The following discussion and analysis is intended to address the significant factors affecting our results of operations and financial condition for the quarters and six months ended
Our results of operations are affected by various factors, many of which are beyond our control, including interest rates, local and national economic conditions, business spending, consumer confidence, certain seasonal factors, legislative and regulatory changes, and changes in real estate and securities markets. Our management evaluates performance using a variety of qualitative and quantitative metrics. The primary quantitative metrics used by management include:
• Net Interest Income - Net interest income, our primary source of revenue, equals the difference between interest income and fees earned on interest-earning assets and interest expense incurred on interest-bearing liabilities. • Net Interest Margin - Net interest margin equals net interest income divided by total average interest-earning assets. • Noninterest Income - Noninterest income is the income we earn from fee-based revenues, investment in bank-owned life insurance ("BOLI") and other income, and non-operating revenues. • Asset Quality - Asset quality represents an estimation of the quality of our loan portfolio, including an assessment of the credit risk related to existing and potential loss exposure, and can be evaluated using a number of quantitative measures, such as non-performing loans to total loans. •
Regulatory Capital- Our regulatory capital is currently classified in one of the following two tiers: (i) Tier 1 capital consists of common equity, retained earnings, and qualifying trust-preferred securities, less goodwill and most intangible assets and (ii) Tier 2 capital includes qualifying subordinated debt and the allowance for credit losses, subject to limitations.
Unless otherwise stated, all earnings per common share data included in this section and throughout the remainder of this discussion are presented on a diluted basis.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of words such as "may," "might," "will," "would," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "probable," "potential," "possible," or "continue" and words of similar import. Forward-looking statements are not historical facts but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and events may differ, possibly materially, from the anticipated results or events indicated in these forward-looking statements. Forward-looking statements are not guarantees of future performance, and we caution you not to place undue reliance on these statements. Forward-looking statements are made only as of the date of this report, and we undertake no obligation to update any forward-looking statements contained in this report to reflect new information or events or conditions after the date hereof.
Forward-looking statements may be deemed to include, among other things, statements relating to our future financial performance, the performance of our loan or securities portfolio, the expected amount of future credit reserves or charge-offs, corporate strategies or objectives, anticipated trends in our business, regulatory developments, pending acquisition transactions, and growth strategies, including possible future acquisitions. These statements are subject to certain risks, uncertainties and assumptions. For a discussion of these risks, uncertainties and assumptions, you should refer to the sections entitled "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in this report and in our 2013 10-K, as well as our subsequent filings made with the
CRITICAL ACCOUNTING POLICIES Our consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") and are consistent with predominant practices in the financial services industry. Critical accounting policies are those policies that management believes are the most important to our financial position and results of operations. Application of critical accounting policies requires management to make estimates, assumptions, and judgments based on information available as of the date of the financial statements that affect the amounts reported in the financial statements and accompanying notes. Future changes in information may affect these estimates, assumptions, and judgments, which may affect the amounts reported in the financial statements. For additional information regarding critical accounting policies, refer to "Summary of Significant Accounting Policies," presented in Note 1 to the Condensed Consolidated Financial Statements and the section titled "Critical Accounting Policies" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 2013 10-K. There have been no significant changes in the Company's application of critical accounting policies related to the allowance for credit losses, valuation of securities, and income taxes since
December 31, 2013.
Table 1 Selected Financial Data (Dollar and share amounts in thousands, except per share data) Quarters Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Operating Results Interest income
$ 72,003 $ 71,753 $ 141,693 $ 142,798Interest expense 5,696 6,823 11,691 14,020 Net interest income 66,307 64,930 130,002 128,778 Provision for loan and covered loan losses 5,341 5,813 6,782 11,487 Noninterest income 31,193 27,441 58,443 55,016 Noninterest expense 65,017 62,427 128,685 127,241 Income before income tax expense 27,142 24,131 52,978 45,066 Income tax expense 8,642 7,955 16,814 14,248 Net income $ 18,500 $ 16,176 $ 36,164 $ 30,818Weighted-average diluted common shares outstanding 74,333 74,024 74,247 73,950
Diluted earnings per common share
7.08 % 6.66 % 7.03 % 6.42 % Return on average assets 0.88 % 0.79 % 0.87 % 0.76 % Net interest margin - tax equivalent 3.65 % 3.70 % 3.63 % 3.73 % Efficiency ratio (2) 63.60 % 64.27 % 65.09 % 65.38 % (1) All ratios are presented on an annualized basis. (2) The efficiency ratio expresses noninterest expense, excluding other real estate owned ("OREO") expense, as a percentage of tax-equivalent net interest income plus total fee-based revenues, other income, net trading gains, and tax-equivalent adjusted BOLI income. Net securities gains are excluded from the efficiency ratio. The
$2.1 millionloss on the prepayment of Federal Home Loan Bank("FHLB") advances and $830,000of acquisition-related expenses are excluded from the efficiency ratio for the quarter and six months ended June 30, 2014. 41