GBCI-9.30.2012-10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
______________________________________________________________________
FORM 10-Q
______________________________________________________________________
ý Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 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.    ý  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).    ý  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
ý
 
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    ý  No
The number of shares of Registrant’s common stock outstanding on October 23, 2012 was 71,937,222. 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
 




Table of Contents

Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Financial Condition
 
(Dollars in thousands, except per share data)
September 30,
2012
 
December 31,
2011
Assets
 
 
 
Cash on hand and in banks
$
98,772

 
104,674

Interest bearing cash deposits
73,627

 
23,358

Cash and cash equivalents
172,399

 
128,032

Investment securities, available-for-sale
3,586,355

 
3,126,743

Loans held for sale
118,986

 
95,457

Loans receivable
3,408,094

 
3,466,135

Allowance for loan and lease losses
(136,660
)
 
(137,516
)
Loans receivable, net
3,271,434

 
3,328,619

Premises and equipment, net
159,386

 
158,872

Other real estate owned
57,650

 
78,354

Accrued interest receivable
39,359

 
34,961

Deferred tax asset
20,462

 
31,081

Core deposit intangible, net
6,665

 
8,284

Goodwill
106,100

 
106,100

Non-marketable equity securities
50,363

 
49,694

Other assets
43,046

 
41,709

Total assets
$
7,632,205

 
7,187,906

Liabilities
 
 
 
Non-interest bearing deposits
$
1,180,066

 
1,010,899

Interest bearing deposits
4,023,031

 
3,810,314

Securities sold under agreements to repurchase
414,836

 
258,643

Federal Home Loan Bank advances
917,021

 
1,069,046

Other borrowed funds
10,152

 
9,995

Subordinated debentures
125,382

 
125,275

Accrued interest payable
4,654

 
5,825

Other liabilities
66,906

 
47,682

Total liabilities
6,742,048

 
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
641,737

 
642,882

Retained earnings - substantially restricted
199,845

 
173,139

Accumulated other comprehensive income
47,856

 
33,487

Total stockholders’ equity
890,157

 
850,227

Total liabilities and stockholders’ equity
$
7,632,205

 
7,187,906

Number of common stock shares issued and outstanding
71,937,222

 
71,915,073



See accompanying notes to unaudited condensed consolidated financial statements.

3

Table of Contents

Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Operations
 
Three Months ended
 
Nine Months ended
(Dollars in thousands, except per share data)
September 30,
2012
 
September 30,
2011
 
September 30,
2012
 
September 30,
2011
Interest Income
 
 
 
 
 
 
 
Residential real estate loans
$
7,740

 
7,990

 
23,019

 
24,862

Commercial loans
30,293

 
32,585

 
91,764

 
98,620

Consumer and other loans
8,826

 
10,224

 
26,809

 
30,885

Investment securities
15,156

 
20,634

 
52,499

 
57,001

Total interest income
62,015

 
71,433

 
194,091

 
211,368

Interest Expense
 
 
 
 
 
 
 
Deposits
4,485

 
6,218

 
14,048

 
19,890

Securities sold under agreements to repurchase
395

 
357

 
997

 
1,033

Federal Home Loan Bank advances
3,116

 
3,491

 
9,715

 
9,132

Federal funds purchased and other borrowed funds
53

 
60

 
176

 
155

Subordinated debentures
858

 
1,171

 
2,613

 
4,087

Total interest expense
8,907

 
11,297

 
27,549

 
34,297

Net Interest Income
53,108

 
60,136

 
166,542

 
177,071

Provision for loan losses
2,700

 
17,175

 
19,250

 
55,825

Net interest income after provision for loan losses
50,408

 
42,961

 
147,292

 
121,246

Non-Interest Income
 
 
 
 
 
 
 
Service charges and other fees
11,939

 
11,563

 
33,722

 
33,101

Miscellaneous loan fees and charges
1,080

 
973

 
3,139

 
2,878

Gain on sale of loans
8,728

 
5,121

 
23,063

 
14,106

Gain on sale of investments

 
813

 

 
346

Other income
2,227

 
2,466

 
6,179

 
5,751

Total non-interest income
23,974

 
20,936

 
66,103

 
56,182

Non-Interest Expense
 
 
 
 
 
 
 
Compensation and employee benefits
24,046

 
21,607

 
71,290

 
64,380

Occupancy and equipment
6,001

 
6,027

 
17,794

 
17,709

Advertising and promotions
1,820

 
1,762

 
4,935

 
4,881

Outsourced data processing
801

 
740

 
2,435

 
2,304

Other real estate owned
6,373

 
7,198

 
15,394

 
14,359

Federal Deposit Insurance Corporation premiums
1,767

 
1,638

 
4,779

 
6,159

Core deposit intangibles amortization
532

 
599

 
1,619

 
1,916

Goodwill impairment charge

 
40,159

 

 
40,159

Other expense
8,838

 
8,568

 
27,167

 
25,127

Total non-interest expense
50,178

 
88,298

 
145,413

 
176,994

Income (Loss) Before Income Taxes
24,204

 
(24,401
)
 
67,982

 
434

Federal and state income tax expense (benefit)
4,760

 
(5,353
)
 
13,224

 
(2,689
)
Net Income (Loss)
$
19,444

 
(19,048
)
 
54,758

 
3,123

Basic earnings (loss) per share
$
0.27

 
(0.27
)
 
0.76

 
0.04

Diluted earnings (loss) per share
$
0.27

 
(0.27
)
 
0.76

 
0.04

Dividends declared per share
$
0.13

 
0.13

 
0.39

 
0.39

Average outstanding shares - basic
71,933,141

 
71,915,073

 
71,925,664

 
71,915,073

Average outstanding shares - diluted
71,973,985

 
71,915,073

 
71,925,761

 
71,915,073

See accompanying notes to unaudited condensed consolidated financial statements.

4

Table of Contents

Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Income
 
 
Three Months ended
 
Nine Months ended
(Dollars in thousands)
September 30,
2012
 
September 30,
2011
 
September 30,
2012
 
September 30,
2011
Net Income (Loss)
$
19,444

 
(19,048
)
 
54,758

 
3,123

Other Comprehensive Income, Net of Tax
 
 
 
 
 
 
 
Unrealized gains on available-for-sale securities
8,733

 
25,498

 
31,965

 
64,680

Reclassification adjustment for gains included in net income

 
(813
)
 

 
(346
)
Net unrealized gains on securities
8,733

 
24,685

 
31,965

 
64,334

Tax effect
(3,398
)
 
(9,674
)
 
(12,435
)
 
(25,212
)
Net of tax amount
5,335

 
15,011

 
19,530

 
39,122

Unrealized losses on derivatives used for cash flow hedges
(2,507
)
 

 
(8,446
)
 

Tax effect
975

 

 
3,285

 

Net of tax amount
(1,532
)
 

 
(5,161
)
 

Total other comprehensive income, net of tax
3,803

 
15,011

 
14,369

 
39,122

Total Comprehensive Income (Loss)
$
23,247

 
(4,037
)
 
69,127

 
42,245































See accompanying notes to unaudited condensed consolidated financial statements.

5

Table of Contents

Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity
Nine Months ended September 30, 2012 and 2011
 
(Dollars in thousands, except per share data)
Common Stock
 
Paid-in Capital
 
Retained
Earnings
Substantially Restricted
 
Accumulated
Other Compre-
hensive Income
 
 
Shares
 
Amount
 
 
 
 
Total
Balance at December 31, 2010
71,915,073

 
$
719

 
643,894

 
193,063

 
528

 
838,204

Comprehensive income

 

 

 
3,123

 
39,122

 
42,245

Cash dividends declared ($0.39 per share)

 

 

 
(28,047
)
 

 
(28,047
)
Stock-based compensation and related taxes

 

 
(1,014
)
 

 

 
(1,014
)
Balance at September 30, 2011
71,915,073

 
$
719

 
642,880

 
168,139

 
39,650

 
851,388

Balance at December 31, 2011
71,915,073

 
$
719

 
642,882

 
173,139

 
33,487

 
850,227

Comprehensive income

 

 

 
54,758

 
14,369

 
69,127

Cash dividends declared ($0.39 per share)

 

 

 
(28,052
)
 

 
(28,052
)
Stock issuances under stock incentive plans
22,149

 

 
323

 

 

 
323

Stock-based compensation and related taxes

 

 
(1,468
)
 

 

 
(1,468
)
Balance at September 30, 2012
71,937,222

 
$
719

 
641,737

 
199,845

 
47,856

 
890,157





























See accompanying notes to unaudited condensed consolidated financial statements.

6

Table of Contents

Glacier Bancorp, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
 
 
Nine Months ended
(Dollars in thousands)
September 30,
2012
 
September 30,
2011
Operating Activities
 
 
 
Net cash provided by operating activities
$
152,956

 
158,495

Investing Activities
 
 
 
Proceeds from sales, maturities and prepayments of investment securities, available-for-sale
1,397,533

 
670,810

Purchases of investment securities, available-for-sale
(1,873,893
)
 
(1,171,083
)
Principal collected on loans
706,240

 
678,236

Loans originated or acquired
(716,729
)
 
(577,733
)
Net addition of premises and equipment and other real estate owned
(7,896
)
 
(13,560
)
Proceeds from sale of other real estate owned
28,483

 
31,356

Net (purchase) sale of non-marketable equity securities
(664
)
 
15,357

Net cash used in investment activities
(466,926
)
 
(366,617
)
Financing Activities
 
 
 
Net increase in deposits
381,884

 
248,626

Net increase in securities sold under agreements to repurchase
156,193

 
52,417

Net decrease in Federal Home Loan Bank advances
(152,025
)
 
(76,088
)
Net increase in federal funds purchased and other borrowed funds
264

 
39,894

Cash dividends paid
(28,052
)
 
(28,047
)
Excess tax deficiencies from stock options exercised
(8
)
 

Proceeds from stock options exercised
81

 

Net cash provided by financing activities
358,337

 
236,802

Net increase in cash and cash equivalents
44,367

 
28,680

Cash and cash equivalents at beginning of period
128,032

 
105,091

Cash and cash equivalents at end of period
$
172,399

 
133,771

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid during the period for interest
$
28,721

 
35,850

Cash paid during the period for income taxes
18,081

 
6,319

Sale and refinancing of other real estate owned
1,578

 
4,333

Transfer of loans to other real estate owned
21,029

 
64,478











See accompanying notes to unaudited condensed consolidated financial statements.

7

Table of Contents

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 September 30, 2012, the results of operations and comprehensive income for the three and nine month periods ended September 30, 2012 and 2011, and changes in stockholders’ equity and cash flows for the nine month periods ended September 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 nine months ended September 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 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.


8

Table of Contents

The Company owns the following trust subsidiaries, each of which issued trust preferred securities as Tier 1 capital instruments: 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 September 30, 2012 and December 31, 2011:
 
 
September 30, 2012
 
December 31, 2011
(Dollars in thousands)
CDE (NMTC)
 
LIHTC
 
CDE (NMTC)
 
LIHTC
Assets
 
 
 
 
 
 
 
Loans receivable
$
35,480

 

 
32,748

 

Premises and equipment, net

 
15,726

 

 
15,996

Accrued interest receivable
112

 

 
116

 

Other assets
1,167

 
143

 
1,439

 
31

Total assets
$
36,759

 
15,869

 
34,303

 
16,027

Liabilities
 
 
 
 
 
 
 
Other borrowed funds
$
4,629

 
3,639

 
4,629

 
3,306

Accrued interest payable
3

 
5

 
4

 
9

Other liabilities
92

 
148

 
186

 
363

Total liabilities
$
4,724

 
3,792

 
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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Table of Contents

Loans Receivable
Loans that are intended to be held-to-maturity are reported at the unpaid principal balance less net charge-offs and adjusted for deferred fees and costs on originated loans and unamortized premiums or discounts on acquired loans. Interest income is reported using the interest method and includes discount accretion and premium amortization on acquired loans and net loan fees on originated loans which are amortized over the expected life of the loans using a method that approximates the level-yield interest method. The Company’s loan segments include residential real estate, commercial, and consumer loans. The Company’s loan classes, a further disaggregation of segments, include residential real estate loans (residential real estate segment), commercial real estate and other commercial loans (commercial segment), and home equity and other consumer loans (consumer segment).

Loans that are thirty days or more past due based on payments received and applied to the loan are considered delinquent. Loans are designated non-accrual and the accrual of interest is discontinued when the collection of the contractual principal or interest is unlikely. A loan is typically placed on non-accrual when principal or interest is due and has remained unpaid for ninety days or more. When a loan is placed on non-accrual status, interest previously accrued but not collected is reversed against current period interest income. Subsequent payments are applied to the outstanding principal balance if doubt remains as to the ultimate collectability of the loan. Interest accruals are not resumed on partially charged-off impaired loans. For other loans on nonaccrual, interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.

The Company recognizes that while borrowers may experience deterioration in their financial condition, many continue to be creditworthy customers who have the willingness and capacity for debt repayment. In determining whether non-restructured or unimpaired loans issued to a single or related party group of borrowers should continue to accrue interest when the borrower has other loans that are impaired or troubled debt restructurings ("TDR"), the Company on a quarterly or more frequent basis performs an updated and comprehensive assessment of the willingness and capacity of the borrowers to timely and ultimately repay their total debt obligations, including contingent obligations. Such analysis takes into account current financial information about the borrowers and financially responsible guarantors, if any, including for example:
analysis of global, i.e., aggregate debt service for total debt obligations;
assessment of the value and security protection of collateral pledged using current market conditions and alternative market
assumptions across a variety of potential future situations; and
loan structures and related covenants.


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Table of Contents

The Company considers impaired loans to be the primary credit quality indicator for monitoring the credit quality of the loan portfolio. Loans are designated impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement and therefore, the Company has serious doubts as to the ability of such borrowers to fulfill the contractual obligation. Impaired loans include non-performing loans (i.e., non-accrual loans and accruing loans 90 days or more past due) and accruing loans under ninety days past due where it is probable payments will not be received according to the loan agreement (e.g., TDR). The Company measures impairment on a loan-by-loan basis in the same manner for each class within the loan portfolio. An insignificant delay or shortfall in the amounts of payments would not cause a loan or lease to be considered impaired. The Company determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the facts and circumstances surrounding the loan and the borrower, including the length and reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest due.

A restructured loan is considered a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. A TDR loan is considered an impaired loan and a specific valuation allowance is established when the fair value of the collateral-dependent loan or present value of the loan's expected future cash flows (discounted at the loan's effective interest rate based on the original contractual rate) is lower than the carrying value of the impaired loan. The Company made the following types of loan modifications, some of which were considered a TDR:
Reduction of the stated interest rate for the remaining term of the debt;
Extension of the maturity date(s) at a stated rate of interest lower than the current market rate for newly originated debt
having similar risk characteristics; and
Reduction of the face amount of the debt as stated in the debt agreements.

For additional information relating to loans, see Note 3.

Allowance for Loan and Lease Losses
Based upon management’s analysis of the Company’s loan portfolio, the balance of the ALLL is an estimate of probable credit losses known and inherent within each bank subsidiary’s loan portfolio as of the date of the consolidated financial statements. The ALLL is analyzed at the loan class level and is maintained within a range of estimated losses. Determining the adequacy of the ALLL involves a high degree of judgment and is inevitably imprecise as the risk of loss is difficult to quantify. The determination of the ALLL and the related provision for loan losses is a critical accounting estimate that involves management’s judgments about all known relevant internal and external environmental factors that affect loan losses. The balance of the ALLL is highly dependent upon management’s evaluations of borrowers’ current and prospective performance, appraisals and other variables affecting the quality of the loan portfolio. Individually significant loans and major lending areas are reviewed periodically to determine potential problems at an early date. Changes in management’s estimates and assumptions are reasonably possible and may have a material impact upon the Company’s consolidated financial statements, results of operations or capital.


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Table of Contents

The ALLL consists of a specific valuation allowance component and a general valuation allowance component. The specific component relates to loans that are determined to be impaired and individually evaluated for impairment. The Company measures impairment on a loan-by-loan basis based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except when it is determined that repayment of the loan is expected to be provided solely by the underlying collateral. For impairment based on expected future cash flows, the Company considers all information available as of a measurement date, including past events, current conditions, potential prepayments, and estimated cost to sell when such costs are expected to reduce the cash flows available to repay or otherwise satisfy the loan. For alternative ranges of cash flows, the likelihood of the possible outcomes is considered in determining the best estimate of expected future cash flows. The effective interest rate for a loan restructured in a TDR is based on the original contractual rate. For collateral-dependent loans and real estate loans for which foreclosure or a deed-in-lieu of foreclosure is probable, impairment is measured by the fair value of the collateral, less estimated cost to sell. The fair value of the collateral is determined primarily based upon appraisal or evaluation of the underlying real property value.

The general valuation allowance component relates to probable credit losses inherent in the balance of the loan portfolio based on historical loss experience, adjusted for changes in trends and conditions of qualitative or environmental factors. The historical loss experience is based on the previous twelve quarters loss experience by loan class adjusted for risk characteristics in the existing loan portfolio. The same trends and conditions are evaluated for each class within the loan portfolio; however, the risk characteristics are weighted separately at the individual class level based on each of the bank divisions’ judgment and experience.

The changes in trends and conditions of certain items include the following:
Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;
Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;
Changes in the nature and volume of the portfolio and in the terms of loans;
Changes in experience, ability, and depth of lending management and other relevant staff;
Changes in the volume and severity of past due and nonaccrual loans;
Changes in the quality of the Company’s loan review system;
Changes in the value of underlying collateral for collateral-dependent loans;
The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and
The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Company’s existing portfolio.

The ALLL is increased by provisions for loan losses which are charged to expense. The portions of loan balances determined by management to be uncollectible are charged-off as a reduction of the ALLL. Recoveries of amounts previously charged-off are credited as an increase to the ALLL. The Company's charge-off policy is consistent with bank regulatory standards. Consumer loans generally are charged off when the loan becomes over 120 days delinquent. Real estate acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until such time as it is sold.


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Impact of Recent Authoritative Accounting Guidance
The Accounting Standards Codification (“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.
 
 
September 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

 
2

 

 
204

U.S. government sponsored enterprises
 
 
 
 
 
 
 
 
 
Maturing after one year through five years
2.32
%
 
19,376

 
413

 

 
19,789

Maturing after five years through ten years
1.90
%
 
70

 
1

 

 
71

 
2.32
%
 
19,446

 
414

 

 
19,860

State and local governments
 
 
 
 
 
 
 
 
 
Maturing within one year
0.95
%
 
45,469

 
8

 
(3
)
 
45,474

Maturing after one year through five years
2.11
%
 
143,651

 
4,652

 
(109
)
 
148,194

Maturing after five years through ten years
2.83
%
 
43,065

 
1,406

 
(50
)
 
44,421

Maturing after ten years
4.71
%
 
918,714

 
81,821

 
(746
)
 
999,789

 
4.16
%
 
1,150,899

 
87,887

 
(908
)
 
1,237,878

Corporate bonds
 
 
 
 
 
 
 
 
 
Maturing within one year
1.63
%
 
21,420

 
108

 

 
21,528

Maturing after one year through five years
2.35
%
 
200,106

 
3,355

 
(28
)
 
203,433

Maturing after five years through ten years
2.30
%
 
18,088

 
437

 
(7
)
 
18,518

 
2.28
%
 
239,614

 
3,900

 
(35
)
 
243,479

Collateralized debt obligations
 
 
 
 
 
 
 
 
 
Maturing after ten years
8.03
%
 
2,847

 

 
(85
)
 
2,762

Residential mortgage-backed securities
1.87
%
 
2,077,671

 
10,489

 
(5,988
)
 
2,082,172

Total investment securities
2.66
%
 
$
3,490,679

 
102,692

 
(7,016
)
 
3,586,355


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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 $49,441,000 and $49,252,000 as of September 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
 
Nine Months ended
(Dollars in thousands)
September 30,
2012
 
September 30,
2011
 
September 30,
2012
 
September 30,
2011
Gross proceeds
$

 
10,708

 

 
18,916

Less amortized cost

 
(9,895
)
 

 
(18,570
)
Net gain on sale of investments
$

 
813

 

 
346

Gross gain on sale of investments
$

 
825

 

 
1,048

Gross loss on sale of investments

 
(12
)
 

 
(702
)
Net gain on sale of investments
$

 
813

 

 
346


Investments with an unrealized loss position are summarized as follows:
 
 
September 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
$
98,691

 
(823
)
 
5,418

 
(85
)
 
104,109

 
(908
)
Corporate bonds
13,024

 
(35
)
 

 

 
13,024

 
(35
)
Collateralized debt obligations

 

 
2,762

 
(85
)
 
2,762

 
(85
)
Residential mortgage-backed securities
844,499

 
(4,396
)
 
118,764

 
(1,592
)
 
963,263

 
(5,988
)
Total temporarily impaired securities
$
956,214

 
(5,254
)
 
126,944

 
(1,762
)
 
1,083,158

 
(7,016
)
 
 
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 the Company's review of its securities in an unrealized loss position at September 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 September 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 September 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
$
137,459

 
18,139

 
79,098

 
20,570

 
10,904

 
8,748

Provision for loan losses
2,700

 
209

 
(1,210
)
 
2,859

 
(555
)
 
1,397

Charge-offs
(5,052
)
 
(1,172
)
 
(586
)
 
(1,441
)
 
(1,044
)
 
(809
)
Recoveries
1,553

 
73

 
453

 
241

 
679

 
107

Balance at end of period
$
136,660

 
17,249

 
77,755

 
22,229

 
9,984

 
9,443

 
 
Three Months ended September 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
$
139,795

 
17,412

 
79,885

 
19,615

 
13,625

 
9,258

Provision for loan losses
17,175

 
2,846

 
9,729

 
2,399

 
1,444

 
757

Charge-offs
(19,980
)
 
(1,030
)
 
(14,531
)
 
(1,557
)
 
(1,448
)
 
(1,414
)
Recoveries
1,103

 
35

 
607

 
166

 
225

 
70

Balance at end of period
$
138,093

 
19,263

 
75,690

 
20,623

 
13,846

 
8,671

 
 
Nine Months ended September 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
19,250

 
2,294

 
11,800

 
4,163

 
(1,025
)
 
2,018

Charge-offs
(24,789
)
 
(2,492
)
 
(13,120
)
 
(3,797
)
 
(3,402
)
 
(1,978
)
Recoveries
4,683

 
220

 
2,155

 
1,030

 
795

 
483

Balance at end of period
$
136,660

 
17,249

 
77,755

 
22,229

 
9,984

 
9,443

 
 
Nine Months ended September 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
55,825

 
2,143

 
33,426

 
9,006

 
3,859

 
7,391

Charge-offs
(58,298
)
 
(4,187
)
 
(35,850
)
 
(8,723
)
 
(3,751
)
 
(5,787
)
Recoveries
3,459

 
350

 
1,967

 
408

 
404

 
330

Balance at end of period
$
138,093

 
19,263

 
75,690

 
20,623

 
13,846

 
8,671



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Table of Contents

The following schedules disclose the ALLL and loans receivable on a portfolio class basis:
 
 
September 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
$
18,562

 
3,252

 
8,410

 
4,436

 
257

 
2,207

Collectively evaluated for impairment
118,098

 
13,997

 
69,345

 
17,793

 
9,727

 
7,236

Total allowance for loan and lease losses
$
136,660

 
17,249

 
77,755

 
22,229

 
9,984

 
9,443

Loans receivable
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
226,440

 
29,945

 
141,717

 
35,672

 
12,054

 
7,052

Collectively evaluated for impairment
3,181,654

 
498,232

 
1,510,335

 
585,235

 
394,850

 
193,002

Total loans receivable
$
3,408,094

 
528,177

 
1,652,052

 
620,907

 
406,904

 
200,054

 
 
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 in the Company’s geographic 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 $1,792,000 and $3,123,000 were included in the loans receivable balance at September 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 Nine Months ended September 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
$
74,256

 
11,663

 
34,943

 
22,354

 
804

 
4,492

Unpaid principal balance
84,807

 
11,787

 
44,929

 
22,743

 
852

 
4,496

Specific valuation allowance
18,562

 
3,252

 
8,410

 
4,436

 
257

 
2,207

Average balance - three months
78,067

 
15,010

 
35,513

 
21,981

 
1,326

 
4,237

Average balance - nine months
80,131

 
14,163

 
37,807

 
23,030

 
1,398

 
3,733

Loans without a specific valuation allowance

 
 
 
 
 
 
 
 
 
 
Recorded balance
$
152,184

 
18,282

 
106,774

 
13,318

 
11,250

 
2,560

Unpaid principal balance
164,411

 
19,041

 
116,157

 
14,863

 
11,753

 
2,597

Average balance - three months
154,105

 
16,771

 
107,599

 
15,207

 
11,452

 
3,076

Average balance - nine months
168,387

 
15,411

 
115,520

 
21,569

 
12,562

 
3,325

Totals

 
 
 
 
 
 
 
 
 
 
Recorded balance
$
226,440

 
29,945

 
141,717

 
35,672

 
12,054

 
7,052

Unpaid principal balance
249,218

 
30,828

 
161,086

 
37,606

 
12,605

 
7,093

Specific valuation allowance
18,562

 
3,252

 
8,410

 
4,436

 
257

 
2,207

Average balance - three months
232,172

 
31,781

 
143,112

 
37,188

 
12,778

 
7,313

Average balance - nine months
248,518

 
29,574

 
153,327

 
44,599

 
13,960

 
7,058

 
 
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

Specific valuation allowance
18,828

 
2,659

 
9,756

 
4,233

 
584

 
1,596

Average balance
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 balance
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

Specific valuation allowance
18,828

 
2,659

 
9,756

 
4,233

 
584

 
1,596

Average balance
235,854

 
25,060

 
162,036

 
33,358

 
10,259

 
5,141


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Table of Contents

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

The following is a loans receivable aging analysis on a portfolio class basis:
 
 
September 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
$
19,937

 
663

 
11,959

 
3,828

 
2,441

 
1,046

Accruing loans 60-89 days past due
8,497

 
1,150

 
3,946

 
984

 
1,721

 
696

Accruing loans 90 days or more past due
3,271

 
551

 
787

 
1,301

 
356

 
276

Non-accrual loans
115,856

 
18,941

 
71,721

 
14,178

 
7,738

 
3,278

Total past due and non-accrual loans
147,561

 
21,305

 
88,413

 
20,291

 
12,256

 
5,296

Current loans receivable
3,260,533

 
506,872

 
1,563,639

 
600,616

 
394,648

 
194,758

Total loans receivable
$
3,408,094

 
528,177

 
1,652,052

 
620,907

 
406,904

 
200,054

 
 
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



20

Table of Contents

The following is a summary of the TDRs 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 September 30, 2012
(Dollars in thousands)
Total
 
Residential
Real Estate
 
Commercial
Real Estate
 
Other
Commercial
 
Home
Equity
 
Other
Consumer
Troubled debt restructurings
 
 
 
 
 
 
 
 
 
 
 
Number of loans
46

 
1

 
21

 
19

 
2

 
3

Pre-modification recorded balance
$
38,125

 
280

 
20,866

 
16,601

 
219

 
159

Post-modification recorded balance
$
35,475

 
281

 
18,242

 
16,571

 
222

 
159

Troubled debt restructurings that subsequently defaulted
 
 
 
 
 
 
 
 
 
 
 
Number of loans
3

 
2

 

 

 
1

 

Recorded balance
$
1,792