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 March 31, 2013
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
(Registrants 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 May 2, 2013 was 24,856,384
UNION FIRST MARKET BANKSHARES CORPORATION
FORM 10-Q
- i -
PART I - FINANCIAL INFORMATION
UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
March 31, | December 31, | March 31, | ||||||||||
2013 | 2012 | 2012 | ||||||||||
(Unaudited) | (Audited) | (Unaudited) | ||||||||||
ASSETS |
||||||||||||
Cash and cash equivalents: |
||||||||||||
Cash and due from banks |
$ | 52,017 | $ | 71,426 | $ | 56,971 | ||||||
Interest-bearing deposits in other banks |
24,715 | 11,320 | 53,878 | |||||||||
Money market investments |
1 | 1 | 179 | |||||||||
Federal funds sold |
160 | 155 | 155 | |||||||||
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|
|
|
|
|
|||||||
Total cash and cash equivalents |
76,893 | 82,902 | 111,183 | |||||||||
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|
|
|
|
|
|||||||
Securities available for sale, at fair value |
583,217 | 585,382 | 621,751 | |||||||||
Restricted stock, at cost |
17,956 | 20,687 | 20,715 | |||||||||
Loans held for sale |
127,106 | 167,698 | 73,575 | |||||||||
Loans, net of unearned income |
2,973,547 | 2,966,847 | 2,841,758 | |||||||||
Less allowance for loan losses |
34,415 | 34,916 | 40,204 | |||||||||
|
|
|
|
|
|
|||||||
Net loans |
2,939,132 | 2,931,931 | 2,801,554 | |||||||||
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|
|
|
|
|
|||||||
Bank premises and equipment, net |
83,366 | 85,409 | 90,986 | |||||||||
Other real estate owned, net of valuation allowance |
35,878 | 32,834 | 37,663 | |||||||||
Core deposit intangibles, net |
14,742 | 15,778 | 19,403 | |||||||||
Goodwill |
59,400 | 59,400 | 59,400 | |||||||||
Other assets |
113,445 | 113,844 | 111,569 | |||||||||
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|
|
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|
|||||||
Total assets |
$ | 4,051,135 | $ | 4,095,865 | $ | 3,947,799 | ||||||
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|
|||||||
LIABILITIES |
||||||||||||
Noninterest-bearing demand deposits |
665,992 | 645,901 | 564,811 | |||||||||
Interest-bearing deposits: |
||||||||||||
NOW accounts |
459,117 | 454,150 | 434,625 | |||||||||
Money market accounts |
945,273 | 957,130 | 904,272 | |||||||||
Savings accounts |
225,543 | 207,846 | 194,473 | |||||||||
Time deposits of $100,000 and over |
507,972 | 508,630 | 541,660 | |||||||||
Other time deposits |
507,852 | 524,110 | 575,866 | |||||||||
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|
|
|||||||
Total interest-bearing deposits |
2,645,757 | 2,651,866 | 2,650,896 | |||||||||
|
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|
|
|
|
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Total deposits |
3,311,749 | 3,297,767 | 3,215,707 | |||||||||
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|
|||||||
Securities sold under agreements to repurchase |
72,047 | 54,270 | 53,043 | |||||||||
Other short-term borrowings |
| 78,000 | | |||||||||
Trust preferred capital notes |
60,310 | 60,310 | 60,310 | |||||||||
Long-term borrowings |
137,364 | 136,815 | 155,503 | |||||||||
Other liabilities |
38,892 | 32,840 | 37,132 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
3,620,362 | 3,660,002 | 3,521,695 | |||||||||
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|
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Commitments and contingencies |
||||||||||||
STOCKHOLDERS EQUITY |
||||||||||||
Common stock, $1.33 par value, shares authorized 36,000,000; issued and outstanding, 24,859,729 shares, 25,270,970 shares, and 25,944,530 shares, respectively. |
32,869 | 33,510 | 34,396 | |||||||||
Surplus |
168,304 | 176,635 | 185,263 | |||||||||
Retained earnings |
221,330 | 215,634 | 195,933 | |||||||||
Accumulated other comprehensive income |
8,270 | 10,084 | 10,512 | |||||||||
|
|
|
|
|
|
|||||||
Total stockholders equity |
430,773 | 435,863 | 426,104 | |||||||||
|
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|
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|
|||||||
Total liabilities and stockholders equity |
$ | 4,051,135 | $ | 4,095,865 | $ | 3,947,799 | ||||||
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|
|
|
|
See accompanying notes to condensed consolidated financial statements.
- 1 -
UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended | ||||||||
March 31 | ||||||||
2013 | 2012 | |||||||
(Unaudited) | (Unaudited) | |||||||
Interest and dividend income: |
||||||||
Interest and fees on loans |
$ | 39,224 | $ | 40,608 | ||||
Interest on deposits in other banks |
5 | 22 | ||||||
Interest and dividends on securities: |
||||||||
Taxable |
2,069 | 3,456 | ||||||
Nontaxable |
1,987 | 1,788 | ||||||
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|
|
|
|||||
Total interest and dividend income |
43,285 | 45,874 | ||||||
|
|
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|
|||||
Interest expense: |
||||||||
Interest on deposits |
3,962 | 5,335 | ||||||
Interest on federal funds purchased |
15 | | ||||||
Interest on short-term borrowings |
54 | 44 | ||||||
Interest on long-term borrowings |
1,501 | 2,148 | ||||||
|
|
|
|
|||||
Total interest expense |
5,532 | 7,527 | ||||||
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|
|
|
|||||
Net interest income |
37,753 | 38,347 | ||||||
Provision for loan losses |
2,050 | 3,500 | ||||||
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|
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Net interest income after provision for loan losses |
35,703 | 34,847 | ||||||
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|
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Noninterest income: |
||||||||
Service charges on deposit accounts |
2,272 | 2,130 | ||||||
Other service charges, commissions and fees |
2,807 | 2,572 | ||||||
Losses on securities transactions, net |
(11 | ) | (5 | ) | ||||
Gains on sales of mortgage loans, net of commissions |
3,852 | 2,766 | ||||||
Losses on sales of bank premises |
(296 | ) | (31 | ) | ||||
Other operating income |
1,211 | 1,045 | ||||||
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|
|||||
Total noninterest income |
9,835 | 8,477 | ||||||
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Noninterest expenses: |
||||||||
Salaries and benefits |
17,966 | 16,976 | ||||||
Occupancy expenses |
2,855 | 2,647 | ||||||
Furniture and equipment expenses |
1,845 | 1,763 | ||||||
Other operating expenses |
10,835 | 10,882 | ||||||
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|
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Total noninterest expenses |
33,501 | 32,268 | ||||||
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Income before income taxes |
12,037 | 11,056 | ||||||
Income tax expense |
3,054 | 3,133 | ||||||
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|
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Net income |
$ | 8,983 | $ | 7,923 | ||||
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|
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Earnings per common share, basic |
$ | 0.36 | $ | 0.31 | ||||
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Earnings per common share, diluted |
$ | 0.36 | $ | 0.31 | ||||
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|
See accompanying notes to condensed consolidated financial statements.
- 2 -
UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2013 | 2012 | |||||||
Net income |
$ | 8,983 | $ | 7,923 | ||||
Other comprehensive income (loss): |
||||||||
Change in fair value of interest rate swap (cash flow hedge) |
286 | 197 | ||||||
Unrealized holding (losses) gains arising during period (net of tax, $1,135 and $355 for three months ended March 31, 2013 and 2012) |
(2,107 | ) | 662 | |||||
Reclassification adjustment for losses included in net income (net of tax, $4 and $2 for three months ended March 31, 2013 and 2012) |
7 | 3 | ||||||
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|
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Other comprehensive income (loss) |
(1,814 | ) | 862 | |||||
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|
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Comprehensive income |
$ | 7,169 | $ | 8,785 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
- 3 -
UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(Dollars in thousands, except share and per share amounts)
(Unaudited)
Common Stock |
Surplus | Retained Earnings |
Accumulated Other Comprehensive Income |
Total | ||||||||||||||||
Balance - December 31, 2011 |
$ | 34,672 | $ | 187,493 | $ | 189,824 | $ | 9,650 | $ | 421,639 | ||||||||||
Net income - 2012 |
7,923 | 7,923 | ||||||||||||||||||
Other comprehensive income (net of tax, $357) |
862 | 862 | ||||||||||||||||||
Dividends on Common Stock ($.07 per share) |
(1,694 | ) | (1,694 | ) | ||||||||||||||||
Stock purchased under stock repurchase plan (220,265 shares) |
(293 | ) | (2,571 | ) | (2,864 | ) | ||||||||||||||
Issuance of common stock under Dividend Reinvestment Plan (8,731 shares) |
12 | 108 | (120 | ) | | |||||||||||||||
Vesting of restricted stock under Stock Incentive Plan (4,032 shares) |
5 | (5 | ) | | ||||||||||||||||
Stock-based compensation expense |
238 | 238 | ||||||||||||||||||
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Balance - March 31, 2012 |
$ | 34,396 | $ | 185,263 | $ | 195,933 | $ | 10,512 | $ | 426,104 | ||||||||||
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Balance - December 31, 2012 |
$ | 33,510 | $ | 176,635 | $ | 215,634 | $ | 10,084 | $ | 435,863 | ||||||||||
Net income - 2013 |
8,983 | 8,983 | ||||||||||||||||||
Other comprehensive income (loss) (net of tax, $1,131) |
(1,814 | ) | (1,814 | ) | ||||||||||||||||
Dividends on Common Stock ($.13 per share) |
(3,064 | ) | (3,064 | ) | ||||||||||||||||
Stock purchased under stock repurchase plan (500,000 shares) |
(664 | ) | (8,835 | ) | (9,499 | ) | ||||||||||||||
Issuance of common stock under Dividend Reinvestment Plan (13,068 shares) |
17 | 206 | (223 | ) | | |||||||||||||||
Vesting of restricted stock under Stock Incentive Plan (5,299 shares) |
7 | (7 | ) | | ||||||||||||||||
Net settle for taxes on Restricted Stock Awards (789 shares) |
(1 | ) | (13 | ) | (14 | ) | ||||||||||||||
Stock-based compensation expense |
318 | 318 | ||||||||||||||||||
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Balance - March 31, 2013 |
$ | 32,869 | $ | 168,304 | $ | 221,330 | $ | 8,270 | $ | 430,773 | ||||||||||
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See accompanying notes to condensed consolidated financial statements.
- 4 -
UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(Dollars in thousands)
(Unaudited)
2013 | 2012 | |||||||
Operating activities: |
||||||||
Net income |
$ | 8,983 | $ | 7,923 | ||||
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: |
||||||||
Depreciation of bank premises and equipment |
1,546 | 1,694 | ||||||
Amortization, net |
1,476 | 3,595 | ||||||
Provision for loan losses |
2,050 | 3,500 | ||||||
Losses on the sale of investment securities |
11 | 5 | ||||||
Decrease in loans held for sale, net |
40,592 | 1,248 | ||||||
(Gains) losses on sales of other real estate owned, net |
(284 | ) | 27 | |||||
Losses on bank premises, net |
296 | 31 | ||||||
Stock-based compensation expenses |
318 | 238 | ||||||
Decrease in other assets |
1,281 | 604 | ||||||
Increase in other liabilities |
6,338 | 5,672 | ||||||
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Net cash and cash equivalents provided by operating activities |
62,607 | 24,537 | ||||||
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Investing activities: |
||||||||
Purchases of securities available for sale |
(54,999 | ) | (43,339 | ) | ||||
Proceeds from sales of securities available for sale |
15,555 | | ||||||
Proceeds from maturities, calls and paydowns of securities available for sale |
40,907 | 40,602 | ||||||
Net increase in loans |
(12,080 | ) | (32,534 | ) | ||||
Net increase in bank premises and equipment |
(577 | ) | (2,122 | ) | ||||
Proceeds from sales of other real estate owned |
877 | 1,485 | ||||||
Improvements to other real estate owned |
(30 | ) | (319 | ) | ||||
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Net cash and cash equivalents used in investing activities |
(10,347 | ) | (36,227 | ) | ||||
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Financing activities: |
||||||||
Net increase in noninterest-bearing deposits |
20,091 | 30,276 | ||||||
Net (decrease) increase in interest-bearing deposits |
(6,109 | ) | 10,326 | |||||
Net decrease in short-term borrowings |
(60,223 | ) | (9,952 | ) | ||||
Net increase in long-term borrowings (1) |
549 | 122 | ||||||
Cash dividends paid - common stock |
(3,064 | ) | (1,694 | ) | ||||
Repurchase of common stock |
(9,499 | ) | (2,864 | ) | ||||
Taxes paid related to net share settlement of equity awards |
(14 | ) | | |||||
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Net cash and cash equivalents (used in) provided by financing activities |
(58,269 | ) | 26,214 | |||||
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(Decrease) increase in cash and cash equivalents |
(6,009 | ) | 14,524 | |||||
Cash and cash equivalents at beginning of the period |
82,902 | 96,659 | ||||||
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Cash and cash equivalents at end of the period |
$ | 76,893 | $ | 111,183 | ||||
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Supplemental Disclosure of Cash Flow Information |
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Cash payments for: |
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Interest |
$ | 5,688 | $ | 8,394 | ||||
Income taxes |
1,400 | 2,914 | ||||||
Supplemental schedule of noncash investing and financing activities |
||||||||
Unrealized (loss) gain on securities available for sale |
$ | (3,231 | ) | $ | 1,022 | |||
Changes in fair value of interest rate swap loss |
286 | 197 | ||||||
Transfers from loans to other real estate owned |
2,829 | 6,593 | ||||||
Transfers from bank premises to other real estate owned |
778 | |
(1) | See Note 5 Borrowings related to 2013 activity. |
See accompanying notes to consolidated financial statements.
- 5 -
UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2013
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 Companys 2012 Annual Report on Form 10-K. If needed, certain previously reported amounts have been reclassified to conform to current period presentation.
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-11, Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities. This ASU requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of ASU 2011-11 did not have a material impact on the consolidated financial statements.
In July 2012, the FASB issued ASU 2012-02, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The amendments in this ASU apply to all entities that have indefinite-lived intangible assets, other than goodwill, reported in their financial statements. The amendments in this ASU provide an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. The amendments also enhance the consistency of impairment testing guidance among long-lived asset categories by permitting an entity to assess qualitative factors to determine whether it is necessary to calculate the assets fair value when testing an indefinite-lived intangible asset for impairment. The amendments became effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of ASU 2012-02 did not have a material impact on the consolidated financial statements.
In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amendments in this ASU clarify the scope for derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset or subject to netting arrangements. An entity is required to apply the amendments for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The adoption of ASU 2013-01 did not have a material impact on the consolidated financial statements.
- 6 -
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this ASU require an entity to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income. In addition, the amendments require a cross-reference to other disclosures currently required for other reclassification items to be reclassified directly to net income in their entirety in the same reporting period. Public companies were required to apply these amendments for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. The Company has included the required disclosures from ASU 2013-02 in the consolidated financial statements ..
2. | SECURITIES |
The amortized cost, gross unrealized gains and losses, and estimated fair values of investment securities as of March 31, 2013 and December 31, 2012 are summarized as follows (dollars in thousands):
Gross Unrealized | ||||||||||||||||
Amortized Cost |
Gains | (Losses) | Estimated Fair Value |
|||||||||||||
March 31, 2013 |
||||||||||||||||
U.S. government and agency securities |
$ | 2,279 | $ | 539 | $ | | $ | 2,818 | ||||||||
Obligations of states and political subdivisions |
231,861 | 13,303 | (1,367 | ) | 243,797 | |||||||||||
Corporate and other bonds |
6,728 | 174 | (122 | ) | 6,780 | |||||||||||
Mortgage-backed securities |
319,827 | 7,107 | (474 | ) | 326,460 | |||||||||||
Other securities |
3,293 | 69 | | 3,362 | ||||||||||||
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|
|
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|
|
|||||||||
Total securities |
$ | 563,988 | $ | 21,192 | $ | (1,963 | ) | $ | 583,217 | |||||||
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|||||||||
December 31, 2012 |
||||||||||||||||
U.S. government and agency securities |
$ | 2,581 | $ | 268 | $ | | $ | 2,849 | ||||||||
Obligations of states and political subdivisions |
214,980 | 15,123 | (325 | ) | 229,778 | |||||||||||
Corporate and other bonds |
7,353 | 173 | (314 | ) | 7,212 | |||||||||||
Mortgage-backed securities |
335,327 | 7,383 | (536 | ) | 342,174 | |||||||||||
Other securities |
3,277 | 92 | | 3,369 | ||||||||||||
|
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|||||||||
Total securities |
$ | 563,518 | $ | 23,039 | $ | (1,175 | ) | $ | 585,382 | |||||||
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|
Due to restrictions placed upon the Companys common stock investment in the Federal Reserve Bank of Richmond and Federal Home Loan Bank of Atlanta (FHLB), these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications. The FHLB requires the Bank to maintain stock in an amount equal to 4.5% of outstanding borrowings and a specific percentage of the Banks total assets. The Federal Reserve Bank of Richmond requires the Company to maintain stock with a par value equal to 6% of its outstanding capital. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $6.8 million for both March 31, 2013 and December 31, 2012 and FHLB stock in the amount of $11.2 million and $13.9 million as of March 31, 2013 and December 31, 2012.
- 7 -
The following table shows the gross unrealized losses and fair value (in thousands) of the Companys investments with unrealized losses that are not deemed to be other-than-temporarily impaired. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position and are as follows:
Less than 12 months | More than 12 months | Total | ||||||||||||||||||||||
Fair value |
Unrealized Losses |
Fair value |
Unrealized Losses |
Fair value |
Unrealized Losses |
|||||||||||||||||||
March 31, 2013 |
||||||||||||||||||||||||
Obligations of states and political subdivisions |
$ | 48,672 | $ | (1,327 | ) | $ | 651 | (40 | ) | $ | 49,323 | $ | (1,367 | ) | ||||||||||
Mortgage-backed securities |
84,264 | (456 | ) | 2,829 | (18 | ) | 87,093 | (474 | ) | |||||||||||||||
Corporate bonds and other securities |
| | 1,748 | (122 | ) | 1,748 | (122 | ) | ||||||||||||||||
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|||||||||||||
Totals |
$ | 132,936 | $ | (1,783 | ) | $ | 5,228 | $ | (180 | ) | $ | 138,164 | $ | (1,963 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2012 |
||||||||||||||||||||||||
Obligations of states and political subdivisions |
$ | 22,397 | $ | (283 | ) | $ | 649 | $ | (42 | ) | $ | 23,046 | $ | (325 | ) | |||||||||
Mortgage-backed securities |
86,183 | (536 | ) | | | 86,183 | (536 | ) | ||||||||||||||||
Corporate bonds and other securities |
| | 1,555 | (314 | ) | 1,555 | (314 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Totals |
$ | 108,580 | $ | (819 | ) | $ | 2,204 | $ | (356 | ) | $ | 110,784 | $ | (1,175 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2013, there were $5.2 million, or 4 issues, of individual securities that had been in a continuous loss position for more than 12 months. Additionally, these securities had an unrealized loss of $180,000 and consisted of municipal obligations, mortgage-backed securities, and corporate bonds.
The following table presents the amortized cost and estimated fair value of securities as of March 31, 2013, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
March 31, 2013 | December 31, 2012 | |||||||||||||||
Amortized | Estimated | Amortized | Estimated | |||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Due in one year or less |
$ | 4,116 | $ | 4,168 | $ | 2,346 | $ | 2,372 | ||||||||
Due after one year through five years |
15,841 | 16,536 | 16,413 | 17,016 | ||||||||||||
Due after five years through ten years |
65,056 | 69,379 | 69,164 | 73,501 | ||||||||||||
Due after ten years |
475,682 | 489,772 | 472,318 | 489,124 | ||||||||||||
Other securities |
3,293 | 3,362 | 3,277 | 3,369 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale |
$ | 563,988 | $ | 583,217 | $ | 563,518 | $ | 585,382 | ||||||||
|
|
|
|
|
|
|
|
Securities with an amortized cost of $176.8 million and $183.7 million as of March 31, 2013 and December 31, 2012, respectively, were pledged to secure public deposits, repurchase agreements and for other purposes.
During each quarter the Company conducts an assessment of the securities portfolio for other-than-temporary impairment (OTTI) consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, managements judgment, expectations of future performance, and relevant industry research and analysis. An impairment is OTTI if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the securitys entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the quarter ended March 31, 2013, and in accordance with the guidance, no OTTI was recognized.
Based on the assessment for the quarter ended September 30, 2011 and in accordance with the guidance, the Company determined that a single issuer Trust Preferred security incurred credit-related OTTI of $400,000, which was recognized in earnings for the quarter ended September 30, 2011. There is a possibility that the Company will sell the security before recovering all unamortized costs. The significant inputs the Company considered in determining the amount of the credit loss are as follows:
| The assessment of security credit rating agencies and research performed by third parties; |
- 8 -
| The continued interest payment deferral by the issuer; |
| The lack of improving asset quality of the issuer and worsening economic conditions; and |
| The security is thinly traded and trading at its historical low, below par. |
OTTI recognized for the periods presented is summarized as follow (dollars in thousands):
OTTI Losses | ||||
Cumulative credit losses on investment securities, through December 31, 2012 |
$ | 400 | ||
Cumulative credit losses on investment securities |
| |||
Additions for credit losses not previously recognized |
| |||
|
|
|||
Cumulative credit losses on investment securities, through March 31, 2013 |
$ | 400 | ||
|
|
3. | LOANS AND ALLOWANCE FOR LOAN LOSSES |
Loans are stated at their face amount, net of unearned income, and consist of the following at March 31, 2013 and December 31, 2012 (dollars in thousands):
March 31, 2013 |
December 31, 2012 |
|||||||
Commercial: |
||||||||
Commercial Construction |
$ | 202,225 | $ | 202,344 | ||||
Commercial Real Estate - Owner Occupied |
512,029 | 513,671 | ||||||
Commercial Real Estate - Non-Owner Occupied |
705,036 | 682,760 | ||||||
Raw Land and Lots |
202,114 | 205,726 | ||||||
Single Family Investment Real Estate |
230,673 | 233,395 | ||||||
Commercial and Industrial |
204,257 | 217,661 | ||||||
Other Commercial |
53,865 | 47,551 | ||||||
Consumer: |
||||||||
Mortgage |
222,949 | 220,567 | ||||||
Consumer Construction |
39,306 | 33,969 | ||||||
Indirect Auto |
163,491 | 157,518 | ||||||
Indirect Marine |
39,118 | 36,586 | ||||||
HELOCs |
283,070 | 288,092 | ||||||
Credit Card |
21,204 | 21,968 | ||||||
Other Consumer |
94,210 | 105,039 | ||||||
|
|
|
|
|||||
Total |
$ | 2,973,547 | $ | 2,966,847 | ||||
|
|
|
|
- 9 -
The following table shows the aging of the Companys loan portfolio, by class, at March 31, 2013 (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 |
$ | 189 | $ | | $ | | $ | | $ | 4,547 | $ | 197,489 | $ | 202,225 | ||||||||||||||
Commercial Real Estate - Owner Occupied |
1,518 | 309 | 304 | 221 | 2,184 | 507,493 | 512,029 | |||||||||||||||||||||
Commercial Real Estate - Non-Owner Occupied |
957 | 417 | 156 | | 804 | 702,702 | 705,036 | |||||||||||||||||||||
Raw Land and Lots |
332 | 1,003 | 43 | 2,555 | 6,353 | 191,828 | 202,114 | |||||||||||||||||||||
Single Family Investment Real Estate |
323 | 25 | 561 | 302 | 2,117 | 227,345 | 230,673 | |||||||||||||||||||||
Commercial and Industrial |
464 | 90 | 600 | | 2,261 | 200,842 | 204,257 | |||||||||||||||||||||
Other Commercial |
390 | | 441 | | 190 | 52,844 | 53,865 | |||||||||||||||||||||
Consumer: |
||||||||||||||||||||||||||||
Mortgage |
6,275 | 1,610 | 1,362 | | 1,533 | 212,169 | 222,949 | |||||||||||||||||||||
Consumer Construction |
| | | | 239 | 39,067 | 39,306 | |||||||||||||||||||||
Indirect Auto |
1,320 | 237 | 273 | 17 | | 161,644 | 163,491 | |||||||||||||||||||||
Indirect Marine |
65 | | 114 | | 158 | 38,781 | 39,118 | |||||||||||||||||||||
HELOCs |
774 | 367 | 1,371 | 821 | 2,173 | 277,564 | 283,070 | |||||||||||||||||||||
Credit Card |
181 | 153 | 227 | | | 20,643 | 21,204 | |||||||||||||||||||||
Other Consumer |
1,275 | 283 | 735 | 103 | 474 | 91,340 | 94,210 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 14,063 | $ | 4,494 | $ | 6,187 | $ | 4,019 | $ | 23,033 | $ | 2,921,751 | $ | 2,973,547 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the aging of the Companys loan portfolio, by class, at December 31, 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 |
$ | | $ | | $ | | $ | | $ | 5,781 | $ | 196,563 | $ | 202,344 | ||||||||||||||
Commercial Real Estate - Owner Occupied |
2,105 | 153 | 1,711 | 247 | 2,206 | 507,249 | 513,671 | |||||||||||||||||||||
Commercial Real Estate - Non-Owner Occupied |
866 | 63 | 207 | | 812 | 680,812 | 682,760 | |||||||||||||||||||||
Raw Land and Lots |
277 | | 75 | 2,942 | 8,760 | 193,672 | 205,726 | |||||||||||||||||||||
Single Family Investment Real Estate |
1,819 | 261 | 756 | 326 | 3,420 | 226,813 | 233,395 | |||||||||||||||||||||
Commercial and Industrial |
506 | 270 | 441 | 79 | 2,036 | 214,329 | 217,661 | |||||||||||||||||||||
Other Commercial |
70 | 182 | 1 | | 193 | 47,105 | 47,551 | |||||||||||||||||||||
Consumer: |
||||||||||||||||||||||||||||
Mortgage |
5,610 | 2,244 | 3,017 | | 747 | 208,949 | 220,567 | |||||||||||||||||||||
Consumer Construction |
157 | | | | 235 | 33,577 | 33,969 | |||||||||||||||||||||
Indirect Auto |
2,504 | 276 | 329 | 21 | | 154,388 | 157,518 | |||||||||||||||||||||
Indirect Marine |
67 | | 114 | | 158 | 36,247 | 36,586 | |||||||||||||||||||||
HELOCs |
3,063 | 640 | 1,239 | 845 | 1,325 | 280,980 | 288,092 | |||||||||||||||||||||
Credit Card |
269 | 101 | 397 | | | 21,201 | 21,968 | |||||||||||||||||||||
Other Consumer |
1,525 | 487 | 556 | 105 | 533 | 101,833 | 105,039 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 18,838 | $ | 4,677 | $ | 8,843 | $ | 4,565 | $ | 26,206 | $ | 2,903,718 | $ | 2,966,847 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans totaled $23.0 million, $26.2 million, and $42.4 million at March 31, 2013, December 31, 2012, and March 31, 2012, respectively. There were no nonaccrual loans excluded from impaired loan disclosure in 2013 or 2012. Loans past due 90 days or more and accruing interest totaled $6.2 million, $8.8 million, and $12.3 million at March 31, 2013, December 31,2012, and March 31, 2012, respectively.
The following table shows purchased impaired commercial and consumer loan portfolios, by class and their delinquency status at March 31, 2013 (dollars in thousands):
30-89 Days Past Due |
Greater than 90 Days |
Current | Total | |||||||||||||
Commercial: |
||||||||||||||||
Commercial Real Estate - Owner Occupied |
$ | | $ | 173 | $ | 48 | $ | 221 | ||||||||
Raw Land and Lots |
| | 2,555 | 2,555 | ||||||||||||
Single Family Investment Real Estate |
| 12 | 290 | 302 | ||||||||||||
Consumer: |
||||||||||||||||
Indirect Auto |
| 2 | 15 | 17 | ||||||||||||
HELOCs |
15 | 32 | 774 | 821 | ||||||||||||
Other Consumer |
| | 103 | 103 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 15 | $ | 219 | $ | 3,785 | $ | 4,019 | ||||||||
|
|
|
|
|
|
|
|
- 10 -
The following table shows purchased impaired commercial and consumer loan portfolios, by class and their delinquency status at December 31, 2012 (dollars in thousands):
30-89 Days Past Due |
Greater than 90 Days |
Current | Total | |||||||||||||
Commercial: |
||||||||||||||||
Commercial Real Estate - Owner Occupied |
$ | | $ | 193 | $ | 54 | $ | 247 | ||||||||
Raw Land and Lots |
| 81 | 2,861 | 2,942 | ||||||||||||
Single Family Investment Real Estate |
| 14 | 312 | 326 | ||||||||||||
Commercial and Industrial |
| 79 | | 79 | ||||||||||||
Consumer: |
||||||||||||||||
Indirect Auto |
3 | 2 | 16 | 21 | ||||||||||||
HELOCs |
| 51 | 794 | 845 | ||||||||||||
Other Consumer |
| | 105 | 105 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 3 | $ | 420 | $ | 4,142 | $ | 4,565 | ||||||||
|
|
|
|
|
|
|
|
The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. At March 31, 2013, the Company had $145.7 million in loans considered to be impaired of which $11.8 million were collectively evaluated for impairment and $133.9 million were individually evaluated for impairment. The following table shows the Companys impaired loans individually evaluated for impairment, by class, at March 31, 2013 (dollars in thousands):
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
YTD Average Investment |
Interest Income Recognized |
||||||||||||||||
Loans without a specific allowance |
||||||||||||||||||||
Commercial: |
||||||||||||||||||||
Commercial Construction |
$ | 18,766 | $ | 18,768 | $ | | $ | 18,444 | $ | 245 | ||||||||||
Commercial Real Estate - Owner Occupied |
10,117 | 10,214 | | 10,258 | 134 | |||||||||||||||
Commercial Real Estate - Non-Owner Occupied |
11,384 | 11,466 | | 12,938 | 162 | |||||||||||||||
Raw Land and Lots |
34,101 | 34,168 | | 34,480 | 310 | |||||||||||||||
Single Family Investment Real Estate |
3,394 | 3,772 | | 3,786 | 37 | |||||||||||||||
Commercial and Industrial |
1,970 | 2,095 | | 2,096 | 23 | |||||||||||||||
Consumer: |
||||||||||||||||||||
Mortgage |
1,229 | 1,229 | | 1,229 | 10 | |||||||||||||||
Indirect Marine |
158 | 283 | | 283 | | |||||||||||||||
HELOCs |
1,080 | 1,179 | | 1,690 | | |||||||||||||||
Other Consumer |
12 | 13 | | 13 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans without a specific allowance |
$ | 82,211 | $ | 83,187 | $ | | $ | 85,217 | $ | 921 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans with a specific allowance |
||||||||||||||||||||
Commercial: |
||||||||||||||||||||
Commercial Construction |
$ | 8,264 | $ | 8,747 | $ | 460 | $ | 8,861 | $ | 55 | ||||||||||
Commercial Real Estate - Owner Occupied |
2,674 | 2,827 | 808 | 2,833 | 7 | |||||||||||||||
Commercial Real Estate - Non-Owner Occupied |
13,617 | 13,659 | 634 | 13,682 | 182 | |||||||||||||||
Raw Land and Lots |
11,294 | 12,413 | 1,217 | 12,416 | 81 | |||||||||||||||
Single Family Investment Real Estate |
3,059 | 3,436 | 249 | 3,441 | 12 | |||||||||||||||
Commercial and Industrial |
8,541 | 8,622 | 1,049 | 8,679 | 87 | |||||||||||||||
Other Commercial |
134 | 134 | 28 | 134 | | |||||||||||||||
Consumer: |
||||||||||||||||||||
Mortgage |
958 | 959 | 39 | 960 | | |||||||||||||||
Consumer Construction |
239 | 270 | 66 | 259 | | |||||||||||||||
HELOCs |
2,408 | 2,469 | 965 | 2,675 | 3 | |||||||||||||||
Other Consumer |
462 | 496 | 197 | 496 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans with a specific allowance |
$ | 51,650 | $ | 54,032 | $ | 5,712 | $ | 54,436 | $ | 427 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total loans individually evaluated for impairment |
$ | 133,861 | $ | 137,219 | $ | 5,712 | $ | 139,653 | $ | 1,348 | ||||||||||
|
|
|
|
|
|
|
|
|
|
- 11 -
At December 31, 2012, the Company had $155.4 million in loans considered to be impaired of which $13.0 million were collectively evaluated for impairment and $142.4 million were individually evaluated for impairment. The following table shows the Companys impaired loans individually evaluated for impairment, by class, at December 31, 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 |
$ | 28,212 | $ | 28,695 | $ | | $ | 28,925 | $ | 1,237 | ||||||||||
Commercial Real Estate - Owner Occupied |
13,356 | 13,449 | | 14,362 | 773 | |||||||||||||||
Commercial Real Estate - Non-Owner Occupied |
13,997 | 14,076 | | 15,153 | 768 | |||||||||||||||
Raw Land and Lots |
40,421 | 40,485 | | 43,162 | 1,537 | |||||||||||||||
Single Family Investment Real Estate |
5,348 | 6,046 | | 6,887 | 242 | |||||||||||||||
Commercial and Industrial |
1,582 | 1,610 | | 1,926 | 105 | |||||||||||||||
Consumer: |
||||||||||||||||||||
Mortgage |
857 | 857 | | 892 | 43 | |||||||||||||||
Indirect Auto |
4 | 4 | | 8 | | |||||||||||||||
Indirect Marine |
158 | 283 | | 283 | 3 | |||||||||||||||
HELOCs |
1,330 | 1,429 | | 1,481 | 5 | |||||||||||||||
Other Consumer |
125 | 127 | | 129 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans without a specific allowance |
$ | 105,390 | $ | 107,061 | $ | | $ | 113,208 | $ | 4,713 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans with a specific allowance |
||||||||||||||||||||
Commercial: |
||||||||||||||||||||
Commercial Construction |
$ | 3,786 | $ | 3,834 | $ | 596 | $ | 4,614 | $ | 157 | ||||||||||
Commercial Real Estate - Owner Occupied |
2,699 | 2,838 | 698 | 2,878 | 30 | |||||||||||||||
Commercial Real Estate - Non-Owner Occupied |
13,791 | 13,828 | 691 | 13,896 | 761 | |||||||||||||||
Raw Land and Lots |
9,711 | 9,919 | 2,411 | 10,656 | 145 | |||||||||||||||
Single Family Investment Real Estate |
1,740 | 1,826 | 499 | 1,953 | 47 | |||||||||||||||
Commercial and Industrial |
2,413 | 2,573 | 603 | 2,584 | 31 | |||||||||||||||
Other Commercial |
134 | 134 | 28 | 134 | | |||||||||||||||
Consumer: |
||||||||||||||||||||
Mortgage |
545 | 549 | 154 | 550 | | |||||||||||||||
Consumer Construction |
235 | 262 | 106 | 230 | | |||||||||||||||
HELOCs |
1,563 | 1,630 | 942 | 1,840 | 25 | |||||||||||||||
Other Consumer |
408 | 438 | 193 | 438 | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans with a specific allowance |
$ | 37,025 | $ | 37,831 | $ | 6,921 | $ | 39,773 | $ | 1,198 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total loans individually evaluated for impairment |
$ | 142,415 | $ | 144,892 | $ | 6,921 | $ | 152,981 | $ | 5,911 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The Company considers troubled debt restructurings (TDRs) to be impaired loans. A modification of a loans terms constitutes a TDR if the creditor grants a concession to the borrower for economic or legal reasons related to the borrowers financial difficulties that it would not otherwise consider. Included in the impaired loan disclosures above are $54.7 million and $63.5 million of loans considered to be troubled debt restructurings as of March 31, 2013 and December 31, 2012, respectively. All loans that are considered to be TDRs are specifically evaluated for impairment in accordance with the Companys allowance for loan loss methodology.
- 12 -
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 March 31, 2013 and December 31, 2012 (dollars in thousands):
March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
No. of Loans |
Recorded Investment |
Outstanding Commitment |
No. of Loans |
Recorded Investment |
Outstanding Commitment |
|||||||||||||||||||
Performing |
||||||||||||||||||||||||
Commercial: |
||||||||||||||||||||||||
Commercial Construction |
3 | $ | 1,494 | $ | | 5 | $ | 4,549 | $ | 73 | ||||||||||||||
Commercial Real Estate - Owner Occupied |
10 | 5,207 | | 11 | 6,009 | | ||||||||||||||||||
Commercial Real Estate - Non-Owner Occupied |
10 | 7,837 | 11 | 10 | 13,103 | | ||||||||||||||||||
Raw Land and Lots |
13 | 22,560 | | 13 | 22,886 | | ||||||||||||||||||
Single Family Investment Real Estate |
8 | 1,760 | | 6 | 928 | | ||||||||||||||||||
Commercial and Industrial |
4 | 887 | | 5 | 1,041 | | ||||||||||||||||||
Other Commercial |
1 | 236 | | 1 | 236 | | ||||||||||||||||||
Consumer: |
||||||||||||||||||||||||
Mortgage |
13 | 2,401 | | 12 | 2,256 | | ||||||||||||||||||
Other Consumer |
3 | 262 | | 4 | 460 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total performing |
65 | $ | 42,644 | $ | 11 | 67 | $ | 51,468 | $ | 73 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Nonperforming |
||||||||||||||||||||||||
Commercial: |
||||||||||||||||||||||||
Commercial Construction |
3 | $ | 3,471 | $ | | 4 | $ | 4,260 | $ | | ||||||||||||||
Commercial Real Estate - Owner Occupied |
4 | 1,270 | | 3 | 1,079 | | ||||||||||||||||||
Commercial Real Estate - Non-Owner Occupied |
2 | 510 | | 2 | 514 | | ||||||||||||||||||
Raw Land and Lots |
2 | 4,013 | | 2 | 4,032 | | ||||||||||||||||||
Single Family Investment Real Estate |
2 | 427 | | 2 | 427 | | ||||||||||||||||||
Commercial and Industrial |
9 | 1,288 | | 7 | 1,251 | | ||||||||||||||||||
Consumer: |
||||||||||||||||||||||||
Mortgage |
2 | 809 | | 1 | 202 | | ||||||||||||||||||
Indirect Marine |
1 | 158 | | 1 | 158 | | ||||||||||||||||||
Other Consumer |
1 | 66 | | 1 | 68 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total nonperforming |
26 | $ | 12,012 | $ | | 23 | $ | 11,991 | $ | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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|
|||||||||||||
Total performing and nonperforming |
91 | $ | 54,656 | $ | 11 | 90 | $ | 63,459 | $ | 73 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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.
During the three months ended March 31, 2013, the Company did not identify any restructured loans that went into default that had been restructured in the twelve-month period prior to the time of default. The Company identified one restructured loan, totaling approximately $453,000, that went into default in the first quarter of 2012 that had been restructured during the previous twelve months; this loan was a commercial real estate (owner occupied) loan for which the term had been extended at a market rate.
- 13 -
The following table shows, by class and modification type, TDRs that occurred during the three month periods ended March 31, 2013 and 2012 (dollars in thousands):
Three months ended March 31, 2013 |
Three months ended March 31, 2012 |
|||||||||||||||
No. of Loans |
Recorded investment at period end |
No. of Loans |
Recorded investment at period end |
|||||||||||||
Modified to interest only, at a market rate |
||||||||||||||||
Commercial: |
||||||||||||||||
Raw Land and Lots |
| $ | | 3 | $ | 329 | ||||||||||
Single Family Investment Real Estate |
1 | 210 | 2 | 180 | ||||||||||||
Consumer: |
||||||||||||||||
Mortgage |
1 | 608 | 1 | 202 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest only at market rate of interest |
2 | $ | 818 | 6 | $ | 711 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Term modification, at a market rate |
||||||||||||||||
Commercial: |
||||||||||||||||
Commercial Real Estate - Owner Occupied |
| $ | | 2 | $ | 1,701 | ||||||||||
Raw Land and Lots |
| | 1 | 604 | ||||||||||||
Single Family Investment Real Estate |
1 | 630 | | | ||||||||||||
Commercial and Industrial |
1 | 56 | 1 | 104 | ||||||||||||
Consumer: |
||||||||||||||||
Mortgage |
1 | 166 | 1 | 273 | ||||||||||||
Other Consumer |
| | 1 | 206 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total loan term extended at a market rate |
3 | $ | 852 | 6 | $ | 2,888 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Term modification, below market rate |
||||||||||||||||
Commercial: |
||||||||||||||||
Commercial Real Estate - Owner Occupied |
1 | $ | 206 | 1 | $ | 10 | ||||||||||
Commercial and Industrial |
1 | 10 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total loan term extended at a below market rate |
2 | $ | 216 | 1 | $ | 10 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
7 | $ | 1,886 | 13 | $ | 3,609 | ||||||||||
|
|
|
|
|
|
|
|
- 14 -
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 three months ended March 31, 2013. 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 |
$ | 24,821 | $ | 10,107 | $ | (12 | ) | $ | 34,916 | |||||||
Recoveries credited to allowance |
575 | 259 | | 834 | ||||||||||||
Loans charged off |
(2,583 | ) | (802 | ) | | (3,385 | ) | |||||||||
Provision charged to operations |
1,869 | 135 | 46 | 2,050 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 24,682 | $ | 9,699 | $ | 34 | $ | 34,415 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
4,428 | 1,267 | | 5,695 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
20,237 | 8,432 | 34 | 28,703 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: loans acquired with deteriorated credit quality |
17 | | | 17 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 24,682 | $ | 9,699 | $ | 34 | $ | 34,415 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans: |
||||||||||||||||
Ending balance: individually evaluated for impairment |
$ | 124,237 | $ | 5,605 | $ | | $ | 129,842 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
1,982,884 | 856,802 | | 2,839,686 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: loans acquired with deteriorated credit quality |
3,078 | 941 | | 4,019 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,110,199 | $ | 863,348 | $ | | $ | 2,973,547 | ||||||||
|
|
|
|
|
|
|
|
- 15 -
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, 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 |
589 | 1,122 | | 1,711 | ||||||||||||
Loans charged off |
(12,852 | ) | (5,613 | ) | | (18,465 | ) | |||||||||
Provision charged to operations |
9,193 | 3,100 | (93 | ) | 12,200 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of year |
$ | 24,821 | $ | 10,107 | $ | (12 | ) | $ | 34,916 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
5,404 | 1,395 | | 6,799 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
19,295 | 8,712 | (12 | ) | 27,995 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: loans acquired with deteriorated credit quality |
122 | | | 122 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 24,821 | $ | 10,107 | $ | (12 | ) | $ | 34,916 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Loans: |
||||||||||||||||
Ending balance: individually evaluated for impairment |
133,596 | 4,254 | | 137,850 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
1,965,918 | 858,514 | | 2,824,432 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: loans acquired with deteriorated credit quality |
3,594 | 971 | | 4,565 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,103,108 | $ | 863,739 | $ | | $ | 2,966,847 | ||||||||
|
|
|
|
|
|
|
|
- 16 -
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 three months ended March 31, 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 |
66 | 275 | | 341 | ||||||||||||
Loans charged off |
(1,399 | ) | (1,708 | ) | | (3,107 | ) | |||||||||
Provision charged to operations |
3,086 | 479 | (65 | ) | 3,500 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 29,644 | $ | 10,544 | $ | 16 | $ | 40,204 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: individually evaluated for impairment |
10,070 | 1,057 | | 11,127 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
19,413 | 9,487 | 16 | 28,916 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: loans acquired with deteriorated credit quality |
161 | | | 161 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 29,644 | $ | 10,544 | $ | 16 | $ | 40,204 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans: |
||||||||||||||||
Ending balance: individually evaluated for impairment |
215,948 | 6,701 | | 222,649 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: collectively evaluated for impairment |
1,763,200 | 847,769 | | 2,610,969 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance: loans acquired with deteriorated credit quality |
7,071 | 1,069 | | 8,140 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,986,219 | $ | 855,539 | $ | | $ | 2,841,758 | ||||||||
|
|
|
|
|
|
|
|
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 borrowers 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 Companys 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; |
| 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. |
- 17 -
The following table shows all loans, excluding purchased impaired loans, in the commercial portfolios by class with their related risk rating as of March 31, 2013. The risk rating information has been updated through March 31, 2013 (dollars in thousands):
1-3 | 4 | 5 | 6 | 7 | 8 | Total | ||||||||||||||||||||||
Commercial Construction |
$ | 9,629 | $ | 116,422 | $ | 14,529 | $ | 38,408 | $ | 23,237 | $ | | $ | 202,225 | ||||||||||||||
Commercial Real Estate - Owner Occupied |
145,030 | 328,232 | 12,425 | 16,735 | 9,386 | | 511,808 | |||||||||||||||||||||
Commercial Real Estate - Non-Owner Occupied |
188,303 | 416,735 | 51,904 | 30,431 | 17,663 | | 705,036 | |||||||||||||||||||||
Raw Land and Lots |
3,847 | 112,707 | 9,685 | 34,977 | 38,157 | 186 | 199,559 | |||||||||||||||||||||
Single Family Investment Real Estate |
40,424 | 158,361 | 11,492 | 13,215 | 6,879 | | 230,371 | |||||||||||||||||||||
Commercial and Industrial |
57,487 | 118,163 | 9,144 | 7,816 | 11,647 | | 204,257 | |||||||||||||||||||||
Other Commercial |
18,935 | 20,905 | 10,204 | 2,923 | 842 | 56 | 53,865 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 463,655 | $ | 1,271,525 | $ | 119,383 | $ | 144,505 | $ | 107,811 | $ | 242 | $ | 2,107,121 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2012. The risk rating information has been updated through December 31, 2012 (dollars in thousands):
1-3 | 4 | 5 | 6 | 7 | 8 | Total | ||||||||||||||||||||||
Commercial Construction |
$ | 5,504 | $ | 117,769 | $ | 14,637 | $ | 33,815 | $ | 30,619 | $ | | $ | 202,344 | ||||||||||||||
Commercial Real Estate - Owner Occupied |
145,977 | 321,486 | 15,197 | 19,051 | 11,713 | | 513,424 | |||||||||||||||||||||
Commercial Real Estate - Non-Owner Occupied |
161,343 | 417,412 | 48,840 | 34,646 | 20,519 | | 682,760 | |||||||||||||||||||||
Raw Land and Lots |
3,943 | 114,053 | 13,260 | 29,194 | 42,148 | 186 | 202,784 | |||||||||||||||||||||
Single Family Investment Real Estate |
43,705 | 156,636 | 12,111 | 13,150 | 7,467 | | 233,069 | |||||||||||||||||||||
Commercial and Industrial |
68,308 | 120,442 | 10,584 | 12,064 | 6,045 | 139 | 217,582 | |||||||||||||||||||||
Other Commercial |
14,189 | 18,260 | 10,710 | 3,489 | 844 | 59 | 47,551 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 442,969 | $ | 1,266,058 | $ | 125,339 | $ | 145,409 | $ | 119,355 | $ | 384 | $ | 2,099,514 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows only purchased impaired loans in the commercial portfolios by class with their related risk rating as of March 31, 2013. The credit quality indicator information has been updated through March 31, 2013 (dollars in thousands):
5 | 6 | 7 | 8 | Total | ||||||||||||||||
Commercial Real Estate - Owner Occupied |
$ | | $ | | $ | 221 | $ | | $ | 221 | ||||||||||
Raw Land and Lots |
| | 2,555 | | 2,555 | |||||||||||||||
Single Family Investment Real Estate |
290 | | 12 | | 302 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 290 | $ | | $ | 2,788 | $ | | $ | 3,078 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The following table shows only purchased impaired loans in the commercial portfolios by class with their related risk rating as of December 31, 2012. The credit quality indicator information has been updated through December 31, 2012 (dollars in thousands):
5 | 6 | 7 | 8 | Total | ||||||||||||||||
Commercial Real Estate - Owner Occupied |
$ | | $ | | $ | 247 | $ | | $ | 247 | ||||||||||
Raw Land and Lots |
| | 2,942 | | 2,942 | |||||||||||||||
Single Family Investment Real Estate |
312 | | 14 | | 326 | |||||||||||||||
Commercial and Industrial |
| | 79 | | 79 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 312 | $ | | $ | 3,282 | $ | | $ | 3,594 | ||||||||||
|
|
|
|
|
|
|
|
|
|
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).
- 18 -
The following shows changes in the Companys acquired loan portfolio and accretable yield for the following periods (dollars in thousands):
For the Three Months Ended | For the Three Months Ended | |||||||||||||||||||||||||||||||
March 31, 2013 | March 31, 2012 | |||||||||||||||||||||||||||||||
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 |
$ | 3,147 | $ | 4,565 | $ | 5,350 | $ | 473,283 | $ | 5,140 | $ | 9,897 | $ | 9,010 | $ | 663,510 | ||||||||||||||||
Accretion |
| | (579 | ) | | (18 | ) | | (1,256 | ) | | |||||||||||||||||||||
Charge-offs |
(11 | ) | (96 | ) | | (380 | ) | (3 | ) | (3 | ) | | (541 | ) | ||||||||||||||||||
Transfers to OREO |
| (201 | ) | | (207 | ) | | (1,713 | ) | | (2,766 | ) | ||||||||||||||||||||
Payments received, net |
| (249 | ) | | (27,818 | ) | | (41 | ) | | (88,665 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at end of period |
$ | 3,136 | $ | 4,019 | $ | 4,771 | $ | 444,878 | $ | 5,119 | $ | 8,140 | $ | 7,754 | $ | 571,538 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. | INTANGIBLE ASSETS |
The Companys intangible assets consist of core deposits, trademarks, and goodwill arising from previous acquisitions. The Company has determined that core deposit intangibles and trademarks have a finite life and amortizes them over their estimated useful life. Core deposit intangible assets are being amortized over the period of expected benefit, which ranges from 4 to 14 years, using an accelerated method. The trademark intangible acquired through previous acquisitions was amortized over three years using the straight-line method. In accordance with Accounting Standards Codification (ASC) 350, Intangibles-Goodwill and Other (ASC 350), the Company reviews the carrying value of indefinite lived intangible assets at least annually or more frequently if certain impairment indicators exist. Based on the annual testing during the second quarter of each year and the absence of impairment indicators subsequent to the evaluation date, the Company has recorded no impairment charges to date for goodwill or intangible assets.
Information concerning intangible assets with a finite life is presented in the following table (dollars in thousands):
Gross Carrying Value |
Accumulated Amortization |
Net Carrying Value |
||||||||||
March 31, 2013 |
||||||||||||
Amortizable core deposit intangibles |
$ | 46,615 | $ | 31,873 | $ | 14,742 | ||||||
Trademark intangible |
1,200 | 1,200 | | |||||||||
December 31, 2012 |
||||||||||||
Amortizable core deposit intangibles |
$ | 46,615 | $ | 30,837 | $ | 15,778 | ||||||
Trademark intangible |
1,200 | 1,167 | 33 | |||||||||
March 31, 2012 |
||||||||||||
Amortizable core deposit intangibles |
$ | 46,615 | $ | 27,212 | $ | 19,403 | ||||||
Trademark intangible |
1,200 | 867 | 333 |
- 19 -
Amortization expense of core deposit intangibles for the three months ended March 31, 2013 and 2012, and for the year ended December 31, 2012 totaled $1.0 million, $1.3 million, and $4.9 million, respectively. Amortization expense of the trademark intangibles for the three months ended March 31, 2013 and 2012 totaled $33,000 and $100,000, respectively, and for the year ended December 31, 2012 was $400,000. As of March 31, 2013, the estimated remaining amortization expense of core deposit intangibles for the remainder of 2013 and for each of the five succeeding fiscal years is as follows for the years ending (dollars in thousands):
For the remaining nine months of 2013 |
$ | 2,761 | ||
For the year ending December 31, 2014 |
2,898 | |||
For the year ending December 31, 2015 |
2,463 | |||
For the year ending December 31, 2016 |
1,862 | |||
For the year ending December 31, 2017 |
1,437 | |||
For the year ending December 31, 2018 |
906 | |||
Thereafter |
2,415 | |||
|
|
|||
$ | 14,742 | |||
|
|
5. | 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 FHLB advances. Total short-term borrowings consist of the following as of March 31, 2013 and December 31, 2012 (dollars in thousands):
March 31, | December 31, | |||||||
2013 | 2012 | |||||||
Securities sold under agreements to repurchase |
$ | 72,047 | $ | 54,270 | ||||
Other short-term borrowings |
| 78,000 | ||||||
|
|
|
|
|||||
Total short-term borrowings |
$ | 72,047 | $ | 132,270 | ||||
|
|
|
|
|||||
Maximum month-end outstanding balance |
$ | 112,164 | $ | 154,116 | ||||
Average outstanding balance during the period |
94,006 | 91,993 | ||||||
Average interest rate during the period |
0.30 | % | 0.31 | % | ||||
Average interest rate at end of period |
0.27 | % | 0.28 | % | ||||
Other short-term borrowings: |
||||||||
Federal Funds purchased |
| 38,000 | ||||||
FHLB |
| 40,000 |
The Bank maintains federal funds lines with several correspondent banks; the remaining available balance was $125.0 million and $87.0 million at March 31, 2013 and December 31, 2012, respectively. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with these lines and is considered to be in compliance with these covenants. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to $816.9 million and $802.2 million at March 31, 2013 and December 31, 2012, respectively.
- 20 -
Long-term Borrowings
In connection with two bank acquisitions, prior to 2006, the Company issued trust preferred capital notes to fund the cash portion of those acquisitions, collectively totaling $58.5 million. The trust preferred capital notes currently qualify for Tier 1 capital of the Company for regulatory purposes.
Principal | Investment(1) | Spread to 3-Month LIBOR |
Rate | Maturity | ||||||||||||||||
Trust Preferred Capital Note - Statutory Trust I |
22,500,000 | 696,000 | 2.75 | % | 3.03 | % | 6/17/2034 | |||||||||||||
Trust Preferred Capital Note - Statutory Trust II |
36,000,000 | 1,114,000 | 1.40 | % | 1.68 | % | 6/15/2036 | |||||||||||||
|
|
|||||||||||||||||||
58,500,000 |
(1) | reported as Other Assets within the consolidated Balance Sheets |
As part of a prior acquisition, the Company assumed subordinated debt with terms of LIBOR plus 1.45% and a maturity date of April 2016. At March 31, 2013, the carrying value of the subordinated debt, net of the purchase accounting discount, was $16.0 million.
On August 23, 2012, the Company modified its fixed rate FHLB advances to floating rate advances which resulted in reducing the Companys FHLB borrowing costs. In connection with this modification, the Company incurred a prepayment penalty of $19.6 million on the original advances, which is included as a component of long-term borrowings in the Companys consolidated balance sheet. In accordance with ASC 470-50, Modifications and Extinguishments, the Company will amortize this prepayment penalty over the term of the modified advances using the effective rate method. The amortization expense is included as a component of interest expense on long-term borrowings on the Companys consolidated income statement. Amortization expense for the three months ended March 31, 2013 and 2012 was $426,000 and $0, respectively.
As of March 31, 2013, the advances from the FHLB consist of the following (dollars in thousands):
Long Term Type |
Spread to 3-Month LIBOR |
Interest Rate |
Maturity Date |
Conversion Date |
Option Frequency |
Advance Amount |
||||||||||||||
Adjustable Rate Credit |
0.44 | % | 0.72 | % | 8/23/2022 | n/a | n/a | $ | 55,000 | |||||||||||
Adjustable Rate Credit |
0.45 | % | 0.74 | % | 11/23/2022 | n/a | n/a | 65,000 | ||||||||||||
Adjustable Rate Credit |
0.45 | % | 0.74 | % | 11/23/2022 | n/a | n/a | 10,000 | ||||||||||||
Adjustable Rate Credit |
0.45 | % | 0.74 | % | 11/23/2022 | n/a | n/a | 10,000 | ||||||||||||
|
|
|||||||||||||||||||
$ | 140,000 | |||||||||||||||||||
|
|
As of December 31, 2012, the advances from the FHLB consisted of the following (dollars in thousands):
Long Term Type |
Spread to 3-Month LIBOR |
Interest Rate |
Maturity Date |
Conversion Date |
Option Frequency |
Advance Amount |
||||||||||||||
Adjustable Rate Credit |
0.44 | % | 0.75 | % | 8/23/2022 | n/a | n/a | $ | 55,000 | |||||||||||
Adjustable Rate Credit |
0.45 | % | 0.76 | % | 11/23/2022 | n/a | n/a | 65,000 | ||||||||||||
Adjustable Rate Credit |
0.45 | % | 0.76 | % | 11/23/2022 | n/a | n/a | 10,000 | ||||||||||||
Adjustable Rate Credit |
0.45 | % | 0.76 | % | 11/23/2022 | n/a | n/a | 10,000 | ||||||||||||
|
|
|||||||||||||||||||
$ | 140,000 | |||||||||||||||||||
|
|
The carrying value of the loans and securities pledged as collateral for FHLB advances totaled $1.0 billion for both periods as of March 31, 2013 and December 31, 2012, respectively.
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As of March 31, 2013, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):
Subordinated Debt |
FHLB Advances |
Prepayment Penalty |
Total Long-term Borrowings |
|||||||||||||
Remaining nine months in 2013 |
$ | | $ | | $ | (1,318 | ) | $ | (1,318 | ) | ||||||
2014 |
| | (1,787 | ) | (1,787 | ) | ||||||||||
2015 |
| | (1,831 | ) | (1,831 | ) | ||||||||||
2016 |
15,992 | | (1,882 | ) | 14,110 | |||||||||||
2017 |
| | (1,923 | ) | (1,923 | ) | ||||||||||
2018 |
| | (1,969 | ) | (1,969 | ) | ||||||||||
Thereafter |
| 140,000 | (7,918 | ) | 132,082 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total long-term borrowings |
$ | 15,992 | $ | 140,000 | $ | (18,628 | ) | $ | 137,364 | |||||||
|
|
|
|
|
|
|
|
6. | COMMITMENTS AND CONTINGENCIES |
Litigation Matters
In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.
Financial Instruments with off-balance sheet risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contractual amounts of these instruments reflect the extent of the Companys involvement in particular classes of financial instruments.
The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet financial instruments with credit risk.
Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Letters of credit written are conditional commitments issued by the Company to guarantee the performance of customers to third parties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
Union Mortgage Group, Inc., a wholly owned subsidiary of Union First Market Bank, uses rate lock commitments during the origination process and for loans held for sale. These commitments to sell loans are designed to mitigate the mortgage companys exposure to fluctuations in interest rates in connection with rate lock commitments and loans held for sale.
- 22 -
The following table presents the balances of commitments and contingencies (dollars in thousands):
March 31, | December 31, | |||||||
2013 | 2012 | |||||||
Commitments with off-balance sheet risk: |
||||||||
Commitments to extend credit (1) |
$ | 888,856 | $ | 844,766 | ||||
Standby letters of credit |
53,690 | 45,536 | ||||||
Mortgage loan rate lock commitments |
135,360 | 133,326 | ||||||
|
|
|
|
|||||
Total commitments with off-balance sheet risk |
$ | 1,077,906 | $ | 1,023,628 | ||||
|
|
|
|
|||||
Commitments with balance sheet risk: |
||||||||
Loans held for sale |
$ | 127,106 | $ | 167,698 | ||||
|
|
|
|
|||||
Total other commitments |
$ | 1,205,012 | $ | 1,191,326 | ||||
|
|
|
|
(1) | Includes unfunded overdraft protection. |
The Company must maintain a reserve against its deposits in accordance with Regulation D of the Federal Reserve Act. For the final weekly reporting period in the periods ended March 31, 2013 and December 31, 2012, the aggregate amount of daily average required reserves was approximately $15.2 million and $14.2 million, respectively.
The Company has approximately $7.5 million in deposits in other financial institutions of which $4.2 million serves as collateral for the cash flow hedge further discussed in Note 7 Derivatives. The Dodd-Frank Act, which was signed into law on July 21, 2010, provided unlimited deposit insurance coverage for transaction accounts through December 31, 2012. The Company had approximately $2.5 million in deposits in other financial institutions that were uninsured at March 31, 2013.
For asset/liability management purposes, the Company uses interest rate swap agreements to hedge various exposures or to modify the interest rate characteristics of various balance sheet accounts. See Note 7 Derivatives in these Notes to the Consolidated Financial Statements for additional information.
7. | DERIVATIVES |
During the second quarter of 2010, the Company entered into an interest rate swap agreement (the trust swap) as part of the management of interest rate risk. The Company designated the trust swap as a cash flow hedge intended to protect against the variability of cash flows associated with the aforementioned Statutory Trust II preferred capital securities. The trust swap hedges the interest rate risk, wherein the Company receives interest of LIBOR from a counterparty and pays a fixed rate of 3.51% to the same counterparty calculated on a notional amount of $36.0 million. The term of the trust swap is six years with a fixed rate that started June 15, 2011. The trust swap was entered into with a counterparty that met the Companys credit standards and the agreement contains collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in the contract is not significant.
Amounts receivable or payable are recognized as accrued under the terms of the agreements. In accordance with ASC 815, Derivatives and Hedging, the trust swap is designated as a cash flow hedge, with the effective portion of the derivatives unrealized gain or loss recorded as a component of other comprehensive income. The ineffective portion of the unrealized gain or loss, if any, would be recorded in other expense. The Company has assessed the effectiveness of the hedging relationship by comparing the changes in cash flows on the designated hedged item. There was no hedge ineffectiveness for this trust swap. At March 31, 2013, the fair value of the trust swap agreement was an unrealized loss of $4.2 million, the amount the Company would have expected to pay if the contract was terminated. The below liability is recorded as a component of other comprehensive income recorded in the Companys Consolidated Statements of Comprehensive Income.
- 23 -
Shown below is a summary of the derivative designated as a cash flow hedge at March 31, 2013 and December 31, 2012 (dollars in thousands):
Notional | Receive | Pay | Life | |||||||||||||||||||||||||
Positions | Amount | Asset | Liability | Rate | Rate | (Years) | ||||||||||||||||||||||
As of March 31, 2013 |
||||||||||||||||||||||||||||
Pay fixed - receive floating interest rate swaps |
1 | $ | 36,000 | $ | | $ | 4,203 | 0.28 | % | 3.51 | % | 4.21 | ||||||||||||||||
Notional | Receive | Pay | Life | |||||||||||||||||||||||||
Positions | Amount | Asset | Liability | Rate | Rate | (Years) | ||||||||||||||||||||||
As of December 31, 2012 |
||||||||||||||||||||||||||||
Pay fixed - receive floating interest rate swaps |
1 | $ | 36,000 | $ | | $ | 4,489 | 0.31 | % | 3.51 | % | 4.46 |
During the normal course of business, the Company enters into interest rate swap loan relationships (loan swaps) with borrowers to meet their financing needs. Upon entering into the loan swaps, the Company enters into offsetting positions with counterparties in order to minimize interest rate risk. These back-to-back loan swaps qualify as financial derivatives with fair values reported in other assets and other liabilities. Shown below is a summary regarding loan swap derivative activities at March 31, 2013 and December 31, 2012 (dollars in thousands):