Quarterly Report on Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

 

¨ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission file number 000-18911

 

 

GLACIER BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

MONTANA   81-0519541

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

49 Commons Loop, Kalispell, Montana   59901
(Address of principal executive offices)   (Zip Code)

(406) 756-4200

Registrant’s telephone number, including area code

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

 

 

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.    x  Yes    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    No  ¨

Indicate by checkmark 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   x    Accelerated Filer   ¨
Non-Accelerated Filer   ¨    Smaller reporting Company   ¨

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

The number of shares of Registrant’s common stock outstanding on July 25, 2012 was 71,931,972. No preferred shares are issued or outstanding.

 

 

 


Table of Contents

Glacier Bancorp, Inc.

Quarterly Report on Form 10-Q

Index

 

     Page  

Part I. Financial Information

  

Item 1 – Financial Statements

  

Unaudited Condensed Consolidated Statements of Financial Condition – June  30, 2012 and December 31, 2011

     3   

Unaudited Condensed Consolidated Statements of Operations – Three and Six Months ended June  30, 2012 and 2011

     4   

Unaudited Condensed Consolidated Statements of Comprehensive Income – Three and Six Months ended June 30, 2012 and 2011

     5   

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity – Six Months ended June 30, 2012 and 2011

     6   

Unaudited Condensed Consolidated Statements of Cash Flows – Six Months ended June  30, 2012 and 2011

     7   

Notes to Unaudited Condensed Consolidated Financial Statements

     8   

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

     28   

Item 3 – Quantitative and Qualitative Disclosure about Market Risk

     61   

Item 4 – Controls and Procedures

     61   

Part II. Other Information

     61   

Item 1 – Legal Proceedings

     61   

Item 1A – Risk Factors

     61   

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

     62   

Item 3 – Defaults upon Senior Securities

     62   

Item 4 – Mine Safety Disclosures

     62   

Item 5 – Other Information

     62   

Item 6 – Exhibits

     62   

Signatures

     63   


Table of Contents

Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Financial Condition

 

(Dollars in thousands, except per share data)

   June 30,
2012
    December 31,
2011
 

Assets

    

Cash on hand and in banks

   $ 92,119        104,674   

Interest bearing cash deposits

     48,300        23,358   
  

 

 

   

 

 

 

Cash and cash equivalents

     140,419        128,032   

Investment securities, available-for-sale

     3,404,282        3,126,743   

Loans held for sale

     88,442        95,457   

Loans receivable

     3,445,196        3,466,135   

Allowance for loan and lease losses

     (137,459     (137,516
  

 

 

   

 

 

 

Loans receivable, net

     3,307,737        3,328,619   

Premises and equipment, net

     159,432        158,872   

Other real estate owned

     69,170        78,354   

Accrued interest receivable

     37,108        34,961   

Deferred tax asset

     22,892        31,081   

Core deposit intangible, net

     7,197        8,284   

Goodwill

     106,100        106,100   

Non-marketable equity securities

     50,371        49,694   

Other assets

     40,952        41,709   
  

 

 

   

 

 

 

Total assets

   $ 7,434,102        7,187,906   
  

 

 

   

 

 

 

Liabilities

    

Non-interest bearing deposits

   $ 1,066,662        1,010,899   

Interest bearing deposits

     3,915,607        3,810,314   

Securities sold under agreements to repurchase

     466,784        258,643   

Federal Home Loan Bank advances

     906,029        1,069,046   

Other borrowed funds

     9,973        9,995   

Subordinated debentures

     125,347        125,275   

Accrued interest payable

     5,076        5,825   

Other liabilities

     62,443        47,682   
  

 

 

   

 

 

 

Total liabilities

     6,557,921        6,337,679   
  

 

 

   

 

 

 

Stockholders’ Equity

    

Preferred shares, $0.01 par value per share, 1,000,000 shares authorized, none issued or outstanding

     —          —     

Common stock, $0.01 par value per share, 117,187,500 shares authorized

     719        719   

Paid-in capital

     641,656        642,882   

Retained earnings - substantially restricted

     189,753        173,139   

Accumulated other comprehensive income

     44,053        33,487   
  

 

 

   

 

 

 

Total stockholders’ equity

     876,181        850,227   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 7,434,102        7,187,906   
  

 

 

   

 

 

 

Number of common stock shares issued and outstanding

     71,931,386        71,915,073   

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Operations

 

     Three Months ended June 30,     Six Months ended June 30,  

(Dollars in thousands, except per share data)

   2012      2011     2012      2011  

Interest Income

          

Residential real estate loans

   $ 7,495         8,156        15,279         16,872   

Commercial loans

     30,430         32,977        61,471         66,035   

Consumer and other loans

     8,813         10,211        17,983         20,661   

Investment securities

     17,454         20,218        37,343         36,367   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest income

     64,192         71,562        132,076         139,935   
  

 

 

    

 

 

   

 

 

    

 

 

 

Interest Expense

          

Deposits

     4,609         6,584        9,563         13,672   

Securities sold under agreements to repurchase

     303         319        602         676   

Federal Home Loan Bank advances

     3,218         3,093        6,599         5,641   

Federal funds purchased and other borrowed funds

     61         62        123         95   

Subordinated debentures

     853         1,273        1,755         2,916   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense

     9,044         11,331        18,642         23,000   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net Interest Income

     55,148         60,231        113,434         116,935   

Provision for loan losses

     7,925         19,150        16,550         38,650   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provision for loan losses

     47,223         41,081        96,884         78,285   
  

 

 

    

 

 

   

 

 

    

 

 

 

Non-Interest Income

          

Service charges and other fees

     11,291         11,330        21,783         21,538   

Miscellaneous loan fees and charges

     1,113         928        2,059         1,905   

Gain on sale of loans

     7,522         4,291        14,335         8,985   

Loss on sale of investments

     —           (591     —           (467

Other income

     1,865         1,893        3,952         3,285   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-interest income

     21,791         17,851        42,129         35,246   
  

 

 

    

 

 

   

 

 

    

 

 

 

Non-Interest Expense

          

Compensation and employee benefits

     23,684         21,170        47,244         42,773   

Occupancy and equipment

     5,825         5,728        11,793         11,682   

Advertising and promotions

     1,713         1,635        3,115         3,119   

Outsourced data processing

     788         791        1,634         1,564   

Other real estate owned

     2,199         5,062        9,021         7,161   

Federal Deposit Insurance Corporation premiums

     1,300         2,197        3,012         4,521   

Core deposit intangibles amortization

     535         590        1,087         1,317   

Other expense

     10,146         9,047        18,329         16,559   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-interest expense

     46,190         46,220        95,235         88,696   
  

 

 

    

 

 

   

 

 

    

 

 

 

Income Before Income Taxes

     22,824         12,712        43,778         24,835   

Federal and state income tax expense

     3,843         826        8,464         2,664   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net Income

   $ 18,981         11,886        35,314         22,171   
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic earnings per share

   $ 0.26         0.17        0.49         0.31   

Diluted earnings per share

   $ 0.26         0.17        0.49         0.31   

Dividends declared per share

   $ 0.13         0.13        0.26         0.26   

Average outstanding shares - basic

     71,928,697         71,915,073        71,921,885         71,915,073   

Average outstanding shares - diluted

     71,928,853         71,915,073        71,921,990         71,915,073   

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income

 

     Three Months ended June 30,     Six Months ended June 30,  

(Dollars in thousands)

   2012     2011     2012     2011  

Net Income

   $ 18,981        11,886        35,314        22,171   

Other Comprehensive Income, Net of Tax

        

Unrealized holding gains on available-for-sale securities

     13,214        36,154        23,232        39,182   

Reclassification adjustment for losses included in net income

     —          591        —          467   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net unrealized gains on securities

     13,214        36,745        23,232        39,649   

Tax effect

     (5,140     (14,400     (9,037     (15,538
  

 

 

   

 

 

   

 

 

   

 

 

 

Net of tax amount

     8,074        22,345        14,195        24,111   
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in fair value of derivatives used for cash flow hedges

     (9,051     —          (5,939     —     

Tax effect

     3,521        —          2,310        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net of tax amount

     (5,530     —          (3,629     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income, net of tax

     2,544        22,345        10,566        24,111   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Comprehensive Income

   $ 21,525        34,231        45,880        46,282   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

Six Months ended June 30, 2012 and 2011

 

     Common Stock      Paid-in     Retained
Earnings
Substantially
    Accumulated
Other
Comprehensive
        

(Dollars in thousands, except per share data)

   Shares      Amount      Capital     Restricted     Income      Total  

Balance at December 31, 2010

     71,915,073       $ 719         643,894        193,063        528         838,204   

Comprehensive income

     —           —           —          22,171        24,111         46,282   

Cash dividends declared ($0.26 per share)

     —           —           —          (18,698     —           (18,698

Stock-based compensation and related taxes

     —           —           (1,016     —          —           (1,016
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Balance at June 30, 2011

     71,915,073       $ 719         642,878        196,536        24,639         864,772   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Balance at December 31, 2011

     71,915,073       $ 719         642,882        173,139        33,487         850,227   

Comprehensive income

     —           —           —          35,314        10,566         45,880   

Cash dividends declared ($0.26 per share)

     —           —           —          (18,700     —           (18,700

Stock issuances under stock incentive plans

     16,313         —           233        —          —           233   

Stock-based compensation and related taxes

     —           —           (1,459     —          —           (1,459
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Balance at June 30, 2012

     71,931,386       $ 719         641,656        189,753        44,053         876,181   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Glacier Bancorp, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

 

     Six Months ended June 30,  

(Dollars in thousands)

   2012     2011  

Operating Activities

    

Net cash provided by operating activities

   $ 133,697        135,267   
  

 

 

   

 

 

 

Investing Activities

    

Proceeds from sales, maturities and prepayments of investment securities, available-for-sale

     871,472        429,256   

Purchases of investment securities, available-for-sale

     (1,154,990     (796,155

Principal collected on loans

     441,318        459,488   

Loans originated or acquired

     (478,541     (397,174

Net addition of premises and equipment and other real estate owned

     (5,501     (7,337

Proceeds from sale of other real estate owned

     18,073        17,443   

Net (sale) purchase of non-marketable equity securities

     (671     14,278   
  

 

 

   

 

 

 

Net cash used in investment activities

     (308,840     (280,201
  

 

 

   

 

 

 

Financing Activities

    

Net increase in deposits

     161,056        182,897   

Net increase in securities sold under agreements to repurchase

     208,141        1,900   

Net decrease in Federal Home Loan Bank advances

     (163,017     (40,080

Net increase in federal funds purchased and other borrowed funds

     50        42,865   

Cash dividends paid

     (18,700     (18,698
  

 

 

   

 

 

 

Net cash provided by financing activities

     187,530        168,884   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     12,387        23,950   

Cash and cash equivalents at beginning of period

     128,032        105,091   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 140,419        129,041   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information

    

Cash paid during the period for interest

   $ 19,391        23,985   

Cash paid during the period for income taxes

     8,221        3,681   

Sale and refinancing of other real estate owned

     668        2,521   

Other real estate acquired in settlement of loans

     16,372        49,570   

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Glacier Bancorp, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1) Nature of Operations and Summary of Significant Accounting Policies

General

Glacier Bancorp, Inc. (the “Company”) is a Montana corporation headquartered in Kalispell, Montana. The Company provides a full range of banking services to individual and corporate customers in Montana, Idaho, Wyoming, Colorado, Utah and Washington through eleven divisions of its wholly-owned bank subsidiary, Glacier Bank (the “Bank”). The Company is subject to competition from other financial service providers. The Company is also subject to the regulations of certain government agencies and undergoes periodic examinations by those regulatory authorities.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s financial condition as of June 30, 2012, the results of operations and comprehensive income for the three and six month periods ended June 30, 2012 and 2011, and changes in stockholders’ equity and cash flows for the six month periods ended June 30, 2012 and 2011. The condensed consolidated statement of financial condition of the Company as of December 31, 2011 has been derived from the audited consolidated statements of the Company as of that date.

The accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results anticipated for the year ending December 31, 2012.

Material estimates that are particularly susceptible to significant change include: 1) the determination of the allowance for loan and lease losses (“ALLL” or “allowance”), 2) the valuations related to investments and real estate acquired in connection with foreclosures or in satisfaction of loans, and 3) the evaluation of goodwill impairment. In connection with the determination of the ALLL and other real estate valuation estimates, management obtains independent appraisals (new or updated) for significant items. Estimates relating to investments are obtained from independent third parties. Estimates relating to the evaluation of goodwill for impairment are determined based on independent party valuations and internal calculations using significant independent party inputs.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of the parent holding company and the Bank. All significant inter-company transactions have been eliminated in consolidation.

The Company formed GBCI Other Real Estate (“GORE”) to isolate certain bank foreclosed properties for legal protection and administrative purposes and the remaining properties are currently held for sale. GORE is included in the Bank operating segment due to its insignificant activity.

 

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Table of Contents

The Company owns the following trust subsidiaries for the purpose of issuing trust preferred securities: Glacier Capital Trust II, Glacier Capital Trust III, Glacier Capital Trust IV, Citizens (ID) Statutory Trust I, Bank of the San Juans Bancorporation Trust I, First Company Statutory Trust 2001 and First Company Statutory Trust 2003. The trust subsidiaries are not consolidated into the Company’s financial statements.

On April 30, 2012, the Company combined its eleven bank subsidiaries into eleven bank divisions within Glacier Bank, such divisions operating with the same names and management teams as before the combination. Prior to the combination of the bank subsidiaries, the Company considered its eleven bank subsidiaries, GORE, and the parent holding company to be its operating segments. Subsequent to the combination of the bank subsidiaries, the Company considers the Bank to be its sole operating segment. The change to combining the bank subsidiaries into a single segment is appropriate as the Bank 1) engages in similar bank business activity from which it earns revenues and incurs expenses, 2) the operating results of the Bank are regularly reviewed by the Chief Executive Officer (i.e., the chief operating decision maker) who makes decisions about resources to be allocated to the Bank, and 3) financial information is available for the Bank.

Variable Interest Entities

The Company has equity investments in Certified Development Entities (“CDE”) which have received allocations of New Markets Tax Credits (“NMTC”). The Company also has equity investments in Low-Income Housing Tax Credit (“LIHTC”) partnerships. The CDEs and the LIHTC partnerships are variable interest entities (“VIE”).

The following table summarizes the carrying amounts of the VIE’s assets and liabilities included in the Company’s consolidated financial statements at June 30, 2012 and December 31, 2011:

 

     June 30, 2012      December 31, 2011  

(Dollars in thousands)

   CDE (NMTC)      LIHTC      CDE (NMTC)      LIHTC  

Assets

           

Loans receivable

   $ 35,443         —           32,748         —     

Premises and equipment, net

     —           15,700         —           15,996   

Accrued interest receivable

     112         —           116         —     

Other assets

     1,233         66         1,439         31   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 36,788         15,766         34,303         16,027   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Other borrowed funds

   $ 4,629         3,306         4,629         3,306   

Accrued interest payable

     3         6         4         9   

Other liabilities

     92         193         186         363   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 4,724         3,505         4,819         3,678   
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts presented in the table above are adjusted for intercompany eliminations. All assets presented can be used only to settle obligations of the consolidated VIEs and all liabilities presented consist of liabilities for which creditors and other beneficial interest holders therein have no recourse to the general credit of the Company.

 

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Impact of Recent Authoritative Accounting Guidance

The Accounting Standards CodificationTM (“ASC”) is the Financial Accounting Standards Board’s (“FASB”) officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of the federal securities laws are also sources of authoritative GAAP for the Company as an SEC registrant. All other accounting literature is non-authoritative.

In September 2011, FASB amended FASB ASC Topic 350, Intangibles - Goodwill and Other. The amendment provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If the entity concludes it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The amendment is effective prospectively during interim and annual periods beginning after December 15, 2011 and early adoption is permitted. The Company has evaluated the impact of the adoption of this amendment and determined there was not a material effect on the Company’s financial position or results of operations.

In June 2011, FASB amended FASB ASC Topic 220, Comprehensive Income. The amendment provides an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. Accounting Standards Update No. 2011-12, Comprehensive Income (Topic 220) defers the specific requirement of the amendment to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. The amendments are effective retrospectively during interim and annual periods beginning after December 15, 2011. The Company has evaluated the impact of the adoption of this amendment and determined there was not a material effect on the Company’s financial position or results of operations.

In May 2011, FASB amended FASB ASC Topic 820, Fair Value Measurement. The amendment achieves common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. The amendment changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendment is effective prospectively during interim and annual periods beginning after December 15, 2011. The Company has evaluated the impact of the adoption of this amendment and determined there was not a material effect on the Company’s financial position or results of operations.

 

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2) Investment Securities, Available-for-Sale

A comparison of the amortized cost and estimated fair value of the Company’s investment securities designated as available-for-sale is presented below.

 

     June 30, 2012  
     Weighted     Amortized      Gross Unrealized     Fair  

(Dollars in thousands)

   Yield     Cost      Gains      Losses     Value  

U.S. government and federal agency

            

Maturing after one year through five years

     1.62   $ 202         3         —          205   

U.S. government sponsored enterprises

            

Maturing within one year

     2.37     3,218         12         —          3,230   

Maturing after one year through five years

     2.34     21,727         458         —          22,185   

Maturing after five years through ten years

     1.90     73         —           —          73   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     2.34     25,018         470         —          25,488   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

State and local governments

            

Maturing within one year

     0.99     45,759         11         (5     45,765   

Maturing after one year through five years

     2.14     127,290         3,788         (121     130,957   

Maturing after five years through ten years

     2.64     52,835         1,699         (38     54,496   

Maturing after ten years

     4.78     886,899         75,645         (682     961,862   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     4.22     1,112,783         81,143         (846     1,193,080   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Corporate bonds

            

Maturing within one year

     1.39     19,457         27         (4     19,480   

Maturing after one year through five years

     2.41     121,697         810         (351     122,156   

Maturing after five years through ten years

     2.30     18,197         166         (73     18,290   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     2.27     159,351         1,003         (428     159,926   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Collateralized debt obligations

            

Maturing after ten years

     8.03     2,848         —           (114     2,734   

Residential mortgage-backed securities

     1.75     2,017,135         11,358         (5,644     2,022,849   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total investment securities

     2.61   $ 3,317,337         93,977         (7,032     3,404,282   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     December 31, 2011  
     Weighted     Amortized      Gross Unrealized     Fair  

(Dollars in thousands)

   Yield     Cost      Gains      Losses     Value  

U.S. government and federal agency

            

Maturing after one year through five years

     1.62   $ 204         4         —          208   

U.S. government sponsored enterprises

            

Maturing within one year

     1.58     3,979         17         —          3,996   

Maturing after one year through five years

     2.36     26,399         682         —          27,081   

Maturing after five years through ten years

     1.90     78         —           —          78   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     2.26     30,456         699         —          31,155   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

State and local governments

            

Maturing within one year

     1.31     4,786         3         (2     4,787   

Maturing after one year through five years

     2.22     89,752         2,660         (22     92,390   

Maturing after five years through ten years

     2.59     63,143         2,094         (19     65,218   

Maturing after ten years

     4.84     845,657         57,138         (535     902,260   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     4.44     1,003,338         61,895         (578     1,064,655   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Corporate bonds

            

Maturing after one year through five years

     2.55     60,810         261         (1,264     59,807   

Maturing after five years through ten years

     2.38     2,409         21         —          2,430   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     2.54     63,219         282         (1,264     62,237   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Collateralized debt obligations

            

Maturing after ten years

     8.03     5,648         —           (282     5,366   

Residential mortgage-backed securities

     1.70     1,960,167         10,138         (7,183     1,963,122   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total investment securities

     2.64   $ 3,063,032         73,018         (9,307     3,126,743   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Included in the residential mortgage-backed securities are $53,145,000 and $49,252,000 as of June 30, 2012 and December 31, 2011, respectively, of non-guaranteed private label whole loan mortgage-backed securities of which none of the underlying collateral is considered “subprime.”

Maturities of securities do not reflect repricing opportunities present in adjustable rate securities, nor do they reflect expected shorter maturities based upon early prepayment of principal. Weighted yields are based on the level-yield method taking into account premium amortization and discount accretion. Weighted yields on tax-exempt investment securities exclude the federal income tax benefit.

 

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Table of Contents

The cost of each investment sold is determined by specific identification. Gain or loss on sale of investments consists of the following:

 

     Three Months
ended June 30,
    Six Months
ended June 30,
 

(Dollars in thousands)

   2012      2011     2012      2011  

Gross proceeds

   $ —           4,074        —           8,208   

Less amortized cost

     —           (4,665     —           (8,675
  

 

 

    

 

 

   

 

 

    

 

 

 

Net loss on sale of investments

   $ —           (591     —           (467
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross gain on sale of investments

   $ —           39        —           223   

Gross loss on sale of investments

     —           (630     —           (690
  

 

 

    

 

 

   

 

 

    

 

 

 

Net loss on sale of investments

   $ —           (591     —           (467
  

 

 

    

 

 

   

 

 

    

 

 

 

Investments with an unrealized loss position are summarized as follows:

 

     June 30, 2012  
     Less than 12 Months     12 Months or More     Total  

(Dollars in thousands)

   Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
 

State and local governments

   $ 77,764         (667     7,624         (179     85,388         (846

Corporate bonds

     52,812         (396     5,383         (32     58,195         (428

Collateralized debt obligations

     —           —          2,734         (114     2,734         (114

Residential mortgage-backed securities

     854,027         (4,309     74,878         (1,335     928,905         (5,644
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $    984,603         (5,372     90,619         (1,660     1,075,222         (7,032
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

     December 31, 2011  
     Less than 12 Months     12 Months or More     Total  

(Dollars in thousands)

   Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
    Fair
Value
     Unrealized
Loss
 

State and local governments

   $ 26,434         (90     9,948         (488     36,382         (578

Corporate bonds

     31,782         (1,264     —           —          31,782         (1,264

Collateralized debt obligations

     —           —          5,366         (282     5,366         (282

Residential mortgage-backed securities

     943,372         (6,850     8,244         (333     951,616         (7,183
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 1,001,588         (8,204     23,558         (1,103     1,025,146         (9,307
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

With respect to its impaired securities at June 30, 2012, management determined that it did not intend to sell and there was no expected requirement to sell any of its impaired securities. Based on an analysis of its impaired securities as of June 30, 2012 and December 31, 2011, the Company determined that none of such securities had other-than-temporary impairment.

 

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Table of Contents
3) Loans Receivable, Net

The following schedules summarize the activity in the ALLL on a portfolio class basis:

 

     Three Months ended June 30, 2012  

(Dollars in thousands)

   Total     Residential
Real Estate
    Commercial
Real Estate
    Other
Commercial
    Home
Equity
    Other
Consumer
 

Allowance for loan and lease losses

            

Balance at beginning of period

   $ 136,586        19,003        73,240        22,444        13,364        8,535   

Provision for loan losses

     7,925        22        10,374        (1,255     (1,471     255   

Charge-offs

     (8,679     (953     (5,549     (887     (1,077     (213

Recoveries

     1,627        67        1,033        268        88        171   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 137,459        18,139        79,098        20,570        10,904        8,748   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Three Months ended June 30, 2011  

(Dollars in thousands)

   Total     Residential
Real Estate
    Commercial
Real Estate
    Other
Commercial
    Home
Equity
    Other
Consumer
 

Allowance for loan and lease losses

            

Balance at beginning of period

   $ 140,829        17,004        80,098        20,960        14,206        8,561   

Provision for loan losses

     19,150        1,557        9,430        3,969        294        3,900   

Charge-offs

     (21,814     (1,388     (10,691     (5,413     (971     (3,351

Recoveries

     1,630        239        1,048        99        96        148   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 139,795        17,412        79,885        19,615        13,625        9,258   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months ended June 30, 2012  

(Dollars in thousands)

   Total     Residential
Real Estate
    Commercial
Real Estate
    Other
Commercial
    Home
Equity
    Other
Consumer
 

Allowance for loan and lease losses

            

Balance at beginning of period

   $ 137,516        17,227        76,920        20,833        13,616        8,920   

Provision for loan losses

     16,550        2,085        13,010        1,304        (470     621   

Charge-offs

     (19,737     (1,320     (12,534     (2,356     (2,358     (1,169

Recoveries

     3,130        147        1,702        789        116        376   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 137,459        18,139        79,098        20,570        10,904        8,748   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months ended June 30, 2011  

(Dollars in thousands)

   Total     Residential
Real Estate
    Commercial
Real Estate
    Other
Commercial
    Home
Equity
    Other
Consumer
 

Allowance for loan and lease losses

            

Balance at beginning of period

   $ 137,107        20,957        76,147        19,932        13,334        6,737   

Provision for loan losses

     38,650        (703     23,697        6,607        2,415        6,634   

Charge-offs

     (38,318     (3,157     (21,319     (7,166     (2,303     (4,373

Recoveries

     2,356        315        1,360        242        179        260   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 139,795        17,412        79,885        19,615        13,625        9,258   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

The following schedules disclose the ALLL and loans receivable on a portfolio class basis:

 

     June 30, 2012  

(Dollars in thousands)

   Total      Residential
Real Estate
     Commercial
Real Estate
     Other
Commercial
     Home
Equity
     Other
Consumer
 

Allowance for loan and lease losses

                 

Individually evaluated for impairment

   $ 19,208         3,938         9,337         3,408         690         1,835   

Collectively evaluated for impairment

     118,251         14,201         69,761         17,162         10,214         6,913   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan and lease losses

   $ 137,459         18,139         79,098         20,570         10,904         8,748   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans receivable

                 

Individually evaluated for impairment

   $ 237,899         33,617         144,506         38,702         13,501         7,573   

Collectively evaluated for impairment

     3,207,297         491,934         1,507,184         603,484         408,748         195,947   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans receivable

   $ 3,445,196         525,551         1,651,690         642,186         422,249         203,520   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  

(Dollars in thousands)

   Total      Residential
Real Estate
     Commercial
Real Estate
     Other
Commercial
     Home
Equity
     Other
Consumer
 

Allowance for loan and lease losses

                 

Individually evaluated for impairment

   $ 18,828         2,659         9,756         4,233         584         1,596   

Collectively evaluated for impairment

     118,688         14,568         67,164         16,600         13,032         7,324   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance for loan and lease losses

   $ 137,516         17,227         76,920         20,833         13,616         8,920   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans receivable

                 

Individually evaluated for impairment

   $ 258,659         24,453         162,959         49,962         14,750         6,535   

Collectively evaluated for impairment

     3,207,476         492,354         1,509,100         573,906         425,819         206,297   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans receivable

   $ 3,466,135         516,807         1,672,059         623,868         440,569         212,832   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Substantially all of the Company’s loan receivables are with customers within the Company’s market areas. Although the Company has a diversified loan portfolio, a substantial portion of its customers’ ability to honor their obligations is dependent upon the economic performance in the Company’s market areas. Net deferred fees, costs, premiums, and discounts of $2,104,000 and $3,123,000 were included in the loans receivable balance at June 30, 2012 and December 31, 2011, respectively.

 

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Table of Contents

The following schedules disclose the impaired loans by portfolio class basis:

 

     At or for the Three or Six Months ended June 30, 2012  

(Dollars in thousands)

   Total      Residential
Real Estate
     Commercial
Real Estate
     Other
Commercial
     Home
Equity
     Other
Consumer
 

Loans with a specific valuation allowance

                 

Recorded balance

   $ 81,875         18,356         36,084         21,607         1,847         3,981   

Unpaid principal balance

     92,771         18,666         46,440         21,735         1,918         4,012   

Valuation allowance

     19,208         3,938         9,337         3,408         690         1,835   

Average impaired loans - three months

     84,275         16,939         38,156         23,840         1,785         3,555   

Average impaired loans - six months

     82,089         14,996         38,761         23,255         1,597         3,480   

Loans without a specific valuation allowance

                 

Recorded balance

   $ 156,024         15,261         108,422         17,095         11,654         3,592   

Unpaid principal balance

     186,116         16,120         129,254         22,459         14,274         4,009   

Average impaired loans - three months

     170,211         15,010         116,160         22,542         12,733         3,766   

Average impaired loans - six months

     173,788         14,454         118,436         24,320         12,998         3,580   

Totals

                 

Recorded balance

   $ 237,899         33,617         144,506         38,702         13,501         7,573   

Unpaid principal balance

     278,887         34,786         175,694         44,194         16,192         8,021   

Valuation allowance

     19,208         3,938         9,337         3,408         690         1,835   

Average impaired loans - three months

     254,486         31,949         154,316         46,382         14,518         7,321   

Average impaired loans - six months

     255,877         29,450         157,197         47,575         14,595         7,060   

 

     At or for the Year ended December 31, 2011  

(Dollars in thousands)

   Total      Residential
Real Estate
     Commercial
Real Estate
     Other
Commercial
     Home
Equity
     Other
Consumer
 

Loans with a specific valuation allowance

                 

Recorded balance

   $ 77,717         11,111         39,971         22,087         1,219         3,329   

Unpaid principal balance

     85,514         11,177         47,569         22,196         1,238         3,334   

Valuation allowance

     18,828         2,659         9,756         4,233         584         1,596   

Average impaired loans

     66,871         10,330         38,805         13,395         1,284         3,057   

Loans without a specific valuation allowance

                 

Recorded balance

   $ 180,942         13,342         122,988         27,875         13,531         3,206   

Unpaid principal balance

     208,828         14,741         139,962         35,174         15,097         3,854   

Average impaired loans

     168,983         14,730         123,231         19,963         8,975         2,084   

Totals

                 

Recorded balance

   $ 258,659         24,453         162,959         49,962         14,750         6,535   

Unpaid principal balance

     294,342         25,918         187,531         57,370         16,335         7,188   

Valuation allowance

     18,828         2,659         9,756         4,233         584         1,596   

Average impaired loans

     235,854         25,060         162,036         33,358         10,259         5,141   

Interest income recognized on impaired loans for the periods ended June 30, 2012 and December 31, 2011 was not significant.

 

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Table of Contents

The following is a loans receivable aging analysis on a portfolio class basis:

 

     June 30, 2012  

(Dollars in thousands)

   Total      Residential
Real Estate
     Commercial
Real Estate
     Other
Commercial
     Home
Equity
     Other
Consumer
 

Accruing loans 30-59 days past due

   $ 37,893         990         12,819         20,093         2,690         1,301   

Accruing loans 60-89 days past due

     10,814         5,175         2,822         1,995         472         350   

Accruing loans 90 days or more past due

     3,267         421         1,547         980         145         174   

Non-accrual loans

     126,463         19,835         77,203         15,490         10,156         3,779   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total past due and non-accrual loans

     178,437         26,421         94,391         38,558         13,463         5,604   

Current loans receivable

     3,266,759         499,130         1,557,299         603,628         408,786         197,916   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans receivable

   $ 3,445,196         525,551         1,651,690         642,186         422,249         203,520   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  

(Dollars in thousands)

   Total      Residential
Real Estate
     Commercial
Real Estate
     Other
Commercial
     Home
Equity
     Other
Consumer
 

Accruing loans 30-59 days past due

   $ 31,386         9,038         12,683         3,279         4,092         2,294   

Accruing loans 60-89 days past due

     17,700         2,678         11,660         1,034         1,276         1,052   

Accruing loans 90 days or more past due

     1,413         59         108         1,060         156         30   

Non-accrual loans

     133,689         11,881         87,956         21,685         10,272         1,895   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total past due and non-accrual loans

     184,188         23,656         112,407         27,058         15,796         5,271   

Current loans receivable

     3,281,947         493,151         1,559,652         596,810         424,773         207,561   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans receivable

   $ 3,466,135         516,807         1,672,059         623,868         440,569         212,832   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following is a summary of the troubled debt restructurings (“TDR”) that occurred during the periods presented and the TDRs that occurred within the previous twelve months that subsequently defaulted during the periods presented on a portfolio class basis:

 

     Three Months ended June 30, 2012  

(Dollars in thousands)

   Total      Residential
Real Estate
     Commercial
Real Estate
     Other
Commercial
     Home
Equity
     Other
Consumer
 

Troubled debt restructurings

                 

Number of loans

     47         5         15         22         1         4   

Pre-modification outstanding balance

   $ 11,929         1,342         5,736         4,309            310         232   

Post-modification outstanding balance

   $ 10,650         1,342           4,444         4,322         310         232   

Troubled debt restructurings that subsequently defaulted

                 

Number of loans

     9         —           4         2         1         2   

Recorded balance

   $ 3,127         —           2,077         531         442         77   

 

17


Table of Contents
     Six Months ended June 30, 2012  

(Dollars in thousands)

   Total      Residential
Real Estate
     Commercial
Real Estate
     Other
Commercial
     Home
Equity
     Other
Consumer
 

Troubled debt restructurings

                 

Number of loans

     103         8         40         41         7         7   

Pre-modification outstanding balance

   $ 28,455         1,701         16,846         8,432         1,095         381   

Post-modification outstanding balance

   $ 26,469         1,701         14,838         8,454         1,095         381   

Troubled debt restructurings that subsequently defaulted

                 

Number of loans

     20         —           11         5         2         2   

Recorded balance

   $ 6,207         —           4,735         798         597         77   

The majority of TDRs occurring in most loan classes was a result of an extension of the maturity date which aggregated 31 percent of total TDRs. In addition, 19 percent of total TDRs were a result of a combination of an interest rate reduction, extension of the maturity date, or reduction in the face amount and 19 percent were a result of a payment deferral or change to interest. For commercial real estate, the class with the largest dollar amount of TDRs, approximately 32 percent was due to a payment deferral or change to interest rate and 24 percent was due to a combination of an interest rate reduction, extension of the maturity date, or reduction in the face amount.

In addition to the TDRs that occurred during the period provided in the preceding table, the Company had TDRs with pre-modification loan balances of $24,390,000 for the six months ended June 30, 2012 for which other real estate owned was received in full or partial satisfaction of the loans. The majority of such TDRs was in commercial real estate.

 

4) Goodwill

The changes in the carrying amount of goodwill and accumulated impairment charge are as follows:

 

     Three Months
ended June 30,
     Six Months
ended June 30,
 

(Dollars in thousands)

   2012      2011      2012      2011  

Net carrying value at beginning of period

   $ 106,100         146,259         106,100         146,259   

Impairment charge

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net carrying value at end of period

     106,100         146,259         106,100         146,259   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(Dollars in thousands)

   June 30,
2012
    December 31,
2011
 

Gross carrying value

     146,259        146,259   

Accumulated impairment charge

     (40,159     (40,159
  

 

 

   

 

 

 

Net carrying value

   $ 106,100        106,100   
  

 

 

   

 

 

 

 

18


Table of Contents

The Company performed its annual goodwill impairment test during the third quarter of 2011. Due to high levels of volatility and dislocation in prices of shares of publicly-held, exchange listed banking companies, a goodwill impairment charge was recognized by the Company during the third quarter of 2011. Prior to April 30, 2012, the Company had eleven bank reporting units, each of which had a goodwill impairment assessment. On April 30, 2012, the Company combined its eleven bank subsidiaries into a single commercial bank and the eleven bank reporting units are now aggregated for assessment of goodwill impairment. The Company has identified that the divisions are components of the Glacier Bank operating segment since there are segment managers; however, the components can be aggregated due to the components having similar economic characteristics.

Since there were no events or circumstances, including the combining of the eleven bank subsidiaries, that occurred since third quarter 2011 that would more-likely-than-not reduce the fair value of the Bank reporting unit below its carrying value, the Company did not perform interim testing at June 30, 2012.

 

5) Derivatives and Hedging Activities

The Company’s interest rate derivative financial instruments as of June 30, 2012 are as follows:

 

(Dollars in thousands)

   Forecasted
Notional Amount
     Variable
Interest Rate 1
   Fixed
Interest Rate  1
   

Term

Interest rate swap

   $ 160,000       3 month LIBOR      3.378   Oct. 21, 2014 - Oct. 21, 2021 2

Interest rate swap

     100,000       3 month LIBOR      2.498   Nov 30, 2015 - Nov. 30, 2022 2

 

1 

The Company pays the fixed interest rate and the counterparties pay the Company the variable interest rate.

2 

No cash will be exchanged prior to the term.

The hedging strategy converts the LIBOR based variable interest rate on forecasted borrowings to a fixed interest rate, thereby protecting the Company from floating interest rate variability.

The following table summarizes the fair value of the Company’s interest rate derivative financial instruments:

 

          Fair Value  

(Dollars in thousands)

   Balance Sheet
Location
   June 30,
2012
     December
31, 2011
 

Interest rate swap

   Other liabilities    $ 14,845         8,906   

Pursuant to the interest rate swap agreements, the Company pledged collateral to the counterparties in the form of investment securities totaling $22,087,000 at June 30, 2012. There was no collateral pledged from the counterparties to the Company as of June 30, 2012. There is the possibility that the Company may need to pledge additional collateral in the future.

 

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Table of Contents
6) Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:

 

(Dollars in thousands)

   June 30,
2012
    December 31,
2011
 

Unrealized holding gains on available-for-sale securities

   $ 86,945        63,711   

Tax effect

     (33,822     (24,783
  

 

 

   

 

 

 

Net of tax amount

     53,123        38,928   
  

 

 

   

 

 

 

Change in fair value of derivatives used for cash flow hedges

     (14,845     (8,906

Tax effect

     5,775        3,465   
  

 

 

   

 

 

 

Net of tax amount

     (9,070     (5,441
  

 

 

   

 

 

 

Total accumulated other comprehensive income

   $ 44,053        33,487   
  

 

 

   

 

 

 

 

7) Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period presented. Diluted earnings per share is computed by including the net increase in shares as if dilutive outstanding stock options were exercised, using the treasury stock method.

Basic and diluted earnings per share has been computed based on the following:

 

     Three Months
ended June 30,
     Six Months
ended June 30,
 

(Dollars in thousands, except per share data)

   2012      2011      2012      2011  

Net income available to common stockholders, basic and diluted

   $ 18,981         11,886         35,314         22,171   

Average outstanding shares - basic

     71,928,697         71,915,073         71,921,885         71,915,073   

Add: dilutive stock options and awards

     156         —           105         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Average outstanding shares - diluted

     71,928,853         71,915,073         71,921,990         71,915,073   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share

   $ 0.26         0.17         0.49         0.31   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 0.26         0.17         0.49         0.31   
  

 

 

    

 

 

    

 

 

    

 

 

 

There were 945,063 and 1,641,528 options excluded from the diluted average outstanding share calculation for the six months ended June 30, 2012 and 2011, respectively, due to the option exercise price exceeding the market price of the Company’s common stock.

 

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Table of Contents
8) Fair Value of Assets and Liabilities

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:

 

Level 1    Quoted prices in active markets for identical assets or liabilities
Level 2    Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3    Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Recurring Measurements

The following is a description of the inputs and valuation methodologies used for assets and liabilities measured at fair value on a recurring basis, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended June 30, 2012.

Investment securities: fair value for available-for-sale securities is estimated by obtaining quoted market prices for identical assets, where available. If such prices are not available, fair value is based on independent asset pricing services and models, the inputs of which are market-based or independently sourced market parameters, including but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections, and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. Where Level 1 or Level 2 inputs are not available, such securities are classified as Level 3 within the hierarchy.

Fair value determinations of investment securities are the responsibility of the Company’s corporate accounting department. The Company contracts with independent third party pricing vendors to generate fair value estimates on a monthly basis. The Company reviews the vendors’ inputs for fair value estimates and the recommended assignments of levels within the fair value hierarchy. The review includes the extent to which markets for investment securities are determined to have limited or no activity, or are judged to be active markets. The Company reviews the extent to which observable and unobservable inputs are used as well as the appropriateness of the underlying assumptions about risk that a market participant would use in active markets, with adjustments for limited or inactive markets. In considering the inputs to the fair value estimates, the Company places less reliance on quotes that are judged to not reflect orderly transactions, or are non-binding indications. The Company makes independent inquiries of other knowledgeable parties in testing the reliability of the inputs, including consideration for illiquidity, credit risk, and cash flow estimates. In assessing credit risk, the Company reviews payment performance, collateral adequacy, credit rating histories, and issuers’ financial statements with follow-up discussion with issuers. For those markets determined to be inactive, the valuation techniques used are models for which management verifies that discount rates are appropriately adjusted to reflect illiquidity and credit risk. The Company also independently obtains cash flow estimates that are stressed at levels that exceed those used by the independent third party pricing vendors.

 

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Table of Contents

Interest rate swap derivative agreements: fair values for interest rate swap derivative agreements are based upon the estimated amounts to settle the contracts considering current interest rates and are calculated using discounted cash flows that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. The inputs used to determine fair value include the 3 month Libor forward curve to estimate variable rate cash inflows and the spot Libor curve to estimate the discount rate. The estimated variable rate cash inflows are compared to the fixed rate outflows and such difference is discounted to a present value to estimate the fair value of the interest rate swaps. The Company also obtains and compares the reasonableness of the pricing from a secondary independent party.

The following schedules disclose the fair value measurement of assets and liabilities measured at fair value on a recurring basis:

 

            Fair Value Measurements
At the End of the Reporting Period Using
 

(Dollars in thousands)

   Fair Value
6/30/12
     Quoted Prices
in Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Investment securities, available-for-sale

           

U.S. government and federal agency

   $ 205         —           205         —     

U.S. government sponsored enterprises

     25,488         —           25,488         —     

State and local governments

     1,193,080         —           1,193,080         —     

Corporate bonds

     159,926         —           159,926         —     

Collateralized debt obligations

     2,734         —           2,734         —     

Residential mortgage-backed securities

     2,022,849         —           2,022,849         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value on a recurring basis

   $ 3,404,282         —           3,404,282         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest rate swaps

   $ 14,845         —           14,845         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value on a recurring basis

   $ 14,845         —           14,845         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents
            Fair Value Measurements
At the End of the Reporting Period Using
 

(Dollars in thousands)

   Fair Value
12/31/11
     Quoted Prices
in Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Investment securities, available-for-sale

           

U.S. government and federal agency

   $ 208         —           208         —     

U.S. government sponsored enterprises

     31,155         —           31,155         —     

State and local governments

     1,064,655         —           1,064,655         —     

Corporate bonds

     62,237         —           62,237         —     

Collateralized debt obligations

     5,366         —           5,366         —     

Residential mortgage-backed securities

     1,963,122         —           1,963,122         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value on a recurring basis

   $ 3,126,743         —           3,126,743         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest rate swaps

   $ 8,906         —           8,906         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value on a recurring basis

   $ 8,906         —           8,906         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Level 3 Reconciliation

There were no Level 3 fair value measurements during the six month period ended June 30, 2012.

The following schedule reconciles the opening and closing balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period ended June 30, 2011:

 

     Fair Value Measurements Using
Significant Unobservable Inputs (Level 3)
 
           Investment Securities  

(Dollars in thousands)

   Total     Collateralized
Debt
Obligations
    Residential
Mortgage-backed
Securities
 

Balance as of December 31, 2010

   $ 6,751        6,595        156   

Total unrealized gains for the period included in other comprehensive income

     1,641        1,598        43   

Amortization, accretion and principal payments

     (2,240     (2,240     —     
  

 

 

   

 

 

   

 

 

 

Balance as of June 30, 2011

   $ 6,152        5,953        199   
  

 

 

   

 

 

   

 

 

 

Non-recurring Measurements

The following is a description of the inputs and valuation methodologies used for assets recorded at fair value on a non-recurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended June 30, 2012.

Other real estate owned (“OREO”): OREO is carried at the lower of fair value at acquisition date or estimated fair value, less estimated cost to sell. Estimated fair value of other real estate owned is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy.

 

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Table of Contents

Collateral-dependent impaired loans, net of ALLL: loans included in the Company’s financials for which it is probable that the Company will not collect all principal and interest due according to contractual terms are considered impaired. Estimated fair value of collateral-dependent impaired loans is based on the fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company’s credit departments review appraisals for OREO and collateral-dependent loans, giving consideration to the highest and best use of the collateral. The appraisal or evaluation (new or updated) is considered the starting point for determining fair value. The Company also considers other factors and events in the environment that may affect the fair value. The fair values are reduced by discounts to consider lack of marketability and estimated cost to sell. The appraisals or evaluations (new or updated) are reviewed at least quarterly and more frequently based on current market conditions, including deterioration in a borrower’s financial condition and when property values may be subject to significant volatility. After review and acceptance of the collateral appraisal or evaluation (new or updated), adjustments to the impaired loan or OREO may occur. The Company generally obtains new or updated appraisals or evaluations annually.

Goodwill: Prior to April 30, 2012, goodwill was evaluated for impairment at the bank subsidiary level at least annually. On April 30, 2012, the Company combined its eleven bank subsidiaries into a single commercial bank and the eleven bank reporting units are now aggregated for assessment of goodwill impairment. The evaluation of goodwill impairment will be reviewed during the third quarter of 2012 and the inputs and valuation methods are not expected to change. The key inputs used to determine the implied fair value and the corresponding amount of the impairment charge includes quoted market prices of other banks, discounted cash flows and inputs from comparable transactions. These inputs are classified within Level 3 of the fair value hierarchy. The goodwill impairment evaluation is the responsibility of the Company’s corporate accounting department. Valuations and significant inputs developed by the independent valuation firm are reviewed by the Company for accuracy and reasonableness. For additional information regarding goodwill and reporting unit(s), see Note 4.

The following schedules disclose the fair value measurement of assets with a recorded change during the period resulting from re-measuring the assets at fair value on a non-recurring basis:

 

            Fair Value Measurements
At the End of the Reporting Period Using
 

(Dollars in thousands)

   Fair Value
6/30/12
     Quoted Prices
in Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Other real estate owned

   $ 25,026         —           —           25,026   

Collateral-dependent impaired loans, net of ALLL

     37,159         —           —           37,159   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value on a non-recurring basis

   $   62,185         —           —             62,185   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

24


Table of Contents
            Fair Value Measurements
At the End of the Reporting Period Using
 

(Dollars in thousands)

   Fair Value
12/31/11
     Quoted Prices
in Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Other real estate owned

   $ 38,076         —           —           38,076   

Collateral-dependent impaired loans, net of ALLL

     55,339         —           —           55,339   

Goodwill

     24,718         —           —           24,718   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value on a non-recurring basis

   $ 118,133         —           —           118,133   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair Value of Financial Instruments

The following is a description of the methods used to estimate the fair value of all other assets and liabilities recognized at amounts other than fair value.

Cash and cash equivalents: fair value is estimated at book value.

Loans held for sale: fair value is estimated at book value due to the insignificant time between origination date and sale date.

Loans receivable, net of ALLL: fair value is estimated by discounting the future cash flows using the rates at which similar notes would be written for the same remaining maturities. The market rates used are based on current rates the Company would impose for similar loans and reflect a market participant assumption about risks associated with non-performance, illiquidity, and the structure and term of the loans along with local economic and market conditions. Estimated fair value of impaired loans is based on the fair value of the collateral, less estimated cost to sell, or the present value of the loan’s expected future cash flows (discounted at the loan’s effective interest rate). All impaired loans are classified as Level 3 and all other loans are classified as Level 2 within the hierarchy.

Accrued interest receivable: fair value is estimated at book value.

Non-marketable equity securities: fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.

Deposits: fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The market rates used were obtained from a knowledgeable independent third party and reviewed by the Company. The rates were the average of current rates offered by the Company’s local competitors. The estimated fair value of demand, NOW, savings, and money market deposits is the book value since rates are regularly adjusted to market rates and such deposits are classified in Level 1 of the valuation hierarchy. Certificate accounts and wholesale deposits are classified as Level 2 within the hierarchy.

Federal Home Loan Bank (“FHLB”) advances: fair value of non-callable FHLB advances is estimated by discounting the future cash flows using rates of similar advances with similar maturities. These rates were obtained from current rates offered by FHLB. The estimated fair value of callable FHLB advances was obtained from FHLB and the model was reviewed by the Company through discussions with FHLB.

 

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Table of Contents

Securities sold under agreements to repurchase (“repurchase agreements”) and other borrowed funds: fair value of term repurchase agreements and other term borrowings is estimated based on current repurchase rates and borrowing rates currently available to the Company for repurchases and borrowings with similar terms and maturities. The estimated fair value for overnight repurchase agreements and other borrowings is book value.

Subordinated debentures: fair value of the subordinated debt is estimated by discounting the estimated future cash flows using current estimated market rates. The market rates used were averages of currently traded trust preferred securities with similar characteristics to the Company’s issuances and obtained from an independent third party.

Accrued interest payable: fair value is estimated at book value.

Off-balance sheet financial instruments: commitments to extend credit and letters of credit represent the principal categories of off-balance sheet financial instruments. Rates for these commitments are set at time of loan closing, such that no adjustment is necessary to reflect these commitments at market value. The Company has an insignificant amount of off-balance sheet financial instruments.

The following schedules present the carrying amounts, estimated fair values and the level within the fair value hierarchy of the Company’s financial instruments:

 

            Fair Value Measurements
At the End of the Reporting Period Using
 

(Dollars in thousands)

   Carrying
Amount
6/30/12
     Quoted Prices
in Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Financial assets

           

Cash and cash equivalents

   $ 140,419         140,419         —           —     

Investment securities, available-for-sale

     3,404,282         —           3,404,282         —     

Loans held for sale

     88,442         88,442         —           —     

Loans receivable, net of ALLL

     3,307,737         —           3,175,795         218,691   

Accrued interest receivable

     37,108         37,108         —           —     

Non-marketable equity securities

     50,371         —           50,371         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ 7,028,359         265,969         6,630,448         218,691   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Deposits

   $ 4,982,269         3,300,960         1,689,452         —     

FHLB advances

     906,029         —           937,226         —     

Repurchase agreements and other borrowed funds

     476,757         —           476,757         —     

Subordinated debentures

     125,347         —           —           66,168   

Accrued interest payable

     5,076         5,076         —           —     

Interest rate swaps

     14,845         —           14,845         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ 6,510,323         3,306,036         3,118,280         66,168   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

26


Table of Contents
            Fair Value Measurements
At the End of the Reporting Period Using
 

(Dollars in thousands)

   Carrying
Amount
12/31/11
     Quoted Prices
in Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Financial assets

           

Cash and cash equivalents

   $ 128,032         128,032         —           —     

Investment securities, available-for-sale

     3,126,743         —           3,126,743         —     

Loans held for sale

     95,457         95,457         —           —     

Loans receivable, net of ALLL

     3,328,619         —           3,146,502         239,831   

Accrued interest receivable

     34,961         34,961         —           —     

Non-marketable equity securities

     49,694         —           49,694         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ 6,763,506         258,450         6,322,939         239,831   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Deposits

   $ 4,821,213         3,132,261         1,698,382         —     

FHLB advances

     1,069,046         —           1,099,699         —     

Repurchase agreements and other borrowed funds

     268,638         —           268,642         —     

Subordinated debentures

     125,275         —           —           65,903   

Accrued interest payable

     5,825         5,825         —           —     

Interest rate swaps

     8,906         —           8,906         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ 6,298,903         3,138,086         3,075,629         65,903   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Forward Looking Statements

This Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about management’s plans, objectives, expectations and intentions that are not historical facts, and other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “should,” “projects,” “seeks,” “estimates” or words of similar meaning. These forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. In addition to the factors set forth in the sections titled “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as applicable, in this report and the Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Annual Report”), the following factors, among others, could cause actual results to differ materially from the anticipated results:

 

   

local and national economic conditions could be less favorable than expected or could have a more direct and pronounced effect on the Company than expected;

 

   

the risks associated with lending and potential adverse changes of the credit quality of loans in the Company’s portfolio, including as a result of declines in the housing and real estate markets in its geographic areas;

 

   

increased loan delinquency rates;

 

   

the risks presented by a continued economic downturn, which could adversely affect credit quality, loan collateral values, other real estate owned values, investment values, liquidity and capital levels, dividends and loan originations;

 

   

changes in market interest rates, which could adversely affect the Company’s net interest income and profitability;

 

   

legislative or regulatory changes that adversely affect the Company’s business, ability to complete pending or prospective future acquisitions, limit certain sources of revenue, or increase cost of operations;

 

   

changes in accounting principles, policies and guidelines applicable to banking;

 

   

costs or difficulties related to the integration of acquisitions;

 

   

the goodwill the Company has recorded in connection with acquisitions could become additionally impaired, which may have an adverse impact on our earnings and capital;

 

   

reduced demand for banking products and services;

 

   

the risks presented by public stock market volatility, which could adversely affect the market price of our common stock and our ability to raise additional capital in the future;

 

   

competition from other financial services companies in our markets;

 

   

loss of services from the senior management team; and

 

   

the Company’s success in managing risks involved in the foregoing.

Please take into account that the forward-looking statements only apply as of the date of this report or documents incorporated by reference herein. The Company does not undertake any obligation to publicly correct or update any forward-looking statement if it later becomes aware that actual results are likely to differ materially from those expressed in such forward-looking statement.

 

28


Table of Contents

Financial Condition Analysis

Assets

The following table summarizes the asset balances as of the dates indicated, and the amount of change from December 31, 2011 and June 30, 2011:

 

(Unaudited - Dollars in thousands)

   June 30,
2012
    December 31,
2011
    June 30,
2011
    $ Change from
December 31,
2011
    $ Change from
June  30,

2011
 

Cash and cash equivalents

   $ 140,419        128,032        129,041        12,387        11,378   

Investment securities, available-for-sale

     3,404,282        3,126,743        2,784,415        277,539        619,867   

Loans receivable

          

Residential real estate

     525,551        516,807        527,808        8,744        (2,257

Commercial

     2,293,876        2,295,927        2,390,388        (2,051     (96,512

Consumer and other

     625,769        653,401        683,615        (27,632     (57,846
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable

     3,445,196        3,466,135        3,601,811        (20,939     (156,615

Allowance for loan and lease losses

     (137,459     (137,516     (139,795     57        2,336   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable, net

     3,307,737        3,328,619        3,462,016        (20,882     (154,279
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other assets

     581,664        604,512        602,848        (22,848     (21,184
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 7,434,102        7,187,906        6,978,320        246,196        455,782   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment securities increased $165 million, or 5 percent, during the current quarter and increased $620 million, or 22 percent, from June 30, 2011. During the current quarter and previous twelve months, the Company purchased investment securities to primarily offset the lack of loan growth and to maintain interest income. The increase in investment securities for the current quarter occurred in collateralized mortgage obligation (“CMO”), corporate and municipal bonds. The majority of the purchases were CMOs which were significantly offset by CMO principal paydowns during the quarter. Investment securities represent 46 percent of total assets at June 30, 2012 versus 44 percent at December 31, 2011 and 40 percent at June 30, 2011.

A real positive for the current quarter was the loan portfolio grew for the first time in several years. The loan portfolio increased during the current quarter by $12.0 million, or 1 percent annualized, to a total of $3.445 billion at June 30, 2012. Excluding net charge-offs of $7.1 million and loans of $5.4 million transferred to other real estate owned, loans increased $24.5 million, or 3 percent annualized, during the current quarter. The largest increase in dollars during the current quarter was in commercial loans which increased $10.4 million, or 0.5 percent, from March 31, 2012. The largest increase by percentage during the current quarter was in residential real estate loans which increased $10.1 million, or 2 percent, from March 31, 2012. The decrease in consumer and other loans was primarily driven by the Company reducing its exposure to consumer land and lot loans in combination with customers paying down lines of credit and reducing other debt. The continued slowness in the economy and low levels of loan demand could continue to place pressure on the Company in future periods and was the cause of the decrease in the loan portfolio over the prior periods. During the past twelve months, the loan portfolio decreased $157 million, or 4 percent, from total loans of $3.602 billion at June 30, 2011. The Company continues to reduce its exposure to land, lot and other construction loans which totaled $346 million as of June 30, 2012, a decrease of $92.9 million, or 21 percent, since the prior year second quarter.

 

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Table of Contents

Liabilities

The following table summarizes the liability balances as of the dates indicated, and the amount of change from December 31, 2011 and June 30, 2011:

 

(Unaudited - Dollars in thousands)

   June 30,
2012
     December 31,
2011
     June 30,
2011
     $ Change from
December 31,
2011
    $ Change from
June  30,

2011
 

Non-interest bearing deposits

   $ 1,066,662         1,010,899         916,887         55,763        149,775   

Interest bearing deposits

     3,915,607         3,810,314         3,787,912         105,293        127,695   

Federal funds purchased

     —           —           48,000         —          (48,000

Repurchase agreements

     466,784         258,643         251,303         208,141        215,481   

FHLB advances

     906,029         1,069,046         925,061         (163,017     (19,032

Other borrowed funds

     9,973         9,995         14,799         (22     (4,826

Subordinated debentures

     125,347         125,275         125,203         72        144   

Other liabilities

     67,519         53,507         44,383         14,012        23,136   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

   $ 6,557,921         6,337,679         6,113,548         220,242        444,373   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

At June 30, 2012, non-interest bearing deposits of $1.067 billion increased $27.6 million, or 3 percent, since March 31, 2012 and increased $150 million, or 16 percent, since June 30, 2011. Interest bearing deposits of $3.916 billion at June 30, 2012 included $646 million of wholesale deposits of which $180 million were reciprocal deposits (e.g., Certificate of Deposit Account Registry System deposits). In addition to reciprocal deposits, wholesale deposits include brokered deposits classified as NOW, money market deposit and certificate accounts. Interest bearing deposits increased $105 million, or 3 percent, since December 31, 2011 and included an increase of $38.2 million in wholesale deposits. Interest bearing deposits increased $128 million, or 3 percent, from June 30, 2011 and included a decrease of $43.4 million in wholesale deposits. The increase in deposits during the first half of 2012 and throughout 2011 has been driven by the Company’s success in generating new personal and business customer relationships, as well as existing customers retaining cash deposits for liquidity purposes due to the continued uncertainty in the current economic environment. These deposit increases have been beneficial to the Company in funding the investment securities portfolio growth at lower cost over the prior twelve months.

The Company’s level and mix of borrowings has fluctuated as needed to supplement deposit growth and to fund the growth in investment securities. Since the prior year end, Federal Home Loan Bank (“FHLB”) advances decreased $163 million and have decreased $19.0 million since the prior year second quarter. The increase in funding through repurchase agreements from the prior year end and the prior year second quarter was primarily due to the $195 million in wholesale repurchase agreements as of current quarter end compared to no wholesale repurchase agreements as of year end and only $15.0 million of wholesale repurchase agreements as of the prior year second quarter. The wholesale repurchase agreements were utilized as a source of low cost alternative funding.

 

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Table of Contents

Stockholders’ Equity

The following table summarizes the stockholders’ equity balances as of the dates indicated, and the amount of change from December 31, 2011 and June 30, 2011:

 

(Unaudited - Dollars in thousands, except per share data)

   June 30,
2012
    December 31,
2011
    June 30,
2011
    $ Change from
December 31,
2011
     $ Change from
June  30,

2011
 

Common equity

   $ 832,128        816,740        840,133        15,388         (8,005

Accumulated other comprehensive income

     44,053        33,487        24,639        10,566         19,414   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total stockholders’ equity

     876,181        850,227        864,772        25,954         11,409   

Goodwill and core deposit intangible, net

     (113,297     (114,384     (155,699     1,087         42,402   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Tangible stockholders’ equity

   $ 762,884        735,843        709,073        27,041         53,811   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Stockholders’ equity to total assets

     11.79     11.83     12.39     

Tangible stockholders’ equity to total tangible assets

     10.42     10.40     10.39     

Book value per common share

   $ 12.18        11.82        12.02        0.36         0.16   

Tangible book value per common share

   $ 10.61        10.23        9.86        0.38         0.75   

Market price per share at end of period

   $ 15.46        12.03        13.48        3.43         1.98   

Tangible stockholders’ equity and book value per share increased $27.0 million and $0.38 per share from the prior year end, resulting in tangible stockholders’ equity to tangible assets of 10.42 percent and tangible book value per share of $10.61 as of June 30, 2012. The increases came from earnings retention and an increase in accumulated other comprehensive income. Tangible stockholders’ equity increased $53.8 million, or $0.75 per share since June 30, 2011, primarily a result of an increase in accumulated other comprehensive income. The $8.0 million decrease in common equity from June 30, 2011 included a third quarter 2011 goodwill impairment charge (net of tax) of $32.6 million.

On June 27, 2012, the Company’s Board of Directors declared a cash dividend of $0.13 per share, payable July 19, 2012 to shareholders of record on July 10, 2012. Future cash dividends will depend on a variety of factors, including net income, capital, asset quality, general economic conditions and regulatory considerations.

Results of Operations – The Three Months ended June 30, 2012

Compared to the Three Months ended March 31, 2012 and June 30, 2011

Performance Summary

 

     Three Months ended  

(Dollars in thousands, except per share data)

   June 30,
2012
    March 31,
2012
    June 30,
2011
 

Net income

   $ 18,981        16,333        11,886   

Diluted earnings per share

   $ 0.26        0.23        0.17   

Return on average assets (annualized)

     1.04     0.91     0.69

Return on average equity (annualized)

     8.69     7.58     5.54

 

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Table of Contents

The Company reported net income for the current quarter of $19.0 million, an increase of $7.1 million, or 60 percent, compared to $11.9 million for the prior year second quarter. The earnings improvement for the current quarter and the first half of 2012 was reflective of the reduction in the provision for loan losses as a result of the improvement in the credit quality. Diluted earnings per share for the current quarter was $0.26 per share, an increase of 53 percent from the prior year second quarter earnings per share of $0.17.

Revenue Summary

The following tables summarize revenue for the periods indicated, including the amount and percentage change from March 31, 2012 and June 30, 2011:

 

     Three Months ended  

(Dollars in thousands)

   June 30,
2012
    March 31,
2012
    June 30,
2011
 

Net interest income

      

Interest income

   $ 64,192        67,884        71,562   

Interest expense

     9,044        9,598        11,331   
  

 

 

   

 

 

   

 

 

 

Total net interest income

     55,148        58,286        60,231   

Non-interest income

      

Service charges, loan fees, and other fees

     12,404        11,438        12,258   

Gain on sale of loans

     7,522        6,813        4,291   

Loss on sale of investments

     —          —          (591

Other income

     1,865        2,087        1,893   
  

 

 

   

 

 

   

 

 

 

Total non-interest income

     21,791        20,338        17,851   
  

 

 

   

 

 

   

 

 

 
   $ 76,939        78,624        78,082   
  

 

 

   

 

 

   

 

 

 

Net interest margin (tax-equivalent)

     3.49     3.73     4.01
  

 

 

   

 

 

   

 

 

 

 

(Dollars in thousands)

   $ Change from
March 31,
2012
    $ Change from
June  30,

2011
    % Change from
March 31,
2012
    % Change from
June  30,

2011
 

Net interest income

        

Interest income

   $ (3,692   $ (7,370     -5     -10

Interest expense

     (554     (2,287     -6     -20
  

 

 

   

 

 

     

Total net interest income

     (3,138     (5,083     -5     -8

Non-interest income

        

Service charges, loan fees, and other fees

     966        146        8  </