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EX-32 - EXHIBIT 32 - TRUSTCO BANK CORP N Yex32.htm
EX-15 - EXHIBIT 15 - TRUSTCO BANK CORP N Yex15.htm
EX-31.B - EXHIBIT 31(B) - TRUSTCO BANK CORP N Yex31b.htm
EX-31.A - EXHIBIT 31(A) - TRUSTCO BANK CORP N Yex31a.htm


UNITED STATES
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
Commission File Number 0-10592
June 30, 2010
 

TRUSTCO BANK CORP NY
(Exact name of registrant as specified in its charter)

NEW YORK
14-1630287
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

5 SARNOWSKI DRIVE, GLENVILLE, NEW YORK
12302
(Address of principal executive offices)
(Zip Code)
 
Registrant's telephone number, including area code:    (518) 377-3311
 
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.
xYes    o No

Indicate  by check mark whether the registrant has submitted electronically and  posted  on  its  corporate  Web  site,  if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 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.
xYes    o No

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

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


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

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

     
Number of Shares Outstanding
 
 
Common Stock
 
as of July 31, 2010
 
 
$1 Par Value
 
76,998,654
 
 


 
1

 


INDEX


Part I.
FINANCIAL INFORMATION
PAGE NO.
       
Item 1.
 
 
       
   
3
       
   
4
       
   
5
       
   
6
       
   
7 – 20
       
   
21
       
Item 2.
 
22 - 36
       
Item 3.
 
37
       
Item 4.
 
37
       
Part II.
OTHER INFORMATION
   
       
Item 1.
 
38
       
Item 1A.
 
38 - 39
       
Item 2.
 
39
       
Item 3.
 
39
       
Item 4.
 
39
       
Item 5.
 
39
       
Item 6.
 
40

 
2


Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share data)


   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
 
   
 
   
 
   
 
 
Interest and dividend income:
 
 
   
 
   
 
   
 
 
Interest and fees on loans
  $ 31,976       31,094       63,729       62,285  
Interest and dividends on securities available for sale:
                               
U. S. treasuries and government sponsored enterprises
    3,588       1,211       7,185       2,637  
States and political subdivisions
    891       1,097       1,846       2,205  
Mortgage-backed securities and collateralized mortgage obligations
    944       1,535       2,114       3,162  
Corporate bonds
    1,105       -       2,151       -  
Other securities
    64       107       182       144  
Total interest and dividends on securities available for sale
    6,592       3,950       13,478       8,148  
                                 
Interest on trading securities:
                               
U. S. government sponsored enterprises
    -       37       -       405  
States and political subdivisions
    -       8       -       16  
Total interest on trading securities
    -       45       -       421  
                                 
Interest on held to maturity securities:
                               
U. S. government sponsored enterprises
    50       2,144       487       3,846  
Mortgage-backed securities
    1,455       1,149       2,700       1,610  
Corporate bonds
    802       777       1,645       1,397  
Total interest on held to maturity securities
    2,307       4,070       4,832       6,853  
                                 
Interest on federal funds sold and other short term investments
    228       622       392       1,140  
Total interest income
    41,103       39,781       82,431       78,847  
                                 
Interest expense:
                               
Interest on deposits:
                               
Interest-bearing checking
    172       199       341       373  
Savings
    857       750       1,666       1,501  
Money market deposit accounts
    1,342       1,077       2,621       2,060  
Time deposits
    6,432       10,170       13,251       22,405  
Interest on short-term borrowings
    455       340       911       805  
Total interest expense
    9,258       12,536       18,790       27,144  
                                 
Net interest income
    31,845       27,245       63,641       51,703  
Provision for loan losses
    7,100       2,760       11,800       4,760  
Net interest income after provision for loan losses
    24,745       24,485       51,841       46,943  
                                 
Noninterest income:
                               
Trust department income
    1,176       1,085       2,537       2,591  
Fees for other services to customers
    2,646       2,580       4,939       5,246  
Net trading losses
    -       (36 )     -       (344 )
Net gain (loss) on securities transactions
    1,537       (41 )     1,541       70  
Other
    292       331       498       1,701  
Total noninterest income
    5,651       3,919       9,515       9,264  
                                 
Noninterest expenses:
                               
Salaries and employee benefits
    6,556       6,411       13,290       13,209  
Net occupancy expense
    3,511       3,430       7,012       7,074  
Equipment expense
    1,464       1,240       2,884       2,384  
Professional services
    1,565       1,280       2,968       2,660  
Outsourced services
    1,418       1,347       2,839       2,815  
Advertising
    796       831       1,322       1,606  
Insurance
    1,535       3,336       3,057       4,710  
Other real estate expense, net
    794       639       2,747       769  
Other
    1,596       1,844       3,205       3,612  
Total noninterest expenses
    19,235       20,358       39,324       38,839  
                                 
Income before taxes
    11,161       8,046       22,032       17,368  
Income taxes
    4,037       2,666       7,973       5,639  
                                 
Net income
  $ 7,124       5,380       14,059       11,729  
                                 
Net income per Common Share:
                               
- Basic
  $ 0.093       0.070       0.183       0.154  
                                 
- Diluted
  $ 0.093       0.070       0.183       0.154  
                                 
See accompanying notes to unaudited consolidated interim financial statements.
 

 
3


TRUSTCO BANK CORP NY
Consolidated Statements of Financial Condition (Unaudited)
(dollars in thousands, except per share data)


   
June 30, 2010
   
December 31, 2009
 
ASSETS:
           
             
Cash and due from banks
  $ 39,850       45,258  
                 
Federal funds sold and other short term investments
    501,957       100,636  
Total cash and cash equivalents
    541,807       145,894  
                 
Securities available for sale:
               
U. S. government sponsored enterprises
    472,920       523,483  
States and political subdivisions
    80,806       93,215  
Mortgage-backed securities and collateralized mortgage obligations
    24,165       104,901  
Corporate bonds
    84,476       81,445  
Other securities
    7,870       7,321  
Total securities available for sale
    670,237       810,365  
                 
Held to maturity securities:
               
U. S. government sponsored enterprises (fair value 2010 $0; 2009 $99,179)
    -       99,251  
Mortgage-backed securities (fair value 2010 $159,525; 2009 $198,601)
    152,920       196,379  
Corporate bonds (fair value 2010 $71,914; 2009 $81,782)
    69,152       79,241  
Total held to maturity securities
    222,072       374,871  
                 
Loans:
               
Commercial
    258,214       278,236  
Residential mortgage loans
    1,782,410       1,721,157  
Home equity line of credit
    285,123       277,306  
Installment loans
    4,477       4,837  
Total loans
    2,330,224       2,281,536  
Less:
               
Allowance for loan losses
    39,231       37,591  
Net loans
    2,290,993       2,243,945  
                 
Bank premises and equipment, net
    37,230       37,793  
Other assets
    66,565       67,029  
                 
Total assets
  $ 3,828,904       3,679,897  
                 
LIABILITIES:
               
Deposits:
               
Demand
  $ 258,215       258,759  
Interest-bearing checking
    421,705       405,383  
Savings accounts
    711,580       665,463  
Money market deposit accounts
    513,920       393,779  
Certificates of deposit (in denominations of $100,000 or more)
    464,811       486,190  
Other time accounts
    1,066,303       1,095,586  
Total deposits
    3,436,534       3,305,160  
                 
Short-term borrowings
    116,669       107,728  
Accrued expenses and other liabilities
    20,512       21,331  
                 
Total liabilities
    3,573,715       3,434,219  
                 
SHAREHOLDERS' EQUITY:
               
Capital stock par value $1; 150,000,000 shares authorized and 83,166,423 shares issued at June 30, 2010 and December 31, 2009, respectively
    83,166       83,166  
Surplus
    127,987       128,681  
Undivided profits
    103,647       99,190  
Accumulated other comprehensive income (loss), net of tax
    2,284       (1,282 )
Treasury stock at cost - 6,293,169 and  6,514,994 shares at June 30, 2010 and December 31, 2009, respectively
    (61,895 )     (64,077 )
                 
Total shareholders' equity
    255,189       245,678  
                 
Total liabilities and shareholders' equity
  $ 3,828,904       3,679,897  
                 
See accompanying notes to unaudited consolidated interim financial statements.
 

 
4


Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
(dollars in thousands, except per share data)


   
Capital
Stock
   
Surplus
   
Undivided
Profits
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Comprehensive
Income
   
Treasury
Stock
   
Total
 
                                           
                                           
Beginning balance, January 1, 2009
  $ 83,166       130,142       93,818       (1,441 )           (69,661 )     236,024  
Comprehensive income:
                                                     
Net Income - Six Months Ended June 30, 2009
    -       -       11,729       -       11,729       -       11,729  
Other comprehensive income, net of tax:
                                                       
Amortization of prior service cost on pension and post retirement plans, net of tax (pretax cost of $202)
    -       -       -       -       (122 )     -       -  
Unrealized net holding gain on securities available-for-sale arising during the period, net of tax (pretax gain of $1,822)
    -       -       -       -       1,029       -       -  
Reclassification adjustment for net gain realized in net income during the year (pretax gain of $70)
    -       -       -       -       25       -       -  
Other comprehensive income, net of tax:
                            932       932               932  
Comprehensive income
    -       -       -               12,661       -       -  
Cash dividend declared, $.1725 per share
    -       -       (13,160 )     -               -       (13,160 )
Sale of treasury stock (337,509 shares)
    -       (818 )     -       -               3,321       2,503  
Stock based compensation expense
    -       107       -       -               -       107  
                                                         
Ending balance, June 30, 2009
  $ 83,166       129,431       92,387       (509 )             (66,340 )     238,135  
                                                         
Beginning balance, January 1, 2010
  $ 83,166       128,681       99,190       (1,282 )             (64,077 )     245,678  
Comprehensive income:
                                                       
Net Income - Six Months Ended June 30, 2010
    -       -       14,059       -       14,059       -       14,059  
Other comprehensive income, net of tax:
                                                       
Amortization of prior service cost on pension and post retirement plans, net of tax (pretax of $202)
    -       -       -       -       (122 )     -       -  
Unrealized net holding gain on securities available-for-sale arising during the period, net of tax (pretax gain of $7,674)
    -       -       -       -       4,617       -       -  
Reclassification adjustment for net gain realized in net income during the year (pretax gain $1,541)
    -       -       -       -       (929 )     -       -  
Other comprehensive income, net of tax:
                            3,566       3,566               3,566  
Comprehensive income
    -       -       -               17,625       -       -  
Cash dividend declared, $.125 per share
    -       -       (9,602 )     -               -       (9,602 )
Sale of treasury stock (221,825 shares)
    -       (783 )     -       -               2,182       1,399  
Stock based compensation expense
    -       89       -       -               -       89  
                                                         
Ending balance, June 30, 2010
  $ 83,166       127,987       103,647       2,284               (61,895 )     255,189  
                                                         
                                                         
See accompanying notes to unaudited consolidated interim financial statements.
 
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
 
 
   
Six months ended June 30,
 
   
2010
   
2009
 
             
             
             
Cash flows from operating activities:
           
Net income
  $ 14,059       11,729  
                 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    2,332       2,190  
Loss on sale of other real estate owned
    530       317  
Provision for loan losses
    11,800       4,760  
Deferred tax expense
    667       421  
Stock based compensation expense
    89       107  
Net loss (gain) on sale of bank premises and equipment
    39       (49 )
Net gain on sales and calls of securities
    (1,541 )     (70 )
Proceeds from sales and calls of trading securities
    -       24,936  
Proceeds from maturities of trading securities
    -       90,000  
Net trading losses
    -       344  
Increase in taxes receivable
    (10,084 )     (9,034 )
Decrease in interest receivable
    2,371       1,785  
Decrease in interest payable
    (303 )     (993 )
Decrease in other assets
    1,325       40  
Increase (decrease) in accrued expenses and other liabilities
    (530 )     1,475  
Total adjustments
    6,695       116,229  
Net cash provided by operating activities
    20,754       127,958  
                 
Cash flows from investing activities:
               
                 
Proceeds from sales and calls of securities available for sale
    649,747       393,489  
Proceeds from calls and maturities of held to maturity securities
    152,549       334,384  
Purchases of securities available for sale
    (510,553 )     (275,299 )
Proceeds from maturities of securities available for sale
    8,858       7,150  
Purchases of held to maturity securities
    -       (661,518 )
Net increase in loans
    (63,276 )     (35,795 )
Proceeds from dispositions of other real estate owned
    7,516       1,705  
Proceeds from dispositions of bank premises and equipment
    -       141  
Purchases of bank premises and equipment
    (1,808 )     (4,514 )
Net cash provided by (used in) investing activities
    243,033       (240,257 )
                 
                 
Cash flows from financing activities:
               
                 
Net increase in deposits
    131,374       97,918  
Net increase (decrease) in short-term borrowings
    8,941       (24,014 )
Proceeds from sale of treasury stock
    1,399       2,503  
Dividends paid
    (9,588 )     (16,753 )
Net cash provided by financing activities
    132,126       59,654  
Net increase (decrease) in cash and cash equivalents
    395,913       (52,645 )
Cash and cash equivalents at beginning of period
    145,894       249,604  
Cash and cash equivalents at end of period
  $ 541,807     $ 196,959  
                 
                 
Supplemental Disclosure of Cash Flow Information:
               
Cash paid during the year for:
               
Interest paid
  $ 19,093     $ 28,137  
Income taxes paid
    18,057       14,636  
Other non cash items:
               
Increase in due to broker
    -       5,000  
Transfer of loans to other real estate owned
    4,428       7,018  
Increase (decrease) in dividends payable
    14       (3,593 )
Change in unrealized gain on securities available for sale-gross of deferred taxes
    6,133       1,751  
Change in deferred tax effect on unrealized gain on securities available for sale
    (2,445 )     (697 )
Amortization of prior service cost on pension and post retirement plans
    (202 )     (202 )
Change in deferred tax effect of amortization of prior service cost
    80       80  
                 
                 
See accompanying notes to unaudited consolidated financial statements.
               

 
6

 
Notes to Consolidated Interim Financial Statements
(Unaudited)

1.
Financial Statement Presentation
The unaudited Consolidated Interim Financial Statements of TrustCo Bank Corp NY (the Company) include the accounts of the subsidiaries after elimination of all significant intercompany accounts and transactions.  Prior period amounts are reclassified when necessary to conform to the current period presentation.  The net income reported for the three months and six months ended June 30, 2010 is not necessarily indicative of the results that may be expected for the year ending December 31, 2010, or any interim periods.  These financial statements consider events that occurred through the date of filing.

In the opinion of the management of the Company, the accompanying unaudited Consolidated Interim Financial Statements contain all adjustments necessary to present fairly the financial position as of June 30, 2010 and the results of operations for the three and six months ended June 30, 2010 and 2009 and cash flows for the six months ended June 30, 2010 and 2009.  The accompanying Consolidated Interim Financial Statements should be read in conjunction with the TrustCo Bank Corp NY year-end Consolidated Financial Statements, including notes thereto, which are included in TrustCo Bank Corp NY's 2009 Annual Report to Shareholders on Form 10-K.

2.
Earnings Per Share
A reconciliation of the component parts of earnings per share (EPS) for the three month and six month periods ended June 30, 2010 and 2009 follows:

(dollars in thousands,
except per share data)
 
Income
   
Weighted
Average Shares
Outstanding
   
Per Share
Amounts
 
For the quarter ended June 30, 2010:
                 
Basic EPS:
                 
Income available to common shareholders
  $ 7,124       76,649     $ 0.093  
Effect of Dilutive Securities:
                       
Stock Options
    -       -       -  
Diluted EPS
  $ 7,124       76,649     $ 0.093  
                         
For the quarter ended June 30, 2009:
                       
Basic EPS:
                       
Income available to common shareholders
  $ 5,380       76,421     $ 0.070  
Effect of Dilutive Securities:
                       
Stock Options
    -       -       -  
Diluted EPS
  $ 5,380       76,421     $ 0.070  

 
7

 
(dollars in thousands,
except per share data)
 
Income
   
Weighted
Average Shares
Outstanding
   
Per Share
Amounts
 
For the six months ended June 30, 2010:
                 
Basic EPS:
                 
Income available to common shareholders
  $ 14,059       76,816     $ 0.183  
Effect of Dilutive Securities:
                       
Stock Options
    -       -       -  
Diluted EPS
  $ 14,059       76,816     $ 0.183  
                         
For the six months ended June 30, 2009:
                       
Basic EPS:
                       
Income available to common shareholders
  $ 11,729       76,310     $ 0.154  
Effect of Dilutive Securities:
                       
Stock Options
    -       -       -  
Diluted EPS
  $ 11,729       76,310     $ 0.154  

 
There were approximately 3.0 million stock options outstanding for the three months and six months ended June 30, 2010 and 3.7 million and 3.8 million stock options outstanding for the three months and six months ended June 30, 2009 which, if included, would have been antidilutive in the calculation of average shares outstanding, and were therefore excluded from the earnings per share calculations.  The options are considered antidilutive because the option price is greater than the current market price.

3.
Benefit Plans
The table below outlines the components of the Company’s net periodic expense (benefit) recognized during the three month and six month periods ended June 30, 2010 and 2009 for its pension and other postretirement benefit plans:

Components of Net Periodic Expense (Benefit) for the three months ended June 30, 2010 and 2009 (dollars in thousands)

   
Pension Benefits
   
Other Postretirement Benefits
 
   
2010
   
2009
   
2010
   
2009
 
                         
Service cost
  $ 14       12       8       6  
Interest cost
    375       401       15       16  
Expected return on plan assets
    (454 )     (355 )     (106 )     (84 )
Amortization of net loss
    51       29       -       -  
Amortization of prior service credit
    -       -       (101 )     (101 )
Net periodic expense (benefit)
  $ (14 )     87       (184 )     (163 )

 
8


Components of Net Periodic Expense (Benefit) for the six months ended June 30, 2010 and 2009 (dollars in thousands)

   
Pension Benefits
   
Other Postretirement Benefits
 
   
2010
   
2009
   
2010
   
2009
 
                         
Service cost
  $ 28       24       16       12  
Interest cost
    749       802       31       32  
Expected return on plan assets
    (907 )     (710 )     (211 )     (170 )
Amortization of net loss
    102       58       -       -  
Amortization of prior service credit
    -       -       (202 )     (202 )
Net periodic expense (benefit)
  $ (28 )     174       (366 )     (328 )
 
The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2009, that it did not expect to make any contributions to its pension and postretirement benefit plans in 2010.  As of June 30, 2010, no contributions have been made.  The Company presently anticipates that it will not make any contributions in 2010.

Since 2003, the Company has not subsidized retiree medical insurance premiums.  However, it continues to provide post-retirement medical benefits to a limited number of current and retired executives in accordance with the terms of their employment contracts.
 
4.
Investment Securities
 
The following table summarizes the amortized cost and fair value of the available-for-sale and held-to-maturity investment securities portfolios at June 30, 2010 and December 31, 2009 and the corresponding amounts of unrealized gains and losses therein:

(dollars in thousands)
 
June 30, 2010
 
Available for sale
       
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
                         
U.S. government sponsored enterprises
  $ 470,717       2,203       -       472,920  
State and political subdivisions
    78,604       2,203       1       80,806  
Mortgage backed securities and collateralized mortgage obligations - residential
    24,297       248       380       24,165  
Corporate bonds
    85,647       365       1,536       84,476  
Other
    650       -       -       650  
Total debt securities
    659,915       5,019       1,917       663,017  
Equity securities
    7,184       36       -       7,220  
Total securities available for sale
  $ 667,099       5,055       1,917       670,237  

 
9

 
(dollars in thousands)
 
June 30, 2010
 
Held to maturity
       
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
                         
Mortgage backed securities - residential
  $ 152,920       6,605       -       159,525  
Corporate bonds
    69,152       2,762       -       71,914  
Total held to maturity securities
  $ 222,072       9,367       -       231,439  
                                 
                                 
(dollars in thousands)
 
December 31, 2009
 
Available for sale
         
Gross
   
Gross
         
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
                                 
U.S. government sponsored enterprises
  $ 528,665       787       5,969       523,483  
State and political subdivisions
    90,664       2,587       36       93,215  
Mortgage backed securities and collateralized mortgage obligations - residential
    104,760       1,609       1,468       104,901  
Corporate bonds
    81,989       135       679       81,445  
Other
    650       -       -       650  
Total debt securities
    806,728       5,118       8,152       803,694  
Equity securities
    6,632       39       -       6,671  
Total securities available for sale
  $ 813,360       5,157       8,152       810,365  
                                 
                                 
(dollars in thousands)
 
December 31, 2009
 
Held to maturity
         
Gross
   
Gross
         
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
                                 
U.S. government sponsored enterprises
  $ 99,251       75       147       99,179  
Mortgage backed securities - residential
    196,379       2,444       222       198,601  
Corporate bonds
    79,241       2,541       -       81,782  
Total held to maturity securities
  $ 374,871       5,060       369       379,562  

 
10


The following table shows the amortized cost and fair value of the portfolios of debt securities by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

   
June 30, 2010
 
(dollars in thousands)
Available for sale
 
Amortized
Cost
   
Fair
Value
 
Due in one year or less
  $ 28,362       28,439  
Due in one year through five years
    224,824       225,229  
Due after five years through ten years
    361,767       363,033  
Due after ten years
    44,962       46,316  
    $ 659,915       663,017  
                 
                 
                 
(dollars in thousands)
Held to maturity
 
Amortized
Cost
   
Fair
Value
 
Due in one year or less
  $ 20,066       20,415  
Due in one year through five years
    182,604       190,835  
Due in five years through ten years
    19,402       20,189  
    $ 222,072       231,439  


The following table summarizes the investment securities with unrealized losses at June 30, 2010 and December 31, 2009 by aggregated major security type and length of time in a continuous unrealized loss position:

(dollars in thousands)
     
Available for sale
 
June 30, 2010
 
   
Less than
12 months
   
12 months
or more
   
Total
 
   
Fair
Value
   
Gross
Unreal.
Loss
   
Fair
Value
   
Gross
Unreal.
Loss
   
Fair
Value
   
Gross
Unreal.
Loss
 
State and political subdivisions
  $ 314       1       -       -       314       1  
Mortgage backed securities and collateralized mortgage obligations - residential
    18,971       335       811       45       19,782       380  
Corporate bonds
    49,466       1,536       -       -       49,466       1,536  
Total available for sale
  $ 68,751       1,872       811       45       69,562       1,917  

 
11

 
(dollars in thousands)
     
Available for sale
 
December 31, 2009
 
   
12 months
   
or more
   
Total
 
   
Fair
Value
   
Gross
Unreal.
Loss
   
Fair
Value
   
Gross
Unreal.
Loss
   
Fair
Value
   
Gross
Unreal.
Loss
 
U.S. government sponsored enterprises
  $ 405,003       5,969       -       -       405,003       5,969  
State and political subdivisions
    2,025       16       368       20       2,393       36  
Mortgage backed securities and collateralized mortgage obligations - residential
    45,870       1,282       4,505       186       50,375       1,468  
Corporate bonds
    56,985       679       -       -       56,985       679  
Total available for sale
  $ 509,883       7,946       4,873       206       514,756       8,152  
                                                 
                                                 
(dollars in thousands)
                                               
Held to maturity
 
December 31, 2009
 
   
Less than
12 months
   
12 months
or more
   
Total
 
   
Fair
Value
   
Gross
Unreal.
Loss
   
Fair
Value
   
Gross
Unreal.
Loss
   
Fair
Value
   
Gross
Unreal.
Loss
 
U.S. government sponsored enterprises
  $ 39,978       147       -       -       39,978       147  
Mortgage backed securities - residential
    20,884       222       -       -       20,884       222  
Total held to maturity
  $ 60,862       369       -       -       60,862       369  
 
Proceeds from sales and calls of securities available for sale were $649.7 million and $393.5 million for the six months ended June 30, 2010 and 2009, respectively. Gross gains of approximately $2.0 million and $113 thousand and gross losses of $417 thousand and $43 thousand were realized on these sales during 2010 and 2009, respectively.
 
Proceeds from sales and calls of securities available for sale were $539.4 million and $69.5 million for the three months ended June 30, 2010 and 2009, respectively. Gross gains of approximately $2.0 million and $2 thousand and gross losses of $417 thousand and $43 thousand were realized on these sales during 2010 and 2009, respectively.
 
Other-Than-Temporary-Impairment
 
Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio by type and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under FASB ASC 320 “Investments – Debt and Equity Securities.”
 
In determining OTTI under the FASB ASC 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt security or it is more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

 
12


When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.
 
As of June 30, 2010, the Company’s security portfolio consisted of 352 securities, 18 of which were in an unrealized loss position, and are discussed below.
 
Mortgage-backed Securities and Collateralized Mortgage Obligations - Residential
 
At June 30, 2010, all of the mortgage-backed securities held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Ginnie Mae, Fannie Mae and Freddie Mac.  The government has affirmed its commitment to support these institutions. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is not likely that it will be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2010.
 
State and Political Subdivisions and Corporate Bonds
 
Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is not likely that it will be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2010.  Credit ratings on these securities remain within policy limits.
 
As a result of the above analysis, for the three month and six month periods ended June 30, 2010, the Company did not recognize any other-than-temporary impairment losses for credit or any other reason.

 
13


5.
Loans and Allowance for Loan Losses

A summary of loans by category is as follows:

(dollars in thousands)
     
   
June 30, 2010
   
December 31, 2009
 
Commercial
  $ 256,418       275,280  
Real estate - construction
    12,540       16,162  
Real estate mortgage
    1,771,666       1,707,951  
Home equity lines of credit
    285,123       277,306  
Installment Loans
    4,477       4,837  
Total loans, net
    2,330,224       2,281,536  
Less: Allowance for loan Losses
    39,231       37,591  
Net loans
  $ 2,290,993       2,243,945  


The following table sets forth information with regard to nonperforming loans:

(dollars in thousands)
           
   
June 30, 2010
   
December 31, 2009
 
Loans in nonaccrual status
  $ 49,484       45,632  
Restructured loans
    386       400  
Total nonperforming loans
  $ 49,870       46,032  


Transactions in the allowance for loan losses is summarized as follows:

(dollars in thousands)
 
For the three months ended June 30,
 
   
2010
   
2009
 
Balance at beginning of period
  $ 39,490       36,159  
Provision for loan losses
    7,100       2,760  
Loans charged off
    (7,676 )     (3,211 )
Recoveries on loans previously charged off
    317       451  
Balance at end of period
  $ 39,231       36,159  


(dollars in thousands)
 
For the six months ended June 30,
 
   
2010
   
2009
 
Balance at beginning of period
  $ 37,591       36,149  
Provision for loan losses
    11,800       4,760  
Loans charged off
    (10,711 )