XNAS:UBSH Union First Market Bankshares Corp 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

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-20293

 

 

UNION FIRST MARKET BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

VIRGINIA   54-1598552
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

1051 East Cary Street

Suite 1200

Richmond, Virginia 23219

(Address of principal executive offices) (Zip Code)

(804) 633-5031

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

 

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

The number of shares of common stock outstanding as of May 2, 2012 was 25,942,472

 

 

 


Table of Contents

UNION FIRST MARKET BANKSHARES CORPORATION

FORM 10-Q

INDEX

 

ITEM         PAGE  
PART I - FINANCIAL INFORMATION  

Item 1.

  

Financial Statements

  
  

Condensed Consolidated Balance Sheets as of March 31, 2012, December 31, 2011 and March 31, 2011

     1   
  

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

     2   
  

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

     3   
  

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

     4   
  

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

     5   
  

Notes to Condensed Consolidated Financial Statements

     6   
  

Report of Independent Registered Public Accounting Firm

     35   

Item 2.

  

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

     36   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     55   

Item 4.

  

Controls and Procedures

     56   
PART II - OTHER INFORMATION   

Item 1.

  

Legal Proceedings

     57   

Item 1A.

  

Risk Factors

     57   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     57   

Item 6.

  

Exhibits

     58   
  

Signatures

     59   

 

ii


Table of Contents

PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

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

ASSETS

        

Cash and cash equivalents:

        

Cash and due from banks

   $ 62,345       $ 69,786       $ 54,403   

Interest-bearing deposits in other banks

     48,504         26,556         30,050   

Money market investments

     179         155         178   

Federal funds sold

     155         162         175   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

     111,183         96,659         84,806   
  

 

 

    

 

 

    

 

 

 

Securities available for sale, at fair value

     621,751         620,166         557,338   

Restricted stock, at cost

     20,715         20,661         25,056   

Loans held for sale

     73,575         74,823         50,584   

Loans, net of unearned income

     2,841,758         2,818,583         2,806,928   

Less allowance for loan losses

     40,204         39,470         40,399   
  

 

 

    

 

 

    

 

 

 

Net loans

     2,801,554         2,779,113         2,766,529   
  

 

 

    

 

 

    

 

 

 

Bank premises and equipment, net

     90,986         90,589         90,594   

Other real estate owned, net of valuation allowance

     37,663         32,263         38,674   

Core deposit intangibles, net

     19,403         20,714         25,171   

Goodwill

     59,400         59,400         57,567   

Other assets

     111,569         112,699         116,381   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 3,947,799       $ 3,907,087       $ 3,812,700   
  

 

 

    

 

 

    

 

 

 

LIABILITIES

        

Noninterest-bearing demand deposits

   $ 564,811       $ 534,535       $ 507,565   

Interest-bearing deposits:

        

NOW accounts

     434,625         412,605         381,887   

Money market accounts

     904,272         904,893         827,076   

Savings accounts

     194,473         179,157         174,244   

Time deposits of $100,000 and over

     516,829         511,614         521,940   

Other time deposits

     600,697         632,301         653,904   
  

 

 

    

 

 

    

 

 

 

Total interest-bearing deposits

     2,650,896         2,640,570         2,559,051   
  

 

 

    

 

 

    

 

 

 

Total deposits

     3,215,707         3,175,105         3,066,616   
  

 

 

    

 

 

    

 

 

 

Securities sold under agreements to repurchase

     53,043         62,995         66,225   

Trust preferred capital notes

     60,310         60,310         60,310   

Long-term borrowings

     155,503         155,381         155,014   

Other liabilities

     37,132         31,657         29,046   
  

 

 

    

 

 

    

 

 

 

Total liabilities

     3,521,695         3,485,448         3,377,211   
  

 

 

    

 

 

    

 

 

 

Commitments and contingencies

        

STOCKHOLDERS’ EQUITY

        

Preferred stock, $10.00 par value, $1,000 liquidation value, shares authorized 500,000; issued and outstanding, 35,595 shares at March 31, 2011 and zero at December 31, 2011 and March 31, 2012.

     —           —           35,595   

Common stock, $1.33 par value, shares authorized 36,000,000; issued and outstanding, 25,944,530 shares, 26,134,830 shares, and 26,034,989 shares, respectively.

     34,396         34,672         34,559   

Surplus

     185,263         187,493         185,962   

Retained earnings

     195,933         189,824         173,655   

Discount on preferred stock

     —           —           (1,113

Accumulated other comprehensive income

     10,512         9,650         6,831   
  

 

 

    

 

 

    

 

 

 

Total stockholders’ equity

     426,104         421,639         435,489   
  

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 3,947,799       $ 3,907,087       $ 3,812,700   
  

 

 

    

 

 

    

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

 

     Three Months Ended
March 31
 
     2012     2011  
     (Unaudited)     (Unaudited)  

Interest and dividend income:

    

Interest and fees on loans

   $ 40,608      $ 42,003   

Interest on deposits in other banks

     24        5   

Interest and dividends on securities:

    

Taxable

     3,454        3,630   

Nontaxable

     1,788        1,754   
  

 

 

   

 

 

 

Total interest and dividend income

     45,874        47,392   
  

 

 

   

 

 

 

Interest expense:

    

Interest on deposits

     5,335        6,684   

Interest on Federal funds purchased

     —          7   

Interest on short-term borrowings

     404        161   

Interest on long-term borrowings

     1,788        1,740   
  

 

 

   

 

 

 

Total interest expense

     7,527        8,592   
  

 

 

   

 

 

 

Net interest income

     38,347        38,800   

Provision for loan losses

     3,500        6,300   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     34,847        32,500   
  

 

 

   

 

 

 

Noninterest income:

    

Service charges on deposit accounts

     2,130        2,058   

Other service charges, commissions and fees

     3,410        2,924   

Losses on securities transactions, net

     (5     (16

Gains on sales of loans

     5,296        4,968   

Losses on sales of other real estate and bank premises, net

     (58     (299

Other operating income

     1,045        912   
  

 

 

   

 

 

 

Total noninterest income

     11,818        10,547   
  

 

 

   

 

 

 

Noninterest expenses:

    

Salaries and benefits

     19,507        17,654   

Occupancy expenses

     2,647        2,754   

Furniture and equipment expenses

     1,763        1,662   

Other operating expenses

     11,692        12,697   
  

 

 

   

 

 

 

Total noninterest expenses

     35,609        34,767   
  

 

 

   

 

 

 

Income before income taxes

     11,056        8,280   

Income tax expense

     3,133        2,086   
  

 

 

   

 

 

 

Net income

   $ 7,923      $ 6,194   

Dividends paid and accumulated on preferred stock

     —          462   

Accretion of discount on preferred stock

     —          64   
  

 

 

   

 

 

 

Net income available to common shareholders

   $ 7,923      $ 5,668   
  

 

 

   

 

 

 

Earnings per common share, basic

   $ 0.31      $ 0.22   
  

 

 

   

 

 

 

Earnings per common share, diluted

   $ 0.31      $ 0.22   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

 

     Three Months Ended  
     March 31  
     2012      2011  
     (Unaudited)      (Unaudited)  

Net income

   $ 7,923       $ 6,194   

Other comprehensive income:

     

Change in fair value of interest rate swap (cash flow hedge)

     197         193   

Unrealized gains on securities:

     

Unrealized holding gains arising during period (net of tax $355 and $1,645, respectively)

     662         3,057   

Reclassification adjustment for losses included in net income (net of tax $2 and $6, respectively)

     3         10   
  

 

 

    

 

 

 

Other comprehensive income

     862         3,260   
  

 

 

    

 

 

 

Comprehensive income

   $ 8,785       $ 9,454   
  

 

 

    

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(Dollars in thousands, except share and per share amounts)

(Unaudited)

 

    Preferred Stock     Common
Stock
    Surplus     Retained
Earnings
    Discount
on
Preferred
Stock
    Accumulated
Other
Comprehensive
Income
    Total  

Balance - December 31, 2010

  $ 35,595      $ 34,532      $ 185,763      $ 169,801      $ (1,177   $ 3,571      $ 428,085   

Net income - 2011

          6,194            6,194   

Other comprehensive income (net of tax, $1,651)

              3,260        3,260   

Dividends on Common Stock ($.07 per share)

          (1,814         (1,814

Tax benefit from exercise of stock awards

        1              1   

Dividends on Preferred Stock

          (462         (462

Accretion of discount on Preferred Stock

          (64     64          —     

Issuance of common stock under Dividend Reinvestment Plan (5,194 shares)

      7        52              59   

Issuance of common stock under Stock Incentive Plan (6,450 shares)

      8        68              76   

Vesting of restricted stock under Stock Incentive Plan (8,659 shares)

      12        (12           —     

Stock-based compensation expense

        90              90   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance - March 31, 2011

  $ 35,595      $ 34,559      $ 185,962      $ 173,655      $ (1,113   $ 6,831      $ 435,489   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance - December 31, 2011

  $ —        $ 34,672      $ 187,493      $ 189,824      $ —        $ 9,650      $ 421,639   

Net income - 2012

          7,923            7,923   

Other comprehensive income (net of tax, $357)

              862        862   

Dividends on Common Stock ($.07 per share)

          (1,694         (1,694

Stock purchased under stock repurchase plan (220,265 shares)

      (293     (2,571           (2,864

Issuance of common stock under Dividend Reinvestment Plan (8,731 shares)

      12        108        (120         —     

Vesting of restricted stock under Stock Incentive Plan (4,032 shares)

      5        (5           —     

Stock-based compensation expense

        238              238   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance - March 31, 2012

  $ —        $ 34,396      $ 185,263      $ 195,933      $ —        $ 10,512      $ 426,104   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(Dollars in thousands)

 

     2012     2011  

Operating activities:

    

Net income

   $ 7,923      $ 6,194   

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

    

Depreciation of bank premises and equipment

     1,694        1,649   

Amortization, net

     2,285        1,571   

Provision for loan losses

     3,500        6,300   

Losses on the sale of investment securities

     5        16   

Increase in loans held for sale, net

     1,248        23,390   

Loss on sales of other real estate owned and bank premises, net

     58        299   

Stock-based compensation expense

     238        90   

Decrease in other assets

     1,914        4,761   

Increase (decrease) in other liabilities

     5,672        (1,888
  

 

 

   

 

 

 

Net cash and cash equivalents provided by operating activities

     24,537        42,382   
  

 

 

   

 

 

 

Investing activities:

    

Purchases of securities available for sale

     (43,339     (40,971

Proceeds from maturities, calls and paydowns of securities available for sale

     40,602        32,841   

Net (increase) decrease in loans

     (32,534     19,587   

Net increase in bank premises and equipment

     (2,122     (1,526

Proceeds from sales of other real estate owned

     1,485        3,580   

Improvements to other real estate owned

     (319     (37
  

 

 

   

 

 

 

Net cash and cash equivalents provided by (used in) investing activities

     (36,227     13,474   
  

 

 

   

 

 

 

Financing activities:

    

Net increase in noninterest-bearing deposits

     30,276        22,698   

Net increase (decrease) in interest-bearing deposits

     10,326        (26,141

Net decrease in short-term borrowings

     (9,952     (26,742

Net increase in long-term borrowings

     122        122   

Cash dividends paid - common stock

     (1,694     (1,814

Cash dividends paid - preferred stock

     —          (462

Repurchase of common stock

     (2,864     —     

Taxes paid related to net share settlement of equity awards

     —          1   

Issuance of common stock

     —          135   
  

 

 

   

 

 

 

Net cash and cash equivalents (used in) provided by financing activities

     26,214        (32,203
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     14,524        23,653   

Cash and cash equivalents at beginning of the period

     96,659        61,153   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 111,183      $ 84,806   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information

    

Cash payments for:

    

Interest

   $ 8,394      $ 8,795   

Income taxes

     2,914        2,464   

Supplemental schedule of noncash investing and financing activities

    

Unrealized gain on securities available for sale

   $ 1,022      $ 4,718   

Changes in fair value of interest rate swap

     197        193   

Transfers from loans to other real estate owned

     6,593        6,431   

See accompanying notes to consolidated financial statements.

 

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Table of Contents

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2012

 

1. ACCOUNTING POLICIES

The condensed consolidated financial statements include the accounts of Union First Market Bankshares Corporation and its subsidiaries (collectively, the “Company”). Significant inter-company accounts and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2011 Annual Report on Form 10-K. If needed, certain previously reported amounts have been reclassified to conform to current period presentation.

 

2. BUSINESS COMBINATIONS

Harrisonburg Branch Acquisition

On May 20, 2011, the Company completed the purchase of the NewBridge Bank branch in Harrisonburg, Virginia and a potential branch site in Waynesboro, Virginia. Under the parties’ agreement, the Company purchased loans of $72.5 million, assumed deposit liabilities of $48.9 million, and purchased the related fixed assets of the branch. The Company operates the acquired bank branch under the name Union First Market Bank (the “Harrisonburg branch”). The acquisition, which allowed the Company to establish immediately a meaningful presence in a new banking market, is consistent with the Company’s secondary growth strategy of expanding operations along the Interstate Route 81 corridor. The Company’s consolidated statements of income include the results of operations of the Harrisonburg branch from the closing date of the acquisition.

In connection with the acquisition, the Company recorded $1.8 million of goodwill and $9,500 of core deposit intangibles. The core deposit intangible of $9,500 was expensed immediately upon completion of the acquisition. The recorded goodwill was allocated to the community banking segment of the Company and is deductible for tax purposes.

The Company acquired the $72.5 million loan portfolio at a fair value discount of $1.7 million. The discount represents expected credit losses, adjustments to market interest rates and liquidity adjustments. The performing loan portfolio fair value estimate was $70.5 million and the impaired loan portfolio fair value estimate was $276,000.

 

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Table of Contents

In the first quarter, interest income of approximately $751,000 was recorded on loans acquired in the Harrisonburg branch acquisition. The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet at March 31, 2012 and December 31, 2011 are as follows (dollars in thousands):

 

March 31, 2012:

  

Outstanding principal balance

   $ 53,711   

Carrying amount

   $ 52,903   

December 31, 2011:

  

Outstanding principal balance

   $ 54,953   

Carrying amount

   $ 53,359   

Loans obtained in the acquisition of the Harrisonburg branch for which there is specific evidence of credit deterioration and for which it was probable that the Company would be unable to collect all contractually required principal and interest payments represent less than 0.01% of the Company’s consolidated assets and, accordingly, are not considered material.

First Market Bank Acquisition

In February 2010, the Company completed the acquisition of First Market Bank. Interest income on acquired loans for the first quarter of 2012 was approximately $7.6 million. The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet at March 31, 2012 and December 31, 2011 are as follows (dollars in thousands):

 

March 31, 2012:

  

Outstanding principal balance

   $ 538,841   

Carrying amount

   $ 526,775   

December 31, 2011:

  

Outstanding principal balance

   $ 632,602   

Carrying amount

   $ 620,048   

Loans obtained in the acquisition of First Market Bank for which there is specific evidence of credit deterioration and for which it was probable that the Company would be unable to collect all contractually required principal and interest payments represent less than 0.20% of the Company’s consolidated assets and, accordingly, are not considered material.

 

3. STOCK-BASED COMPENSATION

The Company’s 2011 Stock Incentive Plan (the “2011 Plan”) and the 2003 Stock Incentive Plan (the “2003 Plan”) provide for the granting of incentive stock options, non-statutory stock options, and nonvested stock awards to key employees of the Company and its subsidiaries. The 2011 Plan became effective on January 1, 2011 after its approval by shareholders at the annual meeting of shareholders held on April 26, 2011. The 2011 Plan makes available 1,000,000 shares, which may be awarded to employees of the Company and its subsidiaries in the form of incentive stock options intended to comply with the requirements of Section 422 of the Internal Revenue Code of 1986 (“incentive stock options”), non-statutory stock options, and nonvested stock. Approximately 8,600 shares remain available for grant under the 2003 Plan, which expires in 2013. Under both plans, the option price cannot be less than the fair market value of the stock on the grant date. The Company issues new shares to satisfy stock-based awards. A stock option’s maximum term is ten years from the date of grant and vests in equal annual installments of 20% over a five year vesting schedule. There remain approximately 711,000 shares available as of March 31, 2012 for issuance under the 2011 and 2003 Plans.

For the three month periods ended March 31, 2011 and 2012, the Company recognized stock-based compensation expense of approximately $238,000 and $90,000, respectively, and less than $0.01 per common share for both periods ended March 31, 2012 and 2011.

 

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Table of Contents

Stock Options

The following table summarizes the stock option activity for the three months ended March 31, 2012:

 

     Number of Stock
Options
    Weighted
Average
Exercise Price
 

Options outstanding, December 31, 2011

     422,750      $ 17.70   

Granted

     131,657        14.40   

Forfeited

     (850     17.11   

Expired

     (180     10.67   
  

 

 

   

Options outstanding, March 31, 2012

     553,377        16.92   
  

 

 

   

Options exercisable, March 31, 2012

     189,479        22.34   
  

 

 

   

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table for the three months ended March 31, 2012 and 2011:

 

     Three Months Ended March 31,  
     2012     2011  

Dividend yield (1)

     2.47     2.48

Expected life in years (2)

     7.0        7.0   

Expected volatility (3)

     41.53     37.92

Risk-free interest rate (4)

     1.24     3.23

Weighted average fair value per option granted

   $ 4.76      $ 5.53   

 

(1) Calculated as the ratio of historical dividends paid per share of common stock to the stock price on the date of grant.
(2) Based on the average of the contractual life and vesting schedule for the respective option.
(3) Based on the monthly historical volatility of the Company’s stock price over the expected life of the options.
(4) Based upon the U.S. Treasury bill yield curve, for periods within the contractual life of the option, in effect at the time of grant.

The following table summarizes information concerning stock options issued to the Company’s employees that are vested or are expected to vest and stock options exercisable as of March 31, 2012:

 

     Stock Options
Vested  or
Expected to Vest
     Exercisable  

Stock options

     553,377         189,479   

Weighted average remaining contractual life in years

     7.03         3.06   

Weighted average exercise price on shares above water

   $ 12.13       $ 12.72   

Aggregate intrinsic value

   $ 257,575       $ 2,453   

There were no stock options exercised during the first quarter of 2012; the total intrinsic value for stock options exercised during the three months ended March 31, 2012 was $0. The fair value of stock options vested during the three months ended March 31, 2011 was approximately $34,000.

Nonvested Stock

The 2003 and the 2011 Stock Incentive Plans permit the granting of nonvested stock but are limited to one-third of the aggregate number of total awards granted. This equity component of compensation is divided

 

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between restricted (time-based) stock grants and performance-based stock grants. Generally, the restricted stock vests 50% on each of the third and fourth anniversaries from the date of the grant. The performance-based stock is subject to vesting on the fourth anniversary of the date of the grant based on the performance of the Company’s stock price. The value of the nonvested stock awards was calculated by multiplying the fair market value of the Company’s common stock on grant date by the number of shares awarded. Employees have the right to vote the shares and to receive cash or stock dividends (restricted stock), if any, except for the nonvested stock under the performance-based component (performance stock).

The following table summarizes the nonvested stock activity for the three months ended March 31, 2012:

 

     Number of
Shares  of
Restricted Stock
    Performance
Stock
    Weighted
Average  Grant-
Date Fair Value
 

Balance, December 31, 2011

     140,557        6,000      $ 12.62   

Granted

     68,561        —          14.22   

Vested

     (3,914     —          13.29   

Forfeited

     (2,702     (1,500     13.72   
  

 

 

   

 

 

   

Balance, March 31, 2012

     202,502        4,500        13.06   
  

 

 

   

 

 

   

The estimated unamortized compensation expense, net of estimated forfeitures, related to nonvested stock and stock options issued and outstanding as of March 31, 2012 that will be recognized in future periods is as follows (dollars in thousands):

 

     Stock Options      Restricted
Stock
     Total  

For the remaining nine months of 2012

   $ 308       $ 679       $ 987   

For year ending December 31, 2013

     389         688         1,077   

For year ending December 31, 2014

     382         369         751   

For year ending December 31, 2015

     290         102         392   

For year ending December 31, 2016

     168         9         177   

For year ending December 31, 2017

     33         —           33   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,570       $ 1,847       $ 3,417   
  

 

 

    

 

 

    

 

 

 

 

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4. LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their face amount, net of unearned income, and consist of the following at March 31, 2012 and December 31, 2011 (dollars in thousands):

 

     March 31,      December 31,  
     2012      2011  

Commercial:

     

Commercial Construction

   $ 176,664       $ 185,359   

Commercial Real Estate - Owner Occupied

     468,392         452,407   

Commercial Real Estate - Non-Owner Occupied

     681,605         655,083   

Raw Land and Lots

     204,966         214,284   

Single Family Investment Real Estate

     201,103         192,437   

Commercial and Industrial

     209,998         212,268   

Other Commercial

     43,491         44,403   

Consumer:

     

Mortgage

     224,178         219,646   

Consumer Construction

     23,194         20,757   

Indirect Auto

     159,016         162,708   

Indirect Marine

     37,140         39,819   

HELOCs

     276,031         277,101   

Credit Card

     19,319         19,006   

Other Consumer

     116,661         123,305   
  

 

 

    

 

 

 

Total

   $ 2,841,758       $ 2,818,583   
  

 

 

    

 

 

 

The following table shows the aging of the Company’s loan portfolio, by class, at March 31, 2012 (dollars in thousands):

 

     30-59 Days
Past Due
     60-89 Days
Past Due
     Greater Than
90 Days and
still Accruing
     Purchased
Impaired (net of
credit mark)
     Nonaccrual      Current      Total Loans  

Commercial:

                    

Commercial Construction

   $ —         $ —         $ —         $ —         $ 9,835       $ 166,829       $ 176,664   

Commercial Real Estate - Owner Occupied

     3,873         2,225         1,560         1,178         5,215         454,341         468,392   

Commercial Real Estate - Non-Owner Occupied

     3,442         47         374         —           1,084         676,658         681,605   

Raw Land and Lots

     133         191         94         5,178         13,064         186,306         204,966   

Single Family Investment Real Estate

     361         1,157         177         354         4,507         194,547         201,103   

Commercial and Industrial

     903         50         1,730         361         5,318         201,636         209,998   

Other Commercial

     117         23         500         —           233         42,618         43,491   

Consumer:

                    

Mortgage

     5,434         3,804         3,783         —           1,096         210,061         224,178   

Consumer Construction

     —           —           —           —           205         22,989         23,194   

Indirect Auto

     1,690         245         283         31         5         156,762         159,016   

Indirect Marine

     71         115         598         —           261         36,095         37,140   

HELOCs

     1,730         404         1,271         873         855         270,898         276,031   

Credit Card

     204         136         297         —           —           18,682         19,319   

Other Consumer

     2,320         97         1,600         165         713         111,766         116,661   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 20,278       $ 8,494       $ 12,267       $ 8,140       $ 42,391       $ 2,750,188       $ 2,841,758   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2011 (dollars in thousands):

 

     30-59 Days
Past Due
     60-89 Days
Past Due
     Greater Than
90 Days and
still Accruing
     Purchased
Impaired (net of
credit mark)
     Nonaccrual      Current      Total Loans  

Commercial:

                    

Commercial Construction

   $ —         $ —         $ 490       $ —         $ 10,276       $ 174,593       $ 185,359   

Commercial Real Estate - Owner Occupied

     520         —           2,482         1,292         5,962         442,151         452,407   

Commercial Real Estate - Non-Owner Occupied

     190         64         2,887         1,133         2,031         648,778         655,083   

Raw Land and Lots

     94         1,124         —           5,623         13,322         194,121         214,284   

Single Family Investment Real Estate

     779         70         3,637         388         5,048         182,515         192,437   

Commercial and Industrial

     601         185         3,369         392         5,297         202,424         212,268   

Other Commercial

     —           25         —           —           238         44,140         44,403   

Consumer:

                    

Mortgage

     6,748         412         3,804         —           240         208,442         219,646   

Consumer Construction

     —           —           —           —           207         20,550         20,757   

Indirect Auto

     2,653         416         443         40         7         159,149         162,708   

Indirect Marine

     189         795         —           —           544         38,291         39,819   

HELOCs

     1,678         547         820         865         885         272,306         277,101   

Credit Card

     245         184         323         —           —           18,254         19,006   

Other Consumer

     1,421         443         1,657         164         777         118,843         123,305   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 15,118       $ 4,265       $ 19,912       $ 9,897       $ 44,834       $ 2,724,557       $ 2,818,583   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans totaled $42.4 million and $62.6 million at March 31, 2012 and 2011, respectively. There were no nonaccrual loans excluded from impaired loan disclosure in 2012 or 2011. Loans past due 90 days or more and accruing interest totaled $12.3 million and $10.8 million at March 31, 2012 and 2011, respectively.

The following table shows purchased impaired commercial and consumer loan portfolios, by class and their delinquency status through March 31, 2012 (dollars in thousands):

 

     30-89 Days
Past Due
     Greater than
90 Days
     Current      Total  

Commercial:

           

Commercial Real Estate - Owner Occupied

   $ —         $ 228       $ 950       $ 1,178   

Raw Land and Lots

     —           —           5,178         5,178   

Single Family Investment Real Estate

     —           —           354         354   

Commercial and Industrial

     —           278         83         361   

Consumer:

           

Indirect Auto

     8         3         20         31   

HELOCs

     —           55         818         873   

Other Consumer

     —           78         87         165   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8       $ 642       $ 7,490       $ 8,140   
  

 

 

    

 

 

    

 

 

    

 

 

 

The current column represents loans that are less than 30 days past due.

The following table shows purchased impaired commercial and consumer loan portfolios, by class and their delinquency status through December 31, 2011 (dollars in thousands):

 

     30-89 Days
Past Due
     Greater than
90 Days
     Current      Total  

Commercial:

           

Commercial Real Estate - Owner Occupied

   $ 206       $ 50       $ 1,036       $ 1,292   

Commercial Real Estate - Non-Owner Occupied

     —           1,133         —           1,133   

Raw Land and Lots

     —           —           5,623         5,623   

Single Family Investment Real Estate

     —           —           388         388   

Commercial and Industrial

     —           302         90         392   

Consumer:

           

Indirect Auto

     6         11         23         40   

HELOCs

     19         32         814         865   

Other Consumer

     —           77         87         164   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 231       $ 1,605       $ 8,061       $ 9,897   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The current column represents loans that are less than 30 days past due.

The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. At March 31, 2012, the Company had $242.7 million in loans considered to be impaired of which $11.9 million were collectively evaluated for impairment and $230.8 million were individually evaluated for impairment. The following table shows the Company’s impaired loans individually evaluated for impairment, by class, at March 31, 2012 (dollars in thousands):

 

            Unpaid             YTD      Interest  
     Recorded      Principal      Related      Average      Income  
     Investment      Balance      Allowance      Investment      Recognized  

Loans without a specific allowance

              

Commercial:

              

Commercial Construction

   $ 39,176       $ 39,605       $ —         $ 39,458       $ 448   

Commercial Real Estate - Owner Occupied

     22,416         22,955         —           23,143         289   

Commercial Real Estate - Non-Owner Occupied

     37,390         37,589         —           39,324         480   

Raw Land and Lots

     47,290         47,398         —           47,713         402   

Single Family Investment Real Estate

     11,375         11,706         —           11,756         136   

Commercial and Industrial

     7,395         7,892         —           8,288         96   

Other Commercial

     1,250         1,250         —           1,254         18   

Consumer:

              

Mortgage

     3,005         3,005         —           3,007         28   

Indirect Auto

     10         10         —           11         —     

HELOCs

     1,426         1,526         —           1,527         3   

Other Consumer

     792         817         —           827         8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

   $ 171,525       $ 173,753       $ —         $ 176,308       $ 1,908   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans with a specific allowance

              

Commercial:

              

Commercial Construction

   $ 8,971       $ 9,015       $ 851       $ 9,035       $ 60   

Commercial Real Estate - Owner Occupied

     6,934         7,063         1,547         7,079         44   

Commercial Real Estate - Non-Owner Occupied

     6,943         6,969         941         6,981         68   

Raw Land and Lots

     16,677         16,920         1,830         16,995         43   

Single Family Investment Real Estate

     4,795         4,859         1,484         4,864         51   

Commercial and Industrial

     12,407         12,572         3,578         12,588         100   

Consumer:

              

Mortgage

     961         961         162         1,028         17   

Consumer Construction

     205         226         83         226         —     

Indirect Marine

     261         271         99         272         —     

HELOCs

     755         811         552         1,020         —     

Other Consumer

     355         355         161         355         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

   $ 59,264       $ 60,022       $ 11,288       $ 60,443       $ 383   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans individually evaluated for impairment

   $ 230,789       $ 233,775       $ 11,288       $ 236,751       $ 2,291   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

At December 31, 2011, the Company had $255.1 million in loans considered to be impaired of which $12.3 million were collectively evaluated for impairment and $242.8 million were individually evaluated for impairment. The following table shows the Company’s impaired loans individually evaluated for impairment, by class, at December 31, 2011 (dollars in thousands):

 

            Unpaid             YTD      Interest  
     Recorded      Principal      Related      Average      Income  
     Investment      Balance      Allowance      Investment      Recognized  

Loans without a specific allowance

              

Commercial:

              

Commercial Construction

   $ 40,475       $ 40,524       $ —         $ 37,835       $ 1,690   

Commercial Real Estate - Owner Occupied

     20,487         21,010         —           23,364         1,183   

Commercial Real Estate - Non-Owner Occupied

     37,799         37,855         —           38,084         2,002   

Raw Land and Lots

     46,791         46,890         —           47,808         1,306   

Single Family Investment Real Estate

     11,285         11,349         —           11,684         637   

Commercial and Industrial

     9,467         9,959         —           10,216         423   

Other Commercial

     1,257         1,257         —           1,269         75   

Consumer:

              

Mortgage

     1,202         1,202         —           1,225         70   

HELOCs

     349         349         —           350         11   

Other Consumer

     —           —           —           1         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans without a specific allowance

   $ 169,112       $ 170,395       $ —         $ 171,836       $ 7,397   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans with a specific allowance

              

Commercial:

              

Commercial Construction

   $ 12,927       $ 13,297       $ 583       $ 13,811       $ 343   

Commercial Real Estate - Owner Occupied

     8,679         8,788         1,961         8,681         267   

Commercial Real Estate - Non-Owner Occupied

     8,858         8,879         1,069         9,010         322   

Raw Land and Lots

     22,188         22,429         991         24,553         973   

Single Family Investment Real Estate

     9,020         9,312         1,140         9,571         321   

Commercial and Industrial

     8,980         9,133         3,320         10,448         369   

Other Commercial

     150         150         3         153         10   

Consumer:

              

Mortgage

     535         535         11         536         32   

Consumer Construction

     207         226         86         228         —     

Indirect Auto

     71         71         —           93         5   

Indirect Marine

     544         547         263         548         9   

HELOCs

     785         825         587         1,034         —     

Other Consumer

     777         804         284         815         5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with a specific allowance

   $ 73,721       $ 74,996       $ 10,298       $ 79,481       $ 2,656   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans individually evaluated for impairment

   $ 242,833       $ 245,391       $ 10,298       $ 251,317       $ 10,053   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company considers troubled debt restructurings (“TDRs”) to be impaired loans. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession to the borrower for economic or legal reasons related to the borrower’s financial difficulties that it would not otherwise consider. Included in the impaired loan disclosures above are $99.8 million and $112.6 million of loans considered to be troubled debt restructurings as of March 31, 2012 and December 31, 2011, respectively. All loans that are considered to be TDRs are specifically evaluated for impairment in accordance with the Company’s allowance for loan loss methodology.

 

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Table of Contents

The following table provides a summary, by class and modification type, of modified loans that continue to accrue interest under the terms of the restructuring agreement, which are considered to be performing, and modified loans that have been placed in nonaccrual status, which are considered to be nonperforming, as of March 31, 2012 (dollars in thousands):

 

    Modified to Interest Only     Term Modification at Market Rate     Term Modification below Market Rate     Total  
    No. of
Loans
    Recorded
Investment
    Outstanding
Commitment
    No. of
Loans
    Recorded
Investment
    Outstanding
Commitment
    No. of
Loans
    Recorded
Investment
    Outstanding
Commitment
    No. of
Loans
    Recorded
Investment
    Outstanding
Commitment
 

Performing

                       

Commercial:

                       

Commercial Construction

    —        $ —        $ —          11      $ 15,437      $ 2,649        —        $ —        $ —          11      $ 15,437      $ 2,649   

Commercial Real Estate - Owner Occupied

    2        398        —          8        7,554        347        3        555        —          13        8,507        347   

Commercial Real Estate - Non-Owner Occupied

    1        301        —          9        17,157        —          —          —          —          10        17,458        —     

Raw Land and Lots

    3        329        —          9        24,391        174        4        6,994        —          16        31,714        174   

Single Family Investment Real Estate

    2        180        —          8        4,915        —          1        385        —          11        5,480        —     

Commercial and Industrial

    —          —          —          12        4,784        192        2        356        —          14        5,140        192   

Other Commercial

    —          —          —          2        302        —          —          —          —          2        302        —     

Consumer:

                       

Mortgage

    2        604        —          5        807        —          1        507        —          8        1,918        —     

Other Consumer

    —          —          —          1        108        —          —          —          —          1        108        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total performing

    10      $ 1,812      $ —          65      $ 75,455      $ 3,362        11      $ 8,797      $ —          86      $ 86,064      $ 3,362   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nonperforming

                       

Commercial:

                       

Commercial Construction

    —        $ —        $ —          1      $ 846      $ —          4      $ 4,523      $ —          5      $ 5,369      $ —     

Commercial Real Estate - Owner Occupied

    —          —          —          1        908        —          —          —          —          1        908        —     

Commercial Real Estate - Non-Owner Occupied

    1        216        —          1        73        —          —          —          —          2        289        —     

Raw Land and Lots

    1        341        —          2        353        —          3        3,567        —          6        4,261        —     

Single Family Investment Real Estate

    1        92        —          1        520        —          2        714        —          4        1,326        —     

Commercial and Industrial

    —          —          —          3        1,123        —          —          —          —          3        1,123        —     

Consumer:

                       

Indirect Marine

    —          —          —          1        261        —          —          —          —          1        261        —     

Other Consumer

    —          —          —          1        206        —          —          —          —          1        206        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming

    3      $ 649      $ —          11      $ 4,290      $ —          9      $ 8,804      $ —          23      $ 13,743      $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total performing and nonperforming

    13      $ 2,461      $ —          76      $ 79,745      $ 3,362        20      $ 17,601      $ —          109      $ 99,807      $ 3,362   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table provides a summary, by class and modification type, of modified loans that continue to accrue interest under the terms of the restructuring agreement, which are considered to be performing, and modified loans that have been placed in nonaccrual status, which are considered to be nonperforming, as of December 31, 2011 (dollars in thousands):

 

    Modified to Interest Only     Term Modification at Market Rate     Term Modification below Market Rate     Total  
    No. of
Loans
    Recorded
Investment
    Outstanding
Commitment
    No. of
Loans
    Recorded
Investment
    Outstanding
Commitment
    No. of
Loans
    Recorded
Investment
    Outstanding
Commitment
    No. of
Loans
    Recorded
Investment
    Outstanding
Commitment
 

Performing

                       

Commercial:

                       

Commercial Construction

    —        $ —        $ —          14      $ 21,461      $ 3,185        —        $ —        $ —          14      $ 21,461      $ 3,185   

Commercial Real Estate - Owner Occupied

    2        398        —          7        7,052        180        2        546        —          11        7,996        180   

Commercial Real Estate - Non-Owner Occupied

    1        301        —          15        21,476        13        —          —          —          16        21,777        13   

Raw Land and Lots

    —          —          —          11        25,425        1        4        7,025        —          15        32,450        1   

Single Family Investment Real Estate

    —          —          —          10        6,750        —          2        1,775        —          12        8,525        —     

Commercial and Industrial

    —          —          —          10        4,629        204        2        362        —          12        4,991        204   

Other Commercial

    —          —          —          4        864        —          —          —          —          4        864        —     

Consumer:

                       

Mortgage

    —          —          —          —          —          —          1        507        —          1        507        —     

Other Consumer

    —          —          —          2        263        —          —          —          —          2        263        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total performing

    3      $ 699      $ —          73      $ 87,920      $ 3,583        11      $ 10,215      $ —          87      $ 98,834      $ 3,583   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nonperforming

                       

Commercial:

                       

Commercial Construction

    —        $ —        $ —          1      $ 762      $ —          4      $ 4,591      $ —          5      $ 5,353      $ —     

Commercial Real Estate - Non-Owner Occupied

    1        218        —          1        74        —          —          —          —          2        292        —     

Raw Land and Lots

    1        341        —          2        358        —          3        3,643        —          6        4,342        —     

Single Family Investment Real Estate

    1        93        —          1        529        —          2        720        —          4        1,342        —     

Commercial and Industrial

    —          —          —          3        1,134        —          —          —          —          3        1,134        —     

Consumer:

                       

Mortgage

    1        538        —          4        538        —          —          —          —          5        1,076        —     

Other Consumer

    —          —          —          1        265        —          —          —          —          1        265        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming

    4      $ 1,190      $ —          13      $ 3,660      $ —          9      $ 8,954      $ —          26      $ 13,804      $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total performing and nonperforming

    7      $ 1,889      $ —          86      $ 91,580      $ 3,583        20      $ 19,169      $ —          113      $ 112,638      $ 3,583   
                       

 

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Table of Contents

The Company considers a default of a restructured loan to occur when subsequent to the restructure, the borrower is 90 days past due or results in foreclosure and repossession of the applicable collateral; the Company identified one restructured loan, totaling approximately $453,000, that went into default in the first quarter that had been restructured during the previous twelve months. This loan was a commercial real estate (owner occupied) loan for which the term had been extended at a market rate. The following table shows, by class and modification type, TDRs that occurred during the three month period ended March 31, 2012 (dollars in thousands):

 

     All Restructurings  
     No. of
Loans
     Recorded
investment at
period end
 

Interest only at market rate of interest

     

Commercial:

     

Raw Land and Lots

     3       $ 329   

Single Family Investment Real Estate

     2         180   

Consumer:

     

Mortgage

     1         202   
  

 

 

    

 

 

 

Total interest only at market rate of interest

     6       $ 711   
  

 

 

    

 

 

 

Loan term extended at a market rate

     

Commercial:

     

Commercial Real Estate - Owner Occupied

     2       $ 1,701   

Raw Land and Lots

     1         604   

Commercial and Industrial

     1         104   

Consumer:

     

Mortgage

     1         273   

Other Consumer

     1         206   
  

 

 

    

 

 

 

Total loan term extended at a market rate

     6       $ 2,888   
  

 

 

    

 

 

 

Loan term extended at a below market rate

     

Commercial:

     

Commercial Real Estate - Owner Occupied

     1       $ 10   
  

 

 

    

 

 

 

Total loan term extended at a below market rate

     1       $ 10   
  

 

 

    

 

 

 

Total

     13       $ 3,609   
  

 

 

    

 

 

 

The primary modification to each loan class identified as TDRs during the period related to a renewal at the current terms and those terms were considered to be below market based on the risk characteristics of the borrower. Generally, the Company does not modify interest rates or reduce principal balances when restructuring loans, thus the recorded investment is unchanged after the modification is made.

 

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Table of Contents

The following table shows the allowance for loan loss activity, by portfolio segment, balances for allowance for credit losses, and loans based on impairment methodology for the three months ended March 31, 2012. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):

 

     Commercial     Consumer     Unallocated     Total  

Allowance for loan losses:

        

Balance, beginning of the year

   $ 27,891      $ 11,498      $ 81      $ 39,470   

Recoveries credited to allowance

     66        275        —          341   

Loans charged off

     (1,399     (1,708     —          (3,107

Provision charged to operations

     3,086        479        (65     3,500   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of year

   $ 29,644      $ 10,544      $ 16      $ 40,204   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

     10,070        1,057        —          11,127   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

     19,413        9,487        16        28,916   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: loans acquired with deteriorated credit quality

     161        —          —          161   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 29,644      $ 10,544      $ 16      $ 40,204   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

        

Ending balance

   $ 1,986,219      $ 855,539      $ —        $ 2,841,758   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

     215,948        6,701        —          222,649   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

     1,763,200        847,769        —          2,610,969   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: loans acquired with deteriorated credit quality

     7,071        1,069        —          8,140   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,986,219      $ 855,539      $ —        $ 2,841,758   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

- 16 -


Table of Contents

The following table shows the allowance for loan loss activity, portfolio segment types, balances for allowance for loan losses, and loans based on impairment methodology for the year ended December 31, 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):

 

     Commercial     Consumer     Unallocated     Total  

Allowance for loan losses:

        

Balance, beginning of the year

   $ 28,255      $ 10,189      $ (38   $ 38,406   

Recoveries credited to allowance

     924        1,206        —          2,130   

Loans charged off

     (10,891     (6,975     —          (17,866

Provision charged to operations

     9,603        7,078        119        16,800   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of year

   $ 27,891      $ 11,498      $ 81      $ 39,470   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

     8,982        1,231        —          10,213   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

     18,824        10,267        81        29,172   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: loans acquired with deteriorated credit quality

     85        —          —          85   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 27,891      $ 11,498      $ 81      $ 39,470   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

        

Ending balance

   $ 1,956,241      $ 862,342      $ —        $ 2,818,583   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

     229,535        3,401        —          232,936   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

     1,717,878        857,872        —          2,575,750   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: loans acquired with deteriorated credit quality

     8,828        1,069        —          9,897   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,956,241      $ 862,342      $ —        $ 2,818,583   
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company uses the past due status and trends as the primary credit quality indicator for the consumer loan portfolio segment while a risk rating system is utilized for commercial loans. Commercial loans are graded on a scale of 1 through 9. A general description of the characteristics of the risk grades follows:

 

   

Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;

 

   

Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to risk;

 

   

Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;

 

   

Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater degree of financial risk based on the type of business supporting the loan;

 

   

Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an event occurring that may weaken the borrower’s ability to repay;

 

   

Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if not addressed could lead to inadequately protecting the Company’s credit position;

 

   

Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected;

 

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Table of Contents
   

Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for recovery, its classification as a loss is deferred until its more exact status is determined; and

 

   

Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.

The following table shows all loans, excluding purchased impaired loans, in the commercial portfolios by class with their related risk rating as of March 31, 2012. The risk rating information has been updated through March 31, 2012 (dollars in thousands):

 

     1-3      4      5      6      7      8      Total  

Commercial Construction

   $ 13,480       $ 74,692       $ 10,700       $ 32,623       $ 45,169       $ —         $ 176,664   

Commercial Real Estate - Owner Occupied

     91,635         308,483         18,609         24,178         24,309         —           467,214   

Commercial Real Estate - Non-Owner Occupied

     141,066         421,129         44,562         39,764         35,084         —           681,605   

Raw Land and Lots

     4,424         100,739         14,360         32,932         47,058         275         199,788   

Single Family Investment Real Estate

     33,473         125,271         15,767         13,563         12,675         —           200,749   

Commercial and Industrial

     36,829         124,074         18,884         9,371         20,287         192         209,637   

Other Commercial

     5,491         17,135         15,470         3,481         1,852         62         43,491   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 326,398       $ 1,171,523       $ 138,352       $ 155,912       $ 186,434       $ 529       $ 1,979,148   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows all loans, excluding purchased impaired loans, in the commercial portfolios by class with their related risk rating as of December 31, 2011. The risk rating information has been updated through December 31, 2011 (dollars in thousands):

 

     1-3      4      5      6      7      8      Total  

Commercial Construction

   $ 10,099       $ 84,299       $ 6,079       $ 36,650       $ 48,232       $ —         $ 185,359   

Commercial Real Estate - Owner Occupied

     88,430         296,825         17,604         21,158         26,389         709         451,115   

Commercial Real Estate - Non-Owner Occupied

     149,346         367,244         58,844         38,662         39,854         —           653,950   

Raw Land and Lots

     4,368         99,374         18,767         33,673         52,204         275         208,661   

Single Family Investment Real Estate

     32,741         116,570         11,928         14,358         16,452         —           192,049   

Commercial and Industrial

     35,120         123,872         22,079         11,559         19,066         180         211,876   

Other Commercial

     6,364         15,918         16,739         3,807         1,512         63         44,403   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 326,468       $ 1,104,102       $ 152,040       $ 159,867       $ 203,709       $ 1,227       $ 1,947,413   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows only purchased impaired loans in the commercial portfolios by class with their related risk rating as of March 31, 2012. The credit quality indicator information has been updated through March 31, 2012 (dollars in thousands):

 

     6      7      8      Total  

Commercial Real Estate - Owner Occupied

   $ —         $ 1,178       $ —         $ 1,178   

Raw Land and Lots

     —           5,178         —           5,178   

Single Family Investment Real Estate

     337         17         —           354   

Commercial and Industrial

     —           83         278         361   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 337       $ 6,456       $ 278       $ 7,071   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows only purchased impaired loans in the commercial portfolios by class with their related risk rating as of December 31, 2011. The credit quality indicator information has been updated through December 31, 2011 (dollars in thousands):

 

     6      7      8      Total  

Commercial Real Estate - Owner Occupied

   $ —         $ 1,292       $ —         $ 1,292   

Commercial Real Estate - Non-Owner Occupied

     —           1,133         —           1,133   

Raw Land and Lots

     —           5,623         —           5,623