e10vq
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
Commission File Number: 1-9047
Independent Bank Corp.
(Exact name of registrant as specified in its charter)
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Massachusetts
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04-2870273 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
Office Address: 2036 Washington Street, Hanover Massachusetts 02339
Mailing Address: 288 Union Street, Rockland, Massachusetts 02370
(Address of principal executive offices, including zip code)
(781) 878-6100
(Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (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 o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large Accelerated Filer o | |
Accelerated Filer þ | |
Non-accelerated Filer o | |
Smaller Reporting Company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
As of November 1, 2010, there were 21,203,622 shares of the issuers common stock outstanding,
par value $0.01 per share
INDEX
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PAGE |
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4 |
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5 |
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6 |
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7 |
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8 |
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8 |
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9 |
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14 |
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15 |
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16 |
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21 |
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29 |
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30 |
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42 |
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43 |
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44 |
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45 |
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45 |
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48 |
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53 |
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54 |
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55 |
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56 |
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58 |
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59 |
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59 |
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62 |
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63 |
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65 |
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65 |
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65 |
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65 |
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65 |
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66 |
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66 |
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66 |
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2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited Dollars in Thousands, Except Share and Per Share Amounts)
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September 30, |
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December 31, |
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2010 |
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2009 |
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ASSETS |
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CASH AND DUE FROM BANKS |
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$ |
54,207 |
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$ |
66,723 |
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INTEREST EARNING DEPOSITS WITH BANKS |
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222,392 |
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|
55,182 |
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FED FUNDS SOLD AND SHORT TERM INVESTMENTS SECURITIES |
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526 |
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Trading Assets |
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7,418 |
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6,171 |
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Securities Available for Sale |
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436,887 |
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508,650 |
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Securities Held to Maturity
(fair value $184,152 and $93,438 at September 30, 2010 and December 31, 2009, respectively) |
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180,623 |
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93,410 |
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TOTAL SECURITIES |
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624,928 |
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608,231 |
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LOANS HELD
FOR SALE (amortized cost $21,093 at September 30, 2010) |
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21,321 |
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13,466 |
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LOANS |
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Commercial and Industrial |
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438,873 |
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373,531 |
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Commercial Real Estate |
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1,641,356 |
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1,614,474 |
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Commercial Construction |
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144,109 |
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175,312 |
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Small Business |
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79,897 |
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82,569 |
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Residential Real Estate |
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503,471 |
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555,306 |
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Residential Construction |
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5,449 |
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10,736 |
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Home Equity |
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517,962 |
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471,862 |
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Consumer Other |
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76,926 |
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111,725 |
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TOTAL LOANS |
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3,408,043 |
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3,395,515 |
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Less: Allowance for Loan Losses |
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(45,619 |
) |
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(42,361 |
) |
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NET LOANS |
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3,362,424 |
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3,353,154 |
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FEDERAL HOME LOAN BANK STOCK |
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35,854 |
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35,854 |
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BANK PREMISES AND EQUIPMENT, NET |
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45,420 |
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44,235 |
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GOODWILL |
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129,617 |
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129,348 |
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IDENTIFIABLE INTANGIBLE ASSETS |
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12,805 |
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14,382 |
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BANK OWNED LIFE INSURANCE |
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81,824 |
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79,252 |
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OTHER REAL ESTATE OWNED |
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9,011 |
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3,994 |
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OTHER ASSETS |
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103,462 |
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78,200 |
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TOTAL ASSETS |
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$ |
4,703,791 |
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$ |
4,482,021 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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DEPOSITS |
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Demand Deposits |
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$ |
805,491 |
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$ |
721,792 |
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Savings and Interest Checking Accounts |
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1,314,273 |
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1,073,990 |
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Money Market |
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731,091 |
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661,731 |
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Time Certificates of Deposit Over $100,000 |
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247,731 |
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304,621 |
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Other Time Certificates of Deposits |
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518,572 |
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613,160 |
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TOTAL DEPOSITS |
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3,617,158 |
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3,375,294 |
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BORROWINGS |
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Federal Home Loan Bank Borrowings |
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302,545 |
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362,936 |
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Federal Funds Purchased and Assets Sold Under |
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Repurchase Agreements |
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180,326 |
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190,452 |
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Junior Subordinated Debentures |
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61,857 |
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61,857 |
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Subordinated Debentures |
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30,000 |
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30,000 |
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Other Borrowings |
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2,701 |
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2,152 |
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TOTAL BORROWINGS |
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577,429 |
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647,397 |
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OTHER LIABILITIES |
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83,543 |
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46,681 |
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TOTAL LIABILITIES |
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4,278,130 |
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4,069,372 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS EQUITY |
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Common Stock, $.01 par value. Authorized: 75,000,000 |
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Issued and Outstanding :
21,203,268 Shares at September 30, 2010 and 21,072,196 Shares at December 31, 2009
(Includes 221,615 and 136,775 share of unvested restricted stock awards, respectively) |
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210 |
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|
209 |
|
Shares Held in Rabbi Trust at Cost |
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177,420 Shares in September 30, 2010 and 176,507 Shares at December 31, 2009 |
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(2,632 |
) |
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(2,482 |
) |
Deferred Compensation Obligation |
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2,632 |
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2,482 |
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Additional Paid in Capital |
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|
226,255 |
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|
225,088 |
|
Retained Earnings |
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|
201,950 |
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|
184,599 |
|
Accumulated Other Comprehensive (Loss)/Income, Net of Tax |
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(2,754 |
) |
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|
2,753 |
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TOTAL STOCKHOLDERS EQUITY |
|
|
425,661 |
|
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|
412,649 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
4,703,791 |
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|
$ |
4,482,021 |
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|
The accompanying notes are an integral part of these consolidated financial statements.
4
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited Dollars in Thousands, Except Share and Per Share Data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2010 |
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2009 |
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2010 |
|
2009 |
|
INTEREST INCOME |
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Interest on Loans |
|
$ |
44,436 |
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$ |
45,773 |
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$ |
133,267 |
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$ |
126,491 |
|
Interest on Loans Held for Sale |
|
|
174 |
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|
169 |
|
|
|
390 |
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|
|
497 |
|
Taxable Interest and Dividends on Securities |
|
|
5,679 |
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|
7,426 |
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|
|
18,277 |
|
|
|
21,802 |
|
Non-taxable Interest and Dividends on Securities |
|
|
164 |
|
|
|
218 |
|
|
|
553 |
|
|
|
744 |
|
Interest on Federal Funds Sold and Short-Term Investments |
|
|
135 |
|
|
|
4 |
|
|
|
267 |
|
|
|
272 |
|
|
TOTAL INTEREST AND DIVIDEND INCOME |
|
|
50,588 |
|
|
|
53,590 |
|
|
|
152,754 |
|
|
|
149,806 |
|
|
INTEREST EXPENSE |
|
|
|
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|
|
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|
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|
|
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|
Interest on Deposits |
|
|
4,801 |
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|
7,446 |
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|
16,225 |
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|
24,293 |
|
Interest on Borrowings |
|
|
4,590 |
|
|
|
5,236 |
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|
|
13,955 |
|
|
|
15,517 |
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|
TOTAL INTEREST EXPENSE |
|
|
9,391 |
|
|
|
12,682 |
|
|
|
30,180 |
|
|
|
39,810 |
|
|
NET INTEREST INCOME |
|
|
41,197 |
|
|
|
40,908 |
|
|
|
122,574 |
|
|
|
109,996 |
|
|
PROVISION FOR LOAN LOSSES |
|
|
3,500 |
|
|
|
4,443 |
|
|
|
15,081 |
|
|
|
12,911 |
|
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
|
|
37,697 |
|
|
|
36,465 |
|
|
|
107,493 |
|
|
|
97,085 |
|
|
NON-INTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Charges on Deposit Accounts |
|
|
4,441 |
|
|
|
4,613 |
|
|
|
13,177 |
|
|
|
12,518 |
|
Wealth Management |
|
|
2,851 |
|
|
|
2,278 |
|
|
|
8,768 |
|
|
|
7,318 |
|
Mortgage Banking Income, Net |
|
|
1,469 |
|
|
|
425 |
|
|
|
3,091 |
|
|
|
3,578 |
|
Bank Owned Life Insurance Income |
|
|
901 |
|
|
|
713 |
|
|
|
2,353 |
|
|
|
2,126 |
|
Net Gain/(Loss) on Sales of Securities Available for Sale |
|
|
(22 |
) |
|
|
|
|
|
|
458 |
|
|
|
1,355 |
|
Gain Resulting From Early Termination of Hedging Relationship |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,778 |
|
Other-Than-Temporary Impairment Losses on Available-for-Sale Debt Securities: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Gain/(Loss) on Write-Down of Certain Investments to Fair Value |
|
|
207 |
|
|
|
(5,108 |
) |
|
|
325 |
|
|
|
(7,384 |
) |
Add/(Less): Portion of Other-Than-Temporary Impairment Recognized in
Other Comprehensive Income |
|
|
(214 |
) |
|
|
(33 |
) |
|
|
(594 |
) |
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|
590 |
|
|
Net Impairment Losses Recognized in Earnings on Available-for Sale Debt Securities |
|
|
(7 |
) |
|
|
(5,141 |
) |
|
|
(269 |
) |
|
|
(6,794 |
) |
Other Non-Interest Income |
|
|
2,021 |
|
|
|
1,578 |
|
|
|
5,065 |
|
|
|
4,283 |
|
|
TOTAL NON-INTEREST INCOME |
|
|
11,654 |
|
|
|
4,466 |
|
|
|
32,643 |
|
|
|
28,162 |
|
|
NON-INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and Employee Benefits |
|
|
19,792 |
|
|
|
17,727 |
|
|
|
56,662 |
|
|
|
49,720 |
|
Occupancy and Equipment Expenses |
|
|
3,839 |
|
|
|
3,985 |
|
|
|
12,068 |
|
|
|
11,826 |
|
Data Processing and Facilities Management |
|
|
1,404 |
|
|
|
1,580 |
|
|
|
4,195 |
|
|
|
4,600 |
|
FDIC Assessment |
|
|
1,352 |
|
|
|
1,267 |
|
|
|
3,944 |
|
|
|
5,655 |
|
Legal |
|
|
720 |
|
|
|
703 |
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|
|
2,575 |
|
|
|
1,906 |
|
Advertising Expense |
|
|
469 |
|
|
|
232 |
|
|
|
1,699 |
|
|
|
1,427 |
|
Telephone |
|
|
513 |
|
|
|
779 |
|
|
|
1,591 |
|
|
|
1,820 |
|
Consulting Expense |
|
|
803 |
|
|
|
474 |
|
|
|
1,600 |
|
|
|
1,416 |
|
Software Maintenance |
|
|
497 |
|
|
|
484 |
|
|
|
1,460 |
|
|
|
1,393 |
|
Merger & Acquisition Expenses |
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
12,423 |
|
Other Non-Interest Expense |
|
|
5,151 |
|
|
|
5,032 |
|
|
|
17,264 |
|
|
|
14,981 |
|
|
TOTAL NON-INTEREST EXPENSE |
|
|
34,540 |
|
|
|
32,304 |
|
|
|
103,058 |
|
|
|
107,167 |
|
|
INCOME BEFORE INCOME TAXES |
|
|
14,811 |
|
|
|
8,627 |
|
|
|
37,078 |
|
|
|
18,080 |
|
PROVISION FOR INCOME TAXES |
|
|
3,666 |
|
|
|
1,786 |
|
|
|
8,676 |
|
|
|
4,192 |
|
|
NET INCOME |
|
$ |
11,145 |
|
|
$ |
6,841 |
|
|
$ |
28,402 |
|
|
$ |
13,888 |
|
|
PREFERRED STOCK DIVIDEND |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,698 |
|
|
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS |
|
$ |
11,145 |
|
|
$ |
6,841 |
|
|
$ |
28,402 |
|
|
$ |
8,190 |
|
|
BASIC EARNINGS PER SHARE |
|
$ |
0.53 |
|
|
$ |
0.33 |
|
|
$ |
1.35 |
|
|
$ |
0.43 |
|
|
DILUTED EARNINGS PER SHARE |
|
$ |
0.53 |
|
|
$ |
0.33 |
|
|
$ |
1.35 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVEARGE COMMON SHARES (BASIC) |
|
|
20,981,372 |
|
|
|
20,921,635 |
|
|
|
20,961,378 |
|
|
|
19,210,431 |
|
Common Share Equivalents |
|
|
52,793 |
|
|
|
48,254 |
|
|
|
74,536 |
|
|
|
26,181 |
|
|
WEIGHTED AVERAGE COMMON SHARES (DILUTED) |
|
|
21,034,165 |
|
|
|
20,969,889 |
|
|
|
21,035,914 |
|
|
|
19,236,612 |
|
|
The accompanying condensed notes are an integral part of these unaudited consolidated financial
statements.
5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Unaudited Dollars in Thousands, Except Per Share Data)
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Shares |
|
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|
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|
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|
Accumulated |
|
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|
|
|
|
|
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|
|
Common |
|
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|
|
|
|
Held in |
|
|
Deferred |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Preferred |
|
|
Stock |
|
|
Common |
|
|
Rabbi Trust |
|
|
Compensation |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Stock |
|
|
Outstanding |
|
|
Stock |
|
|
at Cost |
|
|
Obligation |
|
|
Capital |
|
|
Earnings |
|
|
(Loss)/Income |
|
|
TOTAL |
|
|
BALANCE DECEMBER 31, 2009 |
|
$ |
|
|
|
|
21,072,196 |
|
|
$ |
209 |
|
|
$ |
(2,482 |
) |
|
$ |
2,482 |
|
|
$ |
225,088 |
|
|
$ |
184,599 |
|
|
$ |
2,753 |
|
|
$ |
412,649 |
|
|
COMPREHENSIVE INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,402 |
|
|
|
|
|
|
|
28,402 |
|
Change in Unrealized Gain on Securities Available For
Sale, Net of Tax and Realized Gains/(Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,013 |
|
|
|
|
|
Change in Fair Value of Cash Flow Hedges,
Net of Tax and Realized Gains/(Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,590 |
) |
|
|
|
|
Amortization of Prior Service Cost, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,507 |
) |
|
|
(5,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,895 |
|
COMMON DIVIDEND DECLARED ($0.54 PER SHARE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,443 |
) |
|
|
|
|
|
|
(11,443 |
) |
PROCEEDS FROM EXERCISE OF STOCK OPTIONS |
|
|
|
|
|
|
27,229 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
392 |
|
|
|
|
|
|
|
393 |
|
TAX EXPENSE RELATED TO EQUITY AWARD ACTIVITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
70 |
|
EQUITY BASED COMPENSATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,206 |
|
|
|
|
|
|
|
|
|
|
|
1,206 |
|
RESTRICTED STOCK AWARDS GRANTED, NET OF AWARDS SURRENDERED |
|
|
|
|
|
|
103,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
(109 |
) |
DEFERRED COMPENSATION OBLIGATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150 |
) |
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SEPTEMBER 30, 2010 |
|
$ |
|
|
|
|
21,203,268 |
|
|
$ |
210 |
|
|
$ |
(2,632 |
) |
|
$ |
2,632 |
|
|
$ |
226,255 |
|
|
$ |
201,950 |
|
|
$ |
(2,754 |
) |
|
$ |
425,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2008 |
|
$ |
|
|
|
|
16,301,405 |
|
|
$ |
163 |
|
|
$ |
(2,267 |
) |
|
$ |
2,267 |
|
|
$ |
137,488 |
|
|
$ |
177,493 |
|
|
$ |
(9,870 |
) |
|
$ |
305,274 |
|
|
CUMULATIVE EFFECT ACCOUNTING ADJUSTMENT, NET OF TAX (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,823 |
|
|
|
(3,823 |
) |
|
|
|
|
COMPREHENSIVE INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,888 |
|
|
|
|
|
|
|
13,888 |
|
Change in Unrealized Gain on Securities Available For
Sale, Net of Tax and Realized Gains/(Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,988 |
|
|
|
|
|
Change in Fair Value of Cash Flow Hedges,
Net of Tax and Realized Gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,173 |
|
|
|
|
|
Amortization of Prior Service Cost, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,966 |
|
|
|
15,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,854 |
|
DIVIDENDS DECLARED: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON DECLARED ($0.54 PER SHARE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,521 |
) |
|
|
|
|
|
|
(10,521 |
) |
PREFERRED DECLARED (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,698 |
) |
|
|
|
|
|
|
(5,698 |
) |
COMMON STOCK ISSUED FOR ACQUISITION |
|
|
|
|
|
|
4,624,948 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
84,452 |
|
|
|
|
|
|
|
|
|
|
|
84,498 |
|
PROCEEDS FROM EXERCISE OF STOCK OPTIONS |
|
|
|
|
|
|
19,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
260 |
|
TAX EXPENSE RELATED TO EQUITY AWARD ACTIVITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
EQUITY BASED COMPENSATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532 |
|
|
|
|
|
|
|
|
|
|
|
532 |
|
RESTRICTED STOCK AWARDS GRANTED, NET OF AWARDS SURRENDERED |
|
|
|
|
|
|
122,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED COMPENSATION OBLIGATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150 |
) |
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISSUANCE OF PREFERRED STOCK AND STOCK WARRANTS |
|
|
73,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,580 |
|
|
|
|
|
|
|
|
|
|
|
78,158 |
|
REDEMPTION OF PREFERRED STOCK AND STOCK WARRANTS |
|
|
(73,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,200 |
) |
|
|
|
|
|
|
|
|
|
|
(75,778 |
) |
|
BALANCE SEPTEMBER 30, 2009 |
|
$ |
|
|
|
|
21,068,721 |
|
|
$ |
209 |
|
|
$ |
(2,417 |
) |
|
$ |
2,417 |
|
|
$ |
224,848 |
|
|
$ |
179,245 |
|
|
$ |
2,273 |
|
|
$ |
406,575 |
|
|
(1) |
|
Represents reclassification of the non-credit related component of previously recorded
Other-Than-Temporary impairment, pursuant to the provisions of the Investments-Debt and
Equity Securities Topic of FASB ASC. |
|
(2) |
|
Excludes $586 of cumulative preferred dividends
not declared as of the quarter ended June 30, 2009 and $196 of accretion of discount on
preferred stock issuance, relating to the U.S. Treasurys Capital Purchase Program. |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited Dollars In Thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, |
|
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
28,402 |
|
|
$ |
13,888 |
|
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
4,757 |
|
|
|
4,191 |
|
Provision for Loan Losses |
|
|
15,081 |
|
|
|
12,911 |
|
Deferred Income Tax Benefit/(Provision) |
|
|
(5 |
) |
|
|
390 |
|
Net Gain on Sale of Investments |
|
|
(458 |
) |
|
|
(1,355 |
) |
Loss on Write-Down of Investments in Securities Available for Sale |
|
|
269 |
|
|
|
6,794 |
|
Loss on Sale of Fixed Assets |
|
|
280 |
|
|
|
99 |
|
Gain on Sale of Other Real Estate Owned |
|
|
74 |
|
|
|
608 |
|
Gain Resulting from Early Termination of Hedging Relationship |
|
|
|
|
|
|
(3,778 |
) |
Realized Gain on Sale Leaseback Transaction |
|
|
(775 |
) |
|
|
(775 |
) |
Stock Based Compensation |
|
|
1,206 |
|
|
|
532 |
|
Increase in Cash Surrender Value of Bank Owned Life Insurance |
|
|
(2,353 |
) |
|
|
(2,159 |
) |
Proceeds from Bank Owned Life Insurance |
|
|
|
|
|
|
336 |
|
Net Change In: |
|
|
|
|
|
|
|
|
Trading Assets |
|
|
(1,247 |
) |
|
|
(20,389 |
) |
Loans Held for Sale |
|
|
(7,855 |
) |
|
|
(5,809 |
) |
Other Assets |
|
|
(24,154 |
) |
|
|
40,577 |
|
Other Liabilities |
|
|
25,847 |
|
|
|
(1,911 |
) |
|
TOTAL ADJUSTMENTS |
|
|
10,667 |
|
|
|
30,262 |
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
39,069 |
|
|
|
44,150 |
|
|
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from Sales of Securities Available For Sale |
|
|
6,423 |
|
|
|
168,535 |
|
Proceeds from Maturities and Principal Repayments of Securities Available For Sale |
|
|
116,142 |
|
|
|
125,859 |
|
Purchase of Securities Available For Sale |
|
|
(46,349 |
) |
|
|
(92,939 |
) |
Proceeds from Maturities and Principal Repayments of Securities Held to Maturity |
|
|
14,501 |
|
|
|
5,832 |
|
Purchase of Securities Held to Maturity |
|
|
(101,927 |
) |
|
|
(56,135 |
) |
Purchase of Bank Owned Life Insurance |
|
|
(219 |
) |
|
|
(219 |
) |
Net Increase in Loans |
|
|
(33,100 |
) |
|
|
(57,111 |
) |
Cash (Used In)/Provided By Business Combinations |
|
|
(269 |
) |
|
|
97,658 |
|
Purchase of Bank Premises and Equipment |
|
|
(5,142 |
) |
|
|
(3,206 |
) |
Proceeds from the Sale of Bank Premises and Equipment |
|
|
37 |
|
|
|
41 |
|
Proceeds Resulting from Early Termination of Hedging Relationship |
|
|
|
|
|
|
6,099 |
|
Proceeds from the Sale of Other Real Estate Owned |
|
|
4,834 |
|
|
|
659 |
|
|
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES |
|
|
(45,069 |
) |
|
|
195,073 |
|
|
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net Decrease in Time Deposits |
|
|
(151,478 |
) |
|
|
(150,626 |
) |
Net Increase in Other Deposits |
|
|
393,342 |
|
|
|
151,115 |
|
Net (Decrease)/Increase in Federal Funds Purchased
and Assets Sold Under Repurchase Agreements |
|
|
(10,126 |
) |
|
|
17,827 |
|
Net Decrease in Short Term Federal Home Loan Bank Advances |
|
|
(60,002 |
) |
|
|
(48,250 |
) |
Net Decrease in Long Term Federal Home Loan Bank Advances |
|
|
|
|
|
|
(180,629 |
) |
Net Increase/(Decrease) in Treasury Tax & Loan Notes |
|
|
549 |
|
|
|
(528 |
) |
Proceeds from Issuance of Preferred Stock and Stock Warrants |
|
|
|
|
|
|
78,158 |
|
Redemption of Preferred Stock |
|
|
|
|
|
|
(78,158 |
) |
Redemption of Warrants |
|
|
|
|
|
|
(2,200 |
) |
Proceeds from Exercise of Stock Options |
|
|
393 |
|
|
|
260 |
|
Tax Expense (Benefit) from Stock Option Exercises |
|
|
70 |
|
|
|
(4 |
) |
Restricted Shares Issued |
|
|
(109 |
) |
|
|
|
|
Dividends Paid: |
|
|
|
|
|
|
|
|
Common Dividends |
|
|
(11,419 |
) |
|
|
(9,663 |
) |
Preferred Dividends |
|
|
|
|
|
|
(1,118 |
) |
|
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES |
|
|
161,220 |
|
|
|
(223,816 |
) |
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
155,220 |
|
|
|
15,407 |
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
|
|
121,905 |
|
|
|
50,107 |
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
277,125 |
|
|
$ |
65,514 |
|
|
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Transfer of Loans to Foreclosed Assets |
|
$ |
9,925 |
|
|
$ |
2,665 |
|
In conjunction with the purchase acquisition in 2009, assets were acquired and
liabilities were assumed as follows: |
|
|
|
|
|
|
|
|
Common Stock Issued for acquisition |
|
$ |
|
|
|
$ |
84,498 |
|
Fair value of assets acquired, net of cash acquired |
|
|
|
|
|
|
1,006,448 |
|
Fair value of liabilities assumed |
|
|
|
|
|
|
921,945 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
Independent Bank Corp. (the Company) is a state chartered, federally registered bank holding
company, incorporated in 1985. The Company is the sole stockholder of Rockland Trust Company
(Rockland Trust or the Bank), a Massachusetts trust company chartered in 1907.
During the first quarter of 2010, Rockland Trust established Bright Rock Capital Management
LLC (Bright Rock), a Massachusetts limited liability company, as a wholly-owned subsidiary and
registered Bright Rock with the United States Securities and Exchange Commission to act as a
registered investment advisor under the Investment Advisors Act of 1940. There have been no other
changes to the entity structure of the Company subsequent to the year ended December 31, 2009.
All material intercompany balances and transactions have been eliminated in
consolidation. Certain previously reported amounts may have been reclassified to conform to the
current years presentation.
The accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they 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. In the
opinion of management, all adjustments considered necessary for a fair presentation of the
financial statements, primarily consisting of normal recurring adjustments, have been included.
Operating results for the quarter ended September 30, 2010 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2010 or any other interim period.
For further information, refer to the consolidated financial statements and footnotes thereto
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2009 filed
with the Securities and Exchange Commission.
NOTE 2 RECENT ACCOUNTING STANDARDS
FASB ASC Topic No. 310, Receivables Update 2010-20, provides amendments to Topic 310 to
improve the disclosures that an entity provides about the credit quality of its loan portfolio and
its allowance for loan losses. The amendments enhance a Companys disclosure on the nature of
credit risk inherent in the entitys loan portfolio, how the Company analyzes and assesses that
risk in their allowance for loan losses, any changes that are made to the allowance for loan losses
and the reasoning behind those changes. In addition, a Company must now also disclose credit
quality indicators, past due loan information, and modifications of loans that are included in the
Companys loan portfolio. The amendments also require
8
enhancements to existing disclosures that
will now allow for a greater level of disaggregated information. The disclosures as of the end of
the reporting period are effective for interim and annual reporting periods ending on or after
December 15, 2010. The disclosures about activity that occurs during a reporting period are
effective for interim and annual reporting periods
beginning on and after December 15, 2010. The adoption of this standard will not have a
material impact on the Companys consolidated financial position or results of operations.
NOTE 3 SECURITIES
The following table presents a summary of the cost and fair value of the Companys investment
securities.
The amortized cost, gross unrealized holding gains and losses, other-than-temporary impairment
recorded in other comprehensive income, and fair value of securities available for sale for the
periods below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Losses |
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
Other-Than- |
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
Other-Than- |
|
|
|
|
Amortized |
|
Unrealized |
|
|
|
|
|
Temporary |
|
Fair |
|
Amortized |
|
Unrealized |
|
|
|
|
|
Temporary |
|
Fair |
|
|
Cost |
|
Gains |
|
Other |
|
Impairment |
|
Value |
|
Cost |
|
Gains |
|
Other |
|
Impairment |
|
Value |
|
|
(Dollars In Thousands) |
|
(Dollars In Thousands) |
U.S. Treasury Securities |
|
$ |
722 |
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
725 |
|
|
$ |
744 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
744 |
|
Agency Mortgage-Backed Securities |
|
|
333,431 |
|
|
|
19,287 |
|
|
|
|
|
|
|
|
|
|
|
352,718 |
|
|
|
435,929 |
|
|
|
16,450 |
|
|
|
(470 |
) |
|
|
|
|
|
|
451,909 |
|
Agency Collateralized Mortgage Obligations |
|
|
61,030 |
|
|
|
924 |
|
|
|
(35 |
) |
|
|
|
|
|
|
61,919 |
|
|
|
31,323 |
|
|
|
774 |
|
|
|
(75 |
) |
|
|
|
|
|
|
32,022 |
|
Private Mortgage-Backed Securities (1) |
|
|
11,858 |
|
|
|
|
|
|
|
|
|
|
|
(369 |
) |
|
|
11,489 |
|
|
|
15,640 |
|
|
|
|
|
|
|
(681 |
) |
|
|
(670 |
) |
|
|
14,289 |
|
State, County, and Municipal Securities |
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
4,000 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
4,081 |
|
Single Issuer Trust Preferred Securities Issued by Banks |
|
|
5,000 |
|
|
|
|
|
|
|
(1,701 |
) |
|
|
|
|
|
|
3,299 |
|
|
|
5,000 |
|
|
|
|
|
|
|
(1,990 |
) |
|
|
|
|
|
|
3,010 |
|
Pooled Trust Preferred Securities Issued by Banks and Insurers(1) |
|
|
8,562 |
|
|
|
|
|
|
|
(2,389 |
) |
|
|
(3,436 |
) |
|
|
2,737 |
|
|
|
8,705 |
|
|
|
|
|
|
|
(2,382 |
) |
|
|
(3,728 |
) |
|
|
2,595 |
|
|
|
|
TOTAL |
|
$ |
424,603 |
|
|
$ |
20,214 |
|
|
$ |
(4,125 |
) |
|
$ |
(3,805 |
) |
|
$ |
436,887 |
|
|
$ |
501,341 |
|
|
$ |
17,305 |
|
|
$ |
(5,598 |
) |
|
$ |
(4,398 |
) |
|
$ |
508,650 |
|
|
|
|
The amortized cost, gross unrealized holding gains and losses, other-than-temporary impairment
recorded in other comprehensive income, and fair value of securities held to maturity for the
periods below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Losses |
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
Other-Than- |
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
Other-Than- |
|
|
|
|
Amortized |
|
Unrealized |
|
|
|
|
|
Temporary |
|
Fair |
|
Amortized |
|
Unrealized |
|
|
|
|
|
Temporary |
|
Fair |
|
|
Cost |
|
Gains |
|
Other |
|
Impairment |
|
Value |
|
Cost |
|
Gains |
|
Other |
|
Impairment |
|
Value |
|
|
(Dollars In Thousands) |
|
(Dollars In Thousands) |
Agency Mortgage-Backed Securities |
|
$ |
80,177 |
|
|
$ |
2,191 |
|
|
$ |
(168 |
) |
|
$ |
|
|
|
$ |
82,200 |
|
|
$ |
54,064 |
|
|
$ |
503 |
|
|
$ |
(283 |
) |
|
$ |
|
|
|
$ |
54,284 |
|
Agency Collateralized Mortgage Obligations |
|
|
82,566 |
|
|
|
1,222 |
|
|
|
|
|
|
|
|
|
|
|
83,788 |
|
|
|
14,321 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
14,406 |
|
State, County, and Municipal Securities |
|
|
11,227 |
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
11,458 |
|
|
|
15,252 |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
15,636 |
|
Single Issuer Trust Preferred Securities
Issued by Banks |
|
|
6,653 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
6,706 |
|
|
|
9,773 |
|
|
|
|
|
|
|
(661 |
) |
|
|
|
|
|
|
9,112 |
|
|
|
|
TOTAL |
|
$ |
180,623 |
|
|
$ |
3,697 |
|
|
$ |
(168 |
) |
|
$ |
|
|
|
$ |
184,152 |
|
|
$ |
93,410 |
|
|
$ |
972 |
|
|
$ |
(944 |
) |
|
$ |
|
|
|
$ |
93,438 |
|
|
|
|
|
|
|
(1) |
|
During the nine months ended September 30, 2010 and the year ended December 31, 2009, the
Company recorded credit related OTTI of $269,000 and $9.0 million, respectively, included in these
amounts were $593,000 and $1.6 million, respectively, which the
Company had previously recorded in OCI, as it was considered to be non-credit related. |
Securities balances are at $624.9 million, up $16.7 million, or 2.8% from December 31,
2009. At September 30, 2010 included in the securities balance was $1.0 million of collateralized
debt obligations that have deferred interest payments and have been placed on nonaccrual.
During the quarter ended September 30, 2010 the Company purchased primarily fixed rate agency
mortgage-backed securities and agency collateralized mortgage obligations. These purchases were
partially offset by increasing prepayments on the mortgage backed securities portfolio due largely
to the low rate environment. The following table shows the recorded gross gains and losses on the
sales of investment securities for the following periods:
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
(Dollars in Thousands) |
Gross Gains |
|
$ |
|
|
|
$ |
|
|
|
$ |
480 |
|
|
$ |
1,380 |
|
Gross Losses |
|
$ |
(22 |
) |
|
$ |
|
|
|
$ |
(22 |
) |
|
$ |
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gains on Sales of Investments |
|
$ |
(22 |
) |
|
$ |
|
|
|
$ |
458 |
|
|
$ |
1,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
When securities are sold, the amortized cost of the specific security sold, net of any
related unrealized gains or losses included in other comprehensive income, is used to compute the gain or loss on the
sale.
A schedule of the contractual maturities of securities held to maturity and securities
available for sale is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
Held to Maturity |
|
Available for Sale |
|
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
|
|
Cost |
|
Value |
|
Cost |
|
Value |
|
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
Due in One Year or Less |
|
$ |
1,339 |
|
|
$ |
1,356 |
|
|
$ |
4,722 |
|
|
$ |
4,725 |
|
Due from One Year to Five Years |
|
|
5,405 |
|
|
|
5,552 |
|
|
|
26,711 |
|
|
|
27,607 |
|
Due from Five to Ten Years |
|
|
5,289 |
|
|
|
5,508 |
|
|
|
94,703 |
|
|
|
100,019 |
|
Due after Ten Years |
|
|
168,590 |
|
|
|
171,736 |
|
|
|
298,467 |
|
|
|
304,536 |
|
|
TOTAL |
|
$ |
180,623 |
|
|
$ |
184,152 |
|
|
$ |
424,603 |
|
|
$ |
436,887 |
|
|
The actual maturities of agency mortgage-backed securities, collateralized
mortgage obligations, private mortgage-backed securities, and corporate debt securities will differ
from the contractual maturities, due to the ability of the issuers to prepay underlying
obligations. At September 30, 2010, the Bank had $24.4 million of callable securities in its
investment portfolio.
At September 30, 2010 and December 31, 2009 investment securities carried at $399.6 million
and $297.2 million, respectively, were pledged to secure public deposits, assets sold under
repurchase agreements, treasury tax and loan notes, letters of credit, and for other purposes.
At September 30, 2010 and December 31, 2009, the Company had no investments in obligations of
individual states, counties, or municipalities, which exceed 10% of stockholders equity.
Other-Than-Temporary Impairment
The Company continually reviews investment securities for the existence of
other-than-temporary impairment (OTTI), taking into consideration current market conditions, the
extent and nature of changes in fair value, issuer rating changes and trends, the credit worthiness
of
10
the obligor of the security, volatility of earnings, current analysts evaluations, the
Companys intent to sell the security or whether it is more likely than not that the Company will
be required to sell the debt security before its anticipated recovery, as well as other qualitative
factors. The term other-than-temporary is not intended to indicate that the decline is
permanent, but indicates that the prospects for a near-term recovery of value are not necessarily
favorable, or that there is a lack of evidence to support a realizable value equal to or greater
than the carrying value of the investment.
Management prepares an estimate of the expected cash flows for investment securities that
potentially may be deemed to have OTTI. This estimate begins with the contractual cash flows of
the security. This amount is then reduced by an estimate of probable credit losses associated with
the security. When estimating the extent of probable losses on the securities, management
considers the strength of the underlying issuers. Indicators of diminished credit quality of the
issuers includes defaults, interest deferrals, or payments in kind. Management also considers
those factors listed in the Investments Debt and Equity Securities topic of the FASB ASC when
estimating the ultimate realizability of the cash flows for each individual security. The resulting
estimate of cash flows after considering credit is then subject to a present value computation
using a discount rate equal to the current yield used to accrete the beneficial interest or the
effective interest rate implicit in the security at the date of acquisition. If the present value
of the estimated cash flows is less than the current amortized cost basis, an OTTI is considered to
have occurred and the security is written down to the fair value indicated by the cash flows
analysis. As part of the analysis, management considers whether it intends to sell the security
or whether it is more than likely that it would be required to sell the security before the
recovery of its amortized cost basis.
In determining which portion of the OTTI charge is related to credit, and what portion is
related to other factors, management considers the reductions in the cash flows due to credit and
ascribes that portion of the OTTI charge to credit. Simply, to the extent the estimated cash flows
do not support the amortized cost, that amount is considered credit loss and the remainder of the
OTTI charge is considered due to other factors, such as liquidity or interest rates, and thus is
not recognized in earnings, but rather through other comprehensive income (OCI).
The following tables show the gross unrealized losses and fair value of the Companys
investments in an unrealized loss position, which the Company has not deemed to be OTTI, aggregated
by investment category and length of time that individual securities have been in a continuous
unrealized loss position:
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
Less than 12 months |
|
12 months or longer |
|
Total |
|
|
|
|
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
Description of Securities |
|
# of holdings |
|
Value |
|
Losses |
|
Value |
|
Losses |
|
Value |
|
Losses |
|
|
|
|
|
|
(Dollars In Thousands) |
Agency Mortgage-Backed Securities |
|
|
2 |
|
|
$ |
30,803 |
|
|
$ |
(168 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
30,803 |
|
|
$ |
(168 |
) |
Agency Collateralized Mortgage Obligations |
|
|
2 |
|
|
|
14,701 |
|
|
|
(34 |
) |
|
|
61 |
|
|
|
(1 |
) |
|
|
14,762 |
|
|
|
(35 |
) |
Single Issuer Trust Preferred Securities Issued by Banks and Insurers |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
3,299 |
|
|
|
(1,701 |
) |
|
|
3,299 |
|
|
|
(1,701 |
) |
Pooled Trust Preferred Securities Issued by Banks and Insurers |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2,296 |
|
|
|
(2,389 |
) |
|
|
2,296 |
|
|
|
(2,389 |
) |
|
TOTAL TEMPORARILY IMPAIRED SECURITIES |
|
|
7 |
|
|
$ |
45,504 |
|
|
$ |
(202 |
) |
|
$ |
5,656 |
|
|
$ |
(4,091 |
) |
|
$ |
51,160 |
|
|
$ |
(4,293 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
Less than 12 months |
|
12 months or longer |
|
Total |
|
|
|
|
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
Description of Securities |
|
# of holdings |
|
Value |
|
Losses |
|
Value |
|
Losses |
|
Value |
|
Losses |
|
|
|
|
|
|
(Dollars In Thousands) |
Agency Mortgage-Backed Securities |
|
|
8 |
|
|
$ |
62,716 |
|
|
$ |
(753 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
62,716 |
|
|
$ |
(753 |
) |
Agency Collateralized Mortgage Obligations |
|
|
5 |
|
|
|
3,557 |
|
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
3,557 |
|
|
|
(75 |
) |
Private Mortgage-Backed Securities |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
8,653 |
|
|
|
(681 |
) |
|
|
8,653 |
|
|
|
(681 |
) |
Single Issuer Trust Preferred Securities Issued by Banks and Insurers |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
12,122 |
|
|
|
(2,651 |
) |
|
|
12,122 |
|
|
|
(2,651 |
) |
Pooled Trust Preferred Securities Issued by Banks and Insurers |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2,334 |
|
|
|
(2,382 |
) |
|
|
2,334 |
|
|
|
(2,382 |
) |
|
TOTAL TEMPORARILY IMPAIRED SECURITIES |
|
|
20 |
|
|
$ |
66,273 |
|
|
$ |
(828 |
) |
|
$ |
23,109 |
|
|
$ |
(5,714 |
) |
|
$ |
89,382 |
|
|
$ |
(6,542 |
) |
|
The Company does not intend to sell these
investments and has determined based upon available evidence that it is more likely than not that the Company will not be required
to sell the security before the recovery of its amortized cost basis.
As a result, the Company does not consider these investments to be OTTI. The Company was
able to determine this by reviewing various qualitative and quantitative factors regarding each
investment category, such as current market conditions, extent and nature of changes in fair value,
issuer rating changes and trends, volatility of earnings, and current analysts evaluations.
As a result of the Companys review of these qualitative and quantitative factors, the causes
of the impairments listed in the table above by category are as follows at September 30, 2010:
|
|
|
Agency Mortgage-Backed Securities and Agency Collateralized Mortgage Obligations:
The unrealized loss on the Companys investment in these securities is attributable
to changes in interest rates and not due to credit deterioration, as these
securities are implicitly guaranteed by the federal government of the United States
or a federal agency. |
|
|
|
|
Single Issuer Trust Preferred Securities: The unrealized loss on these
securities is attributable to the illiquid nature of the trust preferred market in
the current economic environment. Management evaluates various financial metrics
for each of the issuers, including capital ratios. |
|
|
|
|
Pooled Trust Preferred Securities: This portfolio consists of two below
investment grade securities of which one is performing while the other is deferring
payments as contractually allowed. The unrealized loss on these securities is
attributable to the illiquid nature of the trust preferred market and the
significant risk premiums required in the current economic environment. Management
evaluates collateral credit and instrument structure, including current and expected
deferral and default rates and timing. In addition, discount rates are determined
by evaluating comparable spreads observed currently in the market for similar
instruments. |
12
Management monitors the following issuances closely for impairment due to the history of OTTI
recorded within these classes of securities. Management has determined that these securities
possess characteristics which in the current economic environment could lead to further OTTI
charges. The following tables summarize pertinent information that was considered by management in
determining if OTTI existed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Credit |
|
|
|
|
|
|
|
|
|
Other-Than- |
|
|
|
|
|
|
|
|
|
|
Gross |
|
Related Other- |
|
|
|
|
|
|
|
|
|
Temporary |
|
|
|
|
|
|
Amortized |
|
Unrealized |
|
Than-Temporary |
|
Fair |
|
Lowest credit |
|
impairment |
|
|
Class |
|
Cost |
|
Gain/(Loss) |
|
Impairment |
|
Value |
|
Ratings to date |
|
to date |
|
|
(Dollars in Thousands) |
Pooled Trust Preferred Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled Trust Preferred Security A |
|
|
C1 |
|
|
$ |
1,283 |
|
|
$ |
|
|
|
$ |
(1,161 |
) |
|
$ |
122 |
|
|
CC (Fitch); Ca (Moodys) |
|
$ |
(4,837 |
) |
Pooled Trust Preferred Security B |
|
|
D |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C (Fitch) |
|
|
(3,481 |
) |
Pooled Trust Preferred Security C |
|
|
C1 |
|
|
|
513 |
|
|
|
|
|
|
|
(441 |
) |
|
|
72 |
|
|
C (Fitch); C (Moodys) |
|
|
(915 |
) |
Pooled Trust Preferred Security D |
|
|
D |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C (Fitch) |
|
|
(990 |
) |
Pooled Trust Preferred Security E |
|
|
C1 |
|
|
|
2,081 |
|
|
|
|
|
|
|
(1,834 |
) |
|
|
247 |
|
|
C (Fitch); C (Moodys) |
|
|
(3,202 |
) |
Pooled Trust Preferred Security F |
|
|
B |
|
|
|
1,889 |
|
|
|
(1,312 |
) |
|
|
|
|
|
|
577 |
|
|
CC (Fitch); Caa3 (Moodys) |
|
|
|
|
Pooled Trust Preferred Security G |
|
|
A1 |
|
|
|
2,796 |
|
|
|
(1,077 |
) |
|
|
|
|
|
|
1,719 |
|
|
CCC+ (S&P); A- (Fitch); A3 (Moodys) |
|
|
|
|
|
TOTAL POOLED TRUST PREFERRED SECURITIES |
|
|
|
|
|
$ |
8,562 |
|
|
$ |
(2,389 |
) |
|
$ |
(3,436 |
) |
|
$ |
2,737 |
|
|
|
|
|
|
$ |
(13,425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Mortgage-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Mortgage-Backed Securities One |
|
|
2A1 |
|
|
$ |
4,893 |
|
|
$ |
|
|
|
$ |
(228 |
) |
|
$ |
4,665 |
|
|
C (Fitch) |
|
$ |
(661 |
) |
Private Mortgage-Backed Securities Two |
|
|
A19 |
|
|
|
6,965 |
|
|
|
|
|
|
|
(141 |
) |
|
|
6,824 |
|
|
B3 (Moodys) |
|
|
(182 |
) |
|
TOTAL PRIVATE MORTGAGE-BACKED SECURITIES |
|
|
|
|
|
$ |
11,858 |
|
|
$ |
|
|
|
$ |
(369 |
) |
|
$ |
11,489 |
|
|
|
|
|
|
$ |
(843 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CC
(Fitch); Caa3
(Moodys) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Performing |
|
|
|
|
|
Total Projected |
|
Excess Subordination (After |
|
|
|
Banks and Insurance |
|
Current |
|
Defaults/Losses (as a |
|
Taking into Account Best |
|
|
|
Cos. in Issuances |
|
Deferrals/Defaults/Losses |
|
% of Performing |
|
Estimate of Future |
|
|
|
(Unique) |
|
(As a % of Original Collateral) |
|
Collateral) |
|
Deferrals/Defaults/Losses) (1) |
|
Pooled Trust Preferred Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Preferred Security A |
|
|
61 |
|
|
|
35.67 |
% |
|
|
24.50 |
% |
|
|
0.00 |
% |
|
Trust Preferred Security B |
|
|
61 |
|
|
|
35.67 |
% |
|
|
24.50 |
% |
|
|
0.00 |
% |
|
Trust Preferred Security C |
|
|
51 |
|
|
|
32.55 |
% |
|
|
23.09 |
% |
|
|
0.00 |
% |
|
Trust Preferred Security D |
|
|
51 |
|
|
|
32.55 |
% |
|
|
23.09 |
% |
|
|
0.00 |
% |
|
Trust Preferred Security E |
|
|
52 |
|
|
|
30.44 |
% |
|
|
19.03 |
% |
|
|
0.00 |
% |
|
Trust Preferred Security F |
|
|
33 |
|
|
|
29.37 |
% |
|
|
26.18 |
% |
|
|
23.22 |
% |
|
Trust Preferred Security G |
|
|
33 |
|
|
|
29.37 |
% |
|
|
26.18 |
% |
|
|
46.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Mortgage-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Mortgage-Backed Securities One |
|
|
N/A |
|
|
|
0.00 |
% |
|
|
10.52 |
% |
|
|
0.00 |
% |
|
Private Mortgage-Backed Securities Two |
|
|
N/A |
|
|
|
1.22 |
% |
|
|
5.49 |
% |
|
|
0.00 |
% |
|
|
|
|
(1) |
|
Excess subordination represents the additional default/losses in excess of both current
and projected defaults/losses that the security can absorb before the security
experiences any credit impairment. |
Per review of the factors outlined above, it was determined that seven of the securities
shown in the table above were deemed to be OTTI. The remaining securities were not deemed to be
OTTI as the Company does not intend to sell these investments and has determined, based upon
available evidence that it is more likely than not that the Company will not be required to sell
the security before the recovery of its amortized cost basis.
The Company recorded credit related OTTI of $7,000 and $269,000 through earnings for the
quarter and year to date periods ended September 30, 2010, respectively. The Company recorded
credit related OTTI of $5.1 million and $6.8 million through earnings for quarter and year to date
periods ended September 30, 2009. The following table shows the cumulative credit related
component of OTTI.
13
|
|
|
|
|
For the Nine Months Ended September 30, 2010 |
|
|
Credit Related |
|
|
Component of |
|
|
Other-Than- |
|
|
Temporary |
|
|
Impairment |
|
|
(Dollars in |
|
|
Thousands) |
Balance at Beginning of Period |
|
$ |
(10,194 |
) |
Add: |
|
|
|
|
Incurred on Securities not Previously Impaired |
|
|
(41 |
) |
Incurred on Securities Previously Impaired |
|
|
(228 |
) |
Less: |
|
|
|
|
Realized Gain/Loss on Sale of Securities |
|
|
|
|
Reclassification Due to Changes in Companys Intent |
|
|
|
|
Increases in Cash Flow Expected to be Collected |
|
|
|
|
|
BALANCE AT END OF PERIOD |
|
$ |
(10,463 |
) |
|
NOTE 4 EARNINGS PER SHARE
Basic earnings per share (EPS) are calculated by dividing net income available to the common
shareholder by the weighted average number of common shares (excluding shares of unvested
restricted stock) outstanding before any dilution during the period. Diluted earnings per share
have been calculated in a manner similar to that of basic earnings per share except that the
weighted average number of common shares outstanding is increased to include the number of
additional common shares that would have been outstanding if all potentially dilutive common shares
(such as those resulting from the exercise of stock options and unvested restricted stock awards)
were issued during the period, computed using the treasury stock method.
Earnings per share consisted of the following components for the periods indicated:
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
NET INCOME |
|
$ |
11,145 |
|
|
$ |
6,841 |
|
|
$ |
28,402 |
|
|
$ |
13,888 |
|
Less: Preferred Stock Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,698 |
|
|
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS |
|
$ |
11,145 |
|
|
$ |
6,841 |
|
|
$ |
28,402 |
|
|
$ |
8,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares |
|
Weighted Average Shares |
BASIC EPS |
|
|
20,981,372 |
|
|
|
20,921,635 |
|
|
|
20,961,378 |
|
|
|
19,210,431 |
|
Effect of Dilutive Securities |
|
|
52,793 |
|
|
|
48,254 |
|
|
|
74,536 |
|
|
|
26,181 |
|
|
DILUTIVE EPS |
|
|
21,034,165 |
|
|
|
20,969,889 |
|
|
|
21,035,914 |
|
|
|
19,236,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Available to Common |
|
Net Income Available to Common |
|
|
Shareholders per Share |
|
Shareholders per Share |
BASIC EPS |
|
$ |
0.53 |
|
|
$ |
0.33 |
|
|
$ |
1.35 |
|
|
$ |
0.43 |
|
Effect of Dilutive Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTIVE EPS |
|
$ |
0.53 |
|
|
$ |
0.33 |
|
|
$ |
1.35 |
|
|
$ |
0.43 |
|
|
The following table illustrates options to purchase common stock and shares of restricted
stock that were excluded from the calculation of diluted earnings per share because they were
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Stock Options |
|
|
1,007,005 |
|
|
|
1,011,736 |
|
|
|
797,564 |
|
|
|
1,059,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5 STOCK BASED COMPENSATION
On May 25, 2010 the Company granted restricted stock awards to acquire 16,800 shares of the
Companys common stock from the 2010 Non-Employee Director Stock Plan to the non-employee directors
of the Company and/or Bank. The holders of these awards participate fully in the rewards of stock
ownership of the Company, including voting and dividend rights. The restricted stock awards have
been determined to have a fair value of $23.07 per share, based on the average of the high price
and low price at which the Companys common stock traded on the date of grant. The restricted stock
awards vest at the end of a three year period.
On May 25, 2010 the Company awarded options to purchase 15,000 shares of common stock from the
2010 Non-Employee Director Stock Plan to three non-employee directors of the Company and/or the
Bank. The expected volatility, expected life, expected dividend yield, and expected risk free
interest rate for this grant used to determine their fair value were determined on May 25, 2010 and
were 39%, 5 years, 3.18%, and 2.01%, respectively. The options have
15
been determined to have a fair value of $6.31 per share. The options vest over a three year period
and have a contractual life of ten years from date of grant.
On February 25, 2010 the Company granted 54,500 restricted stock awards to executive officers
of the Company and/or Bank, from the 2005 Employee Stock Plan. On February 11, 2010 the Company
granted 37,000 restricted stock awards to certain non-executive officers of the Company and/or
Bank, from the 2005 Employee Stock Plan. The restricted stock awards have been determined to have
a fair value per share of $25.12 and $23.39, respectively, based on the average of the high price
and low price at which the Companys common stock traded on the date of grant. The holders of
these awards participate fully in the rewards of stock ownership of the Company, including voting
and dividend rights. The restricted stock awards vest over a three year period.
NOTE 6 DERIVATIVES AND HEDGING ACTIVITIES
The Companys derivative financial instruments are used to manage differences in the amount,
timing, and duration of the Companys known or expected cash receipts and its known or expected
cash payments principally to manage the Companys interest rate risk. Additionally, the Company
enters into interest rate derivatives and foreign exchange contracts to accommodate the business
requirements of its customers (customer related positions). The Company minimizes the market and
liquidity risks of customer-related positions by entering into similar offsetting positions with
broker-dealers.
Derivative instruments are carried at fair value in the Companys financial statements. The
accounting for changes in the fair value of a derivative instrument is dependent upon whether or
not it has been designated and qualifies as part of a hedging relationship, and further, by the
type of hedging relationship. As of September 30, 2010, the Company has entered into interest rate
swap contracts as part of the Companys interest rate risk management program, which are designated
and qualify as cash flow hedges. In addition, the Company has entered into interest rate swap
contracts and foreign exchange contracts with commercial customers, which are not designated as
hedging instruments.
Asset Liability Management
The Bank currently utilizes interest rate swap agreements as hedging instruments against
interest rate risk associated with the Companys borrowings. An interest rate swap is an agreement
whereby one party agrees to pay a floating rate of interest on a notional principal amount in
exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined
period of time, from a second party. The amounts relating to the notional principal amount are not
actually exchanged. The maximum length of time over which the Company is currently hedging its
exposure to the variability in future cash flows for forecasted transactions related to the payment
of variable interest on existing financial instruments is nine years. At September 30, 2010 and
December 31, 2009, the Company had a total notional amount of $175.0 million and $235.0 million,
respectively, of interest rate swaps.
The following table reflects the Companys derivative positions for the periods indicated
below for those derivatives designated as hedging:
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive |
|
|
|
|
|
|
|
|
Notional |
|
Trade |
|
Effective |
|
Maturity |
|
(Variable) |
|
Current Rate |
|
Pay Fixed |
|
|
Cash Flow Hedges |
|
Amount |
|
Date |
|
Date |
|
Date |
|
Index |
|
Received |
|
Swap Rate |
|
Fair Value |
|
|
(Dollars in Thousands) |
Interest Rate Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
16-Feb-06 |
|
28-Dec-06 |
|
28-Dec-16 |
|
3 Month LIBOR |
|
|
0.29 |
% |
|
|
5.04 |
% |
|
|
(4,882 |
) |
|
|
|
25,000 |
|
|
16-Feb-06 |
|
28-Dec-06 |
|
28-Dec-16 |
|
3 Month LIBOR |
|
|
0.29 |
% |
|
|
5.04 |
% |
|
|
(4,865 |
) |
|
|
|
25,000 |
|
|
8-Dec-08 |
|
10-Dec-08 |
|
10-Dec-13 |
|
3 Month LIBOR |
|
|
0.29 |
% |
|
|
2.65 |
% |
|
|
(1,386 |
) |
|
|
|
25,000 |
|
|
9-Dec-08 |
|
10-Dec-08 |
|
10-Dec-13 |
|
3 Month LIBOR |
|
|
0.29 |
% |
|
|
2.59 |
% |
|
|
(1,340 |
) |
|
|
|
25,000 |
|
|
9-Dec-08 |
|
10-Dec-08 |
|
10-Dec-18 |
|
3 Month LIBOR |
|
|
0.29 |
% |
|
|
2.94 |
% |
|
|
(1,436 |
) |
|
|
|
50,000 |
|
|
17-Nov-09 |
|
20-Dec-10 |
|
20-Dec-14 |
|
3 Month LIBOR |
|
|
0.00 |
% |
|
|
3.04 |
% |
|
|
(3,498 |
)(1) |
|
Total |
|
$ |
175,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
($17,407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive |
|
|
|
|
|
|
|
|
Notional |
|
Trade |
|
Effective |
|
Maturity |
|
(Variable) |
|
Current Rate |
|
Pay Fixed |
|
|
|
|
Amount |
|
Date |
|
Date |
|
Date |
|
Index |
|
Received |
|
Swap Rate |
|
Fair Value |
|
|
(Dollars in Thousands) |
Interest Rate Swaps |
|
$ |
35,000 |
|
|
19-Mar-08 |
|
19-Mar-08 |
|
20-Jan-10 |
|
3 Month LIBOR |
|
|
0.28 |
% |
|
|
2.28 |
% |
|
|
($37 |
) |
|
|
|
25,000 |
|
|
16-Feb-06 |
|
28-Dec-06 |
|
28-Dec-16 |
|
3 Month LIBOR |
|
|
0.26 |
% |
|
|
5.04 |
% |
|
|
(2,641 |
) |
|
|
|
25,000 |
|
|
16-Feb-06 |
|
28-Dec-06 |
|
28-Dec-16 |
|
3 Month LIBOR |
|
|
0.25 |
% |
|
|
5.04 |
% |
|
|
(2,588 |
) |
|
|
|
25,000 |
|
|
8-Dec-08 |
|
10-Dec-08 |
|
10-Dec-13 |
|
3 Month LIBOR |
|
|
0.26 |
% |
|
|
2.65 |
% |
|
|
(156 |
) |
|
|
|
25,000 |
|
|
9-Dec-08 |
|
10-Dec-08 |
|
10-Dec-13 |
|
3 Month LIBOR |
|
|
0.26 |
% |
|
|
2.59 |
% |
|
|
(101 |
) |
|
|
|
25,000 |
|
|
9-Dec-08 |
|
10-Dec-08 |
|
10-Dec-18 |
|
3 Month LIBOR |
|
|
0.26 |
% |
|
|
2.94 |
% |
|
|
1,400 |
|
|
|
|
25,000 |
|
|
16-Dec-08 |
|
18-Dec-08 |
|
18-Dec-13 |
|
3 Month LIBOR |
|
|
0.25 |
% |
|
|
2.09 |
% |
|
|
354 |
|
|
|
|
50,000 |
|
|
17-Nov-09 |
|
20-Dec-10 |
|
20-Dec-14 |
|
3 Month LIBOR |
|
|
0.00 |
% |
|
|
3.04 |
% |
|
|
766 |
(1) |
|
Total |
|
$ |
235,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
($3,003 |
) |
|
|
|
|
(1) |
|
Represents a forward starting swap which the Company
intends to hedge a replacement of an existing FHLB
advance, set to mature in December 2010. |
For derivative instruments that are designated and qualify as hedging instruments, the
effective portion of the gains or losses are reported as a component of OCI, and are subsequently
reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The Company expects approximately $4.9 million to be reclassified to earnings from OCI, as an
increase in interest expense, related to the Companys cash flow hedges, in the next twelve months.
The ineffective portion of the cash flow hedge is recognized directly in earnings. The
Company recognized an immaterial ineffective portion during the three and nine months ended
September 30, 2010 and September 30, 2009.
During the first quarter of 2010, one of the Companys $25.0 million interest rate swaps
failed to qualify for hedge accounting. The Company ceased hedge accounting on January 6, 2010,
which was the last date the interest rate swap qualified for hedge accounting. As a result, the
Company recognized a loss of $238,000 directly in earnings as part of non-interest expense and
reclassified $107,000 from interest expense to non-interest expense during the first quarter of
2010. Additionally, a gain of $191,000 which was previously deferred in OCI was immediately
recognized in income during the first quarter, based on the Companys anticipation of the hedge
forecasted transaction no longer being probable to occur. During the second quarter of 2010, the
Company continued to mark the interest rate swap to fair value through earnings and recognized a
decrease in fair value of $554,000 and $792,000 for the three and six months ended June 30, 2010.
The Company terminated the swap in June 2010 as a result of managements decision to paydown the
underlying borrowing.
The Company recognized $61,000 and $161,000 of net amortization in interest income for the
three and nine months ended September 30, 2010 and $98,000 and $398,000 of net amortization in
interest expense for the three and nine months ended September 30, 2009, related to previously
terminated swaps.
17
Customer Related Positions
Interest rate derivatives, primarily interest-rate swaps, offered to commercial borrowers
through the Banks derivative program are not designated as hedging instruments. However, the Bank
believes that its exposure to commercial customer derivatives is limited because these contracts
are simultaneously matched at inception with an offsetting dealer transaction. The commercial
customer derivative program allows the Bank to retain variable-rate commercial loans while allowing
the customer to synthetically fix the loan rate by entering into a variable-to-fixed interest rate
swap. It is anticipated that over time, customer interest rate derivatives will reduce the
interest rate risk inherent in the longer-term, fixed-rate commercial business and real estate
loans. At September 30, 2010 and December 31, 2009 the Company had fifty-two and twenty-seven
customer-related positions and offsetting dealer transactions with dealer banks, respectively. At
September 30, 2010 and December 31, 2009 the Bank had a total notional amount of $202.7 million and
$122.1 million, respectively, of interest rate swap agreements with commercial borrowers and an
equal notional amount of dealer transactions.
Foreign exchange contracts offered to commercial borrowers through the Banks derivative
program are not designated as hedging instruments. The Company acts as a seller and buyer of
foreign exchange contracts to accommodate its customers. To mitigate the market and liquidity risk
associated with these derivatives, the Company enters into similar offsetting positions. At
September 30, 2010 and December 31, 2009 the Company had twenty-four and four foreign exchange
contracts and offsetting dealer transactions, respectively. As of September 30, 2010 and December
31, 2009 the Company had a total notional amount of $53.8 million and $8.4 million of foreign
exchange contracts with commercial borrowers and an equal notional amount of dealer transactions.
The Company does not enter into proprietary trading positions for any derivatives.
The following table reflects the Companys derivative positions for the periods indicated
below for those derivatives not designated as hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
Notional Amount Maturing |
|
|
|
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
Thereafter |
|
Total |
|
Fair Value |
|
|
(Dollars in Thousands) |
Customer Related Positions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOAN LEVEL SWAPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed, pay variable |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
22,230 |
|
|
$ |
180,482 |
|
|
$ |
202,712 |
|
|
$ |
(13,937 |
) |
Pay fixed, receive variable |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
22,230 |
|
|
$ |
180,482 |
|
|
$ |
202,712 |
|
|
$ |
13,944 |
|
|
FOREIGN EXCHANGE CONTRACTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buys foreign exchange sells U.S. currency |
|
$ |
33,824 |
|
|
$ |
19,995 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
53,819 |
|
|
$ |
(2,450 |
) |
Buys US currency sells foreign exchange |
|
$ |
33,824 |
|
|
$ |
19,995 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
53,819 |
|
|
$ |
2,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
Notional Amount Maturing |
|
|
|
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
Thereafter |
|
Total |
|
Fair Value |
|
|
(Dollars in Thousands) |
Customer Related Positions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOAN LEVEL SWAPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed, pay variable |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
122,125 |
|
|
$ |
122,125 |
|
|
$ |
(1,273 |
) |
Pay fixed, receive variable |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
122,125 |
|
|
$ |
122,125 |
|
|
$ |
1,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN EXCHANGE CONTRACTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buys foreign exchange sells U.S. currency |
|
$ |
8,424 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,424 |
|
|
$ |
(5 |
) |
Buys US currency sells foreign exchange |
|
$ |
8,424 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,424 |
|
|
$ |
12 |
|
18
Changes in the fair value of customer related positions are recorded directly in earnings as
they are not afforded hedge accounting treatment. The Company recorded a net increase in fair
value of $47,000 for the three months ended September 30, 2010 and a net decrease of $99,000 for
the nine months ended September 30, 2010, and a net decrease in fair value of $112,000 for the
three months ended September 30, 2009 and a net increase in fair value of $22,000 for the nine
months ended September 30, 2009.
The table below presents the fair value of the Companys derivative financial instruments as
well as their classification on the Balance Sheet at the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
|
|
|
Liability Derivatives |
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
|
|
|
September 30, |
|
December 31, |
|
|
|
|
|
|
2010 |
|
2009 |
|
|
|
|
|
2010 |
|
2009 |
|
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
|
|
Balance |
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
Sheet |
|
Fair |
|
Fair |
|
Sheet |
|
Fair |
|
Fair |
|
|
Location |
|
Value |
|
Value |
|
Location |
|
Value |
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated
as hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
Other Assets |
|
$ |
|
|
|
$ |
2,519 |
|
|
Other Liabilities |
|
$ |
17,407 |
|
|
$ |
5,522 |
|
|
TOTAL |
|
|
|
|
|
$ |
|
|
|
$ |
2,519 |
|
|
|
|
|
|
$ |
17,407 |
|
|
$ |
5,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not
designated as hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related positions |
|
Other Assets |
|
|
13,944 |
|
|
|
2,224 |
|
|
Other Liabilities |
|
|
13,937 |
|
|
|
2,093 |
|
Foreign exchange contracts |
|
Other Assets |
|
|
2,482 |
|
|
|
15 |
|
|
Other Liabilities |
|
|
2,450 |
|
|
|
8 |
|
|
TOTAL |
|
|
|
|
|
$ |
16,426 |
|
|
$ |
2,239 |
|
|
|
|
|
|
$ |
16,387 |
|
|
$ |
2,101 |
|
|
The table below presents the effect of the Companys derivative financial instruments on Other
Comprehensive Income and the Income Statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain |
|
|
|
|
Gain in OCI |
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in Income on |
|
On Derivative (Ineffective |
|
|
on Derivative |
|
Location of Gain |
|
From Accumulated OCI |
|
Derivative (Ineffective |
|
Portion and Amount |
|
|
(Effective Portion), |
|
Reclassified from |
|
Into Income |
|
Portion and Amount |
|
Excluded from |
Derivatives Designated as |
|
Net of Tax |
|
Accumulated OCI into |
|
(Effective Portion) |
|
Excluded from |
|
Effectiveness Testing |
Hedges: |
|
2010 |
|
2009 |
|
Income (Effective Portion) |
|
2010 |
|
2009 |
|
Effectiveness Testing) |
|
2010 |
|
2009 |
(Dollars in Thousands) |
Interest rate swaps |
|
$ |
10,310 |
|
|
$ |
4,972 |
|
|
Interest income/(expense) |
|
$ |
2,926 |
|
|
$ |
(340 |
) |
|
Interest income/(expense) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
10,310 |
|
|
$ |
4,972 |
|
|
|
|
|
|
$ |
2,926 |
|
|
$ |
(340 |
) |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Derivative contracts involve the risk of dealing with derivative counterparties and their
ability to meet contractual terms. Institutional counterparties must have an investment grade
credit rating and be approved by the Companys Board of Directors. The Companys credit exposure
on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps
with each counterparty. The Company had no such exposure at September 30, 2010. Credit exposure
may be reduced by the amount of collateral pledged by the counterparty. Additionally, the Company
currently holds derivative instruments that contain credit-risk related contingent features that
are in a net liability position. The notional amount of these instruments as of September 30, 2010
and December 31, 2009 were $201.9 million and $209.2 million, respectively. The aggregate fair
value of these instruments at September 30, 2010 and December 31, 2009 were $19.1 million and $7.3
million, respectively. The Company
19
has collateral assigned to these derivative instruments amounting to $31.9 million and $17.1
million, respectively. Collateral legally required to be maintained at dealer banks by the Company
is monitored and adjusted as necessary. Per a review completed by management of these instruments
at September 30, 2010 it was determined that no additional collateral would have to be posted to
immediately settle these instruments.
The Companys credit exposure relating to interest rate swaps with bank customers was
approximately $14.1 million at September 30, 2010. The credit exposure is partly mitigated as
transactions with customers are secured by the collateral, if any, securing the underlying
transaction being hedged.
The Company does not offset fair value amounts recognized for derivative instruments. The
Company does net the amount recognized for the right to reclaim cash collateral against the
obligation to return cash collateral arising from derivative instruments executed with the same
counterparty under a master netting arrangement.
Certain derivative instruments, primarily forward sales of mortgage loans, are utilized by the
Company in its efforts to manage risk of loss associated with its mortgage loan commitments and
mortgage loans held for sale. Prior to closing and funding certain single-family residential
mortgage loans, an interest rate locked commitment is generally extended to the borrower. During
the period from commitment date to closing date, the Company is subject to the risk that market
rates of interest may change. If market rates rise, investors generally will pay less to purchase
such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an
effort to mitigate such risk, forward delivery sales commitments are executed, under which the
Company agrees to deliver whole mortgage loans to various investors. The interest rate locked
commitments and forward sales commitments are recorded at fair value, with changes in fair value
recorded in current period earnings. The interest rate locked commitments and forward sales
commitments are recorded at fair value, and, pursuant to FASB ASC Topic No. 825, Financial
Instruments, effective July 1, 2010, the Company elected to carry newly originated closed loans
held for sale at fair value. Changes in fair value relating to interest rate lock commitments,
forward sale commitments, and loans held for sale are recorded in current period earnings.
The table below summarizes the fair value of residential mortgage loans commitments, forward
sales agreements, and loans held for sale:
20
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2010 |
|
2009 |
|
|
Fair Value |
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
Residential Mortgage Loan Commitments |
|
$ |
475 |
|
|
$ |
(523 |
) |
Forward Sales Agreements |
|
$ |
(703 |
) |
|
$ |
767 |
|
Loans Held for Sale Fair Value Adjustment (1) |
|
$ |
228 |
|
|
|
n/a |
|
|
|
|
|
|
Change in Fair Value for the |
|
|
Nine Months Ended September 30, |
|
|
2010 |
|
2009 |
|
|
(Dollars in Thousands) |
|
|
|
Residential Mortgage Loan Commitments |
|
$ |
998 |
|
|
$ |
378 |
|
Forward Sales Agreements |
|
|
(1,470 |
) |
|
|
(428 |
) |
Loans Held for Sale Fair Value Adjustment (1) |
|
|
228 |
|
|
|
|
|
|
TOTAL CHANGE IN FAIR VALUE (2) |
|
$ |
(244 |
) |
|
$ |
(50 |
) |
|
|
|
|
(1) |
|
Pursuant to FASB ASC Topic No. 825 Financial Instruments effective July 1, 2010 the Company
has elected to have residential real estate loans held for sale carried at fair value. At September
30, 2010 the amortized cost was $21.1 and the fair value was $21.3 million. |
|
(2) |
|
Changes in these fair values are recorded as a component of mortgage banking income. |
NOTE 7 FAIR VALUE MEASUREMENTS
Fair value is a market-based measure considered from the perspective of a market participant
rather than an entity-specific measure. Therefore, even when market assumptions are not readily
available, the Companys own assumptions are set to reflect those that market participants would
use in pricing the asset or liability at the measurement date. If there has been a significant
decrease in the volume and level of activity for the asset or liability, regardless of the
valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value
is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed sale) between market participants at
the measurement date under current market conditions. The Company uses prices and inputs that are
current as of the measurement date, including during periods of market dislocation. In periods of
market dislocation, the observability of prices and inputs may be reduced for many instruments.
This condition could cause an instrument to be reclassified from one level to another.
The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and
establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1 measurements) and the lowest priority to
unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the
Fair Value Measurements and Disclosures Topic of the FASB ASC are described below:
21
Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Valuations based on quoted prices in markets that are not active or for which all
significant inputs are observable, either directly or indirectly.
Level 3 Prices or valuations that require inputs that are both significant to the fair
value measurement and unobservable.
To the extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more judgment. Accordingly,
the degree of judgment exercised by the Company in determining fair value is greatest for
instruments categorized in Level 3. A financial instruments level within the fair value hierarchy
is based on the lowest level of any input that is significant to the fair value measurement.
Valuation Techniques
There have been no changes in the valuation techniques used during the current period.
Trading Securities
These equity and fixed income securities are valued based on market quoted prices. These
securities are categorized in Level 1 as they are actively traded and no valuation adjustments have
been applied.
U.S. Treasury and Government Sponsored Enterprises
Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs
used include benchmark yields, reported trades, and broker/dealer quotes. These securities are
classified as Level 2 within the fair value hierarchy.
Agency Mortgage-Backed Securities
Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark
yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are
categorized as Level 2.
Agency Collateralized Mortgage Obligations and Private Mortgage-Backed Securities
The valuation model for these securities is volatility-driven and ratings based, and uses
multi-dimensional spread tables. The inputs used include benchmark yields, recent reported trades,
new issue data, broker and dealer quotes, and collateral performance. If there is at least one
significant model assumption or input that is not observable, these securities are categorized as
Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
State, County, and Municipal Securities
The fair value is estimated using a valuation matrix with inputs including bond interest rate
tables, recent transactions, and yield relationships. These securities are categorized as Level 2
within the fair value hierarchy.
Single/Pooled Issuer Trust Preferred Securities
The fair value of trust preferred securities, including pooled and single issued preferred
securities, is estimated using external pricing models, discounted cash flow methodologies or
22
similar techniques. The inputs used in these valuations include benchmark yields, recent reported
trades, new issue data, broker and dealer quotes and collateral performance. Accordingly, these
trust preferred securities are categorized as Level 3 within the fair value hierarchy.
Derivative Instruments
Derivatives
The valuation of these instruments is determined using widely accepted valuation techniques
including discounted cash flow analysis on the expected cash flows of each derivative. This
analysis reflects the contractual terms of the derivatives, including the period to
maturity, and uses observable market-based inputs, including interest rate curves and
implied volatilities. The Company incorporates credit valuation adjustments to
appropriately reflect both its own nonperformance risk and the respective counterpartys
nonperformance risk in the fair value measurements. In adjusting the fair value of its
derivative contracts for the effect of nonperformance risk, the Company has considered the
impact of netting and any applicable credit enhancements, such as collateral postings.
Although the Company has determined that the majority of the inputs used to value its
interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with its derivatives utilize Level 3 inputs, such as
estimates of current credit spreads to evaluate the likelihood of default by the Company and
its counterparties. However, as of September 30, 2010, the Company has assessed the
significance of the impact of the credit valuation adjustments on the overall valuation of
its derivative positions and has determined that the credit valuation adjustments are not
significant to the overall valuation of its derivatives. As a result, the Company has
determined that its derivative valuations in their entirety are classified in Level 2 of the
fair value hierarchy.
Residential Mortgage Loan Commitments and Forward Sales Agreements
The fair value of the commitments and agreements are estimated using the anticipated market
price based on pricing indications provided from syndicate banks. These commitments and
agreements are categorized as Level 2.
Loans Held for Sale
Effective July 1, 2010, the Company elected to account for new originations of loans held
for sale at fair value. Fair value is measured using quoted market prices when available.
If quoted market prices are not available, comparable market values or a discounted cash
flow analysis may be utilized. These assets are typically categorized as Level 2.
Impaired Loans
Loans that are deemed to be impaired are valued based upon the lower of cost or fair value of the
underlying collateral or discounted cash flow analyses. The inputs used in the appraisals of the
collateral are not always observable, and therefore the loans may be categorized as Level 3 within
the fair value hierarchy; otherwise, they are classified as Level 2. The inputs used in performing
discounted cash flow analyses are not observable and therefore such loans are classified as Level
3.
23
Other Real Estate Owned
The fair values are estimated based upon recent appraisal values of the property less costs to sell
the property. Certain inputs used in appraisals are not always observable, and therefore Other Real
Estate Owned may be categorized as Level 3 within the fair value hierarchy. When inputs in
appraisals are observable, they are classified as Level 2 within the fair value hierarchy.
Mortgage Servicing Asset
The mortgage servicing asset is carried at amortized cost and is subject to impairment testing. A
valuation model, which utilizes a discounted cash flow analysis encompassing interest rates and
prepayment speed assumptions currently quoted for comparable instruments, is used for impairment
analysis. If the valuation model reflects a value less than the carrying value, loan servicing
rights are adjusted to fair value through a valuation allowance as determined by the model. As
such, the Company classifies the mortgage servicing asset as Level 3.
Goodwill and Other Intangible Assets
Goodwill and identified intangible assets are subject to impairment testing. The Company conducts
an annual impairment test of goodwill in the third quarter of each year and more frequently if
necessary. To estimate the fair value of goodwill and other intangible assets the Company utilizes
both a comparable analysis of relevant price multiples in recent market transactions and discounted
cash flow analysis. Both valuation models require a significant degree of management judgment.
In the event the fair value as determined by the valuation model is less than the carrying value,
the intangibles may be impaired. If the impairment testing resulted in impairment, the Company
would classify goodwill and other intangible assets subjected to non-recurring fair value
adjustments as Level 3.
24
Assets and Liabilities Measured at Fair Value on a Recurring Basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
in Active |
|
Significant |
|
|
|
|
|
|
|
|
Markets for |
|
Other |
|
Significant |
|
|
|
|
|
|
Identical |
|
Observable |
|
Unobservable |
|
|
|
|
|
|
Assets |
|
Inputs |
|
Inputs |
|
|
Balance |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Description |
|
|
|
September 30, 2010 |
|
|
|
|
(Dollars in Thousands) |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Securities |
|
$ |
7,418 |
|
|
$ |
7,418 |
|
|
$ |
|
|
|
$ |
|
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury and Government Sponsored Enterprise |
|
|
725 |
|
|
|
|
|
|
|
725 |
|
|
|
|
|
Agency Mortgage-Backed Securities |
|
|
352,718 |
|
|
|
|
|
|
|
352,718 |
|
|
|
|
|
Agency Collateralized Mortgage Obligations |
|
|
61,919 |
|
|
|
|
|
|
|
61,919 |
|
|
|
|
|
Private Mortgage-Backed Securities |
|
|
11,489 |
|
|
|
|
|
|
|
|
|
|
|
11,489 |
|
State, County, and Municipal Securities |
|
|
4,000 |
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
Single Issuer Trust Preferred Securities Issued by
Banks and Insurers |
|
|
3,299 |
|
|
|
|
|
|
|
|
|
|
|
3,299 |
|
Pooled Trust Preferred Securities Issued by Banks
and Insurers |
|
|
2,737 |
|
|
|
|
|
|
|
|
|
|
|
2,737 |
|
Derivative Instruments |
|
|
16,901 |
|
|
|
|
|
|
|
16,901 |
|
|
|
|
|
Loans Held for Sale |
|
|
21,321 |
|
|
|
|
|
|
|
21,321 |
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments |
|
|
34,497 |
|
|
|
|
|
|
|
34,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
|
|
December 31, 2009 |
|
|
|
|
|
|
(Dollars in Thousands) |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Securities |
|
$ |
6,171 |
|
|
$ |
6,171 |
|
|
$ |
|
|
|
$ |
|
|
Securities Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and Government Sponsored Enterprise |
|
|
744 |
|
|
|
|
|
|
|
744 |
|
|
|
|
|
Agency Mortgage-Backed Securities |
|
|
451,909 |
|
|
|
|
|
|
|
451,909 |
|
|
|
|
|
Agency Collateralized Mortgage Obligations |
|
|
32,022 |
|
|
|
|
|
|
|
32,022 |
|
|
|
|
|
Private Mortgage-Backed Securities |
|
|
14,289 |
|
|
|
|
|
|
|
|
|
|
|
14,289 |
|
State, County, and Municipal Securities |
|
|
4,081 |
|
|
|
|
|
|
|
4,081 |
|
|
|
|
|
Single Issuer Trust Preferred Securities Issued by
Banks and Insurers |
|
|
3,010 |
|
|
|
|
|
|
|
|
|
|
|
3,010 |
|
Pooled Trust Preferred Securities Issued by Banks
and Insurers |
|
|
2,595 |
|
|
|
|
|
|
|
|
|
|
|
2,595 |
|
Derivative Instruments |
|
|
5,525 |
|
|
|
|
|
|
|
5,525 |
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments |
|
|
8,146 |
|
|
|
|
|
|
|
8,146 |
|
|
|
|
|
There were no transfers between levels of the fair value hierarchy during the three and nine months ended September 30, 2010.
25
The table below presents a reconciliation for all assets and liabilities measured at fair
value on a recurring basis using significant unobservable inputs (Level 3) during the three and
nine months ended September 30, 2010 and year ended December 31, 2009. These instruments were
valued using pricing models and discounted cash flow methodologies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale |
|
|
|
|
|
|
|
|
|
|
Private |
|
|
|
|
Pooled Trust |
|
Single Trust |
|
Mortgage- |
|
|
|
|
Preferred |
|
Preferred |
|
Backed |
|
|
|
|
Securities |
|
Securities |
|
Securities |
|
Total |
|
|
(Dollars in Thousands) |
BALANCE AT JUNE 30, 2010 |
|
$ |
2,786 |
|
|
$ |
3,101 |
|
|
$ |
12,680 |
|
|
$ |
18,567 |
|
|
Gains and Losses (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(7 |
) |
Included in Other Comprehensive Income |
|
|
(38 |
) |
|
|
198 |
|
|
|
121 |
|
|
|
281 |
|
Purchases, issuances and settlements |
|
|
(11 |
) |
|
|
|
|
|
|
(1,305 |
) |
|
|
(1,316 |
) |
Transfers in to Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT SEPTEMBER 30, 2010 |
|
$ |
2,737 |
|
|
$ |
3,299 |
|
|
$ |
11,489 |
|
|
$ |
17,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 1, 2009 |
|
$ |
5,193 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,193 |
|
|
Gains and Losses (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
(8,641 |
) |
|
|
|
|
|
|
(317 |
) |
|
|
(8,958 |
) |
Included in Other Comprehensive Income |
|
|
6,138 |
|
|
|
808 |
|
|
|
5,170 |
|
|
|
12,116 |
|
Purchases, issuances and settlements |
|
|
(95 |
) |
|
|
|
|
|
|
(6,078 |
) |
|
|
(6,173 |
) |
Transfers in to Level 3 |
|
|
|
|
|
|
2,202 |
|
|
|
15,514 |
|
|
|
17,716 |
|
|
BALANCE AT DECEMBER 31, 2009 |
|
$ |
2,595 |
|
|
$ |
3,010 |
|
|
$ |
14,289 |
|
|
$ |
19,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
(112 |
) |
|
|
|
|
|
|
(157 |
) |
|
|
(269 |
) |
Included in Other Comprehensive Income |
|
|
286 |
|
|
|
289 |
|
|
|
982 |
|
|
|
1,557 |
|
Purchases, issuances and settlements |
|
|
(32 |
) |
|
|
|
|
|
|
(3,625 |
) |
|
|
(3,657 |
) |
Transfers in to Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT SEPTEMBER 30, 2010 |
|
$ |
2,737 |
|
|
$ |
3,299 |
|
|
$ |
11,489 |
|
|
$ |
17,525 |
|
|
26
Assets and liabilities measured at fair value on a non-recurring basis are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
Active |
|
Significant |
|
|
|
|
|
|
|
|
Markets for |
|
Other |
|
|
|
|
|
|
|
|
Identical |
|
Observable |
|
|
|
|
|
|
|
|
Assets |
|
Inputs |
|
Significant |
|
|
|
|
|
|
(Level 1) |
|
(Level 2) |
|
Unobservable |
|
|
|
|
|
|
|
|
|
|
Inputs |
Description |
|
Balance |
|
September 30, 2010 |
|
(Level 3) |
|
|
|
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans |
|
$ |
21,608 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
21,608 |
|
Other Real Estate Owned |
|
|
9,011 |
|
|
|
|
|
|
|
4,434 |
|
|
|
4,577 |
|
Mortgage Servicing Asset |
|
|
1,713 |
|
|
|
|
|
|
|
|
|
|
|
1,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans |
|
$ |
16,680 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
16,680 |
|
Loans Held For Sale |
|
|
13,527 |
|
|
|
|
|
|
|
13,527 |
|
|
|
|
|
Other Real Estate Owned |
|
|
3,994 |
|
|
|
|
|
|
|
1,134 |
|
|
|
2,860 |
|
Mortgage Servicing Asset |
|
|
2,195 |
|
|
|
|
|
|
|
|
|
|
|
2,195 |
|
As required by the FASB ASC Topic No. 825, Fair Value Measurements and
Disclosures, the estimated fair values and related carrying amounts of the Companys financial
instruments are listed below. As further required by the guidance certain financial instruments
have been excluded from this listing such as post retirement plans, lease contracts, investments
accounted for under the equity method, equity investments in consolidated subsidiaries, and all
non-financial instruments. Accordingly, the aggregate fair value amounts presented herein may not
necessarily represent the underlying fair value of the Company. The estimated fair values and
related carrying amounts of the Companys financial instruments are as follows:
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
December 31, 2009 |
|
|
Book |
|
Fair |
|
Book |
|
Fair |
|
|
Value |
|
Value |
|
Value |
|
Value |
|
|
(Dollars In Thousands) |
|
(Dollars In Thousands) |
FINANCIAL ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held To Maturity (1) |
|
$ |
180,623 |
|
|
$ |
184,152 |
|
|
$ |
93,410 |
|
|
$ |
93,438 |
|
Loans, Net of Allowance for Loan Losses (2)(5) |
|
|
3,362,424 |
|
|
|
3,398,524 |
|
|
|
3,353,154 |
|
|
|
3,316,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Certificates of Deposits (3) |
|
$ |
766,303 |
|
|
$ |
763,417 |
|
|
$ |
917,781 |
|
|
$ |
907,499 |
|
Federal Home Loan Bank Advances (3) |
|
|
302,545 |
|
|
|
303,160 |
|
|
|
362,936 |
|
|
|
350,503 |
|
Federal Funds Purchased, Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold Under Repurchase Agreements,
and other borrowings (3) |
|
|
180,326 |
|
|
|
176,338 |
|
|
|
190,452 |
|
|
|
193,943 |
|
Subordinated Debentures (3) |
|
|
30,000 |
|
|
|
24,888 |
|
|
|
30,000 |
|
|
|
27,529 |
|
Junior Subordinated Debentures (4) |
|
|
61,857 |
|
|
|
64,780 |
|
|
|
61,857 |
|
|
|
52,888 |
|
|
|
|
(1) |
|
The fair value values presented are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted market prices of comparable
instruments and/or discounted cash flow analyses. |
|
(2) |
|
Fair value is estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the same remaining
maturities or cash flows. |
|
(3) |
|
Fair value was determined by discounting anticipated future cash payments using rates currently
available for instruments with similar remaining maturities. |
|
(4) |
|
Fair value was determined based upon market prices of securities with similar terms and
maturities. |
|
(5) |
|
The book value of net loans excludes loans held for sale. |
This summary excludes financial assets and liabilities for which the carrying
value approximates fair value. For financial assets, these include cash and due from banks,
federal funds sold, short-term investments, Federal Home Loan Bank of Boston stock, and Bank Owned
Life Insurance. For financial liabilities, these include demand, savings, and money market
deposits. The estimated fair value of demand, savings and money market deposits is the amount
payable at the reporting date. The Financial Instruments topic of the FASB ASC requires the use of
carrying value because the accounts have no stated maturity date and the customer has the ability
to withdraw funds immediately. Also excluded from the summary are financial instruments measured
at fair value on a recurring and non-recurring basis, as previously described.
28
NOTE 8 COMPREHENSIVE INCOME/(LOSS)
Information on the Companys comprehensive income/(loss), presented net of taxes, is set forth
below for the three and nine months ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010 |
|
Nine Months Ended September 30, 2010 |
|
|
Pre Tax |
|
Tax Expense |
|
After Tax |
|
Pre Tax |
|
Tax Expense |
|
After Tax |
|
|
Amount |
|
(Benefit) |
|
Amount |
|
Amount |
|
(Benefit) |
|
Amount |
|
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
Change in Fair Value of Securities Available for Sale |
|
$ |
(2,354 |
) |
|
$ |
(890 |
) |
|
$ |
(1,464 |
) |
|
$ |
5,176 |
|
|
$ |
2,028 |
|
|
$ |
3,148 |
|
Net Security(Gains)/Losses Reclassified into Earnings (1) |
|
|
29 |
|
|
|
10 |
|
|
|
19 |
|
|
|
(190 |
) |
|
|
(55 |
) |
|
|
(135 |
) |
|
Net Change in Fair Value of Securities Available for Sale |
|
|
(2,325 |
) |
|
|
(880 |
) |
|
|
(1,445 |
) |
|
|
4,986 |
|
|
|
1,973 |
|
|
|
3,013 |
|
Change in Fair Value of Cash Flow Hedges |
|
|
(5,692 |
) |
|
|
(2,325 |
) |
|
|
(3,367 |
) |
|
|
(17,430 |
) |
|
|
(7,120 |
) |
|
|
(10,310 |
) |
Net Cash Flow Hedge Gains Reclassified into Earnings (2) |
|
|
948 |
|
|
|
387 |
|
|
|
561 |
|
|
|
2,926 |
|
|
|
1,206 |
|
|
|
1,720 |
|
|
Net Change in Fair Value of Cash Flow Hedges |
|
|
(4,744 |
) |
|
|
(1,938 |
) |
|
|
(2,806 |
) |
|
|
(14,504 |
) |
|
|
(5,914 |
) |
|
|
(8,590 |
) |
Amortization of Certain Costs Included in Net Periodic
Retirement Costs |
|
|
40 |
|
|
|
16 |
|
|
|
24 |
* |
|
|
118 |
|
|
|
48 |
|
|
|
70 |
* |
|
TOTAL OTHER COMPREHENSIVE LOSS |
|
$ |
(7,029 |
) |
|
$ |
(2,802 |
) |
|
$ |
(4,227 |
) |
|
$ |
(9,400 |
) |
|
$ |
(3,893 |
) |
|
$ |
(5,507 |
) |
|
|
|
|
Three Months Ended September 30, 2009 |
|
Nine Months Ended September 30, 2009 |
|
|
Pre Tax |
|
Tax (Expense) |
|
After Tax |
|
Pre Tax |
|
Tax (Expense) |
|
After Tax |
|
|
Amount |
|
Benefit |
|
Amount |
|
Amount |
|
Benefit |
|
Amount |
|
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
Change in Fair Value of Securities Available for Sale |
|
$ |
6,163 |
|
|
$ |
2,169 |
|
|
$ |
3,994 |
|
|
$ |
11,846 |
|
|
$ |
4,076 |
|
|
$ |
7,770 |
|
Net Security Losses Reclassified into Earnings (1) |
|
|
5,141 |
|
|
|
2,100 |
|
|
|
3,041 |
|
|
|
5,440 |
|
|
|
2,222 |
|
|
|
3,218 |
|
|
Net Change in Fair Value of Securities Available for Sale |
|
|
11,304 |
|
|
|
4,269 |
|
|
|
7,035 |
|
|
|
17,286 |
|
|
|
6,298 |
|
|
|
10,988 |
|
Change in Fair Value of Cash Flow Hedges |
|
|
(2,534 |
) |
|
|
(1,035 |
) |
|
|
(1,499 |
) |
|
|
10,756 |
|
|
|
4,394 |
|
|
|
6,362 |
|
Net Cash Flow Hedge (Gains)/Losses Reclassified into Earnings (2) |
|
|
97 |
|
|
|
40 |
|
|
|
57 |
|
|
|
(2,018 |
) |
|
|
(829 |
) |
|
|
(1,189 |
) |
|
Net Change in Fair Value of Cash Flow Hedges |
|
|
(2,437 |
) |
|
|
(995 |
) |
|
|
(1,442 |
) |
|
|
8,738 |
|
|
|
3,565 |
|
|
|
5,173 |
|
Amortization of Certain Costs Included in Net Periodic
Retirement Costs |
|
|
(110 |
) |
|
|
(45 |
) |
|
|
(65 |
) |
|
|
(330 |
) |
|
|
(135 |
) |
|
|
(195 |
) |
|
Total Other Comprehensive Income |
|
$ |
8,757 |
|
|
$ |
3,229 |
|
|
$ |
5,528 |
|
|
$ |
25,694 |
|
|
$ |
9,728 |
|
|
$ |
15,966 |
|
|
Cumulative Effect Accounting Adjustment (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,974 |
) |
|
|
(2,151 |
) |
|
|
(3,823 |
) |
|
TOTAL OTHER COMPREHENSIVE INCOME AS ADJUSTED |
|
$ |
8,757 |
|
|
$ |
3,229 |
|
|
$ |
5,528 |
|
|
$ |
19,720 |
|
|
$ |
7,577 |
|
|
$ |
12,143 |
|
|
|
|
|
(1) |
|
For the three months ended September 30, 2010 and September 30, 2009, net security losses
represent pre-tax OTTI credit related losses of $7,000 and $5.1 million and gains/(losses) on sales
of securities of $(22,000) for the three months ended September 30, 2010. There were no
gains/losses on securities during the three months ended September 30, 2009. For the nine months
ended September 30, 2010 and September 30, 2009, net security losses represent pre-tax OTTI credit
related losses of $269,000 and $6.8 million and gains on sales of securities of $458,000 and $1.4
million, respectively. |
|
(2) |
|
Represents amortization of a realized but unrecognized gain, net of tax of $1.2 million and $1.3
million from the sale of interest rate swaps in June 2009, at September 30, 2010, and September
30, 2009, respectively.
The gain is being recognized in earnings through December 2018, the original maturity date of the
swap. This figure also represents amortization of the remaining balance of $103,000 of realized
but unrecognized loss at September 30, 2009, net of tax, from the termination of an interest rate swap
in March 2008, which was recognized in earnings through January 2010, the original maturity date
of the interest rate swap. |
|
(3) |
|
Represents reclassifications of non credit related components of previously recorded OTTI
pursuant to the adoption of the Investments Debt and Equity Securities topic of the FASB ASC.
|
Accumulated Other Comprehensive Income (Loss), net of tax, is comprised of the following
components:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2010 |
|
2009 |
|
Unrealized gain(loss) on available for sale securities |
|
$ |
7,406 |
|
|
$ |
5,793 |
|
Unrealized loss on cash flow hedge |
|
|
(10,202 |
) |
|
|
(3,926 |
) |
Deferred gain on hedge accounting transactions |
|
|
1,184 |
|
|
|
1,225 |
|
Net actuarial loss and prior service cost for pension and other
post retirement benefit plans |
|
|
(1,142 |
) |
|
|
(819 |
) |
|
TOTAL |
|
$ |
(2,754 |
) |
|
$ |
2,273 |
|
|
29
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the consolidated financial
statements, notes and tables included in the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2009, filed with the Securities and Exchange Commission.
Cautionary Statement Regarding Forward-Looking Statements
A number of the presentations and disclosures in this Form 10-Q, including, without
limitation, statements regarding the level of allowance for loan losses, the rate of delinquencies
and amounts of charge-offs, and the rates of loan growth, and any statements preceded by, followed
by, or which include the words may, could, should, will, would, hope, might,
believe, expect, anticipate, estimate, intend, plan, assume or similar expressions
constitute forward-looking statements within the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995.
These forward-looking statements, implicitly and explicitly, include the assumptions
underlying the statements and other information with respect to the beliefs, plans, objectives,
goals, expectations, anticipations, estimates, intentions, financial condition, results of
operations, future performance and business, of the Company including the Companys expectations
and estimates with respect to the Companys revenues, expenses, earnings, return on average equity,
return on average assets, efficiency ratio, asset quality and other financial data and capital and
performance ratios.
Although the Company believes that the expectations reflected in the Companys forward-looking
statements are reasonable, these statements involve risks and uncertainties that are subject to
change based on various important factors (some of which are beyond the Companys control). The
following factors, among others, could cause the Companys financial performance to differ
materially from the Companys goals, plans, objectives, intentions, expectations and other
forward-looking statements:
|
|
|
a weakening in the strength of the United States economy in general and the strength
of the regional and local economies within the New England region and Massachusetts,
which could result in a deterioration of credit quality, a change in the allowance for
loan losses, or a reduced demand for the Companys credit or fee-based products and
services; |
|
|
|
|
adverse changes in the local real estate market could result in a deterioration of
credit quality and an increase in the allowance for loan loss, as most of the Companys
loans are concentrated in eastern Massachusetts and Cape Cod, and to a lesser extent,
Rhode Island, and a substantial portion of these loans have real estate as collateral; |
|
|
|
|
the effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal Reserve
|
30
|
|
|
System, could affect the Companys business environment or affect the Companys
operations; |
|
|
|
|
the effects of, any changes in, and any failure by the Company to comply with tax
laws generally and requirements of the federal New Markets Tax Credit program in
particular could adversely affect the Companys tax provision and its financial
results; |
|
|
|
|
inflation, interest rate, market and monetary fluctuations could reduce net interest
income and could increase credit losses; |
|
|
|
|
adverse changes in asset quality could result in increasing credit risk-related
losses and expenses; |
|
|
|
|
changes in the deferred tax asset valuation allowance in future periods may
adversely affect financial results; |
|
|
|
|
competitive pressures could intensify and affect the Companys profitability,
including continued industry consolidation, the increased financial services provided
by non-banks and banking reform; |
|
|
|
|
a deterioration in the conditions of the securities markets could adversely affect
the value or credit quality of the Companys assets, the availability and terms of
funding necessary to meet the Companys liquidity needs, and the Companys ability to
originate loans and could lead to impairment in the value of securities in the
Companys investment portfolios, having an adverse effect on the Companys earnings; |
|
|
|
|
the potential need to adapt to changes in information technology could adversely
impact the Companys operations and require increased capital spending; |
|
|
|
|
changes in consumer spending and savings habits could negatively impact the
Companys financial results; |
|
|
|
|
acquisitions may not produce results at levels or within time frames originally
anticipated and may result in unforeseen integration issues or impairment of goodwill
and/or other intangibles; |
|
|
|
|
new laws and regulations regarding the financial services industry including but
not limited to, the Dodd-Frank Wall Street Reform & Consumer Protection Act, may have
significant effects on the financial services industry in general, and/or the Company
in particular, the exact nature and extent of which is uncertain; |
|
|
|
|
changes in laws and regulations (including laws and regulations concerning taxes,
banking, securities and insurance) generally applicable to the Companys business could
adversely affect the Companys operations; and |
|
|
|
|
changes in accounting policies, practices and standards, as may be adopted by the
regulatory agencies as well as the Public Company Accounting Oversight Board, the
Financial Accounting Standards Board, and other accounting standard setters could
negatively impact the Companys financial results. |
31
If one or more of the factors affecting the Companys forward-looking information and
statements proves incorrect, then the Companys actual results, performance or achievements could
differ materially from those expressed in, or implied by, forward-looking information and
statements contained in this Form 10-Q. Therefore, the Company cautions you not to place undue
reliance on the Companys forward-looking information and statements.
The Company does not intend to update the Companys forward-looking information and
statements, whether written or oral, to reflect change. All forward-looking statements
attributable to the Company are expressly qualified by these cautionary statements.
32
Selected Quarterly Financial Data
The selected consolidated financial and other data of the Company set forth below does not
purport to be complete and should be read in conjunction with, and is qualified in its entirety by,
the more detailed information, including the Consolidated Financial Statements and related notes,
appearing elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
|
2010 |
|
2010 |
|
2010 |
|
2009 |
|
2009 |
|
|
|
(Dollars in Thousands, Except Per Share Data) |
FINANCIAL CONDITION DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
$ |
436,887 |
|
|
$ |
482,989 |
|
|
$ |
473,515 |
|
|
$ |
508,650 |
|
|
$ |
546,125 |
|
Securities held to maturity |
|
|
180,623 |
|
|
|
103,463 |
|
|
|
91,059 |
|
|
|
93,410 |
|
|
|
83,063 |
|
Loans |
|
|
3,408,043 |
|
|
|
3,428,912 |
|
|
|
3,411,792 |
|
|
|
3,395,515 |
|
|
|
3,387,539 |
|
Allowance for loan losses |
|
|
45,619 |
|
|
|
45,291 |
|
|
|
45,278 |
|
|
|
42,361 |
|
|
|
41,357 |
|
Goodwill and Core Deposit Intangibles |
|
|
142,422 |
|
|
|
142,888 |
|
|
|
143,371 |
|
|
|
143,730 |
|
|
|
144,152 |
|
Total assets |
|
|
4,703,791 |
|
|
|
4,740,975 |
|
|
|
4,547,207 |
|
|
|
4,482,021 |
|
|
|
4,434,003 |
|
Total deposits |
|
|
3,617,158 |
|
|
|
3,679,873 |
|
|
|
3,473,853 |
|
|
|
3,375,294 |
|
|
|
3,280,976 |
|
Total borrowings |
|
|
577,429 |
|
|
|
576,146 |
|
|
|
606,973 |
|
|
|
647,397 |
|
|
|
679,200 |
|
Stockholders equity |
|
|
425,661 |
|
|
|
422,062 |
|
|
|
418,224 |
|
|
|
412,649 |
|
|
|
406,575 |
|
Non-performing loans |
|
|
24,687 |
|
|
|
23,678 |
|
|
|
41,840 |
|
|
|
36,183 |
|
|
|
36,937 |
|
Non-performing assets |
|
|
34,789 |
|
|
|
32,083 |
|
|
|
48,827 |
|
|
|
41,245 |
|
|
|
44,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
50,588 |
|
|
$ |
51,319 |
|
|
$ |
50,848 |
|
|
$ |
52,883 |
|
|
$ |
53,590 |
|
Interest expense |
|
|
9,391 |
|
|
|
10,152 |
|
|
|
10,638 |
|
|
|
12,185 |
|
|
|
12,682 |
|
Net interest income |
|
|
41,197 |
|
|
|
41,167 |
|
|
|
40,210 |
|
|
|
40,698 |
|
|
|
40,908 |
|
Provision for loan losses |
|
|
3,500 |
|
|
|
6,931 |
|
|
|
4,650 |
|
|
|
4,424 |
|
|
|
4,443 |
|
Non-interest income |
|
|
11,654 |
|
|
|
10,938 |
|
|
|
10,050 |
|
|
|
10,029 |
|
|
|
4,466 |
|
Non-interest expenses |
|
|
34,540 |
|
|
|
34,929 |
|
|
|
33,588 |
|
|
|
34,648 |
|
|
|
32,304 |
|
Net income available to the common shareholder |
|
|
11,145 |
|
|
|
8,030 |
|
|
|
9,227 |
|
|
|
9,100 |
|
|
|
6,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income Basic |
|
$ |
0.53 |
|
|
$ |
0.38 |
|
|
$ |
0.44 |
|
|
$ |
0.43 |
|
|
$ |
0.33 |
|
Net income Diluted |
|
|
0.53 |
|
|
|
0.38 |
|
|
|
0.44 |
|
|
|
0.43 |
|
|
|
0.33 |
|
Cash dividends declared |
|
|
0.18 |
|
|
|
0.18 |
|
|
|
0.18 |
|
|
|
0.18 |
|
|
|
0.18 |
|
Book value (1) |
|
|
20.08 |
|
|
|
19.91 |
|
|
|
19.76 |
|
|
|
19.71 |
|
|
|
19.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.95 |
% |
|
|
0.70 |
% |
|
|
0.84 |
% |
|
|
0.81 |
% |
|
|
0.61 |
% |
Return on average common equity |
|
|
10.38 |
% |
|
|
7.60 |
% |
|
|
8.95 |
% |
|
|
8.75 |
% |
|
|
6.68 |
% |
Net interest margin (on a fully tax equivalent basis) |
|
|
3.89 |
% |
|
|
3.96 |
% |
|
|
4.08 |
% |
|
|
3.96 |
% |
|
|
4.02 |
% |
Equity to assets |
|
|
9.05 |
% |
|
|
8.90 |
% |
|
|
9.20 |
% |
|
|
9.21 |
% |
|
|
9.17 |
% |
Dividend payout ratio |
|
|
34.26 |
% |
|
|
47.52 |
% |
|
|
41.28 |
% |
|
|
41.68 |
% |
|
|
55.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET QUALITY RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans as a percent of gross loans |
|
|
0.72 |
% |
|
|
0.69 |
% |
|
|
1.23 |
% |
|
|
1.07 |
% |
|
|
1.09 |
% |
Non-performing assets as a percent of total assets |
|
|
0.74 |
% |
|
|
0.68 |
% |
|
|
1.07 |
% |
|
|
0.92 |
% |
|
|
1.01 |
% |
Allowance for loan losses as a percent of
total loans |
|
|
1.34 |
% |
|
|
1.32 |
% |
|
|
1.33 |
% |
|
|
1.25 |
% |
|
|
1.22 |
% |
Allowance for loan losses as a percent of
non-performing loans |
|
|
184.79 |
% |
|
|
191.28 |
% |
|
|
108.22 |
% |
|
|
117.07 |
% |
|
|
111.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL RATIOS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage capital ratio |
|
|
7.99 |
% |
|
|
7.86 |
% |
|
|
8.06 |
% |
|
|
7.87 |
% |
|
|
7.74 |
% |
Tier 1 risk-based capital ratio |
|
|
10.35 |
% |
|
|
10.01 |
% |
|
|
10.02 |
% |
|
|
9.83 |
% |
|
|
9.64 |
% |
Total risk-based capital ratio |
|
|
12.47 |
% |
|
|
12.11 |
% |
|
|
12.14 |
% |
|
|
11.92 |
% |
|
|
11.70 |
% |
|
|
|
(1) |
|
Calculated by dividing total stockholders equity by the total outstanding shares as of the
end of each period. |
33
Executive Level Overview
The Companys results of operations are largely dependent on net interest income, which
is the difference between the interest earned on loans and securities and the interest paid on
deposits and borrowings. The results of operations are also affected by the level of income/fees
from loans, deposits, mortgage banking, and wealth management activities, as well as operating
expenses, the provision for loan losses, the impact of federal and state income taxes, and the
relative levels of interest rates and economic activity.
As of September 30, 2010, the Companys business lines continued to perform well and asset
quality trends continued to improve. The following table shows key performance measures for the
periods indicated, highlighting these positive results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Diluted Earnings Per Share |
|
$ |
0.53 |
|
|
$ |
0.33 |
|
|
$ |
1.35 |
|
|
$ |
0.43 |
|
Return on Average Assets |
|
|
0.95 |
% |
|
|
0.61 |
% |
|
|
0.83 |
% |
|
|
0.26 |
% |
Return on Average Common Equity |
|
|
10.38 |
% |
|
|
6.68 |
% |
|
|
8.98 |
% |
|
|
2.74 |
% |
Net Interest Margin |
|
|
3.89 |
% |
|
|
4.02 |
% |
|
|
3.97 |
% |
|
|
3.86 |
% |
The improvement in asset quality was marked by a significant decrease in net charge-offs,
reduced early stage and total loan delinquencies, and stable levels of nonperforming loans. Total
nonperforming assets were up modestly to 0.72% of total loans. The allowance for loan losses as a
percentage of total loans continued to strengthen.
The following graphs highlight certain trends regarding asset quality.
34
The Companys focus on the timely resolution of problem loans coupled with an experienced loan
workout team has proven effective in resolving nonperforming loans expediently as shown in the
table and graphs presented below:
|
|
|
|
|
|
|
|
|
|
|
For the |
|
For the |
|
|
Three |
|
Nine |
|
|
Months |
|
Months |
|
|
Ending |
|
Ending |
|
|
September 30, |
|
September 30, |
Nonperforming Loans Reconciliation |
|
2010 |
|
2010 |
|
|
|
(Dollars in Thousands) |
Nonperforming Loans Beginning Balance |
|
$ |
23,678 |
|
|
$ |
36,183 |
|
New to Nonperforming |
|
|
12,910 |
|
|
|
36,130 |
|
Loans Charged-Off |
|
|
(3,172 |
) |
|
|
(11,823 |
) |
Loans Paid-Off |
|
|
(3,803 |
) |
|
|
(17,749 |
) |
Loans Transferred to Other Real Estate Owned/Other Assets |
|
|
(2,514 |
) |
|
|
(9,979 |
) |
Loans Restored to Accrual Status |
|
|
(2,496 |
) |
|
|
(8,003 |
) |
Other |
|
|
84 |
|
|
|
(72 |
) |
|
NONPERFORMING LOANS ENDING BALANCE |
|
$ |
24,687 |
|
|
$ |
24,687 |
|
|
The Company has consistently maintained strong loan loss reserves, prudently adding to
their level despite the improvement in asset quality measures. As shown below, reserves as a
percentage of total loans had remained well above the Companys loan loss experience.
36
The Companys overall financial position is influenced by current economic conditions and the
low interest rate environment:
|
|
|
Overall loan growth generally reflects the weak economy, with the following highlights: |
|
o |
|
Strong growth being generated in the commercial and industrial portfolio
as the Bank continues to add high-quality corporate customers. |
|
|
o |
|
Home equity portfolio origination remains strong driven by refinancing
volume and promotional campaigns. |
|
|
o |
|
Residential real estate portfolio balances declined as loans refinanced
into longer-term, fixed-rate loans, which are not commonly held in portfolio by the
Company. |
|
|
o |
|
Commercial real estate origination volumes maintained a healthy pace but
total outstandings remained flat due to elevated levels of loan payoffs and workout
activity. |
|
|
o |
|
Commercial construction portfolio declined as projects transitioned to
permanent financing. |
|
|
|
Residential for sale mortgage originations have grown significantly, improving
non-interest income levels. |
|
|
|
|
Deposits have grown significantly in 2010 as a result of the Companys strategy to grow
the municipal and commercial banking business. In addition, improving the deposit mix and
focusing on lower cost core deposits has driven a steady decline in overall funding costs. |
|
|
|
|
Excess cash generated by such deposit growth is currently being reinvested in highly
liquid short-term assets, decreasing the Companys net interest margins compared to prior
periods. |
The Company continues to generate capital internally due to solid core earnings augmenting the
Companys sound capital position. The Companys tangible common equity
37
ratio is 6.64%, pro forma to include the tax deductibility of certain goodwill. Regulatory capital
levels exceed prescribed thresholds, and the Company maintained a common stock dividend of $0.18
per share for the quarter ended September 30, 2010
The significant increase in earnings from the prior period is driven mainly by the following
factors:
Net Interest Income
Although interest rates continue to decline, the Company has successfully managed its loans
and deposits to maintain strong net interest income. The Company sustained strong growth in
the home equity and commercial and industrial portfolios as the Company continued to add
high-quality corporate customers, while cultivating a strong deposit base with rational
pricing for customer retention as well as core deposit growth.
Provision for Loan Losses
Net charge-off activity has decreased. A continued focus on stabilizing and improving
credit measures have resulted in a net charge-off amount of $3.2 million, or 0.37% on an
annualized basis of average loans for the third quarter compared to $6.9 million or 0.81%
for the quarter ending June 30, 2010. The provision for loan losses was $3.5 million and
$6.9 million for the quarters ended September 30, 2010 and June 30, 2010, respectively.
Non-Interest Income
Non-interest income increased in both the three and nine months ended September 30, 2010
compared to September 30, 2009. Stabilizing securities portfolio performance is a key
factor, resulting in a major reduction in impairment losses to $269,000 for the nine months
ending September 30, 2010 compared to approximately $6.8 million for the nine months ending
September 30, 2009.
Non-Interest Expense
Increases in salaries and employee benefits are the principal drivers behind the $2.2
million increase in non-interest expenses for the three months ending September 30, 2010
compared to the three months ending September 30, 2009 related to higher levels of sales
commissions, incentive compensation and other benefits. However, year-to-date expenses were
$4.1 million below the comparable period in the prior year as the latter included
significant merger and acquisition expenses as well as a special Federal Deposit Insurance
Corporation (FDIC) assessment not incurred in the current year.
In addition, the Companys involvement in the U.S. Treasury Capital Purchase Program in the
first half of 2009 resulted in a preferred stock dividend of approximately $5.7 million for
the nine months ended September 30, 2009, further reducing net income available to common
shareholders in that period.
All of the above factors have resulted in significantly improved net income results compared
to prior periods. In addition, the following table summarizes the impact of non-core items
recorded for the time periods indicated below and reconciles them to the most comparable amounts
calculated in accordance with GAAP:
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Net Income |
|
|
|
|
Available to Common |
|
Diluted |
|
|
Shareholders |
|
Earnings Per Share |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
(Dollars in Thousands) |
AS REPORTED (GAAP) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
11,145 |
|
|
$ |
6,841 |
|
|
$ |
0.53 |
|
|
$ |
0.33 |
|
Preferred Stock Dividend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income available to Common Shareholders (GAAP) |
|
$ |
11,145 |
|
|
$ |
6,841 |
|
|
$ |
0.53 |
|
|
$ |
0.33 |
|
Non-GAAP Measures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income Components |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain/Loss on Sale of Securities, net of tax |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense Components |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger & Acquisition Expenses, net of tax |
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
TOTAL IMPACT OF NON-CORE ITEMS |
|
|
13 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
AS ADJUSTED (NON-GAAP) |
|
$ |
11,158 |
|
|
$ |
6,868 |
|
|
$ |
0.53 |
|
|
$ |
0.33 |
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Net Income |
|
|
|
|
Available to Common |
|
Diluted |
|
|
Shareholders |
|
Earnings Per Share |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
(Dollars in Thousands) |
AS REPORTED (GAAP) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
28,402 |
|
|
$ |
13,888 |
|
|
$ |
1.35 |
|
|
$ |
0.72 |
|
Preferred Stock Dividend |
|
|
|
|
|
|
5,698 |
|
|
|
|
|
|
|
0.30 |
|
|
Net Income available to Common Shareholders (GAAP) |
|
$ |
28,402 |
|
|
$ |
8,190 |
|
|
$ |
1.35 |
|
|
$ |
0.43 |
|
Non-GAAP Measures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income Components |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain/Loss on Sale of Securities, net of tax |
|
|
(271 |
) |
|
|
(880 |
) |
|
|
(0.01 |
) |
|
|
(0.05 |
) |
Gain Resulting from Early Termination of Hedging Relationship, net of tax |
|
|
|
|
|
|
(2,456 |
) |
|
|
|
|
|
|
(0.13 |
) |
Non-Interest Expense Components |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger & Acquisition Expenses, net of tax |
|
|
|
|
|
|
9,706 |
|
|
|
|
|
|
|
0.50 |
|
Fair Value Mark on a Terminated Hedging Relationship, net of tax |
|
|
328 |
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
Deemed Preferred Stock Dividend |
|
|
|
|
|
|
4,384 |
|
|
|
|
|
|
|
0.22 |
|
|
TOTAL IMPACT OF NON-CORE ITEMS |
|
|
57 |
|
|
|
10,754 |
|
|
|
0.00 |
|
|
|
0.55 |
|
|
AS ADJUSTED (NON-GAAP) |
|
$ |
28,459 |
|
|
$ |
18,944 |
|
|
$ |
1.35 |
|
|
$ |
0.98 |
|
|
When management assesses the Companys financial performance for purposes of making
day-to-day and strategic decisions it does so based upon the performance of its core banking
business, which is primarily derived from the combination of net interest income and non-interest
or fee income, reduced by operating expenses, the provision for loan losses, and the impact of
income taxes. The Companys financial performance is determined in accordance with Generally
Accepted Accounting Principles (GAAP) which sometimes includes gain or loss due to items that
management does not believe are related to its core banking business, such as gains or losses on
the sales of securities, merger and acquisition expenses, and other items. Management, therefore,
also computes the Companys non-GAAP operating earnings, which excludes these items, to measure the
strength of the Companys core banking business and to identify trends that may to some extent be
obscured by gains or losses which management deems not to be core to the Companys operations.
Management believes that the financial impact of the items excluded when computing non-GAAP
operating earnings will disappear or become immaterial within a near-term finite period.
Managements computation of the Companys non-GAAP operating earnings are set forth above
because management believes it may be useful for investors to have access to the same
39
analytical tool used by management to evaluate the Companys core operational performance so that
investors may assess the Companys overall financial health and identify business and performance
trends that may be more difficult to identify and evaluate when non-core items are included.
Management also believes that the computation of non-GAAP operating earnings may facilitate the
comparison of the Company to other companies in the financial services industry.
Non-GAAP operating earnings should not be considered a substitute for GAAP operating results.
An item which management deems to be non-core and excludes when computing non-GAAP operating
earnings can be of substantial importance to the Companys results for any particular quarter or
year. The Companys non-GAAP operating earnings set forth above are not necessarily comparable to
non-GAAP information which may be presented by other companies.
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments
and uncertainties, and could potentially result in materially different results under different
assumptions and conditions. The Company believes that the Companys most critical accounting
policies are those which the Companys financial condition depends upon, and which involve the most
complex or subjective decisions or assessments.
There have been no material changes in critical accounting policies during the third quarter
of 2010. Please refer to the 2009 Form 10-K for a complete listing of critical accounting
policies.
FINANCIAL POSITION
Loan Portfolio Total loans increased by $12.5 million, or 0.4%, for the period ended
September 30, 2010 as compared to the amount of total loans at December 31, 2009. Loan growth
achieved was concentrated in the commercial and industrial and home equity categories. This loan
growth was offset by a continued decline in the residential real estate and commercial construction
lending categories. Commercial real estate origination volumes maintained a healthy pace but the
amount of total outstanding loans remained flat due to elevated levels of loan payoffs. Total
commercial loans (including small business loans) now represent 67.6% of the total loan portfolio.
The Banks commercial real estate portfolio, the Banks largest portfolio, is diversified with
loans secured by a variety of property types, such as owner-occupied and non-owner-occupied
commercial, retail, office, industrial, and warehouse facilities as well as other special purpose
properties, such as hotels, motels, restaurants, golf courses, and healthcare-related properties.
Commercial real estate also includes loans secured by certain residential-related property types
including multi-family apartment buildings, residential development tracts and, to a lesser extent,
condominiums. The following pie chart shows the diversification of the commercial real estate
portfolio as of September 30, 2010:
40
The Bank considers a concentration of credit to a particular industry to exist when the
aggregate credit exposure to a borrower, an affiliated group of borrowers, or a non-affiliated
group of borrowers engaged in one industry exceeds 10% of the Banks loan portfolio which includes
direct, indirect or contingent obligations. As of September 30, 2010, loans made by the Company to
the industry concentration of lessors of non-residential buildings constituted 13.9% of the
Companys total loan portfolio.
The Bank does not originate sub-prime real-estate loans as a line of business.
Asset Quality The Bank actively manages all delinquent loans in accordance with formally
documented policies and established procedures. In addition, the Companys Board of Directors
reviews delinquency statistics, by loan type, on a monthly basis.
Troubled Debt Restructurings In the course of resolving nonperforming loans, the Bank may
choose to restructure the contractual terms of certain loans. The Bank attempts to work out an
alternative payment schedule with the borrower in order to avoid foreclosure actions. Any loans
that are modified are reviewed by the Bank to identify if a troubled debt restructuring (TDR) has
occurred, which is when, for economic or legal reasons related to a borrowers financial
difficulties, the Bank grants a concession to the borrower that it would not otherwise consider.
Terms may be modified to fit the ability of the borrower to repay in line with its current
financial status and the restructuring of the loan may include the transfer of assets from the
borrower to satisfy the debt, a modification of loan terms, or a combination of the two. If such
efforts by the Bank do not result in a satisfactory arrangement, the loan is referred to legal
counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the
property at foreclosure, the Bank may and will terminate foreclosure proceedings if the borrower is
able to work out a satisfactory payment plan.
41
Loans that are considered to be TDRs are reported as a TDR by the Company at the time the loan
is modified. In subsequent calendar years, the loan is reviewed to determine if the borrower is
performing under modified terms and if the restructuring agreement specifies an interest rate
greater than or equal to the rate the Bank was willing to accept at the time of the restructuring
for a comparable new loan. The Company individually reviews all material loans to determine if a
loan meets both of these criteria before removing the loan from TDR status. Smaller balance loans
are removed from TDR status in a year subsequent to its initial restructure after a performance
period of six months has been demonstrated.
It is the Banks policy to have any restructured loans which are on nonaccrual status prior to
being modified remain on nonaccrual status for approximately six months, subsequent to being
modified, before management considers its return to accrual status. If the restructured loan is
not on nonaccrual status prior to being modified, it is reviewed to determine if the modified loan
should remain on accrual status.
The following table shows the TDR loans on accrual and nonaccrual status as of the dates
indicated:
Table 1 Troubled Debt Restructured Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
TDRs on Accrual Status |
|
TDRs on Nonaccrual Status |
|
Total TDRs |
|
|
Number of |
|
Balance of |
|
Number of |
|
Balance of |
|
Number of |
|
Balance of |
|
|
Loans |
|
Loans |
|
Loans |
|
Loans |
|
Loans |
|
Loans |
|
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
Commercial and Industrial |
|
|
9 |
|
|
$ |
118 |
|
|
|
1 |
|
|
$ |
575 |
|
|
|
10 |
|
|
$ |
693 |
|
Commercial Real Estate |
|
|
13 |
|
|
|
14,066 |
|
|
|
2 |
|
|
|
387 |
|
|
|
15 |
|
|
|
14,453 |
|
Small Business |
|
|
47 |
|
|
|
1,556 |
|
|
|
2 |
|
|
|
22 |
|
|
|
49 |
|
|
|
1,578 |
|
Residential Real Estate |
|
|
20 |
|
|
|
6,811 |
|
|
|
7 |
|
|
|
2,500 |
|
|
|
27 |
|
|
|
9,311 |
|
Home Equity |
|
|
3 |
|
|
|
222 |
|
|
|
2 |
|
|
|
187 |
|
|
|
5 |
|
|
|
409 |
|
Consumer Other |
|
|
103 |
|
|
|
1,510 |
|
|
|
2 |
|
|
|
44 |
|
|
|
105 |
|
|
|
1,554 |
|
|
TOTAL TDRs |
|
|
195 |
|
|
$ |
24,283 |
|
|
|
16 |
|
|
$ |
3,715 |
|
|
|
211 |
|
|
$ |
27,998 |
|
|
|
December 31, 2009 |
|
|
TDRs on Accrual Status |
|
TDRs on Nonaccrual Status |
|
Total TDRs |
|
|
Number of |
|
Balance of |
|
Number of |
|
Balance of |
|
Number of |
|
Balance of |
|
|
Loans |
|
Loans |
|
Loans |
|
Loans |
|
Loans |
|
Loans |
|
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
Commercial Real Estate |
|
|
4 |
|
|
$ |
3,414 |
|
|
|
|
|
|
$ |
|
|
|
|
4 |
|
|
$ |
3,414 |
|
Small Business |
|
|
9 |
|
|
|
690 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
690 |
|
Residential Real Estate |
|
|
16 |
|
|
|
5,009 |
|
|
|
10 |
|
|
|
3,376 |
|
|
|
26 |
|
|
|
8,385 |
|
Home Equity |
|
|
1 |
|
|
|
48 |
|
|
|
1 |
|
|
|
122 |
|
|
|
2 |
|
|
|
170 |
|
Consumer Other |
|
|
67 |
|
|
|
1,323 |
|
|
|
|
|
|
|
|
|
|
|
67 |
|
|
|
1,323 |
|
|
TOTAL TDRs |
|
|
97 |
|
|
$ |
10,484 |
|
|
|
11 |
|
|
$ |
3,498 |
|
|
|
108 |
|
|
$ |
13,982 |
|
|
The amount of additional commitments to lend funds to borrowers who have been parties to
a TDR was $1.2 million at September 30, 2010 and the amount of specific reserve on TDR loans is
$1.3 million.
Delinquency The Banks philosophy toward managing its loan portfolios is predicated upon
careful monitoring, which stresses early detection and response to delinquent and default
42
situations. The Bank seeks to make arrangements to resolve any delinquent or default situations
over the shortest possible time frame. Generally, the Bank requires that delinquency notices be
mailed to borrowers upon expiration of a grace period (typically no longer than 15 days beyond the
due date). Reminder notices and telephone calls may be issued prior to the expiration of the grace
period. If the delinquent status is not resolved within a reasonable time frame following the
mailing of delinquent notices, the Banks personnel charged with managing its loan portfolios,
contacts the borrowers to ascertain the reasons for delinquency and the prospects for payment. Any
subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the
length of time that the loan has been delinquent. The borrowers needs are considered as much as
reasonably possible without jeopardizing the Banks position. A late charge is usually assessed on
loans upon expiration of the grace period.
The following table sets forth a summary of certain delinquency information as of the dates
indicated:
Table 2 Summary of Delinquency Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010 |
|
At December 31, 2009 |
|
|
30-59 days |
|
60-89 days |
|
90 days or more |
|
30-59 days |
|
60-89 days |
|
90 days or more |
|
|
Number |
|
Principal |
|
Number |
|
Principal |
|
Number |
|
Principal |
|
Number |
|
Principal |
|
Number |
|
Principal |
|
Number |
|
Principal |
|
|
of Loans |
|
Balance |
|
of Loans |
|
Balance |
|
of Loans |
|
Balance |
|
of Loans |
|
Balance |
|
of Loans |
|
Balance |
|
of Loans |
|
Balance |
|
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
Commercial and Industrial |
|
|
11 |
|
|
$ |
869 |
|
|
|
6 |
|
|
$ |
589 |
|
|
|
17 |
|
|
$ |
3,442 |
|
|
|
22 |
|
|
$ |
3,519 |
|
|
|
8 |
|
|
$ |
2,182 |
|
|
|
18 |
|
|
$ |
3,972 |
|
Commercial Real Estate |
|
|
12 |
|
|
|
4,480 |
|
|
|
4 |
|
|
|
4,030 |
|
|
|
28 |
|
|
|
5,980 |
|
|
|
22 |
|
|
|
5,803 |
|
|
|
8 |
|
|
|
6,163 |
|
|
|
43 |
|
|
|
16,875 |
|
Commercial Construction |
|
|
1 |
|
|
|
589 |
|
|
|
4 |
|
|
|
2,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Business |
|
|
30 |
|
|
|
709 |
|
|
|
11 |
|
|
|
539 |
|
|
|
23 |
|
|
|
428 |
|
|
|
34 |
|
|
|
945 |
|
|
|
13 |
|
|
|
163 |
|
|
|
21 |
|
|
|
419 |
|
Residential Real Estate |
|
|
9 |
|
|
|
1,401 |
|
|
|
7 |
|
|
|
1,612 |
|
|
|
18 |
|
|
|
4,070 |
|
|
|
11 |
|
|
|
2,815 |
|
|
|
12 |
|
|
|
2,431 |
|
|
|
22 |
|
|
|
5,130 |
|
Home Equity |
|
|
21 |
|
|
|
1,243 |
|
|
|
9 |
|
|
|
497 |
|
|
|
11 |
|
|
|
1,074 |
|
|
|
26 |
|
|
|
1,956 |
|
|
|
7 |
|
|
|
303 |
|
|
|
14 |
|
|
|
876 |
|
Consumer Other |
|
|
351 |
|
|
|
2,727 |
|
|
|
72 |
|
|
|
450 |
|
|
|
73 |
|
|
|
526 |
|
|
|
480 |
|
|
|
3,899 |
|
|
|
46 |
|
|
|
759 |
|
|
|
47 |
|
|
|
509 |
|
|
TOTAL |
|
|
435 |
|
|
$ |
12,018 |
|
|
|
113 |
|
|
$ |
10,331 |
|
|
|
170 |
|
|
$ |
15,520 |
|
|
|
595 |
|
|
$ |
18,937 |
|
|
|
94 |
|
|
$ |
12,001 |
|
|
|
165 |
|
|
$ |
27,781 |
|
|
Nonaccrual Loans As permitted by banking regulations, certain consumer loans which are
90 days or more past due continue to accrue interest. In addition, certain commercial and real
estate loans that are more than 90 days past due may be kept on an accruing status if the loan is
well secured and in the process of collection. As a general rule, commercial and real estate
categories, as well as home equity loans, more than 90 days past due with respect to principal or
interest, are classified as a nonaccrual loan. Income accruals are suspended on all nonaccrual
loans and all previously accrued and uncollected interest is reversed against current income. A
loan remains on nonaccrual status until it becomes current with respect to principal and interest
(and in certain instances remains current for up to three months), when the loan is liquidated, or
when the loan is determined to be uncollectible and it is charged-off against the allowance for
loan losses.
Nonperforming Assets Nonperforming assets are comprised of nonperforming loans,
nonperforming securities, Other Real Estate Owned (OREO) and other assets. Nonperforming loans
consist of nonaccrual loans and certain loans that are more than 90 days past due but still
accruing interest. Nonperforming securities consist of securities that are on nonaccrual status.
OREO includes properties held by the Bank as a result of foreclosure or by acceptance of a deed in
lieu of foreclosure. As of September 30, 2010, nonperforming assets totaled $34.8 million, a
decrease of $6.4 million from December 31, 2009. The decrease in nonperforming assets is
attributable mainly to decreases in nonperforming loans in the commercial real estate category.
Nonperforming assets represented 0.74% of total assets at September 30, 2010, as compared to 0.92%
at December 31, 2009. The Bank had nineteen properties held as OREO at both September 30, 2010 and
December 31, 2009, totaling $9.0
43
million and $4.0 million, respectively. At September 30, 2009 the Bank had eighteen properties,
totaling $6.5 million held as OREO.
Repossessed automobile loan balances continue to be classified as nonperforming loans and not
as other assets, because the borrower has the potential to satisfy the obligation within twenty
days from the date of repossession (before the Bank can schedule disposal of the collateral). The
borrower can redeem the property by payment in full at any time prior to the propertys disposal by
the Bank. Repossessed automobile loan balances amounted to $281,000 as of September 30, 2010,
$198,000 at December 31, 2009 and $425,000 at September 30, 2009.
The following table sets forth information regarding nonperforming assets held by the Company
at the dates indicated:
Table 3 Nonperforming Assets / Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2009 |
|
|
|
(Dollars in Thousands) |
|
|
|
|
Loans past due 90 days or more but still accruing |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
$ |
216 |
|
|
$ |
292 |
|
|
$ |
303 |
|
|
Total |
|
$ |
216 |
|
|
$ |
292 |
|
|
$ |
303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans accounted for on a nonaccrual basis (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial |
|
$ |
4,417 |
|
|
$ |
4,205 |
|
|
$ |
3,744 |
|
Small Business |
|
|
909 |
|
|
|
793 |
|
|
|
969 |
|
Commercial Real Estate |
|
|
8,966 |
|
|
|
18,525 |
|
|
|
18,511 |
|
Residential Real Estate |
|
|
7,863 |
|
|
|
10,829 |
|
|
|
11,625 |
|
Consumer Home Equity |
|
|
1,881 |
|
|
|
1,166 |
|
|
|
1,237 |
|
Consumer Other |
|
|
435 |
|
|
|
373 |
|
|
|
548 |
|
|
Total |
|
$ |
24,471 |
|
|
$ |
35,891 |
|
|
$ |
36,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NONPERFORMING LOANS |
|
$ |
24,687 |
|
|
$ |
36,183 |
|
|
$ |
36,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual Securities |
|
$ |
1,017 |
|
|
$ |
920 |
|
|
$ |
1,134 |
|
Other Assets in Possession |
|
|
74 |
|
|
|
148 |
|
|
|
255 |
|
Other Real Estate Owned |
|
|
9,011 |
|
|
|
3,994 |
|
|
|
6,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NONPERFORMING ASSETS |
|
$ |
34,789 |
|
|
$ |
41,245 |
|
|
$ |
44,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Loans as a Percent of Gross Loans |
|
|
0.72 |
% |
|
|
1.07 |
% |
|
|
1.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Assets as a Percent of Total Assets |
|
|
0.74 |
% |
|
|
0.92 |
% |
|
|
1.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured Accruing Loans |
|
$ |
24,283 |
|
|
$ |
10,484 |
|
|
$ |
6,378 |
|
|
|
|
|
(1) |
|
There were $3.7 milion, $3.5 million, and $3.7 million of restructured, nonaccruing loans at
September 30, 2010, December 31, 2009, and September 30, 2009, respectively. |
Potential problem commercial loans are those which are not included in nonaccrual or
nonperforming loans and which are not considered TDRs, but where known information about possible
credit problems of the borrowers causes management to have concerns as to the ability of such
borrowers to comply with present loan repayment terms. The table below shows the potential problem
commercial loans at the time periods indicated:
44
Table 4 Potential Problem Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2010 |
|
2009 |
|
|
|
(Dollars in Thousands) |
Number of Loan Relationships |
|
|
66 |
|
|
|
102 |
|
Aggregate Oustanding Balance |
|
$ |
119,783 |
|
|
$ |
122,140 |
|
At September 30, 2010 and December 31, 2009, these potential problem loans continued to
perform with respect to payments. Management actively monitors these loans and strives to minimize
any possible adverse impact to the Bank.
See the table below for interest income that was recognized or collected on the nonaccrual
loans as of the dates indicated:
Table 5 Interest Income Recognized/Collected on
Nonaccrual / Troubled Debt Restructured Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income that Would Have Been Recognized, if
Nonaccruing Loans at Their Respective Dates Had Been
Performing |
|
$ |
638 |
|
|
$ |
321 |
|
|
$ |
2,160 |
|
|
$ |
2,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income Recognized on Troubled Debt Restructured
Accruing Loans at Their Respective Dates |
|
|
328 |
|
|
|
126 |
|
|
|
1,006 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Collected on these Nonaccrual and Troubled Debt
Restructured Loans and Included in Interest Income |
|
$ |
376 |
|
|
$ |
149 |
|
|
$ |
1,278 |
|
|
$ |
260 |
|
A loan is considered impaired when, based on current information and events, it is
probable that the Bank will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the borrower, including
the length of the delay, the reasons for the delay, the borrowers prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis for commercial, commercial real estate, and
construction categories by either the present value of expected future cash flows
45
discounted at the loans effective interest rate, the loans obtainable market price, or the fair
value of the collateral if the loan is collateral dependent.
For impaired loans deemed collateral dependent, where impairment is measured using the fair
value of the collateral, the Bank will either order a new appraisal or use another available source
of collateral assessment such as a brokers opinion of value to determine a reasonable estimate of
the fair value of the collateral.
At September 30, 2010, impaired loans included all commercial real estate loans and commercial
and industrial loans on nonaccrual status, TDRs, and other loans that have been categorized as
impaired. Total impaired loans at September 30, 2010 and December 31, 2009 were $41.5 million and
$39.2 million, respectively.
Real estate acquired by the Bank through foreclosure proceedings or the acceptance of a deed
in lieu of foreclosure is classified as OREO. When property is acquired, it is recorded at the
lesser of the loans remaining principal balance or the estimated fair value of the property
acquired, less estimated costs to sell. Any loan balance in excess of the estimated fair value
less estimated cost to sell on the date of transfer is charged to the allowance for loan losses on
that date. All costs incurred thereafter in maintaining the property, as well as subsequent
declines in fair value are charged to non-interest expense.
The Company holds six collateralized debt obligation securities (CDOs) comprised of pools of
trust preferred securities issued by banks and insurance companies, which are currently deferring
interest payments on certain tranches within the bonds structure, including the tranches held by
the Company. The bonds are anticipated to continue to defer interest as permitted within the
terms of the bonds indenture until cash flows are sufficient to satisfy certain collateralization
levels designed to protect the more senior tranches. As a result, the Company has placed these
securities on nonaccrual status and has reversed any previously accrued income related to these
securities.
Allowance For Loan Losses The allowance for loan losses is maintained at a level that
management considers adequate to provide for probable loan losses based upon evaluation of known
and inherent risks in the loan portfolio. The allowance is increased by provisions for loan losses
and by recoveries of loans previously charged-off and is reduced by loans charged-off.
While management uses available information to recognize losses on loans, future additions to
the allowance may be necessary based on increases in nonperforming loans, changes in economic
conditions, or for other reasons. Additionally, various regulatory agencies, as an integral part
of the Banks examination process, periodically assess the adequacy of the allowance for loan
losses.
As of September 30, 2010, the allowance for loan losses totaled $45.6 million, or 1.34% of
total loans as compared to $42.4 million, or 1.25% of total loans, at December 31, 2009. The
increase in allowance was due to a combination of factors including changes in asset quality and
organic loan growth.
The following table summarizes changes in the allowance for loan losses and other selected
statistics for the periods presented:
46
Table 6 Summary of Changes in the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
|
2010 |
|
2010 |
|
2010 |
|
2009 |
|
2009 |
|
|
|
(Dollars in Thousands) |
AVERAGE LOANS |
|
$ |
3,430,372 |
|
|
$ |
3,422,101 |
|
|
$ |
3,403,909 |
|
|
$ |
3,389,219 |
|
|
$ |
3,375,581 |
|
|
Allowance for Loan Losses, Beginning of Period |
|
$ |
45,291 |
|
|
$ |
45,278 |
|
|
$ |
42,361 |
|
|
$ |
41,357 |
|
|
$ |
40,068 |
|
Charged-Off Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial |
|
|
1,489 |
|
|
|
1,837 |
|
|
|
531 |
|
|
|
614 |
|
|
|
1,243 |
|
Small Business |
|
|
549 |
|
|
|
858 |
|
|
|
331 |
|
|
|
388 |
|
|
|
821 |
|
Commercial Real Estate |
|
|
851 |
|
|
|
1,804 |
|
|
|
199 |
|
|
|
518 |
|
|
|
|
|
Residential Real Estate |
|
|
51 |
|
|
|
321 |
|
|
|
139 |
|
|
|
149 |
|
|
|
379 |
|
Commercial Construction |
|
|
|
|
|
|
1,716 |
|
|
|
|
|
|
|
621 |
|
|
|
|
|
Consumer Home Equity |
|
|
24 |
|
|
|
289 |
|
|
|
242 |
|
|
|
632 |
|
|
|
301 |
|
Consumer Other |
|
|
515 |
|
|
|
469 |
|
|
|
582 |
|
|
|
776 |
|
|
|
730 |
|
|
Total Charged-Off Loans |
|
|
3,479 |
|
|
|
7,294 |
|
|
|
2,024 |
|
|
|
3,698 |
|
|
|
3,474 |
|
|
Recoveries on Loans Previously Charged-Off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial |
|
|
60 |
|
|
|
21 |
|
|
|
4 |
|
|
|
18 |
|
|
|
2 |
|
Small Business |
|
|
34 |
|
|
|
57 |
|
|
|
80 |
|
|
|
61 |
|
|
|
59 |
|
Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Residential Real Estate |
|
|
26 |
|
|
|
28 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
Commercial Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Home Equity |
|
|
63 |
|
|
|
55 |
|
|
|
8 |
|
|
|
33 |
|
|
|
3 |
|
Consumer Other |
|
|
124 |
|
|
|
215 |
|
|
|
194 |
|
|
|
166 |
|
|
|
256 |
|
|
Total Recoveries |
|
|
307 |
|
|
|
376 |
|
|
|
291 |
|
|
|
278 |
|
|
|
320 |
|
|
Net Loans Charged-Off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial |
|
|
1,429 |
|
|
|
1,816 |
|
|
|
527 |
|
|
|
596 |
|
|
|
1,241 |
|
Small Business |
|
|
515 |
|
|
|
801 |
|
|
|
251 |
|
|
|
327 |
|
|
|
762 |
|
Commercial Real Estate |
|
|
851 |
|
|
|
1,804 |
|
|
|
198 |
|
|
|
518 |
|
|
|
|
|
Residential Real Estate |
|
|
25 |
|
|
|
293 |
|
|
|
135 |
|
|
|
149 |
|
|
|
379 |
|
Commercial Construction |
|
|
|
|
|
|
1,716 |
|
|
|
|
|
|
|
621 |
|
|
|
|
|
Consumer Home Equity |
|
|
(39 |
) |
|
|
234 |
|
|
|
234 |
|
|
|
599 |
|
|
|
298 |
|
Consumer Other |
|
|
391 |
|
|
|
254 |
|
|
|
388 |
|
|
|
610 |
|
|
|
474 |
|
|
Total Net Loans Charged-Off |
|
|
3,172 |
|
|
|
6,918 |
|
|
|
1,733 |
|
|
|
3,420 |
|
|
|
3,154 |
|
|
Provision for Loan Losses |
|
|
3,500 |
|
|
|
6,931 |
|
|
|
4,650 |
|
|
|
4,424 |
|
|
|
4,443 |
|
|
TOTAL ALLOWANCES FOR LOAN LOSSES, END OF PERIOD |
|
$ |
45,619 |
|
|
$ |
45,291 |
|
|
$ |
45,278 |
|
|
$ |
42,361 |
|
|
$ |
41,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans Charged-off as a Percent of Average Total
Loans (Annualized) |
|
|
0.37 |
% |
|
|
0.81 |
% |
|
|
0.21 |
% |
|
|
0.40 |
% |
|
|
0.37 |
% |
Total Allowance for Loan Losses as a Percent of
Total Loans |
|
|
1.34 |
% |
|
|
1.32 |
% |
|
|
1.33 |
% |
|
|
1.25 |
% |
|
|
1.22 |
% |
Total Allowance for Loan Losses as a Percent of
Nonperforming Loans |
|
|
184.79 |
% |
|
|
191.28 |
% |
|
|
108.22 |
% |
|
|
117.07 |
% |
|
|
111.97 |
% |
Net Loans Charged-Off as a Percent of Allowance for
Loan Losses (Annualized) |
|
|
27.59 |
% |
|
|
61.3 |
% |
|
|
15.5 |
% |
|
|
32.03 |
% |
|
|
30.26 |
% |
Recoveries as a Percent of Charge-Offs (Annualized) |
|
|
8.82 |
% |
|
|
5.15 |
% |
|
|
14.38 |
% |
|
|
7.52 |
% |
|
|
9.21 |
% |
The allowance for loan losses is allocated to various loan categories as part of the
Banks process of evaluating the adequacy of the allowance for loan losses. During the third
quarter, allocated allowance amounts increased slightly to $45.6 million at September 30, 2010.
The allocation of the allowance for loan losses is made to each loan category using the
analytical techniques and estimation methods described herein. While these amounts represent
managements best estimate of the distribution of expected losses at the evaluation dates, they are
not necessarily indicative of either the categories in which actual losses may occur or the extent
of such actual losses that may be recognized within each category. The total allowance is
available to absorb losses from any segment of the loan portfolio. The
47
following table sets forth the allocation of the allowance for loan losses by loan category at the
dates indicated:
Table 7 Summary of Allocation of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
December 31, 2009 |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Loans |
|
|
|
|
|
Loans |
|
|
Allowance |
|
In Category |
|
Allowance |
|
In Category |
Allocated Allowances: |
|
Amount |
|
To Total Loans |
|
Amount |
|
To Total Loans |
|
|
(Dollars in Thousands) |
Commercial and Industrial |
|
$ |
9,664 |
|
|
|
12.9 |
% |
|
$ |
7,545 |
|
|
|
11.0 |
% |
Commercial Real Estate |
|
|
21,612 |
|
|
|
48.2 |
% |
|
|
19,451 |
|
|
|
47.5 |
% |
Small Business |
|
|
3,629 |
|
|
|
2.3 |
% |
|
|
3,372 |
|
|
|
2.4 |
% |
Residential Real Estate |
|
|
3,029 |
|
|
|
14.8 |
% |
|
|
2,840 |
|
|
|
16.4 |
% |
Real Estate Construction |
|
|
2,364 |
|
|
|
4.4 |
% |
|
|
2,457 |
|
|
|
5.5 |
% |
Home Equity |
|
|
3,478 |
|
|
|
15.1 |
% |
|
|
3,945 |
|
|
|
13.9 |
% |
Consumer Other |
|
|
1,843 |
|
|
|
2.3 |
% |
|
|
2,751 |
|
|
|
3.3 |
% |
|
TOTAL ALLOWANCE FOR LOAN LOSSES |
|
$ |
45,619 |
|
|
|
100.0 |
% |
|
$ |
42,361 |
|
|
|
100.0 |
% |
|
The allowance for loan losses is allocated to loan types using both a formula-based
approach applied to groups of loans and an analysis of certain individual loans for impairment.
The formula-based approach emphasizes loss factors derived from actual historical portfolio loss
rates, which are combined with an assessment of certain qualitative factors to determine the
allowance amounts allocated to the various loan categories.
Management has identified certain qualitative risk factors which impact the inherent risk of
loss within the portfolio represented by historic measures. These include: (a) market risk factors,
such as the effects of economic variability on the entire portfolio, and (b) unique portfolio risk
factors that are inherent characteristics of the Banks loan portfolio. Market risk factors consist
of changes to general economic and business conditions that impact the Banks loan portfolio
customer base in terms of ability to repay and that may result in changes in value of underlying
collateral. Unique portfolio risk factors may include industry concentration or covariant industry
concentrations, geographic concentrations or trends that impact the inherent risk of loss in the
loan portfolio resulting from economic events which the Bank may not be able to fully diversify out
of its portfolios. These qualitative risk factors capture the element of loan loss associated with
current market and portfolio conditions that may not be adequately reflected in the loss factors
derived from historic experience.
The formula-based approach evaluates groups of loans with common characteristics, which
consist of similar loan types with similar terms and conditions, to determine the allocation
appropriate within each portfolio section. This approach incorporates qualitative adjustments
based upon managements assessment of various market and portfolio specific risk factors into its
formula-based estimate.
The allowance for loan loss also includes a component as an addition to the amount of
allowance determined to be required using the formula-based estimation techniques described herein.
This component is maintained as a margin for imprecision to account for the inherent subjectivity
and imprecise nature of the analytical processes employed. Due to the imprecise
48
nature of the loan loss estimation process and ever changing conditions, the qualitative risk
attributes may not adequately capture amounts of incurred loss in the formula-based loan loss
components used to determine allocations in the Banks analysis of the adequacy of the allowance
for loan losses. As noted above, this component is allocated to the various loan types.
It is managements objective to strive to minimize the amount of allowance attributable to the
margin for imprecision, as the quantitative and qualitative factors, together with the results of
its analysis of individual impaired loans, are the primary drivers in estimating the required
allowance and the testing of its adequacy.
Amounts of allowance may also be assigned to individual loans on the basis of loan impairment.
Certain loans are evaluated individually and are judged to be impaired when management believes it
is probable that the Bank will not collect all of the contractual interest and principal payments
as scheduled in the loan agreement. Under this method, loans are selected for evaluation based upon
a change in internal risk rating, occurrence of delinquency, loan classification, loan
modifications meeting the definition of a TDR, or nonaccrual status. A specific allowance amount is
allocated to an individual loan when such loan has been deemed impaired and when the amount of a
probable loss is able to be estimated. Estimates of loss may be determined by: (a) the present
value of anticipated future cash flows or the loans observable fair market value, or (b) the fair
value of collateral, if the loan is collateral dependent. However, for collateral dependent loans,
the amount of the recorded investment in a loan that exceeds the fair value of the collateral is
charged off against the allowance for loan losses in lieu of an allocation of a specific allowance
amount when such an amount has been identified definitively as uncollectable. For Loans evaluated
individually for impairment and the amount of specific allowance assigned to such loans totaled
$41.5 million and $2.7 million, respectively, at September 30, 2010 and $39.2 million and $1.8
million respectively, at December 31, 2009.
The Bank has also established and maintains a reserve for unfunded commitments that is
reported as another liability on the companys balance sheet. The reserve for unfunded commitments
is maintained at a level that, in managements judgment, is sufficient to absorb losses inherent in
unfunded commitments as of the balance sheet date. Additions to the reserve for unfunded lending
commitments are made by changes to the provision for unfunded lending commitments.
The amount of required reserve is determined using a methodology similar to that utilized in
calculating the allowance for loans losses where general loss factors derived from historical
experience are assigned to pooled loan commitments for each respective loan category. These
amounts are adjusted for the probabilities of the funding of draws upon these existing commitments
to determine an appropriate reserve amount. These probability factors are subjectively determined
and are based upon managements judgment pertaining to changes in expected commitment utilization.
At September 30, 2010, the reserve for unfunded commitments was $448,000, compared to $414,000
at December 31, 2009.
49
Goodwill and Identifiable Intangible Assets Goodwill and Identifiable Intangible Assets were
$142.4 million and $143.7 million at September 30, 2010 and December 31, 2009, respectively.
Securities Trading assets increased by $1.2 million at September 30, 2010 to $7.4 million, as
compared to December 31, 2009, due to funding by the Company to Rabbi Trusts related to the
Companys executive retirement plans in the amount of $1.1 million. Available for sale and held to
maturity securities increased by $15.5 million, or 2.6%, at September 30, 2010 as compared to
December 31, 2009. The ratio of securities to total assets as of September 30, 2010 was 13.3%,
compared to 13.6% at December 31, 2009. During the third quarter the Company purchases consisted of
short duration agency mortgage backed securities.
The Company continually reviews investment securities for the presence of OTTI. Further
analysis of the Companys other-than-temporary impairment (OTTI) can be found in Note 3
Securities within the Condensed Notes to the Unaudited Consolidated Financial Statements.
Federal Home Loan Bank Stock The Company held an investment in Federal Home Loan Bank of
Boston (FHLBB) of $35.9 million at both September 30, 2010 and December 31, 2009. The FHLBB is a
cooperative that provides services to its member banking institutions. The primary reason for
joining the FHLBB was to obtain funding from the FHLBB. The purchase of stock in the FHLBB is a
requirement for a member to gain access to funding. The Company purchases FHLBB stock proportional
to the volume of funding received and views the purchases as a necessary long-term investment for
the purposes of balance sheet liquidity and not for investment return.
The FHLBB has not declared any dividends since the fourth quarter of 2008, as the FHLBBs
board of directors have continued to focus on building retained earnings while delivering core
solutions of liquidity and longer-term funding to their members. The FHLBB also continued the
moratorium on excess stock repurchases that was put into effect during 2008. The Company reviewed
recent public filings and rating agencies analysis which showed acceptable ratings, a capital
position which exceeds all required capital levels, and other factors, which were considered by the
Companys management when determining if an OTTI exists with respect to the Companys investment in
FHLBB. The FHLBB reported net income for the third quarter of 2010 of $41.3 million, a $146.8
million increase from a net loss of $105.4 million in the third quarter of 2009. The increase was
primarily due to a $168.3 million decrease in the credit-related OTTI charges recorded by the FHLBB
in the prior year. As a result of the Companys review for OTTI, management deemed the investment
in the FHLBB stock not to be OTTI as of September 30, 2010 and management will continue to monitor
it closely. There can be no assurance as to the outcome of managements future evaluation of the
Companys investment in the FHLBB.
Bank Owned Life Insurance Bank Owned Life Insurance (BOLI) increased by $2.5 million, or
3.2% to $81.8 million at September 30, 2010, compared to $79.3 million at December 31, 2009.
Revenue recognized related to these policies was $901,000 and $2.4
million for the three and nine month periods ended September 30, 2010, a slight increase,
compared to the year ago period. The Company uses these tax exempt insurance contracts as
50
a vehicle to defray the cost of employee benefits. The Company performs pre-purchase and ongoing
risk assessments as part of its BOLI program and presents such an assessment to the Board of
Directors no less than annually.
Deposits Total deposits of $3.6 billion increased 7.2% at September 30, 2010 compared to $3.4
billion at December 31, 2009 as a result of strong growth in commercial deposits and managements
strategy to grow the municipal banking business. The Company continued its focus on core deposits,
which increased $393.3 million, or 16.0%, since December 31, 2009, representing 78.8% of total
deposits at September 30, 2010. Management is focused on improving deposit mix and in controlling
the cost of deposits as reflected in the 37 basis point decrease of the cost of funds to 0.62% at
the nine months ended September 30, 2010 compared to 0.99% at the twelve months ended December 31,
2009.
Borrowings Total borrowings decreased $70.0 million, or 10.8%, from December 31, 2009 to
$577.4 million at September 30, 2010, primarily due to deposit growth.
Stockholders Equity Stockholders equity as of September 30, 2010 totaled $425.7 million,
as compared to $412.6 million at December 31, 2009.
RESULTS OF OPERATIONS
Summary of Results of Operations The Companys results of operations are largely dependent on
net interest income, which is the difference between the interest earned on loans, short term
investments, and securities and the interest paid on deposits and borrowings. The results of
operations are also affected by the level of income/fees from loans, deposits, mortgage banking,
and wealth management activities, as well as operating expenses, the provision for loan losses, the
impact of federal and state income taxes, and the relative levels of interest rates and economic
activity.
The Company reported net income available to the common shareholders of $11.1 million, an
increase of $4.3 million, for the three months ended September 30, 2010 as compared to the same
period in 2009. On a diluted earnings per share basis the Company reported earnings of $0.53 for
the three months ended September 30, 2010, compared to $0.33 for the three months ended September
30, 2009. Net income available to the common shareholder was $28.4 million for the nine months
ended September 30, 2010 as compared to $8.2 million for the nine months ended September 30, 2009.
On a diluted earnings per share basis the Company reported earnings of $1.35 for the nine months
ended September 30, 2010, compared to earnings per share of $0.43 for the nine months ended
September 30, 2009. The nine months ending September 30, 2009 includes the effect of a preferred
stock dividend associated with the Companys participation in the U.S. Treasury Capital Purchase
Program. There were no preferred stock dividends in 2010.
The fluctuations in the Companys results comparing the quarters ending September 30, 2010 and
2009, were due to the following:
51
|
|
|
A decrease in provision for loan losses, as a result of improving and stabilizing
credit measures. |
|
|
|
|
Increase in wealth management income as a reflection of improved stock market
performance and new business generation. |
|
|
|
|
Unprecedented low rate environment providing significant increased volume and
mortgage banking income. |
|
|
|
|
Stabilizing securities performance, resulting in a quarterly impairment charge of
only $7,000 for the quarter ending September 30, 2010 compared to a $5.1 million
impairment charge for the quarter ending September 30, 2009. |
Net Interest Income The amount of net interest income is affected by changes in
interest rates and by the volume and mix of interest earning assets and interest bearing
liabilities.
On a fully tax equivalent basis, net interest income for the third quarter of 2010 increased
$301,000, or 0.7%, to $41.4 million, as compared to the third quarter of 2009. The Companys net
interest margin was 3.89% for the quarter ended September 30, 2010 as compared to 4.02% for the
quarter ended September 30, 2009. The Companys interest rate spread (the difference between the
weighted average yield on interest-earning assets and the weighted average cost of interest-bearing
liabilities) was 3.66% and 3.72% for the third quarter of 2010 and 2009, respectively.
The decline in the net interest margin is primarily the result of excess cash generated by
deposit growth being reinvested in relatively low yielding highly liquidity short-term investments.
Loan and security yields have declined compared to the prior periods due to run-off and repricing
of higher yielding loans and securities. Somewhat mitigating the impact of lower asset yields, cost
of funds have also declined due to growth in lower-cost non-maturity deposits and a reduction in
outstanding borrowings.
The following tables present the Companys daily average balances, net interest income,
interest rate spread, and net interest margin for the three and nine months ending September 30,
2010 and September 30, 2009. For purposes of the table and the following discussion, income from
interest-earning assets and net interest income are presented on a fully-taxable equivalent basis
by adjusting income and yields earned on tax-exempt interest received on securities and loans, to
make them equivalent to income and yields on fully-taxable earning assets. The fully-taxable
equivalent was calculated using the statutory tax rate:
52
Table 8 Average Balance, Interest Earned/Paid & Average Yields
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
2010 |
|
2009 |
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
Average |
|
Earned/ |
|
Yield/ |
|
Average |
|
Earned/ |
|
Yield/ |
|
|
Balance |
|
Paid |
|
Rate |
|
Balance |
|
Paid |
|
Rate |
|
|
(Dollar in Thousands) |
INTEREST-EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Earning Deposits with Banks, Federal Funds Sold, and Short Term Investments |
|
$ |
200,862 |
|
|
$ |
135 |
|
|
|
0.27 |
% |
|
$ |
4,060 |
|
|
$ |
4 |
|
|
|
0.39 |
% |
SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Assets |
|
|
7,257 |
|
|
|
61 |
|
|
|
3.33 |
% |
|
|
22,941 |
|
|
|
109 |
|
|
|
1.89 |
% |
Taxable Investment Securities |
|
|
561,240 |
|
|
|
5,618 |
|
|
|
3.97 |
% |
|
|
620,183 |
|
|
|
7,317 |
|
|
|
4.68 |
% |
Non-taxable Investment Securities (1) |
|
|
15,953 |
|
|
|
277 |
|
|
|
6.89 |
% |
|
|
20,373 |
|
|
|
336 |
|
|
|
6.54 |
% |
|
TOTAL SECURITIES |
|
|
584,450 |
|
|
|
5,956 |
|
|
|
4.04 |
% |
|
|
663,497 |
|
|
|
7,762 |
|
|
|
4.64 |
% |
LOANS HELD FOR SALE |
|
|
15,738 |
|
|
|
174 |
|
|
|
4.39 |
% |
|
|
15,831 |
|
|
|
169 |
|
|
|
4.24 |
% |
LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial |
|
|
440,539 |
|
|
|
5,211 |
|
|
|
4.69 |
% |
|
|
361,809 |
|
|
|
4,395 |
|
|
|
4.82 |
% |
Commercial Real Estate |
|
|
1,641,627 |
|
|
|
23,602 |
|
|
|
5.70 |
% |
|
|
1,524,246 |
|
|
|
23,083 |
|
|
|
6.01 |
% |
Commercial Construction |
|
|
148,151 |
|
|
|
1,792 |
|
|
|
4.80 |
% |
|
|
205,653 |
|
|
|
2,537 |
|
|
|
4.89 |
% |
Small Business |
|
|
80,740 |
|
|
|
1,221 |
|
|
|
6.00 |
% |
|
|
85,370 |
|
|
|
1,305 |
|
|
|
6.06 |
% |
|
TOTAL COMMERCIAL |
|
|
2,311,057 |
|
|
|
31,826 |
|
|
|
5.46 |
% |
|
|
2,177,078 |
|
|
|
31,320 |
|
|
|
5.71 |
% |
Residential Real Estate |
|
|
525,003 |
|
|
|
6,174 |
|
|
|
4.67 |
% |
|
|
589,702 |
|
|
|
7,319 |
|
|
|
4.92 |
% |
Residential Construction |
|
|
4,874 |
|
|
|
63 |
|
|
|
5.13 |
% |
|
|
15,077 |
|
|
|
228 |
|
|
|
6.00 |
% |
Consumer Home Equity |
|
|
507,308 |
|
|
|
4,914 |
|
|
|
3.84 |
% |
|
|
460,500 |
|
|
|
4,510 |
|
|
|
3.89 |
% |
|
TOTAL CONSUMER REAL ESTATE |
|
|
1,037,185 |
|
|
|
11,151 |
|
|
|
4.27 |
% |
|
|
1,065,279 |
|
|
|
12,057 |
|
|
|
4.49 |
% |
TOTAL OTHER CONSUMER |
|
|
82,130 |
|
|
|
1,593 |
|
|
|
7.70 |
% |
|
|
133,224 |
|
|
|
2,513 |
|
|
|
7.48 |
% |
|
TOTAL LOANS |
|
|
3,430,372 |
|
|
|
44,570 |
|
|
|
5.15 |
% |
|
$ |
3,375,581 |
|
|
|
45,890 |
|
|
|
5.39 |
% |
|
TOTAL INTEREST EARNING ASSETS |
|
$ |
4,231,422 |
|
|
$ |
50,835 |
|
|
|
4.77 |
% |
|
|
4,058,969 |
|
|
$ |
53,825 |
|
|
|
5.26 |
% |
|
CASH AND DUE FROM BANKS |
|
|
55,357 |
|
|
|
|
|
|
|
|
|
|
|
67,156 |
|
|
|
|
|
|
|
|
|
FEDERAL HOME LOAN BANK STOCK |
|
|
35,854 |
|
|
|
|
|
|
|
|
|
|
|
36,357 |
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
323,523 |
|
|
|
|
|
|
|
|
|
|
|
280,147 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
4,646,156 |
|
|
|
|
|
|
|
|
|
|
$ |
4,442,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST-BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEPOSITS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and Interest Checking Accounts |
|
$ |
1,220,073 |
|
|
$ |
1,040 |
|
|
|
0.34 |
% |
|
$ |
969,676 |
|
|
$ |
1,246 |
|
|
|
0.51 |
% |
Money Market |
|
|
757,154 |
|
|
|
1,058 |
|
|
|
0.55 |
% |
|
|
677,851 |
|
|
|
1,597 |
|
|
|
0.93 |
% |
Time Deposits |
|
|
805,825 |
|
|
|
2,703 |
|
|
|
1.33 |
% |
|
|
948,596 |
|
|
|
4,603 |
|
|
|
1.93 |
% |
|
TOTAL INTEREST-BEARING DEPOSITS |
|
$ |
2,783,052 |
|
|
$ |
4,801 |
|
|
|
0.68 |
% |
|
$ |
2,596,123 |
|
|
$ |
7,446 |
|
|
|
1.14 |
% |
BORROWINGS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank Borrowings |
|
$ |
302,610 |
|
|
$ |
2,372 |
|
|
|
3.11 |
% |
|
$ |
395,878 |
|
|
$ |
2,901 |
|
|
|
2.91 |
% |
Federal Funds Purchased and Assets Sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Repurchase Agreement |
|
|
179,983 |
|
|
|
740 |
|
|
|
1.63 |
% |
|
|
184,181 |
|
|
|
857 |
|
|
|
1.85 |
% |
Junior Subordinated Debentures |
|
|
61,857 |
|
|
|
931 |
|
|
|
5.97 |
% |
|
|
61,857 |
|
|
|
931 |
|
|
|
5.97 |
% |
Subordinated Debentures |
|
|
30,000 |
|
|
|
547 |
|
|
|
7.23 |
% |
|
|
30,000 |
|
|
|
547 |
|
|
|
7.23 |
% |
Other Borrowings |
|
|
2,602 |
|
|
|
|
|
|
|
0.00 |
% |
|
|
2,108 |
|
|
|
|
|
|
|
0.00 |
% |
|
TOTAL BORROWINGS |
|
|
577,052 |
|
|
|
4,590 |
|
|
|
3.16 |
% |
|
|
674,024 |
|
|
|
5,236 |
|
|
|
3.08 |
% |
|
TOTAL INTEREST-BEARING LIABILITIES |
|
$ |
3,360,104 |
|
|
$ |
9,391 |
|
|
|
1.11 |
% |
|
$ |
3,270,147 |
|
|
$ |
12,682 |
|
|
|
1.54 |
% |
|
DEMAND DEPOSITS |
|
|
796,205 |
|
|
|
|
|
|
|
|
|
|
|
702,071 |
|
|
|
|
|
|
|
|
|
OTHER LIABILITIES |
|
|
63,790 |
|
|
|
|
|
|
|
|
|
|
|
63,821 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
$ |
4,220,099 |
|
|
|
|
|
|
|
|
|
|
$ |
4,036,039 |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
426,057 |
|
|
|
|
|
|
|
|
|
|
|
406,590 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
4,646,156 |
|
|
|
|
|
|
|
|
|
|
$ |
4,442,629 |
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
|
|
|
$ |
41,444 |
|
|
|
|
|
|
|
|
|
|
$ |
41,143 |
|
|
|
|
|
|
INTEREST RATE SPREAD (2) |
|
|
|
|
|
|
|
|
|
|
3.66 |
% |
|
|
|
|
|
|
|
|
|
|
3.72 |
% |
|
NET INTEREST MARGIN (3) |
|
|
|
|
|
|
|
|
|
|
3.89 |
% |
|
|
|
|
|
|
|
|
|
|
4.02 |
% |
|
|
Supplemental Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits, including Demand Deposits |
|
$ |
3,579,257 |
|
|
$ |
4,801 |
|
|
|
|
|
|
$ |
3,298,194 |
|
|
$ |
7,446 |
|
|
|
|
|
Cost of Total Deposits |
|
|
|
|
|
|
|
|
|
|
0.53 |
% |
|
|
|
|
|
|
|
|
|
|
0.90 |
% |
Total Funding Liabilities, including Demand Deposits |
|
$ |
4,156,309 |
|
|
$ |
9,391 |
|
|
|
|
|
|
$ |
3,972,218 |
|
|
$ |
12,682 |
|
|
|
|
|
Cost of Total Funding Liabilities |
|
|
|
|
|
|
|
|
|
|
0.90 |
% |
|
|
|
|
|
|
|
|
|
|
1.27 |
% |
|
|
|
(1) |
|
The total amount of adjustment to present interest income and yield on a fully tax-equivalent
basis is $247 and $235 for the three months ended September 30, 2010 and September 30, 2009,
respectively. |
|
(2) |
|
Interest rate spread represents the difference between the weighted average yield on
interest-earning assets and the
weighted average cost of interest-bearing liabilities. |
|
(3) |
|
Net interest margin represents annualized net interest income as a percentage of
average interest-earning assets. |
Certain amounts in prior year financial statement have been reclassified to conform to the current
years presentation.
53
Table 9 Average Balance, Interest Earned/Paid & Average Yields
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2010 |
|
2009 |
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
Average |
|
Earned/ |
|
Yield/ |
|
Average |
|
Earned/ |
|
Yield/ |
|
|
Balance |
|
Paid |
|
Rate |
|
Balance |
|
Paid |
|
Rate |
|
|
(Dollar in Thousands) |
INTEREST-EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Earning Deposits with Banks, Federal Funds Sold, and Short Term Investments |
|
$ |
138,319 |
|
|
$ |
267 |
|
|
|
0.26 |
% |
|
$ |
70,349 |
|
|
$ |
272 |
|
|
|
0.52 |
% |
SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Assets |
|
|
7,143 |
|
|
|
183 |
|
|
|
3.43 |
% |
|
|
13,278 |
|
|
|
178 |
|
|
|
1.79 |
% |
Taxable Investment Securities |
|
|
562,422 |
|
|
|
18,093 |
|
|
|
4.30 |
% |
|
|
606,388 |
|
|
|
21,624 |
|
|
|
4.77 |
% |
Non-taxable Investment Securities (1) |
|
|
17,582 |
|
|
|
936 |
|
|
|
7.12 |
% |
|
|
23,792 |
|
|
|
1,145 |
|
|
|
6.43 |
% |
|
TOTAL SECURITIES |
|
|
587,147 |
|
|
|
19,212 |
|
|
|
4.37 |
% |
|
|
643,458 |
|
|
|
22,947 |
|
|
|
4.77 |
% |
LOANS HELD FOR SALE |
|
|
10,204 |
|
|
|
390 |
|
|
|
5.11 |
% |
|
|
15,453 |
|
|
|
497 |
|
|
|
4.30 |
% |
LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial |
|
|
406,838 |
|
|
|
14,502 |
|
|
|
4.77 |
% |
|
|
324,847 |
|
|
|
11,673 |
|
|
|
4.80 |
% |
Commercial Real Estate |
|
|
1,639,380 |
|
|
|
70,382 |
|
|
|
5.74 |
% |
|
|
1,367,234 |
|
|
|
62,230 |
|
|
|
6.09 |
% |
Commercial Construction |
|
|
161,823 |
|
|
|
5,967 |
|
|
|
4.93 |
% |
|
|
194,558 |
|
|
|
7,113 |
|
|
|
4.89 |
% |
Small Business |
|
|
81,506 |
|
|
|
3,639 |
|
|
|
5.97 |
% |
|
|
86,577 |
|
|
|
3,893 |
|
|
|
6.01 |
% |
|
TOTAL COMMERCIAL |
|
|
2,289,547 |
|
|
|
94,490 |
|
|
|
5.52 |
% |
|
|
1,973,216 |
|
|
|
84,909 |
|
|
|
5.75 |
% |
Residential Real Estate |
|
|
536,918 |
|
|
|
19,424 |
|
|
|
4.84 |
% |
|
|
533,394 |
|
|
|
20,288 |
|
|
|
5.09 |
% |
Residential Construction |
|
|
7,146 |
|
|
|
276 |
|
|
|
5.16 |
% |
|
|
12,963 |
|
|
|
633 |
|
|
|
6.53 |
% |
Consumer Home Equity |
|
|
492,048 |
|
|
|
14,140 |
|
|
|
3.84 |
% |
|
|
440,398 |
|
|
|
12,947 |
|
|
|
3.93 |
% |
|
TOTAL CONSUMER REAL ESTATE |
|
|
1,036,112 |
|
|
|
33,840 |
|
|
|
4.37 |
% |
|
|
986,755 |
|
|
|
33,868 |
|
|
|
4.59 |
% |
TOTAL OTHER CONSUMER |
|
|
93,232 |
|
|
|
5,388 |
|
|
|
7.73 |
% |
|
|
146,781 |
|
|
|
8,079 |
|
|
|
7.36 |
% |
|
TOTAL LOANS |
|
|
3,418,891 |
|
|
|
133,718 |
|
|
|
5.23 |
% |
|
$ |
3,106,752 |
|
|
|
126,856 |
|
|
|
5.46 |
% |
|
TOTAL INTEREST EARNING ASSETS |
|
$ |
4,154,561 |
|
|
$ |
153,587 |
|
|
|
4.94 |
% |
|
|
3,836,012 |
|
|
$ |
150,572 |
|
|
|
5.25 |
% |
|
CASH AND DUE FROM BANKS |
|
|
64,314 |
|
|
|
|
|
|
|
|
|
|
|
68,192 |
|
|
|
|
|
|
|
|
|
FEDERAL HOME LOAN BANK STOCK |
|
|
35,854 |
|
|
|
|
|
|
|
|
|
|
|
32,051 |
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
310,992 |
|
|
|
|
|
|
|
|
|
|
|
276,960 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
4,565,721 |
|
|
|
|
|
|
|
|
|
|
$ |
4,213,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST-BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEPOSITS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and Interest Checking Accounts |
|
$ |
1,153,459 |
|
|
$ |
3,521 |
|
|
|
0.41 |
% |
|
$ |
892,383 |
|
|
$ |
3,567 |
|
|
|
0.53 |
% |
Money Market |
|
|
740,128 |
|
|
|
3,699 |
|
|
|
0.67 |
% |
|
|
621,424 |
|
|
|
5,006 |
|
|
|
1.08 |
% |
Time Deposits |
|
|
845,631 |
|
|
|
9,005 |
|
|
|
1.42 |
% |
|
|
918,510 |
|
|
|
15,720 |
|
|
|
2.29 |
% |
|
TOTAL INTEREST-BEARING DEPOSITS |
|
$ |
2,739,218 |
|
|
$ |
16,225 |
|
|
|
0.79 |
% |
|
$ |
2,432,317 |
|
|
$ |
24,293 |
|
|
|
1.34 |
% |
BORROWINGS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank Borrowings |
|
$ |
322,221 |
|
|
$ |
7,196 |
|
|
|
2.99 |
% |
|
$ |
418,386 |
|
|
$ |
8,548 |
|
|
|
2.73 |
% |
Federal Funds Purchased and Assets Sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Repurchase Agreement |
|
|
182,456 |
|
|
|
2,391 |
|
|
|
1.75 |
% |
|
|
177,061 |
|
|
|
2,525 |
|
|
|
1.91 |
% |
Junior Subordinated Debentures |
|
|
61,857 |
|
|
|
2,744 |
|
|
|
5.93 |
% |
|
|
61,857 |
|
|
|
2,819 |
|
|
|
6.09 |
% |
Subordinated Debentures |
|
|
30,000 |
|
|
|
1,624 |
|
|
|
7.24 |
% |
|
|
30,000 |
|
|
|
1,625 |
|
|
|
7.24 |
% |
Other Borrowings |
|
|
2,704 |
|
|
|
|
|
|
|
0.00 |
% |
|
|
1,996 |
|
|
|
|
|
|
|
0.00 |
% |
|
TOTAL BORROWINGS |
|
|
599,238 |
|
|
|
13,955 |
|
|
|
3.11 |
% |
|
|
689,300 |
|
|
|
15,517 |
|
|
|
3.01 |
% |
|
TOTAL INTEREST-BEARING LIABILITIES |
|
$ |
3,338,456 |
|
|
$ |
30,180 |
|
|
|
1.21 |
% |
|
$ |
3,121,617 |
|
|
$ |
39,810 |
|
|
|
1.71 |
% |
|
DEMAND DEPOSITS |
|
|
750,895 |
|
|
|
|
|
|
|
|
|
|
|
635,943 |
|
|
|
|
|
|
|
|
|
OTHER LIABILITIES |
|
|
53,622 |
|
|
|
|
|
|
|
|
|
|
|
56,015 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
$ |
4,142,973 |
|
|
|
|
|
|
|
|
|
|
$ |
3,813,575 |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
422,748 |
|
|
|
|
|
|
|
|
|
|
|
399,640 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
4,565,721 |
|
|
|
|
|
|
|
|
|
|
$ |
4,213,215 |
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
|
|
|
$ |
123,407 |
|
|
|
|
|
|
|
|
|
|
$ |
110,762 |
|
|
|
|
|
|
INTEREST RATE SPREAD (2) |
|
|
|
|
|
|
|
|
|
|
3.73 |
% |
|
|
|
|
|
|
|
|
|
|
3.54 |
% |
|
NET INTEREST MARGIN (3) |
|
|
|
|
|
|
|
|
|
|
3.97 |
% |
|
|
|
|
|
|
|
|
|
|
3.86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits, including Demand Deposits |
|
$ |
3,490,113 |
|
|
$ |
16,225 |
|
|
|
|
|
|
$ |
3,068,260 |
|
|
$ |
24,293 |
|
|
|
|
|
Cost of Total Deposits |
|
|
|
|
|
|
|
|
|
|
0.62 |
% |
|
|
|
|
|
|
|
|
|
|
1.06 |
% |
Total Funding Liabilities, including Demand Deposits |
|
$ |
4,089,351 |
|
|
$ |
30,180 |
|
|
|
|
|
|
$ |
3,757,560 |
|
|
$ |
39,810 |
|
|
|
|
|
Cost of Total Funding Liabilities |
|
|
|
|
|
|
|
|
|
|
0.99 |
% |
|
|
|
|
|
|
|
|
|
|
1.42 |
% |
|
|
|
(1) |
|
The total amount of adjustment to present interest income and yield on a fully
tax-equivalent
basis is $833 and $766 for the nine months ended September 30, 2010 and September 30, 2009,
respectively. |
|
(2) |
|
Interest rate spread represents the difference between the weighted average yield on
interest-earning assets and the
weighted average cost of interest-bearing liabilities. |
|
(3) |
|
Net interest margin represents annualized net interest income as a percentage of
average interest-earning assets. |
Certain amounts in prior year financial statement have been reclassified to conform to the current
years presentation.
54
The following table presents certain information on a fully tax-equivalent basis
regarding changes in the Companys interest income and interest expense for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities, information is
provided with respect to changes attributable to: (1) changes in rate (change in rate multiplied by
old volume), (2) changes in volume (change in volume multiplied by old rate), and (3) changes in
volume/rate (change in volume multiplied by change in rate) which is allocated to the change due to
rate column:
Table 10 Volume Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2010 Compared to 2009 |
|
2010 Compared to 2009 |
|
|
Change |
|
Change |
|
|
|
|
|
Change |
|
Change |
|
|
|
|
Due to |
|
Due to |
|
Total |
|
Due to |
|
Due to |
|
Total |
|
|
Rate (1) |
|
Volume |
|
Change |
|
Rate |
|
Volume |
|
Change |
|
|
(Dollars in Thousands) |
INCOME ON INTEREST-EARNING ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EARNING DEPOSITIS WITH BANKS,
FEDERAL FUNDS SOLD
AND SHORT TERM INVERSTMENTS |
|
$ |
(63 |
) |
|
$ |
194 |
|
|
$ |
131 |
|
|
$ |
(268 |
) |
|
$ |
263 |
|
|
$ |
(5 |
) |
SECURIITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable Securities |
|
|
(1,004 |
) |
|
|
(695 |
) |
|
|
(1,699 |
) |
|
|
(1,963 |
) |
|
|
(1,568 |
) |
|
|
(3,531 |
) |
Non-Taxable Securities (2) |
|
|
14 |
|
|
|
(73 |
) |
|
|
(59 |
) |
|
|
90 |
|
|
|
(299 |
) |
|
|
(209 |
) |
Trading Assets |
|
|
27 |
|
|
|
(75 |
) |
|
|
(48 |
) |
|
|
87 |
|
|
|
(82 |
) |
|
|
5 |
|
|
TOTAL SECURITIES |
|
|
(963 |
) |
|
|
(843 |
) |
|
|
(1,806 |
) |
|
|
(1,786 |
) |
|
|
(1,949 |
) |
|
|
(3,735 |
) |
LOANS HELD FOR SALE |
|
|
6 |
|
|
|
(1 |
) |
|
|
5 |
|
|
|
62 |
|
|
|
(169 |
) |
|
|
(107 |
) |
LOANS (2)(3) |
|
|
(2,065 |
) |
|
|
745 |
|
|
|
(1,320 |
) |
|
|
(5,883 |
) |
|
|
12,745 |
|
|
|
6,862 |
|
|
TOTAL |
|
$ |
(3,085 |
) |
|
$ |
95 |
|
|
$ |
(2,990 |
) |
|
$ |
(7,875 |
) |
|
$ |
10,890 |
|
|
$ |
3,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSE OF INTEREST-BEARING LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEPOSITS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and Interest Checking Accounts |
|
$ |
(528 |
) |
|
$ |
322 |
|
|
$ |
(206 |
) |
|
$ |
(1,090 |
) |
|
$ |
1,044 |
|
|
$ |
(46 |
) |
Money Market |
|
|
(726 |
) |
|
|
187 |
|
|
|
(539 |
) |
|
|
(2,263 |
) |
|
|
956 |
|
|
|
(1,307 |
) |
Time Deposits |
|
|
(1,207 |
) |
|
|
(693 |
) |
|
|
(1,900 |
) |
|
|
(5,468 |
) |
|
|
(1,247 |
) |
|
|
(6,715 |
) |
|
TOTAL INTEREST-BEARING DEPOSITS |
|
|
(2,461 |
) |
|
|
(184 |
) |
|
|
(2,645 |
) |
|
|
(8,821 |
) |
|
|
753 |
|
|
|
(8,068 |
) |
BORROWINGS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank Borrowings |
|
$ |
154 |
|
|
$ |
(683 |
) |
|
$ |
(529 |
) |
|
$ |
613 |
|
|
$ |
(1,965 |
) |
|
$ |
(1,352 |
) |
Federal Funds Purchased and Assets Sold Under
Repurchase Agreements |
|
|
(97 |
) |
|
|
(20 |
) |
|
|
(117 |
) |
|
|
(211 |
) |
|
|
77 |
|
|
|
(134 |
) |
Junior Subordinated Debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75 |
) |
|
|
|
|
|
|
(75 |
) |
Subordinated Debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Other Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL BORROWINGIS |
|
|
57 |
|
|
|
(703 |
) |
|
|
(646 |
) |
|
|
326 |
|
|
|
(1,888 |
) |
|
|
(1,562 |
) |
|
TOTAL |
|
$ |
(2,404 |
) |
|
$ |
(887 |
) |
|
$ |
(3,291 |
) |
|
$ |
(8,495 |
) |
|
$ |
(1,135 |
) |
|
$ |
(9,630 |
) |
|
CHANGE IN NET INTEREST INCOME |
|
$ |
(681 |
) |
|
$ |
982 |
|
|
$ |
301 |
|
|
$ |
620 |
|
|
$ |
12,025 |
|
|
$ |
12,645 |
|
|
|
|
|
(1) |
|
The changes for each category of interest income and expense are divided between the
portion of change attributable to the variance in volume and the portion of the change attributable
to the variances in rate for that category. The unallocated change in rate or volume variance has
been allocated to the rate variances. |
|
(2) |
|
The total amount of the adjustment to present income and yield on a fully tax-equivalent basis
is $247 and $235 for the three months ended September 30, 2010 and 2009, respectively, and $833 and
$766 for the nine months ended September 30, 2010 and 2009, respectively. (3) Loans include
portfolio loans, and nonperforming loans; however unpaid interest on nonaccrual loans has not been
included for purposes of determining interest income. |
Provision For Loan Losses The provision for loan losses represents the charge to expense
that is required to maintain an adequate level of allowance for loan losses. The provision for loan
losses totaled $3.5 million and $15.1 million for the three and nine months ending September 30,
2010, respectively, compared with $4.4 million and $12.9 million for the comparable prior year
periods, respectively. The Companys allowance for loan losses, as a percentage of total loans,
was 1.34% at September 30, 2010, as compared to 1.25% at December 31, 2009 and 1.22% at September
30, 2009. For the three and nine months ended September 30, 2010, net loan charge-offs totaled $3.2
million and $11.8 million, respectively, an increase of $18,000 and $3.2 million from the three and
nine months ended September 30, 2009.
55
The increase in the amount of the provision for loan losses is the result of a combination of
factors including: shifting growth rates among various components of the Banks loan portfolio with
differing facets of risk; continued challenges with respect to the economic environment, increases
in specific allocations for impaired loans, and the level of loan delinquencies and nonperforming
loans. While the total loan portfolio remained relatively consistent, as compared to the quarter
ended September 30, 2009, growth among the commercial components of the loan portfolio outpaced
growth among those consumer components, which exhibit different credit risk characteristics.
Certain regional and local general economic conditions continued to show some signs of
improvement during the third quarter of 2010, as measured in terms of employment levels, statewide
economic activity, and other regional economic indicators. Local residential real estate market
fundamentals were mixed in the third quarter, characterized by lower sales levels but relatively
stable prices. Regional commercial real estate market indicators showed some signs of improvement;
however certain submarkets within the Banks footprint continued to struggle with higher vacancy
rates, declining rents, and negative net absorption. Despite some of the positive economic
indicators, improvement is expected to be gradual and the economic environment should remain
challenging for the remainder of 2010 and into next year.
Managements periodic evaluation of the adequacy of the allowance for loan losses considers
past loan loss experience, known and inherent risks in the loan portfolio, adverse situations which
may affect the borrowers ability to repay, the estimated value of the underlying collateral, if
any, and current and prospective economic conditions. Substantial portions of the Banks loans are
secured by real estate in Massachusetts. Accordingly, the ultimate collectability of a substantial
portion of the Banks loan portfolio is susceptible to changes in property values within the state.
Non-Interest Income The following table sets forth information regarding non-interest income
for the periods shown:
Table 11 Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
(Dollars In Thousands) |
Service Charges on Deposit Accounts |
|
$ |
4,441 |
|
|
$ |
4,613 |
|
|
$ |
13,177 |
|
|
$ |
12,518 |
|
Wealth Management |
|
|
2,851 |
|
|
|
2,278 |
|
|
|
8,768 |
|
|
|
7,318 |
|
Mortgage Banking |
|
|
1,469 |
|
|
|
425 |
|
|
|
3,091 |
|
|
|
3,578 |
|
Bank Owned Life Insurance |
|
|
901 |
|
|
|
713 |
|
|
|
2,353 |
|
|
|
2,126 |
|
Net Gain/(Loss) on Sales of Securities |
|
|
(22 |
) |
|
|
|
|
|
|
458 |
|
|
|
1,355 |
|
Gain Resulting from Early Termination of Hedging Relationship |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,778 |
|
Gross Change on Write-Down of Certain Investments to Fair Value |
|
|
207 |
|
|
|
(5,108 |
) |
|
|
325 |
|
|
|
(7,384 |
) |
Less: Non-Credit Related Other-Than-Temporary Impairment |
|
|
(214 |
) |
|
|
(33 |
) |
|
|
(594 |
) |
|
|
590 |
|
|
Net Loss on Write-Down of Certain Investments to Fair Value |
|
|
(7 |
) |
|
|
(5,141 |
) |
|
|
(269 |
) |
|
|
(6,794 |
) |
Other Non-Interest Income |
|
|
2,021 |
|
|
|
1,578 |
|
|
|
5,065 |
|
|
|
4,283 |
|
|
TOTAL |
|
$ |
11,654 |
|
|
$ |
4,466 |
|
|
$ |
32,643 |
|
|
$ |
28,162 |
|
|
Non-interest income increased by $7.2 million, or 161.0%, and by $4.5 million, or 15.9%
during the three and nine months ended September 30, 2010, as compared to the same period in the
prior year. The change in non-interest income is attributable to the following:
56
Wealth management revenue increased by $573,000, or 25.2%, and $1.5 million, or 19.8% for the
three and nine months ended September 30, 2010. This increase is mainly due to increases in assets
under management. Assets under management at September 30, 2010 were $1.5 billion, an increase of
$228.1 million, or 18.5%, as compared to the same period a year ago. The increase is due to the
general increases in the stock market in these comparable periods and net new client asset flows.
Mortgage banking income increased by $1.0 million, or 245.7%, and decreased by $487,000, or
13.6%, during the three and nine months ended September 30, 2010 as compared to the prior period.
The three month changes are primarily due to increases in mortgage originations given the current
low-rate environment.
The Company recorded a loss on the sale of securities of $22,000 and a net gain on the sale of
securities of $458,000 for the three and nine months ended September 30, 2010, respectively. The
Company recorded a net gain of $1.4 million on the sale of securities, during nine months ended
September 30, 2009.
The Company recorded a $3.8 million gain resulting from the termination of an interest rate
swap during the quarter ended June 30, 2009, mainly due to the repayment of certain borrowings and
their associated hedge positions as a result of strong balance sheet liquidity. There were no
gains resulting from the termination of interest rate swaps during the period ended September 30,
2010.
The Company has deemed certain securities to be other-than-temporarily impaired. The Company
recorded a total credit related impairment charge of $7,000 and $269,000 for the three and nine
months ended September 30, 2010, as compared to $5.1 million and $6.8 million for the three and
nine months ended September 30, 2009.
Other non-interest income increased by $443,000, or 28.1%, and $782,000, or 18.3%, for the
three and nine months ended September 30, 2010, as compared to the same period in 2009. The
increases in the quarter are primarily due to commercial loan late charge fees of $104,000, trading
asset gains of $82,000, swap income of $65,000, and gains on the sale of OREO of $57,000. The
increases in the nine month period are primarily due to gains on sale of OREO of $244,000,
commercial loan late charge fees of $141,000, and letters of credit fees of $64,000.
Non-Interest Expense The following table sets forth information regarding non-interest
expense for the periods shown:
57
Table 12- Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
(Dollars in Thousands) |
Salaries and Employee Benefits |
|
$ |
19,792 |
|
|
$ |
17,727 |
|
|
$ |
56,662 |
|
|
$ |
49,720 |
|
Occupancy and Equipment Expenses |
|
|
3,839 |
|
|
|
3,985 |
|
|
|
12,068 |
|
|
|
11,826 |
|
Data Processing and Facilities Management |
|
|
1,404 |
|
|
|
1,580 |
|
|
|
4,195 |
|
|
|
4,600 |
|
FDIC Assessment |
|
|
1,352 |
|
|
|
1,267 |
|
|
|
3,944 |
|
|
|
5,655 |
|
Legal Fees |
|
|
720 |
|
|
|
703 |
|
|
|
2,575 |
|
|
|
1,906 |
|
Advertising |
|
|
469 |
|
|
|
232 |
|
|
|
1,699 |
|
|
|
1,427 |
|
Software Maintenance |
|
|
497 |
|
|
|
484 |
|
|
|
1,460 |
|
|
|
1,393 |
|
Telephone |
|
|
513 |
|
|
|
779 |
|
|
|
1,591 |
|
|
|
1,820 |
|
Consulting |
|
|
803 |
|
|
|
474 |
|
|
|
1,600 |
|
|
|
1,416 |
|
Merger and Acquisition Expense |
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
12,423 |
|
Other Non-Interest Expense |
|
|
5,151 |
|
|
|
5,032 |
|
|
|
17,264 |
|
|
|
14,981 |
|
|
TOTAL |
|
$ |
34,540 |
|
|
$ |
32,304 |
|
|
$ |
103,058 |
|
|
$ |
107,167 |
|
|
Non-interest expense increased by $2.2 million, or 6.9%, and decreased by $4.1 million,
or 3.8%, for the three and nine months ended September 30, 2010, as compared to the same period in
2009. The change in non-interest expense is attributable to the following:
Salaries and employee benefits increased by $2.1 million, or 11.7%, and $6.9 million, or 14.0%
for the three and nine months ended September 30, 2010, as compared to the same period in 2009. The
increase in salaries and benefits is attributable to the addition of employees as a result of Ben
Franklin acquisition in April 2009, incentive programs, increases in medical plan insurance and
pension expense.
Data processing and facilities management expense decreased by $176,000, or 11.1%, and by
$405,000, or 8.8% for the three and nine months ended September 30, 2010, due primarily to cost
containment and to a rebate received in the first quarter of 2010.
The FDIC deposit insurance assessment increased by $85,000, or 6.7%, and decreased by $1.7
million, or 30.3%, for the three and nine months ended September 30, 2010, respectively. The
decrease is primarily due to a special assessment of $2.1 million imposed to replenish the Deposit
Insurance Fund during the second quarter of 2009.
The Company incurred merger and acquisition expenses due to the Ben Franklin acquisition of
$12.4 million for the nine months ended September 30, 2009.
During the nine months ended September 30, 2010, the Company recorded the change in fair value
of an interest rate swap that was previously hedging borrowings in the amount of $792,000. The
Company terminated the swap during the second quarter 2010 as a result of managements decision to
pay down the underlying borrowings.
Other non-interest expense increased by $449,000, or 5.8%, and $3.2 million, or 14.2% for the
three and nine months ended September 30, 2010 as compared to the same periods in 2009. The
increases quarter to date are primarily attributable to increases in advertising and
58
consultant
expenses. The increase for the nine months are primarily due to advertising, contributions,
consultant, exams and audit fees, appraisals and in credit related loan workout and collection
activities.
Income Taxes For the quarter ending September 30, 2010 the Company recorded combined federal
and state income tax provisions of $3.7 million. The effective tax rate for the quarter ending
September 30, 2010 was 24.8%, and is positively impacted by the Companys New Market Tax Credit
allocation. A schedule showing the past and expected tax credit recognition by year is shown in
the table below:
Table 13 New Markets Tax Credit Recognition Schedule
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
Investment |
|
2004
- 2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
Credits |
|
(Dollars in Thousands) |
2004 |
|
$ |
15 M |
|
|
$ |
4,050 |
|
|
$ |
900 |
|
|
$ |
900 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,850 |
|
2005 |
|
|
15 M |
|
|
|
3,150 |
|
|
|
900 |
|
|
|
900 |
|
|
|
900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,850 |
|
2007 |
|
|
38.2 M |
|
|
|
3,820 |
|
|
|
1,910 |
|
|
|
2,292 |
|
|
|
2,292 |
|
|
|
2,292 |
|
|
|
2,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,898 |
|
2008 |
|
|
6.8 M |
|
|
|
340 |
|
|
|
340 |
|
|
|
340 |
|
|
|
408 |
|
|
|
408 |
|
|
|
408 |
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
2,652 |
|
2009 |
|
|
10 M |
|
|
|
|
|
|
|
500 |
|
|
|
500 |
|
|
|
500 |
|
|
|
600 |
|
|
|
600 |
|
|
|
600 |
|
|
|
600 |
|
|
|
|
|
|
|
3,900 |
|
2010 |
|
|
10 M |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
500 |
|
|
|
500 |
|
|
|
600 |
|
|
|
600 |
|
|
|
600 |
|
|
|
600 |
|
|
|
3,900 |
|
2010* |
|
|
30 M |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
1,500 |
|
|
|
1,500 |
|
|
|
1,800 |
|
|
|
1,800 |
|
|
|
1,800 |
|
|
|
1,800 |
|
|
|
11,700 |
|
|
TOTAL |
|
$ |
125 M |
|
|
$ |
11,360 |
|
|
$ |
4,550 |
|
|
$ |
6,932 |
|
|
$ |
6,100 |
|
|
$ |
5,300 |
|
|
$ |
5,700 |
|
|
$ |
3,408 |
|
|
$ |
3,000 |
|
|
$ |
2,400 |
|
|
$ |
48,750 |
|
|
|
|
|
* |
|
As of September 30, 2010 the Company has $30.0 million related to these awards which
has yet to be invested into a subsidiary. The Company anticipates investing the remaining $30.0
million throughout the remainder of 2010 and accordingly, it has been included in the Companys
calculation of its effective tax rate. |
To date the Company has been awarded a total of $125.0 million in tax credit allocation
authority under the Federal New Markets Tax Credit Program. Tax credits are eligible to be
recognized over a seven year period totaling 39% of the total award, as capital is invested into a
subsidiary which will lend to qualifying businesses in low income communities. Accordingly, the
Company will be eligible to receive aggregate tax credits totaling $48.8 million. The tax effect
of all income and expense transactions is recognized by the Company in each years consolidated
statements of income, regardless of the year in which the transactions are reported for income
purposes.
Return on Average Assets and Equity The annualized consolidated returns on average common
equity and average assets for the three and nine months ended September 30, 2010 and 2009 were as
follows:
Table 14 Return on Average Equity and Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Return on Average Equity |
|
|
10.38 |
% |
|
|
6.68 |
% |
|
|
8.98 |
% |
|
|
2.74 |
% |
Return on Average Assets |
|
|
0.95 |
% |
|
|
0.61 |
% |
|
|
0.83 |
% |
|
|
0.26 |
% |
59
Asset/Liability Management
The Banks asset/liability management process monitors and manages, among other things, the
interest rate sensitivity of the balance sheet, the composition of the securities portfolio,
funding needs and sources, and the liquidity position of the Company. All of these factors, as
well as projected asset growth, current and potential pricing actions, competitive influences,
national monetary and fiscal policy, and the regional economic environment are considered in the
asset/liability management process.
The Asset/Liability Management Committee (ALCO), whose members are comprised of the Banks
senior management, develops procedures consistent with policies established by the Board of
Directors, which monitor and coordinate the Banks interest rate sensitivity and the sources, uses,
and pricing of funds. Interest rate sensitivity refers to the Banks exposure to fluctuations in
interest rates and its effect on earnings. If assets and liabilities do not re-price
simultaneously and in equal volume, the potential for interest rate exposure exists. It is
managements objective to maintain stability in the growth of net interest income through the
maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and,
when necessary, within prudent limits, through the use of off-balance sheet hedging instruments
such as interest rate swaps, floors and caps. The ALCO employs simulation analyses in an attempt
to quantify, evaluate, and manage the impact of changes in interest rates on the Banks net
interest income. In addition, the Bank engages an independent consultant to render advice with
respect to asset and liability management strategy.
The Bank is careful to increase deposits without adversely impacting the weighted average cost
of those funds. Accordingly, management has implemented funding strategies that include FHLBB
advances and repurchase agreement lines. These non-deposit funds are also viewed as a contingent
source of liquidity and, when profitable lending and investment opportunities exist, access to such
funds provides a means to leverage the balance sheet.
The Bank may choose to utilize interest rate swap agreements and interest rates caps and
floors to mitigate interest rate risk. An interest rate swap is an agreement whereby one party
agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving
a fixed rate of interest on the same notional amount for a predetermined period of time from a
second party. Interest rate caps and floors are agreements whereby one party agrees to pay a
floating rate of interest on a notional principal amount for a predetermined period of time to a
second party if certain market interest rate thresholds are realized. The amounts relating to the
notional principal amount are not actually exchanged. For additional information
regarding the Companys Derivatives Instruments, see Note 6 in Item 1 hereof.
Market Risk Market risk is the sensitivity of income to changes in interest rates, foreign
exchange rates, commodity prices and other market-driven rates or prices. The Company has no
trading operations, with the exception of accounts managed by the Companys investment management
group within a trust to fund non-qualified executive retirement obligations and the Company has a
$3.2 million equities portfolio at September 30, 2010. The equity positions are comprised of a
fund whose objective is to invest in geographically specific private placement debt securities
designed to support underlying economic activities such as community development and affordable
housing.
60
Interest-rate risk is the most significant non-credit risk to which the Company is exposed.
Interest-rate risk is the sensitivity of income to changes in interest rates. Changes in
interest rates, as well as fluctuations in the level and duration of assets and liabilities,
affect net interest income, the Companys primary source of revenue. Interest-rate risk arises
directly from the Companys core banking activities. In addition to directly impacting net
interest income, changes in the level of interest rates can also affect the amount of loans
originated, the timing of cash flows on loans and securities and the fair value of securities and
derivatives as well as other effects.
The primary goal of interest-rate risk management is to manage this risk within limits
approved by the Board. These limits reflect the Companys tolerance for interest-rate risk over
both short-term and long-term horizons. The Company attempts to mitigate interest-rate risk by
identifying, quantifying and, where appropriate, hedging its exposure. The Company manages its
interest-rate exposure using a combination of on and off-balance sheet instruments, primarily fixed
rate portfolio securities, and interest rate swaps.
The Company quantifies its interest-rate exposures using net interest income simulation
models, as well as simpler gap analysis, and Economic Value of Equity analysis. Key assumptions in
these simulation analyses relate to behavior of interest rates and behavior of the Companys
deposit and loan customers. The most material assumptions relate to the prepayment of mortgage
assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of
non-maturity deposits (e.g. demand deposit accounts, negotiable order of withdrawal, savings, and
money market). The risk of prepayment tends to increase when interest rates fall. Since future
prepayment behavior of loan customers is uncertain, the resulting interest rate sensitivity of loan
assets cannot be determined exactly.
To mitigate these uncertainties, the Company gives careful attention to its assumptions. In
the case of prepayment of mortgage assets, assumptions are derived from published dealer median
prepayment estimates for comparable mortgage loans.
The Company manages the interest-rate risk inherent in its mortgage banking operations by
entering into forward sales contracts. An increase in market interest rates between the time the
Company commits to terms on a loan and the time the Company ultimately sells the loan in the
secondary market will have the effect of reducing the gain (or increasing the loss) the Company
records on the sale. The Company attempts to mitigate this risk by entering into forward sales
commitments in amounts sufficient to cover all closed loans and a majority of rate-locked loan
commitments.
The Companys policy on interest-rate risk simulation specifies that if interest rates were to
shift gradually up or down 200 basis points, estimated net interest income for the subsequent 12
months should decline by less than 6.0%. Given the unusually low rate environment at September 30,
2010 the Company assumed a 100 basis point decline in interest rates, for certain points of the
yield curve, in addition to the normal 200 basis point increase in rates. The Company was well
within policy limits at September 30, 2010 and 2009.
The following table sets forth the estimated effects on the Companys net interest income over a
12-month period following the indicated dates in the event of the indicated increases or decreases
in market interest rates:
61
Table 15 Interest Rate Sensitivity
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
2010 |
|
2009 |
|
200 Basis Point Rate Increase |
|
|
1.1 |
% |
|
|
(2.9 |
%) |
100 Basis Point Rate Decrease |
|
|
0.1 |
% |
|
|
0.2 |
% |
The results implied in the table above indicate estimated changes in simulated net
interest income for the subsequent 12 months assuming a gradual shift up in market rates of 200
basis points or down in market rates of 100 basis points across the entire yield curve. It should
be emphasized, however, that the results are dependent on material assumptions such as those
discussed above. For instance, asymmetrical rate behavior can have a material impact on the
simulation results. If competition for deposits forced the Company to raise rates on those
liabilities quicker than is assumed in the simulation analysis without a corresponding increase in
asset yields, net interest income may be negatively impacted. Alternatively, if the Company is
able to lag increases in deposit rates as loans re-price upward net interest income would be
positively impacted.
The most significant factors affecting market risk exposure of the Companys net interest
income during the third quarter of 2010 were (i) the shape of the U.S. Government securities and
interest rate swap yield curves, (ii) the level of U.S. prime interest rate and LIBOR rates, and
(iii) the level of rates being offered in the market for fixed rate financing.
The Companys earnings are not directly and materially impacted by movements in foreign
currency rates or commodity prices. Movements in equity prices may have an indirect but modest
impact on earnings by affecting the volume of activity or the amount of fees from
investment-related business lines, and directly by affecting the value at the Companys trading
portfolio. Also, declines in the value of certain debt securities may have an impact on earnings
if the decline is determined to be other-than-temporary and the security is considered impaired.
Liquidity Liquidity, as it pertains to the Company, is the ability to generate adequate
amounts of cash in the most economical way for the institution to meet its ongoing obligations to
pay deposit withdrawals and to fund loan commitments. The Companys primary sources of funds are
deposits, unused borrowing capacity, and the amortization, prepayment and maturities of loans and
securities.
The Bank utilizes its extensive branch network to access retail customers who provide a stable
base of in-market core deposits. These funds are principally comprised of demand deposits,
interest checking accounts, savings accounts, and money market accounts. Deposit levels are
greatly influenced by interest rates, economic conditions, and competitive factors. The Bank has
also established repurchase agreements with major brokerage firms as potential sources of
liquidity.
The parent of the Company, as a separately incorporated bank holding company, has no
significant operations other than serving as the sole stockholder of the Bank. Its
62
commitments and debt service requirement at September 30, 2010 consisted of $61.9 million in junior
subordinated debentures, including accrued interest.
The Company actively manages its liquidity position under the direction of the Asset/Liability
Management Committee. Periodic review under prescribed policies and procedures is intended to
ensure that the Company will maintain adequate levels of available funds. At September 30, 2010,
the Companys liquidity position was above policy guidelines. Management believes that the Bank
has adequate liquidity available to respond to current and anticipated liquidity demands.
Capital Resources and Dividends The Federal Reserve Board, the Federal Deposit Insurance
Corporation, and other regulatory agencies have established capital guidelines for banks and bank
holding companies. Risk-based capital guidelines issued by the federal regulatory agencies require
banks to meet a minimum Tier 1 risk-based capital ratio of 4.0% and a total risk-based capital
ratio of 8.0%. A minimum requirement of 4.0% Tier 1 leverage capital is also mandated.
The Companys and the Banks actual capital amounts and ratios are also presented in the
following table:
Table 16 Company and Banks Capital Amounts and Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well Capitalized |
|
|
|
|
|
|
|
|
|
|
For Capital |
|
Under Prompt Corrective |
|
|
Actual |
|
Adequacy Purposes |
|
Action Provisions |
|
|
Amount |
|
Ratio |
|
Amount |
|
|
|
|
|
Ratio |
|
Amount |
|
|
|
|
|
Ratio |
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands) |
Company: (Consolidated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets) |
|
$ |
433,092 |
|
|
|
12.47 |
% |
|
$ |
277,884 |
|
|
|
≥ |
|
|
|
8.0 |
% |
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
Tier 1 capital (to risk weighted assets) |
|
|
359,640 |
|
|
|
10.35 |
|
|
$ |
138,942 |
|
|
|
≥ |
|
|
|
4.0 |
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
Tier 1 capital (to average assets) |
|
|
359,640 |
|
|
|
7.99 |
|
|
|
180,086 |
|
|
|
≥ |
|
|
|
4.0 |
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets) |
|
$ |
417,396 |
|
|
|
11.96 |
% |
|
$ |
279,107 |
|
|
|
≥ |
|
|
|
8.0 |
% |
|
$ |
348,884 |
|
|
|
≥ |
|
|
|
10.0 |
% |
Tier 1 capital (to risk weighted assets) |
|
|
343,755 |
|
|
|
9.85 |
|
|
$ |
139,553 |
|
|
|
≥ |
|
|
|
4.0 |
|
|
$ |
209,330 |
|
|
|
≥ |
|
|
|
6.0 |
|
Tier 1 capital (to average assets) |
|
|
343,755 |
|
|
|
7.62 |
|
|
|
180,336 |
|
|
|
≥ |
|
|
|
4.0 |
|
|
|
225,420 |
|
|
|
≥ |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
Company: (Consolidated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets) |
|
$ |
412,674 |
|
|
|
11.92 |
% |
|
$ |
277,029 |
|
|
|
≥ |
|
|
|
8.0 |
% |
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
Tier 1 capital (to risk weighted assets) |
|
|
340,313 |
|
|
|
9.83 |
|
|
|
138,515 |
|
|
|
≥ |
|
|
|
4.0 |
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
Tier 1 capital (to average assets) |
|
|
340,313 |
|
|
|
7.87 |
|
|
|
172,897 |
|
|
|
≥ |
|
|
|
4.0 |
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets) |
|
$ |
398,890 |
|
|
|
11.49 |
% |
|
$ |
277,699 |
|
|
|
≥ |
|
|
|
8.0 |
% |
|
$ |
347,124 |
|
|
|
≥ |
|
|
|
10.0 |
% |
Tier 1 capital (to risk weighted assets) |
|
|
326,529 |
|
|
|
9.41 |
|
|
|
138,850 |
|
|
|
≥ |
|
|
|
4.0 |
|
|
|
208,275 |
|
|
|
≥ |
|
|
|
6.0 |
|
Tier 1 capital (to average assets) |
|
|
326,529 |
|
|
|
7.55 |
|
|
|
173,022 |
|
|
|
≥ |
|
|
|
4.0 |
|
|
|
216,278 |
|
|
|
≥ |
|
|
|
5.0 |
|
On September 16, 2010 the Companys Board of Directors declared a cash dividend of $0.18
per share, to stockholders of record as of the close of business on September 27, 2010. This
dividend was paid on October 8, 2010. On an annualized basis, the dividend payout ratio
63
amounted to
40.4%, based on net income available to the common shareholder of the trailing four quarters
earnings.
Off-Balance Sheet Arrangements There have been no material changes in off-balance sheet
financial instruments during the third quarter of 2010. Please refer to the 2009 Form 10-K for a
complete table of contractual obligations, commitments, contingencies and off-balance sheet
financial instruments.
Contractual Obligations, Commitments, and Contingencies There have been no material changes
in contractual obligations, commitments, or contingencies during the third quarter of 2010. Please
refer to the 2009 Form 10-K for a complete table of contractual obligations, commitments,
contingencies, and off-balance sheet financial instruments.
Regulatory Update Congress recently enacted the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Dodd-Frank Act). This new law will significantly change the current bank
regulatory structure and affect the lending, deposit, investment, trading and operating activities
of financial institutions and their holding companies. The Dodd-Frank Act requires various federal
agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous
studies and reports for Congress. The federal agencies are given significant discretion in drafting
the implementing rules and regulations, and consequently, many of the details and much of the
impact of the Dodd-Frank Act may not be known for many months or years.
Effective one year after the date of enactment is a provision of the Dodd-Frank Act that
eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses
to have interest bearing checking accounts. Depending on competitive responses, this significant
change to existing law could have an adverse impact on the Companys interest expense.
The Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation insurance
assessments. Assessments will now be based on the average consolidated total assets less tangible
equity capital of a financial institution. The Dodd-Frank Act also permanently increases the
maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000
per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have
unlimited deposit insurance through December 31, 2013.
The Dodd-Frank Act will require publicly traded companies to give stockholders a non-binding
vote on executive compensation and so-called golden parachute payments, and authorizes the
Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate
their own candidates using a companys proxy materials. The legislation also directs the Federal
Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company
executives, regardless of whether the company is publicly traded or not.
The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to
supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad
rule-making authority for a wide range of consumer protection laws that apply to all banks and
savings institutions, including the authority to prohibit unfair,
64
deceptive or abusive acts and
practices. Banks and savings institutions with $10 billion or less in assets will continue to be
examined for compliance with consumer laws by their primary bank regulators.
Our management is actively reviewing the provisions of the Dodd-Frank Act and assessing its
probable impact on our business, financial condition, and results of operations. However, the
ultimate effect of the Dodd-Frank Act on the financial services industry in general, and on us in
particular, is uncertain at this time.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information required by this Item 3 is included in Item 2 of Part I of this Form 10-Q,
entitled Managements Discussion and Analysis of Financial Condition and Results of Operations.
Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. The Company
carried out an evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer along with the Companys Chief
Financial Officer, of the effectiveness of the design and operation of the Companys disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the
Exchange Act. Based upon that evaluation, the Companys Chief Executive Officer along with the
Companys Chief Financial Officer concluded that the Companys disclosure controls and procedures
are effective as of the end of the period covered by this quarterly report.
Changes in Internal Controls over Financial Reporting. There were no changes in our internal
control over financial reporting that occurred through the third quarter of 2010 that have
materially affected or are reasonably likely to materially affect the Companys internal controls
over financial reporting.
Item 4T. Controls and Procedures N/A
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings other than routine legal proceedings
occurring in the ordinary course of business. Management believes that those routine legal
proceedings involve, in the aggregate, amounts that are immaterial to the Companys financial
condition and results of operations.
65
Item 1A. Risk Factors
As of the date of this report, there have been no material changes with regard to the Risk
Factors disclosed in Item 1A of our 2009 Annual Report on Form 10-K, which are incorporated herein
by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) (c) Not applicable.
Item 3. Defaults Upon Senior Securities None
Item 5. Other Information None
Item 6. Exhibits
Exhibits Index
|
|
|
No. |
|
Exhibit |
3.(i)
|
|
Restated Articles of Organization, as adopted May 20, 2010, incorporated by
reference to Form 8-K filed on May 24, 2010. |
|
|
|
3.(ii)
|
|
Amended and Restated Bylaws of the Company, incorporated by reference to Form 8-K
filed on May 24, 2010. |
|
|
|
4.1
|
|
Specimen Common Stock Certificate, incorporated by reference to Form 10-K for the
year ended December 31, 1992. |
|
|
|
4.2
|
|
Specimen preferred Stock Purchase Rights Certificate, incorporated by reference to
Form 8-A Registration Statement filed on November 5, 2001. |
|
|
|
4.3
|
|
Indenture of Registrant relating the Junior Subordinated Debt Securities issued to
Independent Capital Trust V is incorporated by reference to Form 10-K for the year
ended December 31, 2006 filed on February 28, 2007. |
|
|
|
4.4
|
|
Form of Certificate of Junior Subordinated Debt Security for Independent Capital
Trust V (included as Exhibit A to Exhibit 4.9) |
|
|
|
4.5
|
|
Amended and Restated Declaration of Trust for Independent Capital Trust V is
incorporated by reference to Form 10-K for the year ended December 31, 2006 filed
on February 28, 2007. |
|
|
|
4.6
|
|
Form of Capital Security Certificate for Independent Capital Trust V (included as
Exhibit A-1 to Exhibit 4.9). |
66
|
|
|
No. |
|
Exhibit |
4.7
|
|
Guarantee Agreement relating to Independent Capital Trust V is incorporated by
reference to Form 10-K for the year ended December 31, 2006 filed on February 28,
2007. |
|
|
|
4.8
|
|
Forms of Capital Securities Purchase Agreements for Independent Capital Trust V is
incorporated by reference to Form 10-K for the year ended December 31, 2006 filed
on February 28, 2007. |
|
|
|
4.9
|
|
Subordinated Debt Purchase Agreement between USB Capital Resources and Rockland
Trust Company dated as of August 27, 2008 is incorporated by reference to Form 8-K
filed on September 2, 2008. |
|
|
|
4.10
|
|
Rockland Trust Company Employee Savings, Profit Sharing and Stock Ownership Plan
incorporated by reference to Form S-8 filed on April 16, 2010. |
|
|
|
4.11
|
|
Independent Bank Corp. 2010 Dividend Reinvestment and Stock Purchase Plan
incorporated by reference to Form S-3 filed on August 24, 2010. |
|
|
|
10.1
|
|
Independent Bank Corp. 1996 Non-Employee Directors Stock Option Plan incorporated
by reference to Definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders filed on March 19, 1996. |
|
|
|
10.2
|
|
Independent Bank Corp. 1997 Employee Stock Option Plan incorporated by reference
to the Definitive Proxy Statement for the 1997 Annual Meeting of Stockholders
filed on March 20, 1997. |
|
|
|
10.3
|
|
Independent Bank Corp. 2005 Employee Stock Plan incorporated by reference to Form
S-8 filed on July 28, 2005. |
|
|
|
10.4
|
|
Renewal Rights Agreement dated as of September 14, 2000 by and between the Company
and Rockland Trust, as Rights Agent, is incorporated by reference to Form 8-K
filed on October 23, 2000. |
|
|
|
10.5
|
|
Independent Bank Corp. Deferred Compensation Program for Directors (restated as
amended as of December 1, 2000) is incorporated by reference to Form 10-K for the
year ended December 31, 2000. |
|
|
|
10.6
|
|
Master Securities Repurchase Agreement, incorporated by reference to Form S-1
Registration Statement filed on September 18, 1992. |
|
|
|
10.7
|
|
Revised employment agreements between Christopher Oddleifson, Raymond G.
Fuerschbach, Edward F. Jankowski, Jane L. Lundquist, Gerard F. Nadeau, Edward H.
Seksay, and Denis K. Sheahan and the Company and/or Rockland Trust and a Rockland
Trust Company amended and restated Supplemental Executive Retirement Plan dated
November 20, 2008 are incorporated by reference to Form 8-K filed on November 21,
2008. |
|
|
|
10.8
|
|
Specimen forms of stock option agreements for the Companys Chief Executive and
other executive officers are incorporated by reference to Form 8-K filed on
December 20, 2005. |
|
|
|
10.9
|
|
On-Site Outsourcing Agreement by and between Fidelity Information Services, Inc.
and Independent Bank Corp., effective as of November 1, 2004 is incorporated by
reference to Form 10-K for the year ended December 31, 2004 filed on March 4,
2005. Amendment to On-Site Outsourcing Agreement incorporated by reference to
Form 8-K filed on May 7, 2008. |
67
|
|
|
No. |
|
Exhibit |
10.10
|
|
New Markets Tax Credit program Allocation Agreement between the Community
Development Financial Institutions Fund of the United States Department of the
Treasury and Rockland Community Development with an Allocation Effective Date of
September 22, 2004 is incorporated by reference to Form 8-K filed on October 14,
2004. |
|
|
|
10.11
|
|
Independent Bank Corp. 2006 Non-Employee Director Stock Plan incorporated by
reference to Form S-8 filed on April 17, 2006. |
|
|
|
10.12
|
|
Independent Bank Corp. 2006 Stock Option Agreement for Non-Employee Director is
incorporated by reference to Form 10-Q filed on May 9, 2006. |
|
|
|
10.13
|
|
Independent Bank Corp. 2006 Restricted Stock Agreement for Non-Employee Director
is incorporated by reference to Form 10-Q filed on May 9, 2006. |
|
|
|
10.14
|
|
New Markets Tax Credit program Allocation Agreement between the Community
Development Financial Institutions Fund of the United States Department of the
Treasury and Rockland Community Development with an Allocation Effective Date of
January 9, 2007 is incorporated by reference to Form 10-K for the year ended
December 31, 2006 filed on February 28, 2007. |
|
|
|
10.15
|
|
New Markets Tax Credit program Allocation Agreement between the Community
Development Financial Institutions Fund of the United States Department of the
Treasury and Rockland Community Development with an Allocation Effective Date of
June 18, 2009 is incorporated by reference to the third quarter 2009 Form 10-Q. |
|
|
|
10.16
|
|
Item Processing and Other Services Agreement dated and effective as of July 1,
2010 by and between Fidelity Information Services, Inc. and Independent Bank Corp.
is incorporated by reference to Form 10-Q filed August 5, 2010. |
|
|
|
10.17
|
|
Independent Bank Corp. 2010 Non-employee Director Stock Plan, incorporated by
reference to Form 8-K filed May 24, 2010. |
|
|
|
10.18
|
|
Independent Bank Corp. 2010 Stock Option Agreement for Non-Employee Director,
incorporated by reference to
Form 8-K filed May 24, 2010. |
|
|
|
10.20
|
|
Independent Bank Corp. 2010 Restricted Stock Agreement for Non-Employee Director,
incorporated by reference to Form 8-K filed May 24, 2010. |
|
|
|
31.1
|
|
Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.* |
|
|
|
31.2
|
|
Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.* |
|
|
|
32.1
|
|
Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+ |
|
|
|
32.2
|
|
Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+ |
|
|
|
* |
|
Filed herewith |
|
+ |
|
Furnished herewith |
68
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INDEPENDENT BANK CORP.
(registrant)
|
|
|
|
|
|
|
|
Date: November 4, 2010 |
/s/ Christopher Oddleifson
|
|
|
Christopher Oddleifson |
|
|
President and
Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Date: November 4, 2010 |
/s/ Denis K. Sheahan
|
|
|
Denis K. Sheahan |
|
|
Chief Financial Officer
(Principal Financial Officer) |
|
|
INDEPENDENT BANK CORP.
(registrant)
69