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		94-2156203
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		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 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. (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 23, 2010
Common Stock,		29,324,047
No Par Value

 

 

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			21
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3 Quantitative and Qualitative Disclosures about Market Risk			41
Item 4 Controls and Procedures			41
PART II — OTHER INFORMATION
Item 1 Legal Proceedings			41
Item 1A Risk Factors			42
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3 Defaults upon Senior Securities			42
Item 4 Reserved			42
Item 5 Other Information			43
Item 6 Exhibits			43
Signatures			44
Exhibit Index			45
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

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 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 including the recent acquisition of County Bank assets and assumption of County Bank liabilities from the Federal Deposit Insurance Corporation; (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; and (12) 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, 2009, 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,
		2010				2009
		(In thousands)
Assets:
Cash and cash equivalents		$	253,229			$	361,135
Money market assets			342				442
Investment securities available for sale			414,987				384,208
Investment securities held to maturity, with fair values of:
$701,768 at March 31, 2010			690,585
$736,270 at December 31, 2009							726,935
Non-covered loans			2,146,580				2,201,088
Allowance for loan losses			(40,316	)			(41,043	)
Non-covered loans, net of allowance for loan losses			2,106,264				2,160,045
Covered loans			809,503				855,301
Total loans			2,915,767				3,015,346
Other real estate owned			14,266				12,642
Covered other real estate owned			22,305				23,297
Premises and equipment, net			37,423				38,098
Identifiable intangibles			34,070				35,667
Goodwill			121,699				121,699
Interest receivable and other assets			240,822				256,032
Total Assets		$	4,745,495			$	4,975,501
Liabilities:
Deposits:
Noninterest bearing		$	1,376,760			$	1,428,432
Interest bearing:
Transaction			653,872				669,004
Savings			957,126				971,384
Time			907,271				991,388
Total deposits			3,895,029				4,060,208
Short-term borrowed funds			211,756				227,178
Federal Home Loan Bank advances			10,306				85,470
Debt financing and Notes payable			26,464				26,497
Liability for interest, taxes and other expenses			82,809				70,700
Total Liabilities			4,226,364				4,470,053
Shareholders’ Equity:
Common stock, authorized — 150,000 shares
Issued and outstanding:
29,206 at March 31, 2010			369,497
29,208 at December 31, 2009							366,247
Deferred compensation			2,485				2,485
Accumulated other comprehensive income			4,796				3,714
Retained earnings			142,353				133,002
Total Shareholders’ Equity			519,131				505,448
Total Liabilities and Shareholders’ Equity		$	4,745,495			$	4,975,501

See accompanying notes to unaudited condensed consolidated financial statements.

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

		Three months ended
		March 31,
		2010				2009
		(In thousands,
		except per share data)
Interest Income:
Loans		$	44,702			$	45,095
Money market assets and funds sold			1				1
Investment securities available for sale
Taxable			2,151				1,867
Tax-exempt			1,744				1,872
Investment securities held to maturity
Taxable			2,277				4,790
Tax-exempt			5,128				5,560
Total Interest Income			56,003				59,185
Interest Expense:
Transaction deposits			217				205
Savings deposits			739				900
Time deposits			1,532				2,679
Short-term borrowed funds			537				495
Federal Home Loan Bank advances			84				131
Notes payable			425				423
Total Interest Expense			3,534				4,833
Net Interest Income			52,469				54,352
Provision for Loan Losses			2,800				1,800
Net Interest Income After Provision For Loan Losses			49,669				52,552
Noninterest Income:
Service charges on deposit accounts			8,742				8,422
Merchant credit card			2,221				2,432
Debit card			1,174				856
ATM and interchange			891				813
Trust fees			381				364
Financial services commissions			149				154
Other			1,912				2,083
Gain on acquisition			—				48,844
Total Noninterest Income			15,470				63,968
Noninterest Expense:
Salaries and related benefits			15,892				16,371
Occupancy			3,777				5,410
Outsourced data processing services			2,240				2,104
Amortization of identifiable intangibles			1,598				1,685
Furniture and equipment			1,051				1,222
Courier service			907				898
Professional fees			663				888
FDIC insurance assessments			1,320				157
Other			4,583				5,388
Total Noninterest Expense			32,031				34,123
Income Before Income Taxes			33,108				82,397
Provision for income taxes			9,532				29,572
Net Income			23,576				52,825
Preferred stock dividends and discount accretion			—				578
Net Income Applicable to Common Equity		$	23,576			$	52,247
Average Common Shares Outstanding			29,228				28,876
Diluted Average Common Shares Outstanding			29,596				29,105
Per Common Share Data:
Basic earnings		$	0.81			$	1.81
Diluted earnings			0.80				1.80
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				Preferred				Common				Deferred				Comprehensive				Retained
		Outstanding				Stock				Stock				Compensation				Income				Earnings				Total
		(In thousands)
Balance, December 31, 2008			28,880			$	—			$	352,265			$	2,409			$	1,040			$	54,138			$	409,852
Comprehensive income
Net income for the period																							52,825				52,825
Other comprehensive income, net of tax:
Net unrealized gain on securities available for sale																			1,225								1,225
Post-retirement benefit transition obligation amortization																			9								9
Total comprehensive income																											54,059
Issuance of preferred stock and related warrants							82,519				1,207																83,726
Preferred stock dividends and discount accretion							31																(578	)			(547	)
Exercise of stock options			9								299																299
Stock option tax benefits											3																3
Stock based compensation											294																294
Stock awarded to employees			1								46																46
Purchase and retirement of stock			(16	)							(197	)											(470	)			(667	)
Dividends																							(10,397	)			(10,397	)
Balance, March 31, 2009			28,874			$	82,550			$	353,917			$	2,409			$	2,274			$	95,518			$	536,668
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:
Net unrealized gain 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

See accompanying notes to unaudited condensed consolidated financial statements.

WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

		For the three months ended
		March 31,
		2010				2009
		(In thousands)
Operating Activities:
Net income		$	23,576			$	52,825
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			3,411				2,675
Loan loss provision			2,800				1,800
Net amortization of deferred loan cost (fees)			70				(156	)
Decrease (increase) in interest income receivable			258				(5,865	)
Gain on acquisition			—				(48,844	)
(Increase) decrease in other assets			(8,655	)			27,928
Increase in income taxes payable			12,593				27,654
(Decrease) increase in interest expense payable			(66	)			623
Increase in other liabilities			1,108				6,276
Stock option compensation expense			360				294
Stock option tax benefits			(259	)			(3	)
Gain on sale of property and equipment			(463	)			—
Net loss (gain) on sale of property acquired in satisfaction of debt			352				(110	)
Writedown of property acquired in satisfaction of debt			249				65
Net Cash Provided by Operating Activities			35,334				65,162
Investing Activities:
Net repayments of loans			89,819				96,009
Proceeds from FDIC loss-sharing agreement			19,863				—
Purchases of investment securities available for sale			(53,537	)			—
Proceeds from maturity/calls of securities available for sale			22,621				24,964
Proceeds from maturity/calls of securities held to maturity			36,350				33,581
Proceeds from sale of FRB/FHLB* stock			2,763				—
Proceeds from sale of property acquired in satisfaction of debt			4,860				1,118
Purchases of property, plant and equipment			(258	)			(102	)
Proceeds from sale of property, plant and equipment			603				—
Net cash acquired from acquisitions			—				44,397
Net Cash Provided by Investing Activities			123,084				199,967
Financing Activities:
Net decrease in deposits			(164,280	)			(71,307	)
Net decrease in short-term borrowings			(90,660	)			(256,616	)
Exercise of stock options			3,697				299
Proceeds from issuance of preferred stock			—				83,726
Stock option tax benefits			259				3
Repurchases/retirement of stock			(4,804	)			(667	)
Dividends paid			(10,536	)			(10,397	)
Net Cash Used in Financing Activities			(266,324	)			(254,959	)
Net Increase (Decrease) In Cash and Cash Equivalents			(107,906	)			10,170
Cash and Cash Equivalents at Beginning of Period			361,135				138,883
Cash and Cash Equivalents at End of Period		$	253,229			$	149,053
Supplemental Cash Flow Disclosures:
Supplemental disclosure of non cash activities:
Loan collateral transferred to other real estate owned		$	6,092			$	15,716
Unrealized gain on securities available for sale, net			1,073				1,225
Supplemental disclosure of cash flow activities:
Interest paid for the period			4,457				5,954
Income tax payments for the period			3,500				1,400
Acquisitions:
Assets acquired		$	—			$	1,624,464
Liabilities assumed			—				1,575,620
Net		$	—			$	48,844

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, 2010 and 2009 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, 2009.

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

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 purchased impaired loans, which 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, 2009. Certain amounts in prior periods have been reclassified to conform to the current presentation.

Recently Adopted Accounting Pronouncements

In the first quarter of 2010, the Company adopted the following new accounting pronouncements:

•		Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 860 as amended, Transfers and Servicing (formerly FASB Statement No. 166, Accounting for Transfers of Financial Assets — an amendment of the provisions contained in FASB ASC 860)
•		FASB ASC 810, Consolidation as amended (formerly FASB Statement No. 167, Amendments to FASB ASC 810, Consolidation)
•		FASB Accounting Standards Update (ASU) 2010-06, Fair Value Measurements and Disclosure (Topic 820)

FASB ASC 860, as amended, Transfers and Servicing, has been amended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Specifically to address: (1) practices that have developed since initial issuance, that are not consistent with the original intent and key requirements of that Standard and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. This Standard must be applied to transfers occurring on or after January 1, 2010, the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. The adoption of this Statement did not have any effect on the Company’s financial statements at the date of adoption.

FASB ASC 810, as amended, Consolidation, has been amended to improve financial reporting by enterprises involved with variable interest entities. Specifically to address: (1) the effects on certain provisions as a result of the elimination of the qualifying special-purpose entity concept in ASC 860, Transfers and Servicing, and (2) constituent concerns about the application of certain key provisions of the Standard, including those in which the accounting and disclosures do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. The adoption of this Statement did not have any effect on the Company’s financial statements at the date of adoption.

FASB ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820), issued January 2010 and effective January 1, 2010, requires new disclosures for: (1) transfers in and out of Levels 1 and 2, including separate disclosure of significant amounts and a description of the reasons for the transfers; and (2) separate presentation of information about purchases, sales, issuances, and settlements (on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). The Update clarifies existing disclosure requirements for: (1) Level of disaggregation, which provides measurement disclosures for each class of assets and liabilities. Emphasizing that judgment should be used in determining the appropriate classes of assets and liabilities; and (2) inputs and valuation techniques for both recurring and nonrecurring Level 2 and Level 3 fair value measurements.

This update also includes conforming amendments to the guidance on employer’s disclosures about postretirement benefit plan assets changing the terminology of major categories of assets to classes of assets and providing a cross reference to the guidance in Subtopic 820-10 on how to determine appropriate classes to present fair value disclosures.

The adoption of this Update did not have a significant effect on the Company’s financial statements at the date of adoption.

Note 3: 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, 2010, follows:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
U.S. Treasury securities		$	2,991			$	3			$	—			$	2,994
Securities of U.S. Government sponsored entities			41,101				70				(18	)			41,153
Mortgage-backed securities			139,430				3,283				(53	)			142,660
Obligations of States and political subdivisions			164,705				3,714				(1,007	)			167,412
Collateralized mortgage obligations			34,577				889				(13	)			35,453
Asset-backed securities			10,000				—				(1,221	)			8,779
FHLMC and FNMA stock			824				806				(1	)			1,629
Corporate securities			9,827				21				(5	)			9,843
Other securities			2,778				2,324				(38	)			5,064
Total		$	406,233			$	11,110			$	(2,356	)		$	414,987

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

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
Mortgage-backed securities		$	56,992			$	1,905			$	—			$	58,897
Obligations of States and political subdivisions			500,472				12,951				(1,689	)			511,734
Collateralized mortgage obligations			133,121				3,397				(5,381	)			131,137
Total		$	690,585			$	18,253			$	(7,070	)		$	701,768

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, 2009, follows:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
U.S. Treasury securities		$	2,987			$	—			$	—			$	2,987
Securities of U.S. Government sponsored entities			21,018				48				(25	)			21,041
Mortgage-backed securities			143,625				2,504				(124	)			146,005
Obligations of States and political subdivisions			155,093				4,077				(977	)			158,193
Collateralized mortgage obligations			40,981				652				(223	)			41,410
Asset-backed securities			10,000				—				(1,661	)			8,339
FHLMC and FNMA stock			824				750				(1	)			1,573
Other securities			2,778				1,926				(44	)			4,660
Total		$	377,306			$	9,957			$	(3,055	)		$	384,208

The amortized cost, unrealized gains and losses, and fair value of the held to maturity investment securities portfolio as of December 31, 2009 follows:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
Mortgage-backed securities		$	61,893			$	1,752			$	—			$	63,645
Obligations of States and political subdivisions			516,596				12,528				(2,190	)			526,934
Collateralized mortgage obligations			148,446				3,352				(6,107	)			145,691
Total		$	726,935			$	17,632			$	(8,297	)		$	736,270

The amortized cost and fair value of securities as of March 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		$	12,507			$	12,601			$	8,441			$	8,509
1 to 5 years			102,789				104,567				61,474				63,542
5 to 10 years			65,983				67,271				401,322				410,347
Over 10 years			37,518				35,899				29,235				29,336
Subtotal			218,797				220,338				500,472				511,734
Mortgage-backed securities and collateralized mortgage obligations			174,007				178,113				190,113				190,034
Corporate and other securities			13,429				16,536				—				—
Total		$	406,233			$	414,987			$	690,585			$	701,768

The amortized cost and fair value of securities as of December 31, 2009, 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		$	12,763			$	12,852			$	8,303			$	8,389
1 to 5 years			86,757				88,759				58,111				60,075
5 to 10 years			61,532				62,933				413,720				421,955
Over 10 years			28,046				26,016				36,462				36,515
Subtotal			189,098				190,560				516,596				526,934
Mortgage-backed securities and collateralized mortgage obligations			184,606				187,415				210,339				209,336
Other securities			3,602				6,233				—				—
Total		$	377,306			$	384,208			$	726,935			$	736,270

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, 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)
Securities of U.S. Government sponsored entities		$	15,066			$	(18	)		$	—			$	—			$	15,066			$	(18	)
Mortgage-backed securities			5,453				(53	)			—				—				5,453				(53	)
Obligations of States and political subdivisions			26,397				(519	)			12,456				(488	)			38,853				(1,007	)
Collateralized mortgage obligations			880				(3	)			1,922				(10	)			2,802				(13	)
Asset-backed securities			—				—				8,779				(1,221	)			8,779				(1,221	)
FHLMC and FNMA stock			5				(1	)			—				—				5				(1	)
Corporate securities			2,871				(5	)			—				—				2,871				(5	)
Other securities			—				—				1,962				(38	)			1,962				(38	)
Total		$	50,672			$	(599	)		$	25,119			$	(1,757	)		$	75,791			$	(2,356	)

An analysis of gross unrealized losses of the held to maturity investment securities portfolio as of March 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)
Mortgage backed securities		$	831			$	—			$	—			$	—			$	831			$	—
Obligations of States and political subdivisions			28,844				(426	)			26,251				(1,263	)			55,095				(1,689	)
Collateralized mortgage obligations			1,480				(20	)			24,956				(5,361	)			26,436				(5,381	)
Total		$	31,155			$	(446	)		$	51,207			$	(6,624	)		$	82,362			$	(7,070	)

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 ratings 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 $20 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 not more likely than not that it will 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, 2010.

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, 2009, 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		$	2,987			$	—			$	—			$	—			$	2,987			$	—
Securities of U.S. Government sponsored entities			19,979				(25	)			—				—				19,979				(25	)
Mortgage-backed securities			17,885				(124	)			—				—				17,885				(124	)
Obligations of States and political subdivisions			25,050				(795	)			3,866				(182	)			28,916				(977	)
Collateralized mortgage obligations			9,896				(37	)			5,002				(186	)			14,898				(223	)
Asset-backed securities			—				—				8,339				(1,661	)			8,339				(1,661	)
FHLMC and FNMA stock			4				(1	)			—				—				4				(1	)
Other securities			—				—				1,956				(44	)			1,956				(44	)
Total		$	75,801			$	(982	)		$	19,163			$	(2,073	)		$	94,964			$	(3,055	)

An analysis of gross unrealized losses of the held to maturity investment securities portfolio as of December 31, 2009, 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		$	46,111			$	(995	)		$	16,964			$	(1,195	)		$	63,075			$	(2,190	)
Collateralized mortgage obligations			7,639				(42	)			30,674				(6,065	)			38,313				(6,107	)
Total		$	53,750			$	(1,037	)		$	47,638			$	(7,260	)		$	101,388			$	(8,297	)

Note 4: Loans and Allowance for Credit Losses

A summary of the major categories of non-covered and covered loans outstanding is shown in the following tables:

		At March 31,				At December 31,
		2010				2009
		(In thousands)
Non-covered loans:
Commercial		$	497,142			$	498,594
Commercial real estate			793,085				801,008
Construction			29,873				32,156
Residential real estate			347,745				371,197
Consumer installment & other			478,735				498,133
Gross Loans			2,146,580				2,201,088
Allowance for loan losses			(40,316	)			(41,043	)
Net Loans		$	2,106,264			$	2,160,045

The carrying amount of the covered loans at March 31, 2010, consisted of impaired and non impaired purchased loans in the following table (refined).

		Impaired				Non Impaired				Total Covered
		Purchased Loans				Purchased Loans				Loans
		(In thousands)
Covered loans:
Commercial		$	4,976			$	215,865			$	220,841
Commercial real estate			19,329				418,211				437,540
Construction			14,120				21,465				35,585
Residential real estate			138				18,530				18,668
Consumer installment & other			263				96,606				96,869
Total loans		$	38,826			$	770,677			$	809,503

The carrying amount of the covered loans at December 31, 2009, consisted of impaired and non impaired purchased loans in the following table (refined).

		Impaired				Non Impaired				Total Covered
		Purchased Loans				Purchased Loans				Loans
		(In thousands)
Covered loans:
Commercial		$	8,538			$	244,811			$	253,349
Commercial real estate			19,870				425,570				445,440
Construction			14,378				26,082				40,460
Residential real estate			138				18,383				18,521
Consumer installment & other			272				97,259				97,531
Total loans		$	43,196			$	812,105			$	855,301

The Company pledges loans to secure borrowings from the Federal Home Loan Bank (FHLB). At March 31, 2010, loans pledged to secure borrowing totaled $106.4 million. The FHLB does not have the right to sell or repledge such loans.

Changes in the carrying amount of impaired purchased loans were as follows for the quarter ended March 31, 2010 and the period February 6, 2009 (acquisition date) through December 31, 2009 (dollars in thousands):

		At				At
		March 31,				December 31,
		2010				2009
						(refined)
		(In thousands)
Carrying amount at the beginning of the period		$	43,196			$	80,544
Reductions during the period			(4,370	)			(37,348	)
Carrying amount at the end of the period		$	38,826			$	43,196

Impaired purchased loans had an unpaid principal balance (less prior charge-offs) of $61 million, $70 million and $164 million at March 31, 2010, December 31, 2009 and February 6, 2009, respectively.

There were no loans held for sale at March 31, 2010 and December 31, 2009.

The following summarizes the allowance for credit losses of the Company for the periods indicated:

		Three months ended
		March 31,				March 31,
		2010				2009
		(In thousands)
Balance, beginning of period		$	43,736			$	47,563
Provision for loan losses			2,800				1,800
Loans charged off			(4,456	)			(2,928	)
Recoveries of previously charged off loans			929				461
Net loan losses			(3,527	)			(2,467	)
Balance, end of period		$	43,009			$	46,896
Components:
Allowance for loan losses		$	40,316			$	43,803
Reserve for unfunded credit commitments			2,693				3,093
Allowance for credit losses		$	43,009			$	46,896
Allowance for loan losses / non-covered loans outstanding			1.88	%			1.86	%

Non-covered nonaccrual loans at March 31, 2010 and December 31, 2009 were $20.3 million and $19.9 million, respectively.

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2010.

Note 5: Goodwill and Other Identifiable Intangible Assets

The Company has recorded goodwill and other identifiable intangibles associated with purchase business combinations. Goodwill is not amortized, but is periodically evaluated for impairment. The Company did not recognize impairment during the three months ended March 31, 2010.

Identifiable intangibles are amortized to their estimated residual values over their expected useful lives. Such lives and residual values are also periodically reassessed to determine if any amortization period adjustments are indicated. During the three months ended March 31, 2010, no such adjustments were recorded. The gross carrying amount of identifiable intangible assets and accumulated amortization was:

		At March 31,								At December 31,
		2010								2009
		(In thousands)
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Core Deposit Intangibles		$	51,538			$	(20,541	)		$	51,538			$	(19,160	)
Merchant Draft Processing Intangible			10,300				(7,227	)			10,300				(7,011	)
Total Identifiable Intangible Assets		$	61,838			$	(27,768	)		$	61,838			$	(26,171	)

As of March 31, 2010, the current year and estimated future amortization expense for identifiable intangible assets was:

						Merchant
		Core				Draft
		Deposit				Processing
		Intangibles				Intangible				Total
		(In thousands)
Three months ended
March 31, 2010 (actual)		$	1,382			$	216			$	1,598
Estimate for year ended December 31, 2010			5,361				774				6,135
2011			4,817				624				5,441
2012			4,372				500				4,872
2013			3,842				400				4,242
2014			3,516				324				3,840
2015			3,193				262				3,455

Note 6: Post Retirement Benefits

The Company offers a continuation of group insurance coverage to qualifying employees electing early retirement, for the period from the date of retirement until age 65. For eligible employees the Company pays a portion of these early retirees’ insurance premiums. The Company also reimburses a portion of Medicare Part B premiums for all qualifying retirees over age 65 and their qualified spouses. Eligibility for post-retirement medical benefits is based on age and years of service, and restricted to employees hired prior to February 1, 2006. The Company uses an actuarial-based accrual method of accounting for post-retirement benefits.

The following table sets forth the net periodic post-retirement benefit costs:

		For the three months ended
		March 31,				March 31,
		2010				2009
		(In thousands)
Service cost (benefit)		$	(90	)		$	(79	)
Interest cost			48				55
Amortization of unrecognized transition obligation			15				15
Net periodic cost (benefit)		$	(27	)		$	(9	)