XNAS:HOMB Home BancShares Inc Quarterly Report 10-Q Filing - 3/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

 

¨ 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: 000-51904

 

 

HOME BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Arkansas   71-0682831

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

719 Harkrider, Suite 100, Conway, Arkansas   72032
(Address of principal executive offices)   (Zip Code)

(501) 328-4770

(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.    Yes  x    No  ¨

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

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

 

Large accelerated filer   ¨    Accelerated filer      x
Non-accelerated filer   ¨    Smaller reporting company      ¨

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date.

Common Stock Issued and Outstanding: 28,104,511 shares as of May 1, 2012.

 

 

 


Table of Contents

HOME BANCSHARES, INC.

FORM 10-Q

March 31, 2012

INDEX

 

         Page No.  

Part I:

 

Financial Information

  

Item 1.

 

Financial Statements

  
 

Consolidated Balance Sheets — March 31, 2012 (Unaudited) and December 31, 2011

     4   
 

Consolidated Statements of Income (Unaudited) — Three months ended March 31, 2012 and 2011

     5   
 

Consolidated Statements of Comprehensive Income (Unaudited) — Three months ended March  31, 2012 and 2011

     6   
 

Consolidated Statements of Stockholders’ Equity (Unaudited) — Three months ended March  31, 2012 and 2011

     6-7   
 

Consolidated Statements of Cash Flows (Unaudited) — Three months ended March 31, 2012 and 2011

     8   
 

Condensed Notes to Consolidated Financial Statements (Unaudited)

     9-35   
 

Report of Independent Registered Public Accounting Firm

     36   

Item 2.

 

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

     37-67   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     68-70   

Item 4.

 

Controls and Procedures

     71   

Part II:

  Other Information   

Item 1.

 

Legal Proceedings

     71   

Item1A.

 

Risk Factors

     71   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     71   

Item 3.

 

Defaults Upon Senior Securities

     71   

Item 4.

 

(Reserved)

     71   

Item 5.

 

Other Information

     72   

Item 6.

 

Exhibits

     72   

Signatures

     73   

Exhibit List

 

12.1 Computation of Ratios of Earnings to Fixed Charges
15 Awareness of Independent Registered Public Accounting Firm
31.1 CEO Certification Pursuant to 13a-14(a)/15d-14(a)
31.2 CFO Certification Pursuant to 13a-14(a)/15d-14(a)
32.1 CEO Certification Pursuant to 18 U.S.C. Section 1350
32.2 CFO Certification Pursuant to 18 U.S.C. Section 1350
101 XBRL Documents


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of our statements contained in this document, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation” are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to future events or our future financial performance and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to, the following:

 

   

the effects of future economic conditions, including inflation or a continued decrease in commercial real estate and residential housing values;

 

   

governmental monetary and fiscal policies, as well as legislative and regulatory changes;

 

   

the impact of the Dodd-Frank financial regulatory reform act and regulations to be issued thereunder;

 

   

the risks of changes in interest rates or the level and composition of deposits, loan demand and the values of loan collateral, securities and interest sensitive assets and liabilities;

 

   

the effects of terrorism and efforts to combat it;

 

   

credit risks;

 

   

the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally, together with competitors offering banking products and services by mail, telephone and the Internet;

 

   

the effect of any mergers, acquisitions or other transactions to which we or our subsidiaries may from time to time be a party, including our ability to successfully integrate any businesses that we acquire;

 

   

the failure of assumptions underlying the establishment of our allowance for loan losses; and

 

   

the failure of assumptions underlying the estimates of the fair values for our covered assets and FDIC indemnification receivable.

All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from those we discuss in these forward-looking statements. For other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, see the “Risk Factors” section of our Form 10-K filed with the Securities and Exchange Commission on March 5, 2012.


Table of Contents

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

Home BancShares, Inc.

Consolidated Balance Sheets

 

(In thousands, except share data)

   March 31,
2012
    December 31,
2011
 
     (Unaudited)        
Assets     

Cash and due from banks

   $ 76,837      $ 57,337   

Interest-bearing deposits with other banks

     269,401        126,967   
  

 

 

   

 

 

 

Cash and cash equivalents

     346,238        184,304   

Federal funds sold

     1,375        1,100   

Investment securities – available for sale

     759,959        671,221   

Loans receivable not covered by loss share

     2,046,108        1,760,086   

Loans receivable covered by FDIC loss share

     455,435        481,739   

Allowance for loan losses

     (51,014     (52,129
  

 

 

   

 

 

 

Loans receivable, net

     2,450,529        2,189,696   

Bank premises and equipment, net

     100,674        88,465   

Foreclosed assets held for sale not covered by loss share

     14,634        16,660   

Foreclosed assets held for sale covered by FDIC loss share

     39,744        35,178   

FDIC indemnification asset

     181,884        193,856   

Cash value of life insurance

     52,955        52,700   

Accrued interest receivable

     15,845        15,551   

Deferred tax asset, net

     34,680        22,850   

Goodwill

     77,090        59,663   

Core deposit and other intangibles

     11,180        8,620   

Other assets

     61,165        64,253   
  

 

 

   

 

 

 

Total assets

   $ 4,147,952      $ 3,604,117   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Deposits:

    

Demand and non-interest-bearing

   $ 583,951      $ 464,581   

Savings and interest-bearing transaction accounts

     1,514,812        1,189,098   

Time deposits

     1,281,636        1,204,352   
  

 

 

   

 

 

 

Total deposits

     3,380,399        2,858,031   

Securities sold under agreements to repurchase

     72,531        62,319   

FHLB borrowed funds

     142,753        142,777   

Accrued interest payable and other liabilities

     27,403        22,593   

Subordinated debentures

     44,331        44,331   
  

 

 

   

 

 

 

Total liabilities

     3,667,417        3,130,051   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Common stock, par value $0.01; shares authorized 50,000,000; shares issued and outstanding 28,090,959 in 2012 and 28,275,507 in 2011

     281        283   

Capital surplus

     421,006        425,649   

Retained earnings

     51,800        40,130   

Accumulated other comprehensive income

     7,448        8,004   
  

 

 

   

 

 

 

Total stockholders’ equity

     480,535        474,066   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 4,147,952      $ 3,604,117   
  

 

 

   

 

 

 

See Condensed Notes to Consolidated Financial Statements.

 

4


Table of Contents

Home BancShares, Inc.

Consolidated Statements of Income

 

    

Three Months Ended

March 31,

 

(In thousands, except per share data)

   2012     2011  
     (Unaudited)  

Interest income:

    

Loans

   $ 38,506      $ 38,955   

Investment securities

    

Taxable

     2,860        2,160   

Tax-exempt

     1,535        1,528   

Deposits – other banks

     85        105   

Federal funds sold

     2        7   
  

 

 

   

 

 

 

Total interest income

     42,988        42,755   
  

 

 

   

 

 

 

Interest expense:

    

Interest on deposits

     4,660        6,260   

FHLB borrowed funds

     1,160        1,291   

Securities sold under agreements to repurchase

     110        139   

Subordinated debentures

     524        538   
  

 

 

   

 

 

 

Total interest expense

     6,454        8,228   
  

 

 

   

 

 

 

Net interest income

     36,534        34,527   

Provision for loan losses

     —          1,250   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     36,534        33,277   
  

 

 

   

 

 

 

Non-interest income:

    

Service charges on deposit accounts

     3,505        3,151   

Other service charges and fees

     3,024        2,284   

Mortgage lending income

     904        645   

Insurance commissions

     551        607   

Income from title services

     88        91   

Increase in cash value of life insurance

     257        239   

Dividends from FHLB, FRB & bankers’ bank

     175        141   

Gain on sale of SBA loans

     —          259   

Gain (loss) on sale of premises and equipment, net

     —          (4

Gain (loss) on OREO, net

     (107     (94

Gain (loss) on securities, net

     19        —     

FDIC indemnification asset

     670        1,837   

Other income

     1,017        884   
  

 

 

   

 

 

 

Total non-interest income

     10,103        10,040   
  

 

 

   

 

 

 

Non-interest expense:

    

Salaries and employee benefits

     11,386        11,078   

Occupancy and equipment

     3,431        3,713   

Data processing expense

     1,091        1,285   

Other operating expenses

     8,478        7,785   
  

 

 

   

 

 

 

Total non-interest expense

     24,386        23,861   
  

 

 

   

 

 

 

Income before income taxes

     22,251        19,456   

Income tax expense

     7,753        6,740   
  

 

 

   

 

 

 

Net income available to all stockholders

     14,498        12,716   

Preferred stock dividends and accretion of discount on preferred stock

     —          670   
  

 

 

   

 

 

 

Net income available to common stockholders

   $ 14,498      $ 12,046   
  

 

 

   

 

 

 

Basic earnings per common share

   $ 0.51      $ 0.42   
  

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.51      $ 0.42   
  

 

 

   

 

 

 

See Condensed Notes to Consolidated Financial Statements.

 

5


Table of Contents

Home BancShares, Inc.

Condensed Consolidated Statements of Comprehensive Income

 

     Three Months Ended
March 31,
 

(In thousands, except per share data)

   2012     2011  

Net income

   $ 14,498      $ 12,716   

Net unrealized gain (loss) on available-for-sale securities

     (896     1,118   

Less: reclassification adjustment for realized (gains) losses included in income

     (19     —     
  

 

 

   

 

 

 

Other comprehensive (loss) income, before tax effect

     (915     1,118   

Tax effect

     359        (439
  

 

 

   

 

 

 

Other comprehensive (loss) income

     (556     679   
  

 

 

   

 

 

 

Comprehensive income

   $ 13,942      $ 13,395   
  

 

 

   

 

 

 

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2012 and 2011

 

(In thousands, except share data)

   Preferred
Stock
    Common
Stock
    Capital
Surplus
    Retained
Earnings

(Deficit)
    Accumulated
Other
Comprehensive
Income
     Total  

Balance at January 1, 2011

   $ 49,456      $ 285      $ 432,962      $ (6,079   $ 301       $ 476,925   

Comprehensive income:

             

Net income

     —          —          —          12,716        —           12,716   

Other comprehensive income:

             

Unrealized gain on investment securities available for sale, net of tax effect of $439

     —          —          —          —          679         679   
             

 

 

 

Comprehensive income

                13,395   

Accretion of discount on preferred stock

     46        —          —          (46     —           —     

Net issuance of 6,851 shares of common stock from exercise of stock options

     —          —          59        —          —           59   

Tax benefit from stock options exercised

     —          —          35        —          —           35   

Share-based compensation

     —          —          74        —          —           74   

Cash dividends – Preferred stock—5%

     —          —          —          (625     —           (625

Cash dividends – Common Stock, $0.054 per share

     —          —          —          (1,538     —           (1,538
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balances at March 31, 2011 (unaudited)

     49,502        285        433,130        4,428        980         488,325   

Comprehensive income:

             

Net income

     —          —          —          42,025        —           42,025   

Other comprehensive income:

             

Unrealized gain on investment securities available for sale, net of tax effect of $4,534

     —          —          —          —          7,024         7,024   
             

 

 

 

Comprehensive income

                49,049   

Repurchase of 50,000 shares of preferred stock and common stock warrant

     (50,000     —          (2,206     906        —           (51,300

Accretion of discount on preferred stock

     498        —          —          (498     —           —     

Net issuance of 84,089 shares of common stock from exercise of stock options

     —          1        655        —          —           656   

Repurchase of 300,000 shares of common stock

     —          (3     (6,765     —          —           (6,768

Tax benefit from stock options exercised

     —          —          527        —          —           527   

Share-based compensation

     —          —          308        —          —           308   

Cash dividends – Preferred stock—5%

     —          —          —          (661     —           (661

Cash dividends – Common Stock, $0.214 per share

     —          —          —          (6,070     —           (6,070
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balances at December 31, 2011

     —          283        425,649        40,130        8,004         474,066   

See Condensed Notes to Consolidated Financial Statements.

 

6


Table of Contents

Home BancShares, Inc.

Consolidated Statements of Stockholders’ Equity – Continued

Three Months Ended March 31, 2012 and 2011

 

Consolidated Statements of Stockholders' Equity

(In thousands, except share data)

   Preferred
Stock
     Common
Stock
    Capital
Surplus
    Retained
Earnings

(Deficit)
    Accumulated
Other
Comprehensive
Income
    Total  

Comprehensive income:

             

Net income

     —           —          —          14,498        —          14,498   

Other comprehensive income:

             

Unrealized loss on investment securities available for sale, net of tax effect of $(359)

     —           —          —          —          (556     (556
             

 

 

 

Comprehensive income

                13,942   

Net issuance of 16,291 shares of common stock from exercise of stock options plus issuance of 4,761 bonus shares of unrestricted common stock

     —           —          394        —          —          394   

Repurchase of 205,600 shares of common stock

     —           (2     (5,204     —          —          (5,206

Tax benefit from stock options exercised

     —           —          51        —          —          51   

Share-based compensation

     —           —          116        —          —          116   

Cash dividends – Common Stock, $0.10 per share

     —           —          —          (2,828     —          (2,828
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at March 31, 2012 (unaudited)

   $ —         $ 281      $ 421,006      $ 51,800      $ 7,448      $ 480,535   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Condensed Notes to Consolidated Financial Statements.

 

7


Table of Contents

Home BancShares, Inc.

Consolidated Statements of Cash Flows

 

     Three Months Ended
March 31,
 

(In thousands)

   2012     2011  
     (Unaudited)  

Operating Activities

    

Net income

   $ 14,498      $ 12,716   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

    

Depreciation

     1,453        1,682   

Amortization/(accretion)

     1,172        (292

Share-based compensation

     116        74   

Tax benefits from stock options exercised

     (51     (35

(Gain) loss on assets

     88        (210

Provision for loan losses

     —          1,250   

Deferred income tax effect

     (224     (3,273

Increase in cash value of life insurance

     (257     (239

Originations of mortgage loans held for sale

     (28,232     (26,345

Proceeds from sales of mortgage loans held for sale

     29,530        36,169   

Changes in assets and liabilities:

    

Accrued interest receivable

     (294     839   

Other assets

     20,344        9,347   

Accrued interest payable and other liabilities

     (210     (3,697
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     37,933        27,986   
  

 

 

   

 

 

 

Investing Activities

    

Net (increase) decrease in federal funds sold

     (275     26,673   

Net (increase) decrease in loans net, excluding loans acquired

     72,037        23,914   

Purchases of investment securities—available for sale

     (162,878     (79,844

Proceeds from maturities of investment securities—available for sale

     70,981        39,975   

Proceeds from sale of investment securities—available for sale

     1,051        —     

Proceeds from foreclosed assets held for sale

     3,482        7,260   

Proceeds from sale of SBA loans

     —          4,524   

Purchases of premises and equipment, net

     (1,166     (779

Death benefits received

     —          700   

Net cash proceeds received in Vision acquisition

     140,234        —     
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     123,466        22,423   
  

 

 

   

 

 

 

Financing Activities

    

Net increase (decrease) in deposits, net of deposits acquired

     (2,064     (44,267

Net increase (decrease) in securities sold under agreements to repurchase

     10,212        (4,625

Net increase (decrease) in FHLB and other borrowed funds, net of acquired

     (24     (27,023

Proceeds from exercise of stock options plus issuance of bonus shares of unrestricted common stock

     394        59   

Repurchase of common stock

     (5,206     —     

Tax benefits from stock options exercised

     51        35   

Dividends paid on preferred stock

     —          (625

Dividends paid on common stock

     (2,828     (1,538
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     535        (77,984
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     161,934        (27,575

Cash and cash equivalents – beginning of year

     184,304        287,532   
  

 

 

   

 

 

 

Cash and cash equivalents – end of period

   $ 346,238      $ 259,957   
  

 

 

   

 

 

 

See Condensed Notes to Consolidated Financial Statements.

 

8


Table of Contents

Home BancShares, Inc.

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Home BancShares, Inc. (the Company or HBI) is a bank holding company headquartered in Conway, Arkansas. The Company is primarily engaged in providing a full range of banking services to individual and corporate customers through its wholly owned community bank subsidiary – Centennial Bank (the Bank or Centennial). The Bank has locations in central Arkansas, north central Arkansas, southern Arkansas, the Florida Keys, central Florida, southwestern Florida, the Florida Panhandle and Baldwin County, Alabama. The Company is subject to competition from other financial institutions. The Company also is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

A summary of the significant accounting policies of the Company follows:

Operating Segments

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Bank is the only significant subsidiary upon which management makes decisions regarding how to allocate resources and assess performance. Each of the branches of the Bank provide a group of similar community banking services, including such products and services as commercial, real estate and consumer loans, time deposits, checking and savings accounts. The individual bank branches have similar operating and economic characteristics. While the chief decision maker monitors the revenue streams of the various products, services and branch locations, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the community banking services and branch locations are considered by management to be aggregated into one reportable operating segment, community banking.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the valuation of investment securities, the valuation of foreclosed assets, the valuations of covered loans and the related indemnification asset. In connection with the determination of the allowance for loan losses and the valuation of foreclosed assets, management obtains independent appraisals for significant properties.

Principles of Consolidation

The consolidated financial statements include the accounts of HBI and its subsidiary. Significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Various items within the accompanying consolidated financial statements for previous years have been reclassified to provide more comparative information. These reclassifications had no effect on net earnings or stockholders’ equity.

 

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Table of Contents

Interim financial information

The accompanying unaudited consolidated financial statements as of March 31, 2012 and 2011 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The information furnished in these interim statements reflects all adjustments, which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2011 Form 10-K, filed with the Securities and Exchange Commission.

Earnings per Share

Basic earnings per common share are computed based on the weighted average number of shares outstanding during each year. Diluted earnings per common share are computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. The following table sets forth the computation of basic and diluted earnings per common share (EPS) for the following periods:

 

     Three Months Ended
March 31,
 
     2012      2011  
     (In thousands)  

Net income available to common stockholders

   $ 14,498       $ 12,046   

Average shares outstanding

     28,230         28,469   

Effect of common stock options

     181         203   
  

 

 

    

 

 

 

Diluted shares outstanding

     28,411         28,672   
  

 

 

    

 

 

 

Basic earnings per common share

   $ 0.51       $ 0.42   

Diluted earnings per common share

   $ 0.51       $ 0.42   

2. Business Combinations

On February 16, 2012, Centennial Bank completed the acquisition of operating assets and liabilities of Vision Bank, a Florida state-chartered bank with its principal office located in Panama City, Florida (“Vision”), pursuant to a Purchase and Assumption Agreement (the “Agreement”), dated November 16, 2011, between the Company, Centennial, Park National Corporation, parent company of Vision (“Park”), and Vision. As a result of the acquisition, the Company will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

Pursuant to the Agreement, Centennial assumed approximately $522.8 million in customer deposits and acquired approximately $355.8 million in performing loans from Vision for the purchase price of approximately $27.9 million. Centennial did not purchase certain Vision performing loans nor any of its non-performing loans or other real estate owned. As part of the acquisition, Centennial acquired the real estate and other assets related to Vision’s 17 banking offices, including eight locations in Baldwin County, Alabama, and nine locations in the Florida Panhandle counties of Bay, Gulf, Okaloosa, Santa Rosa and Walton. Included in the acquisition were the fixed assets located within the Vision offices, the safe deposit business conducted at the Vision offices, cash on hand, prepaid expenses and Vision’s rights under contracts related to the Vision offices. Centennial also assumed the liabilities and obligations of Vision with respect to the safe deposit business, the assumed contracts, third-party leases for the real estate leased by Vision and equipment and operating leases related to the Vision offices. In addition, pursuant to the Agreement, Park granted Centennial a put option to sell an aggregate of $7.5 million of the purchased loans back to Park at cost for a period of up to six months after the closing date. On the closing date, Park made a cash payment to Centennial of approximately $119.5 million.

 

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Table of Contents

Centennial Bank has determined that the acquisition of the net assets of Vision constitute a business combination as defined by the FASB ASC Topic 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed are presented at their fair values as required. Fair values were determined based on the requirements of FASB ASC Topic 820, Fair Value Measurements. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. These fair value estimates are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. In addition, the tax treatment is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.

The following schedule is a breakdown of the revised assets acquired and liabilities assumed as of the acquisition date:

 

     Vision Bank  
     Acquired
from Park
     Fair Value
Adjustments
    As
Recorded

by HBI
 
     (Dollars in thousands)  

Assets

       

Cash and due from banks

   $ 20,711       $ 119,523      $ 140,234   

Loans receivable

     355,750         —          355,750   

Loans receivable discount

     —           (15,453     (15,453
  

 

 

    

 

 

   

 

 

 

Total loans receivable

     355,750         (15,453     340,297   

Bank premises and equipment, net

     12,496         —          12,496   

Deferred tax asset

     —           11,247        11,247   

Goodwill

     —           17,427        17,427   

Core deposit intangibles

     —           3,190        3,190   

Other assets

     4,612         —          4,612   
  

 

 

    

 

 

   

 

 

 

Total assets acquired

   $ 393,569       $ 135,934      $ 529,503   
  

 

 

    

 

 

   

 

 

 

Liabilities

       

Deposits

       

Demand and non-interest-bearing

   $ 78,073       $ —        $ 78,073   

Savings and interest-bearing

transaction accounts

     273,134         —          273,134   

Time deposits

     171,627         1,598        173,225   
  

 

 

    

 

 

   

 

 

 

Total deposits

     522,834         1,598        524,432   

Other liabilities

     5,071         —          5,071   
  

 

 

    

 

 

   

 

 

 

Total liabilities assumed

   $ 527,905       $ 1,598      $ 529,503   
  

 

 

    

 

 

   

 

 

 

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above:

Cash and due from banks– The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets. The $119.5 million adjustment is the cash settlement received from Park on the closing date.

Loans – Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows.

Core deposit intangible – This intangible asset represents the value of the relationships that Vision Bank had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, and the net maintenance cost attributable to customer deposits.

 

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Table of Contents

Deferred tax asset – The deferred tax asset of $11.2 million as of acquisition date is solely related to the differences between the financial statement and tax bases of assets acquired and liabilities assumed in this transaction.

Goodwill – The consideration paid as a result of the acquisition exceeded the fair value of the assets received; therefore, the Company recorded $17.4 million of goodwill.

Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. The Bank could not reset deposit rates to current market rates even though the rates were above market; therefore, a $1.6 million fair value adjustment was recorded for time deposits.

The Company’s operating results for 2012, include the operating results of the acquired assets and assumed liabilities subsequent to the acquisition date. Due to the significant fair value adjustments recorded, as well as not obtaining any non-performing assets, historical results are not believed to be relevant to the Company’s results, and thus no pro forma information is presented.

For the year ended December 31, 2011, Vision has reported in its call report a net loss before income taxes, extraordinary items and other adjustments of approximately $28.7 million. On a carve-out basis factoring in only the assets and liabilities acquired or assumed by Centennial, the acquired portion of Vision would have resulted in net income before income taxes, extraordinary items and other adjustments for 2011 of approximately $8.8 million. The primary differences are Vision’s provision for loan losses, which will not carry over due to Centennial not acquiring Vision’s non-performing loans, and certain non-interest expenses which also will not carry over to Centennial.

3. Investment Securities

The amortized cost and estimated market value of investment securities were as follows:

 

     March 31, 2012  
     Available for Sale  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
(Losses)
    Estimated
Fair Value
 
     (In thousands)  

U.S. government-sponsored enterprises

   $ 391,775       $ 2,993       $ (542   $ 394,226   

Mortgage-backed securities

     177,007         4,067         (275     180,799   

State and political subdivisions

     162,404         6,350         (109     168,645   

Other securities

     16,517         —           (228     16,289   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 747,703       $ 13,410       $ (1,154   $ 759,959   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     December 31, 2011  
     Available for Sale  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
(Losses)
    Estimated
Fair Value
 
     (In thousands)  

U.S. government-sponsored enterprises

   $ 344,789       $ 3,587       $ (380   $ 347,996   

Mortgage-backed securities

     138,383         4,054         (173     142,264   

State and political subdivisions

     160,567         6,531         (29     167,069   

Other securities

     14,310         —           (418     13,892   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 658,049       $ 14,172       $ (1,000   $ 671,221   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Assets, principally investment securities, having a carrying value of approximately $499.9 million and $403.2 million at March 31, 2012 and December 31, 2011, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. Also, investment securities pledged as collateral for repurchase agreements totaled approximately $72.5 million and $62.3 million at March 31, 2012 and December 31, 2011, respectively.

During the three-month period ended March 31, 2012, $1.1 million in available for sale securities were sold. The gross realized gains on these sales totaled approximately $19,000. The income tax expense/benefit to net security gains and losses was 39.225% of the gross amounts.

During the three-month period ended March 31, 2011, no available for sale securities were sold.

The amortized cost and estimated fair value of securities at March 31, 2012, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

     Available-for-Sale  
      Amortized
Cost
     Estimated
Fair Value
 
     (In thousands)  

Due in one year or less

   $ 354,079       $ 356,140   

Due after one year through five years

     251,496         256,146   

Due after five years through ten years

     116,655         121,138   

Due after ten years

     25,473         26,535   
  

 

 

    

 

 

 

Total

   $ 747,703       $ 759,959   
  

 

 

    

 

 

 

For purposes of the maturity tables, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on anticipated maturities. The mortgage-backed securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

The Company evaluates all securities quarterly to determine if any unrealized losses are deemed to be other than temporary. In completing these evaluations the Company follows the requirements of FASB ASC 320, Investments—Debt and Equity Securities. Certain investment securities are valued less than their historical cost. These declines are primarily the result of the rate for these investments yielding less than current market rates. Based on evaluation of available evidence, management believes the declines in fair value for these securities are temporary. The Company does not intend to sell or believe it will be required to sell these investments before recovery of their amortized cost bases, which may be maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

During the three month period ended March 31, 2012, no securities were deemed to have other-than-temporary impairment besides securities for which impairment was taken in prior periods.

For the period ended March 31, 2012, the Company had $31,000 in unrealized losses, which have been in continuous loss positions for more than twelve months. Excluding impairment write downs taken in prior periods, the Company’s assessments indicated that the cause of the market depreciation was primarily the change in interest rates and not the issuer’s financial condition, or downgrades by rating agencies. In addition, approximately 81.0% of the Company’s investment portfolio matures in five years or less. As a result, the Company has the ability and intent to hold such securities until maturity.

 

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Table of Contents

The following shows gross unrealized losses and estimated fair value of investment securities available for sale, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position as of March 31, 2012 and December 31, 2011:

 

     March 31, 2012  
     Less Than 12 Months     12 Months or More     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
     Value      Losses     Value      Losses     Value      Losses  
     (In thousands)  

U.S. government-sponsored enterprises

   $ 114,712       $ (532   $ 2,550       $ (10   $ 117,262       $ (542

Mortgage-backed securities

     26,034         (275     —           —          26,034         (275

State and political subdivisions

     6,299         (88     1,703         (21     8,002         (109

Other securities

     15,789         (228     —           —          15,789         (228
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 162,834       $ (1,123   $ 4,253       $ (31   $ 167,087       $ (1,154
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
      December 31, 2011  
      Less Than 12 Months     12 Months or More     Total  
      Fair Value      Unrealized
Losses
    Fair
Value
     Unrealized
Losses
    Fair Value      Unrealized
Losses
 
     (In thousands)  

U.S. government-sponsored enterprises

   $ 89,714       $ (363   $ 2,569       $ (17   $ 92,283       $ (380

Mortgage-backed securities

     22,626         (173     —           —          22,626         (173

State and political subdivisions

     1,478         (4     1,999         (25     3,477         (29

Other securities

     13,392         (418     —           —          13,392         (418
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 127,210       $ (958   $ 4,568       $ (42   $ 131,778       $ (1,000
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

4. Loans Receivable Not Covered by Loss Share and Allowance for Loan Losses

The various categories of loans not covered by loss share are summarized as follows:

 

      March 31,
2012
     December 31,
2011
 
     (In thousands)  

Real estate:

     

Commercial real estate loans

     

Non-farm/non-residential

   $ 780,520       $ 698,986   

Construction/land development

     413,093         361,846   

Agricultural

     28,120         28,535   

Residential real estate loans

     

Residential 1-4 family

     471,439         349,543   

Multifamily residential

     65,226         56,909   
  

 

 

    

 

 

 

Total real estate

     1,758,398         1,495,819   

Consumer

     38,254         37,923   

Commercial and industrial

     196,165         176,276   

Agricultural

     21,275         21,784   

Other

     32,016         28,284   
  

 

 

    

 

 

 

Loans receivable not covered by loss share

   $ 2,046,108       $ 1,760,086   
  

 

 

    

 

 

 

 

14


Table of Contents

The following tables present the balance in the allowance for loan losses for the three-month period ended March 31, 2012, and the allowance for loan losses and recorded investment in loans based on portfolio segment by impairment method as of March 31, 2012. Allocation of a portion of the allowance to one type of loans does not preclude its availability to absorb losses in other categories. Additionally, the Company’s discount which is accreted into income over the weighted-average life of the loans on non-covered loans acquired was $17.2 million and $2.0 million at March 31, 2012 and 2011, respectively.

 

     Three Months Ended March 31, 2012  
     Construction/
Land
Development
    Other
Commercial
Real Estate
    Residential
Real
Estate
    Commercial
&
Industrial
    Consumer
& Other
    Unallocated     Total  
     (In thousands)  

Allowance for loan losses:

  

Beginning balance

   $ 7,945      $ 20,368      $ 12,196      $ 6,308      $ 3,258      $ 2,054      $ 52,129   

Loans charged off

     (46     (59     (715     (206     (443     —          (1,469

Recoveries of loans previously charged off

     4        24        40        80        206        —          354   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loans recovered (charged off)

     (42     (35     (675     (126     (237     —          (1,115

Provision for loan losses

     1,505        (1,554     1,176        762        79        (1,968     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31

   $ 9,408      $ 18,779      $ 12,697      $ 6,944      $ 3,100      $ 86      $ 51,014   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      As of March 31, 2012  
      Construction/
Land
Development
    Other
Commercial
Real Estate
    Residential
Real
Estate
    Commercial
&
Industrial
    Consumer
& Other
    Unallocated     Total  

Allowance for loan losses:

              

Period end amount allocated to:

              

Loans individually evaluated for impairment

   $ 5,670      $ 13,055      $ 8,119      $ 4,177      $ 2,084      $ —        $ 33,105   

Loans collectively evaluated for impairment

     3,738        5,724        4,578        2,767        1,016        86        17,909   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31

   $ 9,408      $ 18,779      $ 12,697      $ 6,944      $ 3,100      $ 86      $ 51,014   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable:

              

Period end amount allocated to:

              

Loans individually evaluated for impairment

   $ 32,304      $ 102,675      $ 31,410      $ 10,257      $ 2,802      $ —        $ 179,448   

Loans collectively evaluated for impairment

     380,789        705,965        505,255        185,908        88,743        —          1,866,660   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31

   $ 413,093      $ 808,640      $ 536,665      $ 196,165      $ 91,545      $ —        $ 2,046,108   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

As of March 31, 2012, no loans acquired with deteriorated credit quality have required a provision for loan loss.

 

15


Table of Contents

The following tables present the balance in the allowance for loan losses for the year ended December 31, 2011, and the allowance for loan losses and recorded investment in loans based on portfolio segment by impairment method as of December 31, 2011. Allocation of a portion of the allowance to one type of loans does not preclude its availability to absorb losses in other categories.

 

     Year Ended December 31, 2011  
     Construction/
Land
Development
    Other
Commercial
Real Estate
    Residential
Real
Estate
    Commercial
&
Industrial
    Consumer
& Other
    Unallocated     Total  
     (In thousands)  

Allowance for loan losses:

  

Beginning balance

   $ 12,002      $ 17,247      $ 14,297      $ 6,357      $ 1,022      $ 2,423      $ 53,348   

Loans charged off

     (3     (16     (29     (94     (1,480     —          (1,622

Recoveries of loans previously charged off

     2        90        230        157        136        —          615   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loans recovered (charged off)

     (1     74        201        63        (1,344     —          (1,007

Provision for loan losses

     (760     208        (824     305        2,254        67        1,250   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31

     11,241        17,529        13,674        6,725        1,932        2,490        53,591   

Loans charged off

     (3,587     (4,060     (3,270     (477     (1,679     —          (13,073

Recoveries of loans previously charged off

     825        188        2,247        5,660        441        —          9,361   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loans recovered (charged off)

     (2,762     (3,872     (1,023     5,183        (1,238     —          (3,712

Provision for loan losses

     (534     6,711        (455     (5,600     2,564        (436     2,250   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31

   $ 7,945      $ 20,368      $ 12,196      $ 6,308      $ 3,258      $ 2,054      $ 52,129   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      As of December 31, 2011  
      Construction/
Land
Development
    Other
Commercial
Real Estate
    Residential
Real
Estate
    Commercial
&
Industrial
    Consumer
& Other
    Unallocated     Total  

Allowance for loan losses:

              

Period end amount allocated to:

              

Loans individually evaluated for impairment

   $ 4,428      $ 15,050      $ 8,485      $ 3,503      $ 2,205      $ —        $ 33,671   

Loans collectively evaluated for impairment

     3,517        5,318        3,711        2,805        1,053        2,054        18,458   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31

   $ 7,945      $ 20,368      $ 12,196      $ 6,308      $ 3,258      $ 2,054      $ 52,129   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable:

              

Period end amount allocated to:

              

Loans individually evaluated for impairment

   $ 25,534      $ 105,516      $ 29,818      $ 9,535      $ 2,798      $ —        $ 173,201   

Loans collectively evaluated for impairment

     336,312        622,005        376,634        166,741        85,193        —          1,586,885   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31

   $ 361,846      $ 727,521      $ 406,452      $ 176,276      $ 87,991      $ —        $ 1,760,086   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

As of December 31, 2011, no loans acquired with deteriorated credit quality have required a provision for loan loss.

 

16


Table of Contents

The following is an aging analysis for the non-covered loan portfolio as of March 31, 2012 and December 31, 2011:

 

     March 31, 2012  
     Loans
Past  Due
30-59 Days
     Loans
Past  Due
60-89 Days
     Loans
Past Due
90 Days
or More
     Total
Past Due
     Current
Loans
     Total Loans
Receivable
     Accruing
Loans
Past Due
90 Days
or More
 
     (In thousands)  

Real estate:

  

Commercial real estate loans

                    

Non-farm/non-residential

   $ 670       $ 421       $ 7,125       $ 8,216       $ 772,304       $ 780,520       $ 66   

Construction/land development

     1,964         646         2,117         4,727         408,366         413,093         147   

Agricultural

     —           —           168         168         27,952         28,120         —     

Residential real estate loans

                    

Residential 1-4 family

     4,087         1,322         14,073         19,482         451,957         471,439         11   

Multifamily residential

     —           —           —           —           65,226         65,226         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     6,721         2,389         23,483         32,593         1,725,805         1,758,398         224   

Consumer

     496         136         1,039         1,671         36,583         38,254         65   

Commercial and industrial

     543         137         1,634         2,314         193,851         196,165         —     

Agricultural and other

     172         14         1,558         1,744         51,547         53,291         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,932       $ 2,676       $ 27,714       $ 38,322       $ 2,007,786       $ 2,046,108       $ 289   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     Loans
Past  Due
30-59 Days
     Loans
Past  Due
60-89 Days
     Loans
Past Due
90 Days
or More
     Total
Past Due
     Current
Loans
     Total Loans
Receivable
     Accruing
Loans
Past Due
90 Days
or More
 
     (In thousands)  

Real estate:

  

Commercial real estate loans

                    

Non-farm/non-residential

   $ 764       $ 1,758       $ 7,055       $ 9,577       $ 689,409       $ 698,986       $ —     

Construction/land development

     848         650         2,226         3,724         358,122         361,846         —     

Agricultural

     —           —           178         178         28,357         28,535         —     

Residential real estate loans

                    

Residential 1-4 family

     2,064         251         13,617         15,932         333,611         349,543         750   

Multifamily residential

     —           —           92         92         56,817         56,909         92   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     3,676         2,659         23,168         29,503         1,466,316         1,495,819         842   

Consumer

     656         268         1,501         2,425         35,498         37,923         132   

Commercial and industrial

     234         211         1,617         2,062         174,214         176,276         19   

Agricultural and other

     176         17         1,203         1,396         48,672         50,068         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,742       $ 3,155       $ 27,489       $ 35,386       $ 1,724,700       $ 1,760,086       $ 993   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-accruing loans not covered by loss share at March 31, 2012 and December 31, 2011 were $27.4 million and $26.5 million, respectively.

The Company did not sell any of the guaranteed portions of SBA loans during the three-month period ended March 31, 2012. During the three-month period ended March 31, 2011, the Company sold $4.2 million of the guaranteed portion of certain SBA loans, which resulted in a gain of approximately $259,000.

 

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Table of Contents

Mortgage loans held for sale of approximately $9.0 million and $10.3 million at March 31, 2012 and December 31, 2011, respectively, are included in residential 1-4 family loans. Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid. The Company obtains forward commitments to sell mortgage loans to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. The forward commitments acquired by the Company for mortgage loans in process of origination are not mandatory forward commitments. These commitments are structured on a best efforts basis; therefore the Company is not required to substitute another loan or to buy back the commitment if the original loan does not fund. Typically, the Company delivers the mortgage loans within a few days after the loans are funded. These commitments are derivative instruments and their fair values at March 31, 2012 and December 31, 2011 were not material.

The following is a summary of the non-covered impaired loans as of March 31, 2012 and December 31, 2011:

 

     March 31, 2012  
                          Three Months Ended  
     Unpaid
Contractual
Principal
Balance
     Total
Recorded
Investment
     Allocation
of
Allowance
for Loan
Losses
     Average
Recorded
Investment
     Interest
Recognized
 
      (In thousands)  

Real estate:

  

Commercial real estate loans

              

Non-farm/non-residential

   $ 76,012       $ 72,321       $ 13,055       $ 76,250       $ 1,000   

Construction/land development

     23,304         21,933         5,670         20,769         296   

Residential real estate loans

              

Residential 1-4 family

     25,947         23,215         5,872         21,729         232   

Multifamily residential

     6,576         6,576         2,247         6,576         82   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     131,839         124,045         26,844         125,324         1,610   

Consumer

     1,599         1,599         941         1,597         15   

Commercial and industrial

     11,355         9,779         4,177         9,199         152   

Agricultural and other

     1,203         1,203         1,143         1,203         21   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 145,996       $ 136,626       $ 33,105       $ 137,323       $ 1,798   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
                          Year Ended  
     Unpaid
Contractual
Principal
Balance
     Total
Recorded
Investment
     Allocation
of
Allowance
for Loan
Losses
     Average
Recorded
Investment
     Interest
Recognized
 
      (In thousands)  

Real estate:

  

Commercial real estate loans

              

Non-farm/non-residential

   $ 80,316       $ 80,179       $ 15,050       $ 52,757       $ 2,913   

Construction/land development

     21,600         19,606         4,428         19,077         963   

Agricultural

     —           —           —           479         10   

Residential real estate loans

              

Residential 1-4 family

     25,419         20,243         6,272         19,914         858   

Multifamily residential

     6,577         6,576         2,213         7,039         350   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     133,912         126,604         27,963         99,266         5,094   

Consumer

     1,611         1,596         1,002         1,348         46   

Commercial and industrial

     10,537         8,619         3,503         10,984         730   

Agricultural and other

     1,203         1,203         1,203         241         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 147,263       $ 138,022       $ 33,671       $ 111,839       $ 5,870   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

18


Table of Contents

All of the Company’s non-covered impaired loans have a specific allocation of the allowance for loan losses, with the exception of certain troubled debt restructurings (“TDR”) where the discounted cash flows under the restructuring are greater than or equal to those under the original terms of the loan. Interest recognized on non-covered impaired loans during the three months ended March 31, 2012 and 2011 was approximately $1.8 million and $1.3 million, respectively. The amount of interest recognized on non-covered impaired loans on the cash basis is not materially different than the accrual basis.

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk rating of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans and (v) the general economic conditions in Florida and Arkansas.

The Company utilizes a risk rating matrix to assign a risk rating to each of its loans. Loans are rated on a scale from 1 to 8. A description of the general characteristics of the 8 risk ratings are as follows:

 

   

Risk rating 1 – Excellent. Loans in this category are to persons or entities of unquestionable financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category.

 

   

Risk rating 2 – Good. These are loans to persons or entities with strong financial condition and above-average liquidity that have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements and on which repayment is satisfactory may be included in this classification.

 

   

Risk rating 3 – Satisfactory. Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in this rating category. Overall, these loans are basically sound.

 

   

Risk rating 4 – Watch. Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure. Included in this category are loans to borrowers in industries that are experiencing elevated risk.

 

   

Risk rating 5 – Other Loans Especially Mentioned (“OLEM”). A loan criticized as OLEM has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. OLEM assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.

 

   

Risk rating 6 – Substandard. A loan classified as substandard is inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual assets.

 

19


Table of Contents
   

Risk rating 7 – Doubtful. A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the loan.

 

   

Risk rating 8 – Loss. Assets classified as loss are considered uncollectible and of such little value that the continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery may occur in the future. This classification is based upon current facts, not probabilities. Assets classified as loss should be charged-off in the period in which they became uncollectible.

The Company’s classified loans include loans in risk ratings 6, 7 and 8. The following is a presentation of classified non-covered loans by class as of March 31, 2012 and December 31, 2011:

 

     March 31, 2012  
     Risk Rated 6      Risk Rated 7      Risk Rated 8      Classified Total  
     (In thousands)  

Real estate:

  

Commercial real estate loans

           

Non-farm/non-residential

   $ 46,130       $ —         $ —         $ 46,130   

Construction/land development

     9,994         26         —           10,020   

Agricultural

     163         —           —           163   

Residential real estate loans

           

Residential 1-4 family

     30,761         116         —           30,877   

Multifamily residential

     4,877         —           —           4,877   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     91,925         142         —           92,067   

Consumer

     2,211         —           —           2,211   

Commercial and industrial

     10,675         15         —           10,690   

Agricultural and other

     1,252         —           —           1,252   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 106,063       $ 157       $ —         $ 106,220   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     Risk Rated 6      Risk Rated 7      Risk Rated 8      Classified Total  
     (In thousands)  

Real estate:

           

Commercial real estate loans

           

Non-farm/non-residential

   $ 44,813       $ —         $ —         $ 44,813   

Construction/land development

     6,718         —           —           6,718   

Agricultural

     178         —           —           178   

Residential real estate loans

           

Residential 1-4 family

     22,376         382         —           22,758   

Multifamily residential

     4,884         —           —           4,884   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     78,969         382         —           79,351   

Consumer

     2,224         —           —           2,224   

Commercial and industrial

     8,947         55         —           9,002   

Agricultural and other

     1,253         —           —           1,253   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 91,393       $ 437       $ —         $ 91,830   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

20


Table of Contents

Loans may be classified, but not considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar amount thresholds for loan impairment testing. All loans over $250,000 that are rated 5 or worse are individually assessed for impairment on a quarterly basis. Loans rated 6 – 8 that fall under the threshold amount are not individually tested for impairment and therefore are not included in impaired loans; (2) of the loans that are above the threshold amount and tested for impairment, after testing, some are considered to not be impaired and are not included in impaired loans.

The following is a presentation of non-covered loans by class and risk rating as of March 31, 2012 and December 31, 2011:

 

     March 31, 2012  
     Risk
Rated 1
     Risk
Rated 2
     Risk
Rated 3
     Risk
Rated 4
     Risk
Rated 5
     Classified
Total
     Total  
     (In thousands)  

Real estate:

                    

Commercial real estate loans

                    

Non-farm/non-residential

   $ 10       $ 62       $ 351,946       $ 325,941       $ 56,431       $ 46,130       $ 780,520   

Construction/land development

     235         512         109,116         267,277         25,933         10,020         413,093   

Agricultural

     —           —           10,738         17,219         —           163         28,120   

Residential real estate loans

                    

Residential 1-4 family

     220         154         309,613         124,933         5,642         30,877         471,439   

Multifamily residential

     —           —           36,941         22,212         1,196         4,877         65,226   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     465         728         818,354         757,582         89,202         92,067         1,758,398   

Consumer

     8,087         144         18,943         7,690         1,179         2,211         38,254   

Commercial and industrial

     9,945         3,706         84,854         83,571         3,399         10,690         196,165   

Agricultural and other

     39         2,501         30,553         18,942         4         1,252         53,291   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,536       $ 7,079       $ 952,704       $ 867,785       $ 93,784       $ 106,220       $ 2,046,108   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     Risk
Rated 1
     Risk
Rated 2
     Risk
Rated 3
     Risk
Rated 4
     Risk
Rated 5
     Classified
Total
     Total  
     (In thousands)  

Real estate:

                    

Commercial real estate loans

                    

Non-farm/non-residential

   $ 48       $ 14       $ 341,027       $ 258,252       $ 54,832       $ 44,813       $ 698,986   

Construction/land development

     8         405         93,913         246,520         14,282         6,718         361,846   

Agricultural

     —           —           10,495         17,862         —           178         28,535   

Residential real estate loans

                    

Residential 1-4 family

     277         157         210,846         106,707         8,798         22,758         349,543   

Multifamily residential

     —           —           36,300         14,032         1,693         4,884         56,909   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     333         576         692,581         643,373         79,605         79,351         1,495,819   

Consumer

     7,817         939         17,458         8,163         1,322         2,224         37,923   

Commercial and industrial

     7,737         1,080         84,923         71,139         2,395         9,002         176,276   

Agricultural and other

     51         1,583         29,991         17,186         4         1,253         50,068   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 15,938       $ 4,178       $ 824,953       $ 739,861       $ 83,326       $ 91,830       $ 1,760,086   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

The following is a presentation of non-covered TDR’s by class:

 

     March 31, 2012  
     Number
of Loans
     Pre-
Modification
Outstanding
Balance
     Rate
Modification
     Term
Modification
     Rate
& Term
Modification
     Post-
Modification
Outstanding
Balance
 
     (In thousands)  

Real estate:

                 

Commercial real estate loans

                 

Non-farm/non-residential

     25       $ 31,757       $ 18,092       $ 2,773       $ 4,337       $ 25,202   

Construction/land development

     8         14,626         10,180         33         3,259         13,472   

Residential real estate loans

                 

Residential 1-4 family

     15         9,382         4,853         125         689         5,667   

Multifamily residential

     2         4,586         3,698         —           —           3,698   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     50         60,351         36,823         2,931         8,285         48,039   

Commercial and industrial

     4         336         308         —           16         324   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     54       $ 60,687       $ 37,131       $ 2,931       $ 8,301       $ 48,363   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     Number
of Loans
     Pre-
Modification
Outstanding
Balance
     Rate
Modification
     Term
Modification
     Rate
& Term
Modification
     Post-
Modification
Outstanding
Balance
 
     (In thousands)  

Real estate:

                 

Commercial real estate loans

                 

Non-farm/non-residential

     27       $ 39,420       $ 22,739       $ 5,319       $ 4,326       $ 32,384   

Construction/land development

     6         11,114         7,642         34         3,259         10,935   

Residential real estate loans

                 

Residential 1-4 family

     16         9,572         5,055         124         771         5,950   

Multifamily residential

     2         4,586         3,692         —           —           3,692   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     51         64,692         39,128         5,477         8,356         52,961   

Commercial and industrial

     5         534         115         —           195         310   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     56       $ 65,226       $ 39,243       $ 5,477       $ 8,551       $ 53,271   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following is a presentation of non-covered TDR’s on non-accrual status because they are not in compliance with the modified terms:

 

     March 31, 2012      December 31, 2011  
     Number of Loans      Recorded Balance      Number of Loans      Recorded Balance  
     (In thousands)                

Real estate:

           

Commercial real estate loans

           

Non-farm/non-residential

     6       $ 5,615         3       $ 4,147   

Construction/land development

     1         112         1         112   

Residential real estate loans

           

Residential 1-4 family

     3         968         3         1,805   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total real estate

     10         6,695         7         6,064   

Commercial and industrial

     1         92         1         10   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     11       $ 6,787         8       $ 6,074   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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5. Loans Receivable Covered by FDIC Loss Share

The Company evaluated loans purchased in conjunction with the 2010 acquisitions of Old Southern, Key West, Coastal-Bayside, Wakulla and Gulf State under purchase and assumption agreements with the Federal Deposit Insurance Corporation (FDIC) for impairment in accordance with the provisions of FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased covered loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected. The following table reflects the carrying value of all purchased covered impaired loans as of March 31, 2012 and December 31, 2011 for the Company’s FDIC-assisted transactions:

 

     March 31,      December 31,  
     2012      2011  
     (In thousands)  

Real estate:

     

Commercial real estate loans

     

Non-farm/non-residential

   $ 179,360       $ 189,380   

Construction/land development

     99,996         103,535   

Agricultural

     3,092         3,155   

Residential real estate loans

     

Residential 1-4 family

     139,819         148,692   

Multifamily residential

     9,077         8,933   
  

 

 

    

 

 

 

Total real estate

     431,344         453,695   

Consumer

     549         334   

Commercial and industrial

     22,843         26,884   

Other

     699         826   
  

 

 

    

 

 

 

Loans receivable covered by FDIC loss share (1)

   $ 455,435       $ 481,739   
  

 

 

    

 

 

 

 

(1) These loans were not classified as nonperforming assets at March 31, 2012 and December 31, 2011, as the loans are accounted for on a pooled basis and the pools are considered to be performing. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all purchased impaired loans. Additionally, as of March 31, 2012 and December 31, 2011, $101.0 million and $118.6 million, respectively, were accruing past due loans 90 days or more.

The acquired loans were grouped into pools based on common risk characteristics and were recorded at their estimated fair values, which incorporated estimated credit losses at the acquisition dates. These loan pools are systematically reviewed by the Company to determine material changes in cash flow estimates from those identified at the time of the acquisition. Techniques used in determining risk of loss are similar to the Centennial Bank non-covered loan portfolio, with most focus being placed on those loan pools which include the larger loan relationships and those loan pools which exhibit higher risk characteristics.

Changes in the carrying amount of the accretable yield for purchased impaired and non-impaired loans were as follows for the period ended March 31, 2012 for the Company’s FDIC-assisted acquisitions.

 

     Accretable
Yield
    Carrying
Amount of
Loans
 
     (In thousands)  

Balance at beginning of period

   $ 113,553      $ 481,739   

Accretion

     (9,124     9,124   

Transfers to foreclosed assets held for sale covered by FDIC loss share

     —          (5,822

Payments received, net

     —          (29,606
  

 

 

   

 

 

 

Balance at end of period

   $ 104,429      $ 455,435   
  

 

 

   

 

 

 

 

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During 2012, no pools evaluated by the Company were determined to have a materially projected credit improvement. No pools evaluated by the Company were determined to have experienced impairment in the estimated credit quality or cash flows. There were no allowances for loan losses related to the purchased impaired loans at March 31, 2012 and December 31, 2011.

6. Goodwill and Core Deposits and Other Intangibles

Changes in the carrying amount and accumulated amortization of the Company’s goodwill and core deposits and other intangibles at March 31, 2012 and December 31, 2011, were as follows:

 

     March 31, 2012     December 31, 2011  
     (In thousands)  

Goodwill

    

Balance, beginning of period

   $ 59,663      $ 59,663   

Vision Bank acquisition

     17,427        —     
  

 

 

   

 

 

 

Balance, end of period

   $ 77,090      $ 59,663   
  

 

 

   

 

 

 
     2012     2011  
     (In thousands)  

Core Deposit and Other Intangibles

    

Balance, beginning of period

   $ 8,620      $ 11,447   

Vision Bank acquisition

     3,190        —     

Amortization expense

     (630     (713
  

 

 

   

 

 

 

Balance, March 31

   $ 11,180        10,734   
  

 

 

   

Amortization expense

       (2,114
    

 

 

 

Balance, end of year

     $ 8,620   
    

 

 

 

The carrying basis and accumulated amortization of core deposits and other intangibles at March 31, 2012 and December 31, 2011 were:

 

     March 31, 2012      December 31, 2011  
     (In thousands)  

Gross carrying amount

   $ 26,651       $ 23,461   

Accumulated amortization

     15,471         14,841   
  

 

 

    

 

 

 

Net carrying amount

   $ 11,180       $ 8,620   
  

 

 

    

 

 

 

Core deposit and other intangible amortization was approximately $630,000 and $713,000 for each of the three-months ended March 31, 2012 and 2011, respectively. Including the Vision acquisition completed as of February 16, 2012, HBI’s estimated amortization expense of core deposits and other intangibles for each of the years 2012 through 2016 is approximately: 2012—$2.7 million; 2013—$2.8 million; 2014—$2.6 million; 2015—$1.8 million; 2016—$543,000.

The carrying amount of the Company’s goodwill was $77.1 million at March 31, 2012 and $59.7 million at December 31, 2011. Goodwill is tested annually for impairment during the fourth quarter. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements.

 

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7. Deposits

The aggregate amount of time deposits with a minimum denomination of $100,000 was $741.2 million and $703.2 million at March 31, 2012 and December 31, 2011, respectively. Interest expense applicable to certificates in excess of $100,000 totaled $2.5 million and $3.3 million for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012 and December 31, 2011, brokered deposits were $133.7 million and $103.4 million, respectively.

Deposits totaling approximately $505.8 million and $279.8 million at March 31, 2012 and December 31, 2011, respectively, were public funds obtained primarily from state and political subdivisions in the United States.

8. Securities Sold Under Agreements to Repurchase

At March 31, 2012 and December 31, 2011, securities sold under agreements to repurchase totaled $72.5 million and $62.3 million, respectively. For the three month periods ended March 31, 2012 and March 31, 2011, securities sold under agreements to repurchase daily weighted average totaled $69.1 million and $71.1 million, respectively.

9. FHLB Borrowed Funds

The Company’s FHLB borrowed funds were $142.8 million at March 31, 2012 and December 31, 2011. All of the outstanding balance at March 31, 2012 and December 31, 2011 were long-term advances. The FHLB advances mature from the current year to 2025 with fixed interest rates ranging from 2.020% to 4.898% and are secured by loans and investments securities. Expected maturities will differ from contractual maturities, because FHLB may have the right to call or prepay certain obligations.

Additionally, the Company had $90.0 million and $135.0 million at March 31, 2012 and December 31, 2011, respectively, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits at March 31, 2012 and December 31, 2011, respectively.

10. Income Taxes

The following is a summary of the components of the provision (benefit) for income taxes for the three-month periods ended March 31:

 

     Three Months Ended March 31,  
     2012     2011  
     (In thousands)  

Current:

    

Federal

   $ 6,935      $ 8,387   

State

     1,042        1,626   
  

 

 

   

 

 

 

Total current

     7,977        10,013   
  

 

 

   

 

 

 

Deferred:

    

Federal

     (187     (2,731

State

     (37     (542
  

 

 

   

 

 

 

Total deferred

     (224     (3,273
  

 

 

   

 

 

 

Provision for income taxes

   $ 7,753      $ 6,740   
  

 

 

   

 

 

 

 

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The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the three-month periods ended March 31:

 

     Three Months Ended  
     March 31,  
     2012     2011  

Statutory federal income tax rate

     35.00     35.00

Effect of nontaxable interest income

     (2.71     (3.09

Cash value of life insurance

     (0.40     (0.43

State income taxes, net of federal benefit

     2.93        3.62   

Other

     0.02        (0.46
  

 

 

   

 

 

 

Effective income tax rate

     34.84     34.64
  

 

 

   

 

 

 

The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows:

 

     March 31, 2012      December 31, 2011  
     (In thousands)  

Deferred tax assets:

     

Allowance for loan losses

   $ 20,037       $ 20,474   

Deferred compensation

     1,238         1,839   

Stock options

     329         317   

Real estate owned

     9,819         9,189   

Loan discounts

     53,850         57,095   

Tax basis premium/discount on acquisitions

     24,779         14,306   

Deposits

     851         357   

Other

     4,281         5,236   
  

 

 

    

 

 

 

Gross deferred tax assets

     115,184         108,813   
  

 

 

    

 

 

 

Deferred tax liabilities:

     

Accelerated depreciation on premises and equipment

     2,157         2,299   

Unrealized gain on securities

     4,808         5,167   

Core deposit intangibles

     960         1,159   

Indemnification asset

     70,546         75,254   

FHLB dividends

     881         879   

Other

     1,152         1,205   
  

 

 

    

 

 

 

Gross deferred tax liabilities

     80,504         85,963   
  

 

 

    

 

 

 

Net deferred tax assets

   $ 34,680       $ 22,850   
  

 

 

    

 

 

 

11. Common Stock and Compensation Plans

Stock Compensation Plans

The Company has a stock option and performance incentive plan. The purpose of the plan is to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate those persons to improve our business results. On April 19, 2012, our shareholders approved the Amended and Restated 2006 Stock Option and Performance Incentive Plan (“the Plan”). As a result of the required shareholder approval at the Annual Shareholder Meeting held on April 19, 2012, the Plan has become effective as of February 27, 2012 and increased the number of shares reserved for issuance under the Plan by 540,000 shares. As of April 19, 2012, this plan provided for the granting of incentive nonqualified options to purchase stock or for the issuance of restricted shares up to 2,322,000 of common stock in the Company. As of April 19, 2012, the Company has approximately 1,000,000 shares of common stock remaining available for grants or issuance under the plan and approximately 1,598,000 shares reserved for issuance of common stock.

 

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The intrinsic value of the stock options outstanding and stock options vested at March 31, 2012 was $8.5 million and $8.4 million, respectively. The intrinsic value of the stock options exercised during the three-month period ended March 31, 2012 was approximately $186,000. Total unrecognized compensation cost, net of income tax benefit, related to non-vested awards, which are expected to be recognized over the vesting periods, was approximately $333,000 as of March 31, 2012.

The table below summarized the transactions under the Company’s stock option plans at March 31, 2012 and December 31, 2011 and changes during the three-month period and year then ended:

 

     For the Three Months Ended
March 31, 2012
     For the Year Ended
December 31, 2011
 
     Shares (000)     Weighted
Average
Exercisable
Price
     Shares (000)     Weighted
Average
Exercisable
Price
 

Outstanding, beginning of year

     569      $ 11.36         660      $ 10.88   

Granted

     45        26.25         —          —     

Forfeited

     —          —           —          —     

Exercised

     (16     15.09         (91     7.87   

Expired

     —          —           —          —     
  

 

 

      

 

 

   

Outstanding, end of period

     598        12.38         569        11.36   
  

 

 

      

 

 

   

Exercisable, end of period

     543      $ 11.11         550      $ 11.13   
  

 

 

      

 

 

   

Stock-based compensation expense for stock-based compensation awards granted is based on the grant date fair value. For stock option awards, the fair value is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of fair value for the Company’s employee stock options. The weighted-average fair value of options granted during the three-months ended March 31, 2012, was $7.18. There were no options granted during 2011. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model based on the weighted-average assumptions for expected dividend yield, expected stock price volatility, risk-free interest rate, and expected life of options granted. During first three months of 2012, none of the stock options granted were to executive officers of the Company.

 

     For the Three Months Ended     For the Year Ended  
     March 31, 2012     December 31, 2011  

Expected dividend yield

     1.52     Not applicable   

Expected stock price volatility

     30.56