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þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
NEW YORK | 16-0816610 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
220 LIBERTY STREET, WARSAW, NEW YORK | 14569 | |
(Address of principal executive offices) | (ZIP Code) |
Title of each class | Name of exchange on which registered | |
Common stock, par value $.01 per share | NASDAQ Global Select Market |
Large accelerated filero | Accelerated filerþ | Non-accelerated filero | Smaller reporting companyo |
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Exhibit 12 | ||||||||
Exhibit 21 | ||||||||
Exhibit 23 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 | ||||||||
Exhibit 99.1 | ||||||||
Exhibit 99.2 |
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• | statements with respect to the beliefs, plans, objectives, goals, guidelines, expectations, anticipations, and future financial condition, results of operations and performance of Financial Institutions, Inc. (“the parent” or “FII”) and its subsidiaries (collectively “the Company,” “we,” “our,” “us”); |
• | statements preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “projects,” or similar expressions. |
• | If we experience greater credit losses than anticipated, earnings may be adversely impacted; |
• | Geographic concentration may unfavorably impact our operations; |
• | We depend on the accuracy and completeness of information about or from customers and counterparties; |
• | We are subject to environmental liability risk associated with our lending activities; |
• | We are highly regulated and may be adversely affected by changes in banking laws, regulations and regulatory practices; |
• | Recently enacted financial reform legislation will, among other things, tighten capital standards, create a new Consumer Financial Protection Bureau and result in new regulations that are expected to increase our costs of operations; |
• | As a participant in the Troubled Asset Relief Program (“TARP”), we are subject to certain restrictions on dividends, repurchases of common stock and executive compensation; |
• | New or changing tax, accounting, and regulatory rules and interpretations could significantly impact strategic initiatives, results of operations, cash flows, and financial condition; |
• | If our security systems, or those of merchants, merchant acquirers or other third parties containing information about customers, are compromised, we may be subject to liability and damage to our reputation; |
• | We rely on other companies to provide key components of our business infrastructure; |
• | We may not be able to attract and retain skilled people; |
• | The potential for business interruption exists throughout our organization; |
• | We are subject to interest rate risk; |
• | Our business may be adversely affected by conditions in the financial markets and economic conditions generally; |
• | Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies; |
• | The soundness of other financial institutions could adversely affect us; |
• | We operate in a highly competitive industry and market area; |
• | Our market value could result in an impairment of goodwill; |
• | Liquidity is essential to our businesses; |
• | We may need to raise additional capital in the future and such capital may not be available when needed or at all; |
• | We rely on dividends from our subsidiaries for most of our revenue; |
• | The market price for our common stock varies; |
• | There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock; |
• | Our shares of common stock are equity and are subordinate to our existing and future indebtedness and our preferred stock, and are effectively subordinated to all the indebtedness and other non-common equity claims against our subsidiaries; |
• | We may not pay dividends on our common stock; and |
• | Our certificate of incorporation, our bylaws, and certain banking laws may have an anti-takeover effect. |
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ITEM 1. | BUSINESS |
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• | To ensure consistent underwriting, employees must share a common view of the risks inherent in lending activities as well as the standards to be applied in underwriting and managing credit risk; |
• | Pricing of credit products should be risk-based; |
• | The loan portfolio must be diversified to limit the potential impact of negative events; and |
• | Careful, timely exposure monitoring through dynamic use of our risk rating system is required to provide early warning and assure proactive management of potential problems. |
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• | Compete effectively and service the legitimate credit needs of our target market; |
• | Enhance our reputation for superior quality and timely delivery of products and services; |
• | Provide pricing that reflects the entire relationship and is commensurate with the risk profiles of our borrowers; |
• | Retain, develop and acquire profitable, multi-product, value added relationships with high quality borrowers; |
• | Focus on government guaranteed lending and establish a specialization in this area to meet the needs of the small businesses in our communities; and |
• | Comply with the relevant laws and regulations. |
• | Profile the risk and exposure in the loan portfolio and identify developing trends and relative levels of risk; |
• | Identify deteriorating credits; and |
• | Reflect the probability that a given customer may default on its obligations. |
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• | Specific allocations for individually analyzed credits; |
• | Risk assessment process; |
• | Historical net charge-off experience; |
• | Evaluation of the loan portfolio with loan reviews; |
• | Levels and trends in delinquent and non-accruing loans; |
• | Trends in volume and terms; |
• | Effects of changes in lending policy; |
• | Experience, ability and depth of management; |
• | National and local economic trends and conditions; |
• | Concentrations of credit; |
• | Interest rate environment; |
• | Customer leverage; |
• | Information (availability of timely financial information); and |
• | Collateral values. |
1. | Impaired commercial business and commercial mortgage loans, generally in excess of $50 thousand are reviewed individually and assigned a specific loss allowance, if considered necessary, in accordance with U.S. generally accepted accounting principles (“GAAP”). |
2. | The remaining portfolios of commercial business and commercial mortgage loans are segmented by risk rating into the following loan classification categories: uncriticized or pass, special mention, substandard and doubtful. Uncriticized loans, special mention loans, substandard loans and all doubtful loans not assigned a specific loss allowance are assigned allowance allocations based on historical net loan charge-off experience for each of the respective loan categories, supplemented with additional reserve amounts, if considered necessary, based upon qualitative factors. These qualitative factors include the levels and trends in delinquencies and non-accruing loans; trends in volume and terms of loans; effects of changes in lending policy; experience, ability, and depth of management; national and local economic conditions; concentrations of credit, interest rate environment; customer leverage; information (availability of timely financial information); and collateral values, among others. |
3. | The retail loan portfolio is segmented into the following types of loans: residential real estate, home equity (home equity loans and lines of credit), consumer indirect and other consumer. Allowance allocations for the real estate related loan portfolios (residential and home equity) are based on the average loss experience for the previous eight quarters, supplemented with qualitative factors similar to the elements described above. Allowance allocations for the consumer indirect and other consumer portfolios are based on vintage analyses performed with historical loss experience at 36 months and 24 months aging, respectively. The allocations on these portfolios are also supplemented with qualitative factors. |
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• | U.S. treasury securities; |
• | U.S. government agency securities, which are securities issued by official Federal government bodies (e.g. the Government National Mortgage Association (“GNMA”)) and U.S. government-sponsored enterprise (“GSE”) securities, which are securities issued by independent organizations that are in part sponsored by the federal government (e.g., the Federal Home Loan Bank (“FHLB”) system, the Federal National Mortgage Association (“FNMA”), FHLMC, SBA and the Federal Farm Credit Bureau ); |
• | Mortgage-backed securities (“MBS”) include mortgage-backed pass-through securities (“pass-throughs”) and collateralized mortgage obligations (“CMO”) issued by GNMA, FNMA and FHLMC. See also the section titled “Investing Activities” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” |
• | Investment grade municipal securities, including revenue, tax and bond anticipation notes, statutory installment notes and general obligation bonds; |
• | Certain creditworthy un-rated securities issued by municipalities; |
• | Certificates of deposit; |
• | Equity securities at the holding company level; and |
• | Limited partnership investments in Small Business Investment Companies. |
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• | Acquiring directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares); |
• | Acquiring all or substantially all of the assets of another bank or bank holding company, or |
• | Merging or consolidating with another bank holding company. |
• | Real estate lending standards, which provide guidelines concerning loan-to-value ratios for various types of real estate loans; |
• | Risk-based capital rules, including accounting for interest rate risk, concentration of credit risk and the risks posed by non-traditional activities; |
• | Rules requiring depository institutions to develop and implement internal procedures to evaluate and control credit and settlement exposure to their correspondent banks; |
• | Rules restricting types and amounts of equity investments; and |
• | Rules addressing various safety and soundness issues, including operations and managerial standards, standards for asset quality, earnings and compensation standards. |
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• | A minimum ratio of common equity to risk-weighted assets reaching 4.5%, plus an additional 2.5% as a capital conservation buffer, by 2019 after a phase-in period. |
• | A minimum ratio of Tier 1 capital to risk-weighted assets reaching 6.0% by 2019 after a phase-in period. |
• | A minimum ratio of total capital to risk-weighted assets, plus the additional 2.5% capital conservation buffer, reaching 10.5% by 2019 after a phase -in period. |
• | An additional countercyclical capital buffer to be imposed by applicable national banking regulators periodically at their discretion, with advance notice. |
• | Restrictions on capital distributions and discretionary bonuses applicable when capital ratios fall within the buffer zone. |
• | Deduction from common equity of deferred tax assets that depend on future profitability to be realized. |
• | Increased capital requirements for counterparty credit risk relating to OTC derivatives, repos and securities financing activities. |
• | For capital instruments issued on or after January 13, 2013 (other than common equity), a loss-absorbency requirement such that the instrument must be written off or converted to common equity if a trigger event occurs, either pursuant to applicable law or at the direction of the banking regulator. A trigger event is an event under which the banking entity would become nonviable without the write-off or conversion, or without an injection of capital from the public sector. The issuer must maintain authorization to issue the requisite shares of common equity if conversion were required. |
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• | Centralize responsibility for consumer financial protection by creating a new agency, the Bureau of Consumer Financial Protection, with broad rulemaking, supervision and enforcement authority for a wide range of consumer protection laws that would apply to all banks and certain others, including the examination and enforcement powers with respect to any bank with more than $10 billion in assets. |
• | Require new capital rules and apply the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies. |
• | Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated average assets less tangible capital. |
• | Increase the minimum ratio of net worth to insured deposits of the Deposit Insurance Fund from 1.15% to 1.35% and require the FDIC, in setting assessments, to offset the effect of the increase on institutions with assets of less than $10 billion. As a result, this increase is generally expected to impose more deposit insurance cost on institutions with assets of $10 billion or more. |
• | Provide for new disclosure and other requirements relating to executive compensation and corporate governance, including guidelines or regulations on incentive-based compensation and a prohibition on compensation arrangements that encourage inappropriate risks or that could provide excessive compensation. |
• | Make permanent the $250 thousand limit for federal deposit insurance and provide unlimited federal deposit insurance until January 1, 2013 for non-interest bearing demand transaction accounts and IOLTA accounts at all insured depository institutions. |
• | Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts. | ||
• | Allow de novo interstate branching by banks. | ||
• | Increase the authority of the FRB to examine the Company and its non-bank subsidiary. |
• | Require all bank holding companies to serve as a source of financial strength to their depository institution subsidiaries in the event such subsidiaries suffer from financial distress. |
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• | Restrict proprietary trading by banks, bank holding companies and others, and their acquisition and retention of ownership interests in and sponsorship of hedge funds and private equity funds. This restriction is commonly referred to as the “Volcker Rule.” There is an exception in the Volcker Rule to allow a bank to organize and offer hedge funds and private equity funds to customers if certain conditions are met. These conditions include, among others, requirements that the bank providesbona fideinvestment advisory services; the funds are organized only in connection with such services and to customers of such services; the bank does not have more than ade minimisinterest in the funds, limited to a 3% ownership interest in any single fund and an aggregated investment in all funds of 3% of Tier 1 capital; the bank does not guarantee the obligations or performance of the funds; and no director or employee of the bank has an ownership interest in the fund unless he or she provides services directly to the funds. Further details on the scope of the Volcker Rule and its exceptions are expected to be defined in regulations due to be issued later in 2011. |
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Started | ||||||||||
Name | Age | In | Positions/Offices | |||||||
Peter G. Humphrey | 56 | 1977 | President and Chief Executive Officer of the Company and the Bank since 1994. | |||||||
Karl F. Krebs | 55 | 2009 | Executive Vice President and Chief Financial Officer of the Company and the Bank since 2009. Senior Financial Specialist at West Valley Environmental Services, LLC prior to joining FII in 2009. President of Robar General Funding Corp. from 2006 to 2008. Senior Vice President and Line-of-Business Finance Director at Five Star Bank from 2005 to 2006 and Senior Vice President at Wyoming County Bank from 2004 to 2005. | |||||||
Rita M. Bartol | 50 | 2010 | Senior Vice President and Director of Human Resources of the Company and the Bank since late 2010. Senior Vice President and Director of Human Resources at Cardinal Financial Corporation in 2010 and Vice President and Director of Human Resources at Union Bankshares Corporation from 2006 to 2010. Vice President and Human Resources and Organizational Development Manager at M & T Bank Corporation from 1998 to 2005. | |||||||
Martin K. Birmingham | 44 | 2005 | Executive Vice President and Regional President / Commercial Banking Executive Officer of the Bank since 2009. Senior Vice President and Regional President of the Bank since 2005. Senior Team Leader and Regional President of the Rochester Market at Bank of America (formally Fleet Boston Financial) from 2000 to 2005. | |||||||
George D. Hagi | 58 | 2006 | Executive Vice President and Chief Risk Officer of the Company and the Bank since 2006. Senior Vice President and Director of Risk Management at First National Bankshares of Florida and FNB Corp. from 1997 to 2005. | |||||||
Richard J. Harrison | 65 | 2003 | Executive Vice President and Senior Retail Lending Administrator of the Bank since 2009. Senior Vice President and Senior Retail Lending Administrator of the Bank since 2003. Executive Vice President and Chief Credit Officer at Savings Bank of the Finger Lakes from 2000 to 2003. | |||||||
Kevin B. Klotzbach | 58 | 2001 | Senior Vice President and Treasurer of the Bank since 2001. | |||||||
R. Mitchell McLaughlin | 53 | 1981 | Executive Vice President and Chief Information Officer of the Bank since 2009. Senior Vice President and Chief Information Officer of the Bank since 2006. | |||||||
John L. Rizzo | 61 | 2010 | Senior Vice President and Corporate Secretary of the Company and the Bank since 2010. Counsel (in-house) for the Company and the Bank since 2007. Genesee County (New York) Attorney from 1976 to 2010. | |||||||
John J. Witkowski | 48 | 2005 | Executive Vice President and Regional President / Retail Banking Executive Officer of the Bank since 2009. Senior Vice President and Regional President of the Bank since 2005. Senior Vice President and Director of Sales for Business Banking / Client Development Group at Bank of America from 1993 to 2005. |
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ITEM 1A. | RISK FACTORS |
• | increase loan delinquencies; |
• | increase problem assets and foreclosures; |
• | increase claims and lawsuits; |
• | decrease the demand for our products and services; and |
• | decrease the value of collateral for loans, especially real estate, in turn reducing customers’ borrowing power, the value of assets associated with non-performing loans and collateral coverage. |
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• | the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; | ||
• | the ability to expand our market position; | ||
• | the scope, relevance and pricing of products and services offered to meet customer needs and demands; | ||
• | the rate at which we introduce new products and services relative to our competitors; | ||
• | customer satisfaction with our level of service; and | ||
• | industry and general economic trends. |
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ITEM 1B. | UNRESOLVED STAFF COMMENTS |
ITEM 2. | PROPERTIES |
ITEM 3. | LEGAL PROCEEDINGS |
ITEM 4. | RESERVED |
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ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Number of securities | ||||||||||||
Weighted average | remaining for future | |||||||||||
Number of securities to | exercise price | issuance under equity | ||||||||||
be issued upon exercise | of outstanding | compensation plans | ||||||||||
of outstanding options, | options, warrants | (excluding securities | ||||||||||
warrants and rights | and rights | reflected in column (a)) | ||||||||||
Plan Category | (a) | (b) | (c) | |||||||||
Equity compensation plans approved by shareholders | 560,689 | (1) | $ | 20.64 | (1) | 748,101 | (2) | |||||
Equity compensation plans not approved by shareholders | — | $ | — | — |
(1) | Includes 150,796 shares of unvested restricted stock awards outstanding as of December 31, 2010. The weighted average exercise price excludes such awards. | |
(2) | Represents the 940,000 aggregate shares approved for issuance under our two active equity compensation plans, reduced by 191,899 shares, which are the 117,012 restricted stock awards issued under these plans to date plus an adjustment of 74,887 shares. Pursuant to the terms of the plans, for purposes of calculating the number of shares available for issuance, each share of common stock granted pursuant to a restricted stock award shall count as 1.64 shares of common stock. |
Number of | ||||||||
Number of | individuals | |||||||
shares | receiving | |||||||
Date | issued | awards | ||||||
October 1, 2009 | 1,972 | 1 | ||||||
January 13, 2010 | 40,188 | 5 | ||||||
February 23, 2010 | 59,152 | 23 | ||||||
December 15, 2010 | 500 | 1 |
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Period Ending | ||||||||||||||||||||||||
Index | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | 12/31/09 | 12/31/10 | ||||||||||||||||||
Financial Institutions, Inc. | 100.00 | 119.37 | 94.50 | 78.59 | 67.41 | 111.16 | ||||||||||||||||||
NASDAQ Composite | 100.00 | 110.39 | 122.15 | 73.32 | 106.57 | 125.91 | ||||||||||||||||||
SNL Bank $1B-$5B Index | 100.00 | 115.72 | 84.29 | 69.91 | 50.11 | 56.81 |
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ITEM 6. | SELECTED FINANCIAL DATA |
At or for the year ended December 31, | ||||||||||||||||||||
(Dollars in thousands, except selected ratios and per share data) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Selected financial condition data: | ||||||||||||||||||||
Total assets | $ | 2,214,307 | $ | 2,062,389 | $ | 1,916,919 | $ | 1,857,876 | $ | 1,907,552 | ||||||||||
Loans, net | 1,325,524 | 1,243,265 | 1,102,330 | 948,652 | 909,434 | |||||||||||||||
Investment securities | 694,530 | 620,074 | 606,038 | 754,720 | 775,536 | |||||||||||||||
Deposits | 1,882,890 | 1,742,955 | 1,633,263 | 1,575,971 | 1,617,695 | |||||||||||||||
Borrowings | 103,877 | 106,390 | 70,820 | 68,210 | 87,199 | |||||||||||||||
Shareholders’ equity | 212,144 | 198,294 | 190,300 | 195,322 | 182,388 | |||||||||||||||
Common shareholders’ equity(1) | 158,359 | 144,876 | 137,226 | 177,741 | 164,765 | |||||||||||||||
Tangible common shareholders’ equity(2) | 120,990 | 107,507 | 99,577 | 139,786 | 126,502 | |||||||||||||||
Selected operations data: | ||||||||||||||||||||
Interest income | $ | 96,509 | $ | 94,482 | $ | 98,948 | $ | 105,212 | $ | 103,070 | ||||||||||
Interest expense | 17,720 | 22,217 | 33,617 | 47,139 | 43,604 | |||||||||||||||
Net interest income | 78,789 | 72,265 | 65,331 | 58,073 | 59,466 | |||||||||||||||
Provision (credit) for loan losses | 6,687 | 7,702 | 6,551 | 116 | (1,842 | ) | ||||||||||||||
Net interest income after provision (credit) for loan losses | 72,102 | 64,563 | 58,780 | 57,957 | 61,308 | |||||||||||||||
Noninterest income (loss)(3) | 19,454 | 18,795 | (48,778 | ) | 20,680 | 21,911 | ||||||||||||||
Noninterest expense | 60,917 | 62,777 | 57,461 | 57,428 | 59,612 | |||||||||||||||
Income (loss) before income taxes | 30,639 | 20,581 | (47,459 | ) | 21,209 | 23,607 | ||||||||||||||
Income tax expense (benefit) | 9,352 | 6,140 | (21,301 | ) | 4,800 | 6,245 | ||||||||||||||
Net income (loss) | $ | 21,287 | $ | 14,441 | $ | (26,158 | ) | $ | 16,409 | $ | 17,362 | |||||||||
Preferred stock dividends and accretion | 3,725 | 3,697 | 1,538 | 1,483 | 1,486 | |||||||||||||||
Net income (loss) applicable to common shareholders | $ | 17,562 | $ | 10,744 | $ | (27,696 | ) | $ | 14,926 | $ | 15,876 | |||||||||
Stock and related per share data: | ||||||||||||||||||||
Earnings (loss) per common share: | ||||||||||||||||||||
Basic | $ | 1.62 | $ | 0.99 | $ | (2.54 | ) | $ | 1.34 | $ | 1.40 | |||||||||
Diluted | 1.61 | 0.99 | (2.54 | ) | 1.33 | 1.40 | ||||||||||||||
Cash dividends declared on common stock | 0.40 | 0.40 | 0.54 | 0.46 | 0.34 | |||||||||||||||
Common book value per share(1) | 14.48 | 13.39 | 12.71 | 16.14 | 14.53 | |||||||||||||||
Tangible common book value per share(2) | 11.06 | 9.94 | 9.22 | 12.69 | 11.15 | |||||||||||||||
Market price (NASDAQ: FISI): | ||||||||||||||||||||
High | 20.74 | 15.99 | 22.50 | 23.71 | 25.38 | |||||||||||||||
Low | 10.91 | 3.27 | 10.06 | 16.18 | 17.43 | |||||||||||||||
Close | 18.97 | 11.78 | 14.35 | 17.82 | 23.05 |
(1) | Excludes preferred shareholders’ equity. | |
(2) | Excludes preferred shareholders’ equity, goodwill and other intangible assets. | |
(3) | The 2010, 2009 and 2008 figures include other-than-temporary impairment (“OTTI”) charges of $594 thousand, $4.7 million and $68.2 million, respectively. There were no OTTI charges in the other years presented. |
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At or for the year ended December 31, | ||||||||||||||||||||
(Dollars in thousands, except per share data) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Selected financial ratios and other data: | ||||||||||||||||||||
Performance ratios: | ||||||||||||||||||||
Net income (loss), returns on: | ||||||||||||||||||||
Average assets | 0.98 | % | 0.71 | % | -1.37 | % | 0.86 | % | 0.90 | % | ||||||||||
Average equity | 10.07 | 7.43 | -14.30 | 8.84 | 9.86 | |||||||||||||||
Average common equity(1) | 11.14 | 7.61 | -16.84 | 8.89 | 10.02 | |||||||||||||||
Average tangible common equity(2) | 14.59 | 10.37 | -21.87 | 11.50 | 13.23 | |||||||||||||||
Common dividend payout ratio(3) | 24.69 | 40.40 | NA | 34.33 | 24.29 | |||||||||||||||
Net interest margin (fully tax-equivalent) | 4.07 | 4.04 | 3.93 | 3.53 | 3.55 | |||||||||||||||
Efficiency ratio(4) | 60.36 | % | 65.52 | % | 64.07 | % | 68.77 | % | 69.78 | % | ||||||||||
Capital ratios: | ||||||||||||||||||||
Leverage ratio | 8.31 | % | 7.96 | % | 8.05 | % | 9.35 | % | 8.91 | % | ||||||||||
Tier 1 risk-based capital | 12.34 | 11.95 | 11.83 | 15.74 | 15.85 | |||||||||||||||
Total risk-based capital | 13.60 | 13.21 | 13.08 | 16.99 | 17.10 | |||||||||||||||
Equity to assets (5) | 9.75 | 9.55 | 9.60 | 9.73 | 9.08 | |||||||||||||||
Common equity to assets(1) (5) | 7.28 | 6.94 | 8.63 | 8.81 | 8.17 | |||||||||||||||
Tangible common equity to tangible assets(2)(5) | 5.65 | % | 5.19 | % | 6.78 | % | 6.95 | % | 6.32 | % | ||||||||||
Asset quality: | ||||||||||||||||||||
Non-performing loans | $ | 7,582 | $ | 8,681 | $ | 8,196 | $ | 8,077 | $ | 15,840 | ||||||||||
Non-performing assets | 8,895 | 10,442 | 9,252 | 9,498 | 17,043 | |||||||||||||||
Allowance for loan losses | 20,466 | 20,741 | 18,749 | 15,521 | 17,048 | |||||||||||||||
Net loan charge-offs | $ | 6,962 | $ | 5,710 | $ | 3,323 | $ | 1,643 | $ | 1,341 | ||||||||||
Total non-performing loans to total loans | 0.56 | % | 0.69 | % | 0.73 | % | 0.84 | % | 1.71 | % | ||||||||||
Total non-performing assets to total assets | 0.40 | 0.51 | 0.48 | 0.51 | 0.89 | |||||||||||||||
Net charge-offs to average loans | 0.54 | 0.47 | 0.32 | 0.18 | 0.14 | |||||||||||||||
Allowance for loan losses to total loans | 1.52 | 1.64 | 1.67 | 1.61 | 1.84 | |||||||||||||||
Allowance for loan losses to non-performing loans | 270 | % | 239 | % | 229 | % | 192 | % | 108 | % | ||||||||||
Other data: | ||||||||||||||||||||
Number of branches | 50 | 50 | 51 | 50 | 50 | |||||||||||||||
Full time equivalent employees | 577 | 572 | 600 | 621 | 640 |
(1) | Excludes preferred shareholders’ equity. | |
(2) | Excludes preferred shareholders’ equity, goodwill and other intangible assets. | |
(3) | Common dividend payout ratio equals dividends declared during the year divided by earnings per share for the year. There is no ratio shown for years where we both declared a dividend and incurred a loss because the ratio would result in a negative payout since the dividend declared (paid out) will always be greater than 100% of earnings. | |
(4) | 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, proceeds from company owned life insurance included in income, and net gains from the sale of trust relationships (all from continuing operations). | |
(5) | Ratios calculated using average balances for the periods shown. |
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2010 | ||||||||||||||||
Fourth | Third | Second | First | |||||||||||||
(Dollars in thousands, except per share data) | Quarter | Quarter | Quarter | Quarter | ||||||||||||
Interest income | $ | 24,297 | $ | 24,186 | $ | 24,202 | $ | 23,824 | ||||||||
Interest expense | 4,229 | 4,393 | 4,526 | 4,572 | ||||||||||||
Net interest income | 20,068 | 19,793 | 19,676 | 19,252 | ||||||||||||
Provision for loan losses | 1,980 | 2,184 | 2,105 | 418 | ||||||||||||
Net interest income, after provision for loan losses | 18,088 | 17,609 | 17,571 | 18,834 | ||||||||||||
Noninterest income | 5,274 | 5,131 | 4,966 | 4,083 | ||||||||||||
Noninterest expense | 16,373 | 14,936 | 14,870 | 14,738 | ||||||||||||
Income before income taxes | 6,989 | 7,804 | 7,667 | 8,179 | ||||||||||||
Income tax expense | 1,891 | 2,141 | 2,469 | 2,851 | ||||||||||||
Net income | $ | 5,098 | $ | 5,663 | $ | 5,198 | $ | 5,328 | ||||||||
Preferred stock dividends | 933 | 932 | 931 | 929 | ||||||||||||
Net income applicable to common shareholders | $ | 4,165 | $ | 4,731 | $ | 4,267 | $ | 4,399 | ||||||||
Earnings per common share(1): | ||||||||||||||||
Basic | $ | 0.38 | $ | 0.44 | $ | 0.39 | $ | 0.41 | ||||||||
Diluted | 0.38 | 0.43 | 0.39 | 0.40 | ||||||||||||
Market price (NASDAQ: FISI): | ||||||||||||||||
High | $ | 20.74 | $ | 19.94 | $ | 19.48 | $ | 15.40 | ||||||||
Low | 16.80 | 14.14 | 14.07 | 10.91 | ||||||||||||
Close | 18.97 | 17.66 | 17.76 | 14.62 | ||||||||||||
Dividends declared | $ | 0.10 | $ | 0.10 | $ | 0.10 | $ | 0.10 |
2009 | ||||||||||||||||
Fourth | Third | Second | First | |||||||||||||
(Dollars in thousands, except per share data) | Quarter | Quarter | Quarter | Quarter | ||||||||||||
Interest income | $ | 24,390 | $ | 23,697 | $ | 23,302 | $ | 23,093 | ||||||||
Interest expense | 5,175 | 5,619 | 5,657 | 5,766 | ||||||||||||
Net interest income | 19,215 | 18,078 | 17,645 | 17,327 | ||||||||||||
Provision for loan losses | 1,088 | 2,620 | 2,088 | 1,906 | ||||||||||||
Net interest income, after provision for loan losses | 18,127 | 15,458 | 15,557 | 15,421 | ||||||||||||
Noninterest income | 5,183 | 4,406 | 4,515 | 4,691 | ||||||||||||
Noninterest expense | 15,117 | 15,142 | 16,440 | 16,078 | ||||||||||||
Income before income taxes | 8,193 | 4,722 | 3,632 | 4,034 | ||||||||||||
Income tax expense | 2,756 | 1,313 | 1,004 | 1,067 | ||||||||||||
Net income | $ | 5,437 | $ | 3,409 | $ | 2,628 | $ | 2,967 | ||||||||
Preferred stock dividends | 927 | 927 | 925 | 918 | ||||||||||||
Net income applicable to common shareholders | $ | 4,510 | $ | 2,482 | $ | 1,703 | $ | 2,049 | ||||||||
Earnings per common share(1): | ||||||||||||||||
Basic | $ | 0.42 | $ | 0.23 | $ | 0.16 | $ | 0.19 | ||||||||
Diluted | 0.42 | 0.23 | 0.16 | 0.19 | ||||||||||||
Market price (NASDAQ: FISI): | ||||||||||||||||
High | $ | 12.25 | $ | 15.00 | $ | 15.99 | $ | 14.95 | ||||||||
Low | 9.71 | 9.90 | 6.98 | 3.27 | ||||||||||||
Close | 11.78 | 9.97 | 13.66 | 7.62 | ||||||||||||
Dividends declared | $ | 0.10 | $ | 0.10 | $ | 0.10 | $ | 0.10 |
(1) | Earnings per share data is computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings or loss per common share amounts may not equal the total for the year. |
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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• | At December 31, 2010, total gross loans (includes loans held for sale) were $1.349 billion, up 7% from year-end 2009, primarily in commercial mortgage and consumer indirect loans, as we have focused our business development efforts in these areas in accordance with our strategic objectives. Total deposits at December 31, 2010, were $1.883 billion, up 8% from year-end 2009, primarily attributable to a $113.6 million increase in retail deposits. Our deposit mix remains favorably weighted in lower cost demand, savings and money market accounts, which comprised 60.7% of total deposits at the end of 2010. |
• | Nonperforming loans were $7.6 million at December 31, 2010, compared to $8.7 million at December 31, 2009, as our loan portfolio continues to benefit from responsible underwriting and lending practices. |
• | Net charge-offs were $7.0 million in 2010 (or 0.54% of average loans) compared to $5.7 million in 2009 (or 0.47% of average loans). We had a $5.0 million participation interest in one commercial business loan, which was sold during the third quarter of 2010 for $1.9 million, resulting in a charge-off of $3.1 million. |
• | The provision for loan losses was $6.7 million and $7.7 million, respectively, for 2010 and 2009. At year-end 2010, the allowance for loan losses of $20.5 million represented 1.52% of total loans (covering 270% of non-performing loans), compared to $20.7 million or 1.64% (covering 239% of non-performing loans) at year-end 2009. See also sections, “Allowance for Loan Losses” and “Non-performing Assets and Potential Problem Loans” for additional information on net charge-offs and non-performing loans. |
• | Taxable equivalent net interest income was $80.7 million for 2010 or 8% higher than $75.0 million in 2009. Taxable equivalent interest income increased $1.2 million, while interest expense decreased by $4.5 million. The increase in taxable equivalent net interest income was a function of a favorable volume variance (increasing taxable equivalent net interest income by $6.3 million), partially offset by an unfavorable rate variance (decreasing taxable equivalent net interest income by $573 thousand). See also section, “Net Interest Income and Net Interest Margin” for additional information on taxable equivalent net interest income and net interest margin. |
• | The net interest margin for 2010 was 4.07%, 3 basis points higher than 4.04% in 2009. The increase in net interest margin was attributable to a 10 basis point increase in interest rate spread (the net of a 36 basis point decrease in the cost of interest-bearing liabilities and a 26 basis decrease in the yield on earning assets), partially offset by a 7 basis point lower contribution from net free funds (primarily attributable to lower rates on interest-bearing liabilities reducing the value of noninterest-bearing deposits and other net free funds). See also section, “Net Interest Income and Net Interest Margin” for additional information on taxable equivalent net interest income and net interest margin. |
• | Noninterest income was $19.5 million for 2010 compared to $18.8 million for 2009. Core fee-based revenues (defined as service charges on deposit accounts, ATM and debit fees, and broker-dealer fees and commissions) totaled $14.9 million for 2010, up $166 thousand from $14.7 million for 2009. Net mortgage banking income was $1.8 million for 2010, compared to $2.0 million in 2009, a decrease of $233 thousand from 2009, primarily attributable to lower secondary mortgage production experienced during 2010 and a decrease in our loan serviced for others portfolio. For additional discussion concerning noninterest income see section, “Noninterest Income.” |
• | Net investment securities losses (defined as impairment charges on investment securities and net gain on disposal of investment securities) were $425 thousand for 2010, compared to net investment securities losses of $1.2 million for 2009, primarily attributable to other-than-temporary write-downs on investment securities. |
• | Noninterest expense for 2010 was $60.9 million, a decrease of $1.9 million or 3% over 2009. FDIC assessments decreased $1.1 million, salaries and employee benefits decreased $823 thousand, and collectively all remaining noninterest expense categories were up $107 thousand or less than half a percent compared to 2009. Other noninterest expense for 2010 includes $1.0 million of losses relating to irregular instance of fraudulent debit card activity. The efficiency ratio (as defined under Part II, Item 6, “Selected Financial Data”) was 60.36% for 2010 and 65.52% for 2009. For additional discussion regarding noninterest expense see section, “Noninterest Expense.” |
• | Income tax expense for 2010 was $9.4 million compared to $6.1 million for 2009. The change in income tax expense was primarily due to a $10.1 million increase in pretax income between the years. For additional discussion concerning income tax see section, “Income Taxes.” |
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2010 | 2009 | 2008 | ||||||||||
Interest income per consolidated statements of operations | $ | 96,509 | $ | 94,482 | $ | 98,948 | ||||||
Adjustment to fully taxable equivalent basis | 1,895 | 2,692 | 4,292 | |||||||||
Interest income adjusted to a fully taxable equivalent basis | 98,404 | 97,174 | 103,240 | |||||||||
Interest expense per consolidated statement of operations | 17,720 | 22,217 | 33,617 | |||||||||
Net interest income on a taxable equivalent basis | $ | 80,684 | $ | 74,957 | $ | 69,623 | ||||||
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Years ended December 31, | ||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | ||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Federal funds sold and other interest-earning deposits | $ | 5,034 | $ | 10 | 0.21 | % | $ | 37,214 | $ | 82 | 0.22 | % | $ | 26,568 | $ | 619 | 2.33 | % | ||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||||||||||||||
Taxable | 571,856 | 17,101 | 2.99 | 454,552 | 16,466 | 3.62 | 487,687 | 21,882 | 4.49 | |||||||||||||||||||||||||||
Tax-exempt | 108,900 | 5,416 | 4.97 | 155,054 | 7,920 | 5.11 | 233,864 | 13,065 | 5.59 | |||||||||||||||||||||||||||
Total investment securities | 680,756 | 22,517 | 3.31 | 609,606 | 24,386 | 4.00 | 721,551 | 34,947 | 4.84 | |||||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||
Commercial business | 206,167 | 9,939 | 4.82 | 204,235 | 9,612 | 4.71 | 167,760 | 10,476 | 6.24 | |||||||||||||||||||||||||||
Commercial mortgage | 338,149 | 20,389 | 6.03 | 306,763 | 19,309 | 6.29 | 274,677 | 18,877 | 6.87 | |||||||||||||||||||||||||||
Residential mortgage | 138,954 | 8,157 | 5.87 | 161,055 | 9,701 | 6.02 | 172,083 | 10,761 | 6.25 | |||||||||||||||||||||||||||
Home equity | 202,189 | 9,224 | 4.56 | 193,929 | 9,121 | 4.70 | 189,448 | 11,041 | 5.83 | |||||||||||||||||||||||||||
Consumer indirect | 382,977 | 25,379 | 6.63 | 313,239 | 21,838 | 6.97 | 185,197 | 13,098 | 7.07 | |||||||||||||||||||||||||||
Other consumer | 26,950 | 2,789 | 10.35 | 30,791 | 3,125 | 10.15 | 34,895 | 3,421 | 9.80 | |||||||||||||||||||||||||||
Total loans | 1,295,386 | 75,877 | 5.86 | 1,210,012 | 72,706 | 6.01 | 1,024,060 | 67,674 | 6.61 | |||||||||||||||||||||||||||
Total interest-earning assets | 1,981,176 | 98,404 | 4.97 | 1,856,832 | 97,174 | 5.23 | 1,772,179 | 103,240 | 5.83 | |||||||||||||||||||||||||||
Less: Allowance for loan losses | 20,883 | 20,355 | 16,287 | |||||||||||||||||||||||||||||||||
Other noninterest-earning assets | 206,303 | 197,439 | 149,453 | |||||||||||||||||||||||||||||||||
Total assets | $ | 2,166,596 | $ | 2,033,916 | $ | 1,905,345 | ||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||||||||||||||
Interest-bearing demand | $ | 382,517 | 705 | 0.18 | $ | 365,873 | 772 | 0.21 | $ | 347,702 | 3,246 | 0.93 | ||||||||||||||||||||||||
Savings and money market | 414,953 | 1,133 | 0.27 | 383,697 | 1,090 | 0.28 | 369,926 | 3,773 | 1.02 | |||||||||||||||||||||||||||
Certificates of deposit | 726,330 | 13,015 | 1.79 | 685,259 | 17,228 | 2.51 | 617,381 | 22,330 | 3.62 | |||||||||||||||||||||||||||
Total interest-bearing deposits | 1,523,800 | 14,853 | 0.97 | 1,434,829 | 19,090 | 1.33 | 1,335,009 | 29,349 | 2.20 | |||||||||||||||||||||||||||
Short-term borrowings | 49,104 | 365 | 0.74 | 43,092 | 270 | 0.63 | 38,028 | 721 | 1.90 | |||||||||||||||||||||||||||
Long-term borrowings | 37,043 | 2,502 | 6.75 | 46,913 | 2,857 | 6.09 | 53,687 | 3,547 | 6.61 | |||||||||||||||||||||||||||
Total borrowings | 86,147 | 2,867 | 3.33 | 90,005 | 3,127 | 3.47 | 91,715 | �� | 4,268 | 4.65 | ||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,609,947 | 17,720 | 1.10 | 1,524,834 | 22,217 | 1.46 | 1,426,724 | 33,617 | 2.36 | |||||||||||||||||||||||||||
Noninterest-bearing deposits | 329,853 | 293,852 | 280,467 | |||||||||||||||||||||||||||||||||
Other liabilities | 15,485 | 20,890 | 15,249 | |||||||||||||||||||||||||||||||||
Shareholders’ equity | 211,311 | 194,340 | 182,905 | |||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 2,166,596 | $ | 2,033,916 | $ | 1,905,345 | ||||||||||||||||||||||||||||||
Net interest income (tax-equivalent) | $ | 80,684 | $ | 74,957 | $ | 69,623 | ||||||||||||||||||||||||||||||
Interest rate spread | 3.87 | % | 3.77 | % | 3.47 | % | ||||||||||||||||||||||||||||||
Net earning assets | $ | 371,229 | $ | 331,998 | $ | 345,455 | ||||||||||||||||||||||||||||||
Net interest margin (tax-equivalent) | 4.07 | % | 4.04 | % | 3.93 | % | ||||||||||||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 123.06 | % | 121.77 | % | 124.21 | % | ||||||||||||||||||||||||||||||
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Change from 2010 to 2009 | Change from 2009 to 2008 | |||||||||||||||||||||||
Increase (decrease) in: | Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||
Interest income: | ||||||||||||||||||||||||
Federal funds sold and other interest-earning deposits | $ | (65 | ) | $ | (7 | ) | $ | (72 | ) | $ | 179 | $ | (716 | ) | $ | (537 | ) | |||||||
Investment securities: | ||||||||||||||||||||||||
Taxable | 3,807 | (3,172 | ) | 635 | (1,412 | ) | (4,004 | ) | (5,416 | ) | ||||||||||||||
Tax-exempt | (2,300 | ) | (204 | ) | (2,504 | ) | (4,102 | ) | (1,043 | ) | (5,145 | ) | ||||||||||||
Total investment securities | 1,507 | (3,376 | ) | (1,869 | ) | (5,514 | ) | (5,047 | ) | (10,561 | ) | |||||||||||||
Loans: | ||||||||||||||||||||||||
Commercial business | 92 | 235 | 327 | 2,015 | (2,879 | ) | (864 | ) | ||||||||||||||||
Commercial mortgage | 1,916 | (836 | ) | 1,080 | 2,097 | (1,665 | ) | 432 | ||||||||||||||||
Residential mortgage | (1,302 | ) | (242 | ) | (1,544 | ) | (673 | ) | (387 | ) | (1,060 | ) | ||||||||||||
Home equity | 382 | (279 | ) | 103 | 256 | (2,176 | ) | (1,920 | ) | |||||||||||||||
Consumer indirect | 4,665 | (1,124 | ) | 3,541 | 8,930 | (190 | ) | 8,740 | ||||||||||||||||
Other consumer | (396 | ) | 60 | (336 | ) | (414 | ) | 118 | (296 | ) | ||||||||||||||
Total loans | 5,357 | (2,186 | ) | 3,171 | 12,211 | (7,179 | ) | 5,032 | ||||||||||||||||
Total interest income | 6,799 | (5,569 | ) | 1,230 | 6,876 | (12,942 | ) | (6,066 | ) | |||||||||||||||
Interest expense: | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Interest-bearing demand | 34 | (101 | ) | (67 | ) | 162 | (2,636 | ) | (2,474 | ) | ||||||||||||||
Savings and money market | 86 | (43 | ) | 43 | 135 | (2,818 | ) | (2,683 | ) | |||||||||||||||
Certificates of deposit | 982 | (5,195 | ) | (4,213 | ) | 2,257 | (7,359 | ) | (5,102 | ) | ||||||||||||||
Total interest-bearing deposits | 1,102 | (5,339 | ) | (4,237 | ) | 2,554 | (12,813 | ) | (10,259 | ) | ||||||||||||||
Short-term borrowings | 41 | 54 | 95 | 85 | (536 | ) | (451 | ) | ||||||||||||||||
Long-term borrowings | (644 | ) | 289 | (355 | ) | (426 | ) | (264 | ) | (690 | ) | |||||||||||||
Total borrowings | (603 | ) | 343 | (260 | ) | (341 | ) | (800 | ) | (1,141 | ) | |||||||||||||
Total interest expense | 499 | (4,996 | ) | (4,497 | ) | 2,213 | (13,613 | ) | (11,400 | ) | ||||||||||||||
Net interest income | $ | 6,300 | $ | (573 | ) | $ | 5,727 | $ | 4,663 | $ | 671 | $ | 5,334 | |||||||||||
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2010 | 2009 | 2008 | ||||||||||
Service charges on deposits | $ | 9,585 | $ | 10,065 | $ | 10,497 | ||||||
ATM and debit card | 3,995 | 3,610 | 3,313 | |||||||||
Broker-dealer fees and commissions | 1,283 | 1,022 | 1,458 | |||||||||
Company owned life insurance | 1,107 | 1,096 | 563 | |||||||||
Loan servicing | 1,124 | 1,308 | 664 | |||||||||
Net gain on sale of loans held for sale | 650 | 699 | 339 | |||||||||
Net gain on disposal of investment securities | 169 | 3,429 | 288 | |||||||||
Impairment charges on investment securities | (594 | ) | (4,666 | ) | (68,215 | ) | ||||||
Net (loss) gain on sale and disposal of other assets | (203 | ) | 180 | 305 | ||||||||
Other | 2,338 | 2,052 | 2,010 | |||||||||
Total noninterest income (loss) | $ | 19,454 | $ | 18,795 | $ | (48,778 | ) | |||||
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2010 | 2009 | 2008 | ||||||||||
Salaries and employee benefits | $ | 32,811 | $ | 33,634 | $ | 31,437 | ||||||
Occupancy and equipment | 10,818 | 11,062 | 10,502 | |||||||||
FDIC assessments | 2,507 | 3,651 | 674 | |||||||||
Computer and data processing | 2,487 | 2,340 | 2,433 | |||||||||
Professional services | 2,197 | 2,524 | 2,141 | |||||||||
Supplies and postage | 1,772 | 1,846 | 1,800 | |||||||||
Advertising and promotions | 1,121 | 949 | 1,453 | |||||||||
Other | 7,204 | 6,771 | 7,021 | |||||||||
Total noninterest expense | $ | 60,917 | $ | 62,777 | $ | 57,461 | ||||||
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Investment Securities Portfolio Composition | ||||||||||||||||||||||||
At December 31, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||
U.S. Government agency and government-sponsored enterprise securities | $ | 141,591 | $ | 140,784 | $ | 134,564 | $ | 134,105 | $ | 67,871 | $ | 68,173 | ||||||||||||
State and political subdivisions | 105,622 | 105,666 | 80,812 | 83,659 | 129,572 | 131,711 | ||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Agency mortgage-backed securities | 414,502 | 417,709 | 356,044 | 356,355 | 297,278 | 303,105 | ||||||||||||||||||
Non-Agency mortgage-backed securities | 981 | 1,572 | 5,087 | 5,160 | 42,296 | 39,447 | ||||||||||||||||||
Asset-backed securities | 564 | 637 | 1,295 | 1,222 | 3,918 | 3,918 | ||||||||||||||||||
Equity securities | — | — | — | — | 923 | 1,152 | ||||||||||||||||||
Total available for sale securities | 663,260 | 666,368 | 577,802 | 580,501 | 541,858 | 547,506 | ||||||||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||
State and political subdivisions | 28,162 | 28,849 | 39,573 | 40,629 | 58,532 | 59,147 | ||||||||||||||||||
Total investment securities | $ | 691,422 | $ | 695,217 | $ | 617,375 | $ | 621,130 | $ | 600,390 | $ | 606,653 | ||||||||||||
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Unrealized Losses on Investment Securities | ||||||||||||||||||||||||
At December 31, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
Unrealized | % of | Unrealized | % of | Unrealized | % of | |||||||||||||||||||
Losses | Total | Losses | Total | Losses | Total | |||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||
U.S. Government agency and government-sponsored enterprise securities | $ | 1,965 | 31.6 | % | $ | 545 | 19.8 | % | $ | 307 | 7.3 | % | ||||||||||||
State and political subdivisions | 1,472 | 23.6 | 3 | 0.1 | 42 | 1.0 | ||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Agency mortgage-backed securities | 2,655 | 42.7 | 1,638 | 59.3 | 981 | 23.1 | ||||||||||||||||||
Non-Agency mortgage-backed securities | — | — | 330 | 12.0 | 2,854 | 67.3 | ||||||||||||||||||
Asset-backed securities | 131 | 2.1 | 244 | 8.8 | — | — | ||||||||||||||||||
Equity securities | — | — | — | — | 52 | 1.2 | ||||||||||||||||||
Total available for sale securities | 6,223 | 100.0 | 2,760 | 100.0 | 4,236 | 99.9 | ||||||||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||
State and political subdivisions | — | — | — | — | 4 | 0.1 | ||||||||||||||||||
Total investment securities | $ | 6,223 | 100.0 | % | $ | 2,760 | 100.0 | % | $ | 4,240 | 100.0 | % | ||||||||||||
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Loan Portfolio Composition | ||||||||||||||||||||||||||||||||||||||||
At December 31, | ||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||
Commercial business | $ | 211,031 | 15.7 | % | $ | 206,383 | 16.3 | % | $ | 180,100 | 16.1 | % | $ | 157,550 | 16.3 | % | $ | 130,695 | 14.1 | % | ||||||||||||||||||||
Commercial mortgage | 352,930 | 26.2 | 330,748 | 26.2 | 285,383 | 25.5 | 272,394 | 28.3 | 275,884 | 29.8 | ||||||||||||||||||||||||||||||
Total commercial | 563,961 | 41.9 | 537,131 | 42.5 | 465,483 | 41.6 | 429,944 | 44.6 | 406,579 | 43.9 | ||||||||||||||||||||||||||||||
Residential mortgage | 129,580 | 9.6 | 144,215 | 11.4 | 177,683 | 15.8 | 166,863 | 17.3 | 163,244 | 17.6 | ||||||||||||||||||||||||||||||
Home equity | 208,327 | 15.5 | 200,684 | 15.9 | 189,794 | 16.9 | 194,144 | 20.1 | 203,426 | 22.0 | ||||||||||||||||||||||||||||||
Consumer indirect | 418,016 | 31.1 | 352,611 | 27.9 | 255,054 | 22.8 | 134,977 | 14.0 | 106,445 | 11.5 | ||||||||||||||||||||||||||||||
Other consumer | 26,106 | 1.9 | 29,365 | 2.3 | 33,065 | 2.9 | 38,245 | 4.0 | 46,788 | 5.0 | ||||||||||||||||||||||||||||||
Total consumer | 652,449 | 48.5 | 582,660 | 46.1 | 477,913 | 42.6 | 367,366 | 38.1 | 356,659 | 38.5 | ||||||||||||||||||||||||||||||
Total loans | 1,345,990 | 100.0 | % | 1,264,006 | 100.0 | % | 1,121,079 | 100.0 | % | 964,173 | 100.0 | % | 926,482 | 100.0 | % | |||||||||||||||||||||||||
Allowance for loan losses | 20,466 | 20,741 | 18,749 | 15,521 | 17,048 | |||||||||||||||||||||||||||||||||||
Total loans, net | $ | 1,325,524 | $ | 1,243,265 | $ | 1,102,330 | $ | 948,652 | $ | 909,434 | ||||||||||||||||||||||||||||||
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Loan Loss Analysis | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Allowance for loan losses, beginning of year | $ | 20,741 | $ | 18,749 | $ | 15,521 | $ | 17,048 | $ | 20,231 | ||||||||||
Charge-offs: | ||||||||||||||||||||
Commercial business | 3,426 | 2,360 | 720 | 618 | 1,472 | |||||||||||||||
Commercial mortgage | 263 | 355 | 1,192 | 439 | 603 | |||||||||||||||
Residential mortgage | 290 | 225 | 320 | 319 | 278 | |||||||||||||||
Home equity | 259 | 195 | 110 | 255 | 108 | |||||||||||||||
Consumer indirect | 4,669 | 3,637 | 2,011 | 988 | 532 | |||||||||||||||
Other consumer | 909 | 1,058 | 1,106 | 1,276 | 1,206 | |||||||||||||||
Total charge-offs | 9,816 | 7,830 | 5,459 | 3,895 | 4,199 | |||||||||||||||
Recoveries: | ||||||||||||||||||||
Commercial business | 326 | 428 | 684 | 1,140 | 1,777 | |||||||||||||||
Commercial mortgage | 501 | 150 | 315 | 216 | 161 | |||||||||||||||
Residential mortgage | 21 | 12 | 26 | 50 | 71 | |||||||||||||||
Home equity | 36 | 20 | 19 | 12 | 22 | |||||||||||||||
Consumer indirect | 1,485 | 1,030 | 548 | 235 | 224 | |||||||||||||||
Other consumer | 485 | 480 | 544 | 599 | 603 | |||||||||||||||
Total recoveries | 2,854 | 2,120 | 2,136 | 2,252 | 2,858 | |||||||||||||||
Net charge-offs | 6,962 | 5,710 | 3,323 | 1,643 | 1,341 | |||||||||||||||
Provision (credit) for loan losses | 6,687 | 7,702 | 6,551 | 116 | (1,842 | ) | ||||||||||||||
Allowance for loan losses, end of year | $ | 20,466 | $ | 20,741 | $ | 18,749 | $ | 15,521 | $ | 17,048 | ||||||||||
Net charge-offs to average loans | 0.54 | % | 0.47 | % | 0.32 | % | 0.18 | % | 0.14 | % | ||||||||||
Allowance to end of period loans | 1.52 | % | 1.64 | % | 1.67 | % | 1.61 | % | 1.84 | % | ||||||||||
Allowance to end of period non-performing loans | 270 | % | 239 | % | 229 | % | 192 | % | 108 | % |
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Allowance for Loan Losses by Loan Category | ||||||||||||||||||||||||||||||||||||||||
At December 31, | ||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||||
Percentage | Percentage | Percentage | Percentage | Percentage | ||||||||||||||||||||||||||||||||||||
Loan | of loans by | Loan | of loans by | Loan | of loans by | Loan | of loans by | Loan | of loans by | |||||||||||||||||||||||||||||||
Loss | category to | Loss | category to | Loss | category to | Loss | category to | Loss | category to | |||||||||||||||||||||||||||||||
Allowance | total loans | Allowance | total loans | Allowance | total loans | Allowance | total loans | Allowance | total loans | |||||||||||||||||||||||||||||||
Commercial business | $ | 3,712 | 15.7 | % | $ | 4,407 | 16.3 | % | $ | 3,300 | 16.1 | % | $ | 2,505 | 16.3 | % | $ | 3,294 | 14.1 | % | ||||||||||||||||||||
Commercial mortgage | 6,431 | 26.2 | 6,638 | 26.2 | 4,635 | 25.5 | 4,640 | 28.3 | 5,494 | 29.8 | ||||||||||||||||||||||||||||||
Residential mortgage | 1,013 | 9.6 | 1,251 | 11.4 | 2,516 | 15.8 | 1,763 | 17.3 | 1,748 | 17.6 | ||||||||||||||||||||||||||||||
Home equity | 972 | 15.5 | 1,043 | 15.9 | 2,374 | 16.9 | 1,869 | 20.1 | 2,082 | 22.0 | ||||||||||||||||||||||||||||||
Consumer indirect | 7,754 | 31.1 | 6,837 | 27.9 | 5,152 | 22.8 | 2,284 | 14.0 | 1,749 | 11.5 | ||||||||||||||||||||||||||||||
Other consumer | 584 | 1.9 | 565 | 2.3 | 772 | 2.9 | 798 | 4.0 | 751 | 5.0 | ||||||||||||||||||||||||||||||
Unallocated(1) | — | — | — | — | — | — | 1,662 | — | 1,930 | — | ||||||||||||||||||||||||||||||
Total | $ | 20,466 | 100.0 | % | $ | 20,741 | 100.0 | % | $ | 18,749 | 100.0 | % | $ | 15,521 | 100.0 | % | $ | 17,048 | 100.0 | % | ||||||||||||||||||||
(1) | During 2008 management revised estimation techniques related to allocation of the allowance to specific loan segments. The result was the elimination of the unallocated portion of the allowance for loan losses and allocation of the entire balance to specific loan segments. |
Non-performing Assets | ||||||||||||||||||||
At December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Non-accruing loans: | ||||||||||||||||||||
Commercial business | $ | 947 | $ | 650 | $ | 510 | $ | 839 | $ | 4,031 | ||||||||||
Commercial mortgage | 3,100 | 2,288 | 2,670 | 3,294 | 7,671 | |||||||||||||||
Residential mortgage | 2,102 | 2,376 | 3,365 | 2,987 | 3,127 | |||||||||||||||
Home equity | 875 | 880 | 1,143 | 661 | 712 | |||||||||||||||
Consumer indirect | 514 | 621 | 445 | 278 | 166 | |||||||||||||||
Other consumer | 41 | 7 | 56 | 16 | 130 | |||||||||||||||
Total non-accruing loans | 7,579 | 6,822 | 8,189 | 8,075 | 15,837 | |||||||||||||||
Restructured accruing loans | — | — | — | — | — | |||||||||||||||
Accruing loans contractually past due over 90 days | 3 | 1,859 | 7 | 2 | 3 | |||||||||||||||
Total non-performing loans | 7,582 | 8,681 | 8,196 | 8,077 | 15,840 | |||||||||||||||
Foreclosed assets | 741 | 746 | 1,007 | 1,421 | 1,203 | |||||||||||||||
Non-performing investment securities | 572 | 1,015 | 49 | — | — | |||||||||||||||
Total non-performing assets | $ | 8,895 | $ | 10,442 | $ | 9,252 | $ | 9,498 | $ | 17,043 | ||||||||||
Non-performing loans to total loans | 0.56 | % | 0.69 | % | 0.73 | % | 0.84 | % | 1.71 | % | ||||||||||
Non-performing assets to total assets | 0.40 | % | 0.51 | % | 0.48 | % | 0.51 | % | 0.89 | % |
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At December 31, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||
Noninterest-bearing demand | $ | 350,877 | 18.6 | % | $ | 324,303 | 18.6 | % | $ | 292,586 | 17.9 | % | ||||||||||||
Interest-bearing demand | 374,900 | 19.9 | 363,698 | 20.9 | 344,616 | 21.1 | ||||||||||||||||||
Savings and money market | 417,359 | 22.2 | 368,603 | 21.1 | 348,594 | 21.3 | ||||||||||||||||||
Certificates of deposit < $100,000 | 555,840 | 29.5 | 512,969 | 29.5 | 482,863 | 29.6 | ||||||||||||||||||
Certificates of deposit of $100,000 or more | 183,914 | 9.8 | 173,382 | 9.9 | 164,604 | 10.1 | ||||||||||||||||||
Total deposits | $ | 1,882,890 | 100.0 | % | $ | 1,742,955 | 100.0 | % | $ | 1,633,263 | 100.0 | % | ||||||||||||
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At or for the Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Year-end balance | $ | 77,110 | $ | 59,543 | $ | 23,465 | ||||||
Year-end weighted average interest rate | 0.21 | % | 0.59 | % | 0.48 | % | ||||||
Maximum outstanding at any month-end | $ | 77,110 | $ | 85,912 | $ | 56,861 | ||||||
Average balance during the year | $ | 49,104 | $ | 43,092 | $ | 38,028 | ||||||
Average interest rate for the year | 0.74 | % | 0.63 | % | 1.90 | % |
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At December 31, 2010 | ||||||||||||||||||||
Within 1 | Over 1 to 3 | Over 3 to 5 | Over 5 | |||||||||||||||||
year | years | Years | years | Total | ||||||||||||||||
On-Balance sheet: | ||||||||||||||||||||
Certificates of deposit (1) | $ | 554,104 | $ | 141,608 | $ | 43,888 | $ | 154 | $ | 739,754 | ||||||||||
Long-term borrowings | 10,065 | — | — | 16,702 | 26,767 | |||||||||||||||
Supplemental executive retirement plans | 155 | 318 | 318 | 708 | 1,499 | |||||||||||||||
Off-Balance sheet: | ||||||||||||||||||||
Limited partnership investments(2) | $ | 695 | $ | 1,391 | $ | 695 | $ | — | $ | 2,781 | ||||||||||
Commitments to extend credit(3) | 357,240 | — | — | — | 357,240 | |||||||||||||||
Standby letters of credit(3) | 4,075 | 1,216 | 1,233 | — | 6,524 | |||||||||||||||
Operating leases | 1,218 | 2,188 | 1,933 | 5,868 | 11,207 |
(1) | Includes the maturity of certificates of deposit amounting to $100 thousand or more as follows: $68.1 million in three months or less; $27.0 million between three months and six months; $58.5 million between six months and one year; and $30.3 million over one year. | |
(2) | We have committed to capital investments in several limited partnerships of up to $6.1 million. As of December 31, 2010, we have contributed $3.3 million to the partnerships, including $806 thousand during 2010. | |
(3) | We do not expect all of the commitments to extend credit and standby letters of credit to be funded. Thus, the total commitment amounts do not necessarily represent our future cash requirements. |
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Due after five | ||||||||||||||||||||||||||||||||||||||||
Due in one year | Due from one to | years through | Due after ten | |||||||||||||||||||||||||||||||||||||
or less | five years | ten years | years | Total | ||||||||||||||||||||||||||||||||||||
Cost | Yield | Cost | Yield | Cost | Yield | Cost | Yield | Cost | Yield | |||||||||||||||||||||||||||||||
Available for sale debt securities: | ||||||||||||||||||||||||||||||||||||||||
U.S. Government agencies and government-sponsored enterprises | $ | — | — | % | $ | 59,324 | 2.25 | % | $ | 60,113 | 2.48 | % | $ | 22,154 | 1.40 | % | $ | 141,591 | 2.21 | % | ||||||||||||||||||||
State and political subdivisions | 17,186 | 3.53 | 43,177 | 3.10 | 45,259 | 2.19 | — | — | 105,622 | 2.78 | ||||||||||||||||||||||||||||||
Mortgage-backed securities | 8,503 | 4.02 | 12,423 | 3.96 | 118,320 | 1.96 | 276,237 | 3.57 | 415,483 | 3.13 | ||||||||||||||||||||||||||||||
Asset-backed securities | — | — | — | — | — | — | 564 | — | 564 | — | ||||||||||||||||||||||||||||||
25,689 | 3.69 | 114,924 | 2.75 | 223,692 | 2.15 | 298,955 | 3.41 | 663,260 | 2.88 | |||||||||||||||||||||||||||||||
Held to maturity debt securities: | ||||||||||||||||||||||||||||||||||||||||
State and political subdivisions | 21,439 | 2.43 | 5,490 | 4.13 | 1,055 | 5.08 | 178 | 5.53 | 28,162 | 2.88 | ||||||||||||||||||||||||||||||
$ | 47,128 | 3.12 | % | $ | 120,414 | 2.82 | % | $ | 224,747 | 2.16 | % | $ | 299,133 | 3.41 | % | $ | 691,422 | 2.88 | % | |||||||||||||||||||||
Due in less | Due from one | Due after five | ||||||||||||||
than one year | to five years | years | Total | |||||||||||||
Commercial business | $ | 130,990 | $ | 71,730 | $ | 8,311 | $ | 211,031 | ||||||||
Commercial mortgage | 80,096 | 161,978 | 110,856 | 352,930 | ||||||||||||
Residential mortgage | 25,556 | 57,534 | 46,490 | 129,580 | ||||||||||||
Home equity | 35,208 | 91,464 | 81,655 | 208,327 | ||||||||||||
Consumer indirect | 136,355 | 269,061 | 12,600 | 418,016 | ||||||||||||
Other consumer | 11,772 | 13,006 | 1,328 | 26,106 | ||||||||||||
Total loans | $ | 419,977 | $ | 664,773 | $ | 261,240 | $ | 1,345,990 | ||||||||
Loans maturing after one year: | ||||||||||||||||
With a predetermined interest rate | $ | 205,867 | $ | 166,360 | $ | 372,227 | ||||||||||
With a floating or adjustable rate | 458,906 | 94,880 | 553,786 | |||||||||||||
Total loans maturing after one year | $ | 664,773 | $ | 261,240 | $ | 926,013 | ||||||||||
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2010 | 2009 | |||||||
Total shareholders’ equity | $ | 212,144 | $ | 198,294 | ||||
Less: Unrealized gain on securities available for sale, net of tax | 1,877 | 1,655 | ||||||
Unrecognized net periodic pension & postretirement benefits (costs), net of tax | (6,599 | ) | (5,357 | ) | ||||
Disallowed goodwill and other intangible assets | 37,369 | 37,369 | ||||||
Disallowed deferred tax assets | 14,608 | 17,214 | ||||||
Plus: Qualifying trust preferred securities | 16,200 | 16,200 | ||||||
Tier 1 capital | $ | 181,089 | $ | 163,613 | ||||
Adjusted average total assets (for leverage capital purposes) | $ | 2,177,911 | $ | 2,054,699 | ||||
Tier 1 leverage ratio (Tier 1 capital to adjusted average total assets) | 8.31 | % | 7.96 | % | ||||
Total Tier 1 capital | $ | 181,089 | $ | 163,613 | ||||
Plus: Qualifying allowance for loan losses | 18,363 | 17,153 | ||||||
Total risk-based capital | $ | 199,452 | $ | 180,766 | ||||
Net risk-weighted assets | $ | 1,466,957 | $ | 1,368,653 | ||||
Tier 1 capital ratio (Tier 1 capital to net risk-weighted assets) | 12.34 | % | 11.95 | % | ||||
Total risk-based capital ratio (Total risk-based capital to net risk-weighted assets) | 13.60 | % | 13.21 | % |
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ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Changes in | Net Interest Income | Economic Value of Equity | ||||||||||||||||||||||
interest rate | Amount | Change | Amount | Change | ||||||||||||||||||||
+ 300 basis points | $ | 80,089 | $ | (655 | ) | (0.81 | )% | $ | 409,884 | $ | (45,722 | ) | (10.04 | )% | ||||||||||
+ 200 basis points | 80,387 | (357 | ) | (0.44 | ) | 428,304 | (27,303 | ) | (5.99 | ) | ||||||||||||||
+ 100 basis points | 80,342 | (402 | ) | (0.50 | ) | 443,028 | (12,578 | ) | (2.76 | ) | ||||||||||||||
- 100 basis points | 76,204 | (4,540 | ) | (5.62 | ) | 438,274 | (17,332 | ) | (3.80 | ) |
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At December 31, 2010 | ||||||||||||||||||||
Over Three | Over | |||||||||||||||||||
Three | Months | One Year | ||||||||||||||||||
Months | Through | Through | Over | |||||||||||||||||
or Less | One Year | Five Years | Five Years | Total | ||||||||||||||||
INTEREST-EARNING ASSETS: | ||||||||||||||||||||
Federal funds sold and interest-earning deposits in other banks | $ | — | $ | 94 | $ | — | $ | — | $ | 94 | ||||||||||
Investment securities | 99,649 | 137,148 | 262,173 | 192,452 | 691,422 | |||||||||||||||
Loans | 420,507 | 211,128 | 604,736 | 112,757 | 1,349,128 | |||||||||||||||
Total interest-earning assets | $ | 520,156 | $ | 348,370 | $ | 866,909 | $ | 305,209 | 2,040,644 | |||||||||||
Cash and due from banks | 38,964 | |||||||||||||||||||
Other assets(1) | 134,699 | |||||||||||||||||||
Total assets | $ | 2,214,307 | ||||||||||||||||||
INTEREST-BEARING LIABILITIES: | ||||||||||||||||||||
Interest-bearing demand, savings and money market | $ | 792,259 | $ | — | $ | — | $ | — | $ | 792,259 | ||||||||||
Certificates of deposit | 180,581 | 373,523 | 185,496 | 154 | 739.754 | |||||||||||||||
Borrowings | 77,175 | 10,000 | — | 16,702 | 103,877 | |||||||||||||||
Total interest-bearing liabilities | $ | 1,050,015 | $ | 383,523 | 185,496 | 16,856 | 1,635,890 | |||||||||||||
Noninterest-bearing deposits | 350,877 | |||||||||||||||||||
Other liabilities | 15,396 | |||||||||||||||||||
Total liabilities | 2,002,163 | |||||||||||||||||||
Shareholders’ equity | 212,144 | |||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 2,214,307 | ||||||||||||||||||
Interest sensitivity gap | $ | (529,859 | ) | $ | (35,153 | ) | $ | 681,413 | $ | 288,353 | $ | 404,754 | ||||||||
Cumulative gap | $ | (529,859 | ) | $ | (565,012 | ) | $ | 116,401 | $ | 404,754 | ||||||||||
Cumulative gap ratio(2) | 49.5 | % | 60.6 | % | 107.2 | % | 124.7 | % | ||||||||||||
Cumulative gap as a percentage of total assets | (23.9 | )% | (25.5 | )% | 5.3 | % | 18.3 | % |
(1) | Includes net unrealized gain on securities available for sale and allowance for loan losses. | |
(2) | Cumulative total interest-earning assets divided by cumulative total interest-bearing liabilities. |
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Index to Consolidated Financial Statements
Page | ||||
58 | ||||
59 | ||||
60 | ||||
61 | ||||
62 | ||||
63 | ||||
65 | ||||
66 |
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/s/ Peter G. Humphrey | /s/ Karl F. Krebs | |
President and Chief Executive Officer | Executive Vice President and Chief Financial Officer | |
March 7, 2011 | March 7, 2011 |
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Financial Institutions, Inc.:
March 7, 2011
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Financial Institutions, Inc.:
March 7, 2011
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December 31, | ||||||||
(Dollars in thousands, except share and per share data) | 2010 | 2009 | ||||||
ASSETS | ||||||||
Cash and cash equivalents: | ||||||||
Cash and due from banks | $ | 38,964 | $ | 42,874 | ||||
Federal funds sold and interest-bearing deposits in other banks | 94 | 85 | ||||||
Total cash and cash equivalents | 39,058 | 42,959 | ||||||
Securities available for sale, at fair value | 666,368 | 580,501 | ||||||
Securities held to maturity, at amortized cost (fair value of $28,849 and $40,629, respectively) | 28,162 | 39,573 | ||||||
Loans held for sale | 3,138 | 421 | ||||||
Loans (net of allowance for loan losses of $20,466 and $20,741, respectively) | 1,325,524 | 1,243,265 | ||||||
Company owned life insurance | 26,053 | 24,867 | ||||||
Premises and equipment, net | 33,263 | 34,783 | ||||||
Goodwill | 37,369 | 37,369 | ||||||
Other assets | 55,372 | 58,651 | ||||||
Total assets | $ | 2,214,307 | $ | 2,062,389 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Deposits: | ||||||||
Noninterest-bearing demand | $ | 350,877 | $ | 324,303 | ||||
Interest-bearing demand | 374,900 | 363,698 | ||||||
Savings and money market | 417,359 | 368,603 | ||||||
Certificates of deposit | 739,754 | 686,351 | ||||||
Total deposits | 1,882,890 | 1,742,955 | ||||||
Short-term borrowings | 77,110 | 59,543 | ||||||
Long-term borrowings | 26,767 | 46,847 | ||||||
Other liabilities | 15,396 | 14,750 | ||||||
Total liabilities | 2,002,163 | 1,864,095 | ||||||
Commitments and contingencies (Note 9) | ||||||||
Shareholders’ equity: | ||||||||
Series A 3% preferred stock, $100 par value; 1,533 shares authorized and issued | 153 | 153 | ||||||
Series A preferred stock, $100 par value, 7,503 shares authorized and issued, aggregate liquidation preference of $37,515; net of $1,305 and $1,672 discount, respectively | 36,210 | 35,843 | ||||||
Series B-1 8.48% preferred stock, $100 par value, 200,000 shares authorized, 174,223 shares issued | 17,422 | 17,422 | ||||||
Total preferred equity | 53,785 | 53,418 | ||||||
Common stock, $0.01 par value, 50,000,000 shares authorized, 11,348,122 shares issued | 113 | 113 | ||||||
Additional paid-in capital | 26,029 | 26,940 | ||||||
Retained earnings | 144,599 | 131,371 | ||||||
Accumulated other comprehensive loss | (4,722 | ) | (3,702 | ) | ||||
Treasury stock, at cost—410,616 and 527,854 shares, respectively | (7,660 | ) | (9,846 | ) | ||||
Total shareholders’ equity | 212,144 | 198,294 | ||||||
Total liabilities and shareholders’ equity | $ | 2,214,307 | $ | 2,062,389 | ||||
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Years ended December 31, | ||||||||||||
(Dollars in thousands, except per share amounts) | 2010 | 2009 | 2008 | |||||||||
Interest income: | ||||||||||||
Interest and fees on loans | $ | 75,877 | $ | 72,706 | $ | 67,674 | ||||||
Interest and dividends on investment securities | 20,622 | 21,694 | 30,655 | |||||||||
Other interest income | 10 | 82 | 619 | |||||||||
Total interest income | 96,509 | 94,482 | 98,948 | |||||||||
Interest expense: | ||||||||||||
Deposits | 14,853 | 19,090 | 29,349 | |||||||||
Short-term borrowings | 365 | 270 | 721 | |||||||||
Long-term borrowings | 2,502 | 2,857 | 3,547 | |||||||||
Total interest expense | 17,720 | 22,217 | 33,617 | |||||||||
Net interest income | 78,789 | 72,265 | 65,331 | |||||||||
Provision for loan losses | 6,687 | 7,702 | 6,551 | |||||||||
Net interest income after provision for loan losses | 72,102 | 64,563 | 58,780 | |||||||||
Noninterest income (loss): | ||||||||||||
Service charges on deposits | 9,585 | 10,065 | 10,497 | |||||||||
ATM and debit card | 3,995 | 3,610 | 3,313 | |||||||||
Broker-dealer fees and commissions | 1,283 | 1,022 | 1,458 | |||||||||
Company owned life insurance | 1,107 | 1,096 | 563 | |||||||||
Loan servicing | 1,124 | 1,308 | 664 | |||||||||
Net gain on sale of loans held for sale | 650 | 699 | 339 | |||||||||
Net gain on disposal of investment securities | 169 | 3,429 | 288 | |||||||||
Impairment charges on investment securities | (594 | ) | (4,666 | ) | (68,215 | ) | ||||||
Net (loss) gain on sale and disposal of other assets | (203 | ) | 180 | 305 | ||||||||
Other | 2,338 | 2,052 | 2,010 | |||||||||
Total noninterest income (loss) | 19,454 | 18,795 | (48,778 | ) | ||||||||
Noninterest expense: | ||||||||||||
Salaries and employee benefits | 32,811 | 33,634 | 31,437 | |||||||||
Occupancy and equipment | 10,818 | 11,062 | 10,502 | |||||||||
FDIC assessments | 2,507 | 3,651 | 674 | |||||||||
Computer and data processing | 2,487 | 2,340 | 2,433 | |||||||||
Professional services | 2,197 | 2,524 | 2,141 | |||||||||
Supplies and postage | 1,772 | 1,846 | 1,800 | |||||||||
Advertising and promotions | 1,121 | 949 | 1,453 | |||||||||
Other | 7,204 | 6,771 | 7,021 | |||||||||
Total noninterest expense | 60,917 | 62,777 | 57,461 | |||||||||
Income (loss) before income taxes | 30,639 | 20,581 | (47,459 | ) | ||||||||
Income tax expense (benefit) | 9,352 | 6,140 | (21,301 | ) | ||||||||
Net income (loss) | $ | 21,287 | $ | 14,441 | $ | (26,158 | ) | |||||
Preferred stock dividends, net of accretion | 3,725 | 3,697 | 1,538 | |||||||||
Net income (loss) available to common shareholders | $ | 17,562 | $ | 10,744 | $ | (27,696 | ) | |||||
Earnings (loss) per common share (Note 15): | ||||||||||||
Basic | $ | 1.62 | $ | 0.99 | $ | (2.54 | ) | |||||
Diluted | $ | 1.61 | $ | 0.99 | $ | (2.54 | ) |
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Accumulated | ||||||||||||||||||||||||||||
Additional | Other | 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, 2008 | $ | 17,581 | $ | 113 | $ | 24,778 | $ | 158,744 | $ | 667 | $ | (6,561 | ) | $ | 195,322 | |||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net loss | — | — | — | (26,158 | ) | — | — | (26,158 | ) | |||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (4,680 | ) | — | (4,680 | ) | |||||||||||||||||||
Total comprehensive loss | (30,838 | ) | ||||||||||||||||||||||||||
Cumulative effect of adoption of new accounting pronouncements | — | — | — | (241 | ) | — | — | (241 | ) | |||||||||||||||||||
Repurchase of common shares | — | — | — | — | — | (4,818 | ) | (4,818 | ) | |||||||||||||||||||
Repurchase of Series A 3% preferred stock | (6 | ) | — | 3 | — | — | — | (3 | ) | |||||||||||||||||||
Warrant issued in connection with Series A preferred stock | — | — | 2,025 | — | — | — | 2,025 | |||||||||||||||||||||
Issue shares of Series A preferred stock | 37,515 | — | — | — | — | — | 37,515 | |||||||||||||||||||||
Discount on Series A preferred stock | (2,025 | ) | — | — | — | — | — | (2,025 | ) | |||||||||||||||||||
Share-based compensation plans: | ||||||||||||||||||||||||||||
Share-based compensation | — | — | 603 | 30 | — | — | 633 | |||||||||||||||||||||
Stock options exercised | — | — | (12 | ) | — | — | 44 | 32 | ||||||||||||||||||||
Restricted stock awards issued | — | — | (998 | ) | — | — | 998 | — | ||||||||||||||||||||
Directors’ retainer | — | — | (2 | ) | — | — | 114 | 112 | ||||||||||||||||||||
Accrued undeclared cumulative dividend on Series A preferred stock, net of accretion | 9 | — | — | (56 | ) | — | — | (47 | ) | |||||||||||||||||||
Cash dividends declared: | ||||||||||||||||||||||||||||
Series A 3% preferred-$3.00 per share | — | — | — | (5 | ) | — | — | (5 | ) | |||||||||||||||||||
Series B-1 8.48% preferred-$8.48 per share | — | — | — | (1,477 | ) | — | — | (1,477 | ) | |||||||||||||||||||
Common-$0.54 per share | — | — | — | (5,885 | ) | — | — | (5,885 | ) | |||||||||||||||||||
Balance at December 31, 2008 | $ | 53,074 | $ | 113 | $ | 26,397 | $ | 124,952 | $ | (4,013 | ) | $ | (10,223 | ) | $ | 190,300 | ||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | — | — | — | 14,441 | — | — | 14,441 | |||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 311 | — | 311 | |||||||||||||||||||||
Total comprehensive income | 14,752 | |||||||||||||||||||||||||||
Issuance costs of Series A preferred stock | — | — | (68 | ) | — | — | — | (68 | ) | |||||||||||||||||||
Share-based compensation plans: | ||||||||||||||||||||||||||||
Share-based compensation | — | — | 852 | 2 | — | — | 854 | |||||||||||||||||||||
Stock options exercised | — | — | (4 | ) | — | — | 19 | 15 | ||||||||||||||||||||
Restricted stock awards issued, net | — | — | (207 | ) | — | — | 207 | — | ||||||||||||||||||||
Directors’ retainer | (30 | ) | 151 | 121 | ||||||||||||||||||||||||
Accrued undeclared cumulative dividend on Series A preferred stock, net of accretion | 344 | — | — | (537 | ) | — | — | (193 | ) | |||||||||||||||||||
Cash dividends declared: | ||||||||||||||||||||||||||||
Series A 3% preferred-$3.00 per share | — | — | — | (5 | ) | — | — | (5 | ) | |||||||||||||||||||
Series A preferred-$223.61 per share | — | — | — | (1,678 | ) | — | — | (1,678 | ) | |||||||||||||||||||
Series B-1 8.48% preferred-$8.48 per share | — | — | — | (1,477 | ) | — | — | (1,477 | ) | |||||||||||||||||||
Common-$0.40 per share | — | — | — | (4,327 | ) | — | — | (4,327 | ) | |||||||||||||||||||
Balance at December 31, 2009 | $ | 53,418 | $ | 113 | $ | 26,940 | $ | 131,371 | $ | (3,702 | ) | $ | (9,846 | ) | $ | 198,294 | ||||||||||||
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Consolidated Statements of Changes in Shareholders’ Equity (Continued)
Years ended December 31, 2010, 2009 and 2008
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | 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 December 31, 2009 | $ | 53,418 | $ | 113 | $ | 26,940 | $ | 131,371 | $ | (3,702 | ) | $ | (9,846 | ) | $ | 198,294 | ||||||||||||
Balance carried forward | ||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | — | — | — | 21,287 | — | — | 21,287 | |||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (1,020 | ) | — | (1,020 | ) | |||||||||||||||||||
Total comprehensive income | 20,267 | |||||||||||||||||||||||||||
Purchases of treasury stock | — | — | — | — | — | (69 | ) | (69 | ) | |||||||||||||||||||
Share-based compensation plans: | ||||||||||||||||||||||||||||
Share-based compensation | — | — | 1,031 | — | — | — | 1,031 | |||||||||||||||||||||
Stock options exercised | — | — | (74 | ) | — | — | 290 | 216 | ||||||||||||||||||||
Restricted stock awards issued, net | — | — | (1,853 | ) | — | — | 1,853 | — | ||||||||||||||||||||
Directors’ retainer | (15 | ) | 112 | 97 | ||||||||||||||||||||||||
Accrued undeclared cumulative dividend on Series A preferred stock, net of accretion | 367 | — | — | (367 | ) | — | — | — | ||||||||||||||||||||
Cash dividends declared: | ||||||||||||||||||||||||||||
Series A 3% preferred-$3.00 per share | — | — | — | (5 | ) | — | — | (5 | ) | |||||||||||||||||||
Series A preferred-$250.00 per share | — | — | — | (1,876 | ) | — | — | (1,876 | ) | |||||||||||||||||||
Series B-1 8.48% preferred-$8.48 per share | — | — | — | (1,477 | ) | — | — | (1,477 | ) | |||||||||||||||||||
Common-$0.40 per share | — | — | — | (4,334 | ) | — | — | (4,334 | ) | |||||||||||||||||||
Balance at December 31, 2010 | $ | 53,785 | $ | 113 | $ | 26,029 | $ | 144,599 | $ | (4,722 | ) | $ | (7,660 | ) | $ | 212,144 | ||||||||||||
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Years ended December 31, | ||||||||||||
(Dollars in thousands) | 2010 | 2009 | 2008 | |||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | $ | 21,287 | $ | 14,441 | $ | (26,158 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 3,537 | 4,067 | 3,959 | |||||||||
Net amortization of premiums on securities | 3,005 | 2,587 | 390 | |||||||||
Provision for loan losses | 6,687 | 7,702 | 6,551 | |||||||||
Share-based compensation | 1,031 | 854 | 633 | |||||||||
Deferred income tax expense (benefit) | 2,468 | 7,470 | (23,848 | ) | ||||||||
Proceeds from sale of loans held for sale | 42,195 | 90,290 | 28,685 | |||||||||
Originations of loans held for sale | (44,262 | ) | (88,999 | ) | (28,453 | ) | ||||||
Increase in company owned life insurance | (1,107 | ) | (1,096 | ) | (563 | ) | ||||||
Net gain on sale of loans held for sale | (650 | ) | (699 | ) | (339 | ) | ||||||
Net gain on disposal of investment securities | (169 | ) | (3,429 | ) | (288 | ) | ||||||
Impairment charges on investment securities | 594 | 4,666 | 68,215 | |||||||||
Net loss (gain) on sale and disposal of other assets | 203 | (180 | ) | (305 | ) | |||||||
Increase in other assets | (353 | ) | (8,773 | ) | (1,322 | ) | ||||||
Increase (decrease) in other liabilities | 961 | (6,633 | ) | (5,866 | ) | |||||||
Net cash provided by operating activities | 35,427 | 22,268 | 21,291 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of investment securities: | ||||||||||||
Available for sale | (430,952 | ) | (602,259 | ) | (310,191 | ) | ||||||
Held to maturity | (19,791 | ) | (29,280 | ) | (54,925 | ) | ||||||
Proceeds from principal payments, maturities and calls on investment securities: | ||||||||||||
Available for sale | 219,974 | 353,545 | 337,704 | |||||||||
Held to maturity | 30,885 | 46,891 | 57,325 | |||||||||
Proceeds from sales and calls of securities available for sale | 122,090 | 224,928 | 58,368 | |||||||||
Net loan originations | (89,507 | ) | (165,716 | ) | (161,414 | ) | ||||||
Purchases of company owned life insurance | (79 | ) | (79 | ) | (20,112 | ) | ||||||
Proceeds from sales of other assets | 611 | 1,709 | 1,783 | |||||||||
Purchases of premises and equipment | (2,438 | ) | (1,959 | ) | (6,333 | ) | ||||||
Net cash used in investing activities | (169,207 | ) | (172,220 | ) | (97,795 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Net increase in deposits | 139,935 | 109,692 | 57,292 | |||||||||
Net increase (decrease) in short-term borrowings | 17,567 | 36,078 | (2,178 | ) | ||||||||
Proceeds from long-term borrowings | — | — | 30,000 | |||||||||
Repayments of long-term borrowings | (20,080 | ) | (508 | ) | (25,212 | ) | ||||||
Purchases of preferred and common shares | (69 | ) | — | (4,821 | ) | |||||||
Proceeds from issuance of preferred and common shares, net of issuance costs | — | (68 | ) | 35,602 | ||||||||
Proceeds from issuance of common stock warrant | — | �� | — | 2,025 | ||||||||
Proceeds from stock options exercised | 216 | 15 | 32 | |||||||||
Cash dividends paid to preferred shareholders | (3,358 | ) | (3,160 | ) | (1,482 | ) | ||||||
Cash dividends paid to common shareholders | (4,332 | ) | (4,325 | ) | (6,240 | ) | ||||||
Net cash provided by financing activities | 129,879 | 137,724 | 85,018 | |||||||||
Net (decrease) increase in cash and cash equivalents | (3,901 | ) | (12,228 | ) | 8,514 | |||||||
Cash and cash equivalents, beginning of period | 42,959 | 55,187 | 46,673 | |||||||||
Cash and cash equivalents, end of period | $ | 39,058 | $ | 42,959 | $ | 55,187 | ||||||
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The consolidated financial statements include the accounts of the Company and its subsidiaries. The Trust is not included in the consolidated financial statements of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. |
In preparing the consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the statement of financial condition and reported amounts of revenue and expenses during the reporting period. 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 (“OTTI”) considerations related to the securities portfolio. These estimates and assumptions are based on management’s best estimates and judgment and are evaluated on an ongoing basis using historical experience and other factors, including the current economic environment. The Company adjusts these estimates and assumptions when facts and circumstances dictate. As future events cannot be determined with precision, actual results could differ significantly from the Company’s estimates. |
Cash and cash equivalents include cash and due from banks, federal funds sold and interest-bearing deposits in other banks. Net cash flows are reported for loans, deposit transactions and short-term borrowings. |
Supplemental cash flow information is summarized as follows for the years ended December 31 (in thousands): |
2010 | 2009 | 2008 | ||||||||||
Cash paid during the year for: | ||||||||||||
Interest expense | $ | 17,676 | $ | 21,682 | $ | 37,160 | ||||||
Income taxes, net of income tax refunds | 6,923 | (1,312 | ) | 3,797 | ||||||||
Non-cash activity: | ||||||||||||
Real estate and other assets acquired in settlement of loans | $ | 561 | $ | 1,096 | $ | 1,185 | ||||||
Dividends declared and unpaid | 1,694 | 1,692 | 1,497 | |||||||||
(Decrease) increase in net unsettled security purchases | (317 | ) | (1,348 | ) | 1,453 | |||||||
Loans securitized and sold | — | 15,983 | — |
Investment securities are classified as either available for sale or held to maturity. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and are recorded at amortized cost. Other investment securities are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported as a component of shareholders’ equity. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Securities are evaluated periodically to determine whether a decline in their fair value is other than temporary. Management utilizes criteria such as, the current intent to hold or sell the security, the magnitude and duration of the decline and, when appropriate, consideration of negative changes in expected cash flows, creditworthiness, near term prospects of issuers, the level of credit subordination, estimated loss severity, and delinquencies, to determine whether a loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable. Declines in the fair value of investment securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit issues or concerns, or the security is intended to be sold. The amount of impairment related to non-credit related factors is recognized in other comprehensive income. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. |
The Company generally makes the determination of whether or not to identify a mortgage loan as held for sale at the time the loan is closed based on the Company’s intent and ability to hold the loan. Loans held for sale are recorded at the lower of cost or market computed on the aggregate portfolio basis. The amount, by which cost exceeds market value, if any, is accounted for as a valuation allowance with changes included in the determination of results of operations for the period in which the change occurs. The amount of loan origination cost and fees are deferred at origination of the loans and recognized as part of the gain and loss on sale of the loans, determined using the specific identification method, in the consolidated statement of operations. |
The Company originates and sells certain residential real estate loans in the secondary market. The Company typically retains the right to service the mortgages upon sale. Mortgage-servicing rights (“MSRs”) represent the cost of acquiring the contractual rights to service loans for others. MSRs are recorded at their fair value at the time a loan is sold and servicing rights are retained. MSRs are reported in other assets in the consolidated statements of financial position and are amortized to noninterest income in the consolidated statements of operations in proportion to and over the period of estimated net servicing income. The Company uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights. In using this valuation method, the Company incorporates assumptions to estimate future net servicing income, which include estimates of the cost to service the loan, the discount rate, an inflation rate and prepayment speeds. On a quarterly basis the Company evaluates its MSRs for impairment and charges any such impairment to current period earnings. In order to evaluate its MSRs the Company stratifies the related mortgage loans on the basis of their predominant risk characteristics, such as interest rates, year of origination and term, using discounted cash flows and market-based assumptions. Impairment of MSRs is recognized through a valuation allowance, determined by estimating the fair value of each stratum and comparing it to its carrying value. Subsequent increases in fair value are adjusted through the valuation allowance, but only to the extent of the valuation allowance. No impairment loss was recognized during the years ended December 31, 2010 or 2009. The Company recognized an impairment loss of $343 thousand during the year ended December 31, 2008. |
Mortgage loan servicing includes collecting monthly mortgagor payments, forwarding payments and related accounting reports to investors, collecting escrow deposits for the payment of mortgagor property taxes and insurance, and paying taxes and insurance from escrow funds when due. Loan servicing income (a component of noninterest income in the consolidated statements of operations) consists of fees earned for servicing mortgage loans sold to third parties, net of amortization expense and impairment losses associated with capitalized mortgage servicing assets. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Loans are classified as held for investment when management has both the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. Loans are carried at the principal amount outstanding, net of any unearned income and unamortized deferred fees and costs on originated loans. Loan origination fees and certain direct loan origination costs are deferred, and the net amount is amortized into net interest income over the contractual life of the related loans or over the commitment period as an adjustment of yield. Interest income on loans is based on the principal balance outstanding computed using the effective interest method. |
A loan is considered delinquent when a payment has not been received in accordance with the contractual terms. The accrual of interest income for commercial loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, while the accrual of interest income for retail loans is discontinued when loans reach specific delinquency levels. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments, unless the loan is well secured and in the process of collection. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on a nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed, amortization of related deferred loan fees or costs is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal balance of the loan is collectible. If collectability of the principal is in doubt, payments received are applied to loan principal. A nonaccrual loan is returned to accrual status when all delinquent principal and interest payments become current in accordance with the terms of the loan agreement, the borrower has demonstrated a period of sustained performance (generally a minimum of six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. |
The Company’s loan policy dictates the guidelines to be followed in determining when a loan is charged-off. All charge offs are approved by the Bank’s senior loan officers or loan committees, depending on the amount of the charge off, and are reported in aggregate to the Bank’s Board of Directors. Commercial business and commercial mortgage loans are charged-off when a determination is made that the financial condition of the borrower indicates that the loan will not be collectible in the ordinary course of business. Residential mortgage loans and home equities are generally charged-off or written down when the credit becomes severely delinquent and the balance exceeds the fair value of the property less costs to sell. Indirect and other consumer loans, both secured and unsecured, are generally charged-off in full during the month in which the loan becomes 120 days past due, unless the collateral is in the process of repossession in accordance with the Company’s policy. |
A loan is accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower’s financial condition, grants a significant concession to the borrower that it would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings generally remain on nonaccrual status until there is a sustained period of payment performance (usually six months or longer) and there is a reasonable assurance that the payments will continue. See Allowance for Loan Losses below for further policy discussion and see Note 4 for additional information on loans. |
In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit, stand by letters of credit and financial guarantees. Such financial instruments are recorded in the consolidated financial statements when they are funded or when related fees are incurred or received. The Company periodically evaluates the credit risks inherent in these commitments and establishes loss allowances for such risks if and when these are deemed necessary. |
The Company recognizes as liabilities the fair value of the obligations undertaken in issuing the guarantees under the standby letters of credit, net of the related amortization at inception. The fair value approximates the unamortized fees received from the customers for issuing the standby letters of credit. The fees are deferred and recognized on a straight-line basis over the commitment period. Standby letters of credit outstanding at December 31, 2010 had terms ranging from one to five years. |
Fees received for providing loan commitments and letters of credit that result in loans are typically deferred and amortized to interest income over the life of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit are amortized to other income as banking fees and commissions over the commitment period when funding is not expected. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance. |
The allowance for loan losses is evaluated on a regular basis and is based upon periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. |
The allowance consists of specific and general components. Specific allowances are established for impaired loans. Commercial business and commercial mortgage loans are individually evaluated and measured for impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, a loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Regardless of the measurement method, impairment is based on the fair value of the collateral when foreclosure is probable. If the recorded investment in impaired loans exceeds the measure of estimated fair value, a specific allowance is established as a component of the allowance for loan losses. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible. |
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The Company determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures unless the loan has been subject to a troubled debt restructure. |
General allowances are established for loan losses on a portfolio basis for loans that do not meet the definition of impaired. The portfolio is grouped into similar risk characteristics, primarily loan type. The Company applies an estimated loss rate to each loan group. The loss rate is based on historical experience and as a result can differ from actual losses incurred in the future. The historical loss rate is adjusted for qualitative factors such as levels and trends of delinquent and non-accruing loans, trends in volume and terms, effects of changes in lending policy, the experience, ability and depth of management, national and local economic trends and conditions, and concentrations of credit risk, interest rates, highly leveraged borrowers, information risk and collateral risk. The qualitative factors are reviewed at least quarterly and adjustments are made as needed. |
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 institution’s 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. |
Other real estate owned consists of properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. These assets are recorded at the lower of fair value of the asset acquired less estimated costs to sell or “cost” (defined as the fair value at initial foreclosure). At the time of foreclosure, or when foreclosure occurs in-substance, the excess, if any, of the loan over the fair market value of the assets received, less estimated selling costs, is charged to the allowance for loan losses and any subsequent valuation write-downs are charged to other expense. In connection with the determination of the allowance for loan losses and the valuation of other real estate owned, management obtains appraisals for properties. Operating costs associated with the properties are charged to expense as incurred. Gains on the sale of other real estate owned are included in income when title has passed and the sale has met the minimum down payment requirements prescribed by GAAP. The balance of other real estate owned at December 31, 2010 was $741 thousand. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
The Company holds life insurance policies on certain current and former employees. The Company is the owner and beneficiary of the policies. The cash surrender value of these policies is included as an asset on the consolidated statements of financial condition, and any increase in cash surrender value is recorded as noninterest income on the consolidated statements of operations. In the event of the death of an insured individual under these policies, the Company would receive a death benefit which would be recorded as noninterest income. |
Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. The Company generally amortizes buildings and building improvements over a period of 15 to 39 years and furniture and equipment over a period of 3 to 10 years. Leasehold improvements are amortized over the shorter of the lease term or the useful life of the improvements. Premises and equipment are periodically reviewed for impairment or when circumstances present indicators of impairment. |
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in accordance with the purchase method of accounting for business combinations. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. The Company completes the annual goodwill impairment test as of September 30 of each year. The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit. Currently, the Company’s goodwill is evaluated at the entity level as there is only one reporting unit. The fair value of each reporting unit is compared to the recorded book value “step one”. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of a reporting unit exceeds its fair value, the impairment test continues (“step two”) by comparing the carrying value of the reporting unit’s goodwill to the implied fair value of goodwill. The implied fair value is computed by adjusting all assets and liabilities of the reporting unit to current fair value with the offset adjustment to goodwill. The adjusted goodwill balance is the implied fair value of the goodwill. An impairment charge is recognized if the carrying fair value of goodwill exceeds the implied fair value of goodwill. |
The company had other intangible assets, consisting entirely of core deposit intangibles, which were fully amortized as of December 31, 2009. Amortization expense for these other intangible assets for the years ended December 31, 2009 and 2008 was $280 thousand and $307 thousand, respectively. Amortization of other intangible assets was computed using the straight-line method over the estimated lives of the respective assets (primarily 5 and 7 years). |
The non-marketable investments in FHLB and FRB stock are included in other assets in the consolidated statements of financial condition at par value or cost and are periodically reviewed for impairment. The dividends received relative to these investments are included in other noninterest income in the consolidated statements of operations. |
As a member of the FHLB system, the Company is required to maintain a specified investment in FHLB of New York (“FHLBNY”) stock in proportion to its volume of certain transactions with the FHLB. FHLBNY stock totaled $2.5 million and $3.3 million as of December 31, 2010 and 2009, respectively. |
As a member of the FRB system, the Company is required to maintain a specified investment in FRB stock based on a ratio relative to the Company’s capital. FRB stock totaled $3.9 million as of December 31, 2010 and 2009. |
The Company has investments in limited partnerships and accounts for these investments under the equity method. These investments are included in other assets in the consolidated statements of financial condition and totaled $3.6 million and $2.7 million as of December 31, 2010 and 2009, respectively. |
Acquisitions of treasury stock are recorded at cost. The reissuance of shares in treasury is recorded at weighted-average cost. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
The Company participates in a non-contributory defined benefit pension plan for certain employees who previously met participation requirements. The Company also provides post-retirement benefits, principally health and dental care, to employees of a previously acquired entity. The Company has closed the pension and post-retirement plans to new participants. The actuarially determined pension benefit is based on years of service and the employee’s highest average compensation during five consecutive years of employment. The Company’s policy is to at least fund the minimum amount required by the Employment Retirement Income Security Act of 1974. The cost of the pension and post-retirement plans are based on actuarial computations of current and future benefits for employees, and is charged to noninterest expense in the consolidated statements of operations. |
The Company recognizes an asset or a liability for a plans’ overfunded status or underfunded status, respectively, in the consolidated financial statements and reports changes in the funded status as a component of other comprehensive income, net of applicable taxes, in the year in which changes occur. Prior to 2008, the assets and obligations that determine future funded status were measured as of September 30 of each year. Beginning in 2008, the measurement date was changed to December 31 to coincide with the end of the Company’s fiscal year. The effect of changing the measurement date resulted in a $43 thousand increase to retained earnings. |
Compensation expense for stock options and restricted stock awards is based on the fair value of the award on the measurement date, which, for the Company, is the date of grant and is recognized ratably over the service period of the award. The fair value of stock options is estimated using the Black-Scholes option-pricing model. The fair value of restricted stock awards is generally the market price of the Company’s stock on the date of grant. |
Share-based compensation expense is included in the consolidated statements of operations under salaries and employee benefits for awards granted to management and in other noninterest expense for awards granted to directors. |
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is recognized on deferred tax assets if, based upon the weight of available evidence, it is more likely than not that some or all of the assets may not be realized. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. |
Effective January 1, 2009, the Company adopted new authoritative accounting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, “Earnings Per Share,” which provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company has determined that its outstanding non-vested stock awards are participating securities. Accordingly, effective January 1, 2009, earnings per common share is computed using the two-class method prescribed under FASB ASC Topic 260. All previously reported earnings per common share data has been retrospectively adjusted to conform to the new computation method. The adoption and resulting adjustments to conform to the new guidance did not have a material impact on the Company’s consolidated financial statements. |
Under the two-class method, basic earnings per common share is computed by dividing net earnings allocated to common stock by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. A reconciliation of the weighted-average shares used in calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per common share for the reported periods is provided in Note 15 - Earnings (Loss) Per Share. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
FASB ASC 810 Consolidation(“ASC 810”) was amended to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. The new authoritative accounting guidance under ASC 810 was adopted effective January 1, 2010 and did not have a significant impact on the Company’s consolidated financial statements. |
FASB ASC 860 Transfers and Servicing(“ASC 860”) was amended to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC 860 was adopted effective January 1, 2010 and did not have a significant impact on the Company’s consolidated financial statements. |
FASB ASC 820 Fair Value Measurements and Disclosures(“ASC 820”) was amended to require some new disclosures and clarify some existing disclosure requirements about fair value measurement. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. These new disclosure requirements were adopted by the Company during the current year, with the exception of the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010. With respect to the portions of this amendment that were adopted during the current period, the adoption of this standard did not have a significant impact on the Company’s consolidated financial statements. The Company believes that the adoption of the remaining portion of this amendment will not have a significant impact on the Company’s consolidated financial statements. |
FASB ASC 310 Receivables(“ASC 310”) was amended to require an entity to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivable. Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required. These new disclosure requirements were adopted by the Company during the current year and are presented in Note 4 — Loans. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
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 | ||||||||
December 31, 2009 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Securities available for sale: | ||||||||||||||||
U.S. Government agencies and government sponsored enterprises | $ | 134,564 | $ | 86 | $ | 545 | $ | 134,105 | ||||||||
State and political subdivisions | 80,812 | 2,850 | 3 | 83,659 | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Federal National Mortgage Association | 75,108 | 629 | 259 | 75,478 | ||||||||||||
Federal Home Loan Mortgage Corporation | 37,321 | 413 | 56 | 37,678 | ||||||||||||
Government National Mortgage Association | 110,576 | 97 | 342 | 110,331 | ||||||||||||
Collateralized mortgage obligations: | ||||||||||||||||
Federal National Mortgage Association | 16,274 | 250 | 94 | 16,430 | ||||||||||||
Federal Home Loan Mortgage Corporation | 20,879 | 504 | 14 | 21,369 | ||||||||||||
Government National Mortgage Association | 95,886 | 56 | 873 | 95,069 | ||||||||||||
Privately issued | 5,087 | 403 | 330 | 5,160 | ||||||||||||
Total collateralized mortgage obligations | 138,126 | 1,213 | 1,311 | 138,028 | ||||||||||||
Total mortgage-backed securities | 361,131 | 2,352 | 1,968 | 361,515 | ||||||||||||
Asset-backed securities | 1,295 | 171 | 244 | 1,222 | ||||||||||||
Total available for sale securities | $ | 577,802 | $ | 5,459 | $ | 2,760 | $ | 580,501 | ||||||||
Securities held to maturity: | ||||||||||||||||
State and political subdivisions | $ | 39,573 | $ | 1,056 | $ | — | $ | 40,629 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Taxable interest and dividends | $ | 17,101 | $ | 16,466 | $ | 21,882 | ||||||
Tax-exempt interest and dividends | 3,521 | 5,228 | 8,773 | |||||||||
Total interest and dividends on securities | $ | 20,622 | $ | 21,694 | $ | 30,655 | ||||||
2010 | 2009 | 2008 | ||||||||||
Proceeds from sales and calls | $ | 122,090 | $ | 224,928 | $ | 58,368 | ||||||
Gross realized gains | 173 | 6,826 | 291 | |||||||||
Gross realized losses | 4 | 3,397 | 3 |
Amortized | Fair | |||||||
Cost | Value | |||||||
Debt securities available for sale: | ||||||||
Due in one year or less | $ | 25,689 | $ | 25,952 | ||||
Due from one to five years | 114,924 | 117,338 | ||||||
Due after five years through ten years | 223,692 | 218,640 | ||||||
Due after ten years | 298,955 | 304,438 | ||||||
$ | 663,260 | $ | 666,368 | |||||
Debt securities held to maturity: | ||||||||
Due in one year or less | $ | 21,439 | $ | 21,583 | ||||
Due from one to five years | 5,490 | 5,856 | ||||||
Due after five years through ten years | 1,055 | 1,205 | ||||||
Due after ten years | 178 | 205 | ||||||
$ | 28,162 | $ | 28,849 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
(2.) | 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 | ||||||||||||
December 31, 2009 | ||||||||||||||||||||||||
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 | $ | 83,480 | $ | 360 | $ | 10,003 | $ | 185 | $ | 93,483 | $ | 545 | ||||||||||||
State and political subdivisions | — | — | 150 | 3 | 150 | 3 | ||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Federal National Mortgage Association | 24,964 | 258 | 643 | 1 | 25,607 | 259 | ||||||||||||||||||
Federal Home Loan Mortgage Corporation | 5,627 | 56 | — | — | 5,627 | 56 | ||||||||||||||||||
Government National Mortgage Association | 55,304 | 342 | — | — | 55,304 | 342 | ||||||||||||||||||
Collateralized mortgage obligations: | ||||||||||||||||||||||||
Federal National Mortgage Association | 353 | 2 | 5,384 | 92 | 5,737 | 94 | ||||||||||||||||||
Federal Home Loan Mortgage Corporation | 490 | 1 | 814 | 13 | 1,304 | 14 | ||||||||||||||||||
Government National Mortgage Association | 79,645 | 873 | — | — | 79,645 | 873 | ||||||||||||||||||
Privately issued | — | — | 2,985 | 330 | 2,985 | 330 | ||||||||||||||||||
Total collateralized mortgage obligations | 80,488 | 876 | 9,183 | 435 | 89,671 | 1,311 | ||||||||||||||||||
Total mortgage-backed securities | 166,383 | 1,532 | 9,826 | 436 | 176,209 | 1,968 | ||||||||||||||||||
Asset-backed securities | 278 | 244 | — | — | 278 | 244 | ||||||||||||||||||
Total temporarily impaired securities | $ | 250,141 | $ | 2,136 | $ | 19,979 | $ | 624 | $ | 270,120 | $ | 2,760 | ||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Mortgage-backed securities — Privately issued whole loan CMOs | $ | — | $ | 2,353 | $ | 5,918 | ||||||
Asset-backed securities — Trust preferred securities | 526 | 1,787 | 23,443 | |||||||||
Asset-backed securities — Other | 68 | 526 | 6,531 | |||||||||
Equity securities — Auction rate securities | — | — | 32,323 | |||||||||
$ | 594 | $ | 4,666 | $ | 68,215 | |||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Mortgage servicing assets, beginning of year | $ | 1,534 | $ | 925 | $ | 1,000 | ||||||
Originations | 408 | 952 | 230 | |||||||||
Amortization | (300 | ) | (343 | ) | (305 | ) | ||||||
Mortgage servicing assets, end of year | 1,642 | 1,534 | 925 | |||||||||
Valuation allowance | (175 | ) | (185 | ) | (362 | ) | ||||||
Mortgage servicing assets, net, end of year | $ | 1,467 | $ | 1,349 | $ | 563 | ||||||
Net Deferred | ||||||||||||
Loan (Fees) | ||||||||||||
Loans, Gross | Costs | Loans, Net | ||||||||||
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 | ||||||||||
2009 | ||||||||||||
Commercial business | $ | 206,512 | $ | (129 | ) | $ | 206,383 | |||||
Commercial mortgage | 331,268 | (520 | ) | 330,748 | ||||||||
Residential mortgage | 144,286 | (71 | ) | 144,215 | ||||||||
Home equity | 197,795 | 2,889 | 200,684 | |||||||||
Consumer indirect | 338,495 | 14,116 | 352,611 | |||||||||
Other consumer | 29,192 | 173 | 29,365 | |||||||||
Total | $ | 1,247,548 | $ | 16,458 | 1,264,006 | |||||||
Allowance for loan losses | (20,741 | ) | ||||||||||
Total loans, net | $ | 1,243,265 | ||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Greater | ||||||||||||||||||||||||||||
30-59 Days | 60-89 Days | Than 90 | Total Past | Total | ||||||||||||||||||||||||
Past Due | Past Due | Days | Due | Nonaccrual | Current | Loans | ||||||||||||||||||||||
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 | ||||||||||||||
2009 | ||||||||||||||||||||||||||||
Commercial business | $ | 141 | $ | 3 | $ | 76 | $ | 220 | $ | 650 | $ | 205,642 | $ | 206,512 | ||||||||||||||
Commercial mortgage | 212 | 319 | 1,783 | 2,314 | 2,288 | 326,666 | 331,268 | |||||||||||||||||||||
Residential mortgage | 1,039 | — | — | 1,039 | 2,376 | 140,871 | 144,286 | |||||||||||||||||||||
Home equity | 388 | 54 | — | 442 | 880 | 196,473 | 197,795 | |||||||||||||||||||||
Consumer indirect | 1,304 | 110 | — | 1,414 | 621 | 336,460 | 338,495 | |||||||||||||||||||||
Other consumer | 105 | 8 | — | 113 | 7 | 29,072 | 29,192 | |||||||||||||||||||||
Total loans, gross | $ | 3,189 | $ | 494 | $ | 1,859 | $ | 5,542 | $ | 6,822 | $ | 1,235,184 | $ | 1,247,548 | ||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
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 | $ | — | |||||||||||
2009 | ||||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||
Commercial business | $ | 292 | $ | 414 | $ | — | $ | 1,200 | $ | — | ||||||||||
Commercial mortgage | 714 | 716 | — | 1,222 | — | |||||||||||||||
1,006 | 1,130 | — | 2,422 | — | ||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||
Commercial business | 358 | 386 | 155 | 605 | — | |||||||||||||||
Commercial mortgage | 1,574 | 1,574 | 699 | 758 | 69 | |||||||||||||||
1,932 | 1,960 | 854 | 1,363 | 69 | ||||||||||||||||
$ | 2,938 | $ | 3,090 | $ | 854 | $ | 3,785 | $ | 69 | |||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Commercial | Commercial | |||||||
Business | Mortgage | |||||||
2010 | ||||||||
Uncriticized | $ | 194,510 | $ | 338,061 | ||||
Special mention | 11,479 | 4,931 | ||||||
Substandard | 4,959 | 10,545 | ||||||
Total | $ | 210,948 | $ | 353,537 | ||||
2009 | ||||||||
Uncriticized | $ | 185,256 | $ | 305,129 | ||||
Special mention | 12,737 | 13,339 | ||||||
Substandard | 8,519 | 12,800 | ||||||
Total | $ | 206,512 | $ | 331,268 | ||||
Residential | Home | Consumer | Other | |||||||||||||
Mortgage | Equity | Indirect | Consumer | |||||||||||||
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 | ||||||||
2009 | ||||||||||||||||
Performing | $ | 141,910 | $ | 196,915 | $ | 337,874 | $ | 29,185 | ||||||||
Non-performing | 2,376 | 880 | 621 | 7 | ||||||||||||
Total | $ | 144,286 | $ | 197,795 | $ | 338,495 | $ | 29,192 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Commercial | Residential | Home | Consumer | Other | ||||||||||||||||||||||||
Commercial | Mortgage | Mortgage | Equity | Indirect | Consumer | Total | ||||||||||||||||||||||
2010 | ||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 4,407 | $ | 6,638 | $ | 1,251 | $ | 1,043 | $ | 6,837 | $ | 565 | $ | 20,741 | ||||||||||||||
Charge-offs | 3,426 | 263 | 290 | 259 | 4,669 | 909 | 9,816 | |||||||||||||||||||||
Recoveries | 326 | 501 | 21 | 36 | 1,485 | 485 | 2,854 | |||||||||||||||||||||
Provision (credit) | 2,405 | (445 | ) | 31 | 152 | 4,101 | 443 | 6,687 | ||||||||||||||||||||
Ending balance | $ | 3,712 | $ | 6,431 | $ | 1,013 | $ | 972 | $ | 7,754 | $ | 584 | $ | 20,466 | ||||||||||||||
Evaluated for impairment: | ||||||||||||||||||||||||||||
Individually | $ | 149 | $ | 883 | $ | — | $ | — | $ | — | $ | — | $ | 1,032 | ||||||||||||||
Collectively | $ | 3,563 | $ | 5,548 | $ | 1,013 | $ | 972 | $ | 7,754 | $ | 584 | $ | 19,434 | ||||||||||||||
Loans: | ||||||||||||||||||||||||||||
Ending balance | $ | 210,948 | $ | 353,537 | $ | 129,553 | $ | 205,070 | $ | 400,221 | $ | 25,937 | $ | 1,325,266 | ||||||||||||||
Evaluated for impairment: | ||||||||||||||||||||||||||||
Individually | $ | 948 | $ | 3,100 | $ | — | $ | — | $ | — | $ | — | $ | 4,048 | ||||||||||||||
Collectively | $ | 210,000 | $ | 350,437 | $ | 129,553 | $ | 205,070 | $ | 400,221 | $ | 25,937 | $ | 1,321,218 | ||||||||||||||
2009 | 2008 | |||||||
Beginning balance | $ | 18,749 | $ | 15,521 | ||||
Charge-offs | 7,830 | 5,459 | ||||||
Recoveries | 2,120 | 2,136 | ||||||
Provision (credit) | 7,702 | 6,551 | ||||||
Ending balance | $ | 20,741 | $ | 18,749 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | |||||||
Land and land improvements | $ | 4,335 | $ | 4,334 | ||||
Buildings and leasehold improvements | 39,215 | 39,553 | ||||||
Furniture, fixtures, equipment and vehicles | 23,645 | 23,771 | ||||||
Premises and equipment | 67,195 | 67,658 | ||||||
Accumulated depreciation and amortization | (33,932 | ) | (32,875 | ) | ||||
Premises and equipment, net | $ | 33,263 | $ | 34,783 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | |||||||
Noninterest-bearing demand | $ | 350,877 | $ | 324,303 | ||||
Interest-bearing demand | 374,900 | 363,698 | ||||||
Savings and money market | 417,359 | 368,603 | ||||||
Certificates of deposit, due: | ||||||||
Within one year | 554,104 | 526,549 | ||||||
One to two years | 126,955 | 132,289 | ||||||
Two to three years | 14,653 | 8,200 | ||||||
Three to five years | 43,888 | 18,968 | ||||||
Thereafter | 154 | 345 | ||||||
Total certificates of deposits | 739,754 | 686,351 | ||||||
Total deposits | $ | 1,882,890 | $ | 1,742,955 | ||||
2010 | 2009 | 2008 | ||||||||||
Interest-bearing demand | $ | 705 | $ | 772 | $ | 3,246 | ||||||
Savings and money market | 1,133 | 1,090 | 3,773 | |||||||||
Certificates of deposit | 13,015 | 17,228 | 22,330 | |||||||||
Total interest expense on deposits | $ | 14,853 | $ | 19,090 | $ | 29,349 | ||||||
2010 | 2009 | |||||||
Short-term borrowings: | ||||||||
Federal funds purchased | $ | 38,200 | $ | 9,419 | ||||
Repurchase agreements | 38,910 | 35,124 | ||||||
Other short-term borrowings | — | 15,000 | ||||||
Total short-term borrowings | 77,110 | 59,543 | ||||||
Long-term borrowings: | ||||||||
FHLB advances and repurchase agreements | 10,065 | 30,145 | ||||||
Junior subordinated debentures | 16,702 | 16,702 | ||||||
Total long-term borrowings | 26,767 | 46,847 | ||||||
Total borrowings | $ | 103,877 | $ | 106,390 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Short-term borrowings | $ | 365 | $ | 270 | $ | 721 | ||||||
Long-term borrowings | 2,502 | 2,857 | 3,547 | |||||||||
Total interest expense on borrowings | $ | 2,867 | $ | 3,127 | $ | 4,268 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | |||||||
Commitments to extend credit | $ | 357,240 | $ | 316,688 | ||||
Standby letters of credit | 6,524 | 6,887 |
2011 | $ | 1,218 | ||
2012 | 1,164 | |||
2013 | 1,024 | |||
2014 | 993 | |||
2015 | 940 | |||
Thereafter | 5,868 | |||
$ | 11,207 | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
For Capital | ||||||||||||||||||||||||||
Actual | Adequacy Purposes | Well Capitalized | ||||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||
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 | ||||||||||||||||||||
December 31, 2009: | ||||||||||||||||||||||||||
Tier 1 leverage: | Company | $ | 163,613 | 7.96 | % | $ | 82,188 | 4.00 | % | $ | 102,735 | 5.00 | % | |||||||||||||
Bank | 154,316 | 7.53 | 82,018 | 4.00 | 102,522 | 5.00 | ||||||||||||||||||||
Tier 1 capital: | Company | 163,613 | 11.95 | 54,746 | 4.00 | 82,119 | 6.00 | |||||||||||||||||||
Bank | 154,316 | 11.33 | 54,475 | 4.00 | 81,712 | 6.00 | ||||||||||||||||||||
Total risk-based capital: | Company | 180,766 | 13.21 | 109,492 | 8.00 | 136,865 | 10.00 | |||||||||||||||||||
Bank | 171,385 | 12.58 | 108,949 | 8.00 | 136,186 | 10.00 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | |||||||
Shares outstanding at beginning of period | 10,820,268 | 10,798,019 | ||||||
Restricted stock awards issued, net | 99,324 | 13,172 | ||||||
Stock options exercised | 15,563 | 1,010 | ||||||
Directors’ retainer | 6,009 | 8,067 | ||||||
Treasury stock purchases | (3,658 | ) | — | |||||
Shares outstanding at end of period | 10,937,506 | 10,820,268 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Pre-tax | Tax Expense | Net-of-tax | ||||||||||
Amount | (Benefit) | Amount | ||||||||||
2010 | ||||||||||||
Securities available for sale: | ||||||||||||
Change in net unrealized gain/loss during the period | $ | (16 | ) | $ | 19 | $ | (35 | ) | ||||
Reclassification adjustment for gains included in income | (169 | ) | (67 | ) | (102 | ) | ||||||
Reclassification adjustment for impairment charges included in income | 594 | 235 | 359 | |||||||||
409 | 187 | 222 | ||||||||||
Change in net actuarial gain/loss and prior service benefit (cost) on defined benefit pension and post-retirement plans | (2,192 | ) | (950 | ) | (1,242 | ) | ||||||
Other comprehensive loss | $ | (1,783 | ) | $ | (763 | ) | (1,020 | ) | ||||
Net income | 21,287 | |||||||||||
Comprehensive income | $ | 20,267 | ||||||||||
2009 | ||||||||||||
Securities available for sale: | ||||||||||||
Change in net unrealized gain/loss during the period | $ | (4,186 | ) | $ | (1,619 | ) | $ | (2,567 | ) | |||
Reclassification adjustment for gains included in income | (3,429 | ) | (1,327 | ) | (2,102 | ) | ||||||
Reclassification adjustment for impairment charges included in income | 4,666 | 1,805 | 2,861 | |||||||||
(2,949 | ) | (1,141 | ) | (1,808 | ) | |||||||
Change in net actuarial gain/loss and prior service benefit (cost) on defined benefit pension and post-retirement plans | 3,457 | 1,338 | 2,119 | |||||||||
Other comprehensive income | $ | 508 | $ | 197 | 311 | |||||||
Net income | 14,441 | |||||||||||
Comprehensive income | $ | 14,752 | ||||||||||
2008 | ||||||||||||
Securities available for sale: | ||||||||||||
Change in net unrealized gain/loss during the period | $ | (61,464 | ) | $ | (23,778 | ) | $ | (37,686 | ) | |||
Reclassification adjustment for gains included in income | (288 | ) | (111 | ) | (177 | ) | ||||||
Reclassification adjustment for impairment charges included in income | 68,215 | 26,389 | 41,826 | |||||||||
6,463 | 2,500 | 3,963 | ||||||||||
Change in net actuarial gain/loss and prior service benefit (cost) on defined benefit pension and post-retirement plans | (14,098 | ) | (5,455 | ) | (8,643 | ) | ||||||
Other comprehensive loss | $ | (7,635 | ) | $ | (2,955 | ) | (4,680 | ) | ||||
Net loss | (26,158 | ) | ||||||||||
Comprehensive loss | $ | (30,838 | ) | |||||||||
2010 | 2009 | |||||||
Net actuarial loss and prior service cost on defined benefit pension and post-retirement plans | $ | (6,599 | ) | $ | (5,357 | ) | ||
Net unrealized gain on securities available for sale | 1,877 | 1,655 | ||||||
$ | (4,722 | ) | $ | (3,702 | ) | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Stock options: | ||||||||||||
Management Stock Incentive Plan | $ | 110 | $ | 222 | $ | 378 | ||||||
Director Stock Incentive Plan | 43 | 46 | 40 | |||||||||
Total stock option expense | 153 | 268 | 418 | |||||||||
Restricted stock awards: | ||||||||||||
Management Stock Incentive Plan | 761 | 488 | 215 | |||||||||
Director Stock Incentive Plan | 117 | 98 | — | |||||||||
Total restricted stock award expense | 878 | 586 | 215 | |||||||||
Total share-based compensation | $ | 1,031 | $ | 854 | $ | 633 | ||||||
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of | Exercise | Contractual | Intrinsic | |||||||||||||
Options | Price | Term | Value | |||||||||||||
Outstanding at beginning of year | 458,734 | $ | 20.30 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | (15,563 | ) | 13.88 | |||||||||||||
Forfeited | (2,317 | ) | 17.94 | |||||||||||||
Expired | (30,961 | ) | 19.25 | |||||||||||||
Outstanding at end of year | 409,893 | 20.64 | 4.49 years | $ | 155 | |||||||||||
Exercisable at end of year | 374,290 | 20.92 | 4.23 years | $ | 104 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Options granted | 61,100 | |||
Grant date weighted average fair value per share | $ | 5.09 | ||
Grant date weighted average share price | $ | 16.98 | ||
Risk-free interest rate | 3.40 | % | ||
Expected dividend yield | 3.48 | % | ||
Expected stock price volatility | 38.60 | % | ||
Expected life (in years) | 6.19 |
Weighted | ||||||||
Average | ||||||||
Market | ||||||||
Number of | Price at | |||||||
Shares | Grant Date | |||||||
Outstanding at beginning of year | 77,772 | $ | 15.05 | |||||
Granted | 107,040 | 12.51 | ||||||
Vested | (26,300 | ) | 18.24 | |||||
Forfeited | (7,716 | ) | 13.64 | |||||
Outstanding at end of year | 150,796 | $ | 12.76 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Income tax expense (benefit) | $ | 9,352 | $ | 6,140 | $ | (21,301 | ) | |||||
Shareholder’s equity | (763 | ) | 197 | (2,955 | ) |
2010 | 2009 | 2008 | ||||||||||
Current tax expense (benefit): | ||||||||||||
Federal | $ | 5,781 | $ | (1,355 | ) | $ | 2,043 | |||||
State | 1,103 | 25 | 504 | |||||||||
Total current tax expense (benefit) | 6,884 | (1,330 | ) | 2,547 | ||||||||
Deferred tax expense (benefit): | ||||||||||||
Federal | 2,852 | 6,189 | (19,640 | ) | ||||||||
State | (384 | ) | 1,281 | (4,208 | ) | |||||||
Total deferred tax expense (benefit) | 2,468 | 7,470 | (23,848 | ) | ||||||||
Total income tax expense (benefit) | $ | 9,352 | $ | 6,140 | $ | (21,301 | ) | |||||
2010 | 2009 | 2008 | ||||||||||
Statutory federal tax rate | 35.0 | % | 34.0 | % | (34.0 | )% | ||||||
Increase (decrease) resulting from: | ||||||||||||
Tax exempt interest income | (4.2 | ) | (8.6 | ) | (5.2 | ) | ||||||
Non-taxable earnings on company owned life insurance | (1.3 | ) | (1.8 | ) | (0.4 | ) | ||||||
Dividend received deduction | (0.1 | ) | (0.1 | ) | (0.8 | ) | ||||||
State taxes, net of federal tax benefit | 1.5 | 4.2 | (5.2 | ) | ||||||||
Nondeductible expenses | 0.6 | 1.0 | 0.2 | |||||||||
Disallowed interest expense | 0.2 | 0.5 | 0.5 | |||||||||
Other, net | (1.2 | ) | 0.6 | — | ||||||||
Effective tax rate | 30.5 | % | 29.8 | % | (44.9 | )% | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | |||||||
Deferred tax assets: | ||||||||
Other than temporary impairment of investment securities | $ | 15,418 | $ | 14,827 | ||||
Allowance for loan losses | 8,108 | 7,418 | ||||||
Tax attribute carryforward benefits | 2,033 | 5,559 | ||||||
Share-based compensation | 1,250 | 1,033 | ||||||
Interest on non-accruing loans | 781 | 788 | ||||||
Core deposit intangible | 158 | 258 | ||||||
Accrued pension costs | — | 92 | ||||||
Other | 665 | 580 | ||||||
Gross deferred tax assets | 28,413 | 30,555 | ||||||
Deferred tax liabilities: | ||||||||
Deferred loan origination costs | 2,263 | 3,290 | ||||||
Depreciation and amortization | 1,489 | 1,283 | ||||||
Net unrealized gain on securities available for sale | 1,231 | 1,044 | ||||||
Loan servicing assets | 581 | 522 | ||||||
Prepaid pension costs | 139 | — | ||||||
Other | — | 1 | ||||||
Gross deferred tax liabilities | 5,703 | 6,140 | ||||||
Net deferred tax asset | $ | 22,710 | $ | 24,415 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Net income (loss) available to common shareholders | $ | 17,562 | $ | 10,744 | $ | (27,696 | ) | |||||
Less: Earnings (loss) allocated to participating securities | 105 | 87 | (230 | ) | ||||||||
Earnings (loss) allocated to common shares outstanding | $ | 17,457 | $ | 10,657 | $ | (27,466 | ) | |||||
Weighted average common shares used to calculate basic EPS | 10,767 | 10,730 | 10,818 | |||||||||
Add: Effect of common stock equivalents | 78 | 39 | — | |||||||||
Weighted average common shares used to calculate diluted EPS | 10,845 | 10,769 | 10,818 | |||||||||
Earnings (loss) per common share: | ||||||||||||
Basic | $ | 1.62 | $ | 0.99 | $ | (2.54 | ) | |||||
Diluted | $ | 1.61 | $ | 0.99 | $ | (2.54 | ) | |||||
Shares subject to the following securities, outstanding as of December 31 of the respective year, were excluded from the computation of diluted EPS because the effect would be antidilutive: | ||||||||||||
Stock options | 353 | 459 | 583 | |||||||||
Restricted stock awards | — | — | 82 | |||||||||
Warrant | — | 378 | 378 | |||||||||
353 | 837 | 1,043 | ||||||||||
2010 | 2009 | |||||||
Change in projected benefit obligation: | ||||||||
Projected benefit obligation at beginning of period | $ | (33,441 | ) | $ | (30,878 | ) | ||
Service cost | (1,633 | ) | (1,689 | ) | ||||
Interest cost | (1,933 | ) | (1,826 | ) | ||||
Actuarial loss | (2,969 | ) | (489 | ) | ||||
Benefits paid and plan expenses | 1,595 | 1,441 | ||||||
Projected benefit obligation at end of period | (38,381 | ) | (33,441 | ) | ||||
Change in plan assets: | ||||||||
Fair value of plan assets at beginning of period | 33,203 | 24,431 | ||||||
Actual return on plan assets | 2,823 | 5,132 | ||||||
Employer contributions | 4,300 | 5,081 | ||||||
Benefits paid and plan expenses | (1,595 | ) | (1,441 | ) | ||||
Fair value of plan assets at end of period | 38,731 | 33,203 | ||||||
Funded (unfunded) status at end of period | $ | 350 | $ | (238 | ) | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2011 | $ | 1,415 | ||
2012 | 1,504 | |||
2013 | 1,561 | |||
2014 | 1,682 | |||
2015 | 1,795 | |||
2016 - 2020 | 11,669 |
2010 | 2009 | 2008 | ||||||||||
Service cost | $ | 1,633 | $ | 1,689 | $ | 1,456 | ||||||
Interest cost on projected benefit obligation | 1,933 | 1,826 | 1,562 | |||||||||
Expected return on plan assets | (2,444 | ) | (1,848 | ) | (2,094 | ) | ||||||
Amortization of unrecognized loss | 458 | 728 | — | |||||||||
Amortization of unrecognized prior service cost | 11 | 11 | 11 | |||||||||
Net periodic pension cost | $ | 1,591 | $ | 2,406 | $ | 935 | ||||||
2010 | 2009 | 2008 | ||||||||||
Weighted average discount rate | 5.89 | % | 6.03 | % | 6.35 | % | ||||||
Rate of compensation increase | 3.50 | % | 3.50 | % | 3.50 | % | ||||||
Expected long-term rate of return | 7.50 | % | 7.50 | % | 7.50 | % |
2010 | 2009 | 2008 | ||||||||||
Weighted average discount rate | 5.38 | % | 5.89 | % | 6.03 | % | ||||||
Rate of compensation increase | 3.00 | % | 3.50 | % | 3.50 | % |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Equity securities | Dividend discount model, the smoothed earnings yield model and the equity risk premium model | |
Fixed income securities | Current yield-to-maturity and forecasts of future yields | |
Other financial instruments | Comparison of the specific investment’s risk to that of fixed income and equity instruments and using judgment |
Equity securities | Securities in emerging market countries as defined by the Morgan Stanley Emerging Markets Index, Short sales, Unregistered securities and Margin purchases | |
Fixed income securities | Securities of BBB quality or less, CMOs that have an inverse floating rate and whose payments don’t include principal, Commercial MBSs or commercial property mortgages which aren’t certified and guaranteed by the U.S. Government, ABSs that aren’t issued or guaranteed by the U.S., or its agencies or its instrumentalities, Non-agency residential subprime or ALT-A MBSs and Structured Notes | |
Other financial instruments | Unhedged currency exposure in countries not defined as “high income economies” by the World Bank |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Weighted | ||||||||||||||||
Average | ||||||||||||||||
2011 | Percentage of Plan Assets | Expected | ||||||||||||||
Target | at December 31, | Long-term | ||||||||||||||
Allocation | 2010 | 2009 | Rate of Return | |||||||||||||
Asset category: | ||||||||||||||||
Cash equivalents | 0 — 20% | 11.2 | % | 13.8 | % | — | ||||||||||
Equity securities | 40 — 60 | 48.2 | 45.7 | 4.60 | % | |||||||||||
Fixed income securities | 40 — 60 | 40.6 | 40.5 | 1.90 | % | |||||||||||
Other financial instruments | 0 — 5 | — | — | — |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Inputs | Inputs | Inputs | Fair Value | |||||||||||||
December 31, 2010: | ||||||||||||||||
Cash equivalents: | ||||||||||||||||
Foreign currencies | $ | 84 | $ | — | $ | — | $ | 84 | ||||||||
Short term investment funds | — | 4,266 | — | 4,266 | ||||||||||||
Total cash equivalents | 84 | 4,266 | — | 4,350 | ||||||||||||
Equity securities: | ||||||||||||||||
U.S. Large Cap | 10,800 | — | — | 10,800 | ||||||||||||
U.S. Mid Cap | 1,103 | — | — | 1,103 | ||||||||||||
U.S. Small Cap | 82 | — | — | 82 | ||||||||||||
International | 6,698 | — | — | 6,698 | ||||||||||||
Total equities | 18,683 | — | — | 18,683 | ||||||||||||
Fixed income securities: | ||||||||||||||||
Corporate bonds | ||||||||||||||||
Rated single A or higher by S&P | — | 2,113 | — | 2,113 | ||||||||||||
Rate below single A by S&P | — | 1,483 | — | 1,483 | ||||||||||||
Government issues | — | 11,259 | — | 11,259 | ||||||||||||
Collateralized mortgage obligations: | — | |||||||||||||||
Rated single A or higher by S&P | — | 582 | — | 582 | ||||||||||||
Rate below single A by S&P | — | 261 | — | 261 | ||||||||||||
Total fixed income securities | — | 15,698 | — | 15,698 | ||||||||||||
Total Plan investments | $ | 18,767 | $ | 19,964 | $ | — | $ | 38,731 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Inputs | Inputs | Inputs | Fair Value | |||||||||||||
December 31, 2009: | ||||||||||||||||
Cash equivalents: | ||||||||||||||||
Foreign currencies | $ | 114 | $ | — | $ | — | $ | 114 | ||||||||
Short term investment funds | — | 4,486 | — | 4,486 | ||||||||||||
Total cash equivalents | 114 | 4,486 | — | 4,600 | ||||||||||||
Equity securities: | ||||||||||||||||
U.S. Large Cap | 8,094 | — | — | 8,094 | ||||||||||||
U.S. Mid Cap | 289 | — | — | 289 | ||||||||||||
U.S. Small Cap | 83 | — | — | 83 | ||||||||||||
International | 6,712 | — | — | 6,712 | ||||||||||||
Total equities | 15,178 | — | — | 15,178 | ||||||||||||
Fixed income securities: | ||||||||||||||||
Corporate bonds | ||||||||||||||||
Rated single A or higher by S&P | — | 1,722 | — | 1,722 | ||||||||||||
Rate below single A by S&P | — | 1,433 | — | 1,433 | ||||||||||||
Government issues | — | 9,281 | — | 9,281 | ||||||||||||
Collateralized mortgage obligations: | ||||||||||||||||
Rated single A or higher by S&P | — | 617 | — | 617 | ||||||||||||
Rate below single A by S&P | — | 185 | — | 185 | ||||||||||||
Other fixed income securities | — | 187 | — | 187 | ||||||||||||
Total fixed income securities | — | 13,425 | — | 13,425 | ||||||||||||
Total Plan investments | $ | 15,292 | $ | 17,911 | $ | — | $ | 33,203 | ||||||||
Balance at beginning of year | $ | 130 | ||
Change in unrealized appreciation | 53 | |||
Realized loss | (57 | ) | ||
Sale proceeds | (126 | ) | ||
Balance at end of year | $ | — | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
2010 | 2009 | |||||||
Defined benefit plan: | ||||||||
Net actuarial loss | $ | (11,188 | ) | $ | (9,056 | ) | ||
Prior service cost | (132 | ) | (143 | ) | ||||
(11,320 | ) | (9,199 | ) | |||||
Postretirement benefit plan: | ||||||||
Net actuarial loss | (252 | ) | (248 | ) | ||||
Prior service credit | 643 | 710 | ||||||
391 | 462 | |||||||
Total recognized in accumulated other comprehensive loss | $ | (10,929 | ) | $ | (8,737 | ) | ||
2010 | 2009 | |||||||
Defined benefit plan: | ||||||||
Net actuarial (loss) gain | $ | (2,590 | ) | $ | 2,795 | |||
Amortization of net loss | 458 | 728 | ||||||
Amortization of prior service cost | 11 | 12 | ||||||
(2,121 | ) | 3,535 | ||||||
Postretirement benefit plan: | ||||||||
Net actuarial loss | (4 | ) | (10 | ) | ||||
Amortization of prior service credit | (67 | ) | (68 | ) | ||||
(71 | ) | (78 | ) | |||||
Total recognized in other comprehensive income (loss) | $ | (2,192 | ) | $ | 3,457 | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
• | 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 entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
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 | |||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
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 | $ | — | $ | 134,105 | $ | — | $ | 134,105 | ||||||||
State and political subdivisions | — | 83,659 | — | 83,659 | ||||||||||||
Mortgage-backed securities | — | 361,515 | — | 361,515 | ||||||||||||
Asset-backed securities: | ||||||||||||||||
Trust preferred securities | — | — | 1,015 | 1,015 | ||||||||||||
Other | — | 207 | — | 207 | ||||||||||||
$ | — | $ | 579,486 | $ | 1,015 | $ | 580,501 | |||||||||
Measured on a nonrecurring basis: | ||||||||||||||||
Loans: | ||||||||||||||||
Loans held for sale | $ | — | $ | 421 | $ | — | $ | 421 | ||||||||
Collateral dependent impaired loans | — | — | 1,078 | 1,078 | ||||||||||||
Other assets: | ||||||||||||||||
Mortgage servicing rights | — | — | 1,349 | 1,349 | ||||||||||||
Other real estate owned | — | 746 | 746 | |||||||||||||
$ | — | $ | 421 | $ | 3,173 | $ | 3,594 | |||||||||
2010 | 2009 | |||||||
Securities available for sale (Level 3), beginning of year | $ | 1,015 | $ | 3,772 | ||||
Transfers into Level 3 | — | — | ||||||
Capitalized interest | 399 | 296 | ||||||
Principal paydowns and amortization of premiums | — | (9 | ) | |||||
Coupon payments applied to principal | (136 | ) | (273 | ) | ||||
Total losses (realized/unrealized): | ||||||||
Included in earnings | (526 | ) | (2,263 | ) | ||||
Included in other comprehensive income | (180 | ) | (508 | ) | ||||
Securities available for sale (Level 3), end of year | $ | 572 | $ | 1,015 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
December 31, 2010 | December 31, 2009 | |||||||||||||||
Estimated | Estimated | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents | $ | 39,058 | $ | 39,058 | $ | 42,959 | $ | 42,959 | ||||||||
Securities available for sale | 666,368 | 666,368 | 580,501 | 580,501 | ||||||||||||
Securities held to maturity | 28,162 | 28,849 | 39,573 | 40,629 | ||||||||||||
Loans held for sale | 3,138 | 3,138 | 421 | 421 | ||||||||||||
Loans | 1,325,524 | 1,388,787 | 1,243,265 | 1,290,136 | ||||||||||||
Accrued interest receivable | 7,613 | 7,613 | 7,386 | 7,386 | ||||||||||||
FHLB and FRB stock | 6,353 | 6,353 | 7,185 | 7,185 | ||||||||||||
Financial liabilities: | ||||||||||||||||
Demand, savings and money market deposits | 1,143,136 | 1,143,136 | 1,056,604 | 1,056,604 | ||||||||||||
Certificate of deposit | 739,754 | 740,440 | 686,351 | 692,429 | ||||||||||||
Short-term borrowings | 77,110 | 77,110 | 59,543 | 59,543 | ||||||||||||
Long-term borrowings (excluding junior subordinated debentures) | 10,065 | 10,244 | 30,145 | 30,886 | ||||||||||||
Junior subordinated debentures | 16,702 | 10,564 | 16,702 | 10,741 | ||||||||||||
Accrued interest payable | 7,620 | 7,620 | 7,576 | 7,576 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
December 31, | ||||||||
2010 | 2009 | |||||||
Assets: | ||||||||
Cash and due from subsidiary | $ | 23,894 | $ | 7,727 | ||||
Investment in and receivables due from subsidiary | 202,754 | 203,986 | ||||||
Other assets | 4,623 | 5,698 | ||||||
Total assets | $ | 231,271 | $ | 217,411 | ||||
Liabilities and shareholders’ equity: | ||||||||
Junior subordinated debentures | $ | 16,702 | $ | 16,702 | ||||
Other liabilities | 2,425 | 2,415 | ||||||
Shareholders’ equity | 212,144 | 198,294 | ||||||
Total liabilities and shareholders’ equity | $ | 231,271 | $ | 217,411 | ||||
Years ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Dividends from subsidiary and associated companies | $ | 23,151 | $ | 5,051 | $ | 11,251 | ||||||
Management and service fees from subsidiary | 1,163 | 603 | 418 | |||||||||
Other (loss) income | (134 | ) | 182 | 74 | ||||||||
Total income | 24,180 | 5,836 | 11,743 | |||||||||
Operating expenses | 4,005 | 4,436 | 4,363 | |||||||||
Income before income tax benefit and equity in (excess distributions) undistributed earnings of subsidiary | 20,175 | 1,400 | 7,380 | |||||||||
Income tax benefit | 1,323 | 1,286 | 1,499 | |||||||||
Income before equity in (excess distributions) undistributed earnings of subsidiary | 21,498 | 2,686 | 8,879 | |||||||||
Equity in (excess distributions) undistributed earnings of subsidiary | (211 | ) | 11,755 | (35,037 | ) | |||||||
Net income (loss) | $ | 21,287 | $ | 14,441 | $ | (26,158 | ) | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010, 2009 and 2008
Years ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | $ | 21,287 | $ | 14,441 | $ | (26,158 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Equity in excess distributions (undistributed earnings) of subsidiary | 211 | (11,755 | ) | 35,037 | ||||||||
Depreciation and amortization | 193 | 318 | 427 | |||||||||
Share-based compensation | 1,031 | 854 | 633 | |||||||||
Decrease (increase) in other assets | 980 | 797 | (763 | ) | ||||||||
Increase (decrease) in other liabilities | 8 | (230 | ) | (258 | ) | |||||||
Net cash provided by operating activities | 23,710 | 4,425 | 8,918 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchase of investment assets, net of disposals | — | (1,323 | ) | (99 | ) | |||||||
Capital investment in subsidiary | — | (15,000 | ) | (20,000 | ) | |||||||
Net cash used in investing activities | — | (16,323 | ) | (20,099 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Purchase of preferred and common shares | (69 | ) | — | (4,821 | ) | |||||||
Proceeds from issuance of preferred and common shares, net of issuance costs | — | (68 | ) | 35,602 | ||||||||
Proceeds from issuance of common stock warrant | — | — | 2,025 | |||||||||
Proceeds from stock options exercised | 216 | 15 | 32 | |||||||||
Dividends paid | (7,690 | ) | (7,485 | ) | (7,722 | ) | ||||||
Net cash (used in) provided by financing activities | (7,543 | ) | (7,538 | ) | 25,116 | |||||||
Net increase (decrease) in cash and cash equivalents | 16,167 | (19,436 | ) | 13,935 | ||||||||
Cash and cash equivalents as of beginning of year | 7,727 | 27,163 | 13,228 | |||||||||
Cash and cash equivalents as of end of the year | $ | 23,894 | $ | 7,727 | $ | 27,163 | ||||||
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ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 9B. | OTHER INFORMATION |
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ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Name | Age | Position(s) Held | Director Since | Term Expires | ||||||||||
Karl V. Anderson, Jr. | 64 | Director | 2006 | 2012 | ||||||||||
John E. Benjamin | 69 | Chairman of the Board | 2002 | 2011 | ||||||||||
Barton P. Dambra | 69 | Director | 1993 | 2011 | ||||||||||
Samuel M. Gullo | 62 | Director | 2000 | 2013 | ||||||||||
Susan R. Holliday | 55 | Director | 2002 | 2011 | ||||||||||
Peter G. Humphrey | 56 | President and Chief Executive Officer | 1983 | 2011 | ||||||||||
Erland E. Kailbourne | 69 | Director | 2005 | 2012 | ||||||||||
Robert N. Latella | 68 | Director | 2005 | 2012 | ||||||||||
James L. Robinson | 68 | Director | 2007 | 2013 | ||||||||||
James H. Wyckoff | 59 | Director | 1985 | 2013 |
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ITEM 11. | EXECUTIVE COMPENSATION |
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• | Stock price growth of 61% to $18.97 per share at the close of business December 31, 2010, as compared to $11.78 per share at the close of business December 31, 2009; | ||
• | Diluted earnings per share (EPS) growth in 2010 of 63% over 2009, to $1.61 per share from $.99 per share in 2009; | ||
• | Improved our efficiency ratio by approximately 8%, to 60.36% in 2010 from 65.52% in 2009; | ||
• | Increased our Tier 1 leverage ratio and Tier 1 risk based capital ratio over 3% to 8.31% and 12.34%, respectively, as compared to 2009; | ||
• | Improved our ratio of non-performing assets/total assets by 22% to 0.40% at December 31, 2010, from 0.51% at December 31, 2009. |
• | Approved new stock ownership requirements for all our executive officers and directors; | ||
• | In addition to EPS, we added two new performance measures, non-performing assets/total assets and efficiency ratio, to our annual cash incentive plan and long-term equity-based incentive plan; and | ||
• | Established a new peer group used for executive compensation plan analysis. |
• | Payment or accrual of annual and long-term incentive compensation, other than long-term restricted shares subject to certain limitations; | ||
• | Granting of stock options; | ||
• | Certain retirement benefits; and | ||
• | Potential payments upon termination of employment or change of control (severance payments) that the executive officers or covered employees might otherwise have been eligible to receive. |
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• | Drive performance relative to our financial goals, balancing short-term operational objectives with long-term strategic goals; | ||
• | Align executives’ long-term interests with those of our shareholders by placing a portion of total compensation at risk, contingent on our performance; | ||
• | Attract and retain the highly-qualified executives needed to achieve our financial goals, and maintain a stable executive management group; | ||
• | Deliver compensation to our executive officers in an effective and cost-effective manner; and | ||
• | Allow flexibility in responding to changing laws, accounting standards, and business needs and the constraints and dynamic conditions in the markets in which we do business. |
• | Establishes the performance goals and objectives of our President and Chief Executive Officer, which we refer to as our CEO, and evaluates our CEO’s performance in light of these goals and objectives; | ||
• | Reviews and approves compensation of our named executive officers and certain senior executives who report directly to our CEO; | ||
• | Approves equity awards to all officers, including our CEO; | ||
• | Approves our executive and senior management compensation programs, which include our annual cash incentive plan and our long-term equity-based incentive plan, and approves the corporate performance objectives in such plans each year; | ||
• | Reviews and monitors development and succession plans for our executive officers; | ||
• | Approves employment conditions, change of control, severance and termination arrangements with our executive officers; | ||
• | Evaluates competitive compensation levels for Directors, including our Chairman of the Board, and makes recommendations for director compensation to the full Board for approval; | ||
• | Evaluates the risks associated with our compensation philosophy and all compensation programs, including those of our named executive officers; | ||
• | Makes recommendations to the Board with respect to major modifications to our benefit programs including our 401(k) and defined benefit plans; | ||
• | Selects and engages independent compensation consultants, legal counsel, and other committee advisors; | ||
• | Reviews and discusses with management our CD&A and, based on such review and discussion, recommends to the Board that CD&A be included in our Annual Report on Form 10-K and proxy statement; and | ||
• | Produces the MD&C Committee’s report on executive officer compensation as required by the SEC and the ARRA. |
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• | Approved the peer group used for executive compensation plan analysis; | ||
• | Approved design changes to our annual cash incentive plan and our long-term equity-based incentive plan; | ||
• | Approved the 2010 financial performance goals used in the annual cash incentive plan and the long-term equity-based incentive plan; | ||
• | With the assistance of our senior risk officer, reviewed named executive officer compensation, all of our incentives plans and all other employee compensation plans for unnecessary and excessive risk; | ||
• | Approved new stock ownership requirements for our executive officers and Directors; and | ||
• | Approved the 2011 engagement of McLagan (formerly Amalfi Consulting LLC) as our outside compensation consultant. |
• | Establish a new peer group based on parameters determined by the MD&C Committee; | ||
• | Analyze competitive market data specific to executive compensation considering base pay, annual cash incentive awards and long-term equity-based incentive awards; | ||
• | Advise the MD&C Committee with respect to TARP requirements and regulatory guidance on incentive compensation practices with respect to our executive compensation program; | ||
• | Review plan designs of our annual cash incentive plan and the long-term equity-based incentive plan; and | ||
• | Review our Director compensation plan. |
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• | United States publicly traded financial institutions; | ||
• | Headquartered in the northeast states of Connecticut, Massachusetts, Maine, New Hampshire, New Jersey, upstate New York, Ohio, western Pennsylvania, Rhode Island and Vermont; and | ||
• | $1.0 billion to $5.5 billion in assets. |
Alliance Financial Corporation | Citizens & Northern Corporation | Merchants Bancshares, Inc. | ||||
Arrow Financial Corporation | Community Bank System, Inc. | NBT Bancorp Inc. | ||||
Bancorp Rhode Island, Inc. | Enterprise Bancorp, Inc. | Peoples Bancorp Inc. | ||||
Camco Financial Corporation | First Bancorp, Inc. | S&T Bancorp, Inc. | ||||
Camden National Corporation | First National Community Bancorp, Inc. | Sun Bancorp, Inc. | ||||
Canandaigua National Corporation | Independent Bank Corp. | Tompkins Financial Corporation | ||||
Century Bancorp, Inc. | Lakeland Bancorp, Inc. | Washington Trust Bancorp, Inc. |
Financial | ||||||||
Institutions, Inc. | ||||||||
Measure | Peer Median | Rank(1) | ||||||
Asset Size | $2.0 Billion | 51 | % | |||||
Return on Equity | 9.13 | % | 63 | % | ||||
Return on Assets | 0.83 | % | 59 | % | ||||
Net Interest Margin | 3.7 | % | 87 | % | ||||
Efficiency Ratio | 61.2 | % | 56 | % | ||||
Non-Performing Assets/Total Assets | 1.41 | % | 88 | % | ||||
Earnings Per Share Growth | 11.7 | % | 95 | % |
(1) | Rank represents relative standing within the peer group (e.g., 5% is low and 95% is high) |
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• | Base Salary; | ||
• | Performance-based Annual Cash Incentive Awards; and | ||
• | Performance-based Long-Term Equity Incentive Awards. |
Pay Element | What the Pay Element Rewards | Objectives of the Pay Element | ||
Base Salary | Individual ongoing performance and overall contribution to us. | Attract and retain talented executives. Recognizes experience level required, scope and complexity of position and market value of the position. | ||
Annual Cash Incentive Plan | Achievement of our performance targets and measurable individual/department annual performance goals. | Focuses attention on meeting our annual performance targets and near-term success and recognizes individual contributions. Mandatory deferral of a portion of the executives’ awards ensures our performance is sustained. | ||
Long-Term Incentive Plan | Achieving performance targets that maximize shareholder value. Retention during the vesting periods. | Focuses attention on longer-term success and provides a strong alignment between shareholders and executive officers. |
Median Peer | ||||||||
Group Base | Actual 2010 | |||||||
Salary | Base Salary | |||||||
Position | ($000) | ($000) | ||||||
President and Chief Executive Officer | 365.5 | 406.1 | ||||||
Chief Financial Officer | 197.0 | 180.0 | ||||||
Senior Retail Lending Administrator | 194.2 | 200.0 | ||||||
Retail Banking Executive/Regional President | 245.2 | 226.6 | ||||||
Commercial Banking Executive/Regional President | 201.2 | 205.6 | ||||||
Chief Risk Officer | 172.4 | 198.2 |
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2010 | 2011 | |||||||||||||||
Salary | Salary | |||||||||||||||
Increase | Base Salary | Increase | Base Salary | |||||||||||||
Executive Name | (%) | ($) | (%) | ($) | ||||||||||||
Peter G. Humphrey | 2.00 | 406,132 | 3.50 | 420,347 | ||||||||||||
Karl F. Krebs | 5.90 | 180,000 | 15.39 | 207,710 | ||||||||||||
Richard J. Harrison | 2.10 | 200,000 | 11.34 | 222,670 | ||||||||||||
John J. Witkowski | 1.70 | 226,644 | 6.59 | 241,580 | ||||||||||||
Martin K. Birmingham | 2.30 | 205,641 | 8.16 | 222,424 | ||||||||||||
George D. Hagi | 2.80 | 198,221 | 9.19 | 216,441 |
• | EPS was retained as a corporate measure and two additional corporate measures, non-performing assets/total assets and efficiency ratio, were added; | ||
• | To promote prudent and sound behavior consistent with our long-term objectives, a long-term component was added to our annual cash incentive plan, which requires 30% of the award to be deferred for two years for selected participants; | ||
• | The weighting of financial performance and individual goals for our named executive officers, other than our CEO, was revised from 100% financial performance goals to 75% financial performance and 25% individual goals; and | ||
• | Inclusion of threshold goals that must be attained before any annual cash incentive plan awards can be made to our named executive officers. |
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Performance | ||||||||||||||||||||
Incentive as a % of Salary | Goal Weighting | |||||||||||||||||||
Position | Threshold | Target | Max | Financial | Individual | |||||||||||||||
President and Chief Executive Officer | 25 | % | 50 | % | 80 | % | 100 | % | — | |||||||||||
Other Named Executive Officers | 20 | % | 40 | % | 60 | % | 75 | % | 25 | % |
Weighting | |||||||||||||||||||||
Financial | within | ||||||||||||||||||||
Performance Goals | Category | Threshold | Target | Max | Triggers | ||||||||||||||||
Earnings Per Share | 60 | % | $ | 0.99 | $ | 1.10 | $ | 1.375 | Each corporate goal has a threshold | ||||||||||||
Non-Performing Assets/Total Assets | 20 | % | 0.75 | % | 0.50 | % | 0.45 | % | level of performance that must be achieved | ||||||||||||
Efficiency Ratio(1) | 20 | % | 64.5 | % | 63.0 | % | 61.5 | % | before awards are paid for such measure. |
(1) | 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 non-interest income before net gains and impairment charges on investment securities, and proceeds from company-owned life insurance included in income. |
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1. | We achieve 80% of our annual earnings per share goal; and | ||
2. | Each participant achieves 70% of their individual goals. |
Annual Cash Incentive Targets | ||||||||||||
Financial | Individual | Total | ||||||||||
Executive Name | ($) | ($) | ($) | |||||||||
Peter G. Humphrey | 203,066 | n/a | 203,066 | |||||||||
Karl F. Krebs | 54,000 | 18,000 | 72,000 | |||||||||
Richard J. Harrison | 60,000 | 20,000 | 80,000 | |||||||||
John J. Witkowski | 67,994 | 22,664 | 90,658 | |||||||||
Martin K. Birmingham | 61,692 | 20,564 | 82,256 | |||||||||
George D. Hagi | 59,466 | 19,822 | 79,288 |
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Total | Equivalent | |||||||||||||||||||||||
Annual | Reduction | Adjusted | Restricted | |||||||||||||||||||||
Incentive | to Annual | Annual | Stock | |||||||||||||||||||||
Earned (in | Incentive | Incentive | Awards | |||||||||||||||||||||
Financial | Individual | accordance | Award(1) | Award | Granted(2) | |||||||||||||||||||
Executive Name | ($) | ($) | with Plan) ($) | ($) | ($) | (#) | ||||||||||||||||||
Peter G. Humphrey | 324,096 | n/a | 324,096 | 241,517 | 82,579 | 4,283 | ||||||||||||||||||
Karl F. Krebs | 81,000 | 26,190 | 107,190 | 89,471 | 17,719 | 919 | ||||||||||||||||||
Richard J. Harrison | 90,000 | 30,000 | 120,000 | 89,851 | 30,149 | 1,563 | ||||||||||||||||||
John J. Witkowski | 101,990 | 29,917 | 131,907 | 95,030 | 36,877 | 1,912 | ||||||||||||||||||
Martin K. Birmingham | 92,538 | 27,145 | 119,683 | 87,604 | 32,079 | 1,663 | ||||||||||||||||||
George D. Hagi | 89,199 | 28,246 | 117,445 | 90,116 | 27,329 | 1,417 |
(1) | Due to one-third limitation imposed by the ARRA. | |
(2) | The number of shares of restricted stock granted to each named executive officer was determined by dividing the value of their adjusted annual incentive award by the closing price of our common stock on the date of grant (February 16, 2011). |
• | Retain the general group of eligible participants; however, tier executives based on different levels of potential awards; | ||
• | Express potential award opportunity levels as ranges for each participant tier group, rather than a fixed percentage; | ||
• | Replace net charge-offs with non-performing assets/total assets as a performance measure, which will align the goals in the long-term equity incentive plan with those in the annual cash incentive plan; and | ||
• | Set the minimum performance requirement at 90% of the target level and allow for awards for incremental performance between 100% and 125% of the target goal. |
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Incentive as a % of Salary | ||||||||||||
Position | Threshold | Target | Max | |||||||||
President and Chief Executive Officer | 10 - 25 | % | 20 - 30 | % | 25 - 38 | % | ||||||
Other Named Executive Officers | 7.5 - 12.5 | % | 15 - 25 | % | 19 - 32 | % |
Weighting | Result as | Restricted | ||||||||||||||||||||||||||
within | 2010 | a % of | Stock | |||||||||||||||||||||||||
Performance Goals | Category | Threshold | Target | Max | Results | Target | Awarded | |||||||||||||||||||||
Earnings Per Share | 60 | % | $ | 0.99 | $ | 1.10 | $ | 1.375 | $ | 1.61 | 146.4 | % | 100 | % | ||||||||||||||
Non-Performing Assets/Total Assets | 20 | % | 0.75 | % | 0.50 | % | 0.45 | % | 0.40 | % | 125.0 | % | 100 | % | ||||||||||||||
Efficiency Ratio(1) | 20 | % | 64.5 | % | 63.0 | % | 61.5 | % | 60.36 | % | 104.4 | % | 100 | % |
(1) | 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 non-interest income before net gains and impairment charges on investment securities, and proceeds from company-owned life insurance included in income. |
Maximum | Actual | |||||||||||
Target Award | Award | Award | ||||||||||
Executive Name | (#) | (#) | (#) | |||||||||
Peter G. Humphrey | 7,729 | 9,661 | 9,661 | |||||||||
Karl F. Krebs | 2,790 | 3,488 | 3,488 | |||||||||
Richard J. Harrison | 3,100 | 3,875 | 3,875 | |||||||||
John J. Witkowski | 3,514 | 4,392 | 4,392 | |||||||||
Martin K. Birmingham | 3,188 | 3,985 | 3,985 | |||||||||
George D. Hagi | 3,073 | 3,841 | 3,841 |
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Position | Required Ownership | |
President and CEO | 2x annual base salary | |
Executive Officers | 1x annual base salary | |
Non-employee Directors | Shares in an amount equal to $100,000 |
For | Against | Abstain | ||||||
8,878,917 | 629,823 | 116,275 |
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1) | It has reviewed with the Senior Risk Officer the Senior Executive Officers (“SEO”) compensation plans and has made all reasonable efforts to ensure that these plans do not encourage SEO’s to take unnecessary and excessive risks that threaten the value of the Company; | ||
2) | It has reviewed with the Senior Risk Officer the employee compensation plans and has made all reasonable efforts to limit any unnecessary risks these plans pose to the Company; and | ||
3) | It has reviewed the employee compensation plans to eliminate any features of these plans that would encourage the manipulation of reported earnings of the Company to enhance the compensation of any employee. |
Susan R. Holliday, Chair
Samuel M. Gullo
Erland E. Kailbourne
Robert N. Latella
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Change in | ||||||||||||||||||||||||||||
Stock | Pension | All Other | ||||||||||||||||||||||||||
Salary | Bonus | Awards | Value | Compensation | Total | |||||||||||||||||||||||
Name & Principal Position | Year | ($)(2) | ($) | ($)(3) | ($)(4) | ($)(5) | ($) | |||||||||||||||||||||
Peter G. Humphrey | 2010 | 406,132 | — | 355,959 | 179,930 | 73,037 | 1,015,058 | |||||||||||||||||||||
President & Chief Executive Officer | 2009 | 413,483 | — | 79,260 | 138,264 | 72,912 | 703,919 | |||||||||||||||||||||
of the Company and the Bank | 2008 | 398,169 | — | 115,320 | 159,816 | 74,183 | 747,488 | |||||||||||||||||||||
Karl F. Krebs(1) | 2010 | 180,000 | — | 77,245 | 28,212 | 26,671 | 312,128 | |||||||||||||||||||||
EVP & Chief Financial Officer | 2009 | 40,539 | — | 19,996 | 9,316 | 13,084 | 82,935 | |||||||||||||||||||||
of the Company and the Bank | ||||||||||||||||||||||||||||
Richard J. Harrison | 2010 | 200,000 | — | 138,384 | 60,414 | 28,045 | 426,843 | |||||||||||||||||||||
EVP & Senior Retail Lending Administrator of the Bank | ||||||||||||||||||||||||||||
John J. Witkowski | 2010 | 226,644 | — | 152,421 | 24,100 | 23,592 | 426,757 | |||||||||||||||||||||
EVP & Retail Banking Executive/ | 2009 | 231,089 | — | 66,050 | 15,734 | 25,176 | 338,049 | |||||||||||||||||||||
Regional President of the Bank | 2008 | 218,484 | 27,857 | 96,100 | 16,899 | 24,010 | 383,350 | |||||||||||||||||||||
George D. Hagi | 2010 | 198,221 | — | 155,073 | 35,247 | 20,169 | 408,710 | |||||||||||||||||||||
EVP & Chief Risk Officer | 2009 | 200,237 | — | 72,655 | 24,052 | 20,258 | 317,202 | |||||||||||||||||||||
of the Company and the Bank | 2008 | 192,821 | — | 105,710 | 27,198 | 21,988 | 347,717 | |||||||||||||||||||||
Martin K. Birmingham | 2010 | 205,641 | — | 140,943 | 20,654 | 27,169 | 394,407 | |||||||||||||||||||||
EVP & Commercial Banking Executive/ | 2009 | 208,484 | — | 66,050 | 12,387 | 26,053 | 312,974 | |||||||||||||||||||||
Regional President of the Bank | 2008 | 195,732 | 24,369 | 96,100 | 14,085 | 26,365 | 356,651 |
(1) | Mr. Krebs was appointed to his position effective October 1, 2009. Mr. Krebs’ 2009 annualized base salary was $170,000. | |
(2) | Salaries reflect twenty-seven pay periods in 2009 versus the normal twenty-six pay periods in a calendar year. | |
(3) | The value of restricted stock awards is based on the market price of Financial Institutions, Inc. stock on the date of grant. The 2010 amount includes awards of restricted stock earned under the annual cash incentive plan for 2009 services, awards under the long-term equity incentive plan for 2009 service and a one-time restricted stock award granted during 2010 as shown in the Grants of Plan-Based Awards Table. | |
(4) | The value represents the aggregate change in actuarial present value of each named executive officer’s accumulated defined benefit pension. | |
(5) | Please see the table below for more information on the other compensation paid to our named executive officers in the year ended December 31, 2010. |
Use of | 401(k) | Split Dollar | ||||||||||||||||||||||
Company | Club | Matching | Insurance | |||||||||||||||||||||
Vehicle | Memberships | Contribution | Premium | Other | Total | |||||||||||||||||||
Executive Name | ($) | ($) | ($) | ($) | ($)(1) | ($) | ||||||||||||||||||
Peter G. Humphrey | 1,900 | 3,150 | 11,025 | 50,830 | 6,132 | 73,037 | ||||||||||||||||||
Karl F. Krebs | 7,701 | 9,434 | 8,110 | — | 1,426 | 26,671 | ||||||||||||||||||
Richard J. Harrison | 4,354 | 8,177 | 9,010 | — | 6,504 | 28,045 | ||||||||||||||||||
John J. Witkowski | 4,077 | 6,168 | 10,203 | — | 3,144 | 23,592 | ||||||||||||||||||
George D. Hagi | 7,059 | — | 8,901 | — | 4,209 | 20,169 | ||||||||||||||||||
Martin K. Birmingham | 1,877 | 13,039 | 9,259 | — | 2,994 | 27,169 |
(1) | For Mr. Humphrey, represents the taxable portion of his split dollar policy of $2,149; dividends paid on restricted stock of $2,693; and the taxable portion of group term life insurance (“GTL”) of $1,290. For all others, represents dividends paid on restricted stock of $789 for Mr. Krebs; of $2,694 for Messrs. Harrison, Witkowski and Birmingham and of $2,918 for Mr. Hagi; and the taxable portion of GTL for Messrs. Krebs, Harrison, Witkowski, Hagi and Birmingham, in the amounts of $637, $3,810, $450, $1,290 and $300, respectively. |
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All other | ||||||||||||||||||||||||
stock awards: | Grant date | |||||||||||||||||||||||
Estimated future payouts under equity incentive | Number of | fair value of | ||||||||||||||||||||||
plan awards(1)(2) | shares of | stock and | ||||||||||||||||||||||
Grant | Threshold | stock or units | option awards | |||||||||||||||||||||
Executive Name | Date | (#) | Target (#) | Maximum (#) | (#) | ($)(3) | ||||||||||||||||||
Peter G. Humphrey | 01/13/10 | — | 17,807 | — | — | 199,082 | ||||||||||||||||||
02/23/10 | — | — | — | 2,500 | 32,250 | |||||||||||||||||||
02/23/10 | 3,864 | 7,729 | 9,661 | — | 124,627 | |||||||||||||||||||
Karl F. Krebs | 02/23/10 | — | — | — | 2,500 | 32,250 | ||||||||||||||||||
02/23/10 | 1,395 | 2,790 | 3,488 | — | 44,995 | |||||||||||||||||||
Richard J. Harrison | 01/13/10 | — | 5,022 | — | — | 56,146 | ||||||||||||||||||
02/23/10 | — | — | — | 2,500 | 32,250 | |||||||||||||||||||
02/23/10 | 1,550 | 3,100 | 3,875 | — | 49,988 | |||||||||||||||||||
John J. Witkowski | 01/13/10 | — | 5,681 | — | — | 63,514 | ||||||||||||||||||
02/23/10 | — | — | — | 2,500 | 32,250 | |||||||||||||||||||
02/23/10 | 1,757 | 3,514 | 4,392 | — | 56,657 | |||||||||||||||||||
George D. Hagi | 01/13/10 | — | 6,554 | — | — | 73,274 | ||||||||||||||||||
02/23/10 | — | — | — | 2,500 | 32,250 | |||||||||||||||||||
02/23/10 | 1,536 | 3,073 | 3,841 | — | 49,549 | |||||||||||||||||||
Martin K. Birmingham | 01/13/10 | — | 5,124 | — | — | 57,286 | ||||||||||||||||||
02/23/10 | — | — | — | 2,500 | 32,250 | |||||||||||||||||||
02/23/10 | 1,594 | 3,188 | 3,985 | — | 51,407 |
(1) | These columns show the potential number of shares to be paid out for our named executive officers under our annual cash incentive plan and long-term equity incentive plan at threshold, target or maximum performance. The measures and potential payouts are described in more detail in the CD&A under the caption “Annual Cash Incentive Plan” and “Long-Term Equity-Based Incentive Plan”. | |
(2) | Due to the restriction of TARP, our annual cash incentive plan granted on 1/13/10 was paid in the form of ARRA-compliant restricted stock. | |
(3) | This column includes the full grant date fair value of stock awards for each of the years reported. The amounts reported in this column have been calculated in accordance with FASB ASC 718. For equity awards that are subject to performance conditions, the value reported is based upon the probable outcome of such conditions, excluding the effect of estimated forfeitures. |
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Option awards | Stock awards | |||||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||||
incentive | ||||||||||||||||||||||||||||||||
Equity | plan | |||||||||||||||||||||||||||||||
incentive | awards: | |||||||||||||||||||||||||||||||
plan | market or | |||||||||||||||||||||||||||||||
awards: | payout | |||||||||||||||||||||||||||||||
Market | number of | value of | ||||||||||||||||||||||||||||||
Number of | Number of | Number of | value of | unearned | unearned | |||||||||||||||||||||||||||
securities | securities | shares or | shares or | shares, units | shares, units | |||||||||||||||||||||||||||
underlying | underlying | units of | units of | or other | or other | |||||||||||||||||||||||||||
unexercised | unexercised | Option | stock that | stock that | rights that | rights that | ||||||||||||||||||||||||||
options | options | exercise | Option | have not | have not | have not | have not | |||||||||||||||||||||||||
Exercisable | Unexercisable | price | expiration | vested | vested | vested | vested | |||||||||||||||||||||||||
Executive Name | (#) | (#) | ($) | date | (#) | ($) | (#) | ($) | ||||||||||||||||||||||||
Peter G. Humphrey | 14,083 | — | 23.80 | 02/04/14 | 2,500 | (2) | 47,425 | 34,044 | (3) | 645,815 | ||||||||||||||||||||||
16,659 | — | 21.05 | 02/23/15 | |||||||||||||||||||||||||||||
8,500 | — | 19.75 | 07/26/16 | |||||||||||||||||||||||||||||
6,375 | 2,125 | (1) | 19.41 | 07/25/17 | ||||||||||||||||||||||||||||
Karl F. Krebs | — | — | — | — | 2,500 | (2) | 47,425 | 5,460 | (4) | 103,576 | ||||||||||||||||||||||
Richard J. Harrison | 1,345 | — | 23.80 | 02/04/14 | 2,500 | (2) | 47,425 | 14,377 | (5) | 272,732 | ||||||||||||||||||||||
1,773 | — | 21.05 | 02/23/15 | |||||||||||||||||||||||||||||
1,650 | — | 19.75 | 07/26/16 | |||||||||||||||||||||||||||||
John J. Witkowski | 7,450 | — | 17.80 | 09/07/15 | 2,500 | (2) | 47,425 | 15,553 | (6) | 295,040 | ||||||||||||||||||||||
1,650 | — | 19.75 | 07/26/16 | |||||||||||||||||||||||||||||
1,125 | 375 | (1) | 19.41 | 07/25/17 | ||||||||||||||||||||||||||||
George D. Hagi | 6,047 | — | 19.59 | 01/18/16 | 2,500 | (2) | 47,425 | 16,423 | (7) | 311,544 | ||||||||||||||||||||||
1,650 | — | 19.75 | 07/26/16 | |||||||||||||||||||||||||||||
1,125 | 375 | (1) | 19.41 | 07/25/17 | ||||||||||||||||||||||||||||
Martin K. Birmingham | 4,596 | — | 20.39 | 03/16/15 | 2,500 | (2) | 47,425 | 14,589 | (8) | 276,753 | ||||||||||||||||||||||
1,650 | — | 19.75 | 07/26/16 | |||||||||||||||||||||||||||||
1,125 | 375 | (1) | 19.41 | 07/25/17 | �� |
(1) | Options vest on July 25, 2011. | |
(2) | Restricted stock awards vest on February 23, 2014. | |
(3) | 600 awards vest on January 16, 2011; 5,976 awards vest in approximately equal parts on January 14, 2011 and January 14, 2012; 17,807 awards vest on January 13, 2012; and, subject to achievement of performance criteria 9,661 awards vest in equal parts on February 23, 2012 and February 23, 2013. | |
(4) | 1,972 awards vest on October 1, 2011 and, subject to achievement of performance criteria 3,488 awards vest in equal parts on February 23, 2012 and February 23, 2013. | |
(5) | 500 awards vest on January 16, 2011; 4,980 awards vest in approximately equal parts on January 14, 2011 and January 14, 2012; 5,022 awards vest on January 13, 2012; and, subject to achievement of performance criteria 3,875 awards vest in equal parts on February 23, 2012 and February 23, 2013. | |
(6) | 500 awards vest on January 16, 2011; 4,980 awards vest in approximately equal parts on January 14, 2011 and January 14, 2012; 5,681 awards vest on January 13, 2012; and, subject to achievement of performance criteria 4,392 awards vest in equal parts on February 23, 2012 and February 23, 2013. | |
(7) | 550 awards vest on January 16, 2011; 5,478 awards vest in approximately equal parts on January 14, 2011 and January 14, 2012; 6,554 awards vest on January 13, 2012; and, subject to achievement of performance criteria 3,841 awards vest in equal parts on February 23, 2012 and February 23, 2013. | |
(8) | 500 awards vest on January 16, 2011; 4,980 awards vest in approximately equal parts on January 14, 2011 and January 14, 2012; 5,124 awards vest on January 13, 2012; and, subject to achievement of performance criteria 3,985 awards vest in equal parts on February 23, 2012 and February 23, 2013. |
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Number of | ||||||||
Shares | Value | |||||||
Acquired on | Realized on | |||||||
Vesting | Vesting(1) | |||||||
Executive Name | (#) | ($) | ||||||
Peter G. Humphrey | 4,800 | 85,938 | ||||||
Karl F. Krebs | — | — | ||||||
Richard J. Harrison | 2,000 | 33,975 | ||||||
John J. Witkowski | 2,000 | 33,975 | ||||||
George D. Hagi | 2,050 | 34,550 | ||||||
Martin K. Birmingham | 2,000 | 33,975 |
(1) | The amounts shown are calculated based on the closing market price of our common stock on the date of vesting, multiplied by the number of vested shares. |
Number of | Present | |||||||||||||
Years | Value of | Payments | ||||||||||||
Credited | Accumulated | During | ||||||||||||
Service | Benefit(1) | 2010 | ||||||||||||
Executive Name | Plan Name | (#) | ($) | ($) | ||||||||||
Peter G. Humphrey | New York Bankers Retirement Plan | 31.417 | 1,044,980 | — | ||||||||||
Karl F. Krebs | New York Bankers Retirement Plan | 2.250 | 37,528 | — | ||||||||||
Richard J. Harrison | New York Bankers Retirement Plan | 6.417 | 202,600 | — | ||||||||||
John J. Witkowski | New York Bankers Retirement Plan | 4.333 | 66,121 | — | ||||||||||
George D. Hagi | New York Bankers Retirement Plan | 3.917 | 97,230 | — | ||||||||||
Martin K. Birmingham | New York Bankers Retirement Plan | 4.750 | 56,923 | — |
(1) | The Present Value of Accumulated Benefits was determined using the same assumptions used for financial reporting purposes under GAAP. For a discussion of the valuation method and all material assumptions applied in quantifying the present value of the accumulated benefits, refer to Note 16 to our consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010. |
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• | 1.75 % of average annual compensation multiplied by creditable service accrued prior to January 1, 2004 up to 35 years; plus |
• | 1.50% of average annual compensation, multiplied by creditable service accrued on or after January 1, 2004 provided that such service shall not exceed the difference between (i) 35 and (ii) the participant’s years of benefit earned prior to January 1, 2004; plus |
• | 1.25% of average annual compensation multiplied by creditable service in excess of 35 years up to 5 years; minus |
• | 0.49% of final average compensation, up to covered compensation, multiplied by creditable service up to 35 years. |
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1. | All stock options and restricted stock held by the named executive officer will become fully vested and exercisable; | ||
2. | Medical and dental benefits will continue for a period not to exceed 18 months; | ||
3. | Monthly cash payments equal to 1/12th the sum of the base salary amount for the most recent calendar year ending before the date on which the change of control occurred plus the average of the annual incentive compensation earned by the Executive for the two most recent calendar years ending before the date on which the change of control occurred will be made; | ||
4. | Mr. Humphrey is entitled to receive these cash payments over a thirty-six month period; Mr. Hagi is entitled to receive cash payments for twenty-four months; and Messrs. Witkowski and Birmingham are entitled to receive cash payments for twelve months. |
Salary plus | Stock | Restricted | Medical & | Gross | ||||||||||||||||||||
Continuation | Incentives | Options | Stock | Dental | Value | |||||||||||||||||||
Executive Name | Period | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||
Peter G. Humphrey | 36 months | 1,539,075 | — | 693,240 | 14,961 | 2,247,276 | ||||||||||||||||||
John J. Witkowski | 12 months | 262,846 | — | 342,465 | 9,974 | 615,285 | ||||||||||||||||||
George D. Hagi | 24 months | 473,746 | — | 358,969 | 14,961 | 847,676 | ||||||||||||||||||
Martin K. Birmingham | 12 months | 237,129 | — | 324,178 | 9,974 | 571,281 |
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Fees Earned or | Stock | All Other | ||||||||||||||
Paid in Cash | Awards(2)(3)(4) | Compensation(5) | Total | |||||||||||||
Director Name | ($) | ($) | ($) | ($) | ||||||||||||
Karl V. Anderson, Jr. | 32,166 | 20,444 | 160 | 52,770 | ||||||||||||
John E. Benjamin | 73,724 | 47,936 | 160 | 121,820 | ||||||||||||
Thomas P. Connolly(1) | 8,300 | — | 80 | 8,380 | ||||||||||||
Barton P. Dambra | 30,966 | 20,444 | 160 | 51,570 | ||||||||||||
Samuel M. Gullo | 32,916 | 13,964 | 80 | 46,960 | ||||||||||||
Susan R. Holliday | 38,416 | 20,444 | 160 | 59,020 | ||||||||||||
Erland E. Kailbourne | 37,666 | 20,444 | 160 | 58,270 | ||||||||||||
Robert N. Latella | 37,616 | 13,964 | 80 | 51,660 | ||||||||||||
James L. Robinson | 40,921 | 22,939 | 160 | 64,020 | ||||||||||||
James H. Wyckoff | 26,916 | 20,444 | 160 | 47,520 |
(1) | Mr. Connolly did not stand for re-election due to his retirement from the Board effective with the Annual Shareholders meeting on May 6, 2010. Consequently, Mr. Connolly did not receive an annual retainer or restricted stock awards for 2010. | |
(2) | The amount shown for each Director includes $12,960, representing the aggregate grant date fair value, calculated in accordance with FASB ASC 718, of the 800 shares of restricted stock granted under the 2009 Directors Stock Incentive Plan. | |
(3) | The amount shown for each Director includes the portion of their annual retainer paid in common stock. For 2010, the number of shares was determined by dividing the applicable portion of their annual retainer by the closing price of the Company’s common stock on the date of grant, which was $16.20. For 2010 these amounts were $34,976 and $9,979 for Messrs. Benjamin and Robinson, respectively, and $7,484 for each of the other Directors. | |
(4) | With the exception of Mr. Connolly,who had no unvested restricted stock awards as of December 31, 2010, each of the Directors had 400 shares of unvested restricted stock awards as of December 31, 2010. | |
(5) | Includes dividends on unvested restricted stock treated as compensation for directors who did not elect the IRS 83-b treatment of their restricted stock grants. |
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Five Star | ||||||||
Company | Bank | |||||||
Annual Retainer Fees | ||||||||
Chair | $ | 40,000 | $ | 30,000 | ||||
Vice Chair(1) | 30,000 | 15,000 | ||||||
Director | 10,000 | 5,000 | ||||||
Committee Chair: | ||||||||
Audit | 15,000 | |||||||
Management Development and Compensation | 10,000 | |||||||
Executive, Nominating and Governance | 10,000 | |||||||
Risk Oversight Committee | 10,000 | |||||||
Board Meeting Fees | ||||||||
Chair | 3,000 | |||||||
Vice Chair | 1,500 | |||||||
Director | 1,200 | |||||||
Committee Fees | ||||||||
Chair | 1,550 | |||||||
Member | 750 |
(1) | Effective May 6, 2010, Vice Chairman John E. Benjamin was named Chairman of the Board. The Board Vice Chairman position is currently not filled. |
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ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Number of shares | ||||||||||||
included in previous | ||||||||||||
column which the | ||||||||||||
individual or group | ||||||||||||
has/have the right to | Percent of | |||||||||||
Number of shares | acquire within 60 days | outstanding | ||||||||||
Name | beneficially owned | of March 7, 2011 | common stock(1) | |||||||||
Canandaigua National Bank & Trust Co. (held in various trust / fiduciary capacities) | 993,643 | (2) | — | 9.05 | % | |||||||
BlackRock, Inc. | 818,473 | (3) | — | 7.46 | % | |||||||
Dimensional Fund Advisors LP | 555,951 | (4) | — | 5.06 | % | |||||||
JPMorgan Chase and Co., Gail C. Humphrey and David G. Humphrey, as co-trustees | 549,360 | (5) | — | 5.00 | % | |||||||
Directors(6): | ||||||||||||
Karl V. Anderson, Jr. | 11,063 | 6,133 | * | |||||||||
John E. Benjamin | 18,263 | 10,133 | * | |||||||||
Barton P. Dambra | 23,920 | (7) | 11,133 | * | ||||||||
Samuel M. Gullo | 19,136 | 11,133 | * | |||||||||
Susan R. Holliday | 19,887 | 9,333 | * | |||||||||
Peter G. Humphrey | 405,152 | (8) | 45,617 | 3.69 | % | |||||||
Erland E. Kailbourne | 32,457 | 5,700 | * | |||||||||
Robert N. Latella | 12,473 | 6,481 | * | |||||||||
James L. Robinson | 12,035 | 3,933 | * | |||||||||
James H. Wyckoff | 424,340 | (9) | 10,533 | 3.86 | % | |||||||
Named Executive Officers(10): | ||||||||||||
Richard J. Harrison | 35,993 | �� | 5,893 | * | ||||||||
Karl F. Krebs | 11,579 | — | * | |||||||||
John J. Witkowski | 36,266 | 10,225 | * | |||||||||
George D. Hagi | 34,604 | 8,822 | * | |||||||||
Martin K. Birmingham | 31,703 | 7,371 | * | |||||||||
Directors and executive officers as a group (19 persons) | 1,172,762 | 169,523 | 10.68 | % |
* | Denotes less than 1% | |
(1) | Calculated based on Rule 13d-3(d)(i) using the number of outstanding shares of common stock as of March 7, 2011. | |
(2) | Share and percentage information obtained from NASDAQ Global Market Ownership holder position reported as of December 31, 2010 in Form 13F filings. The address of Canandaigua National Bank & Trust Co. is 1150 Pittsford-Victor Road, Pittsford, New York 14534. | |
(3) | Based on information set forth in Amendment number 1 to Schedule 13G filed with the SEC on February 4, 2011 by BlackRock, Inc. reporting sole power to vote or direct the vote and to dispose or direct the disposition of 818,473 shares of Financial Institutions, Inc. common stock. The address of BlackRock, Inc. is 40 East 52nd Street, New York, New York 10022. |
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(4) | Based on information set forth in a Schedule 13G filed with the SEC on February 11, 2011 by Dimensional Fund Advisors LP reporting sole power to vote or direct the vote of 549,673 shares of Financial Institutions, Inc. common stock and sole power to dispose or direct the disposition of 555,951 shares of Financial Institutions, Inc. common stock. Dimensional Fund Advisors LP, an investment adviser registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts (such investment companies, trusts and accounts, collectively referred to as the “Funds”). In certain cases, subsidiaries of Dimensional Fund Advisors LP may act as an adviser or sub-adviser to certain Funds. In its role as investment advisor, sub-adviser and/or manager, neither Dimensional Fund Advisors LP or its subsidiaries (collectively, “Dimensional”) possess voting and/or investment power over the securities of the Issuer that are owned by the Funds, and may be deemed to be the beneficial owner of our shares held by the Funds. However, all shares beneficially owned are owned by the Funds. The address of Dimensional Fund Advisors LP is Palisades West, Building One, 6300 Bee Cave Road, Austin, Texas 78746. | |
(5) | Share and percentage information obtained from NASDAQ Global Market Ownership holder position reported as of December 31, 2010 in Form 13F filings. The address of JPMorgan Chase and Co. is 1 Chase Square, Rochester, New York 14643. | |
(6) | Except as set forth in the footnotes below, each person has sole investment and voting power with respect to the common stock beneficially owned by such person. Includes only those stock options that are exercisable or become exercisable within 60 days of March 1, 2011. | |
(7) | Includes 1,000 shares held by Mr. Dambra’s spouse. | |
(8) | Includes 10,000 shares held by trusts over which, Mr. Humphrey, as trustee, exercises voting and dispositive powers, 20,400 shares owned by Mr. Humphrey’s spouse, and 54,600 shares held in trust for Mr. Humphrey’s son. | |
(9) | Includes 66,995 shares held by Mr. Wyckoff’s spouse. | |
(10) | In addition to Mr. Humphrey, who also serves as a director. |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
• | Compensation arrangements described within this document; and | ||
• | The transactions described below. |
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ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
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ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | FINANCIAL STATEMENTS | ||
Reference is made to the Index to Consolidated Financial Statements of Financial Institutions, Inc. and Subsidiaries under Item 8 “Financial Statements and Supplementary Data” in Part II of this Form 10-K. | |||
(b) | EXHIBITS | ||
The following is a list of all exhibits filed or incorporated by reference as part of this Report. |
Exhibit | ||||||
Number | Description | Location | ||||
3.1 | Amended and Restated Certificate of Incorporation of the Company | Incorporated by reference to Exhibits 3.1, 3.2 and 3.3 of the Form 10-K for the year ended December 31, 2008, dated March 12, 2009 | ||||
3.2 | Amended and Restated Bylaws of the Company | Incorporated by reference to Exhibit 3.4 of the Form 10-K for the year ended December 31, 2008, dated March 12, 2009 | ||||
4.1 | Warrant to Purchase Common Stock, dated December 23, 2008 issued by the Registrant to the United States Department of the Treasury | Incorporated by reference to Exhibit 4.2 of the Form 8-K, dated December 24, 2008 | ||||
10.1 | 1999 Management Stock Incentive Plan | Incorporated by reference to Exhibit 10.1 of the S-1 Registration Statement | ||||
10.2 | Amendment Number One to the FII 1999 Management Stock Incentive Plan | Incorporated by reference to Exhibit 10.1of the Form 8-K, dated July 28, 2006 | ||||
10.3 | Form of Non-Qualified Stock Option Agreement Pursuant to the FII 1999 Management Stock Incentive Plan | Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated July 28, 2006 | ||||
10.4 | Form of Restricted Stock Award Agreement Pursuant to the FII 1999 Management Stock Incentive Plan | Incorporated by reference to Exhibit 10.3 of the Form 8-K, dated July 28, 2006 | ||||
10.5 | Form of Restricted Stock Award Agreement Pursuant to the FII 1999 Management Stock Incentive Plan | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated January 23, 2008 | ||||
10.6 | 1999 Directors Stock Incentive Plan | Incorporated by reference to Exhibit 10.2 of the S-1 Registration Statement | ||||
10.7 | Amendment to the 1999 Director Stock Incentive Plan | Incorporated by reference to Exhibit 10.7 of the Form 10-K for the year ended December 31, 2008, dated March 12, 2009 | ||||
10.8 | 2009 Management Stock Incentive Plan | Incorporated by reference to Exhibit 10.8 of the Form 10-Q for the quarterly period ended June 30, 2009, dated August 5, 2009 | ||||
10.9 | 2009 Directors’ Stock Incentive Plan | Incorporated by reference to Exhibit 10.9 of the Form 10-Q for the quarterly period ended June 30, 2009, dated August 5, 2009 | ||||
10.10 | Form of Restricted Stock Award Agreement Pursuant to the FII 2009 Management Stock Incentive Plan | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated January 19, 2010 | ||||
10.11 | Form of Restricted Stock Award Agreement Pursuant to the FII 2009 Management Stock Incentive Plan | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated March 1, 2010 | ||||
10.12 | Form of Restricted Stock Award Agreement Pursuant to the FII 2009 Management Stock Incentive Plan | Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated March 1, 2010 |
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Exhibit | ||||||
Number | Description | Location | ||||
10.13 | Amended Stock Ownership Requirements, dated December 14, 2005 | Incorporated by reference to Exhibit 10.19 of the Form 10-K for the year ended December 31, 2005, dated March 15, 2006 | ||||
10.14 | Executive Agreement with Peter G. Humphrey | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated June 30, 2005 | ||||
10.15 | Executive Agreement with James T. Rudgers | Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated June 30, 2005 | ||||
10.16 | Executive Agreement with Ronald A. Miller | Incorporated by reference to Exhibit 10.3 of the Form 8-K, dated June 30, 2005 | ||||
10.17 | Executive Agreement with Martin K. Birmingham | Incorporated by reference to Exhibit 10.4 of the Form 8-K, dated June 30, 2005 | ||||
10.18 | Executive Agreement with John J. Witkowski | Incorporated by reference to Exhibit 10.7 of the Form 8-K, dated September 14, 2005 | ||||
10.19 | Executive Agreement with George D. Hagi | Incorporated by reference to Exhibit 10.7 of the Form 8-K, dated February 2, 2006 | ||||
10.20 | Voluntary Retirement Agreement with James T. Rudgers | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated September 26, 2008 | ||||
10.21 | Amendment to Voluntary Retirement Agreement with James T. Rudgers | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated July 1, 2009 | ||||
10.22 | Voluntary Retirement Agreement with Ronald A. Miller | Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated September 26, 2008 | ||||
10.23 | Amendment to Voluntary Retirement Agreement with Ronald A. Miller | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated March 3, 2010 | ||||
10.24 | Letter Agreement, dated December 23, 2008, including the Securities Purchase Agreement-Standard Terms attached thereto, by and between the Company and the United States Department of the Treasury | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated December 24, 2008 | ||||
11.1 | Statement of Computation of Per Share Earnings | Incorporated by reference to Note 15 of the Registrant’s audited consolidated financial statements under Item 8 filed herewith. | ||||
12 | Ratio of Earnings to Fixed Charges and Preferred Dividends | Filed Herewith | ||||
21 | Subsidiaries of Financial Institutions, Inc. | Filed Herewith | ||||
23 | Consent of Independent Registered Public Accounting Firm | Filed Herewith | ||||
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — Principal Executive Officer | Filed Herewith | ||||
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — Principal Financial Officer | Filed Herewith | ||||
32 | Certification pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed Herewith | ||||
99.1 | Certification of Chief Executive Officer pursuant to Section 111(b)(4) of the Emergency Economic Stabilization Act | Filed Herewith | ||||
99.2 | Certification of Chief Financial Officer pursuant to Section 111(b)(4) of the Emergency Economic Stabilization Act | Filed Herewith |
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FINANCIAL INSTITUTIONS, INC. | ||||
March 7, 2011 | /s/ Peter G. Humphrey | |||
Peter G. Humphrey | ||||
President & Chief Executive Officer |
Signatures | Title | Date | ||
/s/ Peter G. Humphrey | Director, President and Chief Executive Officer (Principal Executive Officer) | March 7, 2011 | ||
/s/ Karl F. Krebs | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | March 7, 2011 | ||
/s/ Karl V. Anderson, Jr. | Director | March 7, 2011 | ||
/s/ John E. Benjamin | Director, Chairman | March 7, 2011 | ||
/s/ Barton P. Dambra | Director | March 7, 2011 | ||
/s/ Samuel M. Gullo | Director | March 7, 2011 | ||
/s/ Susan R. Holliday | Director | March 7, 2011 | ||
/s/ Erland E. Kailbourne | Director | March 7, 2011 | ||
/s/ Robert N. Latella | Director | March 7, 2011 | ||
/s/ James L. Robinson | Director | March 7, 2011 | ||
/s/ James H. Wyckoff | Director | March 7, 2011 |
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