WESTAMERICA BANCORPORATION - Quarter Report: 2011 March (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission file number: 001-9383

WESTAMERICA BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

CALIFORNIA (State or Other Jurisdiction of Incorporation or Organization)		94-2156203 (I.R.S. Employer Identification No.)

1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901
(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code (707) 863-6000

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 þ		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. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o		No þ

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

Title of Class		Shares outstanding as of April 26, 2011
Common Stock, No Par Value		28,878,053

 

 

TABLE OF CONTENTS

		Page
Forward Looking Statements			3
PART I — FINANCIAL INFORMATION
Item 1 Financial Statements			4
Notes to Unaudited Condensed Consolidated Financial Statements			8
Financial Summary			28
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3 Quantitative and Qualitative Disclosures about Market Risk			46
Item 4 Controls and Procedures			46
PART II — OTHER INFORMATION
Item 1 Legal Proceedings			46
Item 1A Risk Factors			47
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 3 Defaults upon Senior Securities			48
Item 4 Reserved			48
Item 5 Other Information			48
Item 6 Exhibits			48
Signatures			49
Exhibit Index			50
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 32.1 - Certification of Chief Executive Officer Required by 18 U.S.C. Section 1350
Exhibit 32.2 - Certification of Chief Financial Officer Required by 18 U.S.C. Section 1350
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains forward-looking statements about Westamerica Bancorporation for which it claims the protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or board of directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “projected”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

These forward-looking statements are based on Management’s current knowledge and belief and include information concerning the Company’s possible or assumed future financial condition and results of operations. A number of factors, some of which are beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated. These factors include but are not limited to (1) the length and severity of current and potential future difficulties in the national and California economies and the effects of federal government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired businesses; (5) economic uncertainty created by terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the national and regional economies; (6) changes in the interest rate environment; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including data processing system failures or fraud; (10) volatility of interest rate sensitive loans, deposits and investments; (11) asset/liability management risks and liquidity risks; (12) the effect of natural disasters, including earthquakes, fire, and other disasters, on the uninsured value of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values, and (13) changes in the securities markets. The Company undertakes no obligation to update any forward-looking statements in this report. The reader is directed to the Company’s annual report on Form 10-K for the year ended December 31, 2010, for further discussion of factors which could affect the Company’s business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report. The Company undertakes no obligation to update any forward-looking statements in this report.

PART I — FINANCIAL INFORMATION

Item 1		Financial Statements

WESTAMERICA BANCORPORATION

CONSOLIDATED BALANCE SHEETS
(unaudited)

		At March 31,				At December 31,
		2011				2010
		(In thousands)
Assets:
Cash and due from banks		$	348,157			$	338,793
Money market assets			342				392
Investment securities available for sale			741,603				671,484
Investment securities held to maturity, with fair values of:
$604,898 at March 31, 2011			591,923
$594,711 at December 31, 2010							580,728
Purchased covered loans			660,456				692,972
Purchased non-covered loans			187,203				199,571
Originated loans			1,986,976				2,029,541
Allowance for loan losses			(34,321	)			(35,636	)
Total loans			2,800,314				2,886,448
Non-covered other real estate owned			14,613				13,620
Covered other real estate owned			20,914				21,791
Premises and equipment, net			35,704				36,278
Identifiable intangibles, net			33,056				34,604
Goodwill			121,673				121,673
Interest receivable and other assets			229,130				225,713
Total Assets		$	4,937,429			$	4,931,524
Liabilities:
Deposits
Noninterest bearing deposits		$	1,476,590			$	1,454,663
Interest bearing deposits			2,663,783				2,678,298
Total deposits			4,140,373				4,132,961
Short-term borrowed funds			104,359				107,385
Federal Home Loan Bank advances			51,490				61,698
Debt financing and notes payable			26,108				26,363
Liability for interest, taxes and other expenses			64,184				57,830
Total Liabilities			4,386,514				4,386,237
Shareholders’ Equity:
Common stock (no par value), authorized — 150,000 shares
Issued and outstanding:
28,920 at March 31, 2011			379,142
29,090 at December 31, 2010							378,885
Deferred compensation			2,724				2,724
Accumulated other comprehensive income			2,526				159
Retained earnings			166,523				163,519
Total Shareholders’ Equity			550,915				545,287
Total Liabilities and Shareholders’ Equity		$	4,937,429			$	4,931,524

See accompanying notes to unaudited condensed consolidated financial statements.

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

		Three months ended
		March 31,
		2011				2010
		(In thousands,
		except per share data)
Interest and Fee Income:
Loans		$	41,363			$	44,702
Money market assets and funds sold			—				1
Investment securities available for sale			5,218				3,895
Investment securities held to maturity			5,913				7,405
Total Interest and Fee Income			52,494				56,003
Interest Expense:
Deposits			1,890				2,488
Short-term borrowed funds			62				537
Federal Home Loan Bank advances			151				84
Debt financing and notes payable			200				425
Total Interest Expense			2,303				3,534
Net Interest Income			50,191				52,469
Provision for Loan Losses			2,800				2,800
Net Interest Income After Provision For Loan Losses			47,391				49,669
Noninterest Income:
Service charges on deposit accounts			7,521				8,742
Merchant credit card			2,171				2,221
Debit card			1,201				1,174
ATM and interchange			935				891
Trust fees			493				381
Financial services commissions			29				149
Other			2,393				1,912
Total Noninterest Income			14,743				15,470
Noninterest Expense:
Salaries and related benefits			15,075				15,892
Occupancy			4,025				3,777
Outsourced data processing services			2,456				2,240
Amortization of identifiable intangibles			1,548				1,598
FDIC insurance assessments			1,220				1,320
Furniture and equipment			933				1,051
Professional fees			850				663
Courier service			843				907
Other			4,373				4,583
Total Noninterest Expense			31,323				32,031
Income Before Income Taxes			30,811				33,108
Provision for income taxes			8,429				9,532
Net Income		$	22,382			$	23,576
Average Common Shares Outstanding			29,021				29,228
Diluted Average Common Shares Outstanding			29,225				29,596
Per Common Share Data:
Basic earnings		$	0.77			$	0.81
Diluted earnings			0.77				0.80
Dividends paid			0.36				0.36

See accompanying notes to unaudited condensed consolidated financial statements.

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(unaudited)

		Common								Accumulated
		Shares				Common				Deferred				Comprehensive				Retained
		Outstanding				Stock				Compensation				Income				Earnings				Total
		(In thousands)
Balance, December 31, 2009			29,208			$	366,247			$	2,485			$	3,714			$	133,002			$	505,448
Comprehensive income
Net income for the period																			23,576				23,576
Other comprehensive income, net of tax:
Increase in net unrealized gains on securities available for sale															1,073								1,073
Post-retirement benefit transition obligation amortization															9								9
Total comprehensive income																							24,658
Exercise of stock options			85				3,697																3,697
Stock option tax benefits							259																259
Stock based compensation							360																360
Stock awarded to employees			1				49																49
Purchase and retirement of stock			(88	)			(1,115	)											(3,689	)			(4,804	)
Dividends																			(10,536	)			(10,536	)
Balance, March 31, 2010			29,206			$	369,497			$	2,485			$	4,796			$	142,353			$	519,131
Balance, December 31, 2010			29,090			$	378,885			$	2,724			$	159			$	163,519			$	545,287
Comprehensive income
Net income for the period																			22,382				22,382
Other comprehensive income, net of tax:
Increase in net unrealized gains on securities available for sale															2,358								2,358
Post-retirement benefit transition obligation amortization															9								9
Total comprehensive income																							24,749
Exercise of stock options			68				2,967																2,967
Stock option tax benefits							27																27
Stock based compensation							360																360
Stock awarded to employees			1				40																40
Purchase and retirement of stock			(239	)			(3,137	)											(8,902	)			(12,039	)
Dividends																			(10,476	)			(10,476	)
Balance, March 31, 2011			28,920			$	379,142			$	2,724			$	2,526			$	166,523			$	550,915

See accompanying notes to unaudited condensed consolidated financial statements.

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

		For the three months
		ended March 31,
		2011				2010
		(In thousands)
Operating Activities:
Net income		$	22,382			$	23,576
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			3,435				3,411
Loan loss provision			2,800				2,800
Net amortization of deferred loan (fees) cost			(107	)			70
(Increase) decrease in interest income receivable			(613	)			258
Increase in other assets			(2,559	)			(8,655	)
Increase in income taxes payable			8,238				12,593
Decrease in deferred taxes			219				—
Decrease in interest expense payable			(220	)			(66	)
(Decrease) increase in other liabilities			(1,069	)			1,108
Stock option compensation expense			360				360
Excess tax benefits from stock-based compensation			(27	)			(259	)
Gain on sale of other assets			(400	)			—
Loss (gain) on sale of property and equipment			5				(463	)
Originations of mortgage loans for resale			(90	)			—
Proceeds from sale of mortgage loans originated for resale			93				—
Net (gain) loss on sale of foreclosed assets			(106	)			352
Writedown of foreclosed assets			152				249
Net Cash Provided by Operating Activities			32,493				35,334
Investing Activities:
Net repayments of loans			78,875				89,819
Proceeds from FDIC loss-sharing agreement			855				19,863
Purchases of investment securities available for sale			(133,899	)			(53,537	)
Purchases of investment securities held to maturity			(28,909	)			—
Proceeds from maturity/calls of securities available for sale			57,159				22,621
Proceeds from maturity/calls of securities held to maturity			24,267				36,350
Proceeds from sale of FRB/FHLB* stock			447				2,763
Proceeds from sale of property acquired in satisfaction of debt			2,970				4,860
Purchases of property, plant and equipment			(177	)			(258	)
Proceeds from sale of property, plant and equipment			—				603
Net Cash Provided by Investing Activities			1,588				123,084
Financing Activities:
Net change in deposits			7,831				(164,280	)
Net change in short-term borrowings			(13,027	)			(90,660	)
Exercise of stock options/issurance of shares			2,967				3,697
Excess tax benefits from stock-based compensation			27				259
Retirement of common stock including repurchases			(12,039	)			(4,804	)
Common stock dividends paid			(10,476	)			(10,536	)
Net Cash Used in Financing Activities			(24,717	)			(266,324	)
Net Change In Cash and Due from Banks			9,364				(107,906	)
Cash and Due from Banks at Beginning of Period			338,793				361,135
Cash and Due from Banks at End of Period		$	348,157			$	253,229
Supplemental Cash Flow Disclosures:
Supplemental disclosure of noncash activities:
Loan collateral transferred to other real estate owned		$	3,652			$	6,092
Supplemental disclosure of cash flow activities:
Interest paid for the period			3,367				4,457
Income tax payments for the period			—				3,500

See accompanying notes to unaudited condensed consolidated financial statements.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three months ended March 31, 2011 and 2010 are not necessarily indicative of the results expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as well as other information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010

The Company has evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, the Company is not aware of any events or transactions that occurred subsequent to the balance sheet date but prior to filing that would require recognition or disclosure in its consolidated financial statements.

Note 2: Accounting Policies

The Company’s accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Certain amounts in prior periods have been reclassified to conform to the current presentation.

Nonmarketable Equity Securities. Nonmarketable equity securities include securities that are not publicly traded and securities acquired for various purposes, such as to meet regulatory requirements (for example, Federal Home Loan Bank stock). These securities are accounted for under the cost method and are included in other assets. The Company reviews those assets accounted for under the cost method at least quarterly for possible declines in value that are considered “other than temporary”. The Company’s review typically includes an analysis of the facts and circumstances of each investment, the expectations for the investment’s cash flows and capital needs, the viability of its business model and exit strategy. The asset value is reduced when a decline in value is considered to be other than temporary. The Company recognizes the estimated loss as a loss from equity investments in noninterest income.

Certain accounting policies underlying the preparation of these financial statements require Management to make estimates and judgments. These estimates and judgments may significantly affect reported amounts of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Management exercises judgment to estimate the appropriate level of the allowance for credit losses and the acquisition date fair value of purchased loans, which are discussed in the Company’s accounting policies.

As described in Note 3 below, Westamerica Bank (“Bank”) acquired assets and assumed liabilities of the former Sonoma Valley Bank on August 20, 2010. The acquired assets and assumed liabilities were measured at estimated fair values, as required by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations. Management made significant estimates and exercised significant judgment in accounting for the acquisition. Management judgmentally measured loan fair values based on loan file reviews (including borrower financial statements and tax returns), appraised collateral values, expected cash flows, and historical loss factors. Repossessed loan collateral was primarily valued based upon appraised collateral values. The Bank also recorded an identifiable intangible asset representing the value of the core deposit customer base of Sonoma Valley Bank based on Management’s evaluation of the cost of such deposits relative to alternative funding sources. In determining the value of the identifiable intangible asset, Management used significant estimates including average lives of depository accounts, future interest rate levels, the cost of servicing various depository products, and other significant estimates. Management used quoted market prices to determine the fair value of investment securities and FHLB advances.

The acquired assets of Sonoma Valley Bank include loans; such loans are not indemnified by the Federal Deposit Insurance Corporation (FDIC). However, on February 6, 2009, the Bank acquired loans in a business combination that are indemnified by the FDIC, as described in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Pursuant to acquisition accounting, the loans in each business combination were measured at their estimated fair value at the respective acquisition date. This method of measuring the carrying value of purchased loans differs from loans originated by the Company, and as such, the Company identifies purchased loans not indemnified by the FDIC as “Purchased Non-covered Loans” and purchased loans indemnified by the FDIC as “Purchased Covered Loans.”

Loans originated by the Company are measured at the principal amount outstanding, net of unearned discount and unamortized deferred fees and costs. These loans are identified as “Originated Loans.”

Recently Issued Accounting Standards

Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (Topic 310), was issued January 2011 deferring the new disclosure requirements (paragraphs 310-10-50-31 through 50-34 of the FASB Accounting Standards Codification) about troubled debt restructurings to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. As a result of the issuance of Update 2011-02, the provisions of Update 2011-01 are effective for the first interim or annual period beginning on or after June 15, 2011 or September 30, 2011 for the Company, and should be applied retrospectively to the beginning of the annual period of adoption. Management does not expect the adoption of the Update to have a material effect on the Company’s financial statements at the date of adoption.

FASB ASU 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, was issued April 2011 providing additional guidance for creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The provisions of this standard are effective for the first interim or annual period beginning on or after June 15, 2011 or September 2011 for the Company, and should be applied retrospectively to the beginning of the annual period of adoption. Management does not expect the adoption of the Update to have a material effect on the Company’s financial statements at the date of adoption.

Note 3: Acquisition

On August 20, 2010, the Bank purchased substantially all the assets and assumed substantially all the liabilities of Sonoma from the FDIC, as Receiver of Sonoma. Sonoma operated 3 commercial banking branches within Sonoma County, California. The FDIC took Sonoma under receivership upon Sonoma’s closure by the California Department of Financial Institutions at the close of business August 20, 2010. Westamerica Bank purchased substantially all of Sonoma’s net assets at a discount of $43 million and paid a $5 million deposit premium.

The Sonoma acquisition was accounted for under the purchase method of accounting in accordance with FASB ASC 805, Business Combinations. The statement of net assets acquired as of August 20, 2010 and the resulting bargain purchase gain are presented in the following table. The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. Fair values are preliminary and subject to refinement for up to one year after the closing date of a merger as information relative to closing date fair values becomes available. A “bargain purchase” gain totaling $178 thousand resulted from the acquisition and is included as a component of noninterest income on the statement of income. The amount of the gain is equal to the amount by which the fair value of assets purchased exceeded the fair value of liabilities assumed. Sonoma’s results of operations prior to the acquisition are not included in Westamerica’s statement of income.

Statement of Net Assets Acquired (at fair value)

		At
		August 20, 2010
		(In thousands)
Assets
Cash and due from banks		$	57,895
Money market assets			26,050
Securities			7,223
Loans			213,664
Other real estate owned			2,916
Core deposit intangible			5,270
Other assets			2,065
Total Assets		$	315,083
Liabilities
Deposits			252,563
Federal Home Loan Bank advances			61,872
Liabilities for interest and other expenses			470
Total Liabilities			314,905
Net assets acquired		$	178
Sonoma Valley Bank tangible shareholder’s equity		$	13,923
Adjustments to reflect assets acquired and liabilities assumed at fair value:
Cash payment from FDIC			21,270
Loans and leases, net			(34,562	)
Other real estate owned			(1,491	)
Other assets			(811	)
Core deposit intangible			5,270
Deposits			(1,233	)
Federal Home Loan Bank advances			(1,872	)
Other liabilities			(316	)
Gain on acquisition		$	178

Note 4: Investment Securities

The amortized cost, unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio as of March 31, 2011, follows:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
U.S. Treasury securities		$	3,550			$	—			$	(26	)		$	3,524
Securities of U.S. Government sponsored entities			178,380				187				(2,320	)			176,247
Residential mortgage-backed securities			105,476				3,643				(26	)			109,093
Commercial mortgage-backed securities			4,929				8				(13	)			4,924
Obligations of States and political subdivisions			285,627				2,623				(4,128	)			284,122
Residential collateralized mortgage obligations			57,534				1,146				(241	)			58,439
Asset-backed securities			8,701				—				(392	)			8,309
FHLMC and FNMA stock			824				1,979				(4	)			2,799
Corporate securities			89,274				329				(249	)			89,354
Other securities			2,532				2,330				(70	)			4,792
Total		$	736,827			$	12,245			$	(7,469	)		$	741,603

The amortized cost, unrealized gains and losses, and fair value of the held to maturity investment securities portfolio as of March 31, 2011, follows:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
Residential mortgage-backed securities		$	37,232			$	1,724			$	—			$	38,956
Obligations of States and political subdivisions			478,904				12,801				(1,495	)			490,210
Residential collateralized mortgage obligations			75,787				2,073				(2,128	)			75,732
Total		$	591,923			$	16,598			$	(3,623	)		$	604,898

The amortized cost, unrealized gains and losses accumulated in other comprehensive income, and fair value of the available for sale investment securities portfolio as of December 31, 2010, follows:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
U.S. Treasury securities		$	3,554			$	—			$	(12	)		$	3,542
Securities of U.S. Government sponsored entities			175,080				162				(2,365	)			172,877
Residential mortgage-backed securities			105,702				4,142				(15	)			109,829
Commercial mortgage-backed securities			5,081				7				(23	)			5,065
Obligations of States and political subdivisions			264,757				2,423				(6,047	)			261,133
Residential collateralized mortgage obligations			24,709				894				—				25,603
Asset-backed securities			9,060				—				(774	)			8,286
FHLMC and FNMA stock			824				42				(211	)			655
Corporate securities			79,356				200				(365	)			79,191
Other securities			2,655				2,699				(51	)			5,303
Total		$	670,778			$	10,569			$	(9,863	)		$	671,484

The amortized cost, unrealized gains and losses, and fair value of the held to maturity investment securities portfolio as of December 31, 2010 follows:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
Residential mortgage-backed securities		$	40,531			$	1,797			$	—			$	42,328
Obligations of States and political subdivisions			455,372				13,142				(1,142	)			467,372
Residential collateralized mortgage obligations			84,825				2,198				(2,012	)			85,011
Total		$	580,728			$	17,137			$	(3,154	)		$	594,711

The amortized cost and fair value of securities as of March 31, 2011, by contractual maturity, are shown in the following table:

		Securities Available								Securities Held
		for Sale								to Maturity
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
		(In thousands)
Maturity in years:
1 year or less		$	21,109			$	21,163			$	6,607			$	6,671
Over 1 to 5 years			328,487				327,399				104,845				107,858
Over 5 to 10 years			65,941				65,990				342,876				351,252
Over 10 years			149,995				147,004				24,576				24,429
Subtotal			565,532				561,556				478,904				490,210
Mortgage-backed securities and residential collateralized mortgage obligations			167,939				172,456				113,019				114,688
Other securities			3,356				7,591				—				—
Total		$	736,827			$	741,603			$	591,923			$	604,898

The amortized cost and fair value of securities as of December 31, 2010, by contractual maturity, are shown in the following table:

		Securities Available								Securities Held
		for Sale								to Maturity
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
		(In thousands)
Maturity in years:
1 year or less		$	21,362			$	21,460			$	6,057			$	6,103
Over 1 to 5 years			315,777				314,605				92,837				95,608
Over 5 to 10 years			64,565				64,804				351,407				360,602
Over 10 years			130,103				124,160				5,071				5,059
Subtotal			531,807				525,029				455,372				467,372
Mortgage-backed securities and residential collateralized mortgage obligations			135,492				140,497				125,356				127,339
Other securities			3,479				5,958				—				—
Total		$	670,778			$	671,484			$	580,728			$	594,711

Expected maturities of mortgage-backed securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-backed securities.

An analysis of gross unrealized losses of the available for sale investment securities portfolio as of March 31, 2011, follows:

		Less than 12 months								12 months or longer								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(In thousands)
U.S. Treasury securities		$	3,524			$	(26	)		$	—			$	—			$	3,524			$	(26	)
Securities of U.S. Government sponsored entities			130,220				(2,320	)			—				—				130,220				(2,320	)
Residential mortgage-backed securities			986				(26	)			—				—				986				(26	)
Commercial mortgage-backed securities			—				—				2,995				(13	)			2,995				(13	)
Obligations of States and political subdivisions			115,634				(3,517	)			13,371				(611	)			129,005				(4,128	)
Residential collateralized mortgage obligations			15,651				(241	)			—				—				15,651				(241	)
Asset-backed securities			—				—				8,309				(392	)			8,309				(392	)
FHLMC and FNMA stock			—				—				2				(4	)			2				(4	)
Corporate securities			44,806				(249	)			—				—				44,806				(249	)
Other securities			—				—				1,930				(70	)			1,930				(70	)
Total		$	310,821			$	(6,379	)		$	26,607			$	(1,090	)		$	337,428			$	(7,469	)

An analysis of gross unrealized losses of the held to maturity investment securities portfolio as of March 31, 2011, follows:

		Less than 12 months								12 months or longer								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(In thousands)
Obligations of States and political subdivisions		$	50,394			$	(1,003	)		$	10,271			$	(492	)		$	60,665			$	(1,495	)
Residential collateralized mortgage obligations			—				—				17,743				(2,128	)			17,743				(2,128	)
Total		$	50,394			$	(1,003	)		$	28,014			$	(2,620	)		$	78,408			$	(3,623	)

The unrealized losses on the Company’s investments in collateralized mortgage obligations and asset backed securities were caused by market conditions for these types of investments. The Company evaluates these securities on a quarterly basis including changes in security ratings issued by rating agencies, delinquency and loss information with respect to the underlying collateral, changes in the levels of subordination for the Company’s particular position within the repayment structure, and remaining credit enhancement as compared to expected credit losses of the security. Substantially all of these securities continue to be AAA rated by one or more major rating agencies.

The unrealized losses on the Company’s investments in obligations of states and political subdivisions were caused by conditions in the municipal securities market. The Company’s investments in obligations of states and political subdivisions primarily finance essential community services such as school districts, water delivery systems, hospitals and fire protection services. Further, these bonds are primarily “bank qualified” issues whereby the issuing authority’s total debt issued in any one year does not exceed $30 million, thereby qualifying the bonds for tax-exempt status for federal income tax purposes. Therefore, “bank qualified” bonds are relatively small in amount providing a high degree of diversification within the Company’s investment portfolio. The Company evaluates these securities quarterly to determine if a change in security rating has occurred or the municipality has experienced financial difficulties. Substantially all of these securities continue to be investment grade rated.

The Company does not intend to sell any investments and has concluded that it is more likely than not that it will not be required to sell the investments prior to recovery of the amortized cost basis. Therefore, the Company does not consider these investments to be other-than-temporarily impaired as of March 31, 2011.

The fair values of the investment securities could decline in the future if the general economy deteriorates, credit ratings decline, or the liquidity for securities is low. As a result, other than temporary impairments may occur in the future.

An analysis of gross unrealized losses of the available for sale investment securities portfolio as of December 31, 2010, follows:

		Less than 12 months								12 months or longer								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(In thousands)
U.S. Treasury securities		$	3,542			$	(12	)		$	—			$	—			$	3,542			$	(12	)
Securities of U.S. Government sponsored entities			146,083				(2,365	)			—				—				146,083				(2,365	)
Residential mortgage-backed securities			1,534				(15	)			—				—				1,534				(15	)
Commercial mortgage-backed securities			3,028				(23	)			—				—				3,028				(23	)
Obligations of States and political subdivisions			132,014				(5,505	)			10,341				(542	)			142,355				(6,047	)
Asset-backed securities			—				—				8,286				(774	)			8,286				(774	)
FHLMC and FNMA stock			550				(211	)			—				—				550				(211	)
Corporate securities			44,752				(365	)			—				—				44,752				(365	)
Other securities			1				—				1,948				(51	)			1,949				(51	)
Total		$	331,504			$	(8,496	)		$	20,575			$	(1,367	)		$	352,079			$	(9,863	)

An analysis of gross unrealized losses of the held to maturity investment securities portfolio as of December 31, 2010, follows:

		Less than 12 months								12 months or longer								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(In thousands)
Obligations of States and political subdivisions		$	22,157			$	(382	)		$	18,663			$	(760	)		$	40,820			$	(1,142	)
Residential collateralized mortgage obligations			—				—				20,182				(2,012	)			20,182				(2,012	)
Total		$	22,157			$	(382	)		$	38,845			$	(2,772	)		$	61,002			$	(3,154	)

Note 5: Loans and Allowance for Credit Losses

A summary of the major categories of originated loans outstanding is shown in the following table:

		At March 31,				At December 31,
		2011				2010
		(In thousands)
Originated loans:
Commercial		$	450,492			$	474,183
Commercial real estate			746,219				757,140
Construction			24,270				26,145
Residential real estate			299,884				310,196
Consumer installment & other			466,111				461,877
Total		$	1,986,976			$	2,029,541

The carrying amount of purchased covered loans, consisting of impaired and non impaired purchased covered loans, is shown in the following table.

		As of March 31, 2011												As of December 31, 2010
		Impaired				Non Impaired								Impaired				Non Impaired
		Purchased				Purchased				Total Purchased				Purchased				Purchased				Total Purchased
		Covered Loans				Covered Loans				Covered Loans				Covered Loans				Covered Loans				Covered Loans
		(In thousands)												(In thousands)
Purchased covered loans:
Commercial		$	9,978			$	143,266			$	153,244			$	10,014			$	158,971			$	168,985
Commercial real estate			14,056				367,589				381,645				14,079				376,603				390,682
Construction			8,314				18,844				27,158				9,073				19,307				28,380
Residential real estate			138				14,437				14,575				138				18,236				18,374
Consumer installment & other			247				83,587				83,834				252				86,299				86,551
Total		$	32,733			$	627,723			$	660,456			$	33,556			$	659,416			$	692,972

Changes in the carrying amount of impaired purchased covered loans were as follows:

		Quarter ended				Year ended
		March 31, 2011				December 31, 2010
		(In thousands)
Carrying amount at the beginning of the period		$	33,556			$	43,196
Reductions during the period			(823	)			(9,640	)
Carrying amount at the end of the period		$	32,733			$	33,556

Impaired purchased covered loans had an unpaid principal balance (less prior charge-offs) of $44 million and $48 million at March 31, 2011 and December 31, 2010, respectively.

The carrying amounts of the purchased non-covered loans, consisting of impaired and non impaired purchased non-covered loans, are shown in the following table. Re-classification of some purchased non-covered loans occurred in the first quarter 2011 upon conversion of such loans to the Company’s accounting systems.

		At March 31, 2011												At December 31, 2010
		Impaired				Non Impaired				Total Purchased				Impaired				Non Impaired				Total Purchased
		Purchased Non-				Purchased Non-				Non-covered				Purchased Non-				Purchased Non-				Non-covered
		covered Loans				covered Loans				Loans				covered Loans				covered Loans				Loans
		(In thousands)												(In thousands)
Purchased non-covered loans:
Commercial		$	1,946			$	16,837			$	18,783			$	415			$	15,005			$	15,420
Commercial real estate			21,649				91,301				112,950				22,988				99,900				122,888
Construction			5,164				14,457				19,621				6,514				15,106				21,620
Residential real estate			311				5,996				6,307				311				6,744				7,055
Consumer installment & other			1,256				28,286				29,542				1,790				30,798				32,588
Total		$	30,326			$	156,877			$	187,203			$	32,018			$	167,553			$	199,571

The following table represents the non impaired purchased non-covered loans receivable at the acquisition date of August 20, 2010. The amounts include principal only and do not reflect accrued interest as of the date of acquisition or beyond (in thousands):

Gross contractual loan principal payment receivable		$	188,206
Estimate of contractual principal not expected to be collected			(15,058	)
Fair value of non impaired purchased loans receivable		$	175,922

The Company applied the cost recovery method to impaired purchased non-covered loans at the acquisition date of August 20, 2010 due to the uncertainty as to the timing of expected cash flows as reflected in the following table (in thousands):

Contractually required payments receivable (including interest)		$	70,882
Nonaccretable difference			(33,140	)
Cash flows expected to be collected			37,742
Accretable difference			—
Fair value of loans acquired		$	37,742

Changes in the carrying amount of impaired purchased non-covered loans were as follows for the periods indicated below from August 20, 2010 (acquisition date) through March 31, 2011 (in thousands):

						August 20, 2010
		Quarter ended				through
		March 31, 2011				December 31, 2010
		(In thousands)
Carrying amount at the beginning of the period		$	32,018			$	37,742
Reductions during the period			(1,692	)			(5,724	)
Carrying amount at the end of the period		$	30,326			$	32,018

Impaired purchased non-covered loans had an unpaid principal balance (less prior charge-offs) of $48 million, $51 million and $60 million at March 31, 2011, December 31, 2010 and August 20, 2010, respectively.

The following summarizes activity in the allowance for credit losses:

		Allowance for Credit Losses
		For the Quarter Ended March 31, 2011
						Commercial								Residential
		Commercial				Real Estate				Construction				Real Estate				Consumer				Unallocated				Total
		(In thousands)
Allowance for credit losses:
Beginning balance		$	9,878			$	9,607			$	3,559			$	617			$	6,982			$	7,686			$	38,329
Charge-offs			(1,324	)			—				(1,475	)			(308	)			(2,136	)			—				(5,243	)
Recoveries			200				—				—				—				928				—				1,128
Provision			1,093				752				346				68				(1,177	)			1,718				2,800
Ending balance		$	9,847			$	10,359			$	2,430			$	377			$	4,597			$	9,404			$	37,014
Components:
Allowance for loan losses		$	7,816			$	10,355			$	2,260			$	377			$	4,458			$	9,055			$	34,321
Liability for off-balance sheet credit exposure			2,031				4				170				—				139				349				2,693
Total		$	9,847			$	10,359			$	2,430			$	377			$	4,597			$	9,404			$	37,014
Ending balance: individually evaluated for impairment		$	—			$	—			$	149			$	—			$	—			$	—			$	149
Ending balance: collectively evaluated for impairment		$	9,847			$	10,359			$	2,281			$	377			$	4,597			$	9,404			$	36,865
Ending balance: loans acquired with deteriorated quality		$	—			$	—			$	—			$	—			$	—			$	—			$	—