e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 000-26481
(Exact name of registrant as specified in its charter)
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NEW YORK
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16-0816610 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.) |
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220 LIBERTY STREET, WARSAW, NEW YORK
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14569 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (585) 786-1100
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 regsitrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
The registrant had 13,792,741 shares of Common Stock, $0.01 par value, outstanding as of April 28,
2011.
FINANCIAL INSTITUTIONS, INC.
Form 10-Q
For the Quarterly Period Ended March 31, 2011
TABLE OF CONTENTS
- 2 -
PART I. FINANCIAL INFORMATION
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ITEM 1. |
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Financial Statements |
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Unaudited)
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March 31, |
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December 31, |
|
(Dollars in thousands, except share and per share data) |
|
2011 |
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2010 |
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ASSETS |
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Cash and cash equivalents: |
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Cash and due from banks |
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$ |
94,441 |
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$ |
38,964 |
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Federal funds sold and interest-bearing deposits in other banks |
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94 |
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94 |
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Total cash and cash equivalents |
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94,535 |
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39,058 |
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Securities available for sale, at fair value |
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692,812 |
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666,368 |
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Securities held to maturity, at amortized cost (fair value of $25,959 and $28,849, respectively) |
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25,284 |
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28,162 |
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Loans held for sale |
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1,666 |
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3,138 |
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Loans (net of allowance for loan losses of $20,119 and $20,466, respectively) |
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1,332,400 |
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1,325,524 |
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Company owned life insurance |
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26,326 |
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26,053 |
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Premises and equipment, net |
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32,617 |
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33,263 |
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Goodwill |
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37,369 |
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37,369 |
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Other assets |
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52,107 |
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55,372 |
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Total assets |
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$ |
2,295,116 |
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$ |
2,214,307 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Deposits: |
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Noninterest-bearing demand |
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$ |
354,312 |
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$ |
350,877 |
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Interest-bearing demand |
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424,897 |
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374,900 |
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Savings and money market |
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464,076 |
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417,359 |
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Certificates of deposit |
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726,296 |
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739,754 |
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Total deposits |
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1,969,581 |
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1,882,890 |
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Short-term borrowings |
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42,060 |
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77,110 |
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Long-term borrowings |
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26,702 |
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26,767 |
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Other liabilities |
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33,950 |
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15,396 |
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Total liabilities |
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2,072,293 |
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2,002,163 |
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Shareholders equity: |
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Series A 3% preferred stock, $100 par value; 1,533 shares authorized and issued |
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153 |
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153 |
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Series A preferred stock, $5,000 liquidation preference per share, 7,503 shares authorized;
7,503
shares issued at December 31, 2010 |
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36,210 |
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Series B-1 8.48% preferred stock, $100 par value, 200,000 shares authorized, 174,223 shares
issued |
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17,422 |
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17,422 |
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Total preferred equity |
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17,575 |
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53,785 |
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Common stock, $0.01 par value, 50,000,000 shares authorized; 14,161,597 and 11,348,122
shares issued, respectively |
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142 |
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|
113 |
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Additional paid-in capital |
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68,605 |
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26,029 |
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Retained earnings |
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147,261 |
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144,599 |
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Accumulated other comprehensive loss |
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(3,879 |
) |
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(4,722 |
) |
Treasury stock, at cost 368,407 and 410,616 shares, respectively |
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(6,881 |
) |
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(7,660 |
) |
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Total shareholders equity |
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222,823 |
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212,144 |
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Total liabilities and shareholders equity |
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$ |
2,295,116 |
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$ |
2,214,307 |
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See accompanying notes to the consolidated financial statements.
- 3 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
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Three months ended |
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March 31, |
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(Dollars in thousands, except per share amounts) |
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2011 |
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2010 |
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Interest income: |
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Interest and fees on loans |
|
$ |
19,035 |
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$ |
18,618 |
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Interest and dividends on investment securities |
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4,604 |
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5,199 |
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Other interest income |
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7 |
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Total interest income |
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23,639 |
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23,824 |
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Interest expense: |
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Deposits |
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3,197 |
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|
3,784 |
|
Short-term borrowings |
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72 |
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|
78 |
|
Long-term borrowings |
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|
532 |
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|
710 |
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|
|
|
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Total interest expense |
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|
3,801 |
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|
4,572 |
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|
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Net interest income |
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19,838 |
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19,252 |
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Provision for loan losses |
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|
810 |
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|
418 |
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Net interest income after provision for loan losses |
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19,028 |
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18,834 |
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Noninterest income: |
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|
|
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Service charges on deposits |
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2,105 |
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2,230 |
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ATM and debit card |
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1,016 |
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|
934 |
|
Broker-dealer fees and commissions |
|
|
386 |
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|
|
380 |
|
Loan servicing |
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|
349 |
|
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|
280 |
|
Company owned life insurance |
|
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266 |
|
|
|
269 |
|
Net gain on sale of loans held for sale |
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|
224 |
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|
62 |
|
Net gain on disposal of investment securities |
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|
3 |
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6 |
|
Impairment charges on investment securities |
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(526 |
) |
Net gain on sale and disposal of other assets |
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45 |
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|
2 |
|
Other |
|
|
754 |
|
|
|
446 |
|
|
|
|
|
|
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|
Total noninterest income |
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|
5,148 |
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|
4,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Noninterest expense: |
|
|
|
|
|
|
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Salaries and employee benefits |
|
|
8,401 |
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|
8,247 |
|
Occupancy and equipment |
|
|
2,843 |
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|
2,771 |
|
Professional services |
|
|
682 |
|
|
|
606 |
|
FDIC assessments |
|
|
607 |
|
|
|
602 |
|
Computer and data processing |
|
|
603 |
|
|
|
571 |
|
Supplies and postage |
|
|
452 |
|
|
|
445 |
|
Advertising and promotions |
|
|
165 |
|
|
|
187 |
|
Other |
|
|
1,597 |
|
|
|
1,309 |
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|
|
|
|
|
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|
Total noninterest expense |
|
|
15,350 |
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|
14,738 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income before income taxes |
|
|
8,826 |
|
|
|
8,179 |
|
Income tax expense |
|
|
3,006 |
|
|
|
2,851 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,820 |
|
|
$ |
5,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Preferred stock dividends |
|
|
770 |
|
|
|
839 |
|
Accretion of discount on preferred stock |
|
|
1,305 |
|
|
|
90 |
|
|
|
|
|
|
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|
Net income available to common shareholders |
|
$ |
3,745 |
|
|
$ |
4,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Earnings per common share (Note 2): |
|
|
|
|
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|
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|
Basic |
|
$ |
0.33 |
|
|
$ |
0.41 |
|
Diluted |
|
$ |
0.33 |
|
|
$ |
0.40 |
|
See accompanying notes to the consolidated financial statements.
- 4 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders Equity
(Unaudited)
Three months ended March 31, 2011
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Accumulated |
|
|
|
|
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Additional |
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Other |
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Total |
|
(Dollars in thousands, |
|
Preferred |
|
|
Common |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Shareholders |
|
except per share data) |
|
Equity |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Stock |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011 |
|
$ |
53,785 |
|
|
$ |
113 |
|
|
$ |
26,029 |
|
|
$ |
144,599 |
|
|
$ |
(4,722 |
) |
|
$ |
(7,660 |
) |
|
$ |
212,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,820 |
|
|
|
|
|
|
|
|
|
|
|
5,820 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
843 |
|
|
|
|
|
|
|
843 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Purchases of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(197 |
) |
|
|
(197 |
) |
Issuance of common stock |
|
|
|
|
|
|
29 |
|
|
|
43,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,127 |
|
Redemption of Series A preferred stock |
|
|
(37,515 |
) |
|
|
|
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,447 |
) |
Share-based compensation plans: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231 |
|
Stock options exercised |
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
119 |
|
|
|
91 |
|
Restricted stock awards issued, net |
|
|
|
|
|
|
|
|
|
|
(857 |
) |
|
|
|
|
|
|
|
|
|
|
857 |
|
|
|
|
|
Excess tax benefit on
share-based compensation |
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64 |
|
Accretion of discount on Series A
preferred stock |
|
|
1,305 |
|
|
|
|
|
|
|
|
|
|
|
(1,305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A 3% Preferred-$0.75 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Series A Preferred-$53.24 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(399 |
) |
|
|
|
|
|
|
|
|
|
|
(399 |
) |
Series B-1 8.48% Preferred-$2.12 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(370 |
) |
|
|
|
|
|
|
|
|
|
|
(370 |
) |
Common-$0.10 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,083 |
) |
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|
|
|
|
|
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|
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(1,083 |
) |
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|
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|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
$ |
17,575 |
|
|
$ |
142 |
|
|
$ |
68,605 |
|
|
$ |
147,261 |
|
|
$ |
(3,879 |
) |
|
$ |
(6,881 |
) |
|
$ |
222,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
- 5 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
(Dollars in thousands) |
|
2011 |
|
|
2010 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,820 |
|
|
$ |
5,328 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
849 |
|
|
|
898 |
|
Net amortization of premiums on securities |
|
|
1,378 |
|
|
|
508 |
|
Provision for loan losses |
|
|
810 |
|
|
|
418 |
|
Share-based compensation |
|
|
231 |
|
|
|
221 |
|
Deferred income tax expense |
|
|
876 |
|
|
|
759 |
|
Proceeds from sale of loans held for sale |
|
|
10,017 |
|
|
|
6,031 |
|
Originations of loans held for sale |
|
|
(8,321 |
) |
|
|
(5,651 |
) |
Increase in company owned life insurance |
|
|
(266 |
) |
|
|
(269 |
) |
Net gain on sale of loans held for sale |
|
|
(224 |
) |
|
|
(62 |
) |
Net gain on disposal of investment securities |
|
|
(3 |
) |
|
|
(6 |
) |
Impairment charges on investment securities |
|
|
|
|
|
|
526 |
|
Net gain on sale and disposal of other assets |
|
|
(45 |
) |
|
|
(2 |
) |
Decrease in other assets |
|
|
1,917 |
|
|
|
463 |
|
Decrease in other liabilities |
|
|
(566 |
) |
|
|
(522 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
12,473 |
|
|
|
8,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of investment securities: |
|
|
|
|
|
|
|
|
Available for sale |
|
|
(42,262 |
) |
|
|
(110,252 |
) |
Held to maturity |
|
|
(1,920 |
) |
|
|
(2,654 |
) |
Proceeds from principal payments, maturities and calls on
investment securities: |
|
|
|
|
|
|
|
|
Available for sale |
|
|
33,990 |
|
|
|
35,731 |
|
Held to maturity |
|
|
5,863 |
|
|
|
7,567 |
|
Proceeds from sales and calls of securities available for sale |
|
|
|
|
|
|
12,950 |
|
Net loan originations |
|
|
(7,686 |
) |
|
|
(4,715 |
) |
Purchases of company owned life insurance |
|
|
(7 |
) |
|
|
(7 |
) |
Proceeds from sales of other assets |
|
|
110 |
|
|
|
56 |
|
Purchases of premises and equipment |
|
|
(205 |
) |
|
|
(471 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(12,117 |
) |
|
|
(61,795 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
86,691 |
|
|
|
106,919 |
|
Net decrease in short-term borrowings |
|
|
(35,050 |
) |
|
|
(22,935 |
) |
Repayments of long-term borrowings |
|
|
(65 |
) |
|
|
(1 |
) |
Proceeds from issuance of common stock, net of issuance costs |
|
|
43,127 |
|
|
|
|
|
Redemption of Series A preferred stock |
|
|
(37,447 |
) |
|
|
|
|
Purchases of common stock for treasury |
|
|
(197 |
) |
|
|
|
|
Proceeds from stock options exercised |
|
|
91 |
|
|
|
8 |
|
Excess tax benefit on share-based compensation |
|
|
64 |
|
|
|
|
|
Cash dividends paid to preferred shareholders |
|
|
(1,010 |
) |
|
|
(839 |
) |
Cash dividends paid to common shareholders |
|
|
(1,083 |
) |
|
|
(1,082 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
55,121 |
|
|
|
82,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
55,477 |
|
|
|
28,915 |
|
Cash and cash equivalents, beginning of period |
|
|
39,058 |
|
|
|
42,959 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
94,535 |
|
|
|
71,874 |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
- 6 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Financial Institutions, Inc., a financial holding company organized under the laws of New York
State (New York or NYS), and its subsidiaries provide deposit, lending and other financial
services to individuals and businesses in Central and Western New York. The Company owns all of
the capital stock of Five Star Bank, a New York State chartered bank, and Five Star Investment
Services, Inc., a broker-dealer subsidiary offering noninsured investment products. The Company
also owns 100% of FISI Statutory Trust I (the Trust), which was formed in February 2001 for the
purpose of issuing trust preferred securities. References to the Company mean the consolidated
reporting entities and references to the Bank mean Five Star Bank.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated in consolidation. The
accounting and reporting policies conform to U.S. generally accepted accounting principles
(GAAP). Certain information and footnote disclosures normally included in financial statements
prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and
regulations. However, in the opinion of management, the accompanying consolidated financial
statements reflect all adjustments of a normal and recurring nature necessary to present fairly the
consolidated balance sheet, statements of income, shareholders equity and cash flows for the
periods indicated, and contain adequate disclosure to make the information presented not
misleading. Prior years consolidated financial statements are re-classified whenever necessary to
conform to the current years presentation. These consolidated financial statements should be read
in conjunction with the Companys 2010 Annual Report on Form 10-K. The results of operations for
any interim periods are not necessarily indicative of the results which may be expected for the
entire year.
Use of Estimates
The preparation of these financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Material estimates relate
to the determination of the allowance for loan losses, assumptions used in the defined benefit
pension plan accounting, the carrying value of goodwill and deferred tax assets, and the valuation
and other than temporary impairment considerations related to the securities portfolio.
Cash Flow Information
Supplemental cash flow information addressing certain cash payments and noncash investing and
financing activities was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Cash payments: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
4,367 |
|
|
$ |
5,315 |
|
Income taxes |
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Real estate and other assets acquired in settlement of loans |
|
$ |
|
|
|
$ |
70 |
|
Accrued and declared unpaid dividends |
|
|
1,454 |
|
|
|
1,692 |
|
Increase in net unsettled security transactions |
|
|
19,360 |
|
|
|
4,896 |
|
Accretion of preferred stock discount |
|
|
1,305 |
|
|
|
90 |
|
Recent Accounting Pronouncements
FASB ASC 310 Receivables (ASC 310) was amended to enhance disclosures about credit quality of
financing receivables and the allowance for credit losses. The amendments require an entity to
disclose credit quality information, such as internal risk grades, more detailed nonaccrual and
past due information, and modifications of its financing receivables. The disclosures under ASC
310, as amended, were effective for interim and annual reporting periods ending on or after
December 15, 2010. This amendment did not have a significant impact on the Companys statement of
income and condition, but it has significantly expanded the disclosures that we are required to
provide.
- 7 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On April 5, 2011, the FASB issued ASU 2011-02 A Creditors Determination of Whether a
Restructuring is a Troubled Debt Restructuring, which clarifies when creditors should classify
loan modifications as troubled debt restructurings. The guidance is effective for interim and
annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings
occurring on or after the beginning of the year. The guidance on measuring the impairment of a
receivable restructured in a troubled debt restructuring, as clarified, is effective on a
prospective basis. The adoption of this ASU is not expected to have a material impact on the
Companys statement of income and condition.
(2.) EARNINGS PER COMMON SHARE (EPS)
The following table presents a reconciliation of the earnings and shares used in calculating basic
and diluted EPS for the three months ended March 31, 2011 and 2010 (in thousands, except per share
amounts).
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March, |
|
|
|
2011 |
|
|
2010 |
|
Net income available to common shareholders |
|
$ |
3,745 |
|
|
$ |
4,399 |
|
Less: Earnings allocated to participating securities |
|
|
10 |
|
|
|
30 |
|
|
|
|
|
|
|
|
Earnings allocated to common shares outstanding |
|
$ |
3,735 |
|
|
$ |
4,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used to calculate basic EPS |
|
|
11,336 |
|
|
|
10,746 |
|
Add: Effect of common stock equivalents |
|
|
131 |
|
|
|
55 |
|
|
|
|
|
|
|
|
Weighted average common shares used to calculate diluted EPS |
|
|
11,467 |
|
|
|
10,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.33 |
|
|
$ |
0.41 |
|
Diluted |
|
$ |
0.33 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
Shares subject to the following securities, outstanding
as of March 31 of the respective year, were
excluded from the computation of diluted EPS because
the effect would be antidilutive: |
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
352 |
|
|
|
451 |
|
Restricted stock awards |
|
|
27 |
|
|
|
|
|
Warrant |
|
|
|
|
|
|
378 |
|
|
|
|
|
|
|
|
|
|
|
379 |
|
|
|
829 |
|
|
|
|
|
|
|
|
- 8 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(3.) INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and government
sponsored enterprises |
|
$ |
135,621 |
|
|
$ |
926 |
|
|
$ |
2,246 |
|
|
$ |
134,301 |
|
State and political subdivisions |
|
|
118,496 |
|
|
|
1,584 |
|
|
|
1,172 |
|
|
|
118,908 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association |
|
|
113,372 |
|
|
|
655 |
|
|
|
624 |
|
|
|
113,403 |
|
Federal Home Loan Mortgage Corporation |
|
|
87,753 |
|
|
|
288 |
|
|
|
495 |
|
|
|
87,546 |
|
Government National Mortgage Association |
|
|
98,304 |
|
|
|
2,445 |
|
|
|
68 |
|
|
|
100,681 |
|
Collateralized mortgage obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association |
|
|
12,965 |
|
|
|
217 |
|
|
|
11 |
|
|
|
13,171 |
|
Federal Home Loan Mortgage Corporation |
|
|
14,273 |
|
|
|
332 |
|
|
|
1 |
|
|
|
14,604 |
|
Government National Mortgage Association |
|
|
106,319 |
|
|
|
1,897 |
|
|
|
90 |
|
|
|
108,126 |
|
Privately issued |
|
|
784 |
|
|
|
671 |
|
|
|
|
|
|
|
1,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total collateralized mortgage obligations |
|
|
134,341 |
|
|
|
3,117 |
|
|
|
102 |
|
|
|
137,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
433,770 |
|
|
|
6,505 |
|
|
|
1,289 |
|
|
|
438,986 |
|
Asset-backed securities |
|
|
564 |
|
|
|
188 |
|
|
|
135 |
|
|
|
617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale securities |
|
$ |
688,451 |
|
|
$ |
9,203 |
|
|
$ |
4,842 |
|
|
$ |
692,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions |
|
$ |
25,284 |
|
|
$ |
675 |
|
|
$ |
|
|
|
$ |
25,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and government
sponsored enterprises |
|
$ |
141,591 |
|
|
$ |
1,158 |
|
|
$ |
1,965 |
|
|
$ |
140,784 |
|
State and political subdivisions |
|
|
105,622 |
|
|
|
1,516 |
|
|
|
1,472 |
|
|
|
105,666 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association |
|
|
96,300 |
|
|
|
798 |
|
|
|
1,030 |
|
|
|
96,068 |
|
Federal Home Loan Mortgage Corporation |
|
|
83,745 |
|
|
|
321 |
|
|
|
1,317 |
|
|
|
82,749 |
|
Government National Mortgage Association |
|
|
102,633 |
|
|
|
2,422 |
|
|
|
7 |
|
|
|
105,048 |
|
Collateralized mortgage obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association |
|
|
8,938 |
|
|
|
231 |
|
|
|
11 |
|
|
|
9,158 |
|
Federal Home Loan Mortgage Corporation |
|
|
15,917 |
|
|
|
329 |
|
|
|
1 |
|
|
|
16,245 |
|
Government National Mortgage Association |
|
|
106,969 |
|
|
|
1,761 |
|
|
|
289 |
|
|
|
108,441 |
|
Privately issued |
|
|
981 |
|
|
|
591 |
|
|
|
|
|
|
|
1,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total collateralized mortgage obligations |
|
|
132,805 |
|
|
|
2,912 |
|
|
|
301 |
|
|
|
135,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
415,483 |
|
|
|
6,453 |
|
|
|
2,655 |
|
|
|
419,281 |
|
Asset-backed securities |
|
|
564 |
|
|
|
204 |
|
|
|
131 |
|
|
|
637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale securities |
|
$ |
663,260 |
|
|
$ |
9,331 |
|
|
$ |
6,223 |
|
|
$ |
666,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions |
|
$ |
28,162 |
|
|
$ |
687 |
|
|
$ |
|
|
|
$ |
28,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of available for sale securities during the three months ended March 31, 2011.
For the three months ended March 31, 2010, proceeds from sales of securities available for sale
were $13.0 million and gross realized gains were $6 thousand.
- 9 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(3.) INVESTMENT SECURITIES (Continued)
The scheduled maturities of securities available for sale and securities held to maturity at March
31, 2011 are shown below (in thousands). Actual expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
Debt securities available for sale: |
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
36,981 |
|
|
$ |
37,254 |
|
Due from one to five years |
|
|
98,915 |
|
|
|
100,948 |
|
Due after five years through ten years |
|
|
242,407 |
|
|
|
238,532 |
|
Due after ten years |
|
|
310,148 |
|
|
|
316,078 |
|
|
|
|
|
|
|
|
|
|
$ |
688,451 |
|
|
$ |
692,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities held to maturity: |
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
17,904 |
|
|
$ |
18,036 |
|
Due from one to five years |
|
|
6,180 |
|
|
|
6,529 |
|
Due after five years through ten years |
|
|
1,022 |
|
|
|
1,180 |
|
Due after ten years |
|
|
178 |
|
|
|
214 |
|
|
|
|
|
|
|
|
|
|
$ |
25,284 |
|
|
$ |
25,959 |
|
|
|
|
|
|
|
|
The following tables show the investments gross unrealized losses and fair value, aggregated by
investment category and length of time that individual securities have been in a continuous
unrealized loss position at March 31, 2011 and December 31, 2010 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and government
sponsored enterprises |
|
$ |
47,330 |
|
|
$ |
2,208 |
|
|
$ |
8,663 |
|
|
$ |
38 |
|
|
$ |
55,993 |
|
|
$ |
2,246 |
|
State and political subdivisions |
|
|
49,139 |
|
|
|
1,172 |
|
|
|
|
|
|
|
|
|
|
|
49,139 |
|
|
|
1,172 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association |
|
|
44,523 |
|
|
|
624 |
|
|
|
|
|
|
|
|
|
|
|
44,523 |
|
|
|
624 |
|
Federal Home Loan Mortgage Corporation |
|
|
58,450 |
|
|
|
495 |
|
|
|
|
|
|
|
|
|
|
|
58,450 |
|
|
|
495 |
|
Government National Mortgage Association |
|
|
4,952 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
4,952 |
|
|
|
68 |
|
Collateralized mortgage obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association |
|
|
|
|
|
|
|
|
|
|
2,097 |
|
|
|
11 |
|
|
|
2,097 |
|
|
|
11 |
|
Federal Home Loan Mortgage Corporation |
|
|
492 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
492 |
|
|
|
1 |
|
Government National Mortgage Association |
|
|
14,298 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
14,298 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total collateralized mortgage obligations |
|
|
14,790 |
|
|
|
91 |
|
|
|
2,097 |
|
|
|
11 |
|
|
|
16,887 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
122,715 |
|
|
|
1,278 |
|
|
|
2,097 |
|
|
|
11 |
|
|
|
124,812 |
|
|
|
1,289 |
|
Asset-backed securities |
|
|
109 |
|
|
|
63 |
|
|
|
95 |
|
|
|
72 |
|
|
|
204 |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
$ |
219,293 |
|
|
$ |
4,721 |
|
|
$ |
10,855 |
|
|
$ |
121 |
|
|
$ |
230,148 |
|
|
$ |
4,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(3.) INVESTMENT SECURITIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and government
sponsored enterprises |
|
$ |
47,752 |
|
|
$ |
1,911 |
|
|
$ |
8,821 |
|
|
$ |
54 |
|
|
$ |
56,573 |
|
|
$ |
1,965 |
|
State and political subdivisions |
|
|
38,398 |
|
|
|
1,472 |
|
|
|
|
|
|
|
|
|
|
|
38,398 |
|
|
|
1,472 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association |
|
|
46,777 |
|
|
|
1,030 |
|
|
|
|
|
|
|
|
|
|
|
46,777 |
|
|
|
1,030 |
|
Federal Home Loan Mortgage Corporation |
|
|
60,707 |
|
|
|
1,317 |
|
|
|
|
|
|
|
|
|
|
|
60,707 |
|
|
|
1,317 |
|
Government National Mortgage Association |
|
|
5,135 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
5,135 |
|
|
|
7 |
|
Collateralized mortgage obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association |
|
|
|
|
|
|
|
|
|
|
2,332 |
|
|
|
11 |
|
|
|
2,332 |
|
|
|
11 |
|
Federal Home Loan Mortgage Corporation |
|
|
612 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
612 |
|
|
|
1 |
|
Government National Mortgage Association |
|
|
17,798 |
|
|
|
289 |
|
|
|
|
|
|
|
|
|
|
|
17,798 |
|
|
|
289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total collateralized mortgage obligations |
|
|
18,410 |
|
|
|
290 |
|
|
|
2,332 |
|
|
|
11 |
|
|
|
20,742 |
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
131,029 |
|
|
|
2,644 |
|
|
|
2,332 |
|
|
|
11 |
|
|
|
133,361 |
|
|
|
2,655 |
|
Asset-backed securities |
|
|
111 |
|
|
|
61 |
|
|
|
96 |
|
|
|
70 |
|
|
|
207 |
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
$ |
217,290 |
|
|
$ |
6,088 |
|
|
$ |
11,249 |
|
|
$ |
135 |
|
|
$ |
228,539 |
|
|
$ |
6,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company reviews investment securities on an ongoing basis for the presence of
other-than-temporary impairment (OTTI) with formal reviews performed quarterly. When evaluating
debt securities for OTTI, 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 Company has the intention to sell the debt security or whether it
is more likely than not that it will be required to sell the debt security before its anticipated
recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and
judgment and is based on the information available to management at a point in time.
At March 31, 2011, the Company had positions in 17 investment securities with an amortized cost of
$11.0 million and an unrealized loss of $121 thousand that have been in a continuous unrealized
loss position for more than 12 months. Asset-backed securities accounted for $72 thousand of the
unrealized loss on these securities.
There were a total of 160 securities positions in the Companys investment portfolio with an
amortized cost of $224.0 million and a total unrealized loss of $4.7 million at March 31, 2011,
that have been in a continuous unrealized loss position for less than 12 months. The unrealized
loss on these investment securities was predominantly caused by changes in market interest rates,
average life or credit spreads subsequent to purchase. The fair value of most of the investment
securities in the Companys portfolio fluctuates as market interest rates change.
Based on managements review and evaluation of the Companys debt securities as of March 31, 2011,
the debt securities with unrealized losses were not considered to be OTTI. As of March 31, 2011,
the Company does not intend to sell any debt securities which have an unrealized loss, it is
unlikely the Company will be required to sell these securities before recovery and expects to
recover the entire amortized cost of these impaired securities.
- 11 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(4.) LOANS
The Companys loan portfolio consisted of the following as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Deferred |
|
|
|
|
|
|
|
|
|
|
Loan (Fees) |
|
|
|
|
|
|
Loans, Gross |
|
|
Costs |
|
|
Loans, Net |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
209,259 |
|
|
$ |
120 |
|
|
$ |
209,379 |
|
Commercial mortgage |
|
|
362,282 |
|
|
|
(569 |
) |
|
|
361,713 |
|
Residential mortgage |
|
|
123,572 |
|
|
|
22 |
|
|
|
123,594 |
|
Home equity |
|
|
206,608 |
|
|
|
3,353 |
|
|
|
209,961 |
|
Consumer indirect |
|
|
404,806 |
|
|
|
18,015 |
|
|
|
422,821 |
|
Other consumer |
|
|
24,888 |
|
|
|
163 |
|
|
|
25,051 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,331,415 |
|
|
$ |
21,104 |
|
|
|
1,352,519 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
(20,119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net |
|
|
|
|
|
|
|
|
|
$ |
1,332,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
210,948 |
|
|
$ |
83 |
|
|
$ |
211,031 |
|
Commercial mortgage |
|
|
353,537 |
|
|
|
(607 |
) |
|
|
352,930 |
|
Residential mortgage |
|
|
129,553 |
|
|
|
27 |
|
|
|
129,580 |
|
Home equity |
|
|
205,070 |
|
|
|
3,257 |
|
|
|
208,327 |
|
Consumer indirect |
|
|
400,221 |
|
|
|
17,795 |
|
|
|
418,016 |
|
Other consumer |
|
|
25,937 |
|
|
|
169 |
|
|
|
26,106 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,325,266 |
|
|
$ |
20,724 |
|
|
|
1,345,990 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
(20,466 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net |
|
|
|
|
|
|
|
|
|
$ |
1,325,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale (not included above) totaled $1.7 million and $3.1 million as of March 31, 2011
and December 31, 2010, respectively.
Past Due Loans Aging
The Companys recorded investment, by loan class, in current and nonaccrual loans, as well as an
analysis of accruing delinquent loans is set forth as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days |
|
|
60-89 Days |
|
|
Than 90 |
|
|
Total Past |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Past Due |
|
|
Past Due |
|
|
Days |
|
|
Due |
|
|
Nonaccrual |
|
|
Current |
|
|
Loans |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
76 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
76 |
|
|
$ |
901 |
|
|
$ |
208,282 |
|
|
$ |
209,259 |
|
Commercial mortgage |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
2,736 |
|
|
|
359,518 |
|
|
|
362,282 |
|
Residential mortgage |
|
|
355 |
|
|
|
|
|
|
|
|
|
|
|
355 |
|
|
|
2,192 |
|
|
|
121,025 |
|
|
|
123,572 |
|
Home equity |
|
|
209 |
|
|
|
|
|
|
|
|
|
|
|
209 |
|
|
|
835 |
|
|
|
205,564 |
|
|
|
206,608 |
|
Consumer indirect |
|
|
302 |
|
|
|
76 |
|
|
|
|
|
|
|
378 |
|
|
|
639 |
|
|
|
403,789 |
|
|
|
404,806 |
|
Other consumer |
|
|
90 |
|
|
|
3 |
|
|
|
3 |
|
|
|
96 |
|
|
|
12 |
|
|
|
24,780 |
|
|
|
24,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, gross |
|
$ |
1,060 |
|
|
$ |
79 |
|
|
$ |
3 |
|
|
$ |
1,142 |
|
|
$ |
7,315 |
|
|
$ |
1,322,958 |
|
|
$ |
1,331,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
172 |
|
|
$ |
92 |
|
|
$ |
|
|
|
$ |
264 |
|
|
$ |
947 |
|
|
$ |
209,737 |
|
|
$ |
210,948 |
|
Commercial mortgage |
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
163 |
|
|
|
3,100 |
|
|
|
350,274 |
|
|
|
353,537 |
|
Residential mortgage |
|
|
492 |
|
|
|
6 |
|
|
|
|
|
|
|
498 |
|
|
|
2,102 |
|
|
|
126,953 |
|
|
|
129,553 |
|
Home equity |
|
|
428 |
|
|
|
47 |
|
|
|
|
|
|
|
475 |
|
|
|
875 |
|
|
|
203,720 |
|
|
|
205,070 |
|
Consumer indirect |
|
|
656 |
|
|
|
107 |
|
|
|
|
|
|
|
763 |
|
|
|
514 |
|
|
|
398,944 |
|
|
|
400,221 |
|
Other consumer |
|
|
82 |
|
|
|
1 |
|
|
|
3 |
|
|
|
86 |
|
|
|
41 |
|
|
|
25,810 |
|
|
|
25,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, gross |
|
$ |
1,993 |
|
|
$ |
253 |
|
|
$ |
3 |
|
|
$ |
2,249 |
|
|
$ |
7,579 |
|
|
$ |
1,315,438 |
|
|
$ |
1,325,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 12 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(4.) LOANS (Continued)
There were no loans past due greater than 90 days and still accruing interest as of March 31, 2011
and December 31, 2010. As of March 31, 2011 and December 31, 2010, there were $3 thousand in
consumer overdrafts which were past due greater than 90 days. Consumer overdrafts are overdrawn
deposit accounts which have been reclassified as loans but by their terms do not accrue interest.
Troubled Debt Restructurings
Troubled debt restructurings (TDRs) are loans where the Company, for economic or legal reasons
related to the borrowers financial condition, has granted a significant concession to the borrower
that it would not otherwise consider. TDRs can be classified as either accrual or nonaccrual
loans. The Company had no TDRs on which it continued to accrue interest at March 31, 2011 or
December 31, 2010. Included in nonaccrual loans are commercial TDRs of $525 thousand and $534
thousand at March 31, 2011 and December 31, 2010, respectively. The Company assigned $90 thousand
and $137 thousand of specific reserves to loans classified as TDRs as of March 31, 2011 and
December 31, 2010, respectively. TDRs typically migrate from the Companys criticized and
classified watch list and are assigned specific reserves in accordance with the Companys standard
allowance for loan loss methodology.
Impaired Loans
Management has determined that specific commercial loans on nonaccrual status and all loans that
have had their terms restructured in a troubled debt restructuring are impaired loans. The
following table presents data on impaired loans as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
Recorded |
|
|
Principal |
|
|
Related |
|
|
Recorded |
|
|
Income |
|
|
|
Investment |
|
|
Balance |
|
|
Allowance |
|
|
Investment |
|
|
Recognized |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
124 |
|
|
$ |
269 |
|
|
$ |
|
|
|
$ |
358 |
|
|
$ |
|
|
Commercial mortgage |
|
|
468 |
|
|
|
468 |
|
|
|
|
|
|
|
443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
592 |
|
|
|
737 |
|
|
|
|
|
|
|
801 |
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
778 |
|
|
|
778 |
|
|
|
261 |
|
|
|
615 |
|
|
|
|
|
Commercial mortgage |
|
|
2,267 |
|
|
|
2,275 |
|
|
|
522 |
|
|
|
2,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,045 |
|
|
|
3,053 |
|
|
|
783 |
|
|
|
3,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,637 |
|
|
$ |
3,790 |
|
|
$ |
783 |
|
|
$ |
4,027 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
372 |
|
|
$ |
524 |
|
|
$ |
|
|
|
$ |
275 |
|
|
$ |
|
|
Commercial mortgage |
|
|
187 |
|
|
|
187 |
|
|
|
|
|
|
|
481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
559 |
|
|
|
711 |
|
|
|
|
|
|
|
756 |
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
576 |
|
|
|
576 |
|
|
|
149 |
|
|
|
1,828 |
|
|
|
|
|
Commercial mortgage |
|
|
2,913 |
|
|
|
2,921 |
|
|
|
883 |
|
|
|
1,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,489 |
|
|
|
3,497 |
|
|
|
1,032 |
|
|
|
3,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,048 |
|
|
$ |
4,208 |
|
|
$ |
1,032 |
|
|
$ |
4,481 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 13 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(4.) LOANS (Continued)
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability
of borrowers to service their debt such as: current financial information, historical payment
experience, credit documentation, public information, and current economic trends, among other
factors such as the fair value of collateral. The Company analyzes commercial business and
commercial mortgage loans individually by classifying the loans as to credit risk. Risk ratings
are updated any time the situation warrants. The Company uses the following definitions for risk
ratings:
|
|
Special Mention: Loans classified as special mention have a potential weakness that deserves
managements close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the loan or of the Companys credit position at
some future date. |
|
|
Substandard: Loans classified as substandard are inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified
have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They
are characterized by the distinct possibility that the Company will sustain some loss if the
deficiencies are not corrected. |
|
|
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as
Substandard, with the added characteristic that the weaknesses make collection or liquidation in
full, on the basis of currently existing facts, conditions, and values, highly questionable and
improbable. |
|
|
Loans not meeting the criteria above that are analyzed individually as part of the process
described above are considered Uncriticized or pass-rated loans and are included in groups of
homogeneous loans with similar risk and loss characteristics. |
The following table sets forth the Companys commercial loan portfolio, categorized by internally
assigned asset classification, as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
Commercial |
|
|
|
Business |
|
|
Mortgage |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
Uncriticized |
|
$ |
193,971 |
|
|
$ |
347,629 |
|
Special mention |
|
|
8,549 |
|
|
|
5,233 |
|
Substandard |
|
|
6,739 |
|
|
|
9,420 |
|
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
209,259 |
|
|
$ |
362,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
Uncriticized |
|
$ |
194,510 |
|
|
$ |
338,061 |
|
Special mention |
|
|
11,479 |
|
|
|
4,931 |
|
Substandard |
|
|
4,959 |
|
|
|
10,545 |
|
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
210,948 |
|
|
$ |
353,537 |
|
|
|
|
|
|
|
|
The Company utilizes payment status as a means of identifying and reporting problem and potential
problem retail loans. The Company considers nonaccrual loans and loans past due greater than 90
days and still accruing interest to be non-performing. The following table sets forth the
Companys retail loan portfolio, categorized by payment status, as of the dates indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
Home |
|
|
Consumer |
|
|
Other |
|
|
|
Mortgage |
|
|
Equity |
|
|
Indirect |
|
|
Consumer |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
$ |
121,380 |
|
|
$ |
205,773 |
|
|
$ |
404,167 |
|
|
$ |
24,876 |
|
Non-performing |
|
|
2,192 |
|
|
|
835 |
|
|
|
639 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
123,572 |
|
|
$ |
206,608 |
|
|
$ |
404,806 |
|
|
$ |
24,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
$ |
127,451 |
|
|
$ |
204,195 |
|
|
$ |
399,707 |
|
|
$ |
25,896 |
|
Non-performing |
|
|
2,102 |
|
|
|
875 |
|
|
|
514 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
129,553 |
|
|
$ |
205,070 |
|
|
$ |
400,221 |
|
|
$ |
25,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 14 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(4.) LOANS (Continued)
Allowance for Loan Losses
The following table sets forth the changes in the allowance for loan losses for the three months
ended March 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
Commercial |
|
|
Residential |
|
|
Home |
|
|
Consumer |
|
|
Other |
|
|
|
|
|
|
Business |
|
|
Mortgage |
|
|
Mortgage |
|
|
Equity |
|
|
Indirect |
|
|
Consumer |
|
|
Total |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
3,712 |
|
|
$ |
6,431 |
|
|
$ |
1,013 |
|
|
$ |
972 |
|
|
$ |
7,754 |
|
|
$ |
584 |
|
|
$ |
20,466 |
|
Charge-offs |
|
|
90 |
|
|
|
344 |
|
|
|
2 |
|
|
|
107 |
|
|
|
1,290 |
|
|
|
211 |
|
|
|
2,044 |
|
Recoveries |
|
|
154 |
|
|
|
16 |
|
|
|
27 |
|
|
|
10 |
|
|
|
552 |
|
|
|
128 |
|
|
|
887 |
|
Provision (credit) |
|
|
245 |
|
|
|
(195 |
) |
|
|
(22 |
) |
|
|
155 |
|
|
|
598 |
|
|
|
29 |
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
4,021 |
|
|
$ |
5,908 |
|
|
$ |
1,016 |
|
|
$ |
1,030 |
|
|
$ |
7,614 |
|
|
$ |
530 |
|
|
$ |
20,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated for impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
|
$ |
261 |
|
|
$ |
522 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively |
|
$ |
3,760 |
|
|
$ |
5,386 |
|
|
$ |
1,016 |
|
|
$ |
1,030 |
|
|
|
7,614 |
|
|
$ |
530 |
|
|
$ |
19,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
209,259 |
|
|
$ |
362,282 |
|
|
$ |
123,572 |
|
|
$ |
206,608 |
|
|
$ |
404,806 |
|
|
$ |
24,888 |
|
|
$ |
1,331,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated for impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
|
$ |
902 |
|
|
$ |
2,735 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively |
|
$ |
208,357 |
|
|
$ |
359,547 |
|
|
$ |
123,572 |
|
|
$ |
206,608 |
|
|
$ |
404,806 |
|
|
$ |
24,888 |
|
|
$ |
1,327,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses during the three months ended March 31, 2010 was as
follows (in thousands):
|
|
|
|
|
Beginning balance |
|
$ |
20,741 |
|
Charge-offs |
|
|
1,613 |
|
Recoveries |
|
|
1,040 |
|
Provision |
|
|
418 |
|
|
|
|
|
Ending balance |
|
$ |
20,586 |
|
|
|
|
|
Risk Characteristics
Commercial business loans primarily consist of loans to small to mid-sized businesses in our market
area in a diverse range of industries. These loans are of higher risk and typically are made on
the basis of the borrowers ability to make repayment from the cash flow of the borrowers
business. Further, the collateral securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value. The credit risk related to commercial loans is largely
influenced by general economic conditions and the resulting impact on a borrowers operations or on
the value of underlying collateral, if any.
Commercial mortgage loans generally have larger balances and involve a greater degree of risk than
residential mortgage loans, inferring higher potential losses on an individual customer basis.
Loan repayment is often dependent on the successful operation and management of the properties, as
well as on the collateral securing the loan. Economic events or conditions in the real estate
market could have an adverse impact on the cash flows generated by properties securing the
Companys commercial real estate loans and on the value of such properties.
Residential mortgage loans and home equities (comprised of home equity loans and home equity lines)
are generally made on the basis of the borrowers ability to make repayment from his or her
employment and other income, but are secured by real property whose value tends to be more easily
ascertainable. Credit risk for these types of loans is generally influenced by general economic
conditions, the characteristics of individual borrowers, and the nature of the loan collateral.
Consumer indirect and other consumer loans may entail greater credit risk than residential mortgage
loans and home equities, particularly in the case of other consumer loans which are unsecured or,
in the case of indirect consumer loans, secured by depreciable assets, such as automobiles or
boats. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance. In addition, consumer loan
collections are dependent on the borrowers continuing financial stability, thus are more likely to
be affected by adverse personal circumstances such as job loss, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including bankruptcy and insolvency
laws, may limit the amount which can be recovered on such loans.
- 15 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(5.) SHAREHOLDERS EQUITY
Common Stock
The changes in shares of common stock were as follows for three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Treasury |
|
|
Issued |
|
Shares outstanding at December 31, 2010 |
|
|
10,937,506 |
|
|
|
410,616 |
|
|
|
11,348,122 |
|
Shares issued in common stock offering |
|
|
2,813,475 |
|
|
|
|
|
|
|
2,813,475 |
|
Restricted stock awards issued |
|
|
45,870 |
|
|
|
(45,870 |
) |
|
|
|
|
Stock options exercised |
|
|
6,357 |
|
|
|
(6,357 |
) |
|
|
|
|
Treasury stock purchases |
|
|
(10,018 |
) |
|
|
10,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at March 31, 2011 |
|
|
13,793,190 |
|
|
|
368,407 |
|
|
|
14,161,597 |
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock
During the three months ended March 31, 2011, the Company completed the sale of 2,813,475 shares of
its common stock through an underwritten public offering at a price of $16.35 per share. The net
proceeds of the offering, after deducting underwriting discounts and commissions and offering
expenses, were $43.1 million. A portion of the proceeds from this offering was used to redeem the
Companys Series A preferred stock as described in greater detail below.
Redemption of Series A Preferred Stock
In December 2008, under the U.S. Department of the Treasurys (the Treasury) Troubled Asset
Relief Program (TARP) Capital Purchase Program, the Company entered into a Securities Purchase
Agreement Standard Terms with the Treasury pursuant to which, among other things, the Company
sold to the Treasury for an aggregate purchase price of $37.5 million, 7,503 shares of fixed rate
cumulative perpetual preferred stock, Series A (Series A preferred stock) and a warrant to
purchase up to 378,175 shares of common stock, par value $0.01 per share, at an exercise price of
$14.88 per share (the Warrant), of the Company.
Pursuant to the terms of the Purchase Agreement, the Companys ability to declare or pay dividends
on any of its shares was limited. Specifically, the Company was prohibited from paying any dividend
with respect to shares of common stock, other junior securities or preferred stock ranking pari
passu with the Series A preferred stock or repurchasing or redeeming any shares of the Companys
common stock, other junior securities or preferred stock ranking pari passu with the Series A
preferred stock in any quarter unless all accrued and unpaid dividends are paid on the Series A
preferred stock for all past dividend periods (including the latest completed dividend period),
subject to certain limited exceptions.
The $37.5 million in proceeds was allocated to the Series A preferred stock and the Warrant based
on their relative fair values at issuance ($35.5 million was allocated to the Series A preferred
stock and $2.0 million to the Warrant). The resulting discount for the Series A preferred stock
was to be accreted over five years through retained earnings as a preferred stock dividend. The
Warrant was to remain in additional paid-in-capital at its initial book value until it was
exercised or expired.
On February 23, 2011, the Company redeemed one-third, or $12.5 million, of the Series A preferred
stock. On March 30, 2011, the remaining $25.0 million of the Series A Fixed Preferred Stock was
redeemed. The unamortized discount related to the Series A preferred stock was charged to retained
earnings upon redemption. The complete redemption of the Series A preferred stock removed the TARP
restrictions pertaining to the Companys ability to declare and pay dividends and repurchase its
common stock, as well as certain restrictions associated with executive compensation.
At the time of the redemption the Company announced its intent to repurchase the related warrant
issued to the Treasury. The Company is currently negotiating with the Treasury to repurchase the
outstanding Warrant. There can be no assurance that an acceptable price for repurchasing the
Warrant from the Treasury can be negotiated.
- 16 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(5.) SHAREHOLDERS EQUITY (Continued)
Comprehensive Income (Loss)
Presented below is a reconciliation of net income to comprehensive income including the components
of other comprehensive income for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
Pre-tax |
|
|
Expense |
|
|
Net-of-tax |
|
|
Pre-tax |
|
|
Expense |
|
|
Net-of-tax |
|
|
|
Amount |
|
|
(Benefit) |
|
|
Amount |
|
|
Amount |
|
|
(Benefit) |
|
|
Amount |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains arising during the period |
|
$ |
1,255 |
|
|
$ |
497 |
|
|
$ |
758 |
|
|
$ |
2,103 |
|
|
$ |
813 |
|
|
$ |
1,290 |
|
Reclassification adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized net gains included in income |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(6 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
Impairment charges included in income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526 |
|
|
|
204 |
|
|
|
322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,252 |
|
|
|
496 |
|
|
|
756 |
|
|
|
2,623 |
|
|
|
1,015 |
|
|
|
1,608 |
|
Pension and post-retirement benefit liabilities |
|
|
145 |
|
|
|
58 |
|
|
|
87 |
|
|
|
106 |
|
|
|
41 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
$ |
1,397 |
|
|
$ |
554 |
|
|
|
843 |
|
|
$ |
2,729 |
|
|
$ |
1,056 |
|
|
|
1,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
5,820 |
|
|
|
|
|
|
|
|
|
|
|
5,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
$ |
6,663 |
|
|
|
|
|
|
|
|
|
|
$ |
7,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive loss, net of tax, for the periods indicated were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Net actuarial loss and prior service cost on defined benefit pension and post-retirement plans |
|
$ |
(6,512 |
) |
|
$ |
(6,599 |
) |
Net unrealized gain on securities available for sale |
|
|
2,633 |
|
|
|
1,877 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
$ |
(3,879 |
) |
|
$ |
(4,722 |
) |
|
|
|
|
|
|
|
(6.) SHARE-BASED COMPENSATION PLANS
The Company maintains certain stock-based compensation plans, approved by the Companys
shareholders that are administered by the Board, or the Management Development and Compensation
Committee of the Board. The share-based compensation plans were established to allow for the
granting of compensation awards to attract, motivate and retain employees, executive officers and
non-employee directors who contribute to the success and profitability of the Company and to give
such persons a proprietary interest in the Company, thereby enhancing their personal interest in
the Companys success.
The Company awarded grants of 45,870 restricted shares to certain members of management during the
three months ended March 31, 2011. The weighted average market price of the restricted shares on
the date of grant was $19.25. Either a service requirement or both service and performance
requirements must be satisfied before the participant becomes vested in the shares. Where
applicable, the performance period for the awards is the Companys fiscal year ending on December
31, 2011.
The following is a summary of restricted stock award activity for the three months ended March 31,
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Market |
|
|
|
Number of |
|
|
Price at |
|
|
|
Shares |
|
|
Grant Date |
|
Outstanding at beginning of year |
|
|
150,796 |
|
|
$ |
12.76 |
|
Granted |
|
|
45,870 |
|
|
|
19.25 |
|
Released |
|
|
(26,040 |
) |
|
|
14.14 |
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
170,626 |
|
|
$ |
14.29 |
|
|
|
|
|
|
|
|
|
- 17 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(6.) SHARE-BASED COMPENSATION PLANS (Continued)
The Company amortizes the expense related to restricted stock awards over the vesting period.
Share-based compensation expense is included in the consolidated statements of income under
salaries and employee benefits for awards granted to management and in other noninterest expense
for awards granted to directors. The share-based compensation expense included in the consolidated
statements of income is as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Stock options: |
|
|
|
|
|
|
|
|
Management Stock Incentive Plan |
|
$ |
14 |
|
|
$ |
26 |
|
Director Stock Incentive Plan |
|
|
10 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
Restricted stock awards: |
|
|
|
|
|
|
|
|
Management Stock Incentive Plan |
|
|
192 |
|
|
|
170 |
|
Director Stock Incentive Plan |
|
|
15 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
207 |
|
|
|
184 |
|
|
|
|
|
|
|
|
Total share-based compensation |
|
$ |
231 |
|
|
$ |
221 |
|
|
|
|
|
|
|
|
(7.) EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plan
The Company participates in The New York State Bankers Retirement System (the System), a defined
benefit pension plan covering substantially all employees, subject to the limitations related to
the plan closure effective December 31, 2006. The benefits are based on years of service and the
employees highest average compensation during five consecutive years of employment. The defined
benefit plan was closed to new participants effective December 31, 2006. Only employees hired on
or before December 31, 2006 and who met participation requirements on or before January 1, 2008 are
eligible to receive benefits.
The components of the Companys net periodic benefit expense for its pension plan were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Service cost |
|
$ |
439 |
|
|
$ |
408 |
|
Interest cost on projected benefit obligation |
|
|
507 |
|
|
|
483 |
|
Expected return on plan assets |
|
|
(663 |
) |
|
|
(611 |
) |
Amortization of unrecognized prior service cost |
|
|
4 |
|
|
|
3 |
|
Amortization of unrecognized loss |
|
|
152 |
|
|
|
115 |
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
439 |
|
|
$ |
398 |
|
|
|
|
|
|
|
|
The Companys funding policy is to contribute, at a minimum, an actuarially determined amount that
will satisfy the minimum funding requirements determined under the appropriate sections of Internal
Revenue Code. In December 2010, the Company contributed $4.3 million to the pension plan for
fiscal year 2011, which exceeded the minimum required contribution of $1.5 million.
- 18 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(8.) COMMITMENTS AND CONTINGENCIES
The Company has financial instruments with off-balance sheet risk established in the normal course
of business to meet the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk extending beyond amounts recognized in the
financial statements.
The Companys exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby letters of credit is essentially
the same as that involved with extending loans to customers. The Company uses the same credit
underwriting policies in making commitments and conditional obligations as for on-balance sheet
instruments.
Off-balance sheet commitments consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Commitments to extend credit |
|
$ |
362,228 |
|
|
$ |
357,240 |
|
Standby letters of credit |
|
|
6,549 |
|
|
|
6,524 |
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Commitments may expire without being
drawn upon; therefore, the total commitment amounts do not necessarily represent future cash
requirements. Each customers creditworthiness is evaluated on a case-by-case basis. The amount
of collateral obtained, if any, is based on managements credit evaluation of the borrower.
Standby letters of credit are conditional lending commitments issued by the Company to guarantee
the performance of a customer to a third party. These standby letters of credit are primarily
issued to support private borrowing arrangements. The credit risk involved in issuing standby
letters of credit is essentially the same as that involved in extending loan facilities to
customers.
The Company also extends rate lock agreements to borrowers related to the origination of
residential mortgage loans. To mitigate the interest rate risk inherent in these rate lock
agreements when the Company intends to sell the related loan, once originated, as well as closed
residential mortgage loans held for sale, the Company enters into forward commitments to sell
individual residential mortgages. Rate lock agreements and forward commitments are considered
derivatives and are recorded at fair value. Forward sales commitments totaled $839 thousand and
$8.0 million at March 31, 2011 and December 31, 2010, respectively.
(9.) FAIR VALUE MEASUREMENTS
Determination of Fair Value Assets Measured at Fair Value on a Recurring and Nonrecurring Basis
Valuation Hierarchy
The fair value of an asset or liability is the price that would be received to sell that asset or
paid to transfer that liability in an orderly transaction occurring in the principal market (or
most advantageous market in the absence of a principal market) for such asset or liability. ASC
Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for
valuation inputs that gives the highest priority to quoted prices in active markets for identical
assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is
as follows:
|
|
|
Level 1 - Unadjusted quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date. |
|
|
|
Level 2 - Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly. These might include
quoted prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not active, inputs other
than quoted prices that are observable for the asset or liability (such as interest rates,
volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally
from or corroborated by market data by correlation or other means. |
|
|
|
Level 3 - Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entitys own assumptions about the assumptions that market
participants would use in pricing the assets or liabilities. |
- 19 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(9.) FAIR VALUE MEASUREMENTS (Continued)
In general, fair value is based upon quoted market prices, where available. If such quoted market
prices are not available, fair value is based upon internally developed models that primarily use,
as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that
financial instruments are recorded at fair value. These adjustments may include amounts to reflect
counterparty credit quality and the companys creditworthiness, among other things, as well as
unobservable parameters. Any such valuation adjustments are applied consistently over time. The
Companys valuation methodologies may produce a fair value calculation that may not be indicative
of net realizable value or reflective of future fair values. While management believes the
Companys valuation methodologies are appropriate and consistent with other market participants,
the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different estimate of fair value at the reporting date. Furthermore,
the reported fair value amounts have not been comprehensively revalued since the presentation
dates, and therefore, estimates of fair value after the balance sheet date may differ significantly
from the amounts presented herein. A more detailed description of the valuation methodologies used
for assets and liabilities measured at fair value, as well as the general classification of such
instruments pursuant to the valuation hierarchy, is set forth below.
|
|
Investment securities available for sale: Pooled trust preferred securities are reported at
fair value utilizing Level 3 inputs. Fair values for these securities are determined through
the use of internal valuation methodologies appropriate for the specific asset, which may
include the use of a discounted expected cash flow analysis or the use of broker quotes. Other
securities classified as available for sale are reported at fair value utilizing Level 2 inputs.
For these securities, the Company obtains fair value measurements from an independent pricing
service. The fair value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution
data, market consensus prepayment speeds, credit information and the bonds terms and
conditions, among other things. |
|
|
Loans held for sale: The fair value of loans held for sale is determined using quoted secondary
market prices and investor commitments. Loans held for sale are classified as Level 2 in the
fair value hierarchy. |
|
|
Collateral dependent impaired loans: The fair value of impaired loans with specific allocations
of the allowance for loan losses is generally based on recent real estate appraisals. These
appraisals may utilize a single valuation approach or a combination of approaches including
comparable sales and the income approach. Adjustments are routinely made in the appraisal
process by the appraisers to adjust for differences between the comparable sales and income data
available. Such adjustments are typically significant and result in a Level 3 classification of
the inputs for determining fair value. |
|
|
Other real estate owned (Foreclosed assets): Nonrecurring adjustments to certain commercial and
residential real estate properties classified as other real estate owned are measured at the
lower of carrying amount or fair value, less costs to sell. Fair values are generally based on
third party appraisals of the property, resulting in a Level 3 classification. In cases where
the carrying amount exceeds the fair value, less costs to sell, an impairment loss is
recognized. |
|
|
Mortgage servicing rights: Mortgage servicing rights do not trade in an active market with
readily observable market data. As a result, the Company estimates the fair value of mortgage
servicing rights by using a discounted cash flow model to calculate the present value of
estimated future net servicing income. The assumptions used in the discounted cash flow model
are those that we believe market participants would use in estimating future net servicing
income, including estimates of loan prepayment rates, servicing costs, ancillary income, impound
account balances, and discount rates. Significant assumptions in the valuation of mortgage
servicing rights include changes in interest rates, estimated loan repayment rates, and the
timing of cash flows, among other factors. Mortgage servicing rights are classified as Level 3
measurements due to the use of significant unobservable inputs, as well as significant
management judgment and estimation. |
- 20 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(9.) FAIR VALUE MEASUREMENTS (Continued)
Assets Measured at Fair Value
The following table presents for each of the fair-value hierarchy levels the Companys assets that
are measured at fair value on a recurring and non-recurring basis as of March 31, 2011 (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
Inputs |
|
|
Inputs |
|
|
Inputs |
|
|
Fair Value |
|
Measured on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and
government sponsored enterprises |
|
$ |
|
|
|
$ |
134,301 |
|
|
$ |
|
|
|
$ |
134,301 |
|
State and political subdivisions |
|
|
|
|
|
|
118,908 |
|
|
|
|
|
|
|
118,908 |
|
Mortgage-backed securities |
|
|
|
|
|
|
438,986 |
|
|
|
|
|
|
|
438,986 |
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities |
|
|
|
|
|
|
|
|
|
|
567 |
|
|
|
567 |
|
Other |
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
692,245 |
|
|
$ |
567 |
|
|
$ |
692,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a nonrecurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
$ |
|
|
|
$ |
1,666 |
|
|
$ |
|
|
|
$ |
1,666 |
|
Collateral dependent impaired loans |
|
|
|
|
|
|
|
|
|
|
2,262 |
|
|
|
2,262 |
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
1,580 |
|
|
|
1,580 |
|
Other real estate owned |
|
|
|
|
|
|
|
|
|
|
568 |
|
|
|
568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
1,666 |
|
|
$ |
4,410 |
|
|
$ |
6,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents for each of the fair-value hierarchy levels the Companys assets that
are measured at fair value on a recurring and non-recurring basis as of December 31, 2010 (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
Inputs |
|
|
Inputs |
|
|
Inputs |
|
|
Fair Value |
|
Measured on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and
government sponsored enterprises |
|
$ |
|
|
|
$ |
140,784 |
|
|
$ |
|
|
|
$ |
140,784 |
|
State and political subdivisions |
|
|
|
|
|
|
105,666 |
|
|
|
|
|
|
|
105,666 |
|
Mortgage-backed securities |
|
|
|
|
|
|
419,281 |
|
|
|
|
|
|
|
419,281 |
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities |
|
|
|
|
|
|
|
|
|
|
572 |
|
|
|
572 |
|
Other |
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
665,796 |
|
|
$ |
572 |
|
|
$ |
666,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a nonrecurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
$ |
|
|
|
$ |
3,138 |
|
|
$ |
|
|
|
$ |
3,138 |
|
Collateral dependent impaired loans |
|
|
|
|
|
|
|
|
|
|
2,457 |
|
|
|
2,457 |
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
1,467 |
|
|
|
1,467 |
|
Other real estate owned |
|
|
|
|
|
|
|
|
|
|
741 |
|
|
|
741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
3,138 |
|
|
$ |
4,665 |
|
|
$ |
7,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no liabilities measured at fair value on a recurring or nonrecurring basis during the
three month periods ended March 31, 2011 and 2010.
- 21 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(9.) FAIR VALUE MEASUREMENTS (Continued)
Changes in Level 3 Fair Value Measurements
The reconciliation for all assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) is as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Securities available for sale (Level 3), beginning of period |
|
$ |
572 |
|
|
$ |
1,015 |
|
Transfers into Level 3 |
|
|
|
|
|
|
|
|
Capitalized interest |
|
|
110 |
|
|
|
86 |
|
Coupon payments applied to principal |
|
|
|
|
|
|
(35 |
) |
Total losses (realized/unrealized): |
|
|
|
|
|
|
|
|
Included in earnings |
|
|
|
|
|
|
(526 |
) |
Included in other comprehensive income |
|
|
(115 |
) |
|
|
121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale (Level 3), end of period |
|
$ |
567 |
|
|
$ |
661 |
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
The Fair Value of Financial Instruments Subsection of the ASC requires disclosure of the fair value
of financial assets and financial liabilities, including those financial assets and financial
liabilities that are not measured and reported at fair value on a recurring basis or non-recurring
basis.
The following discussion describes the valuation methodologies used for assets and liabilities
measured or disclosed at fair value. The techniques utilized in estimating the fair values of
financial instruments are reliant on the assumptions used, including discount rates and estimates
of the amount and timing of future cash flows. Care should be exercised in deriving conclusions
about our business, its value or financial position based on the fair value information of
financial instruments presented below.
Fair value estimates are made at a specific point in time, based on available market information
and judgments about the financial instrument, including estimates of timing, amount of expected
future cash flows and the credit standing of the issuer. Such estimates do not consider the tax
impact of the realization of unrealized gains or losses. In some cases, the fair value estimates
cannot be substantiated by comparison to independent markets. In addition, the disclosed fair
value may not be realized in the immediate settlement of the financial instrument.
The estimated fair value approximates carrying value for cash and cash equivalents, FHLB and FRB
stock, company owned life insurance, accrued interest receivable, short-term borrowings and accrued
interest payable. Fair value estimates for other financial instruments are discussed below.
|
|
Loans held for sale. The fair value is based on estimates, quoted market prices and investor
commitments. |
|
|
Loans. For variable rate loans that re-price frequently, fair value approximates carrying
amount. The fair value for fixed rate loans is estimated through discounted cash flow analysis
using interest rates currently being offered on loans with similar terms and credit quality. For
criticized and classified loans, fair value is estimated by discounting expected cash flows at a
rate commensurate with the risk associated with the estimated cash flows, or estimates of fair
value discounts based on observable market information. |
|
|
Deposits. The fair values for demand accounts, money market and savings deposits are equal to
their carrying amounts. The fair values of certificates of deposit are estimated using a
discounted cash flow approach that applies prevailing market interest rates for similar maturity
instruments. |
|
|
Long-term borrowings and junior subordinated debentures. The fair value for long-term borrowings
and junior subordinated debentures are estimated using a discounted cash flow approach that
applies prevailing market interest rates for similar maturity instruments. |
The fair value of a financial instrument is the current amount that would be exchanged between
willing parties, other than in a forced liquidation. Fair value is best determined based upon
quoted market prices. However, in many instances, there are no quoted market prices for the
Companys various financial instruments. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an
immediate settlement of the instrument. The accounting guidelines exclude certain financial
instruments and all non-financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented at March 31, 2011 and December 31, 2010 may not necessarily
represent the underlying fair value of the Company.
- 22 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(9.) FAIR VALUE MEASUREMENTS (Continued)
The estimated fair values of financial instruments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Estimated |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
94,535 |
|
|
$ |
94,535 |
|
|
$ |
39,058 |
|
|
$ |
39,058 |
|
Securities available for sale |
|
|
692,812 |
|
|
|
692,812 |
|
|
|
666,368 |
|
|
|
666,368 |
|
Securities held to maturity |
|
|
25,284 |
|
|
|
25,959 |
|
|
|
28,162 |
|
|
|
28,849 |
|
Loans held for sale |
|
|
1,666 |
|
|
|
1,693 |
|
|
|
3,138 |
|
|
|
3,138 |
|
Loans |
|
|
1,332,400 |
|
|
|
1,388,432 |
|
|
|
1,325,524 |
|
|
|
1,388,787 |
|
Accrued interest receivable |
|
|
8,403 |
|
|
|
8,403 |
|
|
|
7,613 |
|
|
|
7,613 |
|
FHLB and FRB stock |
|
|
6,350 |
|
|
|
6,350 |
|
|
|
6,353 |
|
|
|
6,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, savings and money market deposits |
|
|
1,243,285 |
|
|
|
1,243,285 |
|
|
|
1,143,136 |
|
|
|
1,143,136 |
|
Certificate of deposit |
|
|
726,296 |
|
|
|
726,337 |
|
|
|
739,754 |
|
|
|
740,440 |
|
Short-term borrowings |
|
|
42,060 |
|
|
|
42,060 |
|
|
|
77,110 |
|
|
|
77,110 |
|
Long-term borrowings (excluding junior subordinated debentures) |
|
|
10,000 |
|
|
|
10,098 |
|
|
|
10,065 |
|
|
|
10,244 |
|
Junior subordinated debentures |
|
|
16,702 |
|
|
|
10,492 |
|
|
|
16,702 |
|
|
|
10,564 |
|
Accrued interest payable |
|
|
7,053 |
|
|
|
7,053 |
|
|
|
7,620 |
|
|
|
7,620 |
|
- 23 -
|
|
|
ITEM 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q should be read in conjunction with the more detailed and
comprehensive disclosures included in our Annual Report on Form 10-K for the year ended December
31, 2010. In addition, please read this section in conjunction with our Consolidated Financial
Statements and Notes to Consolidated Financial Statements contained herein.
Statements and financial analysis contained in this document that are not historical facts are
forward looking statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the Act). In addition, certain statements may be contained in our
future filings with SEC, in press releases, and in oral and written statements made by or with our
approval that are not statements of historical fact and constitute forward-looking statement within
the meaning of the Act. Forward looking statements describe our future plans, strategies and
expectations and are based on certain assumptions. Words such as may, could, should,
would, believe, anticipate, estimate, expect, intend, plan, target, plan,
projects, and other similar expressions are intended to identify forward-looking statements but
are not the exclusive means of identifying such statements.
The Company cautions readers not to place undue reliance on any forward-looking statements, which
speak only as of the date made, and advises readers that various factors, including those described
above, could affect the Companys financial performance and could cause the Companys actual
results or circumstances for future periods to differ materially from those anticipated or
projected.
Except as required by law, the Company does not undertake, and specifically disclaims any
obligation to publicly release any revisions to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the date of such
statements.
RECENT DEVELOPMENTS
Common Stock Offering
On March 15, 2011, we completed the sale of 2,813,475 shares of our common stock through an
underwritten public offering at a price of $16.35 per share. The net proceeds of the offering,
after deducting underwriting discounts and commissions and offering expenses, amounted to $43.1
million. A portion of the proceeds from this offering was used to redeem the Companys Series A
preferred stock as described in greater detail below. The Company is also evaluating the potential
of redeeming the $16.7 million of 10.20% junior subordinated debentures related to the trust
preferred securities issued by an unconsolidated subsidiary. The Company expects to use the
remaining proceeds of this offering for general working capital purposes.
Redemption of Series A Preferred Stock
In the first quarter of 2011, the Company fully redeemed $37.5 million of its fixed rate cumulative
perpetual preferred stock, Series A (Series A preferred stock) issued in connection with the U.S.
Department of the Treasurys (the Treasury) Troubled Asset Relief Program (TARP) Capital
Purchase Program. The redemption was funded, in part, by the proceeds of the common stock offering
discussed above and from excess liquidity at the parent company. The redemption resulted in a
one-time, non-cash redemption charge of $1.2 million, reflecting the accelerated accretion of the
remaining discount on the preferred stock, which reduced first quarter 2011 diluted earnings per
common share by $0.11.
The complete redemption of the Series A preferred stock removed the TARP restrictions pertaining to
the Companys ability to declare and pay dividends and repurchase its common stock, as well as
certain restrictions associated with executive compensation.
At the time of the redemption, the Company announced its intent to repurchase the related warrant
issued to the Treasury. The Company is currently negotiating with the Treasury to repurchase the
outstanding warrant. There can be no assurance that an acceptable price for repurchasing the
warrant can be negotiated.
RESULTS OF OPERATIONS
Summary of Performance
Net income for the first quarter of 2011 was $5.8 million compared to $5.3 million for the first
quarter of 2010. Net income available to common shareholders for the first quarter of 2011 was
$3.7 million, or $0.33 per basic and diluted share. Comparatively, net income available to common
shareholders for the first quarter of 2010 was $4.4 million, or $0.41 and $0.40 earnings per basic
and diluted share, respectively. First quarter 2011 earnings per share was reduced by $1.2
million, or $0.11 per common share, for the accelerated discount accretion related to the Companys
redemption of the Series A preferred stock that had been issued to the Treasury pursuant to the
TARP Capital Purchase Program (the CPP preferred stock).
Return on average equity was 10.85% and return on average assets was 1.06% for the first quarter of
2011, compared to 10.67% and 1.02%, respectively, for the first quarter of 2010. The net interest
margin for the first three months of 2011 was 4.05% compared to 4.12% for the first three months of
2010.
- 24 -
MANAGEMENTS DISCUSSION AND ANALYSIS
Net Interest Income and Net Interest Margin
Net interest income is the primary source of our revenue. Net interest income is the difference
between interest income on interest-earning assets, such as loans and investment securities, and
the interest expense on interest-bearing deposits and other borrowings used to fund
interest-earning and other assets or activities. Net interest income is affected by changes in
interest rates and by the amount and composition of earning assets and interest-bearing
liabilities, as well as the sensitivity of the balance sheet to changes in interest rates,
including characteristics such as the fixed or variable nature of the financial instruments,
contractual maturities and repricing frequencies.
Interest rate spread and net interest margin are utilized to measure and explain changes in net
interest income. Interest rate spread is the difference between the yield on earning assets and the
rate paid for interest-bearing liabilities that fund those assets. The net interest margin is
expressed as the percentage of net interest income to average earning assets. The net interest
margin exceeds the interest rate spread because noninterest-bearing sources of funds (net free
funds), principally noninterest-bearing demand deposits and stockholders equity, also support
earning assets. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt
investment securities is computed on a taxable equivalent basis. Net interest income, interest
rate spread, and net interest margin are discussed on a taxable equivalent basis.
The following table reconciles interest income per the consolidated statements of income to
interest income adjusted to a fully taxable equivalent basis:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Interest income per consolidated statements of income |
|
$ |
23,639 |
|
|
$ |
23,824 |
|
Adjustment to fully taxable equivalent basis |
|
|
514 |
|
|
|
507 |
|
|
|
|
|
|
|
|
Interest income adjusted to a fully taxable equivalent basis |
|
|
24,153 |
|
|
|
24,331 |
|
Interest expense per consolidated statements of income |
|
|
3,801 |
|
|
|
4,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on a taxable equivalent basis |
|
$ |
20,352 |
|
|
$ |
19,759 |
|
|
|
|
|
|
|
|
Net interest income on a taxable equivalent basis for the three months ended March 31, 2011, was
$20.4 million, an increase of $593 thousand or 3% versus the comparable quarter last year. The
increase in taxable equivalent net interest income was primarily attributable to favorable volume
variances (as changes in the balances and mix of earning assets and interest-bearing liabilities
added $1.7 million to taxable equivalent net interest income), partly offset by unfavorable rate
variances (as the impact of changes in the interest rate environment and product pricing reduced
taxable equivalent net interest income by $1.1 million).
The net interest margin for the first three months of 2011 was 4.05%, 7 basis points lower than
4.12% for the same period in 2010. This comparable period decrease was a function of a 5 basis
point decrease in interest rate spread, combined with a 2 basis point lower contribution from net
free funds (due principally to lower rates on interest-bearing liabilities reducing the value of
noninterest-bearing deposits and other net free funds). The lower interest rate spread was a net
result of a 28 basis point decrease in the yield on earning assets and a 23 basis point decrease in
the cost of interest-bearing liabilities.
For the first quarter of 2011, the yield on average earning assets of 4.80% was 28 basis points
lower than the first quarter of 2010. Loan yields decreased 26 basis points to 5.71%. Residential
mortgage and consumer indirect loans in particular, down 47 and 53 basis points, respectively,
experienced lower yields given the competitive pricing pressures in a low interest rate
environment. The yield on investment securities dropped 47 basis points to 3.00%, also impacted by
the lower interest rate environment and prepayments of mortgage-related investment securities.
Overall, earning asset rate changes reduced interest income by $1.7 million.
The cost of average interest-bearing liabilities of 0.94% in the first quarter of 2011 was 23 basis
points lower than the first quarter of 2010. The average cost of interest-bearing deposits was
0.83% in 2011, 20 basis points lower than 2010, reflecting the lower rate environment, mitigated by
a focus on product pricing to retain balances. The cost of wholesale funding (comprised of
short-term borrowings and long-term borrowings) decreased 22 basis points to 3.12% for the first
quarter of 2011. The interest-bearing liability rate changes resulted in $637 thousand of lower
interest expense.
Average interest-earning assets were $2.031 billion for first quarter 2011, an increase of $95.4
million or 5% from the comparable quarter last year, with average loans up $86.1 million and
average securities up $23.4 million. The growth in average loans was comprised of increases in
consumer loans (up $70.9 million, primarily indirect loans) and commercial loans (up $30.4
million), while residential mortgages declined (down $15.2 million).
Average interest-bearing liabilities of $1.641 billion in first quarter of 2011 were $62.4 million
or 4% higher than the first quarter of 2010. On average, interest-bearing deposits grew $79.3
million (primarily attributable to $74.0 million higher retail deposits), while noninterest-bearing
demand deposits (a principal component of net free funds) were up $36.8 million. Average wholesale
funding balances decreased $16.9 million between the first quarter periods, with short-term
borrowing higher by $3.2 million and long-term funding lower by $20.1 million.
- 25 -
MANAGEMENTS DISCUSSION AND ANALYSIS
The following tables sets forth certain information relating to the consolidated balance sheets and
reflects the average yields earned on interest-earning assets, as well as the average rates paid on
interest-bearing liabilities for the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and interest-earning deposits |
|
$ |
258 |
|
|
$ |
|
|
|
|
0.21 |
% |
|
$ |
14,366 |
|
|
$ |
7 |
|
|
|
0.21 |
% |
Investment securities (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
545,079 |
|
|
|
3,649 |
|
|
|
2.68 |
|
|
|
541,906 |
|
|
|
4,213 |
|
|
|
3.11 |
|
Tax-exempt (2) |
|
|
136,525 |
|
|
|
1,469 |
|
|
|
4.30 |
|
|
|
116,275 |
|
|
|
1,493 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
681,604 |
|
|
|
5,118 |
|
|
|
3.00 |
|
|
|
658,181 |
|
|
|
5,706 |
|
|
|
3.47 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
207,669 |
|
|
|
2,473 |
|
|
|
4.83 |
|
|
|
204,905 |
|
|
|
2,464 |
|
|
|
4.88 |
|
Commercial mortgage |
|
|
361,228 |
|
|
|
5,231 |
|
|
|
5.87 |
|
|
|
333,579 |
|
|
|
4,976 |
|
|
|
6.05 |
|
Residential mortgage |
|
|
128,567 |
|
|
|
1,835 |
|
|
|
5.71 |
|
|
|
143,780 |
|
|
|
2,222 |
|
|
|
6.18 |
|
Home equity |
|
|
208,656 |
|
|
|
2,323 |
|
|
|
4.51 |
|
|
|
199,903 |
|
|
|
2,277 |
|
|
|
4.62 |
|
Consumer indirect |
|
|
417,833 |
|
|
|
6,525 |
|
|
|
6.33 |
|
|
|
352,778 |
|
|
|
5,966 |
|
|
|
6.86 |
|
Other consumer |
|
|
25,226 |
|
|
|
648 |
|
|
|
10.41 |
|
|
|
28,145 |
|
|
|
713 |
|
|
|
10.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
1,349,179 |
|
|
|
19,035 |
|
|
|
5.71 |
|
|
|
1,263,090 |
|
|
|
18,618 |
|
|
|
5.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,031,041 |
|
|
|
24,153 |
|
|
|
4.80 |
|
|
|
1,935,637 |
|
|
|
24,331 |
|
|
|
5.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(20,876 |
) |
|
|
|
|
|
|
|
|
|
|
(21,020 |
) |
|
|
|
|
|
|
|
|
Other noninterest-earning assets |
|
|
211,613 |
|
|
|
|
|
|
|
|
|
|
|
197,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,221,778 |
|
|
|
|
|
|
|
|
|
|
$ |
2,112,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand |
|
$ |
395,807 |
|
|
$ |
162 |
|
|
|
0.17 |
% |
|
$ |
392,896 |
|
|
$ |
189 |
|
|
|
0.20 |
% |
Savings and money market |
|
|
434,579 |
|
|
|
262 |
|
|
|
0.24 |
|
|
|
401,294 |
|
|
|
276 |
|
|
|
0.28 |
|
Certificates of deposit |
|
|
732,414 |
|
|
|
2,773 |
|
|
|
1.54 |
|
|
|
689,284 |
|
|
|
3,319 |
|
|
|
1.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
1,562,800 |
|
|
|
3,197 |
|
|
|
0.83 |
|
|
|
1,483,474 |
|
|
|
3,784 |
|
|
|
1.03 |
|
Short-term borrowings |
|
|
51,127 |
|
|
|
72 |
|
|
|
0.57 |
|
|
|
47,964 |
|
|
|
78 |
|
|
|
0.66 |
|
Long-term borrowings |
|
|
26,743 |
|
|
|
532 |
|
|
|
7.98 |
|
|
|
46,847 |
|
|
|
710 |
|
|
|
6.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
77,870 |
|
|
|
604 |
|
|
|
3.12 |
|
|
|
94,811 |
|
|
|
788 |
|
|
|
3.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,640,670 |
|
|
|
3,801 |
|
|
|
0.94 |
|
|
|
1,578,285 |
|
|
|
4,572 |
|
|
|
1.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
|
350,032 |
|
|
|
|
|
|
|
|
|
|
|
313,227 |
|
|
|
|
|
|
|
|
|
Other noninterest-bearing liabilities |
|
|
13,548 |
|
|
|
|
|
|
|
|
|
|
|
18,150 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
217,528 |
|
|
|
|
|
|
|
|
|
|
|
202,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,221,778 |
|
|
|
|
|
|
|
|
|
|
$ |
2,112,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (tax-equivalent) |
|
|
|
|
|
$ |
20,352 |
|
|
|
|
|
|
|
|
|
|
$ |
19,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
3.86 |
% |
|
|
|
|
|
|
|
|
|
|
3.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earning assets |
|
$ |
390,371 |
|
|
|
|
|
|
|
|
|
|
$ |
357,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (tax-equivalent) |
|
|
|
|
|
|
|
|
|
|
4.05 |
% |
|
|
|
|
|
|
|
|
|
|
4.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of average interest-earning assets to
average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
123.79 |
% |
|
|
|
|
|
|
|
|
|
|
122.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Investment securities are shown at amortized cost and include non-performing
securities. |
|
(2) |
|
The interest on tax-exempt securities is calculated on a tax equivalent basis
assuming a Federal tax rate of 35% and 34% for the three months ended March 31, 2011 and 2010,
respectively. |
- 26 -
MANAGEMENTS DISCUSSION AND ANALYSIS
The following table presents, on a tax equivalent basis, the relative contribution of changes
in volumes and changes in rates to changes in net interest income for the periods indicated. The
change in interest not solely due to changes in volume or rate has been allocated in proportion to
the absolute dollar amounts of the change in each (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, 2011 vs. 2010 |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and interest-earning deposits |
|
$ |
(7 |
) |
|
$ |
|
|
|
$ |
(7 |
) |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
25 |
|
|
|
(589 |
) |
|
|
(564 |
) |
Tax-exempt |
|
|
238 |
|
|
|
(262 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
263 |
|
|
|
(851 |
) |
|
|
(588 |
) |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
33 |
|
|
|
(24 |
) |
|
|
9 |
|
Commercial mortgage |
|
|
403 |
|
|
|
(148 |
) |
|
|
255 |
|
Residential mortgage |
|
|
(225 |
) |
|
|
(162 |
) |
|
|
(387 |
) |
Home equity |
|
|
98 |
|
|
|
(52 |
) |
|
|
46 |
|
Consumer indirect |
|
|
1,041 |
|
|
|
(482 |
) |
|
|
559 |
|
Other consumer |
|
|
(75 |
) |
|
|
10 |
|
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
1,275 |
|
|
|
(858 |
) |
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
1,531 |
|
|
|
(1,709 |
) |
|
|
(178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand |
|
|
1 |
|
|
|
(28 |
) |
|
|
(27 |
) |
Savings and money market |
|
|
22 |
|
|
|
(36 |
) |
|
|
(14 |
) |
Certificates of deposit |
|
|
198 |
|
|
|
(744 |
) |
|
|
(546 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
221 |
|
|
|
(808 |
) |
|
|
(587 |
) |
Short-term borrowings |
|
|
5 |
|
|
|
(11 |
) |
|
|
(6 |
) |
Long-term borrowings |
|
|
(360 |
) |
|
|
182 |
|
|
|
(178 |
) |
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
(355 |
) |
|
|
171 |
|
|
|
(184 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(134 |
) |
|
|
(637 |
) |
|
|
(771 |
) |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
1,665 |
|
|
$ |
(1,072 |
) |
|
$ |
593 |
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
The provision for loan losses is based upon credit loss experience, growth or contraction of
specific segments of the loan portfolio, and the estimate of losses inherent in the current loan
portfolio. The provision for loan losses for the first quarter of 2011 was $810 thousand, compared
to $418 thousand for the same period in 2010. See Allowance for Loan Losses under the section
titled Lending Activities included herein for additional information.
- 27 -
MANAGEMENTS DISCUSSION AND ANALYSIS
Noninterest Income
The following table details the major categories of noninterest income for the periods presented
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Service charges on deposits |
|
|
2,105 |
|
|
|
2,230 |
|
ATM and debit card |
|
|
1,016 |
|
|
|
934 |
|
Broker-dealer fees and commissions |
|
|
386 |
|
|
|
380 |
|
Loan servicing |
|
|
349 |
|
|
|
280 |
|
Company owned life insurance |
|
|
266 |
|
|
|
269 |
|
Net gain on sale of loans held for sale |
|
|
224 |
|
|
|
62 |
|
Net gain on disposal of investment securities |
|
|
3 |
|
|
|
6 |
|
Impairment charges on investment securities |
|
|
|
|
|
|
(526 |
) |
Net gain on sale and disposal of other assets |
|
|
45 |
|
|
|
2 |
|
Other |
|
|
754 |
|
|
|
446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
5,148 |
|
|
$ |
4,083 |
|
|
|
|
|
|
|
|
The components of noninterest income fluctuated as discussed below.
Service charges on deposit accounts declined 6% compared to the same period last year mainly due to
a change in consumer behavior, triggered in part by heightened consumer protection regulations.
ATM and debit card income increased by $82 thousand during the first quarter of 2011 compared to
first quarter of 2010, as the increased popularity of electronic banking and transaction processing
has resulted in higher ATM and debit card point-of-sale usage income.
Higher origination volumes and increased income from mortgage banking activities during the first
quarter of 2011, coupled with a favorable valuation adjustment to capitalized mortgage servicing
assets, resulted in a combined increase of $231 thousand in loan servicing income and gains from
the sale of loans held for sale in comparison to the first quarter of 2010.
Income from the Companys capital investment in several limited partnerships accounted for the
majority of the $308 thousand increase in other noninterest income when comparing the first quarter
of 2011 to the same quarter last year.
- 28 -
MANAGEMENTS DISCUSSION AND ANALYSIS
Noninterest Expense
The following table details the major categories of noninterest expense for the periods presented
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Salaries and employee benefits |
|
|
8,401 |
|
|
|
8,247 |
|
Occupancy and equipment |
|
|
2,843 |
|
|
|
2,771 |
|
Professional services |
|
|
682 |
|
|
|
606 |
|
FDIC assessments |
|
|
607 |
|
|
|
602 |
|
Computer and data processing |
|
|
603 |
|
|
|
571 |
|
Supplies and postage |
|
|
452 |
|
|
|
445 |
|
Advertising and promotions |
|
|
165 |
|
|
|
187 |
|
Other |
|
|
1,597 |
|
|
|
1,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
15,350 |
|
|
$ |
14,738 |
|
|
|
|
|
|
|
|
The components of noninterest expense fluctuated as discussed below.
Salaries and employee benefits was $8.4 million for 2011, up $154 thousand or 2% from 2010. The
increase reflects higher employee benefit costs and salaries due to annual merit increases. Full
time equivalent employees totaled 574 and 581 at March 31, 2011 and 2010, respectively.
Other noninterest expense was $1.6 million for the first quarter of 2011, an increase of $288
thousand or 22% from the first quarter of 2010, due in part to higher lending expenses associated
with increased loan application volumes.
The efficiency ratio for the first quarter of 2011 was 59.97% compared with 60.31% for the first
quarter of 2010. The efficiency ratio equals noninterest expense less other real estate expense
and amortization of intangible assets as a percentage of net revenue, defined as the sum of
tax-equivalent net interest income and noninterest income before net gains and impairment charges
on investment securities.
Income Taxes
For the three months ended March 31, 2011, the Company recorded income tax expense of $3.0 million,
versus $2.9 million a year ago. The change in income tax was primarily due to higher pre-tax
income during the first quarter of 2011. The effective tax rates for the first quarter of 2011 and
2010 were 34.1% and 34.9%, respectively. Effective tax rates are impacted by items of income and
expense that are not subject to federal or state taxation. The Companys effective tax rates
reflect the impact of these items, which include, but are not limited to, interest income from
tax-exempt and tax-preferred securities and earnings on company owned life insurance.
- 29 -
MANAGEMENTS DISCUSSION AND ANALYSIS
ANALYSIS OF FINANCIAL CONDITION
INVESTING ACTIVITIES
The following table sets forth selected information regarding the composition of the Companys
investment securities portfolio as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities Portfolio Composition |
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency and
government-sponsored enterprise securities |
|
$ |
135,621 |
|
|
$ |
134,301 |
|
|
$ |
141,591 |
|
|
$ |
140,784 |
|
State and political subdivisions |
|
|
118,496 |
|
|
|
118,908 |
|
|
|
105,622 |
|
|
|
105,666 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities |
|
|
432,986 |
|
|
|
437,531 |
|
|
|
414,502 |
|
|
|
417,709 |
|
Non-Agency mortgage-backed securities |
|
|
784 |
|
|
|
1,455 |
|
|
|
981 |
|
|
|
1,572 |
|
Asset-backed securities |
|
|
564 |
|
|
|
617 |
|
|
|
564 |
|
|
|
637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale securities |
|
|
688,451 |
|
|
|
692,812 |
|
|
|
663,260 |
|
|
|
666,368 |
|
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions |
|
|
25,284 |
|
|
|
25,959 |
|
|
|
28,162 |
|
|
|
28,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
$ |
713,735 |
|
|
$ |
718,771 |
|
|
$ |
691,422 |
|
|
$ |
695,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment Assessment
The Company reviews investment securities on an ongoing basis for the presence of
other-than-temporary impairment (OTTI) with formal reviews performed quarterly. When evaluating
debt securities for OTTI, 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 Company has the intention to sell the debt security or whether it
is more likely than not that it will be required to sell the debt security before its anticipated
recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and
judgment and is based on the information available to management at a point in time.
The table below summarizes unrealized losses in each category of the securities portfolio at the
end of the periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Losses on Investment Securities |
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Unrealized |
|
|
% of |
|
|
Unrealized |
|
|
% of |
|
|
|
Losses |
|
|
Total |
|
|
Losses |
|
|
Total |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and government sponsored enterprises |
|
$ |
2,246 |
|
|
|
46.4 |
% |
|
$ |
1,965 |
|
|
|
31.6 |
% |
State and political subdivisions |
|
|
1,172 |
|
|
|
24.2 |
|
|
|
1,472 |
|
|
|
23.6 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities |
|
|
1,289 |
|
|
|
26.6 |
|
|
|
2,655 |
|
|
|
42.7 |
|
Non-Agency mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
135 |
|
|
|
2.8 |
|
|
|
131 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale securities |
|
$ |
4,842 |
|
|
|
100.0 |
|
|
$ |
6,223 |
|
|
|
100.0 |
|
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
$ |
4,842 |
|
|
|
100.0 |
% |
|
$ |
6,223 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies and Government Sponsored Enterprises (GSE). As of March 31, 2011, there
were 14 securities in the U.S. Government agencies and GSE portfolio that were in an unrealized
loss position. Of these, 7 were in an unrealized loss position for 12 months or longer and had an
aggregate amortized cost of $8.7 million and unrealized losses of $39 thousand. Because the
decline in fair value is attributable to changes in interest rates, and not credit quality, and
because we do not have the intent to sell these securities and it is likely that we will not be
required to sell the securities before their anticipated recovery, we do not consider these
securities to be other-than-temporarily impaired at March 31, 2011.
- 30 -
MANAGEMENTS DISCUSSION AND ANALYSIS
State and Political Subdivisions. As of March 31, 2011, the state and political subdivisions
portfolio (municipals) totaled $144.2 million, of which $118.9 million was classified as
available for sale. As of that date, $25.3 million was classified as held to maturity, with a fair
value of $26.0 million. As of March 31, 2011, there were 119 municipals in an unrealized loss
position, all of which were available for sale. These securities had an aggregate amortized cost
of $50.3 million and unrealized losses of $1.2 million.
Although there has been a considerable amount of negative information regarding municipal bond
insurers, and several of the municipal bond insurers have been downgraded, there is no indication
to date that the underlying credit issuers (counties, towns, villages, cities, schools, etc.) are
likely to default on their debt. There have also been some highly publicized concerns over the New
York State budget problems as well as a recent shortage in the state funding amounts sent by New
York State to municipalities. At this time, management does not believe that the New York State
budget problems will culminate in local municipalities defaulting on debt obligations.
Additionally, most of the available for sale bonds are General Obligation issues which require the
taxing authority to increase taxes as needed to repay the bond holders.
Because the decline in fair value is attributable to changes in interest rates, and not credit
quality, and because we do not have the intent to sell these securities and it is likely that we
will not be required to sell the securities before their anticipated recovery, we do not consider
these securities to be other-than-temporarily impaired at March 31, 2011.
Agency Mortgage-backed Securities. With the exception of the non-Agency mortgage-backed securities
(non-Agency MBS) discussed below, all of the mortgage-backed securities held by us as of March
31, 2011, were issued by U.S. Government sponsored entities and agencies (Agency MBS), primarily
GNMA. The contractual cash flows of our Agency MBS are guaranteed by FNMA, FHLMC or GNMA. The
GNMA mortgage-backed securities are backed by the full faith and credit of the U.S. Government.
As of March 31, 2011, there were 36 securities in the U.S. Government agencies and GSE portfolio
that were in an unrealized loss position. Of these, only 4 were in an unrealized loss position for
12 months or longer and had an aggregate amortized cost of $2.1 million and unrealized losses of
$12 thousand. Given the high credit quality inherent in Agency MBS, we do not consider any of the
unrealized losses on such MBS to be credit related or other-than-temporary as of March 31, 2011.
Furthermore, as of March 31, 2011, we did not intend to sell any of Agency MBS that were in an
unrealized loss position, all of which were performing in accordance with their terms.
Non-Agency Mortgage-backed Securities. Our non-Agency MBS portfolio consists of positions in three
privately issued whole loan collateralized mortgage obligations with a fair value of $1.5 million
and net unrealized gains of $671 thousand as of March 31, 2011. As of that date, each of the 3
non-Agency MBS were rated below investment grade. None of these securities were in an unrealized
loss position. To date, we have recognized aggregate OTTI charges of $6.0 million due to reasons
of credit quality against these securities, all of which was recorded prior to 2010.
Asset-backed Securities (ABS). As of March 31, 2011, the fair value of the ABS portfolio totaled
$617 thousand and consisted of positions in 15 securities, the majority of which are pooled trust
preferred securities (TPS) issued primarily by financial institutions and, to a lesser extent,
insurance companies located throughout the United States. As a result of some issuers defaulting
and others electing to defer interest payments, we considered the TPS to be non-performing and
stopped accruing interest on the investments during 2009.
Since the second quarter of 2008, we have written down each of the securities in the ABS portfolio,
resulting in aggregate OTTI charges of $32.9 million through December 31, 2010. We expect to
recover the remaining amortized cost of $564 thousand on the securities. As of March 31, 2011,
each of the securities in the ABS portfolio was rated below investment grade. There were 8 ABS in
a loss position with an aggregate amortized cost of $339 thousand and unrealized losses totaling
$135 thousand as of March 31, 2011. Of these, 6 were in an unrealized loss position for 12 months
or longer and had an aggregate amortized cost of $167 thousand and unrealized losses of $72
thousand.
Because the decline in fair value is attributable to changes in interest rates, and not credit
quality, and because we do not have the intent to sell these securities and it is likely that we
will not be required to sell the securities before their anticipated recovery, we do not consider
these securities to be other-than-temporarily impaired at March 31, 2011.
Other Investments. As a member of the FHLB the Bank is required to hold FHLB stock. The amount of
required FHLB stock is based on the Banks asset size and the amount of borrowings from the FHLB.
We have assessed the ultimate recoverability of our FHLB stock and believe that no impairment
currently exists. As a member of the FRB system, we are required to maintain a specified
investment in FRB stock based on a ratio relative to our capital. Our ownership of FHLB stock and
FRB stock totaled $2.5 million and $3.9 million, respectively, at March 31, 2011. The FHLB stock
and FRB stock are recorded at cost and included in other assets.
- 31 -
MANAGEMENTS DISCUSSION AND ANALYSIS
LENDING ACTIVITIES
The following table sets forth selected information regarding the composition of the Companys loan
portfolio as of the dates indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Portfolio Composition |
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
Commercial business |
|
$ |
209,379 |
|
|
|
15.5 |
% |
|
$ |
211,031 |
|
|
|
15.7 |
% |
Commercial mortgage |
|
|
361,713 |
|
|
|
26.7 |
|
|
|
352,930 |
|
|
|
26.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
571,092 |
|
|
|
42.2 |
|
|
|
563,961 |
|
|
|
41.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
123,594 |
|
|
|
9.1 |
|
|
|
129,580 |
|
|
|
9.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
209,961 |
|
|
|
15.5 |
|
|
|
208,327 |
|
|
|
15.5 |
|
Consumer indirect |
|
|
422,821 |
|
|
|
31.3 |
|
|
|
418,016 |
|
|
|
31.1 |
|
Other consumer |
|
|
25,051 |
|
|
|
1.9 |
|
|
|
26,106 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
657,833 |
|
|
|
48.7 |
|
|
|
652,449 |
|
|
|
48.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
1,352,519 |
|
|
|
100.0 |
% |
|
|
1,345,990 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
20,119 |
|
|
|
|
|
|
|
20,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net |
|
$ |
1,332,400 |
|
|
|
|
|
|
$ |
1,325,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans increased $6.5 million to $1.353 billion as of March 31, 2011 from $1.346 billion as of
December 31, 2010.
Commercial loans increased $7.1 million and represented 42.2% of total loans as of March 31, 2011,
compared to 41.9% at December 31, 2010, a result of the Companys continued focus on commercial
business development programs.
Residential mortgage loans decreased $6.0 million to $123.6 million as of March 31, 2011 in
comparison to $129.6 million as of December 31, 2010. This category of loans decreased as the
majority of newly originated and refinanced residential mortgages were sold to the secondary market
rather than being added to the portfolio. The Company does not engage in sub-prime or other
high-risk residential mortgage lending as a line-of-business.
The consumer indirect portfolio increased $4.8 million to $422.8 million as of March 31, 2011, from
$418.0 million as of December 31, 2010. During the first quarter of 2011, the Company originated
$45.6 million in indirect auto loans with a mix of approximately 41% new auto and 59% used auto.
This compares with $35.2 million in indirect loan auto originations with a mix of approximately 29%
new auto and 71% used auto for the same period in 2010.
Loans Held for Sale and Mortgage Servicing Rights. Loans held for sale (not included in the loan
portfolio composition table) totaled $1.7 million and $3.1 million as of March 31, 2011 and
December 31, 2010, respectively, all of which were residential real estate loans.
We sell certain qualifying newly originated and refinanced residential real estate mortgages on the
secondary market. The sold and serviced residential real estate loan portfolio decreased to $322.6
million as of March 31, 2011 from $328.9 million as of December 31, 2010. The decrease in the sold
and serviced portfolio resulted from a decrease in residential loan origination and refinancing
volumes.
- 32 -
MANAGEMENTS DISCUSSION AND ANALYSIS
Allowance for Loan Losses
The following table sets forth an analysis of the activity in the allowance for loan losses for the
periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
Loan Loss Analysis |
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Balance as of beginning of period |
|
$ |
20,466 |
|
|
$ |
20,741 |
|
|
|
|
|
|
|
|
|
|
Charge-offs: |
|
|
|
|
|
|
|
|
Commercial business |
|
|
90 |
|
|
|
69 |
|
Commercial mortgage |
|
|
344 |
|
|
|
45 |
|
Residential mortgage |
|
|
2 |
|
|
|
12 |
|
Home equity |
|
|
107 |
|
|
|
47 |
|
Consumer indirect |
|
|
1,290 |
|
|
|
1,228 |
|
Other consumer |
|
|
211 |
|
|
|
212 |
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
2,044 |
|
|
|
1,613 |
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
Commercial business |
|
|
154 |
|
|
|
92 |
|
Commercial mortgage |
|
|
16 |
|
|
|
432 |
|
Residential mortgage |
|
|
27 |
|
|
|
4 |
|
Home equity |
|
|
10 |
|
|
|
2 |
|
Consumer indirect |
|
|
552 |
|
|
|
340 |
|
Other consumer |
|
|
128 |
|
|
|
170 |
|
|
|
|
|
|
|
|
Total recoveries |
|
|
887 |
|
|
|
1,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
1,157 |
|
|
|
573 |
|
Provision for loan losses |
|
|
810 |
|
|
|
418 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
20,119 |
|
|
$ |
20,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs to average loans (annualized) |
|
|
0.35 |
% |
|
|
0.18 |
% |
Allowance for loan losses to total loans |
|
|
1.49 |
% |
|
|
1.62 |
% |
Allowance for loan losses to non-performing loans |
|
|
275 |
% |
|
|
308 |
% |
The allowance for loan losses represents the estimated amount of probable credit losses inherent in
the Companys loan portfolio. The Company performs periodic, systematic reviews of the loan
portfolio to estimate probable losses in the respective loan portfolios. In addition, the Company
regularly evaluates prevailing economic and business conditions, industry concentrations, changes
in the size and characteristics of the portfolio and other pertinent factors. The process used by
the Company to determine the overall allowance for loan losses is based on this analysis. Based on
this analysis the Company believes the allowance for loan losses is adequate as of March 31, 2011.
Assessing the adequacy of the allowance for loan losses involves substantial uncertainties and is
based upon managements evaluation of the amounts required to meet estimated charge-offs in the
loan portfolio after weighing a variety of factors, including the risk-profile of the Companys
loan products and customers. The Company does not engage in sub-prime or other high-risk
residential mortgage lending as a line-of-business. The Company primarily originates fixed and
variable rate one-to-four family residential mortgages collateralized by owner-occupied properties
located within its central and western New York marketplace, which has been relatively stable in
recent years. Residential mortgages collateralized by one-to-four family residential real estate
generally have been originated in amounts of no more than 85% of appraised value or have mortgage
insurance.
The adequacy of the allowance for loan losses is subject to ongoing management review. While
management evaluates currently available information in establishing the allowance for loan losses,
future adjustments to the allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluations. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review a financial institutions allowance
for loan losses. Such agencies may require the financial institution to recognize additions to the
allowance based on their judgments about information available to them at the time of their
examination.
Net charge-offs for the first quarter of 2011 amounted to $1.2 million, up $584 thousand in
comparison to the same period a year ago. On an annualized basis, net charge-offs as a percentage
of average loans were 0.35% for the first quarter of 2011, compared to 0.18% for the first quarter
of 2010. In the first quarter of 2011, the Companys provision for loan losses increased to $810
thousand compared to $418 thousand in the first quarter of 2010. Net charge-offs and the provision
for loan losses for the first quarter of 2010 were favorably impacted by a $354 thousand recovery
on one commercial real estate relationship that was charged-off during 2008 and 2009.
- 33 -
MANAGEMENTS DISCUSSION AND ANALYSIS
Non-Performing Assets and Potential Problem Loans
The table below sets forth the amounts and categories of the Companys non-performing assets at the
dates indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing Assets |
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
Nonaccrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
901 |
|
|
$ |
947 |
|
|
$ |
774 |
|
Commercial mortgage |
|
|
2,736 |
|
|
|
3,100 |
|
|
|
2,513 |
|
Residential mortgage |
|
|
2,192 |
|
|
|
2,102 |
|
|
|
2,056 |
|
Home equity |
|
|
835 |
|
|
|
875 |
|
|
|
1,048 |
|
Consumer indirect |
|
|
639 |
|
|
|
514 |
|
|
|
293 |
|
Other consumer |
|
|
12 |
|
|
|
41 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans |
|
|
7,315 |
|
|
|
7,579 |
|
|
|
6,685 |
|
Accruing loans 90 days or more delinquent |
|
|
3 |
|
|
|
3 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
7,318 |
|
|
|
7,582 |
|
|
|
6,687 |
|
Foreclosed assets |
|
|
568 |
|
|
|
741 |
|
|
|
771 |
|
Non-performing investment securities |
|
|
567 |
|
|
|
572 |
|
|
|
661 |
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
8,453 |
|
|
$ |
8,895 |
|
|
$ |
8,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans |
|
|
0.54 |
% |
|
|
0.56 |
% |
|
|
0.53 |
% |
Non-performing assets to total assets |
|
|
0.37 |
% |
|
|
0.40 |
% |
|
|
0.38 |
% |
Information regarding the activity in nonaccrual loans for the three months ended March 31, 2011 is
as follows (in thousands).
|
|
|
|
|
Nonaccrual loans, beginning of year |
|
$ |
7,579 |
|
Additions |
|
|
3,165 |
|
Payments |
|
|
(1,424 |
) |
Charge-offs |
|
|
(1,916 |
) |
Returned to accruing status |
|
|
(89 |
) |
Transferred to other real estate or repossessed assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans, end of period |
|
$ |
7,315 |
|
|
|
|
|
Non-performing assets include non-performing loans, foreclosed assets and non-performing investment
securities. Non-performing assets at March 31, 2011 were $8.5 million, a decrease of $442 thousand
from the $8.9 million balance at December 31, 2010. The primary component of non-performing assets
is non-performing loans, which were $7.3 million at March 31, 2011, a decrease of $264 thousand
from the $7.6 million balance at December 31, 2010. Included in nonaccrual loans are troubled debt
restructurings (TDRs) of $525 thousand and $534 thousand at March 31, 2011 and December 31, 2010,
respectively.
The ratio of non-performing loans to total loans was 0.54% at March 31, 2011, compared to 0.56% at
December 31, 2010. This ratio continues to compare favorably to the average of our peer group,
which was 3.57% of total loans at December 31, 2010, the most recent period for which information
is available (Source: Federal Financial Institutions Examination Council Bank Holding Company
Performance Report as of December 31, 2010 Top-tier bank holding companies having consolidated
assets between $1 billion and $3 billion).
Foreclosed assets consist of real property formerly pledged as collateral to loans, which we have
acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure.
Foreclosed asset holdings represented 8 properties totaling $568 thousand at March 31, 2011 and 13
properties totaling $741 thousand at December 31, 2010.
Potential problem loans are loans that are currently performing, but information known about
possible credit problems of the borrowers causes management to have concern as to the ability of
such borrowers to comply with the present loan payment terms and may result in disclosure of such
loans as nonperforming at some time in the future. These loans remain in a performing status due
to a variety of factors, including payment history, the value of collateral supporting the credits,
and/or personal or government guarantees. Management considers loans classified as substandard,
which continue to accrue interest, to be potential problem loans. We identified $12.5 million and
$11.5 million in loans that continued to accrue interest which were classified as substandard as of
March 31, 2011 and December 31, 2010, respectively.
- 34 -
MANAGEMENTS DISCUSSION AND ANALYSIS
FUNDING ACTIVITIES
Deposits
The following table summarizes the composition of our deposits at the dates indicated (dollars in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit Composition |
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
Noninterest-bearing demand |
|
$ |
354,312 |
|
|
|
18.0 |
% |
|
$ |
350,877 |
|
|
|
18.6 |
% |
Interest-bearing demand |
|
|
424,897 |
|
|
|
21.6 |
|
|
|
374,900 |
|
|
|
19.9 |
|
Savings and money market |
|
|
464,076 |
|
|
|
23.5 |
|
|
|
417,359 |
|
|
|
22.2 |
|
Certificates of deposit < $100,000 |
|
|
525,584 |
|
|
|
26.7 |
|
|
|
555,840 |
|
|
|
29.5 |
|
Certificates of deposit of $100,000 or more |
|
|
200,712 |
|
|
|
10.2 |
|
|
|
183,914 |
|
|
|
9.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
1,969,581 |
|
|
|
100.0 |
% |
|
$ |
1,882,890 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company offers a broad array of deposit products including noninterest-bearing demand,
interest-bearing demand, savings and money market accounts and certificates of deposit. As of
March 31, 2011, total deposits were $1.970 billion, an increase of $86.7 million in comparison to
$1.883 billion as of December 31, 2010.
Nonpublic deposits represent the largest component of the Companys funding. Total nonpublic
deposits were $1.477 billion and $1.501 billion as of March 31, 2011 and December 31, 2010,
respectively. The Company continues to manage this segment of funding through a strategy of
competitive pricing and relationship-based sales and marketing that minimizes the number of
customer relationships that have only a single high-cost deposit account.
The Company offers a variety of public deposit products to the many towns, villages, counties,
school districts and other public entities within our market. Public deposits generally range from
20 to 25% of the Companys total deposits. As of March 31, 2011, total public deposits were $492.5
million in comparison to $382.2 million as of December 31, 2010. There is a high degree of
seasonality in this component of funding, as the level of deposits varies with the seasonal cash
flows for these public customers. The Company maintains the necessary levels of short-term liquid
assets to accommodate the seasonality associated with public deposits.
Borrowings
The following table summarizes the Companys borrowings as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Customer repurchase agreements |
|
$ |
42,060 |
|
|
$ |
38,910 |
|
Federal funds purchased |
|
|
|
|
|
|
38,200 |
|
FHLB borrowings |
|
|
10,000 |
|
|
|
10,065 |
|
Junior subordinated debentures |
|
|
16,702 |
|
|
|
16,702 |
|
|
|
|
|
|
|
|
Total borrowings |
|
$ |
68,762 |
|
|
$ |
103,877 |
|
|
|
|
|
|
|
|
The Company has credit capacity with the FHLB and can borrow through facilities that include an
overnight line of credit, as well as amortizing and term advances. The Company had approximately
$66 million of immediate credit capacity with FHLB as of March 31, 2011. The Company had
approximately $347 million in secured borrowing capacity at the Federal Reserve Bank (FRB)
Discount Window, none of which was outstanding at March 31, 2011. The FHLB and FRB credit capacity
are collateralized by securities from the Companys investment portfolio and certain qualifying
loans.
The Company also had $94.0 million of credit available under unsecured lines of credit with various
banks as of March 31, 2011. There were no advances outstanding on these lines of credit as of
March 31, 2011. The Company also utilizes short-term retail repurchase agreements with customers
as a source of funds. These short-term repurchase agreements amounted to $42.1 million and $38.9
million as of March 31, 2011 and December 31, 2010, respectively.
Equity Activities
Total shareholders equity was $222.8 million at March 31, 2011, an increase of $10.7 million from
$212.1 million at December 31, 2010. During February 2011, the Company redeemed $12.5 million of
Series A preferred stock issued to the U.S. Treasury. During March 2011, the Company successfully
completed a follow-on common equity offering, issuing 2,813,475 shares of common stock at a price
of $16.35 per share before associated offering expenses. After deducting underwriting and other
offering costs, the Company received net proceeds of approximately $43.1 million. Prior to the end
of the first quarter of 2011, the Company utilized a portion of the net proceeds to redeem the
remaining $25.0 million in Series A preferred stock.
- 35 -
MANAGEMENTS DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The objective of maintaining adequate liquidity is to assure the ability of the Company to meet its
financial obligations. These obligations include the withdrawal of deposits on demand or at their
contractual maturity, the servicing and repayment of debt and preferred equity obligations, the
ability to fund new and existing loan commitments, to take advantage of new business opportunities
and to satisfy other operating requirements. The Company achieves liquidity by maintaining a
strong base of core customer funds, maturing short-term assets, its ability to sell securities,
lines of credit, and access to the financial and capital markets.
Liquidity for the Bank is managed through the monitoring of anticipated changes in loans, the
investment portfolio, core deposits and wholesale funds. The strength of the Banks liquidity
position is a result of its base of core customer deposits. These core deposits are supplemented
by wholesale funding sources that include credit lines with the other banking institutions, the
FHLB and the FRB.
The primary sources of liquidity for FII are dividends from the Bank and access to financial and
capital markets. Dividends from the Bank are limited by various regulatory requirements related to
capital adequacy and earnings trends. The Bank relies on cash flows from operations, core
deposits, borrowings and short-term liquid assets. Five Star Investment Services relies on cash
flows from operations and funds from FII when necessary.
The Companys cash and cash equivalents were $94.5 million as of March 31, 2011, an increase of
$55.4 million from $39.1 million as of December 31, 2010. The Companys net cash provided by
operating activities totaled $12.5 million. Net cash used in investing activities totaled $12.1
million, which included cash outflows of $7.7 million for net loan originations and $4.3 million
from investment securities transactions. Net cash provided by financing activities of $55.1
million was attributed to a $86.7 million increase in deposits and $43.1 million in net proceeds
from the issuance of common stock, partly offset by the $37.5 million payment to redeem the Series
A preferred stock, a $35.1 million decrease in net borrowings, and $2.1 million in dividend
payments.
Capital Resources
Banks and financial holding companies are subject to various regulatory capital requirements
administered by state and federal banking agencies. Failure to meet minimum capital requirements
can result in certain mandatory and possibly additional discretionary actions by regulators that,
if undertaken, could have a direct material impact on the Companys consolidated financial
statements. Capital adequacy guidelines and, additionally for banks, prompt corrective action
regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet
items calculated under regulatory accounting practices. Capital amounts and classifications are
also subject to qualitative judgments by regulators about components, risk weighting and other
factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and
the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets
and of Tier 1 capital to average assets (all as defined in the regulations). These minimum amounts
and ratios are included in the table below.
The Companys and the Banks Tier 1 capital consists of shareholders equity excluding unrealized
gains and losses on securities available for sale (except for unrealized losses which have been
determined to be other than temporary and recognized as expense in the consolidated statements of
income), goodwill and other intangible assets and disallowed portions of deferred tax assets. Tier
1 capital for the Company includes, subject to limitation, $16.7 million of trust preferred
securities issued by FISI Statutory Trust I and $17.5 million of preferred stock. The Company and
the Banks total capital are comprised of Tier 1 capital for each entity plus a permissible portion
of the allowance for loan losses.
The Tier 1 and total capital ratios are calculated by dividing the respective capital amounts by
risk-weighted assets. Risk-weighted assets are calculated based on regulatory requirements and
include total assets, excluding goodwill and other intangible assets and disallowed portions of
deferred tax assets, allocated by risk weight category and certain off-balance-sheet items
(primarily loan commitments and securities more than one level below investment grade that are
subject to the low level exposure rules). The leverage ratio is calculated by dividing Tier 1
capital by adjusted quarterly average total assets, which exclude goodwill and other intangible
assets and disallowed portions of deferred tax assets.
- 36 -
MANAGEMENTS DISCUSSION AND ANALYSIS
The following table reflects the ratios and their components (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Total shareholders equity |
|
$ |
222,823 |
|
|
$ |
212,144 |
|
Less: Unrealized gain on securities available for sale, net of tax |
|
|
2,633 |
|
|
|
1,877 |
|
Unrecognized net periodic pension & postretirement benefits (costs), net of tax |
|
|
(6,512 |
) |
|
|
(6,599 |
) |
Disallowed goodwill and other intangible assets |
|
|
37,369 |
|
|
|
37,369 |
|
Disallowed deferred tax assets |
|
|
6,680 |
|
|
|
14,608 |
|
Plus: Qualifying trust preferred securities |
|
|
16,200 |
|
|
|
16,200 |
|
|
|
|
|
|
|
|
Tier 1 capital |
|
$ |
198,853 |
|
|
$ |
181,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted average total assets (for leverage capital purposes) |
|
$ |
2,182,469 |
|
|
$ |
2,177,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio (Tier 1 capital to adjusted average total assets) |
|
|
9.11 |
% |
|
|
8.31 |
% |
|
|
|
|
|
|
|
|
|
Total Tier 1 capital |
|
$ |
198,853 |
|
|
$ |
181,089 |
|
Plus: Qualifying allowance for loan losses |
|
|
18,459 |
|
|
|
18,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
|
$ |
217,312 |
|
|
$ |
199,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net risk-weighted assets |
|
$ |
1,475,067 |
|
|
$ |
1,466,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital ratio (Tier 1 capital to net risk-weighted assets) |
|
|
13.48 |
% |
|
|
12.34 |
% |
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio (Total risk-based capital to net risk-weighted assets) |
|
|
14.73 |
% |
|
|
13.60 |
% |
The Companys and the Banks actual and required regulatory capital ratios were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Capital |
|
|
|
|
|
|
Actual |
|
|
Adequacy Purposes |
|
|
Well Capitalized |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
March 31, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
$ |
198,853 |
|
|
|
9.11 |
% |
|
$ |
87,299 |
|
|
|
4.00 |
% |
|
$ |
109,123 |
|
|
|
5.00 |
% |
Bank |
|
|
165,933 |
|
|
|
7.61 |
|
|
|
87,163 |
|
|
|
4.00 |
|
|
|
108,954 |
|
|
|
5.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
198,853 |
|
|
|
13.48 |
|
|
|
59,003 |
|
|
|
4.00 |
|
|
|
88,504 |
|
|
|
6.00 |
|
Bank |
|
|
165,933 |
|
|
|
11.29 |
|
|
|
58,797 |
|
|
|
4.00 |
|
|
|
88,195 |
|
|
|
6.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
217,312 |
|
|
|
14.73 |
|
|
|
118,005 |
|
|
|
8.00 |
|
|
|
147,507 |
|
|
|
10.00 |
|
Bank |
|
|
184,328 |
|
|
|
12.54 |
|
|
|
117,593 |
|
|
|
8.00 |
|
|
|
146,991 |
|
|
|
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
$ |
181,089 |
|
|
|
8.31 |
% |
|
$ |
87,116 |
|
|
|
4.00 |
% |
|
$ |
108,896 |
|
|
|
5.00 |
% |
Bank |
|
|
156,957 |
|
|
|
7.22 |
|
|
|
86,958 |
|
|
|
4.00 |
|
|
|
108,697 |
|
|
|
5.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
181,089 |
|
|
|
12.34 |
|
|
|
58,678 |
|
|
|
4.00 |
|
|
|
88,017 |
|
|
|
6.00 |
|
Bank |
|
|
156,957 |
|
|
|
10.74 |
|
|
|
58,450 |
|
|
|
4.00 |
|
|
|
87,674 |
|
|
|
6.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
199,452 |
|
|
|
13.60 |
|
|
|
117,357 |
|
|
|
8.00 |
|
|
|
146,696 |
|
|
|
10.00 |
|
Bank |
|
|
175,250 |
|
|
|
11.99 |
|
|
|
116,899 |
|
|
|
8.00 |
|
|
|
146,124 |
|
|
|
10.00 |
|
Dividend Restrictions
In the ordinary course of business, the Company is dependent upon dividends from Five Star Bank to
provide funds for the payment of interest expense on the junior subordinated debentures, dividends
to shareholders and to provide for other cash requirements. Banking regulations may limit the
amount of dividends that may be paid. Approval by regulatory authorities is required if the effect
of dividends declared would cause the regulatory capital of the Bank to fall below specified
minimum levels. Approval is also required if dividends declared exceed the net profits for that
year combined with the retained net profits for the preceding two years.
- 37 -
|
|
|
ITEM 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
The principal objective of the Companys interest rate risk management is to evaluate the interest
rate risk inherent in certain assets and liabilities, determine the appropriate level of risk to
the Company given its business strategy, operating environment, capital and liquidity requirements
and performance objectives, and manage the risk consistent with the guidelines approved by the
Companys Board of Directors. The Companys management is responsible for reviewing with the Board
its activities and strategies, the effect of those strategies on the net interest margin, the fair
value of the portfolio and the effect that changes in interest rates will have on the portfolio and
exposure limits. Management develops an Asset-Liability Policy that meets strategic objectives and
regularly reviews the activities of the Bank.
The primary tool the Company uses to manage interest rate risk is a rate shock simulation to
measure the rate sensitivity of the balance sheet. Rate shock simulation is a modeling technique
used to estimate the impact of changes in rates on net interest income and economic value of
equity. The Company measures net interest income at risk by estimating the changes in net interest
income resulting from instantaneous and sustained parallel shifts in interest rates of different
magnitudes over a period of twelve months. This simulation is based on managements assumption as
to the effect of interest rate changes on assets and liabilities and assumes a parallel shift of
the yield curve. It also includes certain assumptions about the future pricing of loans and
deposits in response to changes in interest rates. Further, it assumes that delinquency rates
would not change as a result of changes in interest rates, although there can be no assurance that
this will be the case. While this simulation is a useful measure as to net interest income at risk
due to a change in interest rates, it is not a forecast of the future results and is based on many
assumptions that, if changed, could cause a different outcome.
In addition to the changes in interest rate scenarios listed above, the Company typically runs
other scenarios to measure interest rate risk, which vary depending on the economic and interest
rate environments.
The Company has experienced no significant changes in market risk due to changes in interest rates
since the Companys Annual Report on Form 10-K for the year ended December 31, 2010, dated March 7,
2011, as filed with the Securities and Exchange Commission.
|
|
|
ITEM 4. |
|
Controls and Procedures |
Evaluation of disclosure controls and procedures
As of March 31, 2011, the Company carried out an evaluation, under the supervision and with the
participation of the Companys management, including the Companys Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the Securities and
Exchange Commission (SEC) under the Securities Exchange Act of 1934 (Exchange Act). Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective as of the end of the period covered by
this report.
Disclosure controls and procedures are the controls and other procedures that are designed to
ensure that information required to be disclosed in the reports that the Company files or submits
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed in
the reports that the Company files or submits under the Exchange Act is accumulated and
communicated to management, including the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There were no changes in the Companys internal control over financial reporting that occurred
during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
- 38 -
PART II. OTHER INFORMATION
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ITEM 1. |
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Legal Proceedings |
The Company has experienced no material developments in its legal proceedings from the disclosure
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010, dated
March 7, 2011, as filed with the Securities and Exchange Commission.
The Company has experienced no material changes in its risk factors from the disclosure included in
the Companys Annual Report on Form 10-K for the year ended December 31, 2010, dated March 7, 2011,
as filed with the Securities and Exchange Commission.
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(a) |
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The following is a list of all exhibits filed or incorporated by reference as part of
this Report. |
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Exhibit
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Description |
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Location |
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10.1 |
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2009 Management Stock Incentive Plan
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Incorporated by
reference to
Exhibit 4.4 of the
Form S-8
Registration
Statement, dated
March 7, 2011 |
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10.2 |
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2009 Directors Stock Incentive Plan
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Incorporated by
reference to
Exhibit 4.4 of the
Form S-8
Registration
Statement, dated
March 7, 2011 |
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11.1 |
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Statement of Computation of Per Share Earnings
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Incorporated by
reference to Note 2
of the Registrants
unaudited
consolidated
financial
statements under
Item 1 filed
herewith. |
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12 |
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Ratio of Earnings to Fixed Charges and
Preferred Dividends
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Filed Herewith |
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31.1 |
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Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 Principal
Executive Officer
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Filed Herewith |
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31.2 |
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Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 Principal
Financial Officer
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Filed Herewith |
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32 |
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Certification pursuant to18 U.S.C. Section
1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
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Filed Herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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FINANCIAL INSTITUTIONS, INC. |
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/s/ Peter G. Humphrey
Peter G. Humphrey
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, May 3, 2011 |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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/s/ Karl F. Krebs
Karl F. Krebs
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, May 3, 2011 |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial and Principal Accounting Officer) |
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