XNAS:NWBI Northwest Bancshares Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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 March 31, 2012

 

or

 

o

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 001-34582

 

Northwest Bancshares, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland

 

27-0950358

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

100 Liberty Street, Warren, Pennsylvania

 

16365

(Address of principal executive offices)

 

(Zip Code)

 

(814) 726-2140

(Registrant’s telephone number, including area code)

 

 

(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.  Yes x  No o

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large Accelerated Filer x

 

Accelerated Filer o

 

 

 

Non-Accelerated Filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a Shell Company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Common Stock ($0.01 par value) 97,602,357 shares outstanding as of April 30, 2012

 

 

 



Table of Contents

 

NORTHWEST BANCSHARES, INC.

INDEX

 

 

 

PAGE

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

Consolidated Statements of Financial Condition as of March 31, 2012 and December 31, 2011

1

 

 

 

 

Consolidated Statements of Income for the three months ended March 31, 2012 and 2011

2

 

 

 

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011

3

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2012 and 2011

4

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011

5

 

 

 

 

Notes to Consolidated Financial Statements— Unaudited

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

53

 

 

 

Item 4.

Controls and Procedures

54

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

54

 

 

 

Item 1A.

Risk Factors

55

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

 

 

 

Item 3.

Defaults Upon Senior Securities

55

 

 

 

Item 4.

Mine Safety Disclosures

55

 

 

 

Item 5.

Other Information

55

 

 

 

Item 6.

Exhibits

55

 

 

 

 

Signatures

57

 

 

 

 

Certifications

 

 



Table of Contents

 

ITEM 1. FINANCIAL STATEMENTS

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share data)

 

 

 

(Unaudited)

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

85,050

 

94,276

 

Interest-earning deposits in other financial institutions

 

672,887

 

593,388

 

Federal funds sold and other short-term investments

 

952

 

633

 

Marketable securities available-for-sale (amortized cost of $894,232 and $885,408)

 

919,578

 

908,349

 

Marketable securities held-to-maturity (fair value of $224,630 and $239,412)

 

216,956

 

231,389

 

Total cash and investments

 

1,895,423

 

1,828,035

 

 

 

 

 

 

 

Personal Banking:

 

 

 

 

 

Loans held for sale

 

14,222

 

967

 

Residental mortgage loans

 

2,412,711

 

2,396,399

 

Home equity loans

 

1,058,938

 

1,084,786

 

Other consumer loans

 

237,591

 

245,689

 

Total Personal Banking

 

3,723,462

 

3,727,841

 

Business Banking:

 

 

 

 

 

Commercial real estate loans

 

1,475,576

 

1,435,767

 

Commercial loans

 

408,894

 

387,911

 

Total Business Banking

 

1,884,470

 

1,823,678

 

Total loans

 

5,607,932

 

5,551,519

 

Allowance for loan losses

 

(72,941

)

(71,138

)

Total loans, net

 

5,534,991

 

5,480,381

 

 

 

 

 

 

 

Federal Home Loan Bank stock, at cost

 

47,090

 

48,935

 

Accrued interest receivable

 

25,072

 

24,599

 

Real estate owned, net

 

28,895

 

26,887

 

Premises and equipment, net

 

133,599

 

132,152

 

Bank owned life insurance

 

134,615

 

133,524

 

Goodwill

 

171,882

 

171,882

 

Other intangible assets

 

1,828

 

2,123

 

Other assets

 

95,613

 

109,187

 

Total assets

 

$

8,069,008

 

7,957,705

 

 

 

 

 

 

 

Liabilities and Shareholders’ equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Noninterest-bearing demand deposits

 

$

732,361

 

658,560

 

Interest-bearing demand deposits

 

833,342

 

800,676

 

Savings deposits

 

2,124,269

 

2,036,272

 

Time deposits

 

2,179,789

 

2,284,817

 

Total deposits

 

5,869,761

 

5,780,325

 

 

 

 

 

 

 

Borrowed funds

 

836,410

 

827,925

 

Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities

 

103,094

 

103,094

 

Advances by borrowers for taxes and insurance

 

27,683

 

23,571

 

Accrued interest payable

 

1,119

 

1,104

 

Other liabilities

 

68,466

 

66,782

 

Total liabilities

 

6,906,533

 

6,802,801

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock, $0.01 par value: 50,000,000 authorized, no shares issued

 

 

 

Common stock, $0.01 par value: 500,000,000 shares authorized, 97,593,396 and 97,493,046 shares issued, respectively

 

976

 

975

 

Paid-in capital

 

660,933

 

659,523

 

Retained earnings

 

547,352

 

543,598

 

Unallocated common stock of Employee Stock Ownership Plan

 

(25,568

)

(25,966

)

Accumulated other comprehensive loss

 

(21,218

)

(23,226

)

Total shareholders’ equity

 

1,162,475

 

1,154,904

 

Total liabilities and shareholders’ equity

 

$

8,069,008

 

7,957,705

 

 

See accompanying notes to consolidated financial statements - unaudited

 

1



Table of Contents

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share amounts)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Interest income:

 

 

 

 

 

Loans receivable

 

$

78,159

 

80,457

 

Mortgage-backed securities

 

4,691

 

6,756

 

Taxable investment securities

 

573

 

398

 

Tax-free investment securities

 

2,446

 

3,074

 

Interest-earning deposits

 

380

 

407

 

Total interest income

 

86,249

 

91,092

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Deposits

 

12,944

 

16,063

 

Borrowed funds

 

7,899

 

7,989

 

Total interest expense

 

20,843

 

24,052

 

 

 

 

 

 

 

Net interest income

 

65,406

 

67,040

 

Provision for loan losses

 

6,287

 

7,244

 

Net interest income after provision for loan losses

 

59,119

 

59,796

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

Impairment losses on securities

 

(545

)

 

Noncredit related losses on securities not expected to be sold (recognized in other comprehensive income)

 

307

 

 

Net impairment losses

 

(238

)

 

Gain on sale of investments, net

 

44

 

4

 

Service charges and fees

 

8,425

 

8,928

 

Trust and other financial services income

 

2,116

 

1,910

 

Insurance commission income

 

1,718

 

1,380

 

Loss on real estate owned, net

 

(1,070

)

(27

)

Income from bank owned life insurance

 

1,117

 

1,166

 

Mortgage banking income

 

531

 

197

 

Other operating income

 

997

 

768

 

Total noninterest income

 

13,640

 

14,326

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

Compensation and employee benefits

 

27,838

 

25,499

 

Premises and occupancy costs

 

5,748

 

6,191

 

Office operations

 

3,324

 

3,100

 

Processing expenses

 

6,142

 

5,767

 

Marketing expenses

 

2,036

 

1,959

 

Federal deposit insurance premiums

 

1,620

 

2,427

 

Professional services

 

1,697

 

1,256

 

Amortization of intangible assets

 

295

 

491

 

Real estate owned expense

 

740

 

431

 

Other expenses

 

1,836

 

2,257

 

Total noninterest expense

 

51,276

 

49,378

 

 

 

 

 

 

 

Income before income taxes

 

21,483

 

24,744

 

 

 

 

 

 

 

Federal and state income taxes

 

6,302

 

7,491

 

 

 

 

 

 

 

Net income

 

$

15,181

 

17,253

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.16

 

0.16

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.16

 

0.16

 

 

See accompanying notes to unaudited consolidated financial statements

 

2



Table of Contents

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Net Income

 

$

15,181

 

17,253

 

Other comprehensive income net of tax:

 

 

 

 

 

Net unrealized holding gains on marketable securities:

 

 

 

 

 

Unrealized holding gains net of tax of $(870) and $(1,131), respectively

 

1,361

 

2,101

 

Other-than-temporary impairment on securities included in net income, net of tax of $(93) and $0, respectively

 

145

 

 

Reclassification adjustment for gains included in net income, net of tax of $31 and $8, respectively

 

(49

)

(16

)

Net unrealized holding gains on marketable securities

 

1,457

 

2,085

 

 

 

 

 

 

 

Change in fair value of interest rate swaps, net of tax of $(297) and $(481), respectively

 

551

 

894

 

 

 

 

 

 

 

Other comprehensive income

 

2,008

 

2,979

 

 

 

 

 

 

 

Total comprehensive income

 

$

17,189

 

20,232

 

 

See accompanying notes to unaudited consolidated financial statements

 

3



Table of Contents

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, except dividends per share data)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Unallocated

 

Total

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

common stock

 

Shareholders’

 

Three months ended March 31, 2011

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income/ (loss)

 

of ESOP

 

Equity

 

Beginning balance at December 31, 2010

 

110,295,117

 

$

1,103

 

824,164

 

523,089

 

(13,497

)

(27,409

)

1,307,450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

17,253

 

 

 

17,253

 

Other comprehensive income, net of tax of $(1,604)

 

 

 

 

 

2,979

 

 

2,979

 

Total comprehensive income

 

 

 

 

17,253

 

2,979

 

 

20,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

56,738

 

1

 

352

 

 

 

 

353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

483

 

 

 

384

 

867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share repurchases

 

(2,618,423

)

(26

)

(31,048

)

 

 

 

(31,074

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid ($0.10 per share)

 

 

 

 

(10,712

)

 

 

(10,712

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance at March 31, 2011

 

107,733,432

 

$

1,078

 

793,951

 

529,630

 

(10,518

)

(27,025

)

1,287,116

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Unallocated

 

Total

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

common stock

 

Shareholders’

 

Three months ended March 31, 2012

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income/ (loss)

 

of ESOP

 

Equity

 

Beginning balance at December 31, 2011

 

97,493,046

 

$

975

 

659,523

 

543,598

 

(23,226

)

(25,966

)

1,154,904

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

15,181

 

 

 

15,181

 

Other comprehensive income, net of tax of $(1,229)

 

 

 

 

 

2,008

 

 

2,008

 

Total comprehensive income

 

 

 

 

15,181

 

2,008

 

 

17,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

100,350

 

1

 

785

 

 

 

 

786

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

625

 

 

 

398

 

1,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid ($0.12 per share)

 

 

 

 

(11,427

)

 

 

(11,427

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance at March 31, 2012

 

97,593,396

 

$

976

 

660,933

 

547,352

 

(21,218

)

(25,568

)

1,162,475

 

 

See accompanying notes to unaudited consolidated financial statements

 

4



Table of Contents

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net Income

 

$

15,181

 

17,253

 

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

 

 

 

 

 

Provision for loan losses

 

6,287

 

7,244

 

Net loss on sale of assets

 

1,164

 

608

 

Net depreciation, amortization and accretion

 

2,467

 

4,108

 

Decrease in other assets

 

9,896

 

8,358

 

Increase / (decrease) in other liabilities

 

2,547

 

(4,045

)

Net amortization of premium on marketable securities

 

(54

)

(344

)

Noncash impairment losses on investment securities

 

238

 

 

Noncash write-down of real estate owned

 

536

 

416

 

Origination of loans held for sale

 

(50,110

)

(15,385

)

Proceeds from sale of loans held for sale

 

36,982

 

23,215

 

Noncash compensation expense related to stock benefit plans

 

1,023

 

867

 

Net cash provided by operating activities

 

26,157

 

42,295

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Purchase of marketable securities available-for-sale

 

(77,491

)

(91,695

)

Purchase of marketable securities held-to-maturity

 

 

 

Proceeds from maturities and principal reductions of marketable securities available-for-sale

 

68,558

 

63,997

 

Proceeds from maturities and principal reductions of marketable securities held-to-maturity

 

14,401

 

43,320

 

Loan originations

 

(480,303

)

(375,303

)

Proceeds from loan maturities and principal reductions

 

427,002

 

405,521

 

Proceeds from sale of Federal Home Loan Bank stock

 

1,845

 

3,004

 

Proceeds from sale of real estate owned

 

3,263

 

2,866

 

Sale of real estate owned for investment, net

 

114

 

102

 

Purchase of premises and equipment

 

(4,346

)

(1,931

)

Net cash (used in)/ provided by investing activities

 

(46,957

)

49,881

 

 

5



Table of Contents

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)

(in thousands)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

FINANCING ACTIVITIES:

 

 

 

 

 

Increase in deposits, net

 

$

89,436

 

56,201

 

Repayments of long-term borrowings

 

(17

)

(50,017

)

Net increase/ (decrease) in short-term borrowings

 

8,502

 

(9,701

)

Increase in advances by borrowers for taxes and insurance

 

4,112

 

3,323

 

Cash dividends paid

 

(11,427

)

(10,712

)

Purchase of common stock for retirement

 

 

(31,074

)

Proceeds from stock options exercised

 

786

 

353

 

Net cash (used in) / provided by financing activities

 

91,392

 

(41,627

)

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

$

70,592

 

50,549

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$

688,297

 

719,111

 

Net increase in cash and cash equivalents

 

70,592

 

50,549

 

Cash and cash equivalents at end of period

 

$

758,889

 

769,660

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Cash and due from banks

 

$

85,050

 

78,446

 

Interest-earning deposits in other financial institutions

 

672,887

 

690,581

 

Federal funds sold and other short-term investments

 

952

 

633

 

Total cash and cash equivalents

 

$

758,889

 

769,660

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest on deposits and borrowings (including interest credited to deposit accounts of $11,065 and $13,731, respectively)

 

$

20,828

 

24,598

 

Income taxes

 

$

955

 

917

 

 

 

 

 

 

 

Non-cash activities:

 

 

 

 

 

Loan foreclosures and repossessions

 

$

6,557

 

2,052

 

Sale of real estate owned financed by the Company

 

$

100

 

140

 

 

See accompanying notes to unaudited consolidated financial statements

 

6



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited

 

(1)                                 Basis of Presentation and Informational Disclosures

 

Northwest Bancshares, Inc. (the “Company”)or (“NWBI”), is a Maryland incorporated company headquartered in Warren, Pennsylvania, is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System.  The Company was incorporated to be the successor to Northwest Bancorp, Inc. upon the completion of the mutual-to-stock conversion of Northwest Bancorp, MHC.  The primary activity of the Company is the ownership of all of the issued and outstanding common stock of Northwest Savings Bank, a Pennsylvania-chartered savings bank (“Northwest”).  Northwest is regulated by the FDIC and the Pennsylvania Department of Banking.  At March 31, 2012, Northwest operated 168 community-banking offices throughout Pennsylvania, western New York, eastern Ohio and Maryland.

 

The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiary, Northwest, and Northwest’s subsidiaries Northwest Settlement Agency, LLC, Northwest Consumer Discount Company, Northwest Financial Services, Inc., Northwest Advisors, Inc., Northwest Capital Group, Inc., Boetger & Associates, Inc., Allegheny Services, Inc., Great Northwest Corporation and Veracity Benefits Design.  The unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required for complete annual financial statements.  In the opinion of management, all adjustments necessary for the fair presentation of the Company’s financial position and results of operations have been included.  The consolidated statements have been prepared using the accounting policies described in the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 updated, as required, for any new pronouncements or changes.

 

The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

Stock-Based Compensation

 

Stock-based compensation expense of $1.0 million and $867,000 for the three months ended March 31, 2012 and 2011, respectively, was recognized in compensation expense relating to our stock benefit plans.  At March 31, 2012 there was compensation expense of $5.6 million to be recognized for awarded but unvested stock options and $12.8 million for unvested common shares.

 

Income Taxes- Uncertain Tax Positions

 

Accounting standards prescribe a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return.  A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits.  The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information.  As of March 31, 2012 we had no liability for unrecognized tax benefits.

 

We recognize interest accrued related to: (1) unrecognized tax benefits in federal and state income taxes and (2) refund claims in other operating income.  We recognize penalties (if any) in federal and state income taxes.  There is no amount accrued for the payment of interest or penalties at March 31, 2012.  We are subject to audit by the Internal Revenue Service and any state in which we conduct business for the tax periods ended December 31, 2010, 2009 and 2008.

 

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(2)                                 Business Segments

 

We operate in two reportable business segments: Community Banking and Consumer Finance.  The Community Banking segment provides services traditionally offered by full-service community banks, including commercial and personal demand, savings and time deposit accounts and commercial and personal loans, as well as insurance, brokerage and investment management and trust services.  The Consumer Finance segment, which is comprised of Northwest Consumer Discount Company, a subsidiary of Northwest, operates 52 offices in Pennsylvania and offers personal installment loans for a variety of consumer and real estate products.  This activity is funded primarily through an intercompany borrowing relationship with Allegheny Services, Inc., a subsidiary of Northwest.  Net income is the primary measure used by management to measure segment performance.  The following tables provide financial information for these reportable segments.  The “All Other” column represents the parent company and elimination entries necessary to reconcile to the consolidated amounts presented in the financial statements.

 

At or for the three months ended:

 

 

 

Community

 

Consumer

 

 

 

 

 

March 31, 2012 ($ in 000’s)

 

Banking

 

Finance

 

All Other *

 

Consolidated

 

External interest income

 

$

80,405

 

5,531

 

313

 

86,249

 

Intersegment interest income

 

748

 

 

(748

)

 

Interest expense

 

19,540

 

748

 

555

 

20,843

 

Provision for loan losses

 

5,500

 

787

 

 

6,287

 

Noninterest income

 

13,082

 

511

 

47

 

13,640

 

Noninterest expense

 

47,878

 

3,196

 

202

 

51,276

 

Income tax expense (benefit)

 

6,221

 

504

 

(423

)

6,302

 

Net income

 

15,096

 

807

 

(722

)

15,181

 

Total assets

 

$

7,917,340

 

113,271

 

38,397

 

8,069,008

 

 

 

 

Community

 

Consumer

 

 

 

 

 

March 31, 2011 ($ in 000’s)

 

Banking

 

Finance

 

All Other *

 

Consolidated

 

External interest income

 

$

85,616

 

5,247

 

229

 

91,092

 

Intersegment interest income

 

770

 

 

(770

)

 

Interest expense

 

22,960

 

770

 

322

 

24,052

 

Provision for loan losses

 

6,500

 

744

 

 

7,244

 

Noninterest income

 

13,860

 

453

 

13

 

14,326

 

Noninterest expense

 

46,101

 

3,037

 

240

 

49,378

 

Income tax expense (benefit)

 

7,396

 

477

 

(382

)

7,491

 

Net income

 

17,289

 

672

 

(708

)

17,253

 

Total assets

 

$

7,986,834

 

112,716

 

22,654

 

8,122,204

 

 

 

 

 

 

 

 

 

 

 

 


* Eliminations consist of intercompany loans, interest income and interest expense.

 

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(3)                                 Investment securities and impairment of investment securities

 

The following table shows the portfolio of investment securities available-for-sale at March 31, 2012 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

Debt issued by the U.S. government and agencies:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

56

 

 

 

56

 

 

 

 

 

 

 

 

 

 

 

Debt issued by government sponsored enterprises:

 

 

 

 

 

 

 

 

 

Due in one year - five years

 

26,296

 

44

 

 

26,340

 

Due in five years - ten years

 

29,163

 

474

 

 

29,637

 

Due after ten years

 

9,125

 

 

(35

)

9,090

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

12,398

 

4,676

 

(3

)

17,071

 

 

 

 

 

 

 

 

 

 

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in one year - five years

 

8,880

 

245

 

 

9,125

 

Due in five years - ten years

 

26,427

 

1,093

 

 

27,520

 

Due after ten years

 

116,529

 

5,905

 

(110

)

122,324

 

 

 

 

 

 

 

 

 

 

 

Corporate debt issues:

 

 

 

 

 

 

 

 

 

Due in one year - five years

 

500

 

 

 

500

 

Due after ten years

 

25,019

 

275

 

(6,135

)

19,159

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

102,152

 

7,528

 

(16

)

109,664

 

Variable rate pass-through

 

129,112

 

6,636

 

(4

)

135,744

 

Fixed rate non-agency CMOs

 

8,280

 

178

 

(307

)

8,151

 

Fixed rate agency CMOs

 

143,158

 

3,126

 

 

146,284

 

Variable rate non-agency CMOs

 

1,023

 

 

(135

)

888

 

Variable rate agency CMOs

 

256,114

 

2,038

 

(127

)

258,025

 

Total residential mortgage-backed securities

 

639,839

 

19,506

 

(589

)

658,756

 

Total marketable securities available-for-sale

 

$

894,232

 

32,218

 

(6,872

)

919,578

 

 

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Table of Contents

 

The following table shows the portfolio of investment securities available-for-sale at December 31, 2011 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

Debt issued by the U.S. government and agencies:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

59

 

 

 

59

 

 

 

 

 

 

 

 

 

 

 

Debt issued by government sponsored enterprises:

 

 

 

 

 

 

 

 

 

Due in one year - five years

 

36,295

 

134

 

 

36,429

 

Due in five years - ten years

 

29,557

 

638

 

(61

)

30,134

 

Due after ten years

 

9,665

 

 

(49

)

9,616

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

12,080

 

644

 

(259

)

12,465

 

 

 

 

 

 

 

 

 

 

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in one year - five years

 

10,633

 

291

 

 

10,924

 

Due in five years - ten years

 

27,817

 

1,336

 

 

29,153

 

Due after ten years

 

124,041

 

5,350

 

(180

)

129,211

 

 

 

 

 

 

 

 

 

 

 

Corporate debt issues:

 

 

 

 

 

 

 

 

 

Due in one year or less

 

500

 

 

 

500

 

Due after ten years

 

25,036

 

233

 

(4,635

)

20,634

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

110,364

 

8,201

 

(1

)

118,564

 

Variable rate pass-through

 

135,103

 

6,679

 

(4

)

141,778

 

Fixed rate non-agency CMOs

 

9,521

 

188

 

(735

)

8,974

 

Fixed rate CMOs

 

112,670

 

3,466

 

 

116,136

 

Variable rate non-agency CMOs

 

1,104

 

 

(154

)

950

 

Variable rate CMOs

 

240,963

 

1,991

 

(132

)

242,822

 

Total residential mortgage-backed securities

 

609,725

 

20,525

 

(1,026

)

629,224

 

Total marketable securities available-for-sale

 

$

885,408

 

29,151

 

(6,210

)

908,349

 

 

The following table shows the portfolio of investment securities held-to-maturity at March 31, 2012 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in Five years - ten years

 

$

3,678

 

171

 

 

3,849

 

Due after ten years

 

69,592

 

3,649

 

 

73,241

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

22,815

 

1,117

 

 

23,932

 

Variable rate pass-through

 

8,649

 

54

 

 

8,703

 

Fixed rate agency CMOs

 

100,008

 

2,436

 

 

102,444

 

Variable rate agency CMOs

 

12,214

 

247

 

 

12,461

 

Total residential mortgage-backed securities

 

143,686

 

3,854

 

 

147,540

 

Total marketable securities held-to-maturity

 

$

216,956

 

7,674

 

 

224,630

 

 

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Table of Contents

 

The following table shows the portfolio of investment securities held-to-maturity at December 31, 2011 (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

unrealized

 

unrealized

 

 

 

 

 

Amortized

 

holding

 

holding

 

Fair

 

 

 

cost

 

gains

 

losses

 

value

 

 

 

 

 

 

 

 

 

 

 

Municipal securities:

 

 

 

 

 

 

 

 

 

Due in five years - ten years

 

$

3,677

 

174

 

 

3,851

 

Due after ten years

 

71,015

 

3,615

 

 

74,630

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities:

 

 

 

 

 

 

 

 

 

Fixed rate pass-through

 

24,160

 

1,099

 

 

25,259

 

Variable rate pass-through

 

9,066

 

94

 

 

9,160

 

Fixed rate agency CMOs

 

108,881

 

2,761

 

 

111,642

 

Variable rate agency CMOs

 

14,590

 

280

 

 

14,870

 

Total residential mortgage-backed securities

 

156,697

 

4,234

 

 

160,931

 

Total marketable securities held-to-maturity

 

$

231,389

 

8,023

 

 

239,412

 

 

We review our investment portfolio on a quarterly basis for indications of impairment.  This review includes analyzing the length of time and the extent to which the fair value has been lower than the amortized cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer, and the intent to hold the investments for a period of time sufficient to allow for a recovery in value.  Other investments are evaluated using our best estimate of future cash flows. If the estimate of cash flows indicate that an adverse change has occurred, other-than-temporary impairment would be recognized for the amount of the loss that was deemed credit related.

 

The following table shows the fair value of and gross unrealized losses on investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2012 (in thousands):

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Fair value

 

loss

 

Fair value

 

loss

 

Fair value

 

loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

 

 

9,090

 

(35

)

9,090

 

(35

)

Municipal securities

 

899

 

(17

)

1,489

 

(93

)

2,388

 

(110

)

Corporate issues

 

1,580

 

(171

)

13,479

 

(5,964

)

15,059

 

(6,135

)

Equity securities

 

 

 

16

 

(3

)

16

 

(3

)

Residential mortgage- backed securities - non-agency

 

 

 

4,899

 

(442

)

4,899

 

(442

)

Residential mortgage- backed securities - agency

 

80,745

 

(128

)

15,592

 

(19

)

96,337

 

(147

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

83,224

 

(316

)

44,565

 

(6,556

)

127,789

 

(6,872

)

 

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Table of Contents

 

The following table shows the fair value of and gross unrealized losses on investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2011 (in thousands):

 

 

 

Less than 12 months

 

12 months or more

 

Total

 

 

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Fair value

 

loss

 

Fair value

 

loss

 

Fair value

 

loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agencies

 

$

24,601

 

(61

)

9,648

 

(49

)

34,249

 

(110

)

Municipal securities

 

 

 

2,317

 

(180

)

2,317

 

(180

)

Corporate issues

 

3,537

 

(219

)

15,067

 

(4,416

)

18,604

 

(4,635

)

Equities

 

4,178

 

(258

)

18

 

(1

)

4,196

 

(259

)

Residential mortgage- backed securities - non-agency

 

 

 

4,971

 

(889

)

4,971

 

(889

)

Residential mortgage- backed securities - agency

 

85,921

 

(100

)

14,353

 

(37

)

100,274

 

(137

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

118,237

 

(638

)

46,374

 

(5,572

)

164,611

 

(6,210

)

 

Corporate issues

 

As of March 31, 2012, we had six investments with a total book value of $19.4 million and total fair value of $13.5 million, where the book value exceeded the carrying value for more than 12 months.  These investments were two single issuer trust preferred investments and four pooled trust preferred investments.  The single issuer trust preferred investments were evaluated for other-than-temporary impairment by determining the strength of the underlying issuer.  In both cases, the underlying issuer was “well-capitalized” for regulatory purposes. Neither of the issuers have deferred interest payments or announced the intention to defer interest payments, nor have either been downgraded.  We believe the decline in fair value is related to the spread over three month LIBOR, on which the quarterly interest payments are based, as the spread over LIBOR is significantly lower than current market spreads on similar investments.  We concluded the impairment of these two investments was considered noncredit related and temporary.  In making that determination, we also considered the duration and the severity of the losses and whether we intend to hold these securities until the value is recovered, the securities are redeemed or maturity.  The pooled trust preferred investments were evaluated for other-than-temporary impairment by considering the duration and severity of the losses, actual cash flows, projected cash flows, performing collateral, the class of investment owned and the amount of additional defaults the structure could withstand prior to the investment experiencing a disruption in cash flows.  None of these investments experienced a cash flow disruption or are projecting a cash flow disruption.

 

We concluded, based on all facts evaluated, the impairment of these investments was considered noncredit related and temporary.  Management asserts that we do not have the intent to sell these investments and that it is more likely than not, we will not have to sell the investments before recovery of their cost basis.

 

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Table of Contents

 

The following table provides class, book value, fair value and ratings information for our portfolio of corporate securities that have an unrealized loss at March 31, 2012 (in thousands):

 

 

 

 

 

Total

 

 

 

 

 

 

 

Book

 

Fair

 

Unrealized

 

Moody’s/ Fitch

 

Description 

 

Class

 

Value

 

Value

 

Losses

 

Ratings

 

Bank Boston Capital Trust (1) 

 

N/A

 

$

989

 

694

 

(295

)

Ba1/ BB

 

Huntington Capital Trust

 

N/A

 

1,425

 

1,038

 

(387

)

Baa3/ BB

 

Commercebank Capital Trust

 

N/A

 

887

 

880

 

(7

)

Not rated

 

Ocean Shore Capital Trust

 

N/A

 

864

 

700

 

(164

)

Not rated

 

I-PreTSL I

 

Mezzanine

 

1,500

 

443

 

(1,057

)

Not rated/ CCC

 

I-PreTSL II

 

Mezzanine

 

1,500

 

605

 

(895

)

Not rated/ B

 

PreTSL XIX

 

Senior A-1

 

8,626

 

6,365

 

(2,261

)

Baa2/ BBB

 

PreTSL XX

 

Senior A-1

 

5,403

 

4,334

 

(1,069

)

Ba2/ BB

 

 

 

 

 

$

21,194

 

15,059

 

(6,135

)

 

 

 


(1) — Bank Boston was acquired by Bank of America.

 

The following table provides collateral information on the entire pool for the trust preferred securities included in the previous table at March 31, 2012 (in thousands):

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Immediate

 

 

 

 

 

 

 

 

 

defaults before

 

 

 

 

 

Current

 

 

 

causing an

 

 

 

Total

 

deferrals

 

Performing

 

interest

 

Description * 

 

Collateral

 

and defaults

 

Collateral

 

shortfall

 

I-PreTSL I

 

$

188,500

 

32,500

 

156,000

 

93,251

 

I-PreTSL II

 

340,500

 

17,500

 

323,000

 

156,787

 

PreTSL XIX

 

649,981

 

179,150

 

470,831

 

146,000

 

PreTSL XX

 

552,238

 

174,500

 

377,738

 

96,500

 

 

Mortgage-backed securities

 

Mortgage-backed securities include agency (FNMA, FHLMC and GNMA) mortgage-backed securities and non-agency collateralized mortgage obligations (“CMOs”).  We review our portfolio of agency mortgage-backed securities quarterly for impairment.  As of March 31, 2012, we believe that the impairment within our portfolio of agency mortgage-backed securities is noncredit related and temporary.  As of March 31, 2012, we had ten non-agency CMOs with a total book value of $9.3 million and a total fair value of $9.0 million.  During the three months ended March 31, 2012, we recognized other-than-temporary credit related impairment of $238,000 related to one of these investments.  After recognizing the other-than-temporary impairment, our book value on this investment was $4.3 million, with a fair value of $4.0 million.  We determined how much of the impairment was credit related and noncredit related by analyzing cash flow estimates, estimated prepayment speeds, loss severity and conditional default rates.  We consider the discounted cash flow analysis to be our primary evidence when determining whether credit related other-than-temporary impairment exists.  The impairment on the other nine non-agency

 

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Table of Contents

 

CMOs, with book value of $5.0 million and fair value of $5.0 million, were also reviewed considering the severity and length of impairment.  After this review, we determined that the impairment on these securities was noncredit related and temporary.

 

The following table shows issuer specific information, book value, fair value, unrealized gain or loss and other-than-temporary impairment recorded in earnings for the portfolio of non-agency CMOs at March 31, 2012 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Impairment

 

impairment

 

 

 

 

 

 

 

 

 

recorded in

 

recorded in

 

 

 

Book