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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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PART I | ||||||||
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PART II | ||||||||
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33 | ||||||||
56 | ||||||||
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PART III | ||||||||
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PART IV | ||||||||
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Exhibit 3.1 | ||||||||
Exhibit 3.2 | ||||||||
Exhibit 3.3 | ||||||||
Exhibit 3.4 | ||||||||
Exhibit 10.7 | ||||||||
Exhibit 12 | ||||||||
Exhibit 21 | ||||||||
Exhibit 23 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
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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. |
• | the Company’s ability to successfully execute its business plans, manage its risks, and achieve its objectives; |
• | changes in political and economic conditions, including the political and economic effects of the current economic crisis and other major developments, including wars, military actions and terrorist attacks; |
• | changes in financial market conditions, either internationally, nationally or locally in areas in which the Company conducts its operations, including without limitation, reduced rates of business formation and growth, commercial and residential real estate development and real estate prices; |
• | fluctuations in markets for equity, fixed-income, commercial paper and other securities, including availability, market liquidity levels, and pricing; |
• | changes in interest rates, the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows and competition; |
• | acquisitions and integration of acquired businesses; |
• | increases in the levels of losses, customer bankruptcies, claims and assessments; |
• | changes in fiscal, monetary, regulatory, trade and tax policies and laws, including policies of the U.S. Department of Treasury and the Federal Reserve Board (“FRB”); |
• | the Company’s participation or lack of participation in governmental programs implemented under the Emergency Economic Stabilization Act (“EESA”) and the American Recovery and Reinvestment Act (“ARRA”), including without limitation the Troubled Asset Relief Program (“TARP”), the Capital Purchase Program (“CPP”), and the Temporary Liquidity Guarantee Program (“TLGP”) and the impact of such programs and related regulations on the Company and on international, national, and local economic and financial markets and conditions; |
• | the impact of the EESA and the ARRA and related rules and regulations on the business operations and competitiveness of the Company and other participating American financial institutions, including the impact of the executive compensation limits of these acts, which may impact the ability of the Company and other American financial institutions to retain and recruit executives and other personnel necessary for their businesses and competitiveness; |
• | the impact of certain provisions of the EESA and ARRA and related rules and regulations on the attractiveness of governmental programs to mitigate the effects of the current economic crisis, including the risks that certain financial institutions may elect not to participate in such programs, thereby decreasing the effectiveness of such programs; |
• | continuing consolidation in the financial services industry; |
• | new litigation or changes in existing litigation; |
• | success in gaining regulatory approvals, when required; |
• | changes in consumer spending and savings habits; |
• | increased competitive challenges and expanding product and pricing pressures among financial institutions; |
• | demand for financial services in the Company’s market areas; |
• | inflation and deflation; |
• | technological changes and the Company’s implementation of new technologies; |
• | the Company’s ability to develop and maintain secure and reliable information technology systems; |
• | legislation or regulatory changes which adversely affect the Company’s operations or business; |
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• | the Company’s ability to comply with applicable laws and regulations; |
• | changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies; |
• | increased costs of deposit insurance and changes with respect to Federal Deposit Insurance Corporation (“FDIC”) insurance coverage levels; and |
• | further declines in the market value of the Company’s publicly traded stock price or declines in the Company’s ability to generate future cash flows may increase the potential that goodwill recorded on the Company’s consolidated statement of financial position be designated as impaired and that the Company may incur a goodwill write-down in the future. |
ABS | – | Asset-Backed Security | ||
AFS | – | Available-for-Sale | ||
ALCO | – | Asset/Liability Committee | ||
ALM | – | Asset-Liability Management | ||
AML | – | Anti-Money Laundering | ||
ARM | – | Adjustable Rate Mortgage | ||
ARRA | – | American Recovery and Reinvestment Act | ||
ATM | – | Automated Teller Machine | ||
BCBS | – | Basel Committee on Banking Supervision | ||
BSA | – | Bank Secrecy Act | ||
CDO | – | Collateralized Debt Obligation | ||
CMC | – | Capital Management Committee | ||
COSO | – | Committee of Sponsoring Organizations of the Treadway Commission | ||
CPP | – | Capital Purchase Program | ||
CRA | – | Community Reinvestment Act | ||
CRE | – | Commercial Real Estate | ||
EESA | – | Emergency Economic Stabilization Act | ||
EITF | – | Emerging Issues Task Force | ||
FAMC | – | Federal Agricultural Mortgage Corporation | ||
FASB | – | Financial Accounting Standards Board | ||
FDIC | – | Federal Deposit Insurance Corporation | ||
FHLB | – | Federal Home Loan Bank | ||
FHLMC | – | Federal Home Loan Mortgage Corporation | ||
FIN | – | FASB Interpretation | ||
FNMA | – | Federal National Mortgage Association | ||
FRB | – | Federal Reserve Board | ||
FSP | – | FASB Staff Position | ||
FTE | – | Full-Time Equivalent | ||
GNMA | – | Government National Mortgage Association | ||
HTM | – | Held-to-Maturity | ||
MD&A | – | Management’s Discussion and Analysis | ||
OCI | – | Other Comprehensive Income | ||
OREO | – | Other Real Estate Owned | ||
OTC | – | Over-the-Counter | ||
OTTI | – | Other-Than-Temporary-Impairment | ||
PCAOB | – | Public Company Accounting Oversight Board | ||
SBA | – | Small Business Administration | ||
SEC | – | Securities and Exchange Commission | ||
SFAS | – | Statement of Financial Accounting Standards | ||
TARP | – | Troubled Asset Relief Program | ||
TLGP | – | Temporary Liquidity Guarantee Program | ||
VIE | – | Variable Interest Entity |
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• | To ensure consistent underwriting, all 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 nonaccruing loans; |
• | Trends in volume and terms; |
• | Collateral values; |
• | Effects of changes in lending policy; |
• | Experience, ability and depth of management; |
• | National and local economic trends and conditions; and |
• | Concentrations of credit. |
1. | Impaired commercial, commercial real estate and agricultural loans, in excess of $50 thousand are reviewed individually and assigned a specific loss allowance, if considered necessary, in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan — an amendment of FASB Statements No. 5 and 15.” |
2. | The remaining portfolios of commercial, commercial real estate and agricultural loans are segmented by risk rating into the following loan classification categories: uncriticized or pass, special mention and substandard. Uncriticized loans, special mention loans and all substandard 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, nonaccruing loans, and risk ratings; trends in volume and terms of loans; effects of changes in lending policy; experience, ability, and depth of management; national and local economic conditions; and concentrations of credit, among others. |
3. | The consumer loan portfolio is segmented into six types of loans: residential real estate, home equity loans, home equity lines of credit, consumer direct, consumer indirect, and overdrafts. Each of those categories is subdivided into categories based on delinquency status, either 90 days and over past due or under 90 days. Allowance allocations on these types of loans are based on the average loss experience over the last three years for each subdivision of delinquency status supplemented with qualitative factors containing the same elements as described above. |
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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”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Small Business Administration (“SBA”)); |
• | Mortgage-backed securities (“MBS”) include mortgage-backed pass-through securities (“pass-throughs”) and collateralized mortgage obligations (“CMO”) issued by GNMA, FNMA and FHLMC and privately issued whole loan CMOs that contain some exposure to sub-prime loans. See also the section titled “Investing Activities” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” |
• | Other asset-backed securities (“ABS”) and other privately issued investment grade quality securities; |
• | Investment grade municipal securities, including tax, revenue and bond anticipation notes and general obligation bonds; |
• | Certain creditworthy un-rated securities issued by municipalities; |
• | Investment grade corporate debt, certificates of deposit and qualified preferred equity securities issued by U.S. government-sponsored enterprises (such as FNMA or FHLMC) rated A+ or better; |
• | Equity securities at the holding company level; and |
• | Limited partnership investments in Small Business Investment Companies (“SBIC”). |
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• | Merged the Bank Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) into a new fund, the Deposit Insurance Fund (“DIF”). |
• | Increased the coverage limit for retirement accounts to $250,000. |
• | Indexed the coverage limit for deposit insurance for inflation. |
• | Establishing a range of 1.15 percent to 1.50 percent within which the FDIC may set the Designated Reserve Ratio (“DRR”). |
• | Eliminating the restrictions on premium rates based on the DRR and granting the FDIC the discretion to price deposit insurance according to risk for all insured institutions regardless of the level of the reserve ratio. |
• | Granting a one-time initial assessment credit to recognize institutions’ past contributions to the fund. |
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• | Initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal information to nonaffiliated third parties and affiliates; |
• | Annual notices of their privacy policies to current customers; and |
• | A reasonable method for customers to “opt out” of disclosures to nonaffiliated third parties. |
• | Identify and assess the risks that may threaten customer information; |
• | Develop a written plan containing policies and procedures to manage and control these risks; |
• | Implement and test the plan; and |
• | Adjust the plan on a continuing basis to account for changes in technology, the sensitivity of customer information and internal or external threats to information security. |
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Under the TARP, the Department of Treasury authorized a voluntary capital purchase program (CPP) to purchase up to $250 billion of senior preferred shares of qualifying financial institutions that elected to participate by November 14, 2008. Participating companies must adopt certain standards for executive compensation, including (a) prohibiting “golden parachute” payments as defined in EESA to senior Executive Officers; (b) requiring recovery of any compensation paid to senior Executive Officers based on criteria that is later proven to be materially inaccurate; and (c) prohibiting incentive compensation that encourages unnecessary and excessive risks that threaten the value of the financial institution. The terms of the CPP also limit certain uses of capital by the issuer, including repurchases of company stock, and increases in dividends.
EESA temporarily raised the limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. Separate from EESA, in October 2008, the FDIC also announced the TLGP. Under one component of this program, the FDIC temporarily provides unlimited coverage for noninterest bearing transaction deposit accounts through December 31, 2009. The limits are scheduled to return to $100,000 on January 1, 2010.
Section 301 of the EESA changes the tax treatment of gains or losses from the sale or exchange of FNMA or FHLMC preferred stock by an “applicable financial institution,” such as FSB, by stating that a gain or loss on Fannie Mae or Freddie Mac preferred stock shall be treated as ordinary gain or loss instead of capital gain or loss, as was previously the case. This change, which was enacted in the 2008 fourth quarter, provides tax relief to banking organizations that have suffered losses on certain direct and indirect investments in Fannie Mae and Freddie Mac preferred stock. As a result, the Company was able to recognize the tax effects of the other-than-temporary-impairment (“OTTI”) charge on its investment in auction rate preferred equity securities, which are collateralized by FNMA and FHLMC preferred stock, as an ordinary loss in the consolidated financial statements for the year ended December 31, 2008.
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• | Limits on compensation incentives for risk-taking by senior executive officers. | ||
• | Requirement of recovery of any compensation paid based on inaccurate financial information. | ||
• | Prohibition on “Golden Parachute Payments”. | ||
• | Prohibition on compensation plans that would encourage manipulation of reported earnings to enhance the compensation of employees. | ||
• | Publicly registered TARP recipients must establish a board compensation committee comprised entirely of independent directors, for the purpose of reviewing employee compensation plans. | ||
• | Prohibition on bonus, retention award, or incentive compensation, except for payments of long term restricted stock. | ||
• | Limitation on luxury expenditures. | ||
• | TARP recipients are required to permit a separate non-binding shareholder vote to approve the compensation of executives, as disclosed pursuant to the SEC’s compensation disclosure rules. | ||
• | The chief executive officer and chief financial officer of each TARP recipient will be required to provide a written certification of compliance with these standards to the SEC. |
• | Provide access to low-cost refinancing for responsible homeowners suffering from falling home prices. | ||
• | A $75 billion homeowner stability initiative to prevent foreclosure and help responsible families stay in their homes. | ||
• | Support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac. |
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Starting | ||||||||||
Name | Age | In | Positions/Offices | |||||||
Peter G. Humphrey | 54 | 1977 | President and Chief Executive Officer of FII and Five Star Bank. | |||||||
Ronald A. Miller | 60 | 1996 | Executive Vice President, Chief Financial Officer and Corporate Secretary of FII and Five Star Bank. | |||||||
James T. Rudgers | 59 | 2004 | Executive Vice President and Chief of Community Banking Officer of FII and Five Star Bank. Executive Vice President of Retail Banking at Hudson United Bank Corporation from 2002 to 2004. | |||||||
John J. Witkowski | 46 | 2005 | Senior Vice President and Regional President / Retail Banking Executive Officer of Five Star Bank. Senior Vice President and Director of Sales for Business Banking / Client Development Group at Bank of America from 1993 to 2005. | |||||||
Martin K. Birmingham | 42 | 2005 | Senior Vice President and Regional President / Commercial Banking Executive Officer of Five Star Bank. 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 | 56 | 2006 | Executive Vice President and Chief Risk Officer of FII and Five Star Bank. Senior Vice President and Director of Risk Management at First National Bankshares of Florida and FNB Corp from 1997 to 2005. | |||||||
Kevin B. Klotzbach | 56 | 2001 | Senior Vice President and Treasurer of Five Star Bank. | |||||||
Bruce H. Nagle | 60 | 2006 | Senior Vice President and Director of Human Resources of FII and Five Star Bank. Vice President of Human Resources at University of Pittsburgh Medical Center from 2000 to 2006. | |||||||
Richard J. Harrison | 63 | 2003 | Senior Vice President and Senior Retail Lending Administrator of Five Star Bank. Executive Vice President and Chief Credit Officer at Savings Bank of the Fingerlakes from 2000 to 2003. |
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• | A decrease in the demand for loans and other products and services offered by the Company; |
• | A decrease in the value of our loans held for sale or other assets secured by consumer or commercial real estate; |
• | An impairment of certain intangible assets, such as goodwill; |
• | An increase in the number of clients and counterparties who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to the Company. An increase in the number of delinquencies, bankruptcies or defaults could result in a higher level of non-performing assets, net charge-offs, provision for loan losses, and valuation adjustments on loans held for sale. |
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• | 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. |
• | Operating results that vary from the expectations of management, securities analysts and investors; |
• | Developments in the Company’s business or in the financial sector generally; |
• | Regulatory changes affecting the financial services industry generally or the Company’s business and operations; |
• | The operating and securities price performance of companies that investors consider to be comparable to the Company; |
• | Announcements of strategic developments, acquisitions and other material events by the Company or its competitors; |
• | Changes in the credit, mortgage and real estate markets, including the markets for mortgage-related securities; and |
• | Changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility. |
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Location | Type | Owned or Leased | Lease Expiration | |||
Allegany | Branch | Owned | — | |||
Amherst | Branch | Leased | February 2020 | |||
Attica | Branch | Owned | — | |||
Auburn | Branch | Owned | — | |||
Avoca | Branch | Owned | — | |||
Batavia | Branch | Leased | December 2016 | |||
Batavia (In-Store) | Branch | Leased | July 2009 | |||
Bath | Branch | Owned | — | |||
Bath | Drive-up Branch | Owned | — | |||
Caledonia | Branch | Leased | July 2012 | |||
Canandaigua | Branch | Owned | — | |||
Cuba | Branch | Owned | — | |||
Dansville | Branch | Ground Leased | March 2014 | |||
Dundee | Branch | Owned | — | |||
East Aurora | Branch | Leased | January 2013 | |||
Ellicottville | Branch | Owned | — | |||
Elmira | Branch | Owned | — | |||
Elmira Heights | Branch | Leased | August 2009 | |||
Erwin | Branch | Leased | October 2010 | |||
Geneseo | Branch | Owned | — | |||
Geneva | Branch | Owned | — | |||
Geneva | Drive-up Branch | Owned | — | |||
Greece | Branch | Leased | June 2023 | |||
Geneva (Plaza) | Branch | Ground Leased | January 2016 | |||
Hammondsport | Branch | Owned | — | |||
Henrietta | Branch | Leased | June 2023 | |||
Honeoye Falls | Branch | Leased | September 2017 | |||
Hornell | Branch | Owned | — | |||
Horseheads | Branch | Leased | September 2012 | |||
Lakeville | Branch | Owned | — | |||
Lakewood | Branch | Owned | — | |||
Leroy | Branch | Owned | — | |||
Mount Morris | Branch | Owned | — | |||
Naples | Branch | Owned | — | |||
North Chili | Branch | Owned | — | |||
North Java | Branch | Owned | — | |||
North Warsaw | Branch | Owned | — | |||
Olean | Branch | Owned | — | |||
Olean | Drive-up Branch | Owned | — | |||
Orchard Park | Branch | Ground Leased | January 2019 | |||
Ovid | Branch | Owned | — | |||
Pavilion | Branch | Owned | — | |||
Penn Yan | Branch | Owned | — | |||
Pittsford | Administrative Offices | Leased | April 2017 | |||
Salamanca | Branch | Owned | — | |||
Strykersville | Branch | Owned | — | |||
Victor | Branch | Owned | — | |||
Warsaw (220 Liberty Street) | Headquarters | Owned | — | |||
Warsaw (29 North Main Street) | Administrative Offices | Owned | — | |||
Warsaw (55 North Main Street) | Main Branch | Owned | — | |||
Waterloo | Branch | Owned | — | |||
Wayland | Branch | Owned | — | |||
Williamsville | Branch | Leased | August 2009 | |||
Wyoming | Branch | Leased | March 2009 | |||
Yorkshire | Branch | Ground Leased | November 2012 |
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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 | ||||||||||
Plan Category | warrants and rights | and rights | reflected in column (a)) | |||||||||
Equity compensation plans approved by shareholders | 582,885 | $ | 19.14 | 763,378 | ||||||||
Equity compensation plans not approved by shareholders | — | $ | — | — |
Total number | Approximate | |||||||||||||||
of shares | dollar value | |||||||||||||||
purchased as | of shares that | |||||||||||||||
Total number | Average | part of publicly | may yet be | |||||||||||||
of shares | price paid | announced | purchased | |||||||||||||
Period | purchased | per share | repurchase plans | under the plans | ||||||||||||
10/01/08 – 10/31/08 | 8,444 | $ | 14.60 | 8,444 | $ | 2,661,113 | ||||||||||
11/01/08 – 11/30/08 | — | — | — | 2,661,113 | ||||||||||||
12/01/08 – 12/31/08 | — | — | — | — | (1) | |||||||||||
Total | 8,444 | $ | 14.60 | 8,444 | $ | — | ||||||||||
(1) | The $5 million stock repurchase plan approved by the Company’s Board of Directors during the second quarter of 2008 was terminated in December 2008 and future stock repurchase plans are limited as a result of the Company’s participation in the CPP. |
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Period Ending | ||||||||||||||||||||||||
Index | 12/31/03 | 12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | ||||||||||||||||||
Financial Institutions, Inc. | 100.00 | 84.68 | 72.97 | 87.10 | 68.96 | 57.35 | ||||||||||||||||||
NASDAQ Composite | 100.00 | 108.59 | 110.08 | 120.56 | 132.39 | 78.72 | ||||||||||||||||||
SNL Bank $1B-$5B | 100.00 | 123.42 | 121.31 | 140.38 | 102.26 | 84.81 |
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At or for the year ended December 31, | ||||||||||||||||||||
(Dollars in thousands, except per share data) | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||
Selected financial condition data: | ||||||||||||||||||||
Total assets | $ | 1,916,919 | $ | 1,857,876 | $ | 1,907,552 | $ | 2,022,392 | $ | 2,156,329 | ||||||||||
Loans, net | 1,102,330 | 948,652 | 909,434 | 972,090 | 1,213,219 | |||||||||||||||
Investment securities | 606,038 | 754,720 | 775,536 | 833,448 | 766,515 | |||||||||||||||
Deposits | 1,633,263 | 1,575,971 | 1,617,695 | 1,717,261 | 1,818,949 | |||||||||||||||
Borrowings | 70,820 | 68,210 | 87,199 | 115,199 | 132,614 | |||||||||||||||
Shareholders’ equity | 190,300 | 195,322 | 182,388 | 171,757 | 184,287 | |||||||||||||||
Common shareholders’ equity(1) | 137,226 | 177,741 | 164,765 | 154,123 | 166,565 | |||||||||||||||
Tangible common shareholders’ equity(2) | 99,577 | 139,786 | 126,502 | 115,440 | 127,452 | |||||||||||||||
Selected operations data: | ||||||||||||||||||||
Interest income | $ | 98,948 | $ | 105,212 | $ | 103,070 | $ | 103,887 | $ | 106,175 | ||||||||||
Interest expense | 33,617 | 47,139 | 43,604 | 36,395 | 30,768 | |||||||||||||||
Net interest income | 65,331 | 58,073 | 59,466 | 67,492 | 75,407 | |||||||||||||||
Provision (credit) for loan losses | 6,551 | 116 | (1,842 | ) | 28,532 | 19,676 | ||||||||||||||
Net interest income after provision (credit) for loan losses | 58,780 | 57,957 | 61,308 | 38,960 | 55,731 | |||||||||||||||
Noninterest (loss) income(3) | (48,778 | ) | 20,680 | 21,911 | 29,384 | 22,149 | ||||||||||||||
Noninterest expense | 57,461 | 57,428 | 59,612 | 65,492 | 61,767 | |||||||||||||||
(Loss) income from continuing operations before income taxes | (47,459 | ) | 21,209 | 23,607 | 2,852 | 16,113 | ||||||||||||||
Income tax (benefit) expense from continuing operations | (21,301 | ) | 4,800 | 6,245 | (1,766 | ) | 3,170 | |||||||||||||
(Loss) Income from continuing operations | (26,158 | ) | 16,409 | 17,362 | 4,618 | 12,943 | ||||||||||||||
Loss on discontinued operations, net of tax | — | — | — | 2,452 | 450 | |||||||||||||||
Net (loss) income | $ | (26,158 | ) | $ | 16,409 | $ | 17,362 | $ | 2,166 | $ | 12,493 | |||||||||
Preferred stock dividends and accretion | 1,538 | 1,483 | 1,486 | 1,488 | 1,495 | |||||||||||||||
Net (loss) income applicable to common shareholders | $ | (27,696 | ) | $ | 14,926 | $ | 15,876 | $ | 678 | $ | 10,998 | |||||||||
Stock and related per share data: | ||||||||||||||||||||
(Loss) earnings from continuing operations per common share: | ||||||||||||||||||||
Basic | $ | (2.56 | ) | $ | 1.34 | $ | 1.40 | $ | 0.28 | $ | 1.02 | |||||||||
Diluted | (2.56 | ) | 1.33 | 1.40 | 0.28 | 1.02 | ||||||||||||||
(Loss) earnings per common share: | ||||||||||||||||||||
Basic | (2.56 | ) | 1.34 | 1.40 | 0.06 | 0.98 | ||||||||||||||
Diluted | (2.56 | ) | 1.33 | 1.40 | 0.06 | 0.98 | ||||||||||||||
Cash dividends declared on common stock | 0.54 | 0.46 | 0.34 | 0.40 | 0.64 | |||||||||||||||
Common book value per share(1) | 12.71 | 16.14 | 14.53 | 13.60 | 14.81 | |||||||||||||||
Tangible common book value per share(2) | 9.22 | 12.69 | 11.15 | 10.19 | 11.31 | |||||||||||||||
Market price (NASDAQ: FISI): | ||||||||||||||||||||
High | 22.50 | 23.71 | 25.38 | 24.93 | 29.03 | |||||||||||||||
Low | 10.06 | 16.18 | 17.43 | 15.52 | 20.52 | |||||||||||||||
Close | 14.35 | 17.82 | 23.05 | 19.62 | 23.25 |
(1) | Excludes preferred shareholders’ equity. | |
(2) | Excludes preferred shareholders’ equity, goodwill and other intangible assets. | |
(3) | The 2008 figure includes OTTI charges of $68.2 million. 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) | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||
Selected financial ratios and other data: | ||||||||||||||||||||
Performance ratios: | ||||||||||||||||||||
Net (loss) income (returns on): | ||||||||||||||||||||
Average assets | -1.37 | % | 0.86 | % | 0.90 | % | 0.10 | % | 0.57 | % | ||||||||||
Average equity | -14.30 | 8.84 | 9.86 | 1.22 | 6.73 | |||||||||||||||
Average common equity(1) | -16.84 | 8.89 | 10.02 | 0.43 | 6.55 | |||||||||||||||
Average tangible common equity(2) | -21.87 | 11.50 | 13.23 | 0.56 | 8.57 | |||||||||||||||
Common dividend payout ratio(3) | NA | 34.33 | 24.29 | 666.67 | 65.31 | |||||||||||||||
Net interest margin (fully tax-equivalent) | 3.93 | 3.53 | 3.55 | 3.65 | 3.90 | |||||||||||||||
Efficiency ratio(4) | 64.07 | % | 68.77 | % | 69.78 | % | 70.18 | % | 60.41 | % | ||||||||||
Capital ratios: | ||||||||||||||||||||
Leverage ratio | 8.05 | % | 9.35 | % | 8.91 | % | 7.60 | % | 7.13 | % | ||||||||||
Tier 1 risk-based capital | 11.83 | 15.74 | 15.85 | 13.75 | 11.27 | |||||||||||||||
Total risk-based capital | 13.08 | 16.99 | 17.10 | 15.01 | 12.54 | |||||||||||||||
Equity to assets(5) | 9.60 | 9.73 | 9.08 | 8.37 | 8.48 | |||||||||||||||
Common equity to assets(1) (5) | 8.63 | 8.81 | 8.17 | 7.54 | 7.67 | |||||||||||||||
Tangible common equity to tangible assets(2)(5) | 6.78 | % | 6.95 | % | 6.32 | % | 5.80 | % | 5.97 | % | ||||||||||
Asset quality(6): | ||||||||||||||||||||
Non-accruing loans | $ | 8,189 | $ | 8,075 | $ | 15,837 | $ | 17,761 | $ | 51,946 | ||||||||||
Other non-performing assets | 56 | 2 | 3 | 276 | 2,018 | |||||||||||||||
Allowance for loan losses | 18,749 | 15,521 | 17,048 | 20,231 | 39,186 | |||||||||||||||
Net loan charge-offs | $ | 3,323 | $ | 1,643 | $ | 1,341 | $ | 47,487 | $ | 9,554 | ||||||||||
Total non-performing loans to total loans | 0.73 | % | 0.84 | % | 1.71 | % | 1.82 | % | 4.31 | % | ||||||||||
Total non-performing assets to total assets | 0.48 | 0.51 | 0.89 | 0.97 | 2.56 | |||||||||||||||
Net charge-offs to average loans | 0.32 | 0.18 | 0.14 | 4.27 | 0.74 | |||||||||||||||
Allowance for loan losses to total loans | 1.67 | 1.61 | 1.84 | 2.04 | 3.13 | |||||||||||||||
Allowance for loan losses to non-performing loans | 229 | % | 192 | % | 108 | % | 112 | % | 73 | % | ||||||||||
Other data: | ||||||||||||||||||||
Number of branches | 52 | 50 | 50 | 50 | 50 | |||||||||||||||
Full time equivalent employees | 600 | 621 | 640 | 700 | 765 |
(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 the Company 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 sales of commercial-related loans held for sale and trust relationships (all from continuing operations). | |
(5) | Ratios calculated using average balances for the periods shown. | |
(6) | Ratios exclude non-accruing commercial-related loans held for sale ($577 thousand for 2005 and zero for all other years presented) from non-performing loans and exclude loans held for sale from total loans. |
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2008 | ||||||||||||||||
Fourth | Third | Second | First | |||||||||||||
(Dollars in thousands, except per share data) | Quarter | Quarter | Quarter | Quarter | ||||||||||||
Interest income | $ | 24,582 | $ | 24,558 | $ | 24,536 | $ | 25,272 | ||||||||
Interest expense | 7,269 | 7,812 | 8,349 | 10,187 | ||||||||||||
Net interest income | 17,313 | 16,746 | 16,187 | 15,085 | ||||||||||||
Provision for loan losses | 2,586 | 1,891 | 1,358 | 716 | ||||||||||||
Net interest income, after provision for loan losses | 14,727 | 14,855 | 14,829 | 14,369 | ||||||||||||
Noninterest (loss) income | (25,106 | ) | (29,348 | ) | 932 | 4,744 | ||||||||||
Noninterest expense | 15,394 | 13,409 | 14,385 | 14,273 | ||||||||||||
(Loss) income before income taxes | (25,773 | ) | (27,902 | ) | 1,376 | 4,840 | ||||||||||
Income tax (benefit) expense | (22,631 | ) | 524 | (255 | ) | 1,061 | ||||||||||
Net (loss) income | $ | (3,142 | ) | $ | (28,426 | ) | $ | 1,631 | $ | 3,779 | ||||||
Preferred stock dividends | 426 | 371 | 370 | 371 | ||||||||||||
Net (loss) income applicable to common shareholders | $ | (3,568 | ) | $ | (28,797 | ) | $ | 1,261 | $ | 3,408 | ||||||
(loss) earnings per common share(1): | ||||||||||||||||
Basic | $ | (0.33 | ) | $ | (2.68 | ) | $ | 0.12 | $ | 0.31 | ||||||
Diluted | (0.33 | ) | (2.68 | ) | 0.12 | 0.31 | ||||||||||
Market price (NASDAQ: FISI): | ||||||||||||||||
High | $ | 20.27 | $ | 22.50 | $ | 20.00 | $ | 20.78 | ||||||||
Low | 10.06 | 14.82 | 15.25 | 15.10 | ||||||||||||
Close | 14.35 | 20.01 | 16.06 | 18.95 | ||||||||||||
Dividends declared | $ | 0.10 | $ | 0.15 | $ | 0.15 | $ | 0.14 |
2007 | ||||||||||||||||
Fourth | Third | Second | First | |||||||||||||
(Dollars in thousands, except per share data) | Quarter | Quarter | Quarter | Quarter | ||||||||||||
Interest income | $ | 26,397 | $ | 26,553 | $ | 26,458 | $ | 25,806 | ||||||||
Interest expense | 11,192 | 11,692 | 12,406 | 11,850 | ||||||||||||
Net interest income | 15,205 | 14,861 | 14,052 | 13,956 | ||||||||||||
Provision (credit) for loan losses | 351 | (82 | ) | (153 | ) | — | ||||||||||
Net interest income, after provision (credit) for loan losses | 14,854 | 14,943 | 14,205 | 13,956 | ||||||||||||
Noninterest income | 5,002 | 6,334 | 4,606 | 4,738 | ||||||||||||
Noninterest expense | 14,543 | 14,609 | 14,348 | 13,928 | ||||||||||||
Income before income taxes | 5,313 | 6,668 | 4,463 | 4,766 | ||||||||||||
Income tax expense | 1,215 | 1,414 | 1,020 | 1,151 | ||||||||||||
Net income | $ | 4,098 | $ | 5,254 | $ | 3,443 | $ | 3,615 | ||||||||
Preferred stock dividends | 370 | 371 | 371 | 371 | ||||||||||||
Net income applicable to common shareholders | $ | 3,728 | $ | 4,883 | $ | 3,072 | $ | 3,244 | ||||||||
Earnings per common share(1): | ||||||||||||||||
Basic | $ | 0.34 | $ | 0.44 | $ | 0.27 | $ | 0.29 | ||||||||
Diluted | 0.34 | 0.44 | 0.27 | 0.29 | ||||||||||||
Market price (NASDAQ: FISI): | ||||||||||||||||
High | $ | 19.80 | $ | 20.46 | $ | 20.62 | $ | 23.71 | ||||||||
Low | 16.42 | 16.18 | 18.62 | 19.30 | ||||||||||||
Close | 17.82 | 17.94 | 20.19 | 20.07 | ||||||||||||
Dividends declared | $ | 0.13 | $ | 0.12 | $ | 0.11 | $ | 0.10 |
(1) | (Loss) 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, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
Adjusted | ||||||||||||||||||||||||
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 | $ | 67,871 | $ | 68,173 | $ | 158,920 | $ | 158,940 | $ | 235,863 | $ | 231,936 | ||||||||||||
Mortgage-backed securities: | 339,574 | 342,552 | 297,798 | 295,872 | 304,833 | 296,738 | ||||||||||||||||||
Other asset-backed securities | 3,918 | 3,918 | 34,115 | 33,198 | 7,082 | 7,077 | ||||||||||||||||||
State and municipal obligations | 129,572 | 131,711 | 171,294 | 172,601 | 198,428 | 198,310 | ||||||||||||||||||
Equity securities | 923 | 1,152 | 33,930 | 34,630 | 80 | 1,087 | ||||||||||||||||||
Total available for sale securities | 541,858 | 547,506 | 696,057 | 695,241 | 746,286 | 735,148 | ||||||||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||
State and municipal obligations Total held to maturity securities | 58,532 | 59,147 | 59,479 | 59,902 | 40,388 | 40,421 | ||||||||||||||||||
Total investment securities | $ | 600,390 | $ | 606,653 | $ | 755,536 | $ | 755,143 | $ | 786,674 | $ | 775,569 | ||||||||||||
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Moody’s | S&P | Fitch | Fair | |||||||
Number of Securities | Rating | Rating | Rating | Value | ||||||
Five(1) | Aaa | AAA | — | $ | 11,408 | |||||
Two | Aaa | — | AAA | 6,240 | ||||||
Four | — | AAA | AAA | 6,261 | ||||||
One | — | — | AAA | 5,651 | ||||||
Two(2) | Aa1 | AAA | AAA | 4,698 | ||||||
One | Baa3 | — | AAA | 2,467 | ||||||
One | — | BB | AAA | 1,518 | ||||||
Total whole loan CMOs with prime and Alt-A collateral (at least 90% prime collateral) | 38,243 | |||||||||
One(3) | A3 | AAA | — | 426 | ||||||
One | — | BBB- | AAA | 657 | ||||||
One | A3 | BB | — | 124 | ||||||
Total whole loan CMOs with a high level of sub-prime collateral (more than 35% sub-prime collateral) | 1,207 | |||||||||
Total privately issued whole loan CMOs | $ | 39,450 | ||||||||
In February 2009, the Moody’s credit ratings on certain securities have been changed as follows: | ||
(1) | One $5.6 million security was changed to Baa3 and one $2.0 million security was changed to Caa. | |
(2) | One $1.3 million security was changed to Ba1 and one $ 3.4 million security was changed to Ca. | |
(3) | This security was changed to Ca. |
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Trust Preferred | SLMA | Total ABS | ||||||||||||||||||||||
Adjusted | Adjusted | Adjusted | ||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||
Balance December 31, 2007 | $ | 33,307 | $ | 32,390 | $ | 808 | $ | 808 | $ | 34,115 | $ | 33,198 | ||||||||||||
Net change to cost basis before OTTI | (106 | ) | (662 | ) | (768 | ) | ||||||||||||||||||
OTTI non-cash charge | (29,429 | ) | — | (29,429 | ) | |||||||||||||||||||
Balance December 31, 2008 | $ | 3,772 | $ | 3,772 | $ | 146 | $ | 146 | $ | 3,918 | $ | 3,918 | ||||||||||||
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Loan Portfolio Composition | ||||||||||||||||||||||||||||||||||||||||
At December 31, | ||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||
Commercial | $ | 158,543 | 14.1 | % | $ | 136,780 | 14.2 | % | $ | 105,806 | 11.4 | % | $ | 116,444 | 11.7 | % | $ | 203,178 | 16.2 | % | ||||||||||||||||||||
Commercial real estate | 262,234 | 23.4 | 245,797 | 25.5 | 243,966 | 26.4 | 264,727 | 26.7 | 343,532 | 27.4 | ||||||||||||||||||||||||||||||
Agricultural | 44,706 | 4.0 | 47,367 | 4.9 | 56,808 | 6.1 | 75,018 | 7.5 | 195,185 | 15.6 | ||||||||||||||||||||||||||||||
Residential real estate | 177,683 | 15.8 | 166,863 | 17.3 | 163,243 | 17.6 | 168,498 | 17.0 | 178,282 | 14.2 | ||||||||||||||||||||||||||||||
Consumer indirect | 255,054 | 22.8 | 134,977 | 14.0 | 106,443 | 11.5 | 85,237 | 8.6 | 67,993 | 5.5 | ||||||||||||||||||||||||||||||
Consumer direct and home equity | 222,859 | 19.9 | 232,389 | 24.1 | 250,216 | 27.0 | 282,397 | 28.5 | 264,235 | 21.1 | ||||||||||||||||||||||||||||||
Total loans | 1,121,079 | 100.0 | % | 964,173 | 100.0 | % | 926,482 | 100.0 | % | 992,321 | 100.0 | % | 1,252,405 | 100.0 | % | |||||||||||||||||||||||||
Allowance for loan losses | (18,749 | ) | (15,521 | ) | (17,048 | ) | (20,231 | ) | (39,186 | ) | ||||||||||||||||||||||||||||||
Total loans, net | $ | 1,102,330 | $ | 948,652 | $ | 909,434 | $ | 972,090 | $ | 1,213,219 | ||||||||||||||||||||||||||||||
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Delinquent and Non-performing Assets | ||||||||||||||||||||
At December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Non-accruing loans: | ||||||||||||||||||||
Commercial | $ | 510 | $ | 827 | $ | 2,205 | $ | 4,389 | $ | 20,576 | ||||||||||
Commercial real estate | 2,360 | 2,825 | 4,661 | 6,985 | 15,954 | |||||||||||||||
Agricultural | 310 | 481 | 4,836 | 2,786 | 13,165 | |||||||||||||||
Residential real estate | 3,365 | 2,987 | 3,127 | 2,615 | 1,473 | |||||||||||||||
Consumer indirect | 445 | 278 | 166 | 63 | 74 | |||||||||||||||
Consumer direct and home equity | 1,199 | 677 | 842 | 923 | 704 | |||||||||||||||
Total non-accruing loans | 8,189 | 8,075 | 15,837 | 17,761 | 51,946 | |||||||||||||||
Restructured loans | — | — | — | — | — | |||||||||||||||
Accruing loans contractually past due over 90 days | 7 | 2 | 3 | 276 | 2,018 | |||||||||||||||
Total non-performing loans | 8,196 | 8,077 | 15,840 | 18,037 | 53,964 | |||||||||||||||
Foreclosed assets | 1,007 | 1,421 | 1,203 | 1,099 | 1,196 | |||||||||||||||
Non-accruing commercial-related loans held for sale | — | — | — | 577 | — | |||||||||||||||
Non-performing investment securities | 49 | — | — | — | — | |||||||||||||||
Total non-performing assets | $ | 9,252 | $ | 9,498 | $ | 17,043 | $ | 19,713 | $ | 55,160 | ||||||||||
Non-performing loans to total loans | 0.73 | % | 0.84 | % | 1.71 | % | 1.82 | % | 4.31 | % | ||||||||||
Non-performing assets to total assets | 0.48 | % | 0.51 | % | 0.89 | % | 0.97 | % | 2.56 | % |
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Loan Loss Analysis | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Allowance for loan losses, beginning of year | $ | 15,521 | $ | 17,048 | $ | 20,231 | $ | 39,186 | $ | 29,064 | ||||||||||
Charge-offs(1): | ||||||||||||||||||||
Commercial | 675 | 562 | 1,195 | 12,980 | 4,486 | |||||||||||||||
Commercial real estate | 1,190 | 439 | 501 | 15,397 | 1,779 | |||||||||||||||
Agricultural | 47 | 56 | 379 | 18,543 | 2,519 | |||||||||||||||
Residential real estate | 320 | 319 | 278 | 56 | 227 | |||||||||||||||
Consumer indirect | 2,011 | 988 | 532 | 775 | 759 | |||||||||||||||
Consumer direct and home equity | 1,216 | 1,531 | 1,314 | 1,535 | 1,027 | |||||||||||||||
Total charge-offs | 5,459 | 3,895 | 4,199 | 49,286 | 10,797 | |||||||||||||||
Recoveries: | ||||||||||||||||||||
Commercial | 664 | 972 | 1,417 | 864 | 598 | |||||||||||||||
Commercial real estate | 280 | 216 | 132 | 280 | 103 | |||||||||||||||
Agricultural | 55 | 168 | 389 | 57 | 39 | |||||||||||||||
Residential real estate | 26 | 50 | 71 | 5 | 43 | |||||||||||||||
Consumer indirect | 548 | 235 | 224 | 261 | 212 | |||||||||||||||
Consumer direct and home equity | 563 | 611 | 625 | 332 | 248 | |||||||||||||||
Total recoveries | 2,136 | 2,252 | 2,858 | 1,799 | 1,243 | |||||||||||||||
Net charge-offs | 3,323 | 1,643 | 1,341 | 47,487 | 9,554 | |||||||||||||||
Provision (credit) for loan losses | 6,551 | 116 | (1,842 | ) | 28,532 | 19,676 | ||||||||||||||
Allowance for loan losses, end of year | $ | 18,749 | $ | 15,521 | $ | 17,048 | $ | 20,231 | $ | 39,186 | ||||||||||
Net charge-offs to average loans | 0.32 | % | 0.18 | % | 0.14 | % | 4.27 | % | 0.74 | % | ||||||||||
Allowance to end of period loans | 1.67 | % | 1.61 | % | 1.84 | % | 2.04 | % | 3.13 | % | ||||||||||
Allowance to end of period non-performing loans | 229 | % | 192 | % | 108 | % | 112 | % | 73 | % |
(1) | During 2005 the Company transferred $169.0 million in commercial-related loans to held for sale, at an estimated fair value less costs to sell of $132.3 million, resulting in $36.7 million in commercial-related charge-offs. In the second half of 2005, the Company realized a net gain of $9.4 million on the ultimate sale or settlement of commercial-related loans held for sale. |
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Allowance for Loan Losses | ||||||||||||||||||||||||||||||||||||||||
At December 31, | ||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||||||||||||||||
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 | $ | 2,871 | 14.1 | % | $ | 1,878 | 14.2 | % | $ | 2,443 | 11.4 | % | $ | 4,098 | 11.7 | % | $ | 11,420 | 16.2 | % | ||||||||||||||||||||
Commercial real estate | 4,052 | 23.4 | 3,751 | 25.5 | 4,458 | 26.4 | 6,564 | 26.7 | 9,297 | 27.4 | ||||||||||||||||||||||||||||||
Agricultural | 1,012 | 4.0 | 1,516 | 4.9 | 1,887 | 6.1 | 2,187 | 7.5 | 8,197 | 15.6 | ||||||||||||||||||||||||||||||
Residential real estate | 2,516 | 15.8 | 1,763 | 17.3 | 1,748 | 17.6 | 1,252 | 17.0 | 910 | 14.2 | ||||||||||||||||||||||||||||||
Consumer indirect | 5,152 | 22.8 | 2,284 | 14.0 | 1,749 | 11.5 | 1,032 | 8.6 | 666 | 5.5 | ||||||||||||||||||||||||||||||
Consumer direct and home equity | 3,146 | 19.9 | 2,667 | 24.1 | 2,833 | 27.0 | 2,504 | 28.5 | 2,014 | 21.1 | ||||||||||||||||||||||||||||||
Unallocated | — | — | 1,662 | — | 1,930 | — | 2,594 | — | 6,682 | — | ||||||||||||||||||||||||||||||
Total | $ | 18,749 | 100.0 | % | $ | 15,521 | 100.0 | % | $ | 17,048 | 100.0 | % | $ | 20,231 | 100.0 | % | $ | 39,186 | 100.0 | % | ||||||||||||||||||||
At December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||
Noninterest-bearing demand | $ | 292,586 | 17.9 | % | $ | 286,362 | 18.2 | % | $ | 273,783 | 16.9 | % | ||||||||||||
Interest-bearing demand | 344,616 | 21.1 | 335,314 | 21.3 | 352,661 | 21.8 | ||||||||||||||||||
Savings and money market | 348,594 | 21.3 | 346,639 | 22.0 | 321,563 | 19.9 | ||||||||||||||||||
Certificates of deposit < $100,000 | 482,863 | 29.6 | 453,140 | 28.7 | 474,321 | 29.3 | ||||||||||||||||||
Certificates of deposit of $100,000 or more | 164,604 | 10.1 | 154,516 | 9.8 | 195,367 | 12.1 | ||||||||||||||||||
$ | 1,633,263 | 100.0 | % | $ | 1,575,971 | 100.0 | % | $ | 1,617,695 | 100.0 | % | |||||||||||||
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At or for the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Year-end balance | $ | 23,465 | $ | 25,643 | $ | 32,310 | ||||||
Year-end weighted average interest rate | 0.48 | % | 2.71 | % | 2.15 | % | ||||||
Maximum outstanding at any month-end | $ | 56,861 | $ | 44,944 | $ | 32,353 | ||||||
Average balance during the year: | $ | 38,028 | $ | 29,048 | $ | 26,157 | ||||||
Average interest rate for the year: | 1.90 | % | 2.97 | % | 2.18 | % |
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Years ended December 31, | ||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||
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 | $ | 26,568 | $ | 619 | 2.33 | % | $ | 31,756 | $ | 1,662 | 5.23 | % | $ | 44,857 | $ | 2,288 | 5.10 | % | ||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||||||||||||||
Taxable | 487,687 | 21,882 | 4.49 | 557,035 | 25,414 | 4.56 | 559,864 | 23,859 | 4.26 | |||||||||||||||||||||||||||
Tax-exempt | 208,519 | 11,059 | 5.30 | 234,078 | 12,880 | 5.50 | 251,439 | 13,663 | 5.43 | |||||||||||||||||||||||||||
Tax-preferred | 25,345 | 2,006 | 7.91 | 20,005 | 1,463 | 7.31 | 81 | 52 | 63.67 | |||||||||||||||||||||||||||
Total investment securities | 721,551 | 34,947 | 4.84 | 811,118 | 39,757 | 4.90 | 811,384 | 37,574 | 4.63 | |||||||||||||||||||||||||||
Loans held for sale | 821 | 51 | 6.23 | 770 | 54 | 6.99 | 698 | 42 | 5.95 | |||||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||
Commercial | 149,927 | 9,141 | 6.10 | 119,823 | 9,728 | 8.12 | 111,118 | 8,910 | 8.02 | |||||||||||||||||||||||||||
Commercial real estate | 247,475 | 17,086 | 6.90 | 244,357 | 18,230 | 7.46 | 249,899 | 18,455 | 7.39 | |||||||||||||||||||||||||||
Agricultural | 45,035 | 3,126 | 6.94 | 53,356 | 4,351 | 8.16 | 64,658 | 5,189 | 8.02 | |||||||||||||||||||||||||||
Residential real estate | 171,262 | 10,710 | 6.25 | 165,226 | 10,815 | 6.55 | 164,730 | 10,676 | 6.48 | |||||||||||||||||||||||||||
Consumer indirect | 185,197 | 13,098 | 7.07 | 118,152 | 8,067 | 6.83 | 96,260 | 6,063 | 6.30 | |||||||||||||||||||||||||||
Consumer direct and home equity | 224,343 | 14,462 | 6.45 | 236,910 | 17,315 | 7.31 | 265,817 | 18,669 | 7.02 | |||||||||||||||||||||||||||
Total loans | 1,023,239 | 67,623 | 6.61 | 937,824 | 68,506 | 7.30 | 952,482 | 67,962 | 7.14 | |||||||||||||||||||||||||||
Total interest-earning assets | 1,772,179 | 103,240 | 5.83 | 1,781,468 | 109,979 | 6.17 | 1,809,421 | 107,866 | 5.96 | |||||||||||||||||||||||||||
Less: Allowance for loan losses | 16,287 | 16,587 | 19,338 | |||||||||||||||||||||||||||||||||
Other noninterest-earning assets | 149,453 | 142,156 | 148,937 | |||||||||||||||||||||||||||||||||
Total assets | $ | 1,905,345 | $ | 1,907,037 | $ | 1,939,020 | ||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||||||||||||||
Interest-bearing demand | $ | 347,702 | 3,246 | 0.93 | $ | 338,326 | 5,760 | 1.70 | $ | 379,434 | 6,705 | 1.77 | ||||||||||||||||||||||||
Savings and money market | 369,926 | 3,773 | 1.02 | 346,131 | 5,863 | 1.69 | 333,155 | 4,320 | 1.30 | |||||||||||||||||||||||||||
Certificates of deposit | 617,381 | 22,330 | 3.62 | 672,239 | 31,091 | 4.63 | 664,358 | 26,420 | 3.98 | |||||||||||||||||||||||||||
Total interest-bearing deposits | 1,335,009 | 29,349 | 2.20 | 1,356,696 | 42,714 | 3.15 | 1,376,947 | 37,445 | 2.72 | |||||||||||||||||||||||||||
Short-term borrowings | 38,028 | 721 | 1.90 | 29,048 | 864 | 2.97 | 26,157 | 571 | 2.18 | |||||||||||||||||||||||||||
Long-term borrowings | 53,687 | 3,547 | 6.61 | 51,561 | 3,561 | 6.91 | 83,725 | 5,588 | 6.67 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,426,724 | 33,617 | 2.36 | 1,437,305 | 47,139 | 3.28 | 1,486,829 | 43,604 | 2.93 | |||||||||||||||||||||||||||
Noninterest-bearing deposits | 280,467 | 266,239 | 258,416 | |||||||||||||||||||||||||||||||||
Other liabilities | 15,249 | 17,966 | 17,638 | |||||||||||||||||||||||||||||||||
Shareholders’ equity | 182,905 | 185,527 | 176,137 | |||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,905,345 | $ | 1,907,037 | $ | 1,939,020 | ||||||||||||||||||||||||||||||
Net interest income (tax-equivalent) | $ | 69,623 | $ | 62,840 | $ | 64,262 | ||||||||||||||||||||||||||||||
Interest rate spread | 3.47 | % | 2.89 | % | 3.03 | % | ||||||||||||||||||||||||||||||
Net earning assets | $ | 345,455 | $ | 344,163 | $ | 322,592 | ||||||||||||||||||||||||||||||
Net interest margin (tax-equivalent) | 3.93 | % | 3.53 | % | 3.55 | % | ||||||||||||||||||||||||||||||
Ratio of average interest-earning assets To average interest-bearing liabilities | 124.21 | % | 123.95 | % | 121.70 | % | ||||||||||||||||||||||||||||||
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December 31, 2008 vs. 2007 | December 31, 2007 vs. 2006 | |||||||||||||||||||||||
Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||||||||
Due to Change in | Total Net | Due to Change in | Total Net | |||||||||||||||||||||
Average | Average | Increase | Average | Average | Increase | |||||||||||||||||||
Volume | Rate | (Decrease) | Volume | Rate | (Decrease) | |||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Federal funds sold and other interest-earning deposits | $ | (238 | ) | $ | (805 | ) | $ | (1,043 | ) | $ | (685 | ) | $ | 59 | $ | (626 | ) | |||||||
Investment securities: | ||||||||||||||||||||||||
Taxable | (3,118 | ) | (414 | ) | (3,532 | ) | (122 | ) | 1,677 | 1,555 | ||||||||||||||
Tax-exempt | (1,368 | ) | (453 | ) | (1,821 | ) | (953 | ) | 170 | (783 | ) | |||||||||||||
Tax-preferred | 415 | 128 | 543 | 1,498 | (87 | ) | 1,411 | |||||||||||||||||
Total investment securities | (4,810 | ) | 2,183 | |||||||||||||||||||||
Loans held for sale | 4 | (7 | ) | (3 | ) | 4 | 8 | 12 | ||||||||||||||||
Loans: | ||||||||||||||||||||||||
Commercial | 2,138 | (2,725 | ) | (587 | ) | 706 | 112 | 818 | ||||||||||||||||
Commercial real estate | 230 | (1,374 | ) | (1,144 | ) | (412 | ) | 187 | (225 | ) | ||||||||||||||
Agricultural | (627 | ) | (598 | ) | (1,225 | ) | (921 | ) | 83 | (838 | ) | |||||||||||||
Residential real estate | 387 | (492 | ) | (105 | ) | 32 | 107 | 139 | ||||||||||||||||
Consumer indirect | 4,732 | 299 | 5,031 | 1,464 | 540 | 2,004 | ||||||||||||||||||
Consumer direct and home equity | (885 | ) | (1,968 | ) | (2,853 | ) | (2,090 | ) | 736 | (1,354 | ) | |||||||||||||
Total loans | (883 | ) | 544 | |||||||||||||||||||||
Total interest-earning assets | (6,739 | ) | 2,113 | |||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Interest-bearing demand | 156 | (2,670 | ) | (2,514 | ) | (707 | ) | (238 | ) | (945 | ) | |||||||||||||
Savings and money market | 379 | (2,469 | ) | (2,090 | ) | 174 | 1,369 | 1,543 | ||||||||||||||||
Certificates of deposit | (2,386 | ) | (6,375 | ) | (8,761 | ) | 316 | 4,355 | 4,671 | |||||||||||||||
Total interest-bearing deposits | (13,365 | ) | 5,269 | |||||||||||||||||||||
Short-term borrowings | 222 | (365 | ) | (143 | ) | 68 | 225 | 293 | ||||||||||||||||
Long-term borrowings | 144 | (158 | ) | (14 | ) | (2,215 | ) | 188 | (2,027 | ) | ||||||||||||||
Total interest-bearing liabilities | (13,522 | ) | 3,535 | |||||||||||||||||||||
Change in net interest income | 6,783 | (1,422 | ) | |||||||||||||||||||||
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2008 | 2007 | 2006 | ||||||||||
Service charges on deposits | $ | 10,497 | $ | 10,932 | $ | 11,504 | ||||||
ATM and debit card | 3,313 | 2,883 | 2,233 | |||||||||
Broker-dealer fees and commissions | 1,458 | 1,396 | 1,511 | |||||||||
Loan servicing | 664 | 928 | 892 | |||||||||
Company owned life insurance | 563 | 1,255 | 521 | |||||||||
Net gain on sale of loans held for sale | 339 | 779 | 972 | |||||||||
Net gain on sale of other assets | 305 | 89 | 169 | |||||||||
Net gain on investment securities | 288 | 207 | 30 | |||||||||
Net gain on sale of trust relationships | — | 13 | 1,386 | |||||||||
Impairment charges on investment securities | (68,215 | ) | — | — | ||||||||
Other | 2,010 | 2,198 | 2,693 | |||||||||
Total noninterest (loss) income | $ | (48,778 | ) | $ | 20,680 | $ | 21,911 | |||||
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2008 | 2007 | 2006 | ||||||||||
Salaries and employee benefits | $ | 31,437 | $ | 33,175 | $ | 33,563 | ||||||
Occupancy and equipment | 10,502 | 9,903 | 9,465 | |||||||||
Computer and data processing | 2,433 | 2,126 | 1,903 | |||||||||
Professional services | 2,141 | 2,080 | 2,837 | |||||||||
Supplies and postage | 1,800 | 1,662 | 1,945 | |||||||||
Advertising and promotions | 1,453 | 1,402 | 1,974 | |||||||||
Other | 7,695 | 7,080 | 7,925 | |||||||||
Total noninterest expense | $ | 57,461 | $ | 57,428 | $ | 59,612 | ||||||
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At December 31, 2008 | ||||||||||||||||||||
Within 1 | Over 1 to 3 | Over 3 to 5 | Over 5 | |||||||||||||||||
year | years | Years | years | Total | ||||||||||||||||
Certificates of deposit (1) | $ | 546,266 | $ | 86,588 | $ | 14,102 | $ | 511 | $ | 647,467 | ||||||||||
Long-term borrowings | 508 | 30,145 | — | — | 30,653 | |||||||||||||||
Junior subordinated debentures | — | — | — | 16,702 | 16,702 | |||||||||||||||
Operating leases | 1,237 | 2,050 | 1,815 | 5,215 | 10,317 | |||||||||||||||
Limited partnership investments(2) | 1,865 | 1,865 | — | — | 3,730 | |||||||||||||||
Service agreements | 720 | 108 | — | — | 828 | |||||||||||||||
Commitments to extend credit(3) | 339,454 | — | — | — | — | |||||||||||||||
Standby letters of credit(3) | 7,902 | — | — | — | — |
(1) | Includes the maturity of certificates of deposit amounting to $100 thousand or more as follows: $87.5 million in three months or less; $30.1 million between three months and six months; $33.3 million between six months and one year; and $13.7 million over one year. | |
(2) | The Company has committed to capital investments in several limited partnerships of up to $5.5 million. As of December 31, 2008, the Company has contributed $1.8 million to the partnerships, including $425 thousand during 2008. | |
(3) | The Company does 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 the Company’s future cash requirements. |
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Due after five | ||||||||||||||||||||||||||||||||||||||||
Due in one year | Due from one to | years through | Due after | |||||||||||||||||||||||||||||||||||||
or less | five years | ten years | ten years | Total | ||||||||||||||||||||||||||||||||||||
Cost | Yield | Cost | Yield | Cost | Yield | Cost | Yield | Cost | Yield | |||||||||||||||||||||||||||||||
Available for sale debt securities: | ||||||||||||||||||||||||||||||||||||||||
U.S. Government agency and government-sponsored enterprise | $ | 28,899 | 3.12 | % | $ | 19,414 | 3.96 | % | $ | 4,994 | 4.05 | % | $ | 14,563 | 2.40 | % | $ | 67,871 | 3.27 | % | ||||||||||||||||||||
Mortgage-backed securities | 7,518 | 3.82 | 85,709 | 4.18 | 56,121 | 4.19 | 190,226 | 4.89 | 339,574 | 4.57 | ||||||||||||||||||||||||||||||
Other asset-backed securities | — | — | — | — | 147 | 3.66 | 3,771 | 5.26 | 3,918 | 5.20 | ||||||||||||||||||||||||||||||
State and municipal obligations | 42,284 | 3.42 | 69,168 | 3.61 | 16,640 | 3.46 | 1,481 | 3.44 | 129,572 | 3.53 | ||||||||||||||||||||||||||||||
78,701 | 3.35 | 174,291 | 3.93 | 77,902 | 4.02 | 210,041 | 4.71 | 540,935 | 4.16 | |||||||||||||||||||||||||||||||
Held to maturity debt securities: | ||||||||||||||||||||||||||||||||||||||||
State and municipal obligations | 45,124 | 2.71 | 10,773 | 3.84 | 2,063 | 4.78 | 572 | 5.37 | 58,532 | 3.02 | ||||||||||||||||||||||||||||||
$ | 123,825 | 3.12 | % | $ | 185,064 | 3.93 | % | $ | 79,965 | 4.04 | % | $ | 210,613 | 4.71 | % | $ | 599,467 | 4.05 | % | |||||||||||||||||||||
Due in less | Due from one | Due after | ||||||||||||||
than one year | to five years | five years | Total | |||||||||||||
Commercial | $ | 87,175 | $ | 62,227 | $ | 9,141 | $ | 158,543 | ||||||||
Commercial real estate | 70,694 | 132,735 | 58,805 | 262,234 | ||||||||||||
Agricultural | 16,817 | 16,649 | 11,240 | 44,706 | ||||||||||||
Residential real estate | 48,682 | 87,407 | 41,594 | 177,683 | ||||||||||||
Consumer indirect | 96,718 | 151,771 | 6,565 | 255,054 | ||||||||||||
Consumer direct and home equity | 53,735 | 102,707 | 66,417 | 222,859 | ||||||||||||
Total loans | $ | 373,821 | $ | 553,496 | $ | 193,762 | $ | 1,121,079 | ||||||||
Loans maturing after one year: | ||||||||||||||||
With a predetermined interest rate | $ | 192,464 | $ | 126,903 | $ | 319,367 | ||||||||||
With a floating or adjustable rate | 361,032 | 66,859 | 427,891 | |||||||||||||
Total loans maturing after one year | $ | 553,496 | $ | 193,762 | $ | 747,258 | ||||||||||
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2008 | 2007 | |||||||
Total shareholders’ equity | $ | 190,300 | $ | 195,322 | ||||
Less: Unrealized gain (loss) on securities available for sale, net of tax | 3,463 | (500 | ) | |||||
Unrecognized net periodic pension & postretirement benefits (costs), net of tax | (7,476 | ) | 1,167 | |||||
Disallowed goodwill and other intangible assets | 37,650 | 37,956 | ||||||
Disallowed deferred tax assets | 22,437 | — | ||||||
Plus: Qualifying trust preferred securities | 16,200 | 16,200 | ||||||
Tier 1 capital | $ | 150,426 | $ | 172,899 | ||||
Adjusted average total assets (for leverage capital purposes) | $ | 1,869,111 | $ | 1,848,584 | ||||
Tier 1 leverage ratio (Tier 1 capital to adjusted average total assets) | 8.05 | % | 9.35 | % | ||||
Total Tier 1 capital | $ | 150,426 | $ | 172,899 | ||||
Plus: Qualifying allowance for loan losses | 15,936 | 13,753 | ||||||
Total risk-based capital | $ | 166,362 | $ | 186,652 | ||||
Net risk-weighted assets | $ | 1,272,028 | $ | 1,098,476 | ||||
Tier 1 capital ratio (Tier 1 capital to net risk-weighted assets) | 11.83 | % | 15.74 | % | ||||
Total risk-based capital ratio (Total risk-based capital to net risk-weighted assets) | 13.08 | % | 16.99 | % |
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Changes in | Net Interest Income | Economic Value of Equity | ||||||||||||||||||||||
interest rate | Amount | Change | Amount | Change | ||||||||||||||||||||
+ 200 basis points | $ | 71,287 | $ | 1,379 | 1.97 | % | $ | 381,831 | $ | 7,211 | 1.92 | % | ||||||||||||
+ 100 basis points | 70,655 | 747 | 1.07 | 380,915 | 6,295 | 1.68 | ||||||||||||||||||
- 100 basis points | 69,087 | (821 | ) | (1.17 | ) | 379,048 | 4,427 | 1.18 | ||||||||||||||||
- 200 basis points | 67,671 | (2,237 | ) | (3.20 | ) | 384,737 | 10,117 | 2.70 |
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At December 31, 2008 | ||||||||||||||||||||
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 | $ | 20,574 | $ | — | $ | 85 | $ | — | $ | 20,659 | ||||||||||
Investment securities | 86,574 | 201,816 | 277,543 | 34,457 | 600,390 | |||||||||||||||
Loans held for sale | 1,013 | — | — | — | 1,013 | |||||||||||||||
Loans | 346,857 | 208,972 | 486,835 | 78,415 | 1,121,079 | |||||||||||||||
Total interest-earning assets | $ | 455,018 | $ | 410,788 | $ | 764,463 | $ | 112,872 | 1,743,141 | |||||||||||
Cash and due from banks | 34,528 | |||||||||||||||||||
Other assets(1) | 139,250 | |||||||||||||||||||
Total assets | $ | 1,916,919 | ||||||||||||||||||
INTEREST-BEARING LIABILITIES: | ||||||||||||||||||||
Interest-bearing demand, savings and money market | $ | 693,210 | $ | — | $ | — | $ | — | $ | 693,210 | ||||||||||
Certificates of deposit | 208,856 | 337,410 | 100,690 | 511 | 647,467 | |||||||||||||||
Borrowings | 23,943 | 30 | 30,145 | 16,702 | 70,820 | |||||||||||||||
Total interest-bearing liabilities | $ | 926,009 | $ | 337,440 | $ | 130,835 | $ | 17,213 | 1,411,497 | |||||||||||
Noninterest-bearing deposits | 292,586 | |||||||||||||||||||
Other liabilities | 22,536 | |||||||||||||||||||
Total liabilities | 1,726,619 | |||||||||||||||||||
Shareholders’ equity | 190,300 | |||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,916,919 | ||||||||||||||||||
Interest sensitivity gap | $ | (470,991 | ) | $ | 73,348 | $ | 633,628 | $ | 95,659 | $ | 331,644 | |||||||||
Cumulative gap | $ | (470,991 | ) | $ | (397,643 | ) | $ | 235,985 | $ | 331,644 | $ | |||||||||
Cumulative gap ratio(2) | 49.1 | % | 68.5 | % | 116.9 | % | 123.5 | % | ||||||||||||
Cumulative gap as a percentage of total assets | (24.6) | % | (20.7) | % | 12.3 | % | 17.3 | % |
(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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Index to Consolidated Financial Statements
Page | ||||
59 | ||||
60 | ||||
61 | ||||
62 | ||||
63 | ||||
64 | ||||
66 | ||||
67 | ||||
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/s/ Peter G. Humphrey | /s/ Ronald A. Miller | |
President and Chief Executive Officer | Executive Vice President and Chief Financial Officer | |
March 12, 2009 | March 12, 2009 |
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Financial Institutions, Inc.:
March 12, 2009
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Financial Institutions, Inc.:
March 12, 2009
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December 31, | ||||||||
(Dollars in thousands, except share and per share data) | 2008 | 2007 | ||||||
ASSETS | ||||||||
Cash and cash equivalents: | ||||||||
Cash and due from banks | $ | 34,528 | $ | 45,165 | ||||
Federal funds sold and interest-bearing deposits in other banks | 20,659 | 1,508 | ||||||
Total cash and cash equivalents | 55,187 | 46,673 | ||||||
Securities available for sale, at fair value | 547,506 | 695,241 | ||||||
Securities held to maturity, at amortized cost (fair value of $59,147 and $59,902, respectively) | 58,532 | 59,479 | ||||||
Loans held for sale | 1,013 | 906 | ||||||
Loans | 1,121,079 | 964,173 | ||||||
Less: Allowance for loan losses | 18,749 | 15,521 | ||||||
Loans, net | 1,102,330 | 948,652 | ||||||
Company owned life insurance | 23,692 | 3,017 | ||||||
Premises and equipment, net | 36,712 | 34,157 | ||||||
Goodwill | 37,369 | 37,369 | ||||||
Other assets | 54,578 | 32,382 | ||||||
Total assets | $ | 1,916,919 | $ | 1,857,876 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Deposits: | ||||||||
Noninterest-bearing demand | $ | 292,586 | $ | 286,362 | ||||
Interest-bearing demand | 344,616 | 335,314 | ||||||
Savings and money market | 348,594 | 346,639 | ||||||
Certificates of deposit | 647,467 | 607,656 | ||||||
Total deposits | 1,633,263 | 1,575,971 | ||||||
Short-term borrowings | 23,465 | 25,643 | ||||||
Long-term borrowings | 47,355 | 42,567 | ||||||
Other liabilities | 22,536 | 18,373 | ||||||
Total liabilities | 1,726,619 | 1,662,554 | ||||||
Commitments and contingencies (Note 9) | ||||||||
Shareholders’ equity: | ||||||||
Series A 3% Preferred Stock, $100 par value; 1,533 shares authorized and issued at December 31, 2008; 10,000 shares authorized, 1,586 shares issued at December 31, 2007 | 153 | 159 | ||||||
Series A Preferred Stock, $100 par value; 7,503 shares authorized and issued at December 31, 2008, aggregate liquidation preference $37,515; net of $2,016 discount | 35,499 | — | ||||||
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 | 53,074 | 17,581 | ||||||
Common stock, $0.01 par value, 50,000,000 shares authorized, 11,348,122 shares issued | 113 | 113 | ||||||
Additional paid-in capital | 26,397 | 24,778 | ||||||
Retained earnings | 124,952 | 158,744 | ||||||
Accumulated other comprehensive (loss) income | (4,013 | ) | 667 | |||||
Treasury stock, at cost — 550,103 and 336,971 shares, respectively | (10,223 | ) | (6,561 | ) | ||||
Total shareholders’ equity | 190,300 | 195,322 | ||||||
Total liabilities and shareholders’ equity | $ | 1,916,919 | $ | 1,857,876 | ||||
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Years ended December 31, | ||||||||||||
(Dollars in thousands, except per share amounts) | 2008 | 2007 | 2006 | |||||||||
Interest income: | ||||||||||||
Interest and fees on loans | $ | 67,674 | $ | 68,560 | $ | 68,004 | ||||||
Interest and dividends on investment securities | 30,655 | 34,990 | 32,778 | |||||||||
Other interest income | 619 | 1,662 | 2,288 | |||||||||
Total interest income | 98,948 | 105,212 | 103,070 | |||||||||
Interest expense: | ||||||||||||
Deposits | 29,349 | 42,714 | 37,445 | |||||||||
Short-term borrowings | 721 | 864 | 571 | |||||||||
Long-term borrowings | 3,547 | 3,561 | 5,588 | |||||||||
Total interest expense | 33,617 | 47,139 | 43,604 | |||||||||
Net interest income | 65,331 | 58,073 | 59,466 | |||||||||
Provision (credit) for loan losses | 6,551 | 116 | (1,842 | ) | ||||||||
Net interest income after provision (credit) for loan losses | 58,780 | 57,957 | 61,308 | |||||||||
Noninterest (loss) income: | ||||||||||||
Service charges on deposits | 10,497 | 10,932 | 11,504 | |||||||||
ATM and debit card | 3,313 | 2,883 | 2,233 | |||||||||
Broker-dealer fees and commissions | 1,458 | 1,396 | 1,511 | |||||||||
Loan servicing | 664 | 928 | 892 | |||||||||
Company owned life insurance | 563 | 1,255 | 521 | |||||||||
Net gain on sale of loans held for sale | 339 | 779 | 972 | |||||||||
Net gain on sale of other assets | 305 | 89 | 169 | |||||||||
Net gain on investment securities | 288 | 207 | 30 | |||||||||
Net gain on sale of trust relationships | — | 13 | 1,386 | |||||||||
Impairment charges on investment securities | (68,215 | ) | — | — | ||||||||
Other | 2,010 | 2,198 | 2,693 | |||||||||
Total noninterest (loss) income | (48,778 | ) | 20,680 | 21,911 | ||||||||
Noninterest expense: | ||||||||||||
Salaries and employee benefits | 31,437 | 33,175 | 33,563 | |||||||||
Occupancy and equipment | 10,502 | 9,903 | 9,465 | |||||||||
Computer and data processing | 2,433 | 2,126 | 1,903 | |||||||||
Professional services | 2,141 | 2,080 | 2,837 | |||||||||
Supplies and postage | 1,800 | 1,662 | 1,945 | |||||||||
Advertising and promotions | 1,453 | 1,402 | 1,974 | |||||||||
Other | 7,695 | 7,080 | 7,925 | |||||||||
Total noninterest expense | 57,461 | 57,428 | 59,612 | |||||||||
(Loss) income before income taxes | (47,459 | ) | 21,209 | 23,607 | ||||||||
Income tax (benefit) expense | (21,301 | ) | 4,800 | 6,245 | ||||||||
Net (loss) income | $ | (26,158 | ) | $ | 16,409 | $ | 17,362 | |||||
Preferred stock dividends, net of accretion | 1,538 | 1,483 | 1,486 | |||||||||
Net (loss) income applicable to common shareholders | $ | (27,696 | ) | $ | 14,926 | $ | 15,876 | |||||
(Loss) earnings per common share (Note 15): | ||||||||||||
Basic | $ | (2.56 | ) | $ | 1.34 | $ | 1.40 | |||||
Diluted | $ | (2.56 | ) | $ | 1.33 | $ | 1.40 |
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Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Preferred | Common | Paid-in | Retained | Comprehensive | Treasury | Shareholders’ | ||||||||||||||||||||||
(Dollars in thousands, except per share data) | Equity | Stock | Capital | Earnings | Income (Loss) | Stock | Equity | |||||||||||||||||||||
Balance at January 1, 2006 | $ | 17,634 | $ | 113 | $ | 23,278 | $ | 136,925 | $ | (6,178 | ) | $ | (15 | ) | $ | 171,757 | ||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | — | — | — | 17,362 | — | — | 17,362 | |||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (622 | ) | — | (622 | ) | |||||||||||||||||||
Total comprehensive income | 16,740 | |||||||||||||||||||||||||||
Adjustment to initially apply SFAS 158 | — | — | — | — | (1,604 | ) | — | (1,604 | ) | |||||||||||||||||||
Repurchase of 20,351 common shares | — | — | — | — | — | (335 | ) | (335 | ) | |||||||||||||||||||
Repurchase of Series B-1 8.48% Preferred Stock | (11 | ) | — | — | — | — | — | (11 | ) | |||||||||||||||||||
Share-based compensation plans: | ||||||||||||||||||||||||||||
Share-based compensation | — | — | 865 | — | — | — | 865 | |||||||||||||||||||||
Stock options exercised | — | — | 181 | — | — | 23 | 204 | |||||||||||||||||||||
Restricted stock awards issued | — | — | (130 | ) | — | — | 130 | — | ||||||||||||||||||||
Directors’ retainer | — | — | 28 | — | — | 84 | 112 | |||||||||||||||||||||
Cash dividends declared: | ||||||||||||||||||||||||||||
Series A 3% Preferred-$3.00 per share | — | — | — | (5 | ) | — | — | (5 | ) | |||||||||||||||||||
Series B-1 8.48% Preferred-$8.48 per share | — | — | — | (1,481 | ) | — | — | (1,481 | ) | |||||||||||||||||||
Common-$0.34 per share | — | — | — | (3,854 | ) | — | — | (3,854 | ) | |||||||||||||||||||
Balance at December 31, 2006 | $ | 17,623 | $ | 113 | $ | 24,222 | $ | 148,947 | $ | (8,404 | ) | $ | (113 | ) | $ | 182,388 | ||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | — | — | — | 16,409 | — | — | 16,409 | |||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 9,071 | — | 9,071 | |||||||||||||||||||||
Total comprehensive income | 25,480 | |||||||||||||||||||||||||||
Repurchase of 368,815 common shares | — | — | — | — | — | (7,203 | ) | (7,203 | ) | |||||||||||||||||||
Repurchase of Series B-1 8.48% Preferred Stock | (42 | ) | — | — | — | — | — | (42 | ) | |||||||||||||||||||
Share-based compensation plans: | ||||||||||||||||||||||||||||
Share-based compensation | — | — | 955 | — | — | — | 955 | |||||||||||||||||||||
Stock options exercised | — | — | (53 | ) | — | — | 304 | 251 | ||||||||||||||||||||
Restricted stock awards issued | — | — | (344 | ) | — | — | 344 | — | ||||||||||||||||||||
Directors’ retainer | — | — | (2 | ) | — | — | 107 | 105 | ||||||||||||||||||||
Cash dividends declared: | ||||||||||||||||||||||||||||
Series A 3% Preferred-$3.00 per share | — | — | — | (5 | ) | — | — | (5 | ) | |||||||||||||||||||
Series B-1 8.48% Preferred-$8.48 per share | — | — | — | (1,478 | ) | — | — | (1,478 | ) | |||||||||||||||||||
Common-$0.46 per share | — | — | — | (5,129 | ) | — | — | (5,129 | ) | |||||||||||||||||||
Balance at December 31, 2007 | $ | 17,581 | $ | 113 | $ | 24,778 | $ | 158,744 | $ | 667 | $ | (6,561 | ) | $ | 195,322 | |||||||||||||
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Consolidated Statements of Changes in Shareholders’ Equity (Continued)
Years ended December 31, 2008, 2007 and 2006
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Preferred | Common | Paid-in | Retained | Comprehensive | Treasury | Shareholders’ | ||||||||||||||||||||||
(Dollars in thousands, except per share data) | Equity | Stock | Capital | Earnings | Income (Loss) | Stock | Equity | |||||||||||||||||||||
Balance at December 31, 2007 | $ | 17,581 | $ | 113 | $ | 24,778 | $ | 158,744 | $ | 667 | $ | (6,561 | ) | $ | 195,322 | |||||||||||||
Balance carried forward | ||||||||||||||||||||||||||||
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 EITF 06-4 and SFAS 158 transition adjustment | — | — | — | (241 | ) | — | — | (241 | ) | |||||||||||||||||||
Repurchase of 272,861 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 | ) | |||||||||||||||||||
Accretion of preferred stock discount | 9 | (9 | ) | — | ||||||||||||||||||||||||
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 | — | — | — | (47 | ) | — | — | (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 | ||||||||||||
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Years ended December 31, | ||||||||||||
(Dollars in thousands) | 2008 | 2007 | 2006 | |||||||||
Cash flows from operating activities: | ||||||||||||
Net (loss) income | $ | (26,158 | ) | $ | 16,409 | $ | 17,362 | |||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 3,959 | 3,991 | 4,125 | |||||||||
Net amortization (accretion) of premiums and discounts on securities | 390 | (185 | ) | 644 | ||||||||
Provision (credit) for loan losses | 6,551 | 116 | (1,842 | ) | ||||||||
Share-based compensation | 633 | 955 | 865 | |||||||||
Deferred income tax (benefit) expense | (23,848 | ) | 715 | 63 | ||||||||
Proceeds from sale of loans held for sale | 28,685 | 48,048 | 69,451 | |||||||||
Originations of loans held for sale | (28,453 | ) | (47,183 | ) | (68,793 | ) | ||||||
Increase in company owned life insurance | (563 | ) | (111 | ) | (102 | ) | ||||||
Net gain on sale of loans held for sale | (339 | ) | (779 | ) | (972 | ) | ||||||
Net gain on sale and disposal of other assets | (305 | ) | (89 | ) | (169 | ) | ||||||
Net gain on investment securities | (288 | ) | (207 | ) | (30 | ) | ||||||
Net gain on sale of trust relationships | — | (13 | ) | (1,386 | ) | |||||||
Impairment charge on investment securities | 68,215 | — | — | |||||||||
(Increase) decrease in other assets | (1,322 | ) | 3,510 | 8,774 | ||||||||
(Decrease) increase in other liabilities | (5,866 | ) | (2,406 | ) | 2,324 | |||||||
Net cash provided by operating activities | 21,291 | 22,771 | 30,314 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchase of investment securities: | ||||||||||||
Available for sale | (310,191 | ) | (307,049 | ) | (66,769 | ) | ||||||
Held to maturity | (54,925 | ) | (54,926 | ) | (32,524 | ) | ||||||
Proceeds from principal payments, maturities and calls on investment securities: | ||||||||||||
Available for sale | 337,704 | 308,323 | 119,305 | |||||||||
Held to maturity | 57,325 | 36,169 | 34,724 | |||||||||
Proceeds from sale of securities available for sale | 58,368 | 49,350 | 1,699 | |||||||||
Net loan originations | (161,414 | ) | (41,778 | ) | 61,996 | |||||||
Purchase of company owned life insurance | (20,112 | ) | (58 | ) | (112 | ) | ||||||
Proceeds from sales of other assets | 1,783 | 1,294 | 2,506 | |||||||||
Proceeds from sale of trust relationships | — | 13 | 1,386 | |||||||||
Purchase of premises and equipment | (6,333 | ) | (3,407 | ) | (1,871 | ) | ||||||
Net cash (used in) provided by investing activities | (97,795 | ) | (12,069 | ) | 120,340 | |||||||
Cash flows from financing activities: | ||||||||||||
Net increase (decrease) in deposits | 57,292 | (41,724 | ) | (99,566 | ) | |||||||
Net (decrease) increase in short-term borrowings | (2,178 | ) | (6,668 | ) | 12,204 | |||||||
Proceeds from long-term borrowings | 30,000 | — | — | |||||||||
Repayment of long-term borrowings | (25,212 | ) | (12,321 | ) | (40,204 | ) | ||||||
Purchase of preferred and common shares | (4,821 | ) | (7,245 | ) | (346 | ) | ||||||
Proceeds from issuance of preferred and common shares | 35,602 | 105 | 112 | |||||||||
Proceeds from issuance of common stock warrant | 2,025 | — | — | |||||||||
Proceed from stock options exercised | 32 | 251 | 204 | |||||||||
Cash dividends paid to preferred shareholders | (1,482 | ) | (1,483 | ) | (1,486 | ) | ||||||
Cash dividends paid to common shareholders | (6,240 | ) | (4,716 | ) | (3,740 | ) | ||||||
Net cash provided by (used in) financing activities | 85,018 | (73,801 | ) | (132,822 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | 8,514 | (63,099 | ) | 17,832 | ||||||||
Cash and cash equivalents, beginning of period | 46,673 | 109,772 | 91,940 | |||||||||
Cash and cash equivalents, end of period | $ | 55,187 | $ | 46,673 | 109,772 | |||||||
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December 31, 2008, 2007 and 2006
2008 | 2007 | 2006 | ||||||||||
Cash paid during the year for: | ||||||||||||
Interest expense | $ | 37,160 | $ | 49,687 | 42,438 | |||||||
Income taxes, net of income tax refunds | 3,797 | 4,031 | (2,249 | ) | ||||||||
Non-cash activity: | ||||||||||||
Real estate and other assets acquired in settlement of loans | $ | 1,185 | $ | 2,443 | 2,502 | |||||||
Dividends declared and unpaid | 1,497 | 1,805 | 1,392 | |||||||||
Increase in unsettled security purchases | 1,453 | 336 | — |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
December 31, 2008 | ||||||||||||||||
Adjusted | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Securities available for sale: | ||||||||||||||||
U.S. Government agency and government-sponsored enterprise securities | $ | 67,871 | $ | 609 | $ | 307 | $ | 68,173 | ||||||||
Mortgage-backed securities | 339,574 | 6,813 | 3,835 | 342,552 | ||||||||||||
Other asset-backed securities | 3,918 | — | — | 3,918 | ||||||||||||
State and municipal obligations | 129,572 | 2,181 | 42 | 131,711 | ||||||||||||
Equity securities | 923 | 281 | 52 | 1,152 | ||||||||||||
Total available for sale securities | $ | 541,858 | $ | 9,884 | $ | 4,236 | $ | 547,506 | ||||||||
Securities held to maturity: | ||||||||||||||||
State and municipal obligations | $ | 58,532 | $ | 619 | $ | 4 | $ | 59,147 | ||||||||
December 31, 2007 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Securities available for sale: | ||||||||||||||||
U.S. Government agency and government-sponsored enterprise securities | $ | 158,920 | $ | 344 | $ | 324 | $ | 158,940 | ||||||||
Mortgage-backed securities | 297,798 | 832 | 2,758 | 295,872 | ||||||||||||
Other asset-backed securities | 34,115 | 55 | 972 | 33,198 | ||||||||||||
State and municipal obligations | 171,294 | 1,568 | 261 | 172,601 | ||||||||||||
Equity securities | 33,930 | 700 | — | 34,630 | ||||||||||||
Total available for sale securities | $ | 696,057 | $ | 3,499 | $ | 4,315 | $ | 695,241 | ||||||||
Securities held to maturity: | ||||||||||||||||
State and municipal obligations | $ | 59,479 | $ | 431 | $ | 8 | $ | 59,902 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2008 | 2007 | 2006 | ||||||||||
Taxable interest | $ | 21,882 | $ | 25,414 | $ | 23,859 | ||||||
Tax-exempt interest | 7,299 | 8,501 | 8,881 | |||||||||
Tax-preferred interest | 1,474 | 1,075 | 38 | |||||||||
Total interest and dividends on securities | $ | 30,655 | $ | 34,990 | $ | 32,778 | ||||||
December 31, 2008 | ||||||||||||||||||||||||
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 agency and government-sponsored enterprise securities | $ | 50 | $ | 1 | $ | 11,704 | $ | 306 | $ | 11,754 | $ | 307 | ||||||||||||
Mortgage-backed securities | 41,445 | 2,128 | 26,923 | 1,707 | 68,368 | 3,835 | ||||||||||||||||||
State and municipal obligations | 6,191 | 41 | 84 | 1 | 6,275 | 42 | ||||||||||||||||||
Equity securities | 310 | 52 | — | — | 310 | 52 | ||||||||||||||||||
Total available for sale securities | 47,996 | 2,222 | 38,711 | 2,014 | 86,707 | 4,236 | ||||||||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||
State and municipal obligations | 554 | 4 | — | — | 554 | 4 | ||||||||||||||||||
Total temporarily impaired securities | $ | 48,550 | $ | 2,226 | $ | 38,711 | $ | 2,014 | $ | 87,261 | $ | 4,240 | ||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
December 31, 2007 | ||||||||||||||||||||||||
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 agency and government-sponsored enterprise securities | $ | 18,287 | $ | 45 | $ | 64,937 | $ | 279 | $ | 83,224 | $ | 324 | ||||||||||||
Mortgage-backed securities | 38,479 | 398 | 170,532 | 2,360 | 209,011 | 2,758 | ||||||||||||||||||
Other asset-backed securities | 26,418 | 971 | 808 | 1 | 27,226 | 972 | ||||||||||||||||||
State and municipal obligations | 701 | 17 | 45,657 | 244 | 46,358 | 261 | ||||||||||||||||||
Total available for sale securities | 83,885 | 1,431 | 281,934 | 2,884 | 365,819 | 4,315 | ||||||||||||||||||
Securities held to maturity: | ||||||||||||||||||||||||
State and municipal obligations | 7,153 | 4 | 875 | 4 | 8,028 | 8 | ||||||||||||||||||
Total temporarily impaired securities | $ | 91,038 | $ | 1,435 | $ | 282,809 | $ | 2,888 | $ | 373,847 | $ | 4,323 | ||||||||||||
Mortgage-backed securities — Privately issued whole loan CMOs | $ | 6,463 | ||
Other asset-backed securities — Trust preferred securities | 29,429 | |||
Equity securities — Auction rate securities | 32,323 | |||
$ | 68,215 | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
Adjusted | ||||||||
Amortized | Fair | |||||||
Cost | Value | |||||||
Debt securities available for sale: | ||||||||
Due in one year or less | $ | 78,701 | $ | 79,298 | ||||
Due from one to five years | 174,291 | 177,645 | ||||||
Due after five years through ten years | 77,902 | 79,231 | ||||||
Due after ten years | 210,041 | 210,180 | ||||||
$ | 540,935 | $ | 546,354 | |||||
Debt securities held to maturity: | ||||||||
Due in one year or less | $ | 45,124 | $ | 45,313 | ||||
Due from one to five years | 10,773 | 11,031 | ||||||
Due after five years through ten years | 2,063 | 2,188 | ||||||
Due after ten years | 572 | 615 | ||||||
$ | 58,532 | $ | 59,147 | |||||
2008 | 2007 | 2006 | ||||||||||
Mortgage servicing assets, beginning of year | $ | 1,000 | $ | 1,165 | $ | 1,557 | ||||||
Originations | 230 | 307 | 224 | |||||||||
Amortization | (305 | ) | (472 | ) | (616 | ) | ||||||
Mortgage servicing assets, end of year | 925 | 1,000 | 1,165 | |||||||||
Valuation allowance | (362 | ) | (19 | ) | (2 | ) | ||||||
Mortgage servicing assets, net, end of year | $ | 563 | $ | 981 | $ | 1,163 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
(4.) | LOANS |
2008 | 2007 | |||||||
Commercial | $ | 158,543 | $ | 136,780 | ||||
Commercial real estate | 262,234 | 245,797 | ||||||
Agricultural | 44,706 | 47,367 | ||||||
Residential real estate | 177,683 | 166,863 | ||||||
Consumer indirect | 255,054 | 134,977 | ||||||
Consumer direct and home equity | 222,859 | 232,389 | ||||||
Total loans | 1,121,079 | 964,173 | ||||||
Less: Allowance for loan losses | 18,749 | 15,521 | ||||||
Total loans, net | $ | 1,102,330 | $ | 948,652 | ||||
2008 | 2007 | 2006 | ||||||||||
Non-accruing loans | $ | 8,189 | $ | 8,075 | $ | 15,837 | ||||||
Interest income that would have been recorded if loans had been performing in accordance with original terms | 546 | 713 | 1,542 | |||||||||
Accruing loans 90 days or more delinquent | 7 | 2 | 3 | |||||||||
Balance of impaired loans, end of period | 3,180 | 4,132 | 11,702 | |||||||||
Balance of impaired loans requiring a specific allowance, end of period | 599 | 1,572 | 5,281 | |||||||||
Allowance relating to impaired loans included in allowance for loan losses | 142 | 454 | 450 | |||||||||
Average balance of impaired loans | 3,088 | 6,446 | 11,972 | |||||||||
Interest income recognized on impaired loans | — | — | — |
2008 | 2007 | 2006 | ||||||||||
Balance, beginning of year | $ | 15,521 | $ | 17,048 | $ | 20,231 | ||||||
Charge-offs | 5,459 | 3,895 | 4,199 | |||||||||
Recoveries | 2,136 | 2,252 | 2,858 | |||||||||
Net charge-offs | 3,323 | 1,643 | 1,341 | |||||||||
Provision (credit) for loan losses | 6,551 | 116 | (1,842 | ) | ||||||||
Balance, end of year | $ | 18,749 | $ | 15,521 | $ | 17,048 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2008 | 2007 | |||||||
Land and land improvements | $ | 4,334 | $ | 4,344 | ||||
Buildings and leasehold improvements | 39,298 | 35,020 | ||||||
Furniture, fixtures, equipment and vehicles | 24,480 | 23,039 | ||||||
Premises and equipment | 68,112 | 62,403 | ||||||
Accumulated depreciation and amortization | (31,400 | ) | (28,246 | ) | ||||
Premises and equipment, net | $ | 36,712 | $ | 34,157 | ||||
2008 | 2007 | |||||||
Other intangible assets | $ | 11,263 | $ | 11,263 | ||||
Accumulated amortization | (10,983 | ) | (10,676 | ) | ||||
Other intangible assets, net | $ | 280 | $ | 587 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2008 | 2007 | |||||||
Noninterest-bearing demand | $ | 292,586 | $ | 286,362 | ||||
Interest-bearing demand | 344,616 | 335,314 | ||||||
Savings and money market | 348,594 | 346,639 | ||||||
Certificates of deposit, due: | ||||||||
Within one year | 546,266 | 547,243 | ||||||
One to two years | 78,963 | 40,824 | ||||||
Two to three years | 7,625 | 12,012 | ||||||
Three to five years | 14,102 | 6,995 | ||||||
Thereafter | 511 | 582 | ||||||
Total certificates of deposits | 647,467 | 607,656 | ||||||
Total deposits | $ | 1,633,263 | $ | 1,575,971 | ||||
2008 | 2007 | 2006 | ||||||||||
Interest-bearing demand | $ | 3,246 | $ | 5,760 | $ | 6,705 | ||||||
Savings and money market | 3,773 | 5,863 | 4,320 | |||||||||
Certificates of deposit | 22,330 | 31,091 | 26,420 | |||||||||
Total interest expense on deposits | $ | 29,349 | $ | 42,714 | $ | 37,445 | ||||||
2008 | 2007 | |||||||
Short-term borrowings: | ||||||||
Federal funds purchased and repurchase agreements | $ | 23,465 | $ | 22,833 | ||||
FHLB advances | — | 2,810 | ||||||
Total short-term borrowings | 23,465 | 25,643 | ||||||
Long-term borrowings: | ||||||||
FHLB advances and repurchase agreements | 30,653 | 25,865 | ||||||
Junior subordinated debentures | 16,702 | 16,702 | ||||||
Total long-term borrowings | 47,355 | 42,567 | ||||||
Total borrowings | $ | 70,820 | $ | 68,210 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2008 | 2007 | 2006 | ||||||||||
Short-term borrowings | $ | 721 | $ | 864 | $ | 571 | ||||||
Long-term borrowings (excluding junior subordinated debentures) | 1,819 | 1,833 | 3,860 | |||||||||
Junior subordinated debentures | 1,728 | 1,728 | 1,728 | |||||||||
Total interest expense on borrowings | $ | 4,268 | $ | 4,425 | $ | 6,159 | ||||||
2009 | $ | 508 | ||
2010 | 20,080 | |||
2011 | 10,065 | |||
$ | 30,653 | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2008 | 2007 | |||||||
Commitments to extend credit | $ | 339,454 | $ | 273,354 | ||||
Standby letters of credit | 7,902 | 7,277 |
2009 | $ | 1,237 | ||
2010 | 1,051 | |||
2011 | 999 | |||
2012 | 977 | |||
2013 | 838 | |||
Thereafter | 5,215 | |||
$ | 10,317 | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
For Capital | ||||||||||||||||||||||||
Actual | Adequacy Purposes | Well Capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
December 31, 2008: | ||||||||||||||||||||||||
Tier 1 leverage: | ||||||||||||||||||||||||
Company | $ | 150,426 | 8.05 | % | $ | 74,764 | 4.00 | % | $ | 93,456 | 5.00 | % | ||||||||||||
Bank (FSB) | 120,484 | 6.46 | 74,586 | 4.00 | 93,232 | 5.00 | ||||||||||||||||||
Tier 1 capital (to risk-weighted assets): | ||||||||||||||||||||||||
Company | 150,426 | 11.83 | 50,881 | 4.00 | 76,322 | 6.00 | ||||||||||||||||||
Bank (FSB) | 120,484 | 9.52 | 50,624 | 4.00 | 75,936 | 6.00 | ||||||||||||||||||
Total risk-based capital (to risk-weighted assets): | ||||||||||||||||||||||||
Company | 166,362 | 13.08 | 101,762 | 8.00 | 127,203 | 10.00 | ||||||||||||||||||
Bank (FSB) | 136,340 | 10.77 | 101,248 | 8.00 | 126,560 | 10.00 | ||||||||||||||||||
December 31, 2007: | ||||||||||||||||||||||||
Tier 1 leverage: | ||||||||||||||||||||||||
Company | $ | 172,899 | 9.35 | % | $ | 73,943 | 4.00 | % | $ | 92,429 | 5.00 | % | ||||||||||||
Bank (FSB) | 157,312 | 8.54 | 73,718 | 4.00 | 92,148 | 5.00 | ||||||||||||||||||
Tier 1 capital (to risk-weighted assets): | ||||||||||||||||||||||||
Company | 172,899 | 15.74 | 49,939 | 4.00 | 65,909 | 6.00 | ||||||||||||||||||
Bank (FSB) | 157,312 | 14.40 | 43,710 | 4.00 | 65,565 | 6.00 | ||||||||||||||||||
Total risk-based capital (to risk-weighted assets): | ||||||||||||||||||||||||
Company | 186,652 | 16.99 | 87,878 | 8.00 | 109,848 | 10.00 | ||||||||||||||||||
Bank (FSB) | 170,994 | 15.65 | 87,420 | 8.00 | 109,275 | 10.00 |
2008 | 2007 | |||||||
Shares outstanding at beginning of period | 11,011,151 | 11,342,771 | ||||||
Restricted stock awards issued | 51,500 | 17,100 | ||||||
Stock options exercised | 2,317 | 14,776 | ||||||
Directors’ retainer | 5,912 | 5,319 | ||||||
Treasury stock purchases | (272,861 | ) | (368,815 | ) | ||||
Shares outstanding at end of period | 10,798,019 | 11,011,151 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
Pre-tax | Tax Expense | Net-of-tax | ||||||||||
Amount | (Benefit) | Amount | ||||||||||
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 | ) | |||
2007 | ||||||||||||
Securities available for sale: | ||||||||||||
Change in net unrealized gain/loss during the period | $ | 10,530 | $ | 4,103 | $ | 6,427 | ||||||
Reclassification adjustment for gains included in income | (207 | ) | (80 | ) | (127 | ) | ||||||
10,323 | 4,023 | 6,300 | ||||||||||
Change in net actuarial gain/loss and prior service benefit (cost) on defined benefit pension and post-retirement plans | 4,531 | 1,760 | 2,771 | |||||||||
Other comprehensive income | $ | 14,854 | $ | 5,783 | $ | 9,071 | ||||||
2006 | ||||||||||||
Securities available for sale: | ||||||||||||
Change in net unrealized gain/loss during the period | $ | (833 | ) | $ | (229 | ) | $ | (604 | ) | |||
Reclassification adjustment for gains included in income | (30 | ) | (12 | ) | (18 | ) | ||||||
Other comprehensive loss | $ | (863 | ) | $ | (241 | ) | $ | (622 | ) | |||
2008 | 2007 | |||||||
Net actuarial gain (loss) and prior service benefit (cost) on defined benefit pension and post-retirement plans | $ | (7,476 | ) | $ | 1,167 | |||
Net unrealized gain (loss) on securities available for sale | 3,463 | (500 | ) | |||||
$ | (4,013 | ) | $ | 667 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2008 | 2007 | 2006 | ||||||||||
Stock options: | ||||||||||||
Management Stock Incentive Plan | $ | 378 | $ | 571 | $ | 522 | ||||||
Director Stock Incentive Plan | 40 | 220 | 299 | |||||||||
418 | 791 | 821 | ||||||||||
Restricted stock awards: | ||||||||||||
Management Stock Incentive Plan | 215 | 164 | 44 | |||||||||
Total share-based compensation | $ | 633 | $ | 955 | $ | 865 | ||||||
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of | Exercise | Contractual | Intrinsic | |||||||||||||
Options | Price | Term | Value | |||||||||||||
Outstanding at beginning of year | 534,987 | $ | 19.40 | |||||||||||||
Granted | 61,100 | 16.98 | ||||||||||||||
Exercised | (2,317 | ) | 13.77 | |||||||||||||
Forfeited | (5,775 | ) | 19.03 | |||||||||||||
Expired | (5,110 | ) | 22.18 | |||||||||||||
Outstanding at end of year | 582,885 | $ | 19.14 | 5.37 years | $ | 59 | ||||||||||
Exercisable at end of year | 402,357 | $ | 19.28 | 4.02 years | $ | 59 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2008 | 2007 | 2006 | ||||||||||
Options granted | 61,100 | 90,700 | 99,597 | |||||||||
Grant date weighted average fair value per share | $ | 5.09 | $ | 7.09 | $ | 8.14 | ||||||
Grant date weighted average share price | $ | 16.98 | $ | 19.49 | $ | 19.73 | ||||||
Risk-free interest rate | 3.40 | % | 4.76 | % | 4.96 | % | ||||||
Expected dividend yield | 3.48 | % | 2.21 | % | 1.65 | % | ||||||
Expected stock price volatility | 38.60 | % | 39.36 | % | 41.75 | % | ||||||
Expected life (in years) | 6.19 | 5.94 | 6.19 |
Weighted | ||||||||
Average | ||||||||
Market | ||||||||
Number of | Price at | |||||||
Shares | Grant Date | |||||||
Outstanding at beginning of year | 30,300 | $ | 19.56 | |||||
Granted | 51,500 | 19.22 | ||||||
Vested | — | — | ||||||
Forfeited | — | — | ||||||
Outstanding at end of year | 81,800 | $ | 19.35 | |||||
2008 | 2007 | 2006 | ||||||||||
Income tax (benefit) expense | $ | (21,301 | ) | $ | 4,800 | $ | 6,245 | |||||
Shareholder’s equity | (2,955 | ) | 5,783 | (1,272 | ) |
2008 | 2007 | 2006 | ||||||||||
Current tax expense: | ||||||||||||
Federal | $ | 2,043 | $ | 3,572 | $ | 6,152 | ||||||
State | 504 | 513 | 30 | |||||||||
2,547 | 4,085 | 6,182 | ||||||||||
Deferred tax (benefit) expense: | ||||||||||||
Federal | (19,640 | ) | 126 | (1,498 | ) | |||||||
State | (4,208 | ) | 589 | 1,561 | ||||||||
(23,848 | ) | 715 | 63 | |||||||||
Total income tax (benefit) expense: | $ | (21,301 | ) | $ | 4,800 | $ | 6,245 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2008 | 2007 | 2006 | ||||||||||
Statutory federal tax rate | (34.0) | % | 34.0 | % | 34.0 | % | ||||||
Increase (decrease) resulting from: | ||||||||||||
Tax exempt interest income | (5.2 | ) | (13.6 | ) | (12.8 | ) | ||||||
Disallowed interest expense | 0.5 | 1.8 | 1.5 | |||||||||
State taxes, net of federal tax benefit | (5.2 | ) | 3.4 | 4.4 | ||||||||
Non-taxable earnings on company owned life insurance | (0.4 | ) | (2.0 | ) | (0.8 | ) | ||||||
Dividend received deduction | (0.8 | ) | (1.5 | ) | (0.3 | ) | ||||||
Other, net | 0.2 | 0.5 | 0.5 | |||||||||
Effective tax rate | (44.9) | % | 22.6 | % | 26.5 | % | ||||||
2008 | 2007 | |||||||
Deferred tax assets: | ||||||||
Allowance for loan losses | $ | 6,619 | $ | 5,435 | ||||
Net unrealized loss on securities available for sale | — | 315 | ||||||
Other than temporary impairment of investment securities | 26,389 | — | ||||||
Tax attribute carryforward benefits | 2,689 | 2,070 | ||||||
Accrued pension costs | 2,494 | — | ||||||
Interest on nonaccruing loans | 595 | 678 | ||||||
Share-based compensation | 794 | 569 | ||||||
Core deposit intangible | 332 | 500 | ||||||
Other | 374 | 318 | ||||||
Gross deferred tax assets | 40,286 | 9,885 | ||||||
Valuation allowance | — | — | ||||||
Deferred tax assets, net of valuation allowance | 40,286 | 9,885 | ||||||
Deferred tax liabilities: | ||||||||
Deferred loan origination costs | 4,458 | 1,873 | ||||||
Net unrealized gain on securities available for sale | 2,185 | — | ||||||
Prepaid pension costs | — | 1,288 | ||||||
Depreciation and amortization | 1,342 | 1,056 | ||||||
Loan servicing assets | 218 | 380 | ||||||
Other | 2 | 9 | ||||||
Gross deferred tax liabilities | 8,205 | 4,606 | ||||||
Net deferred tax asset | $ | 32,081 | $ | 5,279 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
• | While current and anticipated banking industry conditions are challenging, the Company remains well capitalized. |
• | The Company sustained a strong earnings history for many years prior to 2008. |
• | The cumulative three-year loss (based on pre-tax income for financial reporting purposes) of approximately $2.6 million includes an impairment charge of $68.2 million related to the OTTI charge on certain securities. The Company would have been profitable for the three-year period without this charge. |
• | The Company’s cumulative loss in recent years includes only one year (2008) with a pre-tax loss. Notwithstanding the loss, the Company’s estimated 2008 taxable income for federal income tax return purposes is approximately $4.0 million. |
• | There are prudent and feasible tax planning strategies available to sustain the recognition of certain tax assets, such as the strategy of holding temporarily impaired securities until a market recovery, which may be until maturity, the timing of contributions to the defined benefit pension plan and the de-emphasis on tax-exempt interest income, among other things. |
• | Taxes paid within the Company’s two year federal tax loss carry-back period were approximately $5.6 million. |
• | Taxable temporary differences related to deferred tax liabilities of approximately $8.2 million are scheduled to reverse and offset deductible temporary differences in the future. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2008 | 2007 | 2006 | ||||||||||
Net (loss) income applicable to common shareholders | $ | (27,696 | ) | $ | 14,926 | $ | 15,876 | |||||
Weighted average number of common shares used to calculate basic (loss) earnings per common share | 10,818 | 11,154 | 11,328 | |||||||||
Add: Effect of common stock equivalents | — | 30 | 36 | |||||||||
Weighted average number of common shares used to calculate diluted (loss) earnings per common share | 10,818 | 11,184 | 11,364 | |||||||||
(Loss) earnings per common share: | ||||||||||||
Basic | $ | (2.56 | ) | $ | 1.34 | $ | 1.40 | |||||
Diluted | $ | (2.56 | ) | $ | 1.33 | $ | 1.40 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
December 31, | September 30, | |||||||
2008(a) | 2007 | |||||||
Change in projected benefit obligation: | ||||||||
Projected benefit obligation at of beginning of period | $ | (25,102 | ) | $ | (25,806 | ) | ||
Service cost | (1,820 | ) | (1,498 | ) | ||||
Interest cost | (1,953 | ) | (1,473 | ) | ||||
Actuarial (loss) gain | (3,767 | ) | 2,310 | |||||
Benefits paid and plan expenses | 1,764 | 1,365 | ||||||
Projected benefit obligation as of end of period | (30,878 | ) | (25,102 | ) | ||||
Change in plan assets: | ||||||||
Fair value of plan assets as of beginning of period | 28,431 | 25,921 | ||||||
Actual (loss) return on plan assets | (7,436 | ) | 3,875 | |||||
Employer contributions | 5,200 | — | ||||||
Benefits paid and plan expenses | (1,764 | ) | (1,365 | ) | ||||
Fair value of plan assets as of end of period | 24,431 | 28,431 | ||||||
(Unfunded) funded status at end of period | $ | (6,447 | ) | $ | 3,329 | |||
(a) | The measurement date for 2008 and 2007 is December 31 and September 30, respectively. As a result, 2008 includes 15 months of activity. |
2008 | 2007 | 2006 | ||||||||||
Service cost | $ | 1,456 | $ | 1,498 | $ | 1,725 | ||||||
Interest cost on projected benefit obligation | 1,562 | 1,473 | 1,341 | |||||||||
Expected return on plan assets | (2,094 | ) | (1,907 | ) | (1,866 | ) | ||||||
Amortization of net transition asset | — | — | (26 | ) | ||||||||
Amortization of unrecognized loss | — | 31 | 223 | |||||||||
Amortization of unrecognized prior service cost | 11 | 11 | 14 | |||||||||
Net periodic pension cost | $ | 935 | $ | 1,106 | $ | 1,411 | ||||||
2008 | 2007 | 2006 | ||||||||||
Weighted average discount rate | 6.35 | % | 5.82 | % | 5.25 | % | ||||||
Rate of compensation increase | 3.50 | % | 3.50 | % | 3.50 | % | ||||||
Expected long-term rate of return | 7.50 | % | 7.50 | % | 7.50 | % |
2008 | 2007 | 2006 | ||||||||||
Weighted average discount rate | 6.03 | % | 6.35 | % | 5.82 | % | ||||||
Rate of compensation increase | 3.50 | % | 3.50 | % | 3.50 | % |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2009 | $ | 1,160 | ||
2010 | 1,222 | |||
2011 | 1,348 | |||
2012 | 1,451 | |||
2013 | 1,521 | |||
2014 – 2018 | 10,037 |
2008 | 2007 | |||||||
Asset category: | ||||||||
Equity securities | $ | 50 | % | $ | 54 | % | ||
Debt securities | 43 | 40 | ||||||
Other | 7 | 6 | ||||||
Total | $ | 100 | % | $ | 100 | % | ||
2008 | 2007 | |||||||
Defined benefit plan: | ||||||||
Net actuarial gain (loss) | $ | (12,579 | ) | $ | 1,518 | |||
Prior service (cost) benefit | (155 | ) | (169 | ) | ||||
(12,734 | ) | 1,349 | ||||||
Postretirement benefit plan: | ||||||||
Net actuarial gain (loss) | (238 | ) | (308 | ) | ||||
Prior service (cost) benefit | 778 | 863 | ||||||
540 | 555 | |||||||
Total recognized in accumulated other comprehensive income (loss) | $ | (12,194 | ) | $ | 1,904 | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2008 | 2007 | |||||||
Defined benefit plan: | ||||||||
Net actuarial gain (loss) | $ | (14,097 | ) | $ | 4,308 | |||
Prior service (cost) benefit | 14 | 12 | ||||||
(14,083 | ) | 4,320 | ||||||
Postretirement benefit plan: | ||||||||
Net actuarial gain (loss) | 70 | 85 | ||||||
Prior service (cost) benefit | (85 | ) | 126 | |||||
(15 | ) | 211 | ||||||
Total recognized in other comprehensive income (loss) | $ | (14,098 | ) | $ | 4,531 | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
(17.) | FAIR VALUE MEASUREMENTS |
• | Level 1— Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value. An active market is a market in which transactions occur for the item to be fair valued with sufficient frequency and volume to provide pricing information on an ongoing basis. The Company’s Level 1 assets primarily include exchange traded equity securities. |
• | Level 2— Inputs other than quoted prices included within Level 1 inputs that are observable for the asset or liability, either directly or indirectly. These inputs include: (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active, such as when there are few transactions for the asset or liability, the prices are not current, price quotations vary substantially over time or in which little information is released publicly; (c) inputs other than quoted prices that are observable for the asset or liability; and (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means. The Company’s Level 2 assets primarily include debt securities classified as available for sale and not included in Level 3. |
• | Level 3— Significant unobservable inputs for the asset or liability. These inputs should be used to determine fair value only when observable inputs are not available. Unobservable inputs should be developed based on the best information available in the circumstances, which might include internally generated data and assumptions being used to price the asset or liability. The Company’s Level 3 assets primarily include pooled trust preferred securities. |
Assets Measured and Recorded at Fair Value | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Securities available for sale | $ | 547,506 | $ | 624 | $ | 543,110 | $ | 3,772 |
Securities available for sale (Level 3), beginning of year | $ | — | ||
Transfers into Level 3 | 33,307 | |||
Impairment charges included in earnings | (29,429 | ) | ||
Principal paydowns and amortization of premiums | (106 | ) | ||
Securities available for sale (Level 3), end of year | $ | 3,772 | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
2008 | 2007 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents | $ | 55,187 | $ | 55,187 | $ | 46,673 | $ | 46,673 | ||||||||
Securities held to maturity | 58,532 | 59,147 | 59,479 | 59,902 | ||||||||||||
Loans held for sale | 1,013 | 1,032 | 906 | 914 | ||||||||||||
Loans | 1,102,330 | 1,169,660 | 948,652 | 963,022 | ||||||||||||
Company owned life insurance | 23,692 | 23,692 | 3,017 | 3,017 | ||||||||||||
Accrued interest receivable | 7,556 | 7,556 | 9,170 | 9,170 | ||||||||||||
FHLB and FRB stock | 6,035 | 6,035 | 5,972 | 5,972 | ||||||||||||
Financial liabilities: | ||||||||||||||||
Demand, savings and money market deposits | 985,796 | 985,796 | 968,315 | 968,315 | ||||||||||||
Time deposits | 647,467 | 654,334 | 607,656 | 607,656 | ||||||||||||
Short-term borrowings | 23,465 | 23,465 | 25,643 | 25,643 | ||||||||||||
Long-term borrowings (excluding junior subordinated debentures) | 30,653 | 32,005 | 25,865 | 26,446 | ||||||||||||
Junior subordinated debentures | 16,702 | 12,232 | 16,702 | 17,258 | ||||||||||||
Accrued interest payable | 7,041 | 7,041 | 10,584 | 10,584 |
Condensed Statements of Condition | 2008 | 2007 | ||||||
Assets: | ||||||||
Cash and due from subsidiaries | $ | 27,163 | $ | 13,228 | ||||
Securities available for sale, at fair value | 624 | 780 | ||||||
Note receivable | 300 | 300 | ||||||
Investment in and receivables due from subsidiaries | 176,780 | 196,449 | ||||||
Other assets | 4,585 | 4,010 | ||||||
Total assets | $ | 209,452 | $ | 214,767 | ||||
Liabilities and shareholders’ equity: | ||||||||
Junior subordinated debentures | $ | 16,702 | $ | 16,702 | ||||
Other liabilities | 2,450 | 2,743 | ||||||
Shareholders’ equity | 190,300 | 195,322 | ||||||
Total liabilities and shareholders’ equity | $ | 209,452 | $ | 214,767 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008, 2007 and 2006
(18.) | PARENT COMPANY FINANCIAL INFORMATION (Continued) |
Condensed Statements of Operations | 2008 | 2007 | 2006 | |||||||||
Dividends from subsidiaries and associated companies | $ | 11,251 | $ | 14,151 | $ | 35,455 | ||||||
Management and service fees from subsidiaries | 418 | 631 | 643 | |||||||||
Other income | 74 | 94 | 427 | |||||||||
Total income | 11,743 | 14,876 | 36,525 | |||||||||
Operating expenses | 4,363 | 4,684 | 6,319 | |||||||||
Income before income tax benefit and equity in undistributed earnings (distributions in excess of earnings) of subsidiaries | 7,380 | 10,192 | 30,206 | |||||||||
Income tax benefit | 1,499 | 1,491 | 2,164 | |||||||||
Income before equity in undistributed earnings (distributions in excess of earnings) of subsidiaries | 8,879 | 11,683 | 32,370 | |||||||||
(Distributions in excess of earnings) equity in undistributed earnings of subsidiaries | (35,037 | ) | 4,726 | (15,008 | ) | |||||||
Net (loss) income | $ | (26,158 | ) | $ | 16,409 | $ | 17,362 | |||||
Condensed Statements of Cash Flows | 2008 | 2007 | 2006 | |||||||||
Cash flows from operating activities: | ||||||||||||
Net (loss) income | $ | (26,158 | ) | $ | 16,409 | $ | 17,362 | |||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||
Distributions in excess of earnings (equity in undistributed earnings) of subsidiaries | 35,037 | (4,726 | ) | 15,008 | ||||||||
Depreciation and amortization | 427 | 521 | 642 | |||||||||
Share-based compensation | 633 | 955 | 865 | |||||||||
Increase in other assets | (763 | ) | (242 | ) | (1,076 | ) | ||||||
(Decrease) increase in other liabilities | (258 | ) | (2,421 | ) | 1,120 | |||||||
Net cash provided by operating activities | 8,918 | 10,496 | 33,921 | |||||||||
Cash flows from investing activities: | ||||||||||||
(Purchase) sale of securities available for sale | (27 | ) | — | 21 | ||||||||
Purchase of premises and equipment, net of disposals | (72 | ) | 189 | 528 | ||||||||
Capital investment in subsidiary bank | (20,000 | ) | — | — | ||||||||
Net cash (used in) provided by investing activities | (20,099 | ) | 189 | 549 | ||||||||
Cash flows from financing activities: | ||||||||||||
Repayment on long-term borrowings | — | — | (25,000 | ) | ||||||||
Purchase of preferred and common shares | (4,821 | ) | (7,245 | ) | (346 | ) | ||||||
Proceeds from issuance of preferred and common shares | 35,602 | 105 | 112 | |||||||||
Proceeds from issuance of common stock warrant | 2,025 | — | — | |||||||||
Proceeds from stock options exercised | 32 | 251 | 204 | |||||||||
Dividends paid | (7,722 | ) | (6,199 | ) | (5,226 | ) | ||||||
Net cash provided by (used in) financing activities | 25,116 | (13,088 | ) | (30,256 | ) | |||||||
Net (decrease) increase in cash and cash equivalents | 13,935 | (2,403 | ) | 4,214 | ||||||||
Cash and cash equivalents as of beginning of year | 13,228 | 15,631 | 11,417 | |||||||||
Cash and cash equivalents as of end of the year | $ | 27,163 | $ | 13,228 | $ | 15,631 | ||||||
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ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS |
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Exhibit | |||||
Number | Description | Location | |||
3.1 | Amended and Restated Certificate of Incorporation of the Company | Filed Herewith | |||
3.2 | Certificate of Amendment to the Certificate of Incorporation of the Company relating to the Series A Preferred Stock | Filed Herewith | |||
3.3 | Certificate of Amendment to the Certificate of Incorporation of the Company relating to the Series A 3% Preferred Stock | Filed Herewith | |||
3.4 | Amended and Restated Bylaws of the Company | Filed Herewith | |||
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 19, 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 10.1 of 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 | Filed Herewith | |||
10.8 | 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 | |||
10.9 | Executive Agreement with Peter G. Humphrey | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated September 30, 2005 | |||
10.10 | Executive Agreement with James T. Rudgers | Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated September 30, 2005 |
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Exhibit | |||||
Number | Description | Location | |||
10.11 | Executive Agreement with Ronald A. Miller | Incorporated by reference to Exhibit 10.3 of the Form 8-K, dated September 30, 2005 | |||
10.12 | Executive Agreement with Martin K. Birmingham | Incorporated by reference to Exhibit 10.4 of the Form 8-K, dated September 30, 2005 | |||
10.13 | Agreement with Peter G. Humphrey | Incorporated by reference to Exhibit 10.6 of the Form 8-K, dated September 30, 2005 | |||
10.14 | Executive Agreement with John J. Witkowski | Incorporated by reference to Exhibit 10.7 of the Form 8-K, dated September 14, 2005 | |||
10.15 | Executive Agreement with George D. Hagi | Incorporated by reference to Exhibit 10.7 of the Form 8-K, dated February 2, 2006 | |||
10.16 | Voluntary Retirement Agreement with James T. Rudgers | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated September 24, 2008 | |||
10.17 | Voluntary Retirement Agreement with Ronald A. Miller | Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated September 24, 2008 | |||
10.18 | 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 19, 2008 | |||
11.1 | Statement of Computation of Per Share Earnings | Incorporated by reference to Note 15 of the Registrant’s unaudited 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 to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed Herewith |
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FINANCIAL INSTITUTIONS, INC. | ||||
March 12, 2009 | /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 12, 2009 | ||
/s/ Ronald A. Miler | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | March 12, 2009 | ||
/s/ Karl V. Anderson, Jr. | Director | March 12, 2009 | ||
/s/ John E. Benjamin | Director | March 12, 2009 | ||
/s/ Thomas P. Connolly | Director | March 12, 2009 | ||
/s/ Barton P. Dambra | Director | March 12, 2009 | ||
/s/ Samuel M. Gullo | Director | March 12, 2009 | ||
/s/ Susan R. Holliday | Director | March 12, 2009 | ||
/s/ Erland E. Kailbourne | Director, Chairman | March 12, 2009 | ||
/s/ Robert N. Latella | Director | March 12, 2009 | ||
/s/ James L. Robinson | Director | March 12, 2009 | ||
/s/ John R. Tyler, Jr. | Director | March 12, 2009 | ||
/s/ James H. Wyckoff | Director | March 12, 2009 |
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Exhibit | |||||
Number | Description | Location | |||
3.1 | Amended and Restated Certificate of Incorporation of the Company | Filed Herewith | |||
3.2 | Certificate of Amendment to the Certificate of Incorporation of the Company relating to the Series A Preferred Stock | Filed Herewith | |||
3.3 | Certificate of Amendment to the Certificate of Incorporation of the Company relating to the Series A 3% Preferred Stock | Filed Herewith | |||
3.4 | Amended and Restated Bylaws of the Company | Filed Herewith | |||
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 19, 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 10.1 of 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 | Filed Herewith | |||
10.8 | 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 | |||
10.9 | Executive Agreement with Peter G. Humphrey | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated September 30, 2005 | |||
10.10 | Executive Agreement with James T. Rudgers | Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated September 30, 2005 | |||
10.11 | Executive Agreement with Ronald A. Miller | Incorporated by reference to Exhibit 10.3 of the Form 8-K, dated September 30, 2005 | |||
10.12 | Executive Agreement with Martin K. Birmingham | Incorporated by reference to Exhibit 10.4 of the Form 8-K, dated September 30, 2005 | |||
10.13 | Agreement with Peter G. Humphrey | Incorporated by reference to Exhibit 10.6 of the Form 8-K, dated September 30, 2005 | |||
10.14 | Executive Agreement with John J. Witkowski | Incorporated by reference to Exhibit 10.7 of the Form 8-K, dated September 14, 2005 |
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Exhibit | |||||
Number | Description | Location | |||
10.15 | Executive Agreement with George D. Hagi | Incorporated by reference to Exhibit 10.7 of the Form 8-K, dated February 2, 2006 | |||
10.16 | Voluntary Retirement Agreement with James T. Rudgers | Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated September 24, 2008 | |||
10.17 | Voluntary Retirement Agreement with Ronald A. Miller | Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated September 24, 2008 | |||
10.18 | 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 19, 2008 | |||
11.1 | Statement of Computation of Per Share Earnings | Incorporated by reference to Note 15 of the Registrant’s unaudited 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 to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed Herewith |
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