows the aging of the Company’s loan portfolio, by class, at September 30, 2012 (dollars in thousands):

 

     30-59 Days
Past Due
     60-89 Days
Past Due
     Greater Than
90 Days and
still Accruing
     Purchased
Impaired (net of
credit mark)
     Nonaccrual      Current      Total Loans  

Commercial:

                    

Commercial Construction

   $ 6,148       $ —         $ —         $ —         $ 7,846       $ 186,038       $ 200,032   

Commercial Real Estate - Owner Occupied

     2,865         88         822         1,228         2,212         485,500         492,715   

Commercial Real Estate - Non-Owner Occupied

     5,116         —           635         —           540         687,388         693,679   

Raw Land and Lots

     138         —           153         3,743         10,995         197,287         212,316   

Single Family Investment Real Estate

     686         102         201         371         4,081         200,649         206,090   

Commercial and Industrial

     230         191         120         89         2,678         206,093         209,401   

Other Commercial

     238         1         —           —           195         39,873         40,307   

Consumer:

                    

Mortgage

     3,899         3,003         3,991         —           693         209,888         221,474   

Consumer Construction

     —           —           —           —           210         27,278         27,488   

Indirect Auto

     1,998         234         289         24         2         156,948         159,495   

Indirect Marine

     68         —           114         —           876         30,256         31,314   

HELOCs

     2,481         536         1,707         851         797         279,976         286,348   

Credit Card

     147         223         268         —           —           19,694         20,332   

Other Consumer

     893         629         796         131         1,034         104,036         107,519   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 24,907       $ 5,007       $ 9,096       $ 6,437       $ 32,159       $ 2,830,904       $ 2,908,510   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2011 (dollars in thousands):

 

     30-59 Days
Past Due
     60-89 Days
Past Due
     Greater Than
90 Days and
still Accruing
     Purchased
Impaired (net of
credit mark)
     Nonaccrual      Current      Total Loans  

Commercial:

                    

Commercial Construction

   $ —         $ —         $ 490       $ —         $ 10,276       $ 174,593       $ 185,359   

Commercial Real Estate - Owner Occupied

     520         —           2,482         1,292         5,962         442,151         452,407   

Commercial Real Estate - Non-Owner Occupied

     190         64         2,887         1,133         2,031         648,778         655,083   

Raw Land and Lots

     94         1,124         —           5,623         13,322         194,121         214,284   

Single Family Investment Real Estate

     779         70         3,637         388         5,048         182,515         192,437   

Commercial and Industrial

     601         185         3,369         392         5,297         202,424         212,268   

Other Commercial

     —           25         —           —           238         44,140         44,403   

Consumer:

                    

Mortgage

     6,748         412         3,804         —           240         208,442         219,646   

Consumer Construction

     —           —           —           —           207         20,550         20,757   

Indirect Auto

     2,653         416         443         40         7         159,149         162,708   

Indirect Marine

     189         795         —           —           544         38,291         39,819   

HELOCs

     1,678         547         820         865         885         272,306         277,101   

Credit Card

     245         184         323         —           —           18,254         19,006   

Other Consumer

     1,421         443         1,657         164         777         118,843         123,305   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 15,118       $ 4,265       $ 19,912       $ 9,897       $ 44,834       $ 2,724,557       $ 2,818,583   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans totaled $32.2 million and $51.9 million at September 30, 2012 and 2011, respectively. There were no nonaccrual loans excluded from impaired loan disclosure in 2012 or 2011. Loans past due 90 days or more and accruing interest totaled $9.1 million and $12.1 million at September 30, 2012 and 2011, respectively.

The following table shows purchased impaired commercial and consumer loan portfolios, by class and their delinquency status through September 30, 2012 (dollars in thousands):

 

     30-89 Days
Past Due
     Greater than
90 Days
     Current      Total  

Commercial:

           

Commercial Real Estate - Owner Occupied

   $ —         $ 1,164       $ 64       $ 1,228   

Raw Land and Lots

     —           91         3,652         3,743   

Single Family Investment Real Estate

     16         —           355         371   

Commercial and Industrial

     —           89         —           89   

Consumer:

           

Indirect Auto

     7         —           17         24   

HELOCs

     —           50         801         851   

Other Consumer

     —           26         105         131   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 23       $ 1,420       $ 4,994       $ 6,437   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows purchased impaired commercial and consumer loan portfolios, by class and their delinquency status through December 31, 2011 (dollars in thousands):

 

     30-89 Days
Past Due
     Greater than
90 Days
     Current      Total  

Commercial:

           

Commercial Real Estate - Owner Occupied

   $ 206       $ 50       $ 1,036       $ 1,292   

Commercial Real Estate - Non-Owner Occupied

     —           1,133         —           1,133   

Raw Land and Lots

     —           —           5,623         5,623   

Single Family Investment Real Estate

     —           —           388         388   

Commercial and Industrial

     —           302         90         392   

Consumer:

           

Indirect Auto

     6         11         23         40   

HELOCs

     19         32         814         865   

Other Consumer

     —           77         87         164   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 231       $ 1,605       $ 8,061       $ 9,897   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. At September 30, 2012, the Company had $177.9 million in loans considered to be impaired of which $16.7 million were collectively evaluated for impairment and $161.2 million were individually evaluated for impairment. The following table shows the Company’s impaired loans individually evaluated for impairment, by class, at September 30, 2012 (dollars in thousands):

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     YTD
Average
Investment
     Interest
Income
Recognized
 

Loans without a specific allowance

              

Commercial:

              

Commercial Construction

   $ 30,864       $ 31,347       $ —         $ 31,913       $ 1,073   

Commercial Real Estate - Owner Occupied

     10,774         11,246         —           11,517         423   

Commercial Real Estate - Non-Owner Occupied

     21,230         21,305         —           22,644         867   

Raw Land and Lots

     35,067         35,141         —           36,376         941   

Single Family Investment Real Estate

     5,860         6,180         —           6,440         216   

Commercial and Industrial

     3,361         3,394         —           3,837         135   

Other Commercial

     906         906         —           1,009         46   

Consumer:

              

Mortgage

     2,592         2,645         —           2,983         80   

Indirect Auto

     6         6         —           9         —     

HELOCs

     1,672         1,771         —           1,843         10   

Other Consumer

     871         910         —           937         21   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

   $ 113,203       $ 114,851       $ —         $ 119,508       $ 3,812   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans with a specific allowance

              

Commercial:

              

Commercial Construction

   $ 4,290       $ 4,338       $ 1,368       $ 4,360       $ 20   

Commercial Real Estate - Owner Occupied

     2,718         2,853         665         2,888         22   

Commercial Real Estate - Non-Owner Occupied

     13,546         13,580         426         13,777         568   

Raw Land and Lots

     12,472         12,669         3,052         13,168         118   

Single Family Investment Real Estate

     2,503         2,573         962         2,736         44   

Commercial and Industrial

     9,929         10,069         3,581         10,059         304   

Other Commercial

     134         134         108         134         —     

Consumer:

              

Consumer Construction

     210         236         76         226         —     

Indirect Marine

     876         876         404         879         3   

HELOCs

     752         811         550         1,017         —     

Other Consumer

     563         563         246         563         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

   $ 47,993       $ 48,702       $ 11,438       $ 49,807       $ 1,079   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans individually evaluated for impairment

   $ 161,196       $ 163,553       $ 11,438       $ 169,315       $ 4,891   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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At December 31, 2011, the Company had $255.1 million in loans considered to be impaired of which $12.3 million were collectively evaluated for impairment and $242.8 million were individually evaluated for impairment. The following table shows the Company’s impaired loans individually evaluated for impairment, by class, at December 31, 2011 (dollars in thousands):

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     YTD
Average
Investment
     Interest
Income
Recognized
 

Loans without a specific allowance

              

Commercial:

              

Commercial Construction

   $ 40,475       $ 40,524       $ —         $ 37,835       $ 1,690   

Commercial Real Estate - Owner Occupied

     20,487         21,010         —           23,364         1,183   

Commercial Real Estate - Non-Owner Occupied

     37,799         37,855         —           38,084         2,002   

Raw Land and Lots

     46,791         46,890         —           47,808         1,306   

Single Family Investment Real Estate

     11,285         11,349         —           11,684         637   

Commercial and Industrial

     9,467         9,959         —           10,216         423   

Other Commercial

     1,257         1,257         —           1,269         75   

Consumer:

              

Mortgage

     1,202         1,202         —           1,225         70   

HELOCs

     349         349         —           350         11   

Other Consumer

     —           —           —           1         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

   $ 169,112       $ 170,395       $ —         $ 171,836       $ 7,397   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans with a specific allowance

              

Commercial:

              

Commercial Construction

   $ 12,927       $ 13,297       $ 583       $ 13,811       $ 343   

Commercial Real Estate - Owner Occupied

     8,679         8,788         1,961         8,681         267   

Commercial Real Estate - Non-Owner Occupied

     8,858         8,879         1,069         9,010         322   

Raw Land and Lots

     22,188         22,429         991         24,553         973   

Single Family Investment Real Estate

     9,020         9,312         1,140         9,571         321   

Commercial and Industrial

     8,980         9,133         3,320         10,448         369   

Other Commercial

     150         150         3         153         10   

Consumer:

              

Mortgage

     535         535         11         536         32   

Consumer Construction

     207         226         86         228         —     

Indirect Auto

     71         71         —           93         5   

Indirect Marine

     544         547         263         548         9   

HELOCs

     785         825         587         1,034         —     

Other Consumer

     777         804         284         815         5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

   $ 73,721       $ 74,996       $ 10,298       $ 79,481       $ 2,656   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans individually evaluated for impairment

   $ 242,833       $ 245,391       $ 10,298       $ 251,317       $ 10,053   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company considers troubled debt restructurings (“TDRs”) to be impaired loans. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession to the borrower for economic or legal reasons related to the borrower’s financial difficulties that it would not otherwise consider. Included in the impaired loan disclosures above are $63.8 million and $112.6 million of loans considered to be troubled debt restructurings as of September 30, 2012 and December 31, 2011, respectively. All loans that are considered to be TDRs are specifically evaluated for impairment in accordance with the Company’s allowance for loan loss methodology.

 

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Table of Contents

The following table provides a summary, by class, of modified loans that continue to accrue interest under the terms of the restructuring agreement, which are considered to be performing, and modified loans that have been placed in nonaccrual status, which are considered to be nonperforming, as of September 30, 2012 and December 31, 2011 (dollars in thousands):

 

     September 30, 2012      December 31, 2011  
     No. of
Loans
     Recorded
Investment
     Outstanding
Commitment
     No. of
Loans
     Recorded
Investment
     Outstanding
Commitment
 

Performing

                 

Commercial:

                 

Commercial Construction

     6       $ 6,559       $ 169         14       $ 21,461       $ 3,185   

Commercial Real Estate - Owner Occupied

     8         3,056         —           11         7,996         180   

Commercial Real Estate - Non-Owner Occupied

     10         13,082         29         16         21,777         13   

Raw Land and Lots

     14         25,274         1         15         32,450         1   

Single Family Investment Real Estate

     5         848         —           12         8,525         —     

Commercial and Industrial

     6         1,103         —           12         4,991         204   

Other Commercial

     1         236         —           4         864         —     

Consumer:

                 

Mortgage

     7         1,690         —           1         507         —     

Other Consumer

     2         85         —           2         263         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total performing

     59       $ 51,933       $ 199         87       $ 98,834       $ 3,583   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonperforming

                 

Commercial:

                 

Commercial Construction

     4       $ 4,260       $ —           5       $ 5,353       $ —     

Commercial Real Estate - Owner Occupied

     3         1,084         —           —           —           —     

Commercial Real Estate - Non-Owner Occupied

     1         208         —           2         292         —     

Raw Land and Lots

     3         3,860         —           6         4,342         —     

Single Family Investment Real Estate

     2         433         —           4         1,342         —     

Commercial and Industrial

     7         1,284         —           3         1,134         —     

Consumer:

                 

Mortgage

     1         202         —           5         1,076         —     

Indirect Marine

     1         283         —           —           —           —     

Other Consumer

     2         266         —           1         265         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonperforming

     24       $ 11,880       $ —           26       $ 13,804       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total performing and nonperforming

     83       $ 63,813       $ 199         113       $ 112,638       $ 3,583   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company considers a default of a restructured loan to occur when subsequent to the restructure, the borrower is 90 days past due or results in foreclosure and repossession of the applicable collateral; the Company did not identify any restructured loans that went into default in the third quarter that had been restructured during the previous twelve months. During the nine months ended September 30, 2012, the Company identified three restructured loans, totaling approximately $1.4 million, that went into default that had been restructured in the twelve-month period prior to the time of default. All three loans had a term extension at a market rate.

 

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Table of Contents

The following table shows, by class and modification type, TDRs that occurred during the three month and nine month periods ended September 30, 2012 (dollars in thousands):

 

     Three months ended
September 30, 2012
     Nine months ended
September 30, 2012
 
     No. of
Loans
     Recorded
investment at
period end
     No. of
Loans
     Recorded
investment at
period end
 

Modified to interest only

           

Commercial:

           

Commercial Real Estate - Non-Owner Occupied

     —         $ —           1       $ 309   

Raw Land and Lots

     —           —           3         260   

Single Family Investment Real Estate

     —           —           2         176   

Consumer:

           

Indirect Marine

     —           —           1         283   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest only at market rate of interest

     —         $ —           7       $ 1,028   
  

 

 

    

 

 

    

 

 

    

 

 

 

Term modification, at a market rate

           

Commercial:

           

Commercial Real Estate - Owner Occupied

     —         $ —           3       $ 1,809   

Commercial Real Estate - Non-Owner Occupied

     2         720         2         720   

Raw Land and Lots

     —           —           1         603   

Commercial and Industrial

     1         115         6         432   

Consumer:

           

Mortgage

     —           —           2         472   

Other Consumer

     —           —           3         282   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loan term extended at a market rate

     3       $ 835         17       $ 4,318   
  

 

 

    

 

 

    

 

 

    

 

 

 

Term modification, below market rate

           

Commercial:

           

Commercial Real Estate - Owner Occupied

     —         $ —           4       $ 654   

Raw Land and Lots

     1         60         1         60   

Consumer:

           

Other Consumer

     1         69         1         69   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loan term extended at a below market rate

     2       $ 129         6       $ 783   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest rate modification, below market rate

           

Commercial:

           

Commercial Real Estate - Non-Owner Occupied

     —         $ —           2       $ 2,390   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest only at below market rate of interest

     —         $ —           2       $ 2,390   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     5       $ 964         32       $ 8,519   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following table shows, by class and modification type, TDRs that occurred during the three month and nine month periods ended September 30, 2011 (dollars in thousands):

 

     Three months ended
September 30, 2011
     Nine months ended
September 30, 2011
 
     No. of
Loans
     Recorded
investment at
period end
     No. of
Loans
     Recorded
investment at
period end
 

Modified to interest only

           

Commercial:

           

Commercial Real Estate - Non-Owner Occupied

     —         $ —           1       $ 223   

Raw Land and Lots

     —           —           1         341   

Single Family Investment Real Estate

     1         95         1         95   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest only at market rate of interest

     1       $ 95         3       $ 659   
  

 

 

    

 

 

    

 

 

    

 

 

 

Term modification, at a market rate

           

Commercial:

           

Commercial Construction

     5       $ 7,072         15       $ 22,940   

Commercial Real Estate - Owner Occupied

     3         3,869         5         5,035   

Commercial Real Estate - Non-Owner Occupied

     2         2,572         16         21,655   

Raw Land and Lots

     4         18,625         14         27,596   

Single Family Investment Real Estate

     1         2,616         10         7,286   

Commercial and Industrial

     5         2,729         12         5,623   

Other Commercial

     2         457         5         911   

Consumer:

           

Mortgage

     1         56         4         538   

Other Consumer

     1         270         3         533   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loan term extended at a market rate

     24       $ 38,266         84       $ 92,117   
  

 

 

    

 

 

    

 

 

    

 

 

 

Term modification, below market rate

           

Commercial:

           

Commercial Construction

     —         $ —           3       $ 3,451   

Commercial Real Estate - Owner Occupied

     2         546         2         546   

Raw Land and Lots

     —           —           6         6,391   

Single Family Investment Real Estate

     —           —           4         2,506   

Commercial and Industrial

     —           —           2         368   

Consumer:

           

Mortgage

     —           —           1         507   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loan term extended at a below market rate

     2       $ 546         18       $ 13,769   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     27       $ 38,907         105       $ 106,545   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following table shows the allowance for loan loss activity, by portfolio segment, balances for allowance for credit losses, and loans based on impairment methodology for the nine months ended September 30, 2012. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):

 

     Commercial     Consumer     Unallocated     Total  

Allowance for loan losses:

        

Balance, beginning of the year

   $ 27,891      $ 11,498      $ 81      $ 39,470   

Recoveries credited to allowance

     490        881        —          1,371   

Loans charged off

     (5,956     (3,891     —          (9,847

Provision charged to operations

     7,301        1,626        (27     8,900   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 29,726      $ 10,114      $ 54      $ 39,894   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

     10,033        1,276        —          11,309   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

     19,564        8,838        54        28,456   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: loans acquired with deteriorated credit quality

     129        —          —          129   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 29,726      $ 10,114      $ 54      $ 39,894   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

        

Ending balance

   $ 2,054,540      $ 853,970      $ —        $ 2,908,510   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

     148,223        6,536        —          154,759   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

     1,900,886        846,428        —          2,747,314   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: loans acquired with deteriorated credit quality

     5,431        1,006        —          6,437   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 2,054,540      $ 853,970      $ —        $ 2,908,510   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

- 17 -


Table of Contents

The following table shows the allowance for loan loss activity, portfolio segment types, balances for allowance for loan losses, and loans based on impairment methodology for the year ended December 31, 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):

 

     Commercial     Consumer     Unallocated     Total  

Allowance for loan losses:

        

Balance, beginning of the year

   $ 28,255      $ 10,189      $ (38   $ 38,406   

Recoveries credited to allowance

     924        1,206        —          2,130   

Loans charged off

     (10,891     (6,975     —          (17,866

Provision charged to operations

     9,603        7,078        119        16,800   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of year

   $ 27,891      $ 11,498      $ 81      $ 39,470   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

     8,982        1,231        —          10,213   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

     18,824        10,267        81        29,172   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: loans acquired with deteriorated credit quality

     85        —          —          85   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 27,891      $ 11,498      $ 81      $ 39,470   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

        

Ending balance

   $ 1,956,241      $ 862,342      $ —        $ 2,818,583   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

     229,535        3,401        —          232,936   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

     1,717,878        857,872        —          2,575,750   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: loans acquired with deteriorated credit quality

     8,828        1,069        —          9,897   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,956,241      $ 862,342      $ —        $ 2,818,583   
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company uses the past due status and trends as the primary credit quality indicator for the consumer loan portfolio segment while a risk rating system is utilized for commercial loans. Commercial loans are graded on a scale of 1 through 9. A general description of the characteristics of the risk grades follows:

 

   

Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;

 

   

Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety;

 

   

Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;

 

   

Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater degree of financial risk based on the type of business supporting the loan;

 

   

Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an event occurring that may weaken the borrower’s ability to repay;

 

   

Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if not addressed could lead to inadequately protecting the Company’s credit position;

 

   

Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected;

 

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Table of Contents
   

Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for recovery, its classification as a loss is deferred until its more exact status is determined; and

 

   

Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.

The following table shows all loans, excluding purchased impaired loans, in the commercial portfolios by class with their related risk rating as of September 30, 2012. The risk rating information has been updated through September 30, 2012 (dollars in thousands):

 

     3      4      5      6      7      8      Total  

Commercial Construction

   $ 11,409       $ 105,226       $ 11,150       $ 39,371       $ 32,766       $ 110       $ 200,032   

Commercial Real Estate - Owner Occupied

     125,840         314,456         22,406         17,671         11,114         —           491,487   

Commercial Real Estate - Non-Owner Occupied

     164,530         416,312         51,597         31,961         29,279         —           693,679   

Raw Land and Lots

     3,378         112,439         14,807         33,719         43,724         506         208,573   

Single Family Investment Real Estate

     24,329         145,213         14,109         12,898         8,431         739         205,719   

Commercial and Industrial

     44,831         122,572         13,779         13,284         14,671         175         209,312   

Other Commercial

     5,307         16,489         12,133         4,803         1,515         60         40,307   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 379,624       $ 1,232,707       $ 139,981       $ 153,707       $ 141,500       $ 1,590       $ 2,049,109   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows all loans, excluding purchased impaired loans, in the commercial portfolios by class with their related risk rating as of December 31, 2011. The risk rating information has been updated through December 31, 2011 (dollars in thousands):

 

     3      4      5      6      7      8      Total  

Commercial Construction

   $ 10,099       $ 84,299       $ 6,079       $ 36,650       $ 48,232       $ —         $ 185,359   

Commercial Real Estate - Owner Occupied

     88,430         296,825         17,604         21,158         26,389         709         451,115   

Commercial Real Estate - Non-Owner Occupied

     149,346         367,244         58,844         38,662         39,854         —           653,950   

Raw Land and Lots

     4,368         99,374         18,767         33,673         52,204         275         208,661   

Single Family Investment Real Estate

     32,741         116,570         11,928         14,358         16,452         —           192,049   

Commercial and Industrial

     35,120         123,872         22,079         11,559         19,066         180         211,876   

Other Commercial

     6,364         15,918         16,739         3,807         1,512         63         44,403   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 326,468       $ 1,104,102       $ 152,040       $ 159,867       $ 203,709       $ 1,227       $ 1,947,413   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows only purchased impaired loans in the commercial portfolios by class with their related risk rating as of September 30, 2012. The credit quality indicator information has been updated through September 30, 2012 (dollars in thousands):

 

     5      6      7      8      Total  

Commercial Real Estate - Owner Occupied

   $  —         $  —         $ 1,228       $ —         $ 1,228   

Raw Land and Lots

     —           —           3,743         —           3,743   

Single Family Investment Real Estate

     355         —           16         —           371   

Commercial and Industrial

     —           —           89         —           89   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 355       $ —         $ 5,076       $ —         $ 5,431   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows only purchased impaired loans in the commercial portfolios by class with their related risk rating as of December 31, 2011. The credit quality indicator information has been updated through December 31, 2011 (dollars in thousands):

 

     6      7      8      Total  

Commercial Real Estate - Owner Occupied

   $ —         $ 1,292       $ —         $ 1,292   

Commercial Real Estate - Non-Owner Occupied

     —           1,133         —           1,133   

Raw Land and Lots

     —           5,623         —           5,623   

Single Family Investment Real Estate

     369         19         —           388   

Commercial and Industrial

     —           91         301         392   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 369       $ 8,158       $ 301       $ 8,828   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Loans acquired are originally recorded at fair value, with certain loans being identified as impaired at the date of purchase. The fair values were determined based on the credit quality of the portfolio, expected future cash flows, and timing of those expected future cash flows. The contractually required payments, cash flows expected to be collected, and fair value as of the date of acquisition were $1,080,780, $1,072,726, and $1,052,358, respectively (dollars in thousands).

The following shows changes in the Company’s acquired loan portfolio and accretable yield for the following periods (dollars in thousands):

 

     For the Nine Months Ended     For the Twelve Months Ended  
     September 30, 2012     December 31, 2011  
     Purchased Impaired     Purchased Nonimpaired     Purchased Impaired     Purchased Nonimpaired  
     Accretable
Yield
    Carrying
Amount of
Loans
    Accretable
Yield
    Carrying
Amount of
Loans
    Accretable
Yield
    Carrying
Amount of
Loans
    Accretable
Yield
    Carrying
Amount of
Loans
 

Balance at beginning of period

   $ 5,140      $ 9,897      $ 9,010      $ 663,510      $ 8,169      $ 13,999      $ 13,589      $ 799,898   

Additions

     —          —          —          —          122        276        1,593        70,524   

Accretion

     (55     —          (2,960     —          (66     —          (6,172     —     

Charged off

     (1,602     (397     —          (1,551     (3,073     (1,329     —          (5,988

Transfers to OREO

     —          (2,371     —          (2,766     (12     (174     —          (2,341

Payments received, net

     —          (692     —          (155,947     —          (2,875     —          (198,583
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 3,483      $ 6,437      $ 6,050      $ 503,246      $ 5,140      $ 9,897      $ 9,010      $ 663,510   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

5. EARNINGS PER SHARE

Basic earnings per common share (“EPS”) was computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of dilutive potential common shares outstanding attributable to stock awards. Amortization of discount and dividends on the preferred stock is treated as a reduction of the numerator in calculating basic and diluted EPS. There were approximately 594,946 and 409,562 shares underlying anti-dilutive stock awards as of September 30, 2012 and 2011, respectively.

The following is a reconcilement of the denominators of the basic and diluted EPS computations for the three and nine months ended September 30, 2012 and 2011 (dollars and shares in thousands, except per share amounts):

 

     Net Income
Available to
Common
Shareholders
(Numerator)
     Weighted
Average
Common Shares
(Denominator)
     Per Share
Amount
 

For the Three Months ended September 30, 2012

        

Net income, basic

   $ 9,626         25,881       $ 0.37   

Add: potentially dilutive common shares - stock awards

     —           27         —     
  

 

 

    

 

 

    

 

 

 

Diluted

   $ 9,626         25,908       $ 0.37   
  

 

 

    

 

 

    

 

 

 

For the Three Months ended September 30, 2011

        

Net income

   $ 9,071         25,987       $ 0.35   

Less: dividends paid and accumulated on preferred stock

     462         —           0.02   

Less: accretion of discount on preferred stock

     66         —           —     
  

 

 

    

 

 

    

 

 

 

Basic

   $ 8,543         25,987       $ 0.33   

Add: potentially dilutive common shares - stock awards

     —           15         —     
  

 

 

    

 

 

    

 

 

 

Diluted

   $ 8,543         26,002       $ 0.33   
  

 

 

    

 

 

    

 

 

 

For the Nine Months ended September 30, 2012

        

Net income, basic

   $ 25,969         25,893       $ 1.00   

Add: potentially dilutive common shares - stock awards

     —           28         —     
  

 

 

    

 

 

    

 

 

 

Diluted

   $ 25,969         25,921       $ 1.00   
  

 

 

    

 

 

    

 

 

 

For the Nine Months ended September 30, 2011

        

Net income

   $ 22,085         25,972       $ 0.85   

Less: dividends paid and accumulated on preferred stock

     1,386         —           0.06   

Less: accretion of discount on preferred stock

     195         —           —     
  

 

 

    

 

 

    

 

 

 

Basic

   $ 20,504       $ 25,972       $ 0.79   

Add: potentially dilutive common shares - stock awards

     —           22         —     
  

 

 

    

 

 

    

 

 

 

Diluted

   $ 20,504         25,994       $ 0.79   
  

 

 

    

 

 

    

 

 

 

 

- 20 -


Table of Contents
6. BORROWINGS

Short-term Borrowings

Total short-term borrowings consist of securities sold under agreements to repurchase, which are secured transactions with customers and generally mature the day following the date sold. Also included in total short-term borrowings are Federal funds purchased, which are secured overnight borrowings from other financial institutions, and short-term Federal Home Loan Bank of Atlanta (“FHLB”) advances. Total short-term borrowings consist of the following as of September 30, 2012 and December 31, 2011 (dollars in thousands):

 

     September 30,     December 31,  
     2012     2011  

Securities sold under agreements to repurchase

   $ 94,616      $  62,995   

Other short-term borrowings

     59,500        —