CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(In thousands) (Unaudited)
|
|
|
06/30/2014
|
|
|
|
06/30/2013
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
Cash paid during the year for - Interest
|
|
$
|
12,344
|
|
|
$
|
12,537
|
|
Cash paid during the year for - Taxes
|
|
|
437
|
|
|
|
697
|
|
Transfer of loans to other real estate owned
|
|
|
4,067
|
|
|
|
1,794
|
|
See notes to unaudited condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(in thousands except share and per share
data)
|
|
Common
Stock
|
|
|
Additional
Paid-in Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other Comprehensive (Loss) Income
|
|
|
Treasury
Stock
|
|
|
Non-controlling
Interests
|
|
|
Total
|
|
Balances
at January 1, 2013
|
|
$
|
1,443
|
|
|
$
|
334,649
|
|
|
$
|
108,709
|
|
|
$
|
(2,106
|
)
|
|
$
|
(2,787
|
)
|
|
$
|
1,452
|
|
|
$
|
441,360
|
|
Net
income attributable to noncontrolling interests and Tompkins Financial Corporation
|
|
|
|
|
|
|
|
|
|
|
22,516
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
22,581
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,561
|
)
|
|
|
|
|
|
|
|
|
|
|
(25,561
|
)
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,980
|
)
|
Cash dividends ($0.76
per share)
|
|
|
|
|
|
|
|
|
|
|
(11,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,007
|
)
|
Net exercise of stock options
and related tax
benefit (38,742 shares)
|
|
|
4
|
|
|
|
1,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,296
|
|
Stock-based
compensation expense
|
|
|
|
|
|
|
567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
567
|
|
Shares
issued for dividend reinvestment plan (47,019 shares)
|
|
|
5
|
|
|
|
1,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,941
|
|
Shares
issued for employee stock ownership plan (17,290 shares)
|
|
|
2
|
|
|
|
715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
717
|
|
Directors
deferred compensation plan (1,001 shares)
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
0
|
|
Restricted
stock activity (105,706 shares)
|
|
|
10
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Balances
at June 30, 2013
|
|
$
|
1,464
|
|
|
$
|
339,233
|
|
|
$
|
120,218
|
|
|
$
|
(27,667
|
)
|
|
$
|
(2,871
|
)
|
|
$
|
1,517
|
|
|
$
|
431,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at January 1, 2014
|
|
$
|
1,479
|
|
|
$
|
346,096
|
|
|
$
|
137,102
|
|
|
$
|
(25,119
|
)
|
|
$
|
(3,071
|
)
|
|
$
|
1,452
|
|
|
$
|
457,939
|
|
Net
income attributable to noncontrolling interests and Tompkins Financial Corporation
|
|
|
|
|
|
|
|
|
|
|
25,630
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
25,695
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,284
|
|
|
|
|
|
|
|
|
|
|
|
12,284
|
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,979
|
|
Cash dividends ($0.80
per share)
|
|
|
|
|
|
|
|
|
|
|
(11,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,839
|
)
|
Net
exercise of stock options and related tax benefit (29,485 shares)
|
|
|
3
|
|
|
|
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for dividend reinvestment plan (46,081 shares)
|
|
|
4
|
|
|
|
2,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,186
|
|
Stock-based
compensation expense
|
|
|
|
|
|
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for employee stock ownership plan (31,192 shares)
|
|
|
3
|
|
|
|
1,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
deferred compensation plan (680 shares)
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
0
|
|
Restricted
stock activity ((2,416) shares)
|
|
|
0
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
|
|
Balances
at June 30, 2014
|
|
$
|
1,489
|
|
|
$
|
351,324
|
|
|
$
|
150,893
|
|
|
$
|
(12,835
|
)
|
|
$
|
(3,151
|
)
|
|
$
|
1,517
|
|
|
$
|
489,237
|
|
See notes
to unaudited condensed consolidated financial statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Tompkins Financial Corporation (“Tompkins”
or the “Company”) is headquartered in Ithaca, New York and is registered as a Financial Holding Company with the Federal
Reserve Board under the Bank Holding Company Act of 1956, as amended. The Company is a locally oriented, community-based financial
services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust
and investment management, financial planning and wealth management, insurance, and brokerage services.
At June 30, 2014,
the Company’s subsidiaries included: four wholly-owned banking subsidiaries, Tompkins Trust Company (the “Trust Company”),
The Bank of Castile (DBA Tompkins Bank of Castile), Mahopac Bank (formerly known as Mahopac National Bank, DBA Tompkins Mahopac
Bank), VIST Bank (DBA Tompkins VIST Bank); and a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. (“Tompkins
Insurance”). TFA Wealth Management and the trust division of the Trust Company provide a full array of investment services
under the Tompkins Financial Advisors brand, including investment management, trust and estate, financial and tax planning as well
as life, disability and long-term care insurance services. The Company’s principal offices are located at The Commons, Ithaca,
New York, 14851, and its telephone number is (888) 503-5753. The Company’s common stock is traded on the NYSE MKT LLC under the
Symbol “TMP.”
As a registered financial holding company,
the Company is regulated under the Bank Holding Company Act of 1956 (“BHC Act”), as amended and is subject to examination
and comprehensive regulation by the Federal Reserve Board (“FRB”). The Company is also subject to the jurisdiction of
the Securities and Exchange Commission (“SEC”) and is subject to disclosure and regulatory requirements under the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The Company is subject to the rules of the NYSE MKT
LLC for listed companies.
The Company’s banking subsidiaries are
subject to examination and comprehensive regulation by various regulatory authorities, including the Federal Deposit Insurance
Corporation (“FDIC”), the New York State Department of Financial Services (“NYSDFS”), and the Pennsylvania
Department of Banking and Securities (“PDBS”). Each of these agencies issues regulations and requires the filing of reports
describing the activities and financial condition of the entities under its jurisdiction. Likewise, such agencies conduct examinations
on a recurring basis to evaluate the safety and soundness of the institutions, and to test compliance with various regulatory requirements,
including: consumer protection, privacy, fair lending, the Community Reinvestment Act, the Bank Secrecy Act, sales of non-deposit
investments, electronic data processing, and trust department activities.
The Company’s wealth management subsidiary
is subject to examination and regulation by various regulatory agencies, including the SEC and the Financial Industry Regulatory
Authority (“FINRA”). The trust division of Tompkins Trust Company is subject to examination and comprehensive regulation
by the FDIC and NYSDFS.
The Company’s insurance subsidiary is subject
to examination and regulation by the NYSDFS and the Pennsylvania Insurance Department.
2. Basis of Presentation
The unaudited consolidated financial statements
included in this quarterly report do not include all of the information and footnotes required by GAAP for a full year presentation
and certain disclosures have been condensed or omitted in accordance with rules and regulations of the SEC. In the application
of certain accounting policies, management is required to make assumptions regarding the effect of matters that are inherently
uncertain. These estimates and assumptions affect the reported amounts of certain assets, liabilities, revenues, and expenses in
the unaudited condensed consolidated financial statements. Different amounts could be reported under different conditions, or if
different assumptions were used in the application of these accounting policies. The accounting policies that management considers
critical in this respect are the determination of the allowance for loan and lease losses, the expenses and liabilities associated
with the Company’s pension and post-retirement benefits, and the review of its securities portfolio for other than temporary impairment.
In management’s opinion, the unaudited
condensed consolidated financial statements reflect all adjustments of a normal recurring nature. The results of operations for
the interim periods are not necessarily indicative of the results of operations to be expected for the full year ended December
31, 2014. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. There
have been no significant changes to the Company’s accounting policies from those presented in the 2013 Annual Report on Form 10-K.
Refer to Note 3- “Accounting Standards Updates” of this Report for a discussion of recently issued accounting guidelines.
Cash and cash equivalents in the consolidated
statements of cash flow include cash and noninterest bearing balances due from banks, interest-bearing balances due from banks,
and money market funds. Management regularly evaluates the credit risk associated with the counterparties to these transactions
and believes that the Company is not exposed to any significant credit risk on cash and cash equivalents.
The Company has evaluated subsequent events
for potential recognition and/or disclosure, and determined that no further disclosures were required.
The consolidated financial information
included herein combines the results of operations, the assets, liabilities, and shareholders’ equity of the Company and its subsidiaries.
Amounts in the prior periods’ unaudited condensed consolidated financial statements are reclassified when necessary to conform
to the current periods’ presentation. During the quarter ended March 31, 2014, the Company revised the comparative December 31,
2013 outstanding principal balance of acquired credit impaired loans from $62,146 to $70,727, and the balance of outstanding principal
balance of acquired non-credit impaired loans from $666,089 to $630,600. The Company has assessed the materiality of this correction
of an error and concluded, based on qualitative and quantitative considerations, that the adjustments are not material to the financial
statements as a whole. All significant intercompany balances and transactions are eliminated in consolidation.
3. Accounting Standards
Updates
ASU 2014-01, “
Investments (Topic
323), Accounting for Investments in Qualified Affordable Housing Projects
.” The amendments in this ASU provide guidance
on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable
housing projects that qualify for the low-income housing tax credit. The amendments permit reporting entities to make an accounting
policy election to account for their investments in qualified affordable housing projects using the proportional amortization method
if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment
in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement
as a component of income tax expense (benefit). The amendments in this ASU are effective for the Company for annual periods beginning
January 1, 2015 and should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield
method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply
the effective yield method for those preexisting investments. The Company does not expect the adoption of this ASU to have a material
impact on the Company’s consolidated financial statements.
ASU 2014-04, “
Receivables-Troubled
Debt Restructurings by Creditors (Subtopic 310-40”)
, Reclassification of Residential Real Estate Collateralized Consumer
Mortgage Loans Upon Foreclosure.” This new guidance clarifies when an in substance repossession or foreclosure occurs, and
requires all creditors who obtain physical possession (resulting from an in substance repossession or foreclosure) of residential
real estate property collateralizing a consumer mortgage loan in satisfaction of a receivable to reclassify the collateralized
mortgage loan such that the loan should be derecognized and the collateral asset recognized. This guidance is effective prospectively
for the Company for annual and interim periods beginning after December 15, 2014. The adoption of this guidance is not expected
to have a material impact on the Company’s consolidated financial statements.
ASU 2014-12
“Compensation
—
Stock Compensation” (Topic 718”):
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite
Service Period, a consensus of the FASB Emerging Issues Task Force (ASU 2014-12). ASU 2014-12 requires that a performance target
that affects vesting of share-based payment awards and that could be achieved after the requisite service period be treated as
a performance condition. Compensation cost should be recognized in the period in which it becomes probable that the performance
target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service
has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service
period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period.
The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards
that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends
when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved.
ASU 2014-12 is effective for all entities for interim and annual periods beginning after December 15, 2015, with early adoption
permitted. An entity may apply the amendments in ASU 2014-12 either (i) prospectively to all awards granted or modified after the
effective date or (ii) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest
annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is
not expected to have a material impact on the Company’s consolidated financial condition or results of operations.
Available-for-Sale Securities
|
The following table summarizes available-for-sale securities held by the Company at June 30, 2014:
|
|
|
|
|
Available-for-Sale Securities
|
|
|
June 30, 2014
|
|
|
Amortized Cost
|
|
|
|
Gross Unrealized Gains
|
|
|
|
Gross Unrealized Losses
|
|
|
|
Fair Value
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored entities
|
|
$
|
553,105
|
|
|
$
|
7,945
|
|
|
$
|
1,967
|
|
|
$
|
559,083
|
|
Obligations of U.S. states and political subdivisions
|
|
|
65,862
|
|
|
|
1,226
|
|
|
|
543
|
|
|
|
66,545
|
|
Mortgage-backed securities – residential, issued by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
|
132,754
|
|
|
|
2,808
|
|
|
|
1,430
|
|
|
|
134,132
|
|
U.S. Government sponsored entities
|
|
|
617,258
|
|
|
|
8,793
|
|
|
|
10,402
|
|
|
|
615,649
|
|
Non-U.S. Government agencies or sponsored entities
|
|
|
289
|
|
|
|
5
|
|
|
|
0
|
|
|
|
294
|
|
U.S. corporate debt securities
|
|
|
2,500
|
|
|
|
0
|
|
|
|
375
|
|
|
|
2,125
|
|
Total debt securities
|
|
|
1,371,768
|
|
|
|
20,777
|
|
|
|
14,717
|
|
|
|
1,377,828
|
|
Equity securities
|
|
|
1,475
|
|
|
|
0
|
|
|
|
49
|
|
|
|
1,426
|
|
Total available-for-sale securities
|
|
$
|
1,373,243
|
|
|
$
|
20,777
|
|
|
$
|
14,766
|
|
|
$
|
1,379,254
|
|
The following table summarizes available-for-sale securities held by the Company at December 31, 2013:
|
|
|
|
Available-for-Sale Securities
|
|
|
December 31, 2013
|
|
|
Amortized Cost
|
|
|
|
Gross Unrealized Gains
|
|
|
|
Gross Unrealized Losses
|
|
|
|
Fair Value
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored entities
|
|
$
|
558,130
|
|
|
$
|
7,720
|
|
|
$
|
9,505
|
|
|
$
|
556,345
|
|
Obligations of U.S. states and political subdivisions
|
|
|
68,216
|
|
|
|
1,193
|
|
|
|
1,447
|
|
|
|
67,962
|
|
Mortgage-backed securities – residential, issued by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
|
147,766
|
|
|
|
2,554
|
|
|
|
3,642
|
|
|
|
146,678
|
|
U.S. Government sponsored entities
|
|
|
587,843
|
|
|
|
8,122
|
|
|
|
18,493
|
|
|
|
577,472
|
|
Non-U.S. Government agencies or sponsored entities
|
|
|
306
|
|
|
|
5
|
|
|
|
0
|
|
|
|
311
|
|
U.S. corporate debt securities
|
|
|
5,000
|
|
|
|
8
|
|
|
|
375
|
|
|
|
4,633
|
|
Total debt securities
|
|
|
1,367,261
|
|
|
|
19,602
|
|
|
|
33,462
|
|
|
|
1,353,401
|
|
Equity securities
|
|
|
1,475
|
|
|
|
0
|
|
|
|
65
|
|
|
|
1,410
|
|
Total available-for-sale securities
|
|
$
|
1,368,736
|
|
|
$
|
19,602
|
|
|
$
|
33,527
|
|
|
$
|
1,354,811
|
|
Held-to-Maturity Securities
|
The following table summarizes held-to-maturity securities held by the Company at June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Securities
|
|
June 30, 2014
|
|
|
Amortized Cost
|
|
|
|
Gross Unrealized Gains
|
|
|
|
Gross Unrealized Losses
|
|
|
|
Fair Value
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored entities
|
|
$
|
14,793
|
|
|
$
|
32
|
|
|
$
|
0
|
|
|
$
|
14,825
|
|
Obligations of U.S. states and political subdivisions
|
|
$
|
16,170
|
|
|
$
|
635
|
|
|
$
|
1
|
|
|
$
|
16,804
|
|
Total held-to-maturity debt securities
|
|
$
|
30,963
|
|
|
$
|
667
|
|
|
$
|
1
|
|
|
$
|
31,629
|
|
The following table summarizes held-to-maturity securities held by the Company at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Securities
|
|
December 31, 2013
|
|
|
Amortized Cost
|
|
|
|
Gross Unrealized Gains
|
|
|
|
Gross Unrealized Losses
|
|
|
|
Fair Value
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. states and political subdivisions
|
|
$
|
18,980
|
|
|
$
|
645
|
|
|
$
|
0
|
|
|
$
|
19,625
|
|
Total held-to-maturity debt securities
|
|
$
|
18,980
|
|
|
$
|
645
|
|
|
$
|
0
|
|
|
$
|
19,625
|
|
The Company may from time to time sell
investment securities from its available-for-sale portfolio. Realized gains on available-for-sale securities sold were $35,000
and $166,000 in the second quarter and six months ending June 30, 2014, respectively, and $138,000 and $505,000 in the same periods
of 2013. Realized losses on available-for-sale securities sold were $0 and $78,000 in the second quarter and six months ending
June 30, 2014, respectively, and $63,000 in the second quarter and six months ending June 30, 2013, respectively.
The following table summarizes available-for-sale securities that had unrealized losses at June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
(in thousands)
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
Obligations of U.S. Government sponsored entities
|
|
$
|
44,229
|
|
|
$
|
119
|
|
|
$
|
125,746
|
|
|
$
|
1,848
|
|
|
$
|
169,975
|
|
|
$
|
1,967
|
|
Obligations of U.S. states and political subdivisions
|
|
|
10,295
|
|
|
|
106
|
|
|
|
12,973
|
|
|
|
437
|
|
|
|
23,268
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities – issued by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
|
1,952
|
|
|
|
8
|
|
|
|
44,453
|
|
|
|
1,422
|
|
|
|
46,405
|
|
|
|
1,430
|
|
U.S. Government sponsored entities
|
|
|
101,997
|
|
|
|
421
|
|
|
|
284,857
|
|
|
|
9,981
|
|
|
|
386,854
|
|
|
|
10,402
|
|
U.S. corporate debt securities
|
|
|
0
|
|
|
|
0
|
|
|
|
2,125
|
|
|
|
375
|
|
|
|
2,125
|
|
|
|
375
|
|
Equity securities
|
|
|
0
|
|
|
|
0
|
|
|
|
951
|
|
|
|
49
|
|
|
|
951
|
|
|
|
49
|
|
Total available-for-sale securities
|
|
$
|
158,473
|
|
|
$
|
654
|
|
|
$
|
471,105
|
|
|
$
|
14,112
|
|
|
$
|
629,578
|
|
|
$
|
14,766
|
|
The following table summarizes held-to-maturity securities that had unrealized losses at June 30, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
(in thousands)
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
Obligations of U.S. states and
political subdivisions
|
|
$
|
1,791
|
|
|
$
|
1
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,791
|
|
|
$
|
1
|
|
Total held-to-maturity securities
|
|
$
|
1,791
|
|
|
$
|
1
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,791
|
|
|
$
|
1
|
|
The following table summarizes available-for-sale securities that had unrealized losses at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
(in thousands)
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
Obligations of U.S. Government sponsored entities
|
|
$
|
337,967
|
|
|
$
|
9,467
|
|
|
$
|
1,761
|
|
|
$
|
38
|
|
|
$
|
339,728
|
|
|
$
|
9,505
|
|
Obligations of U.S. states and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
21,821
|
|
|
|
821
|
|
|
|
6,173
|
|
|
|
626
|
|
|
|
27,994
|
|
|
|
1,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities – residential, issued by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
|
70,052
|
|
|
|
2,701
|
|
|
|
14,874
|
|
|
|
941
|
|
|
|
84,926
|
|
|
|
3,642
|
|
U.S. Government sponsored entities
|
|
|
293,945
|
|
|
|
14,061
|
|
|
|
76,070
|
|
|
|
4,432
|
|
|
|
370,015
|
|
|
|
18,493
|
|
U.S. corporate debt securities
|
|
|
0
|
|
|
|
0
|
|
|
|
2,125
|
|
|
|
375
|
|
|
|
2,125
|
|
|
|
375
|
|
Equity securities
|
|
|
0
|
|
|
|
0
|
|
|
|
935
|
|
|
|
65
|
|
|
|
935
|
|
|
|
65
|
|
Total available-for-sale securities
|
|
$
|
723,785
|
|
|
$
|
27,050
|
|
|
$
|
101,938
|
|
|
$
|
6,477
|
|
|
$
|
825,723
|
|
|
$
|
33,527
|
|
There were no unrealized losses on held-to-maturity securities at December 31, 2013.
The gross unrealized losses reported for
residential mortgage-backed securities relate to investment securities issued by U.S. government sponsored entities such as Federal
National Mortgage Association, Federal Home Loan Mortgage Corporation, and U.S. government agencies such as Government National
Mortgage Association. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest
rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit quality
of the investment securities.
The Company does not intend to sell other-than-temporarily
impaired investment securities that are in an unrealized loss position until recovery of unrealized losses (which may be until
maturity), and it is not more-likely-than not that the Company will be required to sell the investment securities, before recovery
of their amortized cost basis, which may be at maturity. Accordingly, as of June 30, 2014, and December 31, 2013, management
has determined that the unrealized losses detailed in the tables above are not other-than-temporary.
Ongoing Assessment of Other-Than-Temporary
Impairment
On a quarterly
basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating
that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered
impaired if the fair value is less than its amortized cost basis (including any previous OTTI charges) at the reporting date. If
impaired, the Company then assesses whether the unrealized loss is other-than-temporary. An unrealized loss on a debt security
is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value, discounted at the security’s
effective rate, of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the
credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining
portion of the impairment loss is recognized, net of tax, in other comprehensive income provided that the Company does not intend
to sell the underlying debt security and it is more-likely-than not that the Company would not have to sell the debt security prior
to recovery of the unrealized loss, which may be to maturity. If the Company intended to sell any securities with an unrealized
loss or it is more-likely-than not that the Company would be required to sell the investment securities, before recovery of their
amortized cost basis, then the entire unrealized loss would be recorded in earnings.
The Company considers the following factors
in determining whether a credit loss exists.
|
-
|
The length of time and the extent to which the fair value has been less than the amortized cost
basis;
|
|
-
|
The level of credit enhancement provided by the structure which includes, but is not limited to,
credit subordination positions, excess spreads, overcollateralization, protective triggers;
|
|
-
|
Changes in the near term prospects of the issuer or underlying collateral of a security, such as
changes in default rates, loss severities given default and significant changes in prepayment assumptions;
|
|
-
|
The level of excess cash flow generated from the underlying collateral supporting the principal
and interest payments of the debt securities; and
|
|
-
|
Any adverse change to the credit conditions of the issuer or the security such as credit downgrades
by the rating agencies.
|
As a result of the other-than-temporarily
impairment review process, the Company does not consider any investment security held at June 30, 2014 to be other-than-temporarily
impaired.
The following table summarizes the roll-forward of credit losses on debt securities held by the Company for which a portion of an other-than-temporary impairment is recognized in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
(in thousands)
|
|
06/30/2014
|
|
|
06/30/2013
|
|
|
06/30/2014
|
|
|
06/30/2013
|
|
Credit
losses at beginning of the period
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of securities for which an other-than-temporary
impairment was previously recognized
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of credit losses on debt securities held
for which a portion of another-than temporary impairment was recognized in other comprehensive income
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
The amortized cost and estimated fair
value of debt securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed
securities are shown separately since they are not due at a single maturity date.
June 30, 2014
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
42,831
|
|
|
$
|
43,495
|
|
Due after one year through five years
|
|
|
374,291
|
|
|
|
382,028
|
|
Due after five years through ten years
|
|
|
183,655
|
|
|
|
182,298
|
|
Due after ten years
|
|
|
20,690
|
|
|
|
19,932
|
|
Total
|
|
|
621,467
|
|
|
|
627,753
|
|
Mortgage-backed securities
|
|
|
750,301
|
|
|
|
750,075
|
|
Total available-for-sale debt securities
|
|
$
|
1,371,768
|
|
|
$
|
1,377,828
|
|
December
31, 2013
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
25,596
|
|
|
$
|
26,017
|
|
Due after one year through five years
|
|
|
263,553
|
|
|
|
271,303
|
|
Due after five years through ten years
|
|
|
313,245
|
|
|
|
304,414
|
|
Due after ten years
|
|
|
28,952
|
|
|
|
27,206
|
|
Total
|
|
|
631,346
|
|
|
|
628,940
|
|
Mortgage-backed securities
|
|
|
735,915
|
|
|
|
724,461
|
|
Total available-for-sale debt securities
|
|
$
|
1,367,261
|
|
|
$
|
1,353,401
|
|
June 30, 2014
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Held-to-maturity securities:
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
10,621
|
|
|
$
|
10,731
|
|
Due after one year through five years
|
|
|
3,850
|
|
|
|
4,150
|
|
Due after five years through ten years
|
|
|
16,108
|
|
|
|
16,311
|
|
Due after ten years
|
|
|
384
|
|
|
|
437
|
|
Total held-to-maturity debt securities
|
|
$
|
30,963
|
|
|
$
|
31,629
|
|
December 31, 2013
|
|
|
|
|
|
|
(in thousands)
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Held-to-maturity securities:
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
10,952
|
|
|
$
|
11,021
|
|
Due after one year through five years
|
|
|
5,636
|
|
|
|
6,004
|
|
Due after five years through ten years
|
|
|
1,878
|
|
|
|
2,051
|
|
Due after ten years
|
|
|
514
|
|
|
|
549
|
|
Total held-to-maturity debt securities
|
|
$
|
18,980
|
|
|
$
|
19,625
|
|
The Company also holds non-marketable Federal Home Loan
Bank New York (“FHLBNY”) stock, non-marketable Federal Home Loan Bank Pittsburgh (“FHLBPITT”) stock and non-marketable
Atlantic Central Bankers Bank stock, all of which are required to be held for regulatory purposes and for borrowing availability.
The required investment in FHLB stock is tied to the Company’s borrowing levels with the FHLB. Holdings of FHLBNY stock, FHLBPITT
stock and ACBB stock totaled $12.7 million, $8.3 million and $95,000 at June 30, 2014, respectively. These securities are carried
at par, which is also cost. The FHLBNY and FHLBPITT continue to pay dividends and repurchase stock. As such, the Company has not
recognized any impairment on its holdings of FHLBNY and FHLBPITT stock. Quarterly, we evaluate our investment in the FHLB for
impairment. We evaluate recent and long-term operating performance, liquidity, funding and capital positions, stock repurchase
history, dividend history and impact of legislative and regulatory changes. Based on our most recent evaluation, we have determined
that no impairment write-downs are currently required.
Trading Securities
|
The following summarizes trading securities, at estimated fair value, as of:
|
(in thousands)
|
|
06/30/2014
|
|
|
12/31/2013
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored entities
|
|
$
|
7,875
|
|
|
$
|
8,275
|
|
Mortgage-backed securities – residential, issued by
|
|
|
|
|
|
|
|
|
U.S. Government sponsored entities
|
|
|
2,134
|
|
|
|
2,716
|
|
Total
|
|
$
|
10,009
|
|
|
$
|
10,991
|
|
The decrease in trading securities reflects
principal repayments and maturities received during the quarter ended June 30, 2014. The pre-tax mark-to-market losses on trading
securities totaled $34,000 and $93,000 for the second quarter and six months ending June 30, 2014, respectively, and $270,000 and
$385,000 for the second quarter and six months ending June 30, 2013, respectively.
The Company pledges securities as collateral
for public deposits and other borrowings, and sells securities under agreements to repurchase. Securities carried of $1.1 billion
and $1.0 billion at June 30, 2014, and December 31, 2013, respectively, were either pledged or sold under agreements to repurchase.
5. Loans and Leases
|
Loans and Leases at June 30, 2014 and December 31, 2013 were as follows:
|
|
|
06/30/2014
|
|
|
12/31/2013
|
|
(in thousands)
|
|
Originated
|
|
|
Acquired
|
|
|
Total Loans and Leases
|
|
|
Originated
|
|
|
Acquired
|
|
|
Total Loans and Leases
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
$
|
46,677
|
|
|
$
|
0
|
|
|
$
|
46,677
|
|
|
$
|
74,788
|
|
|
$
|
0
|
|
|
$
|
74,788
|
|
Commercial and industrial other
|
|
|
608,596
|
|
|
|
120,316
|
|
|
|
728,912
|
|
|
|
562,439
|
|
|
|
128,503
|
|
|
|
690,942
|
|
Subtotal commercial and industrial
|
|
|
655,273
|
|
|
|
120,316
|
|
|
|
775,589
|
|
|
|
637,227
|
|
|
|
128,503
|
|
|
|
765,730
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
46,082
|
|
|
|
44,557
|
|
|
|
90,639
|
|
|
|
46,441
|
|
|
|
39,353
|
|
|
|
85,794
|
|
Agriculture
|
|
|
63,419
|
|
|
|
3,173
|
|
|
|
66,592
|
|
|
|
52,627
|
|
|
|
3,135
|
|
|
|
55,762
|
|
Commercial real estate other
|
|
|
940,626
|
|
|
|
331,642
|
|
|
|
1,272,268
|
|
|
|
903,320
|
|
|
|
366,438
|
|
|
|
1,269,758
|
|
Subtotal commercial real estate
|
|
|
1,050,127
|
|
|
|
379,372
|
|
|
|
1,429,499
|
|
|
|
1,002,388
|
|
|
|
408,926
|
|
|
|
1,411,314
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
178,433
|
|
|
|
61,564
|
|
|
|
239,997
|
|
|
|
171,809
|
|
|
|
67,183
|
|
|
|
238,992
|
|
Mortgages
|
|
|
668,643
|
|
|
|
34,145
|
|
|
|
702,788
|
|
|
|
658,966
|
|
|
|
35,336
|
|
|
|
694,302
|
|
Subtotal residential real estate
|
|
|
847,076
|
|
|
|
95,709
|
|
|
|
942,785
|
|
|
|
830,775
|
|
|
|
102,519
|
|
|
|
933,294
|
|
Consumer and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect
|
|
|
19,385
|
|
|
|
0
|
|
|
|
19,385
|
|
|
|
21,202
|
|
|
|
5
|
|
|
|
21,207
|
|
Consumer and other
|
|
|
33,502
|
|
|
|
1,117
|
|
|
|
34,619
|
|
|
|
32,312
|
|
|
|
1,219
|
|
|
|
33,531
|
|
Subtotal consumer and other
|
|
|
52,887
|
|
|
|
1,117
|
|
|
|
54,004
|
|
|
|
53,514
|
|
|
|
1,224
|
|
|
|
54,738
|
|
Leases
|
|
|
6,574
|
|
|
|
0
|
|
|
|
6,574
|
|
|
|
5,563
|
|
|
|
0
|
|
|
|
5,563
|
|
Covered loans
|
|
|
0
|
|
|
|
22,165
|
|
|
|
22,165
|
|
|
|
0
|
|
|
|
25,868
|
|
|
|
25,868
|
|
Total loans and leases
|
|
|
2,611,937
|
|
|
|
618,679
|
|
|
|
3,230,616
|
|
|
|
2,529,467
|
|
|
|
667,040
|
|
|
|
3,196,507
|
|
Less: unearned income and deferred costs and fees
|
|
|
(1,648
|
)
|
|
|
0
|
|
|
|
(1,648
|
)
|
|
|
(2,223
|
)
|
|
|
0
|
|
|
|
(2,223
|
)
|
Total loans and leases, net of unearned income and deferred costs and fees
|
|
$
|
2,610,289
|
|
|
$
|
618,679
|
|
|
$
|
3,228,968
|
|
|
$
|
2,527,244
|
|
|
$
|
667,040
|
|
|
$
|
3,194,284
|
|
The outstanding principal balance and the related carrying amount of the Company’s loans acquired in the VIST Bank acquisition are as follows at June 30, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
06/30/2014
|
|
|
|
12/31/2013
|
|
Acquired Credit Impaired Loans
|
|
|
|
|
|
|
|
|
Outstanding principal balance
|
|
$
|
51,962
|
|
|
$
|
62,146
|
|
Carrying amount
|
|
|
40,037
|
|
|
|
46,809
|
|
|
|
|
|
|
|
|
|
|
Acquired Non-Credit Impaired Loans
|
|
|
|
|
|
|
|
|
Outstanding principal balance
|
|
|
585,958
|
|
|
|
630,600
|
|
Carrying amount
|
|
|
578,642
|
|
|
|
620,231
|
|
|
|
|
|
|
|
|
|
|
Total Acquired Loans
|
|
|
|
|
|
|
|
|
Outstanding principal balance
|
|
|
637,920
|
|
|
|
692,746
|
|
Carrying amount
|
|
|
618,679
|
|
|
|
667,040
|
|
The following tables present changes in accretable yield on loans acquired from VIST Bank that were considered credit impaired.
(in thousands)
|
|
|
|
Balance at January 1, 2013
|
|
$
|
7,337
|
|
Accretion
|
|
|
(8,896
|
)
|
Disposals (loans paid in full)
|
|
|
(212
|
)
|
Reclassifications to/from nonaccretable difference
1
|
|
|
7,933
|
|
Other changes in expected cash flows
2
|
|
|
4,792
|
|
Balance at December 31, 2013
|
|
$
|
10,954
|
|
(in thousands)
|
|
|
|
|
Balance at January 1, 2014
|
|
$
|
10,954
|
|
Accretion
|
|
|
(2,525
|
)
|
Disposals (loans paid in full)
|
|
|
(250
|
)
|
Reclassifications to/from nonaccretable difference
1
|
|
|
1,024
|
|
Other changes in expected cash flows
2
|
|
|
0
|
|
Balance at June 30, 2014
|
|
$
|
9,203
|
|
1
Results in increased interest income as
a prospective yield adjustment over the remaining life of the loans, as well as increased interest income from loan sales, modification
and payments.
2
Represents changes in
cash flows expected to be collected due to factors other than credit (e.g. changes in prepayment assumptions and/or changes in
interest rates on variable rate loans).
At June 30, 2014, acquired loans included
$22.2 million of covered loans. VIST Bank had previously acquired these loans in an FDIC assisted transaction in the fourth quarter
of 2010. In accordance with a loss sharing agreement with the FDIC, certain losses and expenses relating to covered loans may be
reimbursed by the FDIC at 70% or, if net losses exceed certain levels specified in the loss sharing agreements, 80%. See Note 7
– “FDIC Indemnification Asset Related to Covered Loans” for further discussion of the loss sharing agreements and
related FDIC indemnification assets.
The Company has adopted comprehensive lending
policies, underwriting standards and loan review procedures. Management reviews these policies and procedures on a regular basis.
The Company discussed its lending policies and underwriting guidelines for its various lending portfolios in Note 4 – “Loans
and Leases” in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2013. There have been no significant changes in these policies and guidelines. As such, these policies
are reflective of new originations as well as those balances held at June 30, 2014. The Company’s Board of Directors approves the
lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has
established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to
monitor loan origination, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem
loans.
Loans are considered past due if the required
principal and interest payments have not been received as of the date such payments are due. Generally loans are placed on nonaccrual
status if principal or interest payments become 90 days or more past due and/or management deems the collectability of the principal
and/or interest to be in question as well as when required by regulatory agencies. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Payments received on loans on nonaccrual are generally applied to reduce the principal balance of
the loan. Loans are generally returned to accrual status when all the principal and interest amounts contractually due are brought
current, the borrower has established a payment history, and future payments are reasonably assured. When management determines
that the collection of principal in full is improbable, management will charge-off a partial amount or full amount of the loan
balance. Management considers specific facts and circumstances relative to each individual credit in making such a determination.
For residential and consumer loans, management uses specific regulatory guidance and thresholds for determining charge-offs.
Acquired loans that met the criteria for
nonaccrual of interest prior to the acquisition may be considered performing after the date of acquisition, regardless of whether
the customer is contractually delinquent, if we can reasonably estimate the timing and amount of the expected cash flows on such
loans and if the Company expects to fully collect the new carrying value of the loans. As such, we may no longer consider the loan
to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. To the
extent we cannot reasonably estimate cash flows, interest income recognition is discontinued. The Company has determined that it
can reasonably estimate future cash flows on our acquired loans that are past due 90 days or more and accruing interest and the
Company expects to fully collect the carrying value of the loans.
The below table is an age analysis of past
due loans, segregated by originated and acquired loan and lease portfolios, and by class of loans, as of June 30, 2014 and December
31, 2013.
June 30, 2014
|
|
(in thousands)
|
|
30-89 days
|
|
|
90 days or more
|
|
|
Current Loans
|
|
|
Total Loans
|
|
|
90 days and accruing
1
|
|
|
Nonaccrual
|
|
Originated Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
46,677
|
|
|
$
|
46,677
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Commercial and industrial other
|
|
|
1,113
|
|
|
|
669
|
|
|
|
606,814
|
|
|
|
608,596
|
|
|
|
0
|
|
|
|
644
|
|
Subtotal commercial and industrial
|
|
|
1,113
|
|
|
|
669
|
|
|
|
653,491
|
|
|
|
655,273
|
|
|
|
0
|
|
|
|
644
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
213
|
|
|
|
0
|
|
|
|
45,869
|
|
|
|
46,082
|
|
|
|
0
|
|
|
|
2,109
|
|
Agriculture
|
|
|
0
|
|
|
|
0
|
|
|
|
63,419
|
|
|
|
63,419
|
|
|
|
0
|
|
|
|
137
|
|
Commercial real estate other
|
|
|
1,277
|
|
|
|
5,446
|
|
|
|
933,903
|
|
|
|
940,626
|
|
|
|
1
|
|
|
|
4,729
|
|
Subtotal commercial real estate
|
|
|
1,490
|
|
|
|
5,446
|
|
|
|
1,043,191
|
|
|
|
1,050,127
|
|
|
|
1
|
|
|
|
6,975
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
218
|
|
|
|
2,566
|
|
|
|
175,649
|
|
|
|
178,433
|
|
|
|
61
|
|
|
|
1,842
|
|
Mortgages
|
|
|
1,701
|
|
|
|
7,666
|
|
|
|
659,276
|
|
|
|
668,643
|
|
|
|
481
|
|
|
|
6,888
|
|
Subtotal residential real estate
|
|
|
1,919
|
|
|
|
10,232
|
|
|
|
834,925
|
|
|
|
847,076
|
|
|
|
542
|
|
|
|
8,730
|
|
Consumer and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect
|
|
|
610
|
|
|
|
267
|
|
|
|
18,508
|
|
|
|
19,385
|
|
|
|
0
|
|
|
|
128
|
|
Consumer and other
|
|
|
89
|
|
|
|
0
|
|
|
|
33,413
|
|
|
|
33,502
|
|
|
|
0
|
|
|
|
441
|
|
Subtotal consumer and other
|
|
|
699
|
|
|
|
267
|
|
|
|
51,921
|
|
|
|
52,887
|
|
|
|
0
|
|
|
|
569
|
|
Leases
|
|
|
0
|
|
|
|
0
|
|
|
|
6,574
|
|
|
|
6,574
|
|
|
|
0
|
|
|
|
0
|
|
Total loans and leases
|
|
|
5,221
|
|
|
|
16,614
|
|
|
|
2,590,102
|
|
|
|
2,611,937
|
|
|
|
543
|
|
|
|
16,918
|
|
Less: unearned income and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred costs and fees
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,648
|
)
|
|
|
0
|
|
|
|
0
|
|
Total originated loans and leases, net of unearned income and deferred costs and fees
|
|
$
|
5,221
|
|
|
$
|
16,614
|
|
|
$
|
2,590,102
|
|
|
$
|
2,610,289
|
|
|
$
|
543
|
|
|
$
|
16,918
|
|
Acquired Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial other
|
|
|
19
|
|
|
|
820
|
|
|
|
119,477
|
|
|
|
120,316
|
|
|
|
656
|
|
|
|
1,114
|
|
Subtotal commercial and industrial
|
|
|
19
|
|
|
|
820
|
|
|
|
119,477
|
|
|
|
120,316
|
|
|
|
656
|
|
|
|
1,114
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
0
|
|
|
|
1,962
|
|
|
|
42,595
|
|
|
|
44,557
|
|
|
|
1,700
|
|
|
|
467
|
|
Agriculture
|
|
|
0
|
|
|
|
0
|
|
|
|
3,173
|
|
|
|
3,173
|
|
|
|
0
|
|
|
|
0
|
|
Commercial real estate other
|
|
|
943
|
|
|
|
2,182
|
|
|
|
328,517
|
|
|
|
331,642
|
|
|
|
84
|
|
|
|
2,566
|
|
Subtotal commercial real estate
|
|
|
943
|
|
|
|
4,144
|
|
|
|
374,285
|
|
|
|
379,372
|
|
|
|
1,784
|
|
|
|
3,033
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
359
|
|
|
|
810
|
|
|
|
60,395
|
|
|
|
61,564
|
|
|
|
105
|
|
|
|
798
|
|
Mortgages
|
|
|
296
|
|
|
|
596
|
|
|
|
33,253
|
|
|
|
34,145
|
|
|
|
503
|
|
|
|
962
|
|
Subtotal residential real estate
|
|
|
655
|
|
|
|
1,406
|
|
|
|
93,648
|
|
|
|
95,709
|
|
|
|
608
|
|
|
|
1,760
|
|
Consumer and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
3
|
|
|
|
0
|
|
|
|
1,114
|
|
|
|
1,117
|
|
|
|
0
|
|
|
|
0
|
|
Subtotal consumer and other
|
|
|
3
|
|
|
|
0
|
|
|
|
1,114
|
|
|
|
1,117
|
|
|
|
0
|
|
|
|
0
|
|
Covered loans
|
|
|
0
|
|
|
|
904
|
|
|
|
21,261
|
|
|
|
22,165
|
|
|
|
904
|
|
|
|
0
|
|
Total acquired loans and leases, net of unearned income and deferred costs and fees
|
|
$
|
1,620
|
|
|
$
|
7,274
|
|
|
$
|
609,785
|
|
|
$
|
618,679
|
|
|
$
|
3,952
|
|
|
$
|
5,907
|
|
1
Includes acquired loans that were recorded at fair value at the acquisition date.
December 31, 2013
(in thousands)
|
|
30-89 days
|
|
|
90 days or more
|
|
|
Current Loans
|
|
|
Total Loans
|
|
|
90 days and accruing
1
|
|
|
Nonaccrual
|
|
Originated
loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
74,788
|
|
|
$
|
74,788
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Commercial and industrial other
|
|
|
211
|
|
|
|
1,187
|
|
|
|
561,041
|
|
|
|
562,439
|
|
|
|
0
|
|
|
|
1,260
|
|
Subtotal commercial and industrial
|
|
|
211
|
|
|
|
1,187
|
|
|
|
635,829
|
|
|
|
637,227
|
|
|
|
0
|
|
|
|
1,260
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
216
|
|
|
|
7,657
|
|
|
|
38,568
|
|
|
|
46,441
|
|
|
|
0
|
|
|
|
9,873
|
|
Agriculture
|
|
|
180
|
|
|
|
0
|
|
|
|
52,447
|
|
|
|
52,627
|
|
|
|
0
|
|
|
|
46
|
|
Commercial real estate other
|
|
|
1,104
|
|
|
|
6,976
|
|
|
|
895,240
|
|
|
|
903,320
|
|
|
|
161
|
|
|
|
9,522
|
|
Subtotal commercial real estate
|
|
|
1,500
|
|
|
|
14,633
|
|
|
|
986,255
|
|
|
|
1,002,388
|
|
|
|
161
|
|
|
|
19,441
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
784
|
|
|
|
1,248
|
|
|
|
169,777
|
|
|
|
171,809
|
|
|
|
62
|
|
|
|
1,477
|
|
Mortgages
|
|
|
2,439
|
|
|
|
5,946
|
|
|
|
650,581
|
|
|
|
658,966
|
|
|
|
384
|
|
|
|
7,443
|
|
Subtotal residential real estate
|
|
|
3,223
|
|
|
|
7,194
|
|
|
|
820,358
|
|
|
|
830,775
|
|
|
|
446
|
|
|
|
8,920
|
|
Consumer and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect
|
|
|
768
|
|
|
|
152
|
|
|
|
20,282
|
|
|
|
21,202
|
|
|
|
0
|
|
|
|
216
|
|
Consumer and other
|
|
|
60
|
|
|
|
0
|
|
|
|
32,252
|
|
|
|
32,312
|
|
|
|
0
|
|
|
|
38
|
|
Subtotal consumer and other
|
|
|
828
|
|
|
|
152
|
|
|
|
52,534
|
|
|
|
53,514
|
|
|
|
0
|
|
|
|
254
|
|
Leases
|
|
|
0
|
|
|
|
0
|
|
|
|
5,563
|
|
|
|
5,563
|
|
|
|
0
|
|
|
|
0
|
|
Total loans and leases
|
|
|
5,762
|
|
|
|
23,166
|
|
|
|
2,500,539
|
|
|
|
2,529,467
|
|
|
|
607
|
|
|
|
29,875
|
|
Less: unearned income
and deferred costs and fees
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(2,223
|
)
|
|
|
0
|
|
|
|
0
|
|
Total
originated loans and leases, net of unearned income and deferred costs and fees
|
|
$
|
5,762
|
|
|
$
|
23,166
|
|
|
$
|
2,500,539
|
|
|
$
|
2,527,244
|
|
|
$
|
607
|
|
|
$
|
29,875
|
|
Acquired
loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial other
|
|
|
554
|
|
|
|
1,651
|
|
|
|
126,298
|
|
|
|
128,503
|
|
|
|
1,231
|
|
|
|
419
|
|
Subtotal commercial and industrial
|
|
|
554
|
|
|
|
1,651
|
|
|
|
126,298
|
|
|
|
128,503
|
|
|
|
1,231
|
|
|
|
419
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
0
|
|
|
|
2,148
|
|
|
|
37,205
|
|
|
|
39,353
|
|
|
|
1,676
|
|
|
|
473
|
|
Agriculture
|
|
|
0
|
|
|
|
0
|
|
|
|
3,135
|
|
|
|
3,135
|
|
|
|
0
|
|
|
|
0
|
|
Commercial real estate other
|
|
|
403
|
|
|
|
3,585
|
|
|
|
362,450
|
|
|
|
366,438
|
|
|
|
709
|
|
|
|
3,450
|
|
Subtotal commercial real estate
|
|
|
403
|
|
|
|
5,733
|
|
|
|
402,790
|
|
|
|
408,926
|
|
|
|
2,385
|
|
|
|
3,923
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
213
|
|
|
|
934
|
|
|
|
66,036
|
|
|
|
67,183
|
|
|
|
347
|
|
|
|
1,844
|
|
Mortgages
|
|
|
345
|
|
|
|
1,264
|
|
|
|
33,727
|
|
|
|
35,336
|
|
|
|
594
|
|
|
|
2,322
|
|
Subtotal residential real estate
|
|
|
558
|
|
|
|
2,198
|
|
|
|
99,763
|
|
|
|
102,519
|
|
|
|
941
|
|
|
|
4,166
|
|
Consumer and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect
|
|
|
0
|
|
|
|
0
|
|
|
|
5
|
|
|
|
5
|
|
|
|
0
|
|
|
|
0
|
|
Consumer and other
|
|
|
17
|
|
|
|
0
|
|
|
|
1,202
|
|
|
|
1,219
|
|
|
|
0
|
|
|
|
0
|
|
Subtotal consumer and other
|
|
|
17
|
|
|
|
0
|
|
|
|
1,207
|
|
|
|
1,224
|
|
|
|
0
|
|
|
|
0
|
|
Covered loans
|
|
|
0
|
|
|
|
2,416
|
|
|
|
23,452
|
|
|
|
25,868
|
|
|
|
2,416
|
|
|
|
0
|
|
Total
acquired loans and leases, net of unearned income and deferred costs and fees
|
|
$
|
1,532
|
|
|
$
|
11,998
|
|
|
$
|
653,510
|
|
|
$
|
667,040
|
|
|
$
|
6,973
|
|
|
$
|
8,508
|
|
1
Includes
acquired loans that were recorded at fair value at the acquisition date.
6. Allowance for Loan and Lease Losses
Originated Loans and Leases
Management reviews the appropriateness
of the allowance for loan and lease losses (“allowance”) on a regular basis. Management considers the accounting policy
relating to the allowance to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance
required to cover credit losses in the portfolio and the material effect that assumptions could have on the Company’s results of
operations. The Company has developed a methodology to measure the amount of estimated loan loss exposure inherent in the loan
portfolio to assure that an appropriate allowance is maintained. The Company’s methodology is based upon guidance provided in SEC
Staff Accounting Bulletin No. 102,
Selected Loan Loss Allowance Methodology and Documentation Issues
and ASC Topic 310,
Receivables
and ASC Topic 450,
Contingencies
.
The Company’s methodology for determining
and allocating the allowance for loan and lease losses focuses on ongoing reviews of larger individual loans and leases, historical
net charge-offs, delinquencies in the loan and lease portfolio, the level of impaired and nonperforming loans, values of underlying
loan and lease collateral, the overall risk characteristics of the portfolios, changes in character or size of the portfolios,
geographic location, current economic conditions, changes in capabilities and experience of lending management and staff, and other
relevant factors. The various factors used in the methodologies are reviewed on a regular basis.
At least annually, management reviews all
commercial and commercial real estate loans exceeding a certain threshold and assigns a risk rating. The Company uses an internal
loan rating system of pass credits, special mention loans, substandard loans, doubtful loans, and loss loans (which are fully charged
off). The definitions of “special mention”, “substandard”, “doubtful” and “loss” are consistent
with banking regulatory definitions. Factors considered in assigning loan ratings include: the customer’s ability to repay based
upon customer’s expected future cash flow, operating results, and financial condition; the underlying collateral, if any; and the
economic environment and industry in which the customer operates. Special mention loans have potential weaknesses that if left
uncorrected may result in deterioration of the repayment prospects and a downgrade to a more severe risk rating. A substandard
loan credit has a well-defined weakness which makes payment default or principal exposure likely, but not yet certain. There is
a possibility that the Company will sustain some loss if the deficiencies are not corrected. A doubtful loan has a high possibility
of loss, but the extent of the loss is difficult to quantify because of certain important and reasonably specific pending factors.
At least quarterly, management reviews
all commercial and commercial real estate loans and leases and agriculturally related loans with an outstanding principal balance
of over $500,000 that are internally risk rated special mention or worse, giving consideration to payment history, debt service
payment capacity, collateral support, strength of guarantors, local market trends, industry trends, and other factors relevant
to the particular borrowing relationship. Through this process, management identifies impaired loans. For loans and leases considered
impaired, estimated exposure amounts are based upon collateral values or present value of expected future cash flows discounted
at the original effective interest rate of each loan. For commercial loans, commercial mortgage loans, and agricultural loans not
specifically reviewed, and for homogenous loan portfolios such as residential mortgage loans and consumer loans, estimated exposure
amounts are assigned based upon historical net loss experience and current charge-off trends, past due status, and management’s
judgment of the effects of current economic conditions on portfolio performance. In determining and assigning historical loss factors
to the various homogeneous portfolios, the Company calculates average net losses over a period of time and compares this average
to current levels and trends to ensure that the calculated average loss factors are reasonable.
Since the methodology is based upon historical
experience and trends as well as management’s judgment, factors may arise that result in different estimates. Significant factors
that could give rise to changes in these estimates may include, but are not limited to, changes in economic conditions in the local
area, concentration of risk, changes in interest rates, and declines in local property values. While management’s evaluation of
the allowance as of June 30, 2014, considers the allowance to be appropriate, under adversely different conditions or assumptions,
the Company would need to increase or decrease the allowance.
Acquired Loans and Leases
Acquired loans accounted for under ASC
310-30
For our acquired loans, our allowance for
loan losses is estimated based upon our expected cash flows for these loans. To the extent that we experience a deterioration in
borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance
for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.
Acquired loans accounted for under ASC
310-20
We establish our allowance for loan losses
through a provision for credit losses based upon an evaluation process that is similar to our evaluation process used for originated
loans. This evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers,
among other matters, the estimated fair value of the underlying collateral, economic conditions, historical net loan loss experience,
carrying value of the loans, which includes the remaining net purchase discount or premium, and other factors that warrant recognition
in determining our allowance for loan losses.
The following tables detail activity in the allowance for loan and lease losses segregated by originated and acquired loan and lease portfolios and by portfolio segment for the three months ended June 30, 2014 and 2013. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
Three months ended June 30, 2014
|
|
(in thousands)
|
|
Commercial and Industrial
|
|
|
Commercial Real Estate
|
|
|
Residential Real Estate
|
|
|
Consumer and
Other
|
|
|
Finance Leases
|
|
|
Total
|
|
|
Allowance for originated loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
8,769
|
|
|
$
|
10,415
|
|
|
$
|
5,368
|
|
|
$
|
2,109
|
|
|
$
|
0
|
|
|
$
|
26,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(133
|
)
|
|
|
(433
|
)
|
|
|
(74
|
)
|
|
|
(414
|
)
|
|
|
0
|
|
|
|
(1,054
|
)
|
Recoveries
|
|
|
424
|
|
|
|
560
|
|
|
|
74
|
|
|
|
143
|
|
|
|
0
|
|
|
|
1,201
|
|
Provision (credit)
|
|
|
(498
|
)
|
|
|
(153
|
)
|
|
|
77
|
|
|
|
518
|
|
|
|
|
|
|
|
(56
|
)
|
Ending Balance
|
|
$
|
8,562
|
|
|
$
|
10,389
|
|
|
$
|
5,445
|
|
|
$
|
2,356
|
|
|
$
|
0
|
|
|
$
|
26,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for acquired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
298
|
|
|
$
|
819
|
|
|
$
|
70
|
|
|
$
|
166
|
|
|
$
|
0
|
|
|
$
|
1,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(6
|
)
|
|
|
(526
|
)
|
|
|
(178
|
)
|
|
|
(1
|
)
|
|
|
0
|
|
|
|
(711
|
)
|
Recoveries
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Provision (credit)
|
|
|
(133
|
)
|
|
|
167
|
|
|
|
157
|
|
|
|
(68
|
)
|
|
|
0
|
|
|
|
123
|
|
Ending Balance
|
|
$
|
159
|
|
|
$
|
460
|
|
|
$
|
49
|
|
|
$
|
97
|
|
|
$
|
0
|
|
|
$
|
765
|
|
Three months ended June 30, 2013
|
|
(in thousands)
|
|
Commercial and Industrial
|
|
|
Commercial Real Estate
|
|
|
Residential Real Estate
|
|
|
Consumer and Other
|
|
|
Finance Leases
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for originated loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
7,037
|
|
|
$
|
10,644
|
|
|
$
|
5,036
|
|
|
$
|
1,879
|
|
|
$
|
2
|
|
|
$
|
24,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(42
|
)
|
|
|
(144
|
)
|
|
|
(147
|
)
|
|
|
(198
|
)
|
|
|
0
|
|
|
|
(531
|
)
|
Recoveries
|
|
|
1,282
|
|
|
|
358
|
|
|
|
27
|
|
|
|
113
|
|
|
|
0
|
|
|
|
1,780
|
|
Provision (credit)
|
|
|
(1,322
|
)
|
|
|
(449
|
)
|
|
|
357
|
|
|
|
401
|
|
|
|
19
|
|
|
|
(994
|
)
|
Ending Balance
|
|
$
|
6,955
|
|
|
$
|
10,409
|
|
|
$
|
5,273
|
|
|
$
|
2,195
|
|
|
$
|
21
|
|
|
$
|
24,853
|
|
Three months ended June 30, 2013
|
|
(in thousands)
|
|
Commercial and Industrial
|
|
|
Commercial Real Estate
|
|
|
Residential Real Estate
|
|
|
Consumer
and Other
|
|
|
Covered
Loans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for acquired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
0
|
|
|
$
|
63
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(2,906
|
)
|
|
|
(32
|
)
|
|
|
(3
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(2,941
|
)
|
Recoveries
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Provision (credit)
|
|
|
2,970
|
|
|
|
350
|
|
|
|
129
|
|
|
|
34
|
|
|
|
0
|
|
|
|
3,483
|
|
Ending Balance
|
|
$
|
64
|
|
|
$
|
381
|
|
|
$
|
126
|
|
|
$
|
34
|
|
|
$
|
0
|
|
|
$
|
605
|
|
Six months ended June 30, 2014
|
|
(in thousands)
|
|
Commercial and Industrial
|
|
Commercial Real Estate
|
|
Residential Real Estate
|
|
Consumer and Other
|
|
Finance Leases
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for originated loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
8,406
|
|
|
$
|
10,459
|
|
|
$
|
5,771
|
|
|
$
|
2,059
|
|
|
$
|
5
|
|
|
$
|
26,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(254
|
)
|
|
|
(613
|
)
|
|
|
(267
|
)
|
|
|
(666
|
)
|
|
|
0
|
|
|
|
(1,800
|
)
|
Recoveries
|
|
|
489
|
|
|
|
562
|
|
|
|
86
|
|
|
|
260
|
|
|
|
0
|
|
|
|
1,397
|
|
Provision (credit)
|
|
|
(79
|
)
|
|
|
(19
|
)
|
|
|
(145
|
)
|
|
|
703
|
|
|
|
(5
|
)
|
|
|
455
|
|
Ending Balance
|
|
$
|
8,562
|
|
|
$
|
10,389
|
|
|
$
|
5,445
|
|
|
$
|
2,356
|
|
|
$
|
0
|
|
|
$
|
26,752
|
|
Six months ended June 30, 2014
|
|
(in thousands)
|
|
Commercial and Industrial
|
|
Commercial Real Estate
|
|
Residential Real Estate
|
|
Consumer and Other
|
|
Covered Loans
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for acquired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
168
|
|
|
$
|
770
|
|
|
$
|
274
|
|
|
$
|
58
|
|
|
$
|
0
|
|
|
$
|
1,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(25
|
)
|
|
|
(551
|
)
|
|
|
(277
|
)
|
|
|
(7
|
)
|
|
|
0
|
|
|
|
(860
|
)
|
Recoveries
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Provision (credit)
|
|
|
16
|
|
|
|
241
|
|
|
|
52
|
|
|
|
46
|
|
|
|
0
|
|
|
|
355
|
|
Ending Balance
|
|
$
|
159
|
|
|
$
|
460
|
|
|
$
|
49
|
|
|
$
|
97
|
|
|
$
|
0
|
|
|
$
|
765
|
|
Six months ended June 30, 2013
|
|
(in thousands)
|
|
Commercial and Industrial
|
|
Commercial Real Estate
|
|
Residential Real Estate
|
|
Consumer and Other
|
|
Finance Leases
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for originated loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
7,533
|
|
|
$
|
10,184
|
|
|
$
|
4,981
|
|
|
$
|
1,940
|
|
|
$
|
5
|
|
|
$
|
24,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(432
|
)
|
|
|
(490
|
)
|
|
|
(339
|
)
|
|
|
(462
|
)
|
|
|
0
|
|
|
|
(1,723
|
)
|
Recoveries
|
|
|
1,442
|
|
|
|
436
|
|
|
|
29
|
|
|
|
200
|
|
|
|
0
|
|
|
|
2,107
|
|
Provision (credit)
|
|
|
(1,588
|
)
|
|
|
279
|
|
|
|
602
|
|
|
|
517
|
|
|
|
16
|
|
|
|
(174
|
)
|
Ending Balance
|
|
$
|
6,955
|
|
|
$
|
10,409
|
|
|
$
|
5,273
|
|
|
$
|
2,195
|
|
|
$
|
21
|
|
|
$
|
24,853
|
|
Six months ended June 30, 2013
|
|
(in thousands)
|
|
Commercial and Industrial
|
|
Commercial Real Estate
|
|
Residential Real Estate
|
|
Consumer and Other
|
|
Covered Loans
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for acquired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(2,929
|
)
|
|
|
(32
|
)
|
|
|
(110
|
)
|
|
|
(25
|
)
|
|
|
0
|
|
|
|
(3,096
|
)
|
Recoveries
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Provision (credit)
|
|
|
2,993
|
|
|
|
413
|
|
|
|
236
|
|
|
|
59
|
|
|
|
0
|
|
|
|
3,701
|
|
Ending Balance
|
|
$
|
64
|
|
|
$
|
381
|
|
|
$
|
126
|
|
|
$
|
34
|
|
|
$
|
0
|
|
|
$
|
605
|
|
At June 30, 2014 and December 31, 2013, the allocation of the allowance for loan and lease losses summarized on the basis of the Company’s impairment methodology was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Commercial and Industrial
|
|
Commercial Real Estate
|
|
Residential Real Estate
|
|
Consumer and Other
|
|
Finance Leases
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for originated loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Collectively evaluated for impairment
|
|
|
8,562
|
|
|
|
10,389
|
|
|
|
5,445
|
|
|
|
2,356
|
|
|
|
0
|
|
|
|
26,752
|
|
Ending balance
|
|
$
|
8,562
|
|
|
$
|
10,389
|
|
|
$
|
5,445
|
|
|
$
|
2,356
|
|
|
$
|
0
|
|
|
$
|
26,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for acquired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
0
|
|
|
$
|
250
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
250
|
|
Collectively evaluated for impairment
|
|
|
159
|
|
|
|
210
|
|
|
|
49
|
|
|
|
97
|
|
|
|
0
|
|
|
|
515
|
|
Ending balance
|
|
$
|
159
|
|
|
$
|
460
|
|
|
$
|
49
|
|
|
$
|
97
|
|
|
$
|
0
|
|
|
$
|
765
|
|
(in thousands)
|
|
Commercial and Industrial
|
|
Commercial Real Estate
|
|
Residential Real Estate
|
|
Consumer and Other
|
|
Finance Leases
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for originated loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Collectively evaluated for impairment
|
|
|
8,406
|
|
|
|
10,459
|
|
|
|
5,771
|
|
|
|
2,059
|
|
|
|
5
|
|
|
|
26,700
|
|
Ending balance
|
|
$
|
8,406
|
|
|
$
|
10,459
|
|
|
$
|
5,771
|
|
|
$
|
2,059
|
|
|
$
|
5
|
|
|
$
|
26,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for acquired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
0
|
|
|
$
|
250
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
250
|
|
Collectively evaluated for impairment
|
|
|
168
|
|
|
|
520
|
|
|
|
274
|
|
|
|
58
|
|
|
|
0
|
|
|
|
1,020
|
|
Ending balance
|
|
$
|
168
|
|
|
$
|
770
|
|
|
$
|
274
|
|
|
$
|
58
|
|
|
$
|
0
|
|
|
$
|
1,270
|
|
The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology as of June 30, 2014 and December 31, 2013 was as follows:
(in thousands)
|
|
Commercial and Industrial
|
|
|
Commercial Real Estate
|
|
|
Residential Real Estate
|
|
|
Consumer and Other
|
|
|
Finance Leases
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
375
|
|
|
$
|
8,975
|
|
|
$
|
1,132
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
10,482
|
|
Collectively evaluated for impairment
|
|
|
654,898
|
|
|
|
1,041,152
|
|
|
|
845,944
|
|
|
|
52,887
|
|
|
|
6,574
|
|
|
|
2,601,455
|
|
Total
|
|
$
|
655,273
|
|
|
$
|
1,050,127
|
|
|
$
|
847,076
|
|
|
$
|
52,887
|
|
|
$
|
6,574
|
|
|
$
|
2,611,937
|
|
(in thousands)
|
|
Commercial and Industrial
|
|
|
Commercial Real Estate
|
|
|
Residential Real Estate
|
|
|
Consumer and Other
|
|
|
Covered Loans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,063
|
|
|
$
|
5,976
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
7,039
|
|
Loans acquired with deteriorated credit quality
|
|
$
|
1,236
|
|
|
$
|
8,452
|
|
|
$
|
8,184
|
|
|
$
|
0
|
|
|
$
|
22,165
|
|
|
$
|
40,037
|
|
Collectively evaluated for impairment
|
|
|
118,017
|
|
|
|
364,944
|
|
|
|
87,525
|
|
|
|
1,117
|
|
|
|
0
|
|
|
|
571,603
|
|
Total
|
|
$
|
120,316
|
|
|
$
|
379,372
|
|
|
$
|
95,709
|
|
|
$
|
1,117
|
|
|
$
|
22,165
|
|
|
$
|
618,679
|
|
(in thousands)
|
|
|
Commercial and Industrial
|
|
|
|
Commercial Real Estate
|
|
|
|
Residential Real Estate
|
|
|
|
Consumer and Other
|
|
|
|
Finance Leases
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
4,664
|
|
|
|
16,269
|
|
|
$
|
1,223
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
22,156
|
|
Collectively evaluated for impairment
|
|
|
632,563
|
|
|
|
986,119
|
|
|
|
829,552
|
|
|
|
53,514
|
|
|
|
5,563
|
|
|
|
2,507,311
|
|
Total
|
|
$
|
637,227
|
|
|
$
|
1,002,388
|
|
|
$
|
830,775
|
|
|
$
|
53,514
|
|
|
$
|
5,563
|
|
|
$
|
2,529,467
|
|
(in thousands)
|
|
|
Commercial and Industrial
|
|
|
|
Commercial Real Estate
|
|
|
|
Residential Real Estate
|
|
|
|
Consumer and Other
|
|
|
|
Covered Loans
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
2,231
|
|
|
|
2,429
|
|
|
$
|
73
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,733
|
|
Loans acquired with deteriorated credit quality
|
|
|
2,558
|
|
|
|
10,263
|
|
|
|
9,355
|
|
|
|
0
|
|
|
|
24,633
|
|
|
|
46,809
|
|
Collectively evaluated for impairment
|
|
|
123,714
|
|
|
|
396,234
|
|
|
|
93,091
|
|
|
|
1,224
|
|
|
|
1,235
|
|
|
|
615,498
|
|
Total
|
|
$
|
128,503
|
|
|
$
|
408,926
|
|
|
$
|
102,519
|
|
|
$
|
1,224
|
|
|
$
|
25,868
|
|
|
$
|
667,040
|
|
A loan is impaired when, based on current
information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of
the loan agreement. Impaired loans consist of our non-homogenous nonaccrual loans, and all loans restructured in a troubled debt
restructuring (TDR). Specific reserves on individually identified impaired loans that are not collateral dependent are measured
based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans
that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and
such impaired amounts are generally charged off. The majority of impaired loans are collateral dependent impaired loans that have
limited exposure or require limited specific reserves because of the amount of collateral support with respect to these loans,
and previous charge-offs. Interest payments on impaired loans are typically applied to principal unless collectability of the principal
amount is reasonably assured. In these cases, interest is recognized on a cash basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/30/2014
|
|
|
12/31/2013
|
|
(in thousands)
|
|
Recorded Investment
|
|
|
Unpaid Principal Balance
|
|
|
Related Allowance
|
|
|
Recorded Investment
|
|
|
Unpaid Principal Balance
|
|
|
Related Allowance
|
|
Originated loans and leases with no related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial other
|
|
$
|
375
|
|
|
$
|
375
|
|
|
$
|
0
|
|
|
$
|
4,664
|
|
|
$
|
5,069
|
|
|
$
|
0
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6,073
|
|
|
|
11,683
|
|
|
|
0
|
|
Commercial real estate other
|
|
|
8,975
|
|
|
|
9,655
|
|
|
|
0
|
|
|
|
10,196
|
|
|
|
13,518
|
|
|
|
0
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate other
|
|
|
1,132
|
|
|
|
1,202
|
|
|
|
0
|
|
|
|
1,223
|
|
|
|
1,299
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,482
|
|
|
$
|
11,232
|
|
|
$
|
0
|
|
|
$
|
22,156
|
|
|
$
|
31,569
|
|
|
$
|
0
|
|
|
|
06/30/2014
|
|
|
12/31/2013
|
|
(in thousands)
|
|
Recorded Investment
|
|
|
Unpaid Principal Balance
|
|
|
Related Allowance
|
|
|
Recorded Investment
|
|
|
Unpaid Principal Balance
|
|
|
Related Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans and leases with no related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial other
|
|
$
|
1,063
|
|
|
$
|
1,063
|
|
|
$
|
0
|
|
|
$
|
2,231
|
|
|
$
|
5,081
|
|
|
$
|
0
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2,043
|
|
|
|
2,043
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Commercial real estate other
|
|
|
3,680
|
|
|
|
3,680
|
|
|
|
0
|
|
|
|
1,960
|
|
|
|
1,960
|
|
|
|
0
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
73
|
|
|
|
73
|
|
|
|
0
|
|
Subtotal
|
|
$
|
6,786
|
|
|
$
|
6,786
|
|
|
$
|
0
|
|
|
$
|
4,264
|
|
|
$
|
7,114
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans and leases with related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate other
|
|
|
253
|
|
|
|
253
|
|
|
|
250
|
|
|
|
469
|
|
|
|
719
|
|
|
|
250
|
|
Subtotal
|
|
$
|
253
|
|
|
$
|
253
|
|
|
$
|
250
|
|
|
$
|
469
|
|
|
$
|
719
|
|
|
$
|
250
|
|
Total
|
|
$
|
7,039
|
|
|
$
|
7,039
|
|
|
$
|
250
|
|
|
$
|
4,733
|
|
|
$
|
7,833
|
|
|
$
|
250
|
|
The average recorded investment and interest income recognized on impaired loans for the three months ended June 30, 2014 and 2013 was as follows:
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
06/30/2014
|
|
|
06/30/2013
|
|
(in thousands)
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
Originated loans and leases with no related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial other
|
|
|
376
|
|
|
|
0
|
|
|
|
4,397
|
|
|
|
0
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
0
|
|
|
|
0
|
|
|
|
6,311
|
|
|
|
0
|
|
Commercial real estate other
|
|
|
10,465
|
|
|
|
0
|
|
|
|
15,012
|
|
|
|
0
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate other
|
|
|
1,144
|
|
|
|
0
|
|
|
|
447
|
|
|
|
0
|
|
Subtotal
|
|
$
|
11,985
|
|
|
$
|
0
|
|
|
$
|
26,167
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans and leases with related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial other
|
|
|
0
|
|
|
|
0
|
|
|
|
416
|
|
|
|
0
|
|
Subtotal
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
416
|
|
|
$
|
0
|
|
Total
|
|
$
|
11,985
|
|
|
$
|
0
|
|
|
$
|
26,583
|
|
|
$
|
0
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
06/30/2014
|
|
|
06/30/2013
|
|
(in thousands)
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
Acquired loans and leases with no related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial other
|
|
|
1,071
|
|
|
|
0
|
|
|
|
2,517
|
|
|
|
0
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2,039
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Commercial real estate other
|
|
|
3,708
|
|
|
|
0
|
|
|
|
2,481
|
|
|
|
5
|
|
Subtotal
|
|
$
|
6,818
|
|
|
$
|
0
|
|
|
$
|
4,998
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans and leases with related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate other
|
|
|
251
|
|
|
|
0
|
|
|
|
212
|
|
|
|
0
|
|
Subtotal
|
|
$
|
251
|
|
|
$
|
0
|
|
|
$
|
212
|
|
|
$
|
0
|
|
Total
|
|
$
|
7,069
|
|
|
$
|
0
|
|
|
$
|
5,210
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
06/30/2014
|
|
|
06/30/2013
|
|
(in thousands)
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
Originated loans and leases with no related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial other
|
|
|
386
|
|
|
|
0
|
|
|
|
5,085
|
|
|
|
0
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
0
|
|
|
|
0
|
|
|
|
6,529
|
|
|
|
0
|
|
Commercial real estate other
|
|
|
10,618
|
|
|
|
0
|
|
|
|
13,867
|
|
|
|
0
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate other
|
|
|
1,132
|
|
|
|
0
|
|
|
|
447
|
|
|
|
0
|
|
Subtotal
|
|
$
|
12,136
|
|
|
$
|
0
|
|
|
$
|
25,928
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans and leases with related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial other
|
|
|
0
|
|
|
|
0
|
|
|
|
417
|
|
|
|
0
|
|
Subtotal
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
417
|
|
|
$
|
0
|
|
Total
|
|
$
|
12,136
|
|
|
$
|
0
|
|
|
$
|
26,345
|
|
|
$
|
0
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
06/30/2014
|
|
|
06/30/2013
|
|
(in thousands)
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
Acquired loans and leases with no related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial other
|
|
|
1,093
|
|
|
|
0
|
|
|
|
3,017
|
|
|
|
5
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2,298
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Commercial real estate other
|
|
|
3,460
|
|
|
|
0
|
|
|
|
2,492
|
|
|
|
31
|
|
Subtotal
|
|
$
|
6,851
|
|
|
$
|
0
|
|
|
$
|
5,509
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans and leases with related allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate other
|
|
|
248
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate other
|
|
|
0
|
|
|
|
0
|
|
|
|
214
|
|
|
|
4
|
|
Subtotal
|
|
$
|
248
|
|
|
$
|
0
|
|
|
$
|
214
|
|
|
$
|
4
|
|
Total
|
|
$
|
7,099
|
|
|
$
|
0
|
|
|
$
|
5,723
|
|
|
$
|
40
|
|
Loans are considered modified in a TDR
when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise
consider. These modifications may include, among others, an extension for the term of the loan, and granting a period when interest-only
payments can be made with the principal payments made over the remaining term of the loan or at maturity.
The following tables present information on loans modified in troubled debt restructuring during the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
Three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted TDRs
3
|
|
(in
thousands)
|
|
|
Number of Loans
|
|
|
|
Pre-Modification Outstanding Recorded Investment
|
|
|
|
Post-Modification Outstanding Recorded Investment
|
|
|
|
Number of Loans
|
|
|
|
Post-Modification Outstanding Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial other
1
|
|
|
1
|
|
|
$
|
88
|
|
|
|
88
|
|
|
|
0
|
|
|
$
|
0
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate other
2
|
|
|
1
|
|
|
|
480
|
|
|
|
480
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
|
2
|
|
|
$
|
568
|
|
|
|
568
|
|
|
|
0
|
|
|
$
|
0
|
|
1
Represents the following concessions: extension of term and reduction of rate
2
Represents the following concessions: extension of term and reduction of rate
3
TDRs that defaulted during the last three months that were restructured in the prior twelve months.
June 30,
2013
|
|
Three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted TDRs
2
|
|
|
|
|
|
(in
thousands)
|
|
|
Number of Loans
|
|
|
|
Pre-Modification Outstanding Recorded Investment
|
|
|
|
Post-Modification Outstanding Recorded Investment
|
|
|
|
Number of Loans
|
|
|
|
Post-Modification Outstanding Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial other
1
|
|
|
1
|
|
|
$
|
47
|
|
|
$
|
47
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
$
|
47
|
|
|
$
|
47
|
|
|
|
0
|
|
|
$
|
0
|
|
1
Represents the following concessions:
extension of term
2
TDRs that defaulted in the current quarter
that were restructured in the prior twelve months.
June 30,
2014
|
|
Six months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted
TDRs
3
|
|
(in
thousands)
|
|
|
Number
of Loans
|
|
|
|
Pre-Modification
Outstanding Recorded Investment
|
|
|
|
Post-Modification
Outstanding Recorded Investment
|
|
|
|
Number
of Loans
|
|
|
|
Post-Modification
Outstanding Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial other
1
|
|
|
1
|
|
|
$
|
88
|
|
|
$
|
88
|
|
|
|
0
|
|
|
$
|
0
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
other
2
|
|
|
1
|
|
|
$
|
480
|
|
|
$
|
480
|
|
|
|
1
|
|
|
$
|
63
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate other
3
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
195
|
|
Total
|
|
|
2
|
|
|
$
|
568
|
|
|
$
|
568
|
|
|
|
2
|
|
|
$
|
258
|
|
1 Represents the following concessions: extension of term and reduction of rate
2 Represents the following concessions: extension of term and reduction of rate
3 TDRs that defaulted during the last nine months that were restructured in the prior twelve months.
June 30,
2013
|
|
Six months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted TDRs
3
|
|
(in
thousands)
|
|
|
Number of Loans
|
|
|
|
Pre-Modification Outstanding Recorded Investment
|
|
|
|
Post-Modification Outstanding Recorded Investment
|
|
|
|
Number of Loans
|
|
|
|
Post-Modification Outstanding Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial other
1
|
|
|
2
|
|
|
$
|
139
|
|
|
$
|
139
|
|
|
|
0
|
|
|
$
|
0
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate other
2
|
|
|
3
|
|
|
|
371
|
|
|
|
371
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5
|
|
|
$
|
510
|
|
|
$
|
510
|
|
|
|
0
|
|
|
$
|
0
|
|
1 Represents the following concessions: extension of term and reduction in rate
2 Represents the following concessions: extension of term (1 loan:$129,000) and extended term and lowered rate (2 loans: $242,000)
3 TDRs that defaulted during the last six months that were restructured in the prior twelve months.
The following tables present credit quality indicators (internal risk grade) by class of commercial and industrial loans and commercial real estate loans as of June 30, 2014 and December 31, 2013.
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
|
|
|
|
and Industrial
|
|
and Industrial
|
|
Real Estate
|
|
Real Estate
|
|
Real Estate
|
|
|
(in thousands)
|
|
Other
|
|
Agriculture
|
|
Other
|
|
Agriculture
|
|
Construction
|
|
Total
|
|
Originated Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal risk grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
586,788
|
|
|
$
|
46,286
|
|
|
$
|
910,507
|
|
|
$
|
62,827
|
|
|
$
|
42,255
|
|
|
$
|
1,648,663
|
|
Special Mention
|
|
|
13,522
|
|
|
|
143
|
|
|
|
17,801
|
|
|
|
191
|
|
|
|
3,827
|
|
|
|
35,484
|
|
Substandard
|
|
|
8,286
|
|
|
|
248
|
|
|
|
12,318
|
|
|
|
401
|
|
|
|
0
|
|
|
|
21,253
|
|
Total
|
|
$
|
608,596
|
|
|
$
|
46,677
|
|
|
$
|
940,626
|
|
|
$
|
63,419
|
|
|
$
|
46,082
|
|
|
$
|
1,705,400
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
|
|
|
and Industrial
|
|
and Industrial
|
|
Real Estate
|
|
Real Estate
|
|
Real Estate
|
|
|
(in thousands)
|
|
Other
|
|
Agriculture
|
|
Other
|
|
Agriculture
|
|
Construction
|
|
Total
|
|
Acquired Loans and Leases
|
Internal risk grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
112,199
|
|
|
$
|
0
|
|
|
$
|
299,843
|
|
|
$
|
3,173
|
|
|
$
|
42,076
|
|
|
$
|
457,291
|
|
Special Mention
|
|
|
4,600
|
|
|
|
0
|
|
|
|
7,524
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12,124
|
|
Substandard
|
|
|
3,517
|
|
|
|
0
|
|
|
|
24,275
|
|
|
|
0
|
|
|
|
2,481
|
|
|
|
30,273
|
|
Total
|
|
$
|
120,316
|
|
|
$
|
0
|
|
|
$
|
331,642
|
|
|
$
|
3,173
|
|
|
$
|
44,557
|
|
|
$
|
499,688
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
|
|
|
and Industrial
|
|
and Industrial
|
|
Real Estate
|
|
Real Estate
|
|
Real Estate
|
|
|
(in thousands)
|
|
Other
|
|
Agriculture
|
|
Other
|
|
Agriculture
|
|
Construction
|
|
Total
|
|
Originated Loans and Leases
|
Internal risk grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
531,293
|
|
|
$
|
72,997
|
|
|
$
|
869,488
|
|
|
$
|
52,054
|
|
|
$
|
36,396
|
|
|
$
|
1,562,228
|
|
Special Mention
|
|
|
20,688
|
|
|
|
100
|
|
|
|
17,536
|
|
|
|
123
|
|
|
|
3,918
|
|
|
|
42,365
|
|
Substandard
|
|
|
10,458
|
|
|
|
1,691
|
|
|
|
16,296
|
|
|
|
450
|
|
|
|
6,127
|
|
|
|
35,022
|
|
Total
|
|
$
|
562,439
|
|
|
$
|
74,788
|
|
|
$
|
903,320
|
|
|
$
|
52,627
|
|
|
$
|
46,441
|
|
|
$
|
1,639,615
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
Commercial
|
|
|
|
|
and Industrial
|
|
and Industrial
|
|
Real Estate
|
|
Real Estate
|
|
Real Estate
|
|
|
(in thousands)
|
|
Other
|
|
Agriculture
|
|
Other
|
|
Agriculture
|
|
Construction
|
|
Total
|
|
Acquired Loans and Leases
|
Internal risk grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
116,160
|
|
|
$
|
0
|
|
|
$
|
363,427
|
|
|
$
|
1,150
|
|
|
$
|
5,809
|
|
|
$
|
486,546
|
|
Special Mention
|
|
|
3,821
|
|
|
|
0
|
|
|
|
11,516
|
|
|
|
1,985
|
|
|
|
0
|
|
|
|
17,322
|
|
Substandard
|
|
|
8,522
|
|
|
|
0
|
|
|
|
22,028
|
|
|
|
0
|
|
|
|
3,011
|
|
|
|
33,561
|
|
Total
|
|
$
|
128,503
|
|
|
$
|
0
|
|
|
$
|
396,971
|
|
|
$
|
3,135
|
|
|
$
|
8,820
|
|
|
$
|
537,429
|
|
The following tables present credit quality indicators by class of residential real estate loans and by class of consumer loans. Nonperforming loans include nonaccrual, impaired, and loans 90 days past due and accruing interest. All other loans are considered performing as of June 30, 2014 and December 31, 2013. For purposes of this footnote, acquired loans that were recorded at fair value at the acquisition date and are 90 days or greater past due are considered performing.
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Residential Home Equity
|
|
Residential Mortgages
|
|
Consumer Indirect
|
|
Consumer Other
|
|
Total
|
|
Originated Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
176,530
|
|
|
$
|
661,274
|
|
|
$
|
19,257
|
|
|
$
|
33,061
|
|
|
$
|
890,122
|
|
Nonperforming
|
|
|
1,903
|
|
|
|
7,369
|
|
|
|
128
|
|
|
|
441
|
|
|
|
9,841
|
|
Total
|
|
$
|
178,433
|
|
|
$
|
668,643
|
|
|
$
|
19,385
|
|
|
$
|
33,502
|
|
|
$
|
899,963
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Residential Home Equity
|
|
Residential Mortgages
|
|
Consumer Indirect
|
|
Consumer Other
|
|
Total
|
|
Acquired Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
60,661
|
|
|
$
|
32,680
|
|
|
$
|
0
|
|
|
$
|
1,117
|
|
|
$
|
94,458
|
|
Nonperforming
|
|
|
903
|
|
|
|
1,465
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,368
|
|
Total
|
|
$
|
61,564
|
|
|
$
|
34,145
|
|
|
$
|
0
|
|
|
$
|
1,117
|
|
|
$
|
96,826
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Residential Home Equity
|
|
Residential Mortgages
|
|
Consumer Indirect
|
|
Consumer Other
|
|
Total
|
|
Originated Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
170,270
|
|
|
$
|
651,139
|
|
|
$
|
20,986
|
|
|
$
|
32,274
|
|
|
$
|
874,669
|
|
Nonperforming
|
|
|
1,539
|
|
|
|
7,827
|
|
|
|
216
|
|
|
|
38
|
|
|
|
9,620
|
|
Total
|
|
$
|
171,809
|
|
|
$
|
658,966
|
|
|
$
|
21,202
|
|
|
$
|
32,312
|
|
|
$
|
884,289
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Residential Home Equity
|
|
Residential Mortgages
|
|
Consumer Indirect
|
|
Consumer Other
|
|
Total
|
|
Acquired Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
65,339
|
|
|
$
|
33,014
|
|
|
$
|
5
|
|
|
$
|
1,219
|
|
|
$
|
99,577
|
|
Nonperforming
|
|
|
1,844
|
|
|
|
2,322
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,166
|
|
Total
|
|
$
|
67,183
|
|
|
$
|
35,336
|
|
|
$
|
5
|
|
|
$
|
1,219
|
|
|
$
|
103,743
|
|
7. FDIC Indemnification Asset Related to
Covered Loans
Certain loans acquired in the VIST Financial
acquisition were covered loans with loss share agreements with the FDIC. Under the terms of loss sharing agreements, the FDIC will
reimburse the Company for 70 percent of net losses on covered single family assets up to $4.0 million, and 70 percent of net losses
incurred on covered commercial assets up to $12.0 million. The FDIC will increase its reimbursement of net losses to 80 percent
if net losses exceed the $4.0 million and $12 million thresholds, respectively. The term for loss sharing on residential real estate
loans is ten years, while the term for loss sharing on non-residential real estate loans is five years in respect to losses and
eight years in respect to loss recoveries.
The receivable arising from the loss sharing
agreements (referred to as the “FDIC indemnification asset” on our consolidated statements of financial condition) is
measured separately from covered loans because the agreements are not contractually part of the covered loans and are not transferable
should the Company choose to dispose of the covered loans. As of the acquisition date with VIST Financial, the Company recorded
an aggregate FDIC indemnification asset of $4.4 million, consisting of the present value of the expected future cash flows the
Company expected to receive from the FDIC under loss sharing agreements. The FDIC indemnification asset is reduced as loss sharing
payments are received from the FDIC for losses realized on covered loans. Actual or expected losses in excess of the acquisition
date estimates and accretion of the acquisition date present value discount will result in an increase in the FDIC indemnification
asset and the immediate recognition of non-interest income in our financial statements.
A decrease in expected losses would generally
result in a corresponding decline in the FDIC indemnification asset and the non-accretable difference. Reductions in the FDIC indemnification
asset due to actual or expected losses that are less than the acquisition date estimates are recognized prospectively over the
shorter of (i) the estimated life of the applicable covered loans or (ii) the term of the loss sharing agreements with the FDIC.
Changes in the FDIC indemnification asset during
the six months ended June 30, 2014 are shown below. The Company acquired the FDIC indemnification asset as part of the VIST acquisition
on August 1, 2012.
Six months ended June 30, 2014
|
|
|
|
|
(in thousands)
|
|
Three Months Ended
|
|
|
|
|
Balance, beginning of the period
|
|
$
|
4,790
|
|
Discount accretion of the present value at the acquisition date
|
|
|
28
|
|
Prospective adjustment for additional cash flows
|
|
|
(862
|
)
|
Increase due to impairment on covered loans
|
|
|
0
|
|
Reimbursements from the FDIC
|
|
|
(466
|
)
|
Balance, end of period
|
|
$
|
3,490
|
|
8. Earnings Per Share
Earnings per share in the table
below, for the three and six month periods ending June 30, 2014 and 2013 are calculated under the two-class method as
required by ASC Topic 260, Earnings Per Share. ASC 260 provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends are participating securities and shall be included in the computation of earnings per
share pursuant to the two-class method. The Company has issued restricted stock awards that contain such rights and are
therefore considered participating securities. Basic earnings per common share are calculated by dividing net income
allocable to common stock by the weighted average number of common shares, excluding participating securities, during the
period. Diluted earnings per common share include the dilutive effect of additional potential shares from stock compensations
awards.
|
|
Three Months Ended
|
|
(in thousands, except share and per share data)
|
|
06/30/2014
|
|
06/30/2013
|
|
Basic
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
13,061
|
|
|
$
|
11,007
|
|
Less: dividends and
undistributed earnings allocated to unvested restricted stock awards
|
|
|
(118
|
)
|
|
|
(112
|
)
|
Net earnings allocated to common shareholders
|
|
|
12,943
|
|
|
|
10,895
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, including participating securities
|
|
|
14,844,279
|
|
|
|
14,541,222
|
|
|
|
|
|
|
|
|
|
|
Less: average participating securities
|
|
|
(134,398
|
)
|
|
|
(113,384
|
)
|
Weighted average shares outstanding - Basic
|
|
|
14,709,881
|
|
|
|
14,427,838
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Net earnings allocated to common shareholders
|
|
|
12,943
|
|
|
|
10,895
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - Basic
|
|
|
14,709,881
|
|
|
|
14,427,838
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock options or restricted stock awards
|
|
|
111,310
|
|
|
|
69,021
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - Diluted
|
|
|
14,821,191
|
|
|
|
14,496,859
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
0.88
|
|
|
|
0.76
|
|
Diluted EPS
|
|
|
0.87
|
|
|
|
0.75
|
|
The dilutive effect of common stock options or restricted awards calculation for the three months ended June 30, 2014 and 2013 excludes stock options, stock appreciation rights and restricted stock awards covering an aggregate of 68,404 and 341,206 shares, respectively, because the exercise prices were greater than the average market price during these periods.
|
|
Six Months Ended
|
|
(in thousands, except share and per share data)
|
|
06/30/2014
|
|
|
06/30/2013
|
|
Basic
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
25,630
|
|
|
$
|
22,516
|
|
Less: dividends and
undistributed earnings allocated to unvested restricted stock awards
|
|
|
(234
|
)
|
|
|
(147
|
)
|
Net earnings allocated to common shareholders
|
|
|
25,396
|
|
|
|
22,369
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, including participating securities
|
|
|
14,813,010
|
|
|
|
14,482,584
|
|
|
|
|
|
|
|
|
|
|
Less: average participating securities
|
|
|
(135,622
|
)
|
|
|
(78,190
|
)
|
Weighted average shares outstanding - Basic
|
|
|
14,677,388
|
|
|
|
14,404,394
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Net earnings allocated to common shareholders
|
|
|
25,396
|
|
|
|
22,369
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - Basic
|
|
|
14,677,388
|
|
|
|
14,404,394
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock options or restricted stock awards
|
|
|
121,074
|
|
|
|
67,542
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - Diluted
|
|
|
14,798,462
|
|
|
|
14,471,936
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
1.73
|
|
|
|
1.55
|
|
Diluted EPS
|
|
|
1.72
|
|
|
|
1.55
|
|
The dilutive effect of common stock options or restricted awards calculation for the six months ended June 30, 2014 and 2013 excludes stock options, stock appreciation rights and restricted stock awards covering an aggregate of 69,868 and 315,340 shares, respectively, because the exercise prices were greater than the average market price during these periods.
9. Other Comprehensive Income (Loss)
The following table presents reclassifications out of the accumulated other comprehensive income for the three month periods ended June 30, 2014 and 2013.
|
|
Three months ended June 30, 2014
|
|
|
|
|
(in thousands)
|
|
Before-Tax Amount
|
|
|
Tax (Expense) Benefit
|
|
|
Net of Tax
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain/loss during the period
|
|
$
|
11,250
|
|
|
$
|
(4,499
|
)
|
|
$
|
6,751
|
|
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income
|
|
|
(35
|
)
|
|
|
13
|
|
|
|
(22
|
)
|
Net unrealized gains
|
|
|
11,215
|
|
|
|
(4,486
|
)
|
|
|
6,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net retirement plan actuarial gain
|
|
|
213
|
|
|
|
(85
|
)
|
|
|
128
|
|
Amortization of net retirement plan prior service cost
|
|
|
(12
|
)
|
|
|
5
|
|
|
|
(7
|
)
|
Employee benefit plans
|
|
|
201
|
|
|
|
(80
|
)
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
11,416
|
|
|
$
|
(4,566
|
)
|
|
$
|
6,850
|
|
|
|
Three months ended June 30, 2013
|
|
|
|
|
|
|
Before-Tax Amount
|
|
Tax (Expense) Benefit
|
|
Net of Tax
|
|
(in thousands)
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain/loss during the period
|
|
$
|
(38,033
|
)
|
|
$
|
15,209
|
|
|
$
|
(22,824
|
)
|
Reclassification adjustment for net realized gain on
sale of available-for-sale securities included in net income
|
|
|
(75
|
)
|
|
|
30
|
|
|
|
(45
|
)
|
Reclassification adjustment for credit impairment on available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses
|
|
|
(38,108
|
)
|
|
|
15,239
|
|
|
|
(22,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net retirement plan actuarial loss
|
|
|
636
|
|
|
|
(255
|
)
|
|
|
381
|
|
Amortization of net retirement plan prior service cost
|
|
|
14
|
|
|
|
(6
|
)
|
|
|
8
|
|
Amortization of net retirement plan transition liability
|
|
|
13
|
|
|
|
(5
|
)
|
|
|
8
|
|
Employee benefit plans
|
|
|
663
|
|
|
|
(266
|
)
|
|
|
397
|
|
Other comprehensive (loss) income
|
|
$
|
(37,445
|
)
|
|
$
|
14,973
|
|
|
$
|
(22,472
|
)
|
|
|
Six months ended June 30, 2014
|
|
|
|
|
|
|
Before-Tax Amount
|
|
Tax (Expense) Benefit
|
|
Net of Tax
|
|
(in thousands)
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain/loss during the period
|
|
$
|
20,065
|
|
|
$
|
(8,024
|
)
|
|
$
|
12,041
|
|
Reclassification
adjustment for net realized gain on sale of available-for-sale securities included in net income
|
|
|
(129
|
)
|
|
|
51
|
|
|
|
(78
|
)
|
Net unrealized losses
|
|
|
19,936
|
|
|
|
(7,973
|
)
|
|
|
11,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net retirement plan actuarial gain
|
|
|
532
|
|
|
|
(212
|
)
|
|
|
320
|
|
Amortization of net retirement plan prior service cost
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
1
|
|
Employee benefit plans
|
|
|
534
|
|
|
|
(213
|
)
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
$
|
20,470
|
|
|
$
|
(8,186
|
)
|
|
$
|
12,284
|
|
|
|
Six months ended June 30, 2013
|
|
|
|
|
|
|
Before-Tax Amount
|
|
Tax (Expense) Benefit
|
|
Net of Tax
|
|
(in thousands)
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain/loss during the period
|
|
$
|
(43,496
|
)
|
|
$
|
17,394
|
|
|
$
|
(26,102
|
)
|
Reclassification adjustment for net realized gain
on sale of available-for-sale securities included in net income
|
|
|
(442
|
)
|
|
|
177
|
|
|
|
(265
|
)
|
Reclassification adjustment for credit impairment on available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses
|
|
|
(43,938
|
)
|
|
|
17,571
|
|
|
|
(26,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net retirement plan actuarial loss
|
|
|
1,291
|
|
|
|
(517
|
)
|
|
|
774
|
|
Amortization of net retirement plan prior service cost
|
|
|
29
|
|
|
|
(12
|
)
|
|
|
17
|
|
Amortization of net retirement plan transition liability
|
|
|
25
|
|
|
|
(10
|
)
|
|
|
15
|
|
Employee benefit plans
|
|
|
1,345
|
|
|
|
(539
|
)
|
|
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
$
|
(42,593
|
)
|
|
$
|
17,032
|
|
|
$
|
(25,561
|
)
|
The following table presents the activity in our accumulated other comprehensive income for the periods indicated:
(in thousands)
|
|
Available-for-Sale Securities
|
|
Employee Benefit Plans
|
|
Accumulated Other Comprehensive Income
|
|
Balance at March 31, 2014
|
|
$
|
(3,123
|
)
|
|
$
|
(16,562
|
)
|
|
$
|
(19,685
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
6,751
|
|
|
|
0
|
|
|
|
6,751
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(22
|
)
|
|
|
121
|
|
|
|
99
|
|
Net current-period other comprehensive income
|
|
|
6,729
|
|
|
|
121
|
|
|
|
6,850
|
|
Balance at June 30, 2014
|
|
$
|
3,606
|
|
|
$
|
(16,441
|
)
|
|
$
|
(12,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014
|
|
$
|
(8,357
|
)
|
|
$
|
(16,762
|
)
|
|
$
|
(25,119
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
12,041
|
|
|
|
0
|
|
|
|
12,041
|
|
Amounts reclassified from accumulated other comprehensive (loss) income
|
|
|
(78
|
)
|
|
|
321
|
|
|
|
243
|
|
Net current-period other comprehensive income
|
|
|
11,963
|
|
|
|
321
|
|
|
|
12,284
|
|
Balance at June 30, 2014
|
|
$
|
3,606
|
|
|
$
|
(16,441
|
)
|
|
$
|
(12,835
|
)
|
(in thousands)
|
|
Available-for-Sale Securities
|
|
Employee Benefit Plans
|
|
Accumulated Other Comprehensive Income
|
|
Balance at March 31, 2013
|
|
$
|
22,858
|
|
|
$
|
(28,053
|
)
|
|
$
|
(5,195
|
)
|
Other comprehensive (loss) income before reclassifications
|
|
|
(22,824
|
)
|
|
|
0
|
|
|
|
(22,824
|
)
|
Amounts reclassified from accumulated other comprehensive (loss) income
|
|
|
(45
|
)
|
|
|
397
|
|
|
|
352
|
|
Net current-period other comprehensive (loss) income
|
|
|
(22,869
|
)
|
|
|
397
|
|
|
|
(22,472
|
)
|
Balance at June 30, 2013
|
|
$
|
(11
|
)
|
|
$
|
(27,656
|
)
|
|
$
|
(27,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2013
|
|
$
|
26,356
|
|
|
$
|
(28,462
|
)
|
|
$
|
(2,106
|
)
|
Other comprehensive (loss) income before reclassifications
|
|
|
(26,102
|
)
|
|
|
0
|
|
|
|
(26,102
|
)
|
Amounts reclassified from accumulated other comprehensive (loss) income
|
|
|
(265
|
)
|
|
|
806
|
|
|
|
541
|
|
Net current-period other comprehensive (loss) income
|
|
|
(26,367
|
)
|
|
|
806
|
|
|
|
(25,561
|
)
|
Balance at June 30, 2013
|
|
$
|
(11
|
)
|
|
$
|
(27,656
|
)
|
|
$
|
(27,667
|
)
|
The following tables present the amounts reclassified out of each component of accumulated other comprehensive income for the three and six months ended June 30, 2014 and 2013.
Three months ended June 30,
2014
Details about
Accumulated other Comprehensive Income Components (in thousands)
|
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
1
|
|
|
Affected Line Item in the Statement Where Net Income is Presented
|
Available-for-sale securities:
|
|
|
|
|
|
|
Unrealized gains and losses on available-for-sale securities
|
|
$
|
35
|
|
|
Net gain on securities transactions
|
|
|
|
(13
|
)
|
|
Tax expense
|
|
|
|
22
|
|
|
Net of tax
|
Employee benefit plans:
|
|
|
|
|
|
|
Amortization of the following
2
|
|
|
|
|
|
|
Net retirement plan actuarial loss
|
|
|
(213
|
)
|
|
|
Net retirement plan prior service
cost
|
|
|
12
|
|
|
|
|
|
|
(201
|
)
|
|
Total before tax
|
|
|
|
80
|
|
|
Tax benefit
|
|
|
|
(121
|
)
|
|
Net of tax
|
Six months ended June 30, 2014
Details about Accumulated other Comprehensive Income Components
(in thousands)
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
1
|
|
Affected Line Item in the Statement Where Net Income is Presented
|
Available-for-sale securities:
|
|
|
|
|
|
|
Unrealized gains and losses on available-for-sale securities
|
|
$
|
129
|
|
|
Net gain on securities transactions
|
|
|
|
(51
|
)
|
|
Tax expense
|
|
|
|
78
|
|
|
Net of tax
|
Employee benefit plans:
|
|
|
|
|
|
|
Amortization of the following
2
|
|
|
|
|
|
|
Net retirement plan actuarial loss
|
|
|
(532
|
)
|
|
|
Net retirement plan prior service
cost
|
|
|
(2
|
)
|
|
|
|
|
|
(534
|
)
|
|
Total before tax
|
|
|
|
213
|
|
|
Tax benefit
|
|
|
|
(321
|
)
|
|
Net of tax
|
Three months ended June 30, 2013
Details about Accumulated other Comprehensive Income Components (in thousands)
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
1
|
|
Affected Line Item in the Statement Where Net Income is Presented
|
Available-for-sale securities:
|
|
|
|
|
|
|
Unrealized gains and losses on available-for-sale securities
|
|
$
|
75
|
|
|
Net gain on securities transactions
|
|
|
|
(30
|
)
|
|
Tax expense
|
|
|
|
45
|
|
|
Net of tax
|
Employee benefit plans:
|
|
|
|
|
|
|
Amortization of the following
2
|
|
|
|
|
|
|
Net retirement plan actuarial loss
|
|
|
(634
|
)
|
|
|
Net retirement plan prior service cost
|
|
|
(14
|
)
|
|
|
Net retirement plan transition
liability
|
|
|
(13
|
)
|
|
|
|
|
|
(661
|
)
|
|
Total before tax
|
|
|
|
264
|
|
|
Tax benefit
|
|
|
|
(397
|
)
|
|
Net of tax
|
Six months ended June 30, 2013
Details about Accumulated other
Comprehensive Income Components (in thousands)
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
1
|
|
Affected Line Item in the Statement Where Net Income is Presented
|
Available-for-sale securities:
|
|
|
|
|
|
|
Unrealized gains and losses on available-for-sale securities
|
|
$
|
442
|
|
|
Net gain on securities transactions
|
|
|
|
(177
|
)
|
|
Tax expense
|
|
|
|
265
|
|
|
Net of tax
|
Employee benefit plans:
|
|
|
|
|
|
|
Amortization of the following
2
|
|
|
|
|
|
|
Net retirement plan actuarial loss
|
|
|
(1,289
|
)
|
|
|
Net retirement plan prior service cost
|
|
|
(29
|
)
|
|
|
Net retirement plan transition
liability
|
|
|
(25
|
)
|
|
|
|
|
|
(1,343
|
)
|
|
Total before tax
|
|
|
|
537
|
|
|
Tax benefit
|
|
|
|
(806
|
)
|
|
Net of tax
|
1
Amounts in parentheses indicated debits in
income statement
2
The accumulated other comprehensive income
components are included in the computation of net periodic benefit cost (See Note 10 - “Employee Benefit
Plan”)
10. Employee Benefit Plan
The following table sets forth the amount of
the net periodic benefit cost recognized by the Company for the Company’s pension plan, post-retirement plan (Life and Health),
and supplemental employee retirement plans (“SERP”) including the following components: service cost, interest cost,
expected return on plan assets for the period, amortization of the unrecognized transitional obligation or transition asset, and
the amounts of recognized gains and losses, prior service cost recognized, and gain or loss recognized due to settlement or curtailment.
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Life and Health
|
|
SERP Benefits
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
(in thousands)
|
|
06/30/2014
|
|
06/30/2013
|
|
06/30/2014
|
|
06/30/2013
|
|
06/30/2014
|
|
06/30/2013
|
Service cost
|
|
$
|
592
|
|
|
$
|
685
|
|
|
$
|
45
|
|
|
$
|
81
|
|
|
$
|
18
|
|
|
$
|
130
|
|
Interest cost
|
|
|
766
|
|
|
|
676
|
|
|
|
85
|
|
|
|
87
|
|
|
|
219
|
|
|
|
184
|
|
Expected return on plan assets
|
|
|
(1,254
|
)
|
|
|
(1,010
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Amortization of net retirement plan actuarial loss
|
|
|
205
|
|
|
|
506
|
|
|
|
(11
|
)
|
|
|
20
|
|
|
|
19
|
|
|
|
108
|
|
Amortization of net retirement plan prior service cost (credit)
|
|
|
(31
|
)
|
|
|
(31
|
)
|
|
|
4
|
|
|
|
4
|
|
|
|
15
|
|
|
|
41
|
|
Amortization of net retirement plan transition liability
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
13
|
|
|
|
0
|
|
|
|
0
|
|
Net periodic benefit cost
|
|
$
|
278
|
|
|
$
|
826
|
|
|
$
|
123
|
|
|
$
|
205
|
|
|
$
|
271
|
|
|
$
|
463
|
|
Components of Net Period Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Life and Health
|
|
SERP Benefits
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
Six Months Ended
|
(in thousands)
|
|
06/30/2014
|
|
06/30/2013
|
|
06/30/2014
|
|
06/30/2013
|
|
06/30/2014
|
|
06/30/2013
|
Service cost
|
|
$
|
1,217
|
|
|
$
|
1,458
|
|
|
$
|
101
|
|
|
$
|
133
|
|
|
$
|
111
|
|
|
$
|
239
|
|
Interest cost
|
|
|
1,534
|
|
|
|
1,344
|
|
|
|
183
|
|
|
|
172
|
|
|
|
433
|
|
|
|
369
|
|
Expected return on plan assets
|
|
|
(2,512
|
)
|
|
|
(2,005
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Amortization of net retirement plan actuarial loss
|
|
|
429
|
|
|
|
1,011
|
|
|
|
0
|
|
|
|
48
|
|
|
|
103
|
|
|
|
230
|
|
Amortization of net retirement plan prior service cost (credit)
|
|
|
(62
|
)
|
|
|
(62
|
)
|
|
|
8
|
|
|
|
8
|
|
|
|
56
|
|
|
|
83
|
|
Amortization of net retirement plan transition liability
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
25
|
|
|
|
0
|
|
|
|
0
|
|
Net periodic benefit cost
|
|
$
|
606
|
|
|
$
|
1,746
|
|
|
$
|
292
|
|
|
$
|
386
|
|
|
$
|
703
|
|
|
$
|
921
|
|
The net periodic benefit cost for the Company’s
benefit plans are recorded as a component of salaries and benefits in the consolidated statements of income.
The Company realized approximately $321,000
and $806,000, net of tax, as amortization of amounts previously recognized in accumulated other comprehensive income, for the six
months ended June 30, 2014 and 2013, respectively.
The Company is not required to contribute to
the pension plan in 2014, but it may make voluntary contributions. The Company did not contribute to the pension plan in the six
months ended 2014 and 2013.
11. Other Income and Operating Expense
Other income and operating expense totals are presented in the table below. Components of these totals exceeding 1% of the aggregate of total noninterest income and total noninterest expenses for any of the years presented below are stated separately.
|
|
Three Months Ended
|
|
Six Months Ended
|
(in thousands)
|
|
06/30/2014
|
|
06/30/2013
|
|
06/30/2014
|
|
06/30/2013
|
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other service charges
|
|
$
|
1,108
|
|
|
$
|
771
|
|
|
$
|
1,803
|
|
|
$
|
1,609
|
|
Increase in cash surrender value of corporate owned life insurance
|
|
|
473
|
|
|
|
486
|
|
|
|
975
|
|
|
|
1,038
|
|
Net gain on sale of loans
|
|
|
171
|
|
|
|
68
|
|
|
|
221
|
|
|
|
97
|
|
Other income
|
|
|
648
|
|
|
|
485
|
|
|
|
1,240
|
|
|
|
1,432
|
|
Total other income
|
|
$
|
2,400
|
|
|
$
|
1,810
|
|
|
$
|
4,239
|
|
|
$
|
4,176
|
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expense
|
|
$
|
1,460
|
|
|
$
|
1,378
|
|
|
$
|
2,419
|
|
|
$
|
2,542
|
|
Professional fees
|
|
|
1,511
|
|
|
|
1,411
|
|
|
|
2,899
|
|
|
|
2,765
|
|
Legal fees
|
|
|
529
|
|
|
|
529
|
|
|
|
1,061
|
|
|
|
1,121
|
|
Software licensing and maintenance
|
|
|
1,101
|
|
|
|
1,422
|
|
|
|
2,316
|
|
|
|
2,561
|
|
Cardholder expense
|
|
|
729
|
|
|
|
788
|
|
|
|
1,398
|
|
|
|
1,536
|
|
Other expenses
|
|
|
5,175
|
|
|
|
4,799
|
|
|
|
9,996
|
|
|
|
9,638
|
|
Total other operating expense
|
|
$
|
10,505
|
|
|
$
|
10,327
|
|
|
$
|
20,089
|
|
|
$
|
20,163
|
|
12. Financial Guarantees
The Company
currently does not issue any guarantees that would require liability recognition or disclosure, other than standby letters of credit.
The Company extends standby letters of credit to its customers in the normal course of business. The standby letters of credit
are generally short-term. As of June 30, 2014, the Company’s maximum potential obligation under standby letters of credit was $62.1
million compared to $62.6 million at December 31, 2013. Management uses the same credit policies to extend standby letters of credit
that it uses for on-balance sheet lending decisions and may require collateral to support standby letters of credit based upon
its evaluation of the counterparty. Management does not anticipate any significant losses as a result of these transactions, and
has determined that the fair value of standby letters of credit is not significant.
13. Segment and Related Information
The Company manages its operations through
three reportable business segments in accordance with the standards set forth in FASB ASC 280, “Segment Reporting”: (i)
banking (“Banking”), (ii) insurance (“Tompkins Insurance Agencies, Inc.”) and (iii) wealth management (“Tompkins
Financial Advisors”). The Company’s insurance services and wealth management services, other than trust services, are managed
separately from the Banking segment.
Banking
The Banking segment is primarily comprised
of the four banking subsidiaries: Tompkins Trust Company, a commercial bank with fifteen banking offices located in Ithaca, NY
and surrounding communities; The Bank of Castile, a commercial bank with sixteen banking offices located in the Genesee Valley
region of New York State as well as Monroe County; Mahopac Bank, a commercial bank with fifteen full-service banking offices and
one limited service office in the counties north of New York City; and VIST Bank, a banking organization with twenty banking offices
headquartered and operating in the areas surrounding southeastern Pennsylvania.
Insurance
The Company provides property and casualty
insurance services and employee benefits consulting through Tompkins Insurance Agencies, Inc., a 100% wholly-owned subsidiary of
the Company, headquartered in Batavia, New York. Tompkins Insurance is an independent insurance agency, representing many major
insurance carriers and provides employee benefit consulting to employers in Western and Central New York, assisting them with their
medical, group life insurance and group disability insurance. Through the 2012 acquisition of VIST Financial, Tompkins Insurance
expanded its operations with the addition of VIST Insurance, a full service insurance agency offering a similar array of insurance
products as Tompkins Insurance in southeastern Pennsylvania.
Wealth Management
The Wealth Management segment is generally
organized under the Tompkins Financial Advisors brand. Tompkins Financial Advisors offers a comprehensive suite of financial services
to customers, including trust and estate services, investment management and financial and insurance planning for individuals,
corporate executives, small business owners and high net worth individuals. Tompkins Financial Advisors has offices in each of
the Company’s four subsidiary banks.
Summarized financial information concerning
the Company’s reportable segments and the reconciliation to the Company’s consolidated results is shown in the following table.
Investment in subsidiaries is netted out of the presentations below. The “Intercompany” column identifies the intercompany
activities of revenues, expenses and other assets between the banking, insurance and wealth management services segments. The Company
accounts for intercompany fees and services at an estimated fair value according to regulatory requirements for the services provided.
Intercompany items relate primarily to the use of human resources, information systems, accounting and marketing services provided
by any of the banks and the holding company. All other accounting policies are the same as those described in the summary of significant
accounting policies in the 2013 Annual Report on Form 10-K.
As of and for the three months ended June 30, 2014
|
(in thousands)
|
|
Banking
|
|
Insurance
|
|
Wealth Management
|
|
Intercompany
|
|
Consolidated
|
Interest income
|
|
$
|
45,786
|
|
|
$
|
2
|
|
|
$
|
33
|
|
|
$
|
(2
|
)
|
|
$
|
45,819
|
|
Interest expense
|
|
|
5,303
|
|
|
|
2
|
|
|
|
0
|
|
|
|
(2
|
)
|
|
|
5,303
|
|
Net
interest income
|
|
|
40,483
|
|
|
|
0
|
|
|
|
33
|
|
|
|
0
|
|
|
|
40,516
|
|
Provision for loan and lease losses
|
|
|
67
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
67
|
|
Noninterest income
|
|
|
6,915
|
|
|
|
7,116
|
|
|
|
4,014
|
|
|
|
(325
|
)
|
|
|
17,720
|
|
Noninterest expense
|
|
|
30,584
|
|
|
|
5,836
|
|
|
|
2,833
|
|
|
|
(325
|
)
|
|
|
38,928
|
|
Income
before income tax expense
|
|
|
16,747
|
|
|
|
1,280
|
|
|
|
1,214
|
|
|
|
0
|
|
|
|
19,241
|
|
Income tax expense
|
|
|
5,229
|
|
|
|
498
|
|
|
|
421
|
|
|
|
0
|
|
|
|
6,148
|
|
Net Income
attributable to noncontrolling interests and Tompkins Financial Corporation
|
|
|
11,518
|
|
|
|
782
|
|
|
|
793
|
|
|
|
0
|
|
|
|
13,093
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
32
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
32
|
|
Net Income attributable
to Tompkins Financial Corporation
|
|
$
|
11,486
|
|
|
$
|
782
|
|
|
$
|
793
|
|
|
$
|
0
|
|
|
$
|
13,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
1,279
|
|
|
$
|
59
|
|
|
$
|
36
|
|
|
$
|
0
|
|
|
$
|
1,374
|
|
Assets
|
|
|
5,016,712
|
|
|
|
35,524
|
|
|
|
14,085
|
|
|
|
(8,500
|
)
|
|
|
5,057,821
|
|
Goodwill
|
|
|
64,500
|
|
|
|
19,662
|
|
|
|
8,081
|
|
|
|
0
|
|
|
|
92,243
|
|
Other intangibles, net
|
|
|
9,995
|
|
|
|
4,932
|
|
|
|
558
|
|
|
|
0
|
|
|
|
15,485
|
|
Net loans and leases
|
|
|
3,201,451
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,201,451
|
|
Deposits
|
|
|
4,052,715
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(8,326
|
)
|
|
|
4,044,389
|
|
Total Equity
|
|
|
451,596
|
|
|
|
27,126
|
|
|
|
10,515
|
|
|
|
0
|
|
|
|
489,237
|
|
As of and for
the three months ended June 30, 2013
|
(in thousands)
|
|
Banking
|
|
Insurance
|
|
Wealth Management
|
|
Intercompany
|
|
Consolidated
|
Interest income
|
|
$
|
45,911
|
|
|
$
|
2
|
|
|
$
|
49
|
|
|
$
|
(2
|
)
|
|
$
|
45,960
|
|
Interest expense
|
|
|
6,136
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(2
|
)
|
|
|
6,134
|
|
Net
interest income
|
|
|
39,775
|
|
|
|
2
|
|
|
|
49
|
|
|
|
0
|
|
|
|
39,826
|
|
Provision for loan and lease losses
|
|
|
2,489
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,489
|
|
Noninterest income
|
|
|
5,818
|
|
|
|
7,229
|
|
|
|
3,746
|
|
|
|
(252
|
)
|
|
|
16,541
|
|
Noninterest
expense
|
|
|
29,602
|
|
|
|
5,491
|
|
|
|
2,936
|
|
|
|
(252
|
)
|
|
|
37,777
|
|
Income
before income tax expense
|
|
|
13,502
|
|
|
|
1,740
|
|
|
|
859
|
|
|
|
0
|
|
|
|
16,101
|
|
Income tax expense
|
|
|
4,107
|
|
|
|
665
|
|
|
|
289
|
|
|
|
0
|
|
|
|
5,061
|
|
Net Income attributable
to noncontrolling interests and
Tompkins Financial Corporation
|
|
|
9,395
|
|
|
|
1,075
|
|
|
|
570
|
|
|
|
0
|
|
|
|
11,040
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
33
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
33
|
|
Net Income attributable
to Tompkins Financial Corporation
|
|
$
|
9,362
|
|
|
$
|
1,075
|
|
|
$
|
570
|
|
|
$
|
0
|
|
|
$
|
11,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
1,359
|
|
|
$
|
53
|
|
|
$
|
34
|
|
|
$
|
0
|
|
|
$
|
1,446
|
|
Assets
|
|
|
4,892,300
|
|
|
|
35,356
|
|
|
|
12,857
|
|
|
|
(8,630
|
)
|
|
|
4,931,883
|
|
Goodwill
|
|
|
64,500
|
|
|
|
19,559
|
|
|
|
8,081
|
|
|
|
0
|
|
|
|
92,140
|
|
Other intangibles, net
|
|
|
11,450
|
|
|
|
5,313
|
|
|
|
637
|
|
|
|
0
|
|
|
|
17,400
|
|
Net loans and leases
|
|
|
3,029,725
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,029,725
|
|
Deposits
|
|
|
3,921,307
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(8,397
|
)
|
|
|
3,912,910
|
|
Total Equity
|
|
|
395,147
|
|
|
|
25,698
|
|
|
|
11,049
|
|
|
|
0
|
|
|
|
431,894
|
|
For the six months ended June 30, 2014
|
(in thousands)
|
|
Banking
|
|
Insurance
|
|
Wealth Management
|
|
Intercompany
|
|
Consolidated
|
Interest income
|
|
$
|
91,119
|
|
|
$
|
4
|
|
|
$
|
65
|
|
|
$
|
(4
|
)
|
|
$
|
91,184
|
|
Interest expense
|
|
|
10,643
|
|
|
|
2
|
|
|
|
0
|
|
|
|
(4
|
)
|
|
|
10,641
|
|
Net
interest income
|
|
|
80,476
|
|
|
|
2
|
|
|
|
65
|
|
|
|
0
|
|
|
|
80,543
|
|
Provision for loan and lease losses
|
|
|
810
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
810
|
|
Noninterest income
|
|
|
13,228
|
|
|
|
14,363
|
|
|
|
8,243
|
|
|
|
(680
|
)
|
|
|
35,154
|
|
Noninterest expense
|
|
|
60,429
|
|
|
|
11,564
|
|
|
|
5,825
|
|
|
|
(680
|
)
|
|
|
77,138
|
|
Income
before income tax expense
|
|
|
32,465
|
|
|
|
2,801
|
|
|
|
2,483
|
|
|
|
0
|
|
|
|
37,749
|
|
Income tax expense
|
|
|
10,079
|
|
|
|
1,123
|
|
|
|
852
|
|
|
|
0
|
|
|
|
12,054
|
|
Net Income attributable
to noncontrolling interests and
Tompkins Financial Corporation
|
|
|
22,386
|
|
|
|
1,678
|
|
|
|
1,631
|
|
|
|
0
|
|
|
|
25,695
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
65
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
65
|
|
Net
Income attributable to Tompkins Financial Corporation
|
|
$
|
22,321
|
|
|
$
|
1,678
|
|
|
$
|
1,631
|
|
|
$
|
0
|
|
|
$
|
25,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
2,589
|
|
|
$
|
109
|
|
|
$
|
74
|
|
|
$
|
0
|
|
|
$
|
2,772
|
|
For the six months ended June 30, 2013
|
(in thousands)
|
|
Banking
|
|
Insurance
|
|
Wealth Management
|
|
Intercompany
|
|
Consolidated
|
Interest income
|
|
$
|
90,312
|
|
|
$
|
4
|
|
|
$
|
104
|
|
|
$
|
(3
|
)
|
|
$
|
90,417
|
|
Interest expense
|
|
|
12,388
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(3
|
)
|
|
|
12,385
|
|
Net
interest income
|
|
|
77,924
|
|
|
|
4
|
|
|
|
104
|
|
|
|
0
|
|
|
|
78,032
|
|
Provision for loan and lease losses
|
|
|
3,527
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,527
|
|
Noninterest income
|
|
|
12,455
|
|
|
|
14,294
|
|
|
|
7,936
|
|
|
|
(754
|
)
|
|
|
33,931
|
|
Noninterest expense
|
|
|
59,009
|
|
|
|
11,057
|
|
|
|
5,986
|
|
|
|
(754
|
)
|
|
|
75,298
|
|
Income
before income tax expense
|
|
|
27,843
|
|
|
|
3,241
|
|
|
|
2,054
|
|
|
|
0
|
|
|
|
33,138
|
|
Income tax expense
|
|
|
8,574
|
|
|
|
1,290
|
|
|
|
693
|
|
|
|
0
|
|
|
|
10,557
|
|
Net Income attributable to
noncontrolling interests and Tompkins Financial Corporation
|
|
|
19,269
|
|
|
|
1,951
|
|
|
|
1,361
|
|
|
|
0
|
|
|
|
22,581
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
65
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
65
|
|
Net Income attributable to Tompkins
Financial Corporation
|
|
$
|
19,204
|
|
|
$
|
1,951
|
|
|
$
|
1,361
|
|
|
$
|
0
|
|
|
$
|
22,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
2,711
|
|
|
$
|
109
|
|
|
$
|
70
|
|
|
$
|
0
|
|
|
$
|
2,890
|
|
14. Fair Value
FASB ASC
Topic 820,
Fair Value Measurements and Disclosures,
defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles and expands disclosures about fair value measurements. FASB ASC Topic 820 also establishes
a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3 measurements). Transfers between levels, when determined to be appropriate,
are recognized at the end of each reporting period.
The three levels of the fair value hierarchy
under FASB ASC Topic 820 are:
Level 1 – Unadjusted quoted prices in
active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices for similar assets
or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active,
or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3 – Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market
activity).
The following
table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2014 and
December 31, 2013, segregated by the level of valuation inputs within the fair value hierarchy used to measure fair value.
Recurring Fair Value Measurements
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Trading securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored entities
|
|
$
|
7,875
|
|
|
$
|
0
|
|
|
$
|
7,875
|
|
|
$
|
0
|
|
Mortgage-backed securities – residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored entities
|
|
|
2,134
|
|
|
|
0
|
|
|
|
2,134
|
|
|
|
0
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored entities
|
|
|
559,083
|
|
|
|
0
|
|
|
|
559,083
|
|
|
|
0
|
|
Obligations of U.S. states and political subdivisions
|
|
|
66,545
|
|
|
|
0
|
|
|
|
66,545
|
|
|
|
0
|
|
Mortgage-backed securities – residential, issued by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
|
134,132
|
|
|
|
0
|
|
|
|
134,132
|
|
|
|
0
|
|
U.S. Government sponsored entities
|
|
|
615,649
|
|
|
|
0
|
|
|
|
615,649
|
|
|
|
0
|
|
Non-U.S. Government agencies or sponsored entities
|
|
|
294
|
|
|
|
0
|
|
|
|
294
|
|
|
|
0
|
|
U.S. corporate debt securities
|
|
|
2,125
|
|
|
|
0
|
|
|
|
2,125
|
|
|
|
0
|
|
Equity securities
|
|
|
1,426
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
|
11,164
|
|
|
|
0
|
|
|
|
11,164
|
|
|
|
0
|
|
The change in the fair value of the $1.4 million of available-for-sale securities valued using significant unobservable inputs (level 3), between January 1, 2014 and June 30, 2014 was immaterial.
Recurring Fair Value Measurements
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Trading securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored entities
|
|
$
|
8,275
|
|
|
$
|
0
|
|
|
$
|
8,275
|
|
|
$
|
0
|
|
Mortgage-backed securities – residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored entities
|
|
|
2,716
|
|
|
|
0
|
|
|
|
2,716
|
|
|
|
0
|
|
Available-for-sale securities
|
|
|
|
|
|
|
.
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government sponsored entities
|
|
|
556,345
|
|
|
|
0
|
|
|
|
556,345
|
|
|
|
0
|
|
Obligations of U.S. states and political subdivisions
|
|
|
67,962
|
|
|
|
0
|
|
|
|
67,962
|
|
|
|
0
|
|
Mortgage-backed securities – residential, issued by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
|
146,678
|
|
|
|
0
|
|
|
|
146,678
|
|
|
|
0
|
|
U.S. Government sponsored entities
|
|
|
577,472
|
|
|
|
0
|
|
|
|
577,472
|
|
|
|
0
|
|
Non-U.S. Government agencies or sponsored entities
|
|
|
311
|
|
|
|
0
|
|
|
|
311
|
|
|
|
0
|
|
U.S. corporate debt securities
|
|
|
4,633
|
|
|
|
0
|
|
|
|
4,633
|
|
|
|
0
|
|
Equity securities
|
|
|
1,410
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
|
11,292
|
|
|
|
0
|
|
|
|
11,292
|
|
|
|
0
|
|
The change in the fair value of the $1.4 million of available-for-sale
securities valued using significant unobservable inputs (level 3), between January 1, 2013 and December 31, 2013 was immaterial.
There were no transfers between Levels 1, 2
and 3 for the three months ended June 30, 2014.
The Company determines fair value for its trading
securities using independently quoted market prices. The Company determines fair value for its available-for-sale securities using
an independent bond pricing service for identical assets or very similar securities. The Company has reviewed the pricing sources,
including methodologies used, and finds them to be fairly stated.
Fair values of borrowings are estimated using
Level 2 inputs based upon observable market data. The Company determines fair value for its borrowings using a discounted cash
flow technique based upon expected cash flows and current spreads on FHLB advances with the same structure and terms. The Company
also receives pricing information from third parties, including the FHLB. The pricing obtained is considered representative of
the transfer price if the liabilities were assumed by a third party. The Company’s potential credit risk did not have a material
impact on the quoted settlement prices used in measuring the fair value of the FHLB borrowings at June 30, 2014.
Certain assets are measured at fair value on
a nonrecurring basis. For the Company, these include loans held for sale, collateral dependent impaired loans, and other real estate
owned (“OREO”). During the second quarter of 2014, certain collateral dependent impaired loans were remeasured and reported
at fair value through a specific valuation allowance and/or partial charge-offs for loan and lease losses based upon the fair value
of the underlying collateral. Collateral values are estimated using Level 2 inputs based upon observable market data. In addition
to collateral dependent impaired loans, certain other real estate owned were remeasured and reported at fair value based upon the
fair value of the underlying collateral. The fair values of other real estate owned are estimated using Level 2 inputs based on
observable market data or Level 3 inputs based on customized discounting criteria. In general, the fair values of other real estate
owned are based upon appraisals, with discounts made to reflect estimated costs to sell the real estate. Upon initial recognition,
fair value write-downs on other real estate owned are taken through a charge-off to the allowance for loan and lease losses. Subsequent
fair value write-downs on other real estate owned are reported in other noninterest expense.
Three months ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at
reporting date using:
|
|
Gain (losses) from fair value
changes
|
|
|
As of
|
|
Quoted prices in active markets for identical assets
|
|
Significant other observable inputs
|
|
Significant unobservable inputs
|
|
Three months ended
|
Assets:
|
|
06/30/2014
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
06/30/2014
|
Impaired Loans
|
|
$
|
3,261
|
|
|
$
|
0
|
|
$
|
3,261
|
|
|
$
|
0
|
|
|
$
|
(270
|
)
|
Other real estate owned
|
|
|
2,688
|
|
|
|
0
|
|
|
2,688
|
|
|
|
0
|
|
|
|
(160
|
)
|
Three months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at
reporting date using:
|
|
Gain (losses) from fair value changes
|
|
|
|
|
As of
|
|
|
Quoted prices in active markets for identical assets
|
|
|
Significant other observable inputs
|
|
|
|
Significant unobservable inputs
|
|
|
|
Three
months ended
|
|
Assets:
|
|
|
06/30/2013
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
|
(Level 3)
|
|
|
|
06/30/2013
|
|
Impaired Loans
|
|
$
|
1,034
|
|
|
$
|
0
|
|
$
|
1,034
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Other real estate owned
|
|
|
1,331
|
|
|
|
0
|
|
|
1,331
|
|
|
|
0
|
|
|
|
(61
|
)
|
Six months ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at
reporting date using:
|
|
Gain (losses) from fair value changes
|
|
|
As of
|
|
|
Quoted prices in active markets for identical assets
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
Six months ended
|
|
Assets:
|
|
06/30/2014
|
|
|
(Level 1)
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
06/30/2014
|
|
Impaired Loans
|
|
$
|
4,086
|
|
|
$
|
0
|
|
$
|
4,086
|
|
|
$
|
0
|
|
|
$
|
(185
|
)
|
Other real estate owned
|
|
|
6,175
|
|
|
|
0
|
|
|
6,175
|
|
|
|
0
|
|
|
|
(42
|
)
|
Six months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at
reporting date using:
|
|
Gain (losses) from fair value changes
|
|
|
As of
|
|
|
Quoted prices in active markets for identical assets
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
Six months ended
|
|
Assets:
|
|
06/30/2013
|
|
|
(Level 1)
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
06/30/2013
|
|
Impaired Loans
|
|
$
|
4,994
|
|
|
$
|
0
|
|
$
|
4,994
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Other real estate owned
|
|
|
2,452
|
|
|
|
0
|
|
|
2,452
|
|
|
|
0
|
|
|
|
(190
|
)
|
The following table presents the carrying amounts
and estimated fair values of the Company’s financial instruments at June 30, 2014 and December 31, 2013. The carrying amounts shown
in the table are included in the Consolidated Statements of Condition under the indicated captions.
The fair value estimates, methods and assumptions
set forth below for the Company’s financial instruments, including those financial instruments carried at cost, are made solely
to comply with disclosures required by generally accepted accounting principles in the United States and do not always incorporate
the exit-price concept of fair value prescribed by ASC Topic 820-10 and should be read in conjunction with the financial statements
and notes included in this Report.
Estimated Fair Value of Financial Instruments
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Carrying Amount
|
|
Fair Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
83,419
|
|
|
$
|
83,419
|
|
|
$
|
83,419
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Securities - held to maturity
|
|
|
30,963
|
|
|
|
31,629
|
|
|
|
0
|
|
|
|
31,629
|
|
|
|
0
|
|
FHLB stock
|
|
|
21,028
|
|
|
|
21,028
|
|
|
|
0
|
|
|
|
21,028
|
|
|
|
0
|
|
Accrued interest receivable
|
|
|
16,211
|
|
|
|
16,211
|
|
|
|
0
|
|
|
|
16,211
|
|
|
|
0
|
|
Loans/leases, net1
|
|
|
3,201,451
|
|
|
|
3,234,715
|
|
|
|
0
|
|
|
|
4,086
|
|
|
|
3,230,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
901,650
|
|
|
$
|
905,769
|
|
|
$
|
0
|
|
|
$
|
905,769
|
|
|
$
|
0
|
|
Other deposits
|
|
|
3,142,739
|
|
|
|
3,142,739
|
|
|
|
0
|
|
|
|
3,142,739
|
|
|
|
0
|
|
Fed funds purchased and securities sold under agreements to repurchase
|
|
|
144,796
|
|
|
|
149,499
|
|
|
|
0
|
|
|
|
149,499
|
|
|
|
0
|
|
Other borrowings
|
|
|
275,994
|
|
|
|
280,932
|
|
|
|
0
|
|
|
|
280,932
|
|
|
|
0
|
|
Accrued interest payable
|
|
|
1,878
|
|
|
|
1,878
|
|
|
|
0
|
|
|
|
1,878
|
|
|
|
0
|
|
Trust preferred debentures
|
|
|
37,254
|
|
|
|
43,135
|
|
|
|
0
|
|
|
|
43,135
|
|
|
|
0
|
|
Estimated Fair Value of Financial Instruments
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Carrying Amount
|
|
Fair Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
82,884
|
|
|
$
|
82,884
|
|
|
$
|
82,884
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Securities - held to maturity
|
|
|
18,980
|
|
|
|
19,625
|
|
|
|
0
|
|
|
|
19,625
|
|
|
|
0
|
|
FHLB and FRB stock
|
|
|
25,041
|
|
|
|
25,041
|
|
|
|
0
|
|
|
|
25,041
|
|
|
|
0
|
|
Accrued interest receivable
|
|
|
16,586
|
|
|
|
16,586
|
|
|
|
0
|
|
|
|
16,586
|
|
|
|
0
|
|
Loans/leases, net1
|
|
|
3,166,314
|
|
|
|
3,201,837
|
|
|
|
0
|
|
|
|
6,846
|
|
|
|
3,194,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
865,702
|
|
|
$
|
870,857
|
|
|
$
|
0
|
|
|
$
|
870,857
|
|
|
$
|
0
|
|
Other deposits
|
|
|
3,081,514
|
|
|
|
3,081,514
|
|
|
|
0
|
|
|
|
3,081,514
|
|
|
|
0
|
|
Fed funds purchased and securities sold under agreements to repurchase
|
|
|
167,724
|
|
|
|
173,425
|
|
|
|
0
|
|
|
|
173,425
|
|
|
|
0
|
|
Other borrowings
|
|
|
320,239
|
|
|
|
326,193
|
|
|
|
0
|
|
|
|
326,193
|
|
|
|
0
|
|
Accrued interest payable
|
|
|
2,121
|
|
|
|
2,121
|
|
|
|
0
|
|
|
|
2,121
|
|
|
|
0
|
|
Trust preferred debentures
|
|
|
37,169
|
|
|
|
41,673
|
|
|
|
0
|
|
|
|
41,673
|
|
|
|
0
|
|
1
Lease receivables, although excluded from the scope
of ASC Topic 825, are included in the estimated fair value amounts at their carrying value.
The following methods and assumptions were
used in estimating fair value disclosures for financial instruments.
Cash
and Cash Equivalents:
The carrying amounts reported in the Consolidated Statements of Condition for cash, noninterest-bearing
deposits, money market funds, and Federal funds sold approximate the fair value of those assets.
Securities
:
Fair values for U.S. Treasury securities are based on quoted market prices. Fair values for obligations of U.S. government sponsored
entities, mortgage-backed securities-residential, obligations of U.S. states and political subdivisions, and U.S. corporate debt
securities are based on quoted market prices, where available, as provided by third party pricing vendors. If quoted market prices
were not available, fair values are based on quoted market prices of comparable instruments in active markets and/or based upon
matrix pricing methodology, which uses comprehensive interest rate tables to determine market price, movement and yield relationships.
These securities are reviewed periodically to determine if there are any events or changes in circumstances that would adversely
affect their value.
Loans
and Leases:
The fair values of residential loans are estimated using discounted cash flow analyses, based upon available
market benchmarks for rates and prepayment assumptions. The fair values of commercial and consumer loans are estimated using discounted
cash flow analyses, based upon interest rates currently offered for loans and leases with similar terms and credit quality. The
fair value of loans held for sale are determined based upon contractual prices for loans with similar characteristics.
FHLB STOCK:
The carrying amount of FHLB
stock approximates fair value. If the stock is redeemed, the Company will receive an amount equal to the par value of the stock.
For miscellaneous equity securities, carrying value is cost.
ACCRUED INTEREST RECEIVABLE AND ACCRUED
INTEREST PAYABLE:
The carrying amount of these short term instruments approximate fair value.
Deposits:
The fair values disclosed for noninterest bearing accounts and accounts with no stated maturities are equal to the amount payable
on demand at the reporting date. The fair value of time deposits is based upon discounted cash flow analyses using rates offered
for FHLB advances, which is the Company’s primary alternative source of funds.
Securities
Sold Under Agreements to Repurchase:
The carrying amounts of repurchase agreements and other short-term borrowings approximate
their fair values. Fair values of long-term borrowings are estimated using a discounted cash flow approach, based on current market
rates for similar borrowings. For securities sold under agreements to repurchase where the Company has elected the fair value option,
the Company also receives pricing information from third parties, including the FHLB.
Other
Borrowings:
The fair values of other borrowings are estimated using discounted cash flow analysis, discounted at the
Company’s current incremental borrowing rate for similar borrowing arrangements. For other borrowings where the Company has elected
the fair value option, the Company also receives pricing information from third parties, including the FHLB.
TRUST PREFERRED DEBENTURES:
The fair
value of the trust preferred debentures has been estimated using a discounted cash flow analysis which uses a discount factor of
a market spread over current interest rates for similar instruments.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
BUSINESS
Corporate Overview
and Strategic Initiatives
Tompkins Financial Corporation (“Tompkins”
or the “Company”) is headquartered in Ithaca, New York and is registered as a Financial Holding Company with the Federal
Reserve Board under the Bank Holding Company Act of 1956, as amended. The Company is a locally oriented, community-based financial
services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust
and investment management, financial planning and wealth management, insurance, and brokerage services.
At June 30, 2014,
the Company’s subsidiaries included: four wholly-owned banking subsidiaries, Tompkins Trust Company (the “Trust Company”),
The Bank of Castile (DBA Tompkins Bank of Castile), Mahopac Bank (formerly known as Mahopac National Bank, DBA Tompkins Mahopac
Bank), VIST Bank (DBA Tompkins VIST Bank); and a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. (“Tompkins
Insurance”). TFA Wealth Management and the trust division of the Trust Company provide a full array of investment services
under the Tompkins Financial Advisors brand, including investment management, trust and estate, financial and tax planning as well
as life, disability and long-term care insurance services. The Company’s principal offices are located at The Commons, Ithaca,
New York, 14851, and its telephone number is (888) 503-5753. The Company’s common stock is traded on the NYSE MKT LLC under the
Symbol “TMP.”
The Company’s strategic initiatives include
diversification within its markets, growth of its fee-based businesses, and growth internally and through acquisitions of financial
institutions, branches, and financial services businesses. As such, the Company from time to time considers acquiring banks, thrift
institutions, branch offices of banks or thrift institutions, or other businesses within markets currently served by the Company
or in other locations that would complement the Company’s business or its geographic reach. The Company generally targets merger
or acquisition partners that are culturally similar and have experienced management and possess either significant market presence
or have potential for improved profitability through financial management, economies of scale and expanded services. The Company
has pursued acquisition opportunities in the past, and continues to review new opportunities.
Acquisitions
On January 31, 2014,
Tompkins Insurance acquired certain assets of Breakthrough Benefits, LLC, an employee benefits company located in Downingtown,
Pennsylvania, in a cash transaction. The principal partner continued as an employee of Tompkins Insurance after the acquisition.
The aggregate purchase price for the assets was $350,000. In addition to $210,000 paid at closing, consideration includes two annual
post-closing payments of $70,000 payable on subsequent anniversary dates. Payment is contingent upon certain criteria being met,
which Tompkins considers to be likely. The purchase price was allocated as follows: goodwill of $103,000, customer related intangibles
of $102,000 and a covenant-not-to-compete of $142,000. The value of the customer related intangible is being amortized over 15
years, while the covenant-not-to-compete will be amortized over 5 years commencing with the departure of the principal. The goodwill
is not being amortized but will be evaluated annually for impairment.
Business Segments
Banking services consist primarily of attracting
deposits from the areas served by the Company’s four banking subsidiaries 66 banking offices (46 offices in New York and 20 offices
in Pennsylvania and using those deposits to originate a variety of commercial loans, consumer loans, real estate loans (including
commercial loans collateralized by real estate), and leases. The Company’s lending function is managed within the guidelines of
a comprehensive Board-approved lending policy. Reporting systems are in place to provide management with ongoing information related
to loan production, loan quality, concentrations of credit, loan delinquencies, and nonperforming and potential problem loans.
Banking services also include a full suite of products such as debit cards, credit cards, remote deposit, electronic banking, mobile
banking, cash management, and safe deposit services.
Wealth management services consist of investment
management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. Wealth
management services are under the trade name Tompkins Financial Advisors. Tompkins Financial Advisors has office locations at all
four of the Company’s subsidiary banks.
Insurance services include property and casualty
insurance, employee benefit consulting, and life, long-term care and disability insurance. Tompkins Insurance is headquartered
in Batavia, New York. Over the past thirteen years, Tompkins Insurance has acquired smaller insurance agencies in the market areas
serviced by the Company’s banking subsidiaries and successfully consolidated them into Tompkins Insurance. The VIST Financial acquisition
in 2012, which included VIST Insurance, nearly doubled the Company’s annual insurance revenues. In the first quarter of 2014, Tompkins
Insurance acquired certain assets of Breakthrough Benefits, LLC, an employee benefits company located in Downingtown, Pennsylvania.
Details of this transaction are discussed above. Tompkins Insurance offers services to customers of the Company’s banking subsidiaries
by sharing offices with The Bank of Castile, Trust Company, and VIST Bank. In addition to these shared offices, Tompkins Insurance
has five stand-alone offices in Western New York, two stand-alone offices in Tompkins County, New York and one stand-alone office
in Montgomery County, Pennsylvania.
The Company’s principal expenses are interest
on deposits, interest on borrowings, and operating and general administrative expenses, as well as provisions for loan and lease
losses. Funding sources, other than deposits, include borrowings, securities sold under agreements to repurchase, and cash flow
from lending and investing activities.
Competition
Competition for commercial banking and other
financial services is strong in the Company’s market areas. In one or more aspects of its businesses, the Company’s subsidiaries
compete with other commercial banks, savings and loan associations, credit unions, finance companies, Internet-based financial
services companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries.
Some of these competitors have substantially greater resources and lending capabilities and may offer service that the Company
does not currently provide. In addition, many of the Company’s non-bank competitors are not subject to the same extensive Federal
regulations that govern financial holding companies and Federally-insured banks.
Management believes that a community based
financial organization is better positioned to establish personalized financial relationships with both commercial customers and
individual households. The Company’s community commitment and involvement in its primary market areas, as well as its commitment
to quality and personalized financial services, are factors that contribute to the Company’s competitiveness. Management believes
that each of the Company’s subsidiary banks can compete successfully in its primary market areas by making prudent lending decisions
quickly and more efficiently than its competitors, without compromising asset quality or profitability, although no assurances
can be given that such factors will assure success.
Regulation
Banking, insurance services and wealth management
are highly regulated. As a financial holding company with four community banks, a registered investment advisor, and an insurance
agency subsidiary, the Company and its subsidiaries are subject to examination and regulation by the Federal Reserve Board (“FRB”),
Securities and Exchange Commission (“SEC”), the Federal Deposit Insurance Corporation (“FDIC”), the New York
State Department of Financial Services, Pennsylvania Department of Banking and Securities, Financial Industry Regulatory Authority,
and the Pennsylvania Insurance Department.
Other Factors Affecting Performance
Other external factors affecting the Company’s
operating results are market rates of interest, the condition of financial markets, inflation, economic growth, unemployment, regulatory
actions and policies. Historically low interest rates and weak economic conditions have put pressure on the Company’s net interest
margin in recent years. The Company has offset some of this pressure with strategic deposit pricing and growth in average earning
assets. Weak economic conditions beginning in 2008 contributed to increases in the Company’s past due loans and leases, nonperforming
assets, and net loan and lease losses, as well as decreases in certain fee-based products and services. Gradual improvement in
the economy as evidenced by a rebound in housing market, lower unemployment and higher equities markets, have contributed to improvement
in the Company’s credit quality metrics in recent quarters, including decreases in the level of internally classified assets and
nonperforming assets. With the strength of the economic recovery uncertain, there is no assurance that these conditions may not
adversely affect the credit quality of the Company’s loans and leases, results of operations, and financial condition going forward.
Refer to the section captioned “Financial Condition- Allowance for Loan and Lease Losses” below for further details on
asset quality.
OTHER IMPORTANT INFORMATION
The following discussion is intended to provide
an understanding of the consolidated financial condition and results of operations of the Company for the three and six months
ended June 30, 2014. It should be read in conjunction with the Company’s Audited Consolidated Financial Statements and the notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, and the Unaudited Consolidated
Financial Statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.
Forward-Looking Statements
The Company is making this statement in order
to satisfy the “Safe Harbor” provision contained in the Private Securities Litigation Reform Act of 1995. The statements
contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may include forward-looking statements
that involve a number of risks and uncertainties. Such forward-looking statements are made based on management’s expectations and
beliefs concerning future events impacting the Company and are subject to certain uncertainties and factors relating to the Company’s
operations and economic environment, all of which are difficult to predict and many of which are beyond the control of the Company.
These uncertainties and factors that could cause actual results of the Company to differ materially from those matters expressed
and/or implied by such forward-looking statements. The following factors are among those that could cause actual results to differ
materially from the forward-looking statements: changes in general economic, market and regulatory conditions; the development
of an interest rate environment that may adversely affect the Company’s interest rate spread, other income or cash flow anticipated
from the Company’s operations, investment and/or lending activities; changes in laws and regulations affecting banks, insurance
companies, bank holding companies and/or financial holding companies, such as the Dodd-Frank Wall Street Reform and Consumer Protection
Act and Basel III; technological developments and changes; the ability to continue to introduce competitive new products and services
on a timely, cost-effective basis; governmental and public policy changes, including environmental regulation; protection and validity
of intellectual property rights; reliance on large customers; financial resources in the amounts, at the times and on the terms
required to support the Company’s future businesses; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q
and in other reports we file with the SEC, in particular the “Risk Factors” discussed in Item 1A of the Company’s Annual
Report on Form 10-K for the year ended December 31, 2013. In addition, such forward-looking statements could be affected by general
industry and market conditions and growth rates, general economic and political conditions, including interest rate and currency
exchange rate fluctuations, and other factors.
Critical Accounting Policies
The accounting and reporting policies followed
by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general
practices within the financial services industry. In the course of normal business activity, management must select and apply many
accounting policies and methodologies and make estimates and assumptions that lead to the financial results presented in the Company’s
consolidated financial statements and accompanying notes. There are uncertainties inherent in making these estimates and assumptions,
which could materially affect the Company’s results of operations and financial position.
Management considers accounting estimates to
be critical to reported financial results if (i) the accounting estimates require management to make assumptions about matters
that are highly uncertain, and (ii) different estimates that management reasonably could have used for the accounting estimate
in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have
a material impact on the Company’s financial statements. Management considers the accounting policies relating to the allowance
for loan and lease losses (“allowance”), pension and postretirement benefits, the review of the securities portfolio
for other-than-temporary impairment, and acquired loans to be critical accounting policies because of the uncertainty and subjectivity
involved in these policies and the material effect that estimates related to these areas can have on the Company’s results of operations.
For additional information on critical accounting
policies and to gain a greater understanding of how the Company’s financial performance is reported, refer to Note 1 – “Summary
of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, and the section captioned “Critical
Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. There have been no significant changes in the Company’s
application of critical accounting policies since December 31, 2013. Refer to Note 3 – “Accounting Standards Updates”
in the Notes to Unaudited Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q for a discussion
of recent accounting updates.
In this Report there are comparisons of the
Company’s performance to that of a peer group. Unless otherwise stated, this peer group is comprised of the group of 117 domestic
bank holding companies with $3 billion to $10 billion in total assets as defined in the Federal Reserve’s “Bank Holding Company
Performance Report” for March 31, 2014 (the most recent report available).
OVERVIEW
Net income for the second quarter was $13.1
million or $0.87 diluted earnings per share, compared to $11.0 million or $0.75 diluted earnings per share for the same period
in 2013. Net income for the first six months of 2014 was $25.6 million or $1.72 diluted earnings per share, compared to $22.5 million
or $1.55 diluted earnings per share in the first six months of 2013.
Return on average assets (“ROA”)
for the quarter ended June 30, 2014 was 1.04%, compared to 0.89% for the quarter ended June 30, 2013. Return on average shareholders’
equity (“ROE”) for the second quarter of 2014 was 10.91%, compared to 9.87%, for the same period in 2013. Tompkins’ first
quarter ROA and ROE compare to the most recent peer average ratios of 0.91% and 9.13%, respectively, published, published as of
March 31, 2014 by the Federal Reserve, ranking Tompkins’ ROA in the 62
rd
percentile and ROE in the 56
rd
percentile
of the peer group.
The Company’s operating net
income (Non-GAAP) for the six month period ending June 30, 2014 was $25.6 million, or $1.72 diluted per share, compared to
$22.5 million, or $1.56 diluted per share for the same period in 2013. Operating (Non-GAAP) income excludes after-tax merger
and acquisition integration expense of $0 and $140,000 for the six months ended June 30, 2014 and 2013, respectively.
The following table summarizes our results
of operations for the periods indicated on a GAAP basis and on an operating (Non-GAAP) basis for the periods indicated. Our operating
results exclude merger and acquisition integration expenses. The Company believes this non-GAAP measure provides a meaningful comparison
of our underlying operational performance and facilitates managements’ and investors’ assessments of business and performance trends
in comparison to others in the financial services industry. In addition, the Company believes the exclusion of the nonoperating
items from our performance enables management and investors to perform a more effective evaluation and comparison of our results
and to assess performance in relation to our ongoing operations (in thousands). These non-GAAP financial measures should not be
considered in isolation or as a measure of the Company’s profitability or liquidity; they are in addition to, and are not a substitute
for, financial measures under GAAP. Net operating income as presented herein may be different
from non-GAAP financial measures used by other companies, and may not be comparable to similarly titled measures reported by other
companies. Further, the Company may utilize other measures to illustrate performance in the future. Non-GAAP financial measures
have limitations since they do not reflect all of the amounts associated with the Company’s results of operations as determined
in accordance with GAAP.
|
|
Three months ended
|
|
Six months ended
|
(in thousands)
|
|
06/30/2014
|
|
06/30/2013
|
|
06/30/2014
|
|
06/30/2013
|
|
|
|
|
|
|
|
|
|
Net income attributable to Tompkins Financial Corporation
|
|
$
|
13,061
|
|
|
$
|
11,007
|
|
|
$
|
25,630
|
|
|
$
|
22,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for non-operating income and expense, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger and acquisition integration related expenses
|
|
|
0
|
|
|
|
22
|
|
|
|
0
|
|
|
|
140
|
|
Total adjustments, net of tax
|
|
|
0
|
|
|
|
22
|
|
|
|
0
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (Non-GAAP)
|
|
|
13,061
|
|
|
|
11,029
|
|
|
|
25,630
|
|
|
|
22,656
|
|
Amortization of intangibles, net of tax
|
|
|
315
|
|
|
|
328
|
|
|
|
631
|
|
|
|
662
|
|
Adjusted net operating income (Non-GAAP)
|
|
|
13,376
|
|
|
|
11,357
|
|
|
|
26,261
|
|
|
|
23,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets
|
|
|
5,030,395
|
|
|
|
4,965,895
|
|
|
|
5,006,349
|
|
|
|
4,932,993
|
|
Less - Average goodwill
and intangibles
|
|
|
108,019
|
|
|
|
110,037
|
|
|
|
108,227
|
|
|
|
110,361
|
|
Average tangible assets
|
|
|
4,922,376
|
|
|
|
4,855,858
|
|
|
|
4,898,122
|
|
|
|
4,822,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating
return on average shareholders’ tangible assets (annualized) (Non-GAAP)
|
|
|
1.09
|
%
|
|
|
0.94
|
%
|
|
|
1.08
|
%
|
|
|
0.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total shareholders’ equity
|
|
|
480,063
|
|
|
|
447,088
|
|
|
|
474,321
|
|
|
|
445,192
|
|
Less - Average goodwill
and intangibles
|
|
|
108,019
|
|
|
|
110,037
|
|
|
|
108,227
|
|
|
|
110,361
|
|
Average shareholders’ tangible equity (Non-GAAP)
|
|
|
372,044
|
|
|
|
337,051
|
|
|
|
366,094
|
|
|
|
334,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating
return on average shareholders’ tangible equity (annualized) (Non-GAAP)
|
|
|
14.42
|
%
|
|
|
13.48
|
%
|
|
|
14.48
|
%
|
|
|
13.93
|
%
|
Segment Reporting
The Company operates in the following three
business segments, banking, insurance, and wealth management. Insurance is comprised of property and casualty insurance services
and employee benefit consulting operated under the Tompkins Insurance Agencies, Inc. subsidiary. Wealth management activities include
the results of the Company’s trust, financial planning, and wealth management services, and risk management operations organized
under the Tompkins Financial Advisors brand. All other activities are considered banking.
Banking Segment
The banking segment reported net income of
$11.5 million for the second quarter of 2014, up $2.1 million or 22.3% from net income of $9.4 million for the same period in 2013.
For the six months ended June 30, 2014, the banking segment reported net income of $22.3 million, up $3.1 million or 16.2% from
the same period in 2013.
Net interest income of $40.5 million for the
second quarter and $80.5 million for the six month period ended June 30, 2014 was up 1.8% and 3.2%, respectively over the same
periods in 2013. Growth in average earning assets and lower funding costs more than offset the lower asset yields and contributed
to favorable year-over-year comparisons. Net interest margin for the six months ended June 30, 2014 was 3.58% compared to 3.59%
for the same period prior year.
The provision for loan and lease losses totaled
$67,000 for the three months ended June 30, 2014 and $2.5 million for the same period in 2013. For the six month period ending
June 30, 2014, provision expense decreased $2.7 million or 77.0% compared to the same period prior year. The decrease in provision
expense was largely attributable improvements in credit quality, partially offset by growth in total loans over prior year.
Noninterest income for the three months
ended June 30, 2014 of $6.9 million was up $1.1 million or 18.9% compared to the same period in 2013. For the six months
ended June 30, 2014, noninterest income of $13.2 million was up $773,000 or 6.2% compared to the same period in 2013. The
main drivers behind the year-to-date increase in noninterest income included; card services income (up $604,000), service
charges on deposit accounts (up $572,000), and net mark to market loss on trading securities (down $292,000). Partially
offsetting these items were realized gains on securities transactions (down $313,000), and net
mark to market gain on liabilities held at fair value (down $296,000).
Noninterest expenses for the second quarter
ended June 30, 2014 of $30.6 million were up $982,000 or 3.3% from the same period in 2013. For the six months ended June 30, 2014,
noninterest expenses were up $1.4 million or 2.4% compared to the same period prior year. This increase was primarily related to
an increase in the number of employees, normal annual merit and market increases and higher incentive accruals.
Insurance Segment
The insurance segment reported net income of
$782,000 for the three months ended June 30, 2014, down $293,000 or 27.3% from the second quarter of 2013. For the first six months
ended June 30, 2014, net income was down $273,000 or 14.0% from the same period in 2013. Noninterest income was down $113,000 or
1.6% for the second quarter and flat for the first six months ended June 30, 2014, compared to the same periods in 2013. Noninterest
expenses for the three months ended June 30, 2014, were up $345,000 or 6.3% compared to the second quarter of 2013. Noninterest
expenses for the first six months ending June 30, 2014 were $507,000 or 4.6% above the same period in 2013. Salaries and benefits
costs were the largest contributors to the increase in noninterest expense compared to the same period last year. The increase
reflects normal annual merit adjustments and higher incentive accruals.
Wealth Management Segment
The wealth management segment reported net
income of $793,000 for the three months ended June 30, 2014, up $223,000 or 39.1% compared to the second quarter of 2013. Net income
for the six months ended June 30, 2014 of $1.7 million was $270,000 or 19.8% above the same period prior year. Noninterest income
for the second quarter and six months ended June 30, 2014 was $4.0 million and $8.2 million, respectively, which is up $268,000
or 7.2% and up $307,000 or 3.9%, respectively, compared to the same periods of 2013. Noninterest expenses of $2.8 million for the
three months ended June 30, 2014, were down $103,000 or 3.5% compared to the same period of 2013, and down $161,000 or 2.7% for
the six month period ended June 30, 2014 compared to the same periods in 2013. The decline compared to the same periods last year
was mainly due to lower incentive based compensation.
Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
|
|
Quarter Ended
|
|
Year to Date Period Ended
|
|
Year to Date Period Ended
|
|
|
June
30, 2014
|
|
June
30, 2014
|
|
June
30, 2013
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
(Dollar amounts
|
|
Balance
|
|
|
|
Average
|
|
Balance
|
|
|
|
Average
|
|
Balance
|
|
|
|
Average
|
in thousands)
|
|
(QTD)
|
|
Interest
|
|
Yield/Rate
|
|
(YTD)
|
|
Interest
|
|
Yield/Rate
|
|
(YTD)
|
|
Interest
|
|
Yield/Rate
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
balances due from banks Securities (1)
|
|
$
|
746
|
|
|
$
|
0
|
|
|
|
0.23
|
%
|
|
$
|
885
|
|
|
$
|
1
|
|
|
|
0.23
|
%
|
|
$
|
2,760
|
|
|
$
|
8
|
|
|
|
0.58
|
%
|
U.S. Government securities
|
|
|
1,317,080
|
|
|
|
7,504
|
|
|
|
2.29
|
%
|
|
|
1,301,015
|
|
|
|
14,877
|
|
|
|
2.31
|
%
|
|
|
1,342,524
|
|
|
|
14,060
|
|
|
|
2.11
|
%
|
Trading securities
|
|
|
10,338
|
|
|
|
107
|
|
|
|
4.15
|
%
|
|
|
10,584
|
|
|
|
219
|
|
|
|
4.17
|
%
|
|
|
15,732
|
|
|
|
325
|
|
|
|
4.17
|
%
|
State and municipal (2)
|
|
|
91,870
|
|
|
|
1,017
|
|
|
|
4.44
|
%
|
|
|
89,964
|
|
|
|
2,127
|
|
|
|
4.77
|
%
|
|
|
99,179
|
|
|
|
2,558
|
|
|
|
5.20
|
%
|
Other securities (2)
|
|
|
4,269
|
|
|
|
32
|
|
|
|
3.01
|
%
|
|
|
4,729
|
|
|
|
76
|
|
|
|
3.24
|
%
|
|
|
8,295
|
|
|
|
150
|
|
|
|
3.65
|
%
|
Total securities
|
|
|
1,423,557
|
|
|
|
8,660
|
|
|
|
2.44
|
%
|
|
|
1,406,292
|
|
|
|
17,299
|
|
|
|
2.48
|
%
|
|
|
1,465,730
|
|
|
|
17,093
|
|
|
|
2.35
|
%
|
FHLBNY and FRB stock
|
|
|
21,196
|
|
|
|
194
|
|
|
|
3.67
|
%
|
|
|
20,670
|
|
|
|
404
|
|
|
|
3.94
|
%
|
|
|
20,942
|
|
|
|
345
|
|
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases,
net of unearned income (2)(3)
|
|
|
3,221,223
|
|
|
|
37,762
|
|
|
|
4.70
|
%
|
|
|
3,206,950
|
|
|
|
75,161
|
|
|
|
4.73
|
%
|
|
|
3,001,458
|
|
|
|
74,906
|
|
|
|
5.03
|
%
|
Total
interest-earning assets
|
|
|
4,666,722
|
|
|
|
46,616
|
|
|
|
4.01
|
%
|
|
|
4,634,797
|
|
|
|
92,865
|
|
|
|
4.04
|
%
|
|
|
4,490,890
|
|
|
|
92,352
|
|
|
|
4.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
363,673
|
|
|
|
|
|
|
|
|
|
|
|
371,552
|
|
|
|
|
|
|
|
|
|
|
|
442,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
5,030,395
|
|
|
|
|
|
|
|
|
|
|
|
5,006,349
|
|
|
|
|
|
|
|
|
|
|
|
4,932,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing checking,
savings, & money market
|
|
|
2,257,254
|
|
|
|
1,114
|
|
|
|
0.20
|
%
|
|
|
2,272,478
|
|
|
|
2,211
|
|
|
|
0.20
|
%
|
|
|
2,255,128
|
|
|
|
2,682
|
|
|
|
0.24
|
%
|
Time deposits
|
|
|
901,602
|
|
|
|
1,663
|
|
|
|
0.74
|
%
|
|
|
895,073
|
|
|
|
3,308
|
|
|
|
0.75
|
%
|
|
|
970,239
|
|
|
|
3,959
|
|
|
|
0.82
|
%
|
Total interest-bearing deposits
|
|
|
3,158,856
|
|
|
|
2,777
|
|
|
|
0.35
|
%
|
|
|
3,167,551
|
|
|
|
5,519
|
|
|
|
0.35
|
%
|
|
|
3,225,367
|
|
|
|
6,641
|
|
|
|
0.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
& securities sold under agreements to repurchase
|
|
|
145,623
|
|
|
|
763
|
|
|
|
2.10
|
%
|
|
|
153,939
|
|
|
|
1,580
|
|
|
|
2.07
|
%
|
|
|
187,289
|
|
|
|
1,976
|
|
|
|
2.13
|
%
|
Other borrowings
|
|
|
278,424
|
|
|
|
1,192
|
|
|
|
1.72
|
%
|
|
|
263,633
|
|
|
|
2,401
|
|
|
|
1.84
|
%
|
|
|
181,292
|
|
|
|
2,391
|
|
|
|
2.66
|
%
|
Trust preferred debentures
|
|
|
37,227
|
|
|
|
571
|
|
|
|
6.15
|
%
|
|
|
37,205
|
|
|
|
1,141
|
|
|
|
6.18
|
%
|
|
|
43,683
|
|
|
|
1,377
|
|
|
|
6.36
|
%
|
Total
interest-bearing liabilities
|
|
|
3,620,130
|
|
|
|
5,303
|
|
|
|
0.59
|
%
|
|
|
3,622,328
|
|
|
|
10,641
|
|
|
|
0.59
|
%
|
|
|
3,637,631
|
|
|
|
12,385
|
|
|
|
0.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits
|
|
|
877,219
|
|
|
|
|
|
|
|
|
|
|
|
856,161
|
|
|
|
|
|
|
|
|
|
|
|
778,201
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other
liabilities
|
|
|
52,983
|
|
|
|
|
|
|
|
|
|
|
|
53,539
|
|
|
|
|
|
|
|
|
|
|
|
71,969
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
4,550,332
|
|
|
|
|
|
|
|
|
|
|
|
4,532,028
|
|
|
|
|
|
|
|
|
|
|
|
4,487,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tompkins Financial Corporation
Shareholders’ equity
|
|
|
478,561
|
|
|
|
|
|
|
|
|
|
|
|
472,836
|
|
|
|
|
|
|
|
|
|
|
|
443,708
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
1,502
|
|
|
|
|
|
|
|
|
|
|
|
1,485
|
|
|
|
|
|
|
|
|
|
|
|
1,484
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
480,063
|
|
|
|
|
|
|
|
|
|
|
|
474,321
|
|
|
|
|
|
|
|
|
|
|
|
445,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$
|
5,030,395
|
|
|
|
|
|
|
|
|
|
|
$
|
5,006,349
|
|
|
|
|
|
|
|
|
|
|
$
|
4,932,993
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.42
|
%
|
|
|
|
|
|
|
|
|
|
|
3.45
|
%
|
|
|
|
|
|
|
|
|
|
|
3.46
|
%
|
Net interest income/margin
on earning assets
|
|
|
|
|
|
|
41,313
|
|
|
|
3.55
|
%
|
|
|
|
|
|
|
82,224
|
|
|
|
3.58
|
%
|
|
|
|
|
|
|
79,967
|
|
|
|
3.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Equivalent Adjustment
|
|
|
|
|
|
|
(797
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,681
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income per
consolidated financial statements
|
|
|
|
|
|
$
|
40,516
|
|
|
|
|
|
|
|
|
|
|
$
|
80,543
|
|
|
|
|
|
|
|
|
|
|
$
|
78,032
|
|
|
|
|
|
1 Average balances and yields on available-for-sale securities are based on historical amortized cost
2 Interest income includes the tax effects of taxable-equivalent adjustments using a combined New York State and Federal effective income tax rate of 40% to increase tax exempt interest income to taxable-equivalent basis.
3 Nonaccrual loans are included in the average asset totals presented above. Payment received on nonaccrual loans have been recognized as disclosed in Note 1 of the Company’s condensed consolidated financial statements included in Part 1 of the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2013.
Net Interest Income
Net interest income is the Company’s largest
source of revenue, representing 69.6% of total revenues for the three and six month periods ended June 30, 2014, compared to 70.7%
and 69.7% for the same periods in 2013. Net interest income is dependent on the volume and composition of interest earning assets
and interest-bearing liabilities and the level of market interest rates. The above table shows average interest-earning assets
and interest-bearing liabilities, and the corresponding yield or cost associated with each.
Taxable-equivalent net interest income for
the three and six months ended June 30, 2014 was up 1.2% and 2.8%, respectively, over the same periods in 2013. Taxable-equivalent
net interest income in 2014 benefitted from growth in average earning assets, an increase in average loan balances as a percentage
of average earning assets, and growth in noninterest bearing deposits. These factors have help to lessen the impact of lower asset
yields and maintain a relatively stable net interest margin compared to prior year. The taxable equivalent net interest margin
was 3.55% for the three month period and 3.58% for the six month period ended June 30, 2014 compared to 3.58% and 3.59%, respectively,
for the same periods in 2013.
Taxable-equivalent interest income for the
three and six month periods ended June 30, 2014 was $46.6 million and $92.9 million, respectively, which is in line with the same
periods in 2013. Growth in average earning assets and a higher concentration of loans helped to offset lower asset yields. Average
loan balances for the three months ended June 30, 2014 were up $182.5 million or 6.0% while the average yield was down 32 basis
points to 4.70% for the same period. Average loan balances for the six months ended June 30, 2014 were up $205.5 million or 6.9%,
while the average yield was down 30 basis points. Average loan balances represented about 69.0% and 69.2% of average earning assets
for the three and six months ended June 30, 2014, up from 66.5% and 66.8%, respectively, for the same periods in 2013. Average
securities balances for the three and six months ended June 30, 2014 decreased by $84.5 million and $59.4 million, respectively,
while the average yield for the three month period was in line with prior year and the average yield for year-to-date was up 13
basis points or 5.5%.
Interest expense for the three and six months
ended June 30, 2014 decreased by $831,000 or 13.6% and $1.7 million or 14.1%, respectively, compared to the same periods in 2013,
reflecting lower average rates paid on deposits and borrowings. The average rate paid on interest bearing deposits during the three
and six months ended June 30, 2014 was 0.35%, down 6 and 7 basis points, respectively, from the same periods in 2013. Average interest
bearing deposits for the second quarter of 2014 were down $42.4 million or 1.3% compared to the same period in 2013, while year-to-date
average interest bearing deposits were down $57.8 million or 1.8% compared to the same period in 2013. Average noninterest bearing
deposits for the three and six month periods ended June 30, 2014 were up $92.6 million or 11.8% and $78.0 million or 10.0%, respectively,
compared to the same period in 2013. Year-to-date average other borrowings increased by $82.3 million or 45.4% compared to the
same period in 2013, and was mainly in overnight borrowings with the FHLB, which contributed to the decrease in average funding
cost in this category in 2014.
Provision for Loan and Lease Losses
The provision for loan and lease losses represents
management’s estimate of the amount necessary to maintain the allowance for loan and lease losses at an adequate level. The provision
for loan and lease losses was $67,000 for the second quarter of 2014 and $810,000 for the six months ended June 30, 2014, compared
to $2.5 million and $3.5 million for the respective periods in 2013. The decrease in provision expense was mainly a result of improved
asset quality metrics and recoveries received on previously charged off credits. The section captioned “Financial Condition
– Allowance for Loan and Lease Losses and Nonperforming Assets” below has further details on the allowance for loan
and lease losses and asset quality metrics.
Noninterest Income
Noninterest income was $17.7 million for the
second quarter of 2014 and $35.2 million for the first six months of 2014. This represents an increase of 7.1% for the quarter
and 3.6% for the year-to-date period compared to the same periods in 2013. Noninterest income represented 30.4% of total revenue
for both the three months and six months ended June 30, 2014 compared to 29.4% and 30.3%, respectively, for the same period in
2013.
Insurance commissions and fees were $7.0 million
for the second quarter of 2014, which was down 1.7% compared to same period in 2013. Insurance commissions were down primarily
due to the loss of two large accounts from the Pennsylvania market in the second half of 2013.
Investment services income was $3.9 million
in second quarter of 2014, an increase of 5.5% from $3.7 million in the second quarter of 2013. Investment services income of $7.9
million for the first six months of 2014 was up 5.7% from the comparable period in 2013. The increase was mainly attributed to
increases in assets under management, reflecting new business and higher equities markets. Investment services income includes
trust services, financial planning, wealth management services, and brokerage related services. With fees largely based on the
market value and the mix of assets managed, the general direction of the stock market can have a considerable impact on fee income.
The fair value of assets managed by, or in custody of, Tompkins was $3.6 billion at June 30, 2014, up 8.4% from $3.3 billion at
June 30, 2013. These figures include $989.7 million and $982.4 million, respectively, of Company-owned securities where Tompkins
Financial Advisors is custodian.
Service charges on deposit accounts were up
$364,000 or 18.0% for the second quarter of 2014 compared to the second quarter of 2013 and up $572,000 or 14.6% for the six months
ended June 30, 2014 compared to the same period in 2013. The increase was mainly due to growth in noninterest bearing accounts,
and account analysis fees that reflect fee increases on certain types of deposit accounts. Overdraft fees, the largest component
of service charges on deposits accounts, were up 4.1% and 1.8% for the three and six months ended June 30, 2014 compared to the
same periods in 2013.
Card services income for the three months and
six months ended June 30, 2014 was up $230,000 or 13.6% and $604,000 or 17.6% over the same periods in 2013. Debit card income,
the largest component of card services income, benefitted in the first quarter of 2014 from the termination of the Company’s debit
card reward program at year-end 2013, as final redemption rates came in below management’s estimates. Favorable trends in the number
of debit cards issued and transaction volume have been partially offset by lower interchange fees.
The Company recognized gains on the sales/calls
of available-for-sale securities of $35,000 and $129,000 for the three and six months ended June 30, 2014, which was down from
gains of $75,000 and $442,000, respectively, for the same periods in 2013. Sales of available-for-sale securities are generally
the result of general portfolio maintenance and interest rate risk management.
Other income of $2.4 million in the second
quarter of 2014 was up 32.6% over the second quarter of 2013. For the first six months of 2014, other income was $4.2 million,
up 1.5% over the same period in 2013. The significant components of other income are other service charges, increases in cash surrender
value of corporate owned life insurance (“COLI”), gains on the sales of residential mortgage loans, FDIC Indemnification
accretion and income from miscellaneous equity investments. The increase in other income in the second quarter of 2014 compared
to the same period in 2013 was mainly due to increased loan related fee income and gains on the sale of residential mortgage loans.
Noninterest Expense
Noninterest expense was $38.9 million for the
second quarter of 2014, up 3.1% compared to the second quarter of 2013 and $77.1 million for the six months ended June 30, 2014,
up 2.4% compared to the first six months of 2013. The increase in noninterest expense compared to the same period prior year is
mainly a result of higher salary and wages expense.
Salaries and wages expense for the three and
six months ended June 30, 2014 were up by $1.4 million or 8.4% and $2.4 million or 7.7%, respectively, over the same periods in
2013. The increase reflects additional employees, annual merit increases and higher accruals for incentive compensation. Pension
and other employee related benefits were down 6.7% for the second quarter of 2014 and down 3.4% for the six months ended June 30,
2014 compared to the same periods in 2013. Decreases in pension and other post-retirement benefit expenses were partially offset
by higher health care expenses.
Overall, all other expense categories remained
relatively flat compared to the same period prior year.
Income Tax Expense
The provision for income taxes was $6.1 million
for an effective rate of 32.0% for the second quarter of 2014, compared to tax expense of $5.1 million and an effective rate of
31.4% for the same quarter in 2013. For the first six months of 2014, the tax provision was $12.1 million for an effective rate
of 31.9% compared to a tax provision of $10.6 million and an effective rate of 31.9% for the same period in 2013. The effective
rates differ from the U.S. statutory rate of 35.0% during the comparable periods primarily due to the effect of tax-exempt income
from loans, securities and life insurance assets.
FINANCIAL CONDITION
Total assets were $5.1 billion at June 30,
2014, up $54.8 million or 1.1% over December 31, 2013. The growth over year-end was primarily attributable to growth in originated
loans, which were up $83.0 million or 3.3%, growth in available-for-sale securities, which were up $24.4 million or 1.8%, and growth
in held-to-maturity securities which were up $12.0 million or 63.1%. This growth was partially offset by a decrease in acquired
loans, which were down $48.4 million or 7.3%. Total deposits increased $97.2 million or 2.5% compared to December 31, 2013, mainly
a result of an inflow of municipal deposits. Other borrowings decreased $44.4 million or 13.4% from December 31, 2013, as a result
of the paydown of short-term advances with the FHLB.
Securities
As of June 30, 2014, total securities were
$1.4 billion or 28.1% of total assets, compared to $1.4 billion or 27.7% of total assets at year-end 2013, and $1.5 billion or
29.8% at June 30, 2013. The following table details the composition of available-for-sale and held-to-maturity securities.
Available-for-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
06/30/2014
|
|
12/31/2013
|
(in thousands)
|
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
Obligations of U.S. Government sponsored entities
|
|
$
|
553,105
|
|
|
$
|
559,083
|
|
|
$
|
558,130
|
|
|
$
|
556,345
|
|
Obligations of U.S. states and political subdivisions
|
|
|
65,862
|
|
|
|
66,545
|
|
|
|
68,216
|
|
|
|
67,962
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
|
132,754
|
|
|
|
134,132
|
|
|
|
147,766
|
|
|
|
146,678
|
|
U.S. Government sponsored entities
|
|
|
617,258
|
|
|
|
615,649
|
|
|
|
587,843
|
|
|
|
577,472
|
|
Non-U.S. Government agencies or sponsored entities
|
|
|
289
|
|
|
|
294
|
|
|
|
306
|
|
|
|
311
|
|
U.S. corporate debt securities
|
|
|
2,500
|
|
|
|
2,125
|
|
|
|
5,000
|
|
|
|
4,633
|
|
Total debt securities
|
|
|
1,371,768
|
|
|
|
1,377,828
|
|
|
|
1,367,261
|
|
|
|
1,353,401
|
|
Equity securities
|
|
|
1,475
|
|
|
|
1,426
|
|
|
|
1,475
|
|
|
|
1,410
|
|
Total available-for-sale
securities
|
|
$
|
1,373,243
|
|
|
$
|
1,379,254
|
|
|
$
|
1,368,736
|
|
|
$
|
1,354,811
|
|
Held-to-Maturity Securities
|
|
|
06/30/2014
|
|
12/31/2013
|
(in thousands)
|
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
Obligations of U.S. Government sponsored entities
|
|
$
|
14,793
|
|
|
$
|
14,825
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Obligations of U.S. states and political subdivisions
|
|
$
|
16,170
|
|
|
$
|
16,804
|
|
|
$
|
18,980
|
|
|
$
|
19,625
|
|
Total held-to-maturity debt securities
|
|
$
|
30,963
|
|
|
$
|
31,629
|
|
|
$
|
18,980
|
|
|
$
|
19,625
|
|
The increase in the fair value of the available-for-sale
portfolio was due to the changes in interest rates during the first six months of 2014. The decrease in interest rates during 2014
resulted in an increase in the unrealized gains in the available-for-sale portfolio. Management’s policy is to purchase investment
grade securities that on average have relatively short duration, which helps mitigate interest rate risk and provides sources of
liquidity without significant risk to capital. The increase in the held-to-maturity portfolio was due to purchases of Obligations
of U.S. Government sponsored entities during the three month period ended June 30, 2014.
The Company has no investments in preferred
stock of U.S. government sponsored entities and no investments in pools of Trust Preferred securities. Quarterly, the Company evaluates
all investment securities with a fair value less than amortized cost to identify any other-than-temporary impairment as defined
under generally accepted accounting principles.
As a result of the other-than-temporarily impairment
review process, the Company does not consider any investment security held at June 30, 2014 to be other-than-temporarily impaired.
Future changes in interest rates or the credit quality and credit support of the underlying issuers may reduce the market value
of these and other securities. If such decline is determined to be other than temporary, the Company will record the necessary
charge to earnings and/or accumulated other comprehensive income to reduce the securities to their then current fair value.
The Company maintains a trading portfolio with
a fair value of $10.0 million as of June 30, 2014, compared to $11.0 million at December 31, 2013. The decrease in the trading
portfolio reflects maturities or payments during the three and six months ended June 30, 2014. For the three and six months ended
June 30, 2014, net mark-to-market losses related to the securities trading portfolio were $34,000 and $93,000, respectively, compared
to net mark-to-market losses for the three and six months ended June 30, 2013 of $270,000 and $385,000, respectively.
Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases at June 30, 2014 and December 31, 2013 were as follows:
|
|
|
|
06/30/2014
|
|
12/31/2013
|
(in thousands)
|
|
Originated
|
|
Acquired
|
|
Total Loans and Leases
|
|
Originated
|
|
Acquired
|
|
Total Loans and Leases
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
$
|
46,677
|
|
|
$
|
0
|
|
|
$
|
46,677
|
|
|
$
|
74,788
|
|
|
$
|
0
|
|
|
$
|
74,788
|
|
Commercial and industrial other
|
|
|
608,596
|
|
|
|
120,316
|
|
|
|
728,912
|
|
|
|
562,439
|
|
|
|
128,503
|
|
|
|
690,942
|
|
Subtotal commercial and industrial
|
|
|
655,273
|
|
|
|
120,316
|
|
|
|
775,589
|
|
|
|
637,227
|
|
|
|
128,503
|
|
|
|
765,730
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
46,082
|
|
|
|
44,557
|
|
|
|
90,639
|
|
|
|
46,441
|
|
|
|
39,353
|
|
|
|
85,794
|
|
Agriculture
|
|
|
63,419
|
|
|
|
3,173
|
|
|
|
66,592
|
|
|
|
52,627
|
|
|
|
3,135
|
|
|
|
55,762
|
|
Commercial real estate other
|
|
|
940,626
|
|
|
|
331,642
|
|
|
|
1,272,268
|
|
|
|
903,320
|
|
|
|
366,438
|
|
|
|
1,269,758
|
|
Subtotal commercial real estate
|
|
|
1,050,127
|
|
|
|
379,372
|
|
|
|
1,429,499
|
|
|
|
1,002,388
|
|
|
|
408,926
|
|
|
|
1,411,314
|
|
Residential real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
178,433
|
|
|
|
61,564
|
|
|
|
239,997
|
|
|
|
171,809
|
|
|
|
67,183
|
|
|
|
238,992
|
|
Mortgages
|
|
|
668,643
|
|
|
|
34,145
|
|
|
|
702,788
|
|
|
|
658,966
|
|
|
|
35,336
|
|
|
|
694,302
|
|
Subtotal residential real estate
|
|
|
847,076
|
|
|
|
95,709
|
|
|
|
942,785
|
|
|
|
830,775
|
|
|
|
102,519
|
|
|
|
933,294
|
|
Consumer and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect
|
|
|
19,385
|
|
|
|
0
|
|
|
|
19,385
|
|
|
|
21,202
|
|
|
|
5
|
|
|
|
21,207
|
|
Consumer and other
|
|
|
33,502
|
|
|
|
1,117
|
|
|
|
34,619
|
|
|
|
32,312
|
|
|
|
1,219
|
|
|
|
33,531
|
|
Subtotal consumer and other
|
|
|
52,887
|
|
|
|
1,117
|
|
|
|
54,004
|
|
|
|
53,514
|
|
|
|
1,224
|
|
|
|
54,738
|
|
Leases
|
|
|
6,574
|
|
|
|
0
|
|
|
|
6,574
|
|
|
|
5,563
|
|
|
|
0
|
|
|
|
5,563
|
|
Covered loans
|
|
|
0
|
|
|
|
22,165
|
|
|
|
22,165
|
|
|
|
0
|
|
|
|
25,868
|
|
|
|
25,868
|
|
Total loans and leases
|
|
|
2,611,937
|
|
|
|
618,679
|
|
|
|
3,230,616
|
|
|
|
2,529,467
|
|
|
|
667,040
|
|
|
|
3,196,507
|
|
Less: unearned income and deferred costs and fees
|
|
|
(1,648
|
)
|
|
|
0
|
|
|
|
(1,648
|
)
|
|
|
(2,223
|
)
|
|
|
0
|
|
|
|
(2,223
|
)
|
Total loans and leases, net of unearned income and deferred costs and fees
|
|
$
|
2,610,289
|
|
|
$
|
618,679
|
|
|
$
|
3,228,968
|
|
|
$
|
2,527,244
|
|
|
$
|
667,040
|
|
|
$
|
3,194,284
|
|
Residential real estate loans, including home
equity loans at June 30, 2014 were $942.8 million, and comprised 29.2% of total loans and leases. Balances were comparable to year-end
2013. Growth in residential loan balances is impacted by the Company’s decision to retain these loans or sell them in the secondary
market due to interest rate considerations. The Company’s Asset/Liability Committee meets regularly and establishes standards for
selling and retaining residential real estate mortgage originations.
Prior to August 2012, any residential real
estate loans that were sold were generally sold to Federal Home Loan Mortgage Corporation (“FHLMC”) or State of New York
Mortgage Agency (“SONYMA”). With the acquisition of VIST on August 1, 2012, the Company also sells loans to other third
parties, including money center banks. Residential real estate loans are generally sold without recourse in accordance with standard
secondary market loan sale agreements and are also subject to customary representations and warranties made by the Company, including
representations and warranties related to gross incompetence and fraud. The Company has not had to repurchase any loans as a result
of these general representations and warranties. While in the past in rare circumstances the Company agreed to sell residential
real estate loans with recourse, the Company has not done so in the past several years and the amount of such loans included on
the Company’s balance sheet at June 30, 2014 is insignificant. The Company has never had to repurchase a loan sold with recourse.
During the first six months of 2014 and 2013,
the Company sold residential mortgage loans totaling $8.2 million and $1.8 million, respectively, and realized gains on these sales
of $221,000 and $97,000, respectively. These residential real estate loans were sold without recourse in accordance with standard
secondary market loan sale agreements. When residential mortgage loans are sold, the Company typically retains all servicing rights,
which provides the Company with a source of fee income. Mortgage servicing rights, at amortized basis, totaled $1.0 million at
June 30, 2014 and December 31, 2013.
The Company has not originated any hybrid loans,
such as payment option ARMs. The Company underwrites residential real estate loans in accordance with secondary market standards
in effect at the time of origination, including loan-to-value (“LTV”) and documentation requirements. The Company does
not underwrite low or reduced documentation loans other than those that meet secondary market standards for low or reduced documentation
loans. In those instances, W-2’s and paystubs are used instead of sending Verification of Employment forms to employers to verify
income and bank deposit statements are used instead of Verification of Deposit forms mailed to financial institutions to verify
deposit balances.
Commercial real estate loans were $1.4 billion,
and represented 44.3% of total loans as of June 30, 2014. Commercial and industrial loans at June 30, 2014 were $775.6 million,
and represented 24.0% of total loans. As of June 30, 2014, agriculturally-related loans totaled $113.3 million or 3.5% of total
loans and leases, down from $130.6 million or 4.1% of total loans and leases at December 31, 2013. There is generally an increase
in agriculturally-related loans at year end related to tax planning and these loans are typically paid down over the first part
of the year. Agriculturally-related loans include loans to dairy farms and cash and vegetable crop farms. Agriculturally-related
loans are primarily made based on identified cash flows of the borrower with consideration given to underlying collateral, personal
guarantees, and government related guarantees. Agriculturally-related loans are generally secured by the assets or property being
financed or other business assets such as accounts receivable, livestock, equipment or commodities/crops.
The acquired loans in the above table reflect
loans acquired in the acquisition of VIST Financial Corp. during the third quarter of 2012. The acquired loans were recorded at
fair value pursuant to the purchase accounting guidelines in FASB ASC 805 – “Fair Value Measurements and Disclosures”
(as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses).
Upon acquisition, the Company evaluated whether each acquired loan (regardless of size) was within the scope of ASC 310-30, “Receivables
– Loans and Debt Securities Acquired with Deteriorated Credit Quality”. The carrying value of the acquired loans reflects
management’s best estimate of the amount to be realized from the acquired loan and lease portfolios. However, the amounts the Company
actually realizes on these loans could differ materially from the carrying value reflected in these financial statements, based
upon the timing of collections on the acquired loans in future periods, underlying collateral values and the ability of borrowers
to continue to make payments.
The carrying value of acquired loans acquired
and accounted for in accordance with ASC Subtopic 310-30, “Receivables Loans and Debt Securities Acquired with Deteriorated
Credit Quality,” was $40.0 million at June 30, 2014, as compared to $46.8 million at December 31, 2013. Under ASC Subtopic
310-30, loans may be aggregated and accounted for as pools of loans if the loans being aggregated have common risk characteristics.
The Company elected to account for the loans with evidence of credit deterioration individually rather than aggregate them into
pools. The difference between the undiscounted cash flows expected at acquisition and the investment in the acquired loans, or
the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each loan.
Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or
the “non-accretable difference,” are not recognized as a yield adjustment, as a loss accrual or as a valuation allowance.
Increases in expected cash flows subsequent
to the acquisition are recognized prospectively through an adjustment of the yield on the loans over the remaining life. Subsequent
decreases to the expected cash flows require us to evaluate the need for an addition to the allowance for loan losses. Valuation
allowances (recognized in the allowance for loan losses) on these impaired loans reflect only losses incurred after the acquisition
(representing all cash flows that were expected at acquisition but currently are not expected to be received).
The carrying value of loans not exhibiting
evidence of credit impairment at the time of the acquisition (i.e. loans outside of the scope of ASC 310-30) was $578.6 million
at June 30, 2014. At acquisition, these loans were recorded at fair value, including a credit discount. Credit losses on acquired
performing loans are estimated based on analysis of the performing portfolio. The purchased performing portfolio also included
a general interest rate mark (premium). Both the credit discount and interest rate mark are accreted/amortized as a yield adjustment
over the estimated lives of the loans. Interest is accrued daily on the outstanding principal balance of purchased performing loans.
At June 30, 2014, acquired loans included $22.2
million of covered loans. VIST Financial Corp had acquired these loans in an FDIC assisted transaction in the fourth quarter of
2010. In accordance with loss sharing agreements with the FDIC, certain losses and expenses relating to covered loans may be reimbursed
by the FDIC at 70% or, if certain levels of reimbursement are reached, 80%. See Note 7 – “FDIC Indemnification Asset
Related to Covered Loans” in the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I of this
Quarterly Report on Form 10-Q.
The Company has adopted comprehensive lending
policies, underwriting standards and loan review procedures. Management reviews these policies and procedures on a regular basis.
The Company discussed its lending policies and underwriting guidelines for its various lending portfolios in Note 4 – “Loans
and Leases” in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2013. There have been no significant changes in these policies and guidelines. As such, these policies
are reflective of new originations as well as those balances held at June 30, 2014. The Company’s Board of Directors approves the
lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has
established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to
monitor loan originations, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem
loans.
The Company’s loan and lease customers are
located primarily in the New York and Pennsylvania communities served by its four subsidiary banks. Although operating in numerous
communities in New York State and Pennsylvania, the Company is still dependent on the general economic conditions of these states.
Other than geographic and general economic risks, management is not aware of any material concentrations of credit risk to any
industry or individual borrower.
The Allowance for Loan and Lease Losses
Originated Loans and Leases
Management reviews the appropriateness of the
allowance for loan and lease losses (“allowance”) on a regular basis. Management considers the accounting policy relating
to the allowance to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance required
to cover credit losses in the portfolio and the material effect that assumptions could have on the Company’s results of operations.
The Company has developed a methodology to measure the amount of estimated loan loss exposure inherent in the loan portfolio to
assure that an appropriate allowance is maintained. The Company’s methodology is based upon guidance provided in SEC Staff Accounting
Bulletin No. 102,
Selected Loan Loss Allowance Methodology and Documentation Issues
and allowance allocations are calculated
in accordance with ASC Topic 310,
Receivables
and ASC Topic 450,
Contingencies
.
The Company’s methodology for determining and
allocating the allowance for loan and lease losses focuses on ongoing reviews of larger individual loans and leases, historical
net charge-offs, delinquencies in the loan and lease portfolio, the level of impaired and nonperforming loans, values of underlying
loan and lease collateral, changes in anticipated cash flows of acquired loans, the overall risk characteristics of the portfolios,
changes in character or size of the portfolios, geographic location, current economic conditions, changes in capabilities and experience
of lending management and staff, and other relevant factors. The various factors used in the methodologies are reviewed on a regular
basis.
At least annually, management reviews all commercial
and commercial real estate loans exceeding a certain threshold and assigns a risk rating. The Company uses an internal loan rating
system of pass credits, special mention loans, substandard loans, doubtful loans, and loss loans (which are fully charged off).
The definitions of “special mention”, “substandard”, “doubtful” and “loss” are consistent
with banking regulatory definitions. Factors considered in assigning loan ratings include: the customer’s ability to repay based
upon the customer’s expected future cash flow, operating results, and financial condition; value of the underlying collateral,
if any; and the economic environment and industry in which the customer operates. Special mention loans have potential weaknesses
that if left uncorrected may result in deterioration of the repayment prospects and a downgrade to a more severe risk rating. A
substandard loan credit has a well-defined weakness which makes payment default or principal exposure likely, but not yet certain.
There is a possibility that the Company will sustain some loss if the deficiencies are not corrected. A doubtful loan has a high
possibility of loss, but the extent of the loss is difficult to quantify because of certain important and reasonably specific pending
factors.
At least quarterly, management reviews all
commercial and commercial real estate loans and leases and agriculturally related loans with an outstanding principal balance of
over $500,000 that are internally risk rated as special mention or worse, giving consideration to payment history, debt service
payment capacity, collateral support, strength of guarantors, local market trends, industry trends, and other factors relevant
to the particular borrowing relationship. Through this process, management identifies impaired loans. For loans and leases considered
impaired, estimated exposure amounts are based upon collateral values or present value of expected future cash flows discounted
at the original effective rate of each loan. For commercial loans, commercial mortgage loans, and agricultural loans not specifically
reviewed, and for homogenous loan portfolios such as residential mortgage loans and consumer loans, estimated exposure amounts
are assigned based upon historical net loss experience and current charge-off trends, past due status, and management’s judgment
of the effects of current economic conditions on portfolio performance.
Since the methodology is based upon historical
experience and trends as well as management’s judgment, factors may arise that result in different estimations. Significant factors
that could give rise to changes in these estimates may include, but are not limited to, changes in economic conditions in the local
area, concentration of risk, changes in interest rates, and declines in local property values. Based on its evaluation of the allowance
as of June 30, 2014, management considers the allowance to be appropriate. Under adversely different conditions or assumptions,
the Company would need to increase or decrease the allowance.
Acquired Loans and Leases
Acquired loans accounted for under ASC 310-30
For our acquired loans, our allowance for loan
losses is estimated based upon our expected cash flows for these loans. To the extent that we experience a deterioration in borrower
credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for
loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.
Acquired loans accounted for under ASC 310-20
We establish our allowance for loan losses
through a provision for credit losses based upon an evaluation process that is similar to our evaluation process used for originated
loans. This evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers,
among other matters, the estimated fair value of the underlying collateral, economic conditions, historical net loan loss experience,
carrying value of the loans, which includes the remaining net purchase discount or premium, and other factors that warrant recognition
in determining our allowance for loan losses.
The tables below provide, as of the dates indicated,
an allocation of the allowance for probable and inherent loan losses by type. The allocation is neither indicative of the specific
amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of future loss trends. The allocation
of the allowance to each category does not restrict the use of the allowance to absorb losses in any category.
(in thousands)
|
|
06/30/2014
|
|
12/31/2013
|
|
06/30/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for originated loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
8,562
|
|
|
$
|
8,406
|
|
|
$
|
6,955
|
|
Commercial real estate
|
|
|
10,389
|
|
|
|
10,459
|
|
|
|
10,409
|
|
Residential real estate
|
|
|
5,445
|
|
|
|
5,771
|
|
|
|
5,273
|
|
Consumer and other
|
|
|
2,356
|
|
|
|
2,059
|
|
|
|
2,195
|
|
Leases
|
|
|
0
|
|
|
|
5
|
|
|
|
21
|
|
Total
|
|
$
|
26,752
|
|
|
$
|
26,700
|
|
|
$
|
24,853
|
|
(in thousands)
|
|
06/30/2014
|
|
12/31/2013
|
|
06/30/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for acquired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
159
|
|
|
$
|
168
|
|
|
$
|
64
|
|
Commercial real estate
|
|
|
460
|
|
|
|
770
|
|
|
|
381
|
|
Residential real estate
|
|
|
49
|
|
|
|
274
|
|
|
|
126
|
|
Consumer and other
|
|
|
97
|
|
|
|
58
|
|
|
|
34
|
|
Total
|
|
$
|
765
|
|
|
$
|
1,270
|
|
|
$
|
605
|
|
As of June 30, 2014, the total allowance for
loan and lease losses was $27.5 million, which was down 1.6% compared to year-end 2013. The favorable impact on the allowance of
improved asset quality was partially offset by growth in the originated loan portfolio. Loans internally-classified Special Mention,
Substandard and Doubtful were down from prior year as were the level of nonperforming loans and leases. The allowance for loan
and lease losses covered 103.1% of nonperforming loans and leases as of June 30, 2014, compared to 71.65% at December 31, 2013,
and 65.0% at June 30, 2013.
The Company’s allowance for originated loan
and lease losses totaled $26.8 million at June 30, 2014, which represented 1.02% of total originated loans, compared to 1.04% at
March 31, 2014 and 1.08% at June 30, 2013. Originated loans internally-classified as Special Mention, Substandard and Doubtful
totaled $56.7 million at June 30, 2014, which were in down $20.9 million or 26.9% compared to prior quarter, and down $28.3 million
or 33.3% compared to June 30, 2013. The decrease is mainly due to paydowns of classified assets and upgrades of risk ratings in
our commercial real estate, agriculture loan, and commercial real estate construction portfolios as a result of improving financial
conditions of our commercial and agricultural customers. The allocations in the above table are fairly consistent between March
31, 2014 and June 30, 2013. The decrease in the residential real estate allocation reflected slower growth, lower nonperforming
loans and overall improvement in the housing market. The increase in the allocation for commercial and industrial loans was mainly
a result of a slight uptick in the historical loss component, which is based on average losses in the portfolio.
The allowance for acquired loans at June 30,
2014 was $765,000 down $505,000 or 39.8% compared to year-end 2013. The amount of acquired loans internally-classified as Special
Mention, Substandard and Doubtful totaled $42.4 million at June 30, 2014, down from $49.7 million at year-end 2013 and $84.4 million
at June 30, 2013. Loan pay downs, the movement of loans to other real estate owned, and charge offs have contributed to the decrease
from both year-end and the same quarter prior year. Nonaccrual loans in the acquired portfolio decreased from $8.5 million at year-end
2013 to $5.9 million at June 30, 2014.
Activity in the Company’s allowance for loan and lease losses during
the six months of 2014 and 2013 is illustrated in the table below.
Analysis of the Allowance for Originated Loan and Lease Losses
|
|
|
|
(in thousands)
|
|
06/30/2014
|
|
|
|
|
06/30/2013
|
|
Average originated loans outstanding during period
|
|
$
|
2,559,332
|
|
|
|
$
|
2,161,200
|
|
Balance of originated allowance at beginning of year
|
|
$
|
26,700
|
|
|
|
$
|
24,643
|
|
|
|
|
|
|
|
|
|
|
|
ORIGINATED LOANS CHARGED-OFF:
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
254
|
|
|
|
|
432
|
|
Commercial real estate
|
|
|
613
|
|
|
|
|
490
|
|
Residential real estate
|
|
|
267
|
|
|
|
|
339
|
|
Consumer and other
|
|
|
666
|
|
|
|
|
462
|
|
Total loans charged-off
|
|
$
|
1,800
|
|
|
|
$
|
1,723
|
|
|
|
|
|
|
|
|
|
|
|
RECOVERIES OF ORIGINATED LOANS PREVIOUSLY
CHARGED-OFF:
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
489
|
|
|
|
|
1,442
|
|
Commercial real estate
|
|
|
562
|
|
|
|
|
436
|
|
Residential real estate
|
|
|
86
|
|
|
|
|
29
|
|
Consumer and other
|
|
|
260
|
|
|
|
|
200
|
|
Total loans recoveries
|
|
$
|
1,397
|
|
|
|
$
|
2,107
|
|
Net loans charged-off (recovered)
|
|
|
403
|
|
|
|
|
(384
|
)
|
Additions (reductions) to originated allowance charged to operations
|
|
|
455
|
|
|
|
|
(174
|
)
|
Balance of originated allowance at end of period
|
|
$
|
26,752
|
|
|
|
$
|
24,853
|
|
Allowance
for originated loans and leases as a percentage of originated loans and leases
|
|
|
1.02
|
%
|
|
|
|
1.08
|
%
|
Annualized
net charge-offs (recoveries) on originated loans to average total originated loans and leases during the period
|
|
|
0.03
|
%
|
|
|
|
(0.07
|
%)
|
Analysis of the Allowance for Acquired Loan Losses
|
|
|
|
(in thousands)
|
|
06/30/2014
|
|
|
12/31/2013
|
|
|
06/30/2013
|
|
Average acquired loans outstanding during period
|
|
$
|
647,618
|
|
|
$
|
746,045
|
|
|
$
|
785,910
|
|
Balance of acquired allowance at beginning of year
|
|
|
1,270
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACQUIRED LOANS CHARGED-OFF:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
25
|
|
|
|
2,991
|
|
|
|
2,929
|
|
Commercial real estate
|
|
|
551
|
|
|
|
179
|
|
|
|
32
|
|
Residential real estate
|
|
|
277
|
|
|
|
696
|
|
|
|
110
|
|
Consumer and other
|
|
|
7
|
|
|
|
25
|
|
|
|
25
|
|
Total loans charged-off
|
|
$
|
860
|
|
|
$
|
3,891
|
|
|
$
|
3,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged-off
|
|
|
860
|
|
|
|
3,891
|
|
|
|
3,096
|
|
Additions to acquired allowance charged to operations
|
|
|
355
|
|
|
|
5,161
|
|
|
|
3,701
|
|
Balance of acquired allowance at end of period
|
|
$
|
765
|
|
|
$
|
1,270
|
|
|
$
|
605
|
|
Allowance for acquired loans as a
percentage of acquired loans outstanding acquired loans and leases
|
|
|
0.12
|
%
|
|
|
0.17
|
%
|
|
|
0.08
|
%
|
Annualized
net charge-offs on acquired loans as a percentage of average acquired loans and leases outstanding during the period
|
|
|
0.25
|
%
|
|
|
0.52
|
%
|
|
|
0.79
|
%
|
Annualized
total net charge-offs as a percentage of average loans and leases outstanding during the period
|
|
|
0.08
|
%
|
|
|
0.09
|
%
|
|
|
0.18
|
%
|
Net loan and lease charge-offs
totaled $565,000 and $1.3 million for the three and six months ended June 30, 2014, compared to $1.7 million and $2.7 million
for the same periods in 2013. Annualized net charge offs for the period ended June 30, 2014 as a percentage of average total
loans and leases was 0.08% compared to 0.09% for the twelve months ended December 31, 2013 and 0.18% for the six months ended
June 30, 2013. The most recent peer percentage is 0.16%. The peer data is from the Federal Reserve Board and represents banks
or bank holding companies with assets between $3.0 billion and $10.0 billion. The peer data is as of March 31, 2014, the
most recent data available. The $551,000 in commercial real estate in the acquired commercial real estate portfolio is
mainly related to one loan that was previously provided for in the allowance calculation and that was charged-off in the
current quarter.
The provision for loan and lease losses was
$67,000 and $810,000 for the three and six months ended June 30, 2014, compared to $2.5 million and $3.5 million for the same periods
in 2013. Positive credit quality trends, including reductions in classified loans and nonperforming loans, and recoveries of previously
charged of credits, are the main reasons for the lower provision expense compared to the same period last year.
Analysis of Past Due and Nonperforming Loans
|
(in thousands)
|
|
06/30/2014
1
|
|
|
12/31/2013
1
|
|
|
06/30/2013
1
|
|
Loans 90 days past due and accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Commercial real estate
|
|
|
1
|
|
|
|
161
|
|
|
|
0
|
|
Residential real estate
|
|
|
542
|
|
|
|
446
|
|
|
|
156
|
|
Total loans 90 days past due and accruing
|
|
|
543
|
|
|
|
607
|
|
|
|
156
|
|
Nonaccrual loans2
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
1,758
|
|
|
|
1,679
|
|
|
|
1,552
|
|
Commercial real estate
|
|
|
10,008
|
|
|
|
23,364
|
|
|
|
25,039
|
|
Residential real estate
|
|
|
10,490
|
|
|
|
13,086
|
|
|
|
12,013
|
|
Consumer and other
|
|
|
569
|
|
|
|
254
|
|
|
|
412
|
|
Total nonaccrual loans
|
|
|
22,825
|
|
|
|
38,383
|
|
|
|
39,016
|
|
Troubled debt restructurings not included above
|
|
|
3,327
|
|
|
|
45
|
|
|
|
0
|
|
Total
nonperforming loans and leases
|
|
|
26,695
|
|
|
|
39,035
|
|
|
|
39,172
|
|
Other real estate owned
|
|
|
6,795
|
|
|
|
4,253
|
|
|
|
4,918
|
|
Total
nonperforming assets
|
|
$
|
33,490
|
|
|
$
|
43,288
|
|
|
$
|
44,090
|
|
Allowance
as a percentage of nonperforming loans and leases
|
|
|
103.08
|
%
|
|
|
71.65
|
%
|
|
|
64.99
|
%
|
Total nonperforming
loans and leases as percentage of total
|
|
|
|
|
|
|
|
|
|
|
|
|
loans
and leases
|
|
|
0.83
|
%
|
|
|
1.22
|
%
|
|
|
1.28
|
%
|
Total
nonperforming assets as percentage of total assets
|
|
|
0.66
|
%
|
|
|
0.87
|
%
|
|
|
0.89
|
%
|
1
The June 30, 2014,
December 31, 2013, and June 30, 2013 columns in the above table exclude $4.0 million, $7.0 million, and $17.8 million, respectively,
of acquired loans that are 90 days past due and accruing interest. These loans were originally recorded at fair value on the acquisition
date of August 1, 2012. These loans are considered to be accruing as we can reasonably estimate future cash flows on these acquired
loans and we expect to fully collect the carrying value of these loans. Therefore, we are accreting the difference between the
carrying value of these loans and their expected cash flows into interest income.
2
Nonaccrual loans
at June 30, 2014, December 31, 2013, and June 30, 2013 include $5.9 million and $8.5 million, and $6.9 million, respectively,
of nonaccrual acquired loans.
Nonperforming assets include nonaccrual loans,
troubled debt restructurings (“TDR”), and foreclosed real estate/other real estate owned. Nonperforming assets represented
0.66% of total assets at June 30, 2014, compared to 0.87% at December 31, 2013, and 0.89% at June 30, 2013. The Company’s ratio
of nonperforming assets to total assets continues to compare favorably to our peer group’s most recent ratio of 1.56% at March
31, 2014.
Total nonperforming loans and leases were down
$12.3 million or 31.6% from year end 2013, and down $12.5 million or 31.9% from June 30, 2013. A breakdown of nonperforming loans
by portfolio segment is shown above. The decrease in nonperforming commercial real estate loans since year-end 2013 is mainly due
to significant payments received on two large commercial relationships during the quarter. In addition, one larger commercial real
estate relationship was moved to other real estate owned during the quarter and is thus included in the table above.
Loans are considered modified in a TDR when,
due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider
and the borrower could not obtain elsewhere. These modifications may include, among others, an extension of the term of the loan,
and granting a period when interest-only payments can be made, with the principal payments made over the remaining term of the
loan or at maturity. TDRs are included in the above table within the following categories: “loans 90 days past due and accruing”,
“nonaccrual loans”, or “troubled debt restructurings not included above”. Loans in the latter category include
loans that meet the definition of a TDR but are performing in accordance with the modified terms and therefore classified as accruing
loans. At June 30, 2014 the Company had $5.1 million in TDRs, of that total $1.8 million were reported as nonaccrual and $3.3 million
were considered performing and included in the table above.
In general, the Company places a loan on nonaccrual
status if principal or interest payments become 90 days or more past due and/or management deems the collectability of the principal
and/or interest to be in question, as well as when required by applicable regulations. Although in nonaccrual status, the Company
may continue to receive payments on these loans. These payments are generally recorded as a reduction to principal, and interest
income is recorded only after principal recovery is reasonably assured.
The Company’s recorded investment in loans
and leases that are considered impaired totaled $17.5 million at June 30, 2014, down 34.9% compared to the $26.9 million reported
at December 31, 2013. A loan is impaired when, based on current information and events, it is probable that we will be unable to
collect all amounts due according to the contractual terms of the loan agreement. Impaired loans consist of our non-homogenous
nonaccrual loans, and all TDRs. Specific reserves on individually identified impaired loans that are not collateral dependent are
measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan.
For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling
costs, and such impaired amounts are generally charged off.
The year-to-date average recorded investment
in impaired loans and leases was $22.1 million at June 30, 2014, $29.0 million at December 31, 2013, and $32.1 million at June
30, 2013. At June 30, 2014 there was a specific reserve of $250,000 on impaired loans compared to $250,000 of specific reserves
at December 31, 2013 and $297,000 of specific reserves at June 30, 2013. The specific reserve of $250,000 reported at June 30,
2014 is related to one loan within the acquired loan portfolio with a balance totaling $253,000. The majority of impaired loans
are collateral dependent impaired loans that have limited exposure or require limited specific reserve because of the amount of
collateral support with respect to these loans and previous charge-offs. Interest payments on impaired loans are typically applied
to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash
basis.
The ratio of the allowance to
nonperforming loans (loans past due 90 days and accruing, nonaccrual loans and restructured troubled debt) was 103.1% at June
30, 2014, improved from 71.7% at December 31, 2013, and 65.0% at June 30, 2013. The Company’s peer group ratio was 125.1%
as of March 31, 2014. The Company’s nonperforming loans are
mostly made up of collateral dependent impaired loans requiring little to no specific allowance due to the level of
collateral available with respect to these loans and/or previous charge-offs.
Management reviews the loan portfolio continuously
for evidence of potential problem loans and leases. Potential problem loans and leases are loans and leases that are currently
performing in accordance with contractual terms, but where known information about possible credit problems of the related borrowers
causes management to have doubt as to the ability of such borrowers to comply with the present loan payment terms and may result
in such loans and leases becoming nonperforming at some time in the future. Management considers loans and leases classified as
Substandard, which continue to accrue interest, to be potential problem loans and leases. The Company, through its internal loan
review function, identified 28 commercial relationships from the originated portfolio and 25 commercial relationships from the
acquired portfolio totaling $14.2 million and $18.0 million, respectively at June 30, 2014 that were potential problem loans. At
December 31, 2013, the Company had identified 50 relationships totaling $14.5 million in the originated portfolio and 29 relationships
totaling $11.5 million in the acquired portfolio that were potential problem loans. Of the 28 commercial relationships in the originated
portfolio that were Substandard, there were 4 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $8.9
million, the largest of which is $3.0 million. Of the 25 commercial relationships from the acquired loan portfolio, there were
4 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $6.4 million, the largest of which is $2.5 million.
The Company continues to monitor these potential problem relationships; however, management cannot predict the extent to which
continued weak economic conditions or other factors may further impact borrowers. These loans remain in a performing status due
to a variety of factors, including payment history, the value of collateral supporting the credits, and personal or government
guarantees. These factors, when considered in the aggregate, give management reason to believe that the current risk exposure on
these loans does not warrant accounting for these loans as nonperforming. However, these loans do exhibit certain risk factors,
which have the potential to cause them to become nonperforming. Accordingly, management’s attention is focused on these credits,
which are reviewed on at least a quarterly basis.
Capital
Total equity was $489.2 million at June 30,
2014, an increase of $31.3 million or 6.8% from December 31, 2013. The increase reflects growth in retained earnings and additional
paid-in capital and a decrease in accumulated other comprehensive loss.
Additional paid-in capital increased by $5.2
million, from $346.1 million at December 31, 2013, to $351.3 million at June 30, 2014. The increase is primarily attributable to
$2.2 million related to shares issued for dividend reinvestment, $1.5 million related to shares issued under the employee stock
ownership plan, $629,000 increase for the exercise of stock options, and $697,000 related to stock-based compensation. Retained
earnings increased by $13.8 million from $137.1 million at December 31, 2013, to $150.9 million at June 30, 2014, reflecting net
income of $25.6 million less dividends paid of $11.8 million. Accumulated other comprehensive loss decreased from a net unrealized
loss of $25.1 million at December 31, 2013 to a net unrealized loss of $12.8 million at June 30, 2014, reflecting a $12.0 million
increase in unrealized gains on available-for-sale securities due to a decrease in market rates, and a $321,000 increase related
to postretirement benefit plans. Under regulatory requirements, amounts reported as accumulated other comprehensive income/loss
related to net unrealized gain or loss on available-for-sale securities and the funded status of the Company’s defined benefit
post-retirement benefit plans do not increase or reduce regulatory capital and are not included in the calculation of risk-based
capital and leverage ratios.
Cash dividends paid in the first six months
of 2014 totaled approximately $11.8 million, representing 46.2% of year to date 2014 earnings. Cash dividends of $0.80 per common
share paid in the first six months of 2014 were up 5.3% over cash dividends of $0.76 per common share paid in the first six months
of 2013.
On July 24, 2014, the Company’s Board of Directors
authorized, at the discretion of senior management, the repurchase of up to 400,000 shares of the Company’s outstanding common
stock. Purchases may be made on the open market or in privately negotiated transactions over the next 24 months.
The Company and its banking subsidiaries are
subject to various regulatory capital requirements administered by Federal banking agencies. The table below reflects the Company’s
capital position at June 30, 2014, compared to the regulatory capital requirements for “well capitalized” institutions.
REGULATORY CAPITAL ANALYSIS
|
|
|
|
|
|
|
June 30, 2014
|
|
Actual
|
|
Well Capitalized Requirement
|
(dollar amounts in thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total Capital (to risk weighted assets)
|
|
$
|
460,418
|
|
|
|
13.92
|
%
|
|
$
|
330,878
|
|
|
|
10.00
|
%
|
Tier 1 Capital (to risk weighted assets)
|
|
$
|
432,504
|
|
|
|
13.07
|
%
|
|
$
|
198,527
|
|
|
|
6.00
|
%
|
Tier 1 Capital (to average assets)
|
|
$
|
432,504
|
|
|
|
8.79
|
%
|
|
$
|
246,158
|
|
|
|
5.00
|
%
|
As illustrated above, the Company’s capital
ratios on June 30, 2014 remain above the minimum requirements for well capitalized institutions. Total capital as a percent of
risk weighted assets increased from 13.4% as of December 31, 2013 to 13.9% at June 30, 2014. Tier 1 capital as a percent of risk
weighted assets increased from 12.6% at the end of 2013 to 13.1% as of June 30, 2014. Tier 1 capital as a percent of average assets
was 8.8% at June 30, 2014 up from 8.5% at year end December 31, 2013.
As of June 30, 2014, the capital ratios for
the Company’s subsidiary banks also exceeded the minimum levels required to be considered well capitalized.
On July 9, 2013, the FDIC’s Board of Directors
approved an interim final capital rule titled: Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Capital
Adequacy, Transition Provisions, Prompt Corrective Action, Standardized Approach for Risk-weighted Assets, Market Discipline and
Disclosure Requirements, Advanced Approaches Risk-Based Capital Rule, and Market Risk Capital Rule. The interim final rule makes
several key changes to the regulatory capital framework that are effective for community banks beginning on January 1, 2015, with
some items phasing in over a period of time. The primary focus of the new capital rule is to strengthen the quality and loss-absorbency
of regulatory capital so as to enhance banks’ abilities to continue functioning as financial intermediaries, including during periods
of financial stress. Provided below is a brief overview of some key aspects of the new rule. The Company continues to evaluate
the provisions of the final rules and their expected impact on the Company’s capital ratios. Management believes that, as of June 30,
2014, the Company and its subsidiary banks would meet all capital adequacy requirements under the Basel III Capital Rules on a
fully phased-in basis if such requirements were currently effective.
As required under Dodd-Frank, the new rules
add a new capital ratio, a “common equity tier 1 capital ratio” (CET1). The primary difference between this ratio and
the current tier 1 leverage ratio is that only common equity will qualify as tier 1 capital under the new ratio. The new CET1 ratio
also will include most elements of accumulated other comprehensive income, including unrealized securities gains and losses, as
part of both total regulatory capital (numerator) and total assets (denominator), although community banks are given the opportunity
to make a one-time irrevocable election to include or not to include certain elements of other comprehensive income, most notably
unrealized securities gains or losses.
In addition to setting higher minimum capital
ratios, the new rules, introduce a new concept, a so-called “capital conservation buffer” (set at 2.5%), which must be
added to each of the minimum capital ratios (which by themselves are somewhat higher than the current minimum ratios). The capital
conservation buffer will be phased-in over five years. When, during economic downturns, an institution’s capital begins to erode,
the first deductions from a regulatory perspective would be taken against the conservation buffer. To the extent that buffer should
erode below the required level, the bank would not necessarily be required to replace the capital deficit immediately but would
face restrictions on paying dividends and other negative consequences until it did so.
The final rules eliminated the proposed phase-out
over 10 years of Trust Preferred Services, or “TRUPs” as tier 1 capital for banks, such as Tompkins, that have less than
$15 billion in total assets. Under the final rule, grandfathered TRUPs, such as Tompkins’ outstanding TRUP’s, would continue to
qualify as tier 1 capital until they mature or are redeemed, up to a limit of 25% of tier 1 capital (for grandfathered TRUPs and
other grandfathered tier 1 capital components).
The following is a summary of the capital definitions
for community banks:
Common Equity Tier 1 Capital:
The sum of common stock instruments and related surplus net of treasury stock, retained earnings, accumulated other comprehensive
income (AOCI), and qualifying minority interests, minus applicable regulatory adjustments and deductions. Such deductions will
include AOCI, if the organization exercises its irrevocable option not to include AOCI in capital. Mortgage-servicing assets, deferred
tax assets, and investments in financial institutions are limited to 15 percent of CET1 in the aggregate and 10 percent of CET1
for each such item individually.
Additional Tier 1 Capital:
The
sum of noncumulative perpetual preferred stock, tier 1 minority interests, grandfathered TRUPs, and Troubled Asset Relief Program
instruments, minus applicable regulatory adjustments and deductions.
Tier 2 Capital:
The sum of subordinated
debt and preferred stock, total capital minority interests not included in Tier 1, allowance for loan and lease losses (not exceeding
1.25 percent of risk-weighted assets) minus applicable regulatory adjustments and deductions.
Deposits and Other Liabilities
Total deposits of $4.0 billion at June 30,
2014 increased $97.2 million or 2.5% from December 31, 2013. The increase from year-end 2013 was comprised mainly of increases
in money market savings and interest bearing checking deposit and time deposit accounts.
The most significant source of funding for
the Company is core deposits. The Company defines core deposits as total deposits less time deposits of $250,000 or more (formerly
$100,000), brokered deposits and municipal money market deposits. Core deposits of $3.3 billion were relatively flat at June 30,
2014 compared to year-end 2013. Core deposits represented 81.7% of total deposits at June 30, 2014, compared to 83.4% of total
deposits at December 31, 2013.
Municipal money market savings and interest
checking accounts of $637.5 million at June 30, 2014 increased $37.2 million or 6.2% from $600.3 million at year-end 2013. In general,
there is a seasonal pattern to municipal deposits starting with a low point during July and August. Account balances tend to increase
throughout the fall and into the winter months from tax deposits and the Company receives an additional inflow at the end of March
from the electronic deposit of state funds.
The Company uses both retail and wholesale
repurchase agreements. Retail repurchase agreements are arrangements with local customers of the Company, in which the Company
agrees to sell securities to the customer with an agreement to repurchase those securities at a specified later date. Retail repurchase
agreements totaled $47.9 million at June 30, 2014, and $55.3 million at December 31, 2013. Management generally views local repurchase
agreements as an alternative to large time deposits. The Company’s wholesale repurchase agreements totaled $96.8 million at June
30, 2014 and included $65.0 million with the FHLB and $31.8 million with a large financial institution. Wholesale repurchase agreements
totaled $112.4 million at December 31, 2013.
The Company’s other borrowings totaled $287.2
million at June 30, 2014, down $44.4 million or 13.4% from $331.5 million at December 31, 2013. Borrowings at June 30, 2014 included
$162.5 million in FHLB overnight advances, $111.2 million of FHLB term advances, and a $13.5 million advance from a bank. Borrowings
at year-end 2013 included $215.7 million in overnight advances from FHLB, $101.3 million of FHLB term advances, and a $14.5 million
advance from a bank. The decrease in short term borrowings reflects the repayment of overnight FHLB advances with other funding
sources, mainly deposits. Of the $111.2 million in FHLB term advance at June 30, 2014, $71.2 million is due over one year. In
2007, the Company elected the fair value option under FASB ASC Topic 825 for a $10.0 million advance with the FHLB. The fair value
of this advance decreased by $128,000 (net mark-to-market gain of $128,000) over the six months ended June 30, 2014.
Liquidity
The objective of liquidity management is to
ensure the availability of adequate funding sources to satisfy the demand for credit, deposit withdrawals, and business investment
opportunities. The Company’s large, stable core deposit base and strong capital position are the foundation for the Company’s liquidity
position. The Company uses a variety of resources to meet its liquidity needs, which include deposits, cash and cash equivalents,
short-term investments, cash flow from lending and investing activities, repurchase agreements, and borrowings. The Company’s Asset/Liability
Management Committee monitors asset and liability positions of the Company’s subsidiary banks individually and on a combined basis.
The Committee reviews periodic reports on liquidity and interest rate sensitivity positions. Comparisons with industry and peer
groups are also monitored. The Company’s strong reputation in the communities it serves, along with its strong financial condition,
provides access to numerous sources of liquidity as described below. Management believes these diverse liquidity sources provide
sufficient means to meet all demands on the Company’s liquidity that are reasonably likely to occur.
Core deposits, discussed above under “Deposits
and Other Liabilities”, are a primary and low cost funding source obtained primarily through the Company’s branch network.
In addition to core deposits, the Company uses non-core funding sources to support asset growth. These non-core funding sources
include time deposits of $250,000 or more, brokered time deposits, national deposit listing services, municipal money market deposits,
bank borrowings, securities sold under agreements to repurchase and overnight and term advances from the FHLB. Rates and terms
are the primary determinants of the mix of these funding sources. Non-core funding sources of $1.2 billion at June 30, 2014 increased
$17.7 million or 1.5% as compared to year end 2013. Non-core funding sources, as a percentage of total liabilities, were 25.7%
at June 30, 2014, compared to 25.4% at December 31, 2013. Increases in time deposits of $250,000 or more and brokered deposits
were mainly offset by declines in FHLB borrowings.
Non-core funding sources may require securities
to be pledged against the underlying liability. Securities carried at $1.1 billion and $1.0 billion at June 30, 2014 and December
31, 2013, respectively, were either pledged or sold under agreements to repurchase. Pledged securities represented 76.4% of total
securities at June 30, 2014, compared to 74.7% of total securities at December 31, 2013.
Cash and cash equivalents totaled $83.4 million as of June 30, 2014
which was flat compared to $82.9 million at December 31, 2013. Short-term investments, consisting of securities due in one year
or less, increased from $37.0 million at December 31, 2013, to $54.2 million on June 30, 2014. The Company also had $10.0 million
of securities designated as trading securities at June 30, 2014.
Cash flow from the loan and investment portfolios
provides a significant source of liquidity. These assets may have stated maturities in excess of one year, but have monthly principal
reductions. Total mortgage-backed securities, at fair value, were $750.1 million at June 30, 2014 compared with $724.5 million
at December 31, 2013. Outstanding principal balances of residential mortgage loans, consumer loans, and leases totaled approximately
$1.0 billion at June 30, 2014 as compared to $993.6 million at December 31, 2013. Aggregate amortization from monthly payments
on these assets provides significant additional cash flow to the Company.
Liquidity is enhanced by ready access to national
and regional wholesale funding sources including Federal funds purchased, repurchase agreements, brokered certificates of deposit,
and FHLB advances. Through its subsidiary banks, the Company has borrowing relationships with the FHLB and correspondent banks,
which provide secured and unsecured borrowing capacity. At June 30, 2014, the unused borrowing capacity on established lines with
the FHLB was $1.1 billion. As members of the FHLB, the Company’s subsidiary banks can use certain unencumbered mortgage-related
assets and securities to secure additional borrowings from the FHLB. At June 30, 2014, total unencumbered residential mortgage
loans and securities of the Company were $635.6 million. Additional assets may also qualify as collateral for FHLB advances upon
approval of the FHLB.
The Company has not identified any trends or
circumstances that are reasonably likely to result in material increases or decreases in liquidity in the near term.
The Company continues to evaluate the potential impact on liquidity
management of regulatory proposals, including Basel III and those required under the Dodd-Frank Act.