Form 10-Q

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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

¨	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.

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

INDEX


ITEM		PAGE
	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2013, December 31, 2012, and March 31, 2012		1

	Condensed Consolidated Statements of Income for the three months ended March 31, 2013 and 2012		2

	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and 2012		3

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2013 and 2012		4

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012		5

	Notes to Condensed Consolidated Financial Statements		6

	Report of Independent Registered Public Accounting Firm		36

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		59

Item 4.	Controls and Procedures		60

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		61

Item 1A.	Risk Factors		61

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		61

Item 6.	Exhibits		62

	Signatures		63

- i -

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

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

Total cash and cash equivalents		76,893		82,902		111,183


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


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

Total assets	$	4,051,135	$	4,095,865	$	3,947,799


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

Total interest-bearing deposits		2,645,757		2,651,866		2,650,896

Total deposits		3,311,749		3,297,767		3,215,707


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


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


Total liabilities and stockholders’ equity	$	4,051,135	$	4,095,865	$	3,947,799

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

Total interest and dividend income		43,285			45,874


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


Net interest income		37,753			38,347
Provision for loan losses		2,050			3,500

Net interest income after provision for loan losses		35,703			34,847


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

Total noninterest income		9,835			8,477


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

Total noninterest expenses		33,501			32,268


Income before income taxes		12,037			11,056
Income tax expense		3,054			3,133

Net income	$	8,983		$	7,923


Earnings per common share, basic	$	0.36		$	0.31

Earnings per common share, diluted	$	0.36		$	0.31

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)

(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

Other comprehensive income (loss)		(1,814	)		862

Comprehensive income	$	7,169		$	8,785

See accompanying notes to consolidated financial statements.

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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


Balance - March 31, 2012	$	34,396		$	185,263		$	195,933		$	10,512		$	426,104


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


Balance - March 31, 2013	$	32,869		$	168,304		$	221,330		$	8,270		$	430,773

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

Net cash and cash equivalents provided by operating activities		62,607			24,537

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	)

Net cash and cash equivalents used in investing activities		(10,347	)		(36,227	)

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	)		—

Net cash and cash equivalents (used in) provided by financing activities		(58,269	)		26,214

(Decrease) increase in cash and cash equivalents		(6,009	)		14,524
Cash and cash equivalents at beginning of the period		82,902			96,659

Cash and cash equivalents at end of the period	$	76,893		$	111,183


Supplemental Disclosure of Cash Flow Information
Cash payments for:
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 Company’s 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 asset’s 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

Total securities	$	563,988	$	21,192	$	(1,963	)	$	583,217


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

Total securities	$	563,518	$	23,039	$	(1,175	)	$	585,382

Due to restrictions placed upon the Company’s 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 Bank’s 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 Company’s 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	)

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, management’s 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 security’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 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 $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 Company’s 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	$	—



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 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;

•

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 Company’s 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 Company’s 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

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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.

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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 Company’s 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 Company’s 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 Company’s 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

55,000

Adjustable Rate Credit

0.45

0.74

11/23/2022

n/a

65,000

Adjustable Rate Credit

0.45

0.74

11/23/2022

n/a

10,000

Adjustable Rate Credit

0.45

0.74

11/23/2022

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

55,000

Adjustable Rate Credit

0.45

0.76

11/23/2022

n/a

65,000

Adjustable Rate Credit

0.45

0.76

11/23/2022

n/a

10,000

Adjustable Rate Credit

0.45

0.76

11/23/2022

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 Company’s involvement in particular classes of financial instruments.

The Company’s 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 company’s exposure to fluctuations in interest rates in connection with rate lock commitments and loans held for sale.

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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 Company’s 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 derivative’s 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 Company’s Consolidated Statements of Comprehensive Income.

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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):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company