United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended September 30, 2014
OR
☐ | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from __________ to __________
Commission File Number 1-12709
Tompkins Financial Corporation
(Exact name of registrant as specified in its
charter)
New York |
| 16-1482357 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
| |
The Commons, P.O. Box 460, Ithaca, NY |
| 14851 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code: (888)
503-5753
Former name, former address, and former fiscal year, if changed
since last report: NA
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large Accelerated Filer ☐ |
Accelerated Filer ☒ |
|
Non-Accelerated Filer ☐ (Do not check if a smaller reporting company) |
Smaller Reporting Company ☐ |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒.
Indicate the number of shares of the Registrant’s Common Stock
outstanding as of the latest practicable date:
Class |
| Outstanding as of October 30, 2014 |
Common Stock, $0.10 par value |
| 14,763,078
shares |
TOMPKINS FINANCIAL CORPORATION
FORM 10-Q
INDEX
TOMPKINS FINANCIAL CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION |
| |
| | |
| |
(In thousands, except share and per share data) (Unaudited) | |
As of | | |
As of | |
ASSETS | |
09/30/2014 | | |
12/31/2013 | |
| |
| | | |
| | |
Cash and noninterest bearing balances due from banks | |
$ | 84,129 | | |
$ | 82,163 | |
Interest bearing balances due from banks | |
| 988 | | |
| 721 | |
Cash and Cash Equivalents | |
| 85,117 | | |
| 82,884 | |
| |
| | | |
| | |
Trading securities, at fair value | |
| 9,473 | | |
| 10,991 | |
Available-for-sale securities, at fair value (amortized cost of $1,375,637
at September 30, 2014 and $1,368,736 at December 31, 2013) | |
| 1,374,756 | | |
| 1,354,811 | |
Held-to-maturity securities, at amortized cost (fair value of $48,017 at
September 30, 2014, and $19,625 at December 31, 2013) | |
| 47,608 | | |
| 18,980 | |
Originated loans and leases, net of unearned income and deferred costs and fees | |
| 2,674,971 | | |
| 2,527,244 | |
Acquired loans and leases, covered | |
| 20,910 | | |
| 25,868 | |
Acquired loans and leases, non-covered | |
| 561,588 | | |
| 641,172 | |
Less: Allowance for loan and lease losses | |
| 27,786 | | |
| 27,970 | |
Net Loans and Leases | |
| 3,229,683 | | |
| 3,166,314 | |
| |
| | | |
| | |
FDIC indemnification asset | |
| 2,298 | | |
| 4,790 | |
Federal Home Loan Bank stock | |
| 14,838 | | |
| 25,041 | |
Bank premises and equipment, net | |
| 59,550 | | |
| 55,932 | |
Corporate owned life insurance | |
| 73,269 | | |
| 69,335 | |
Goodwill | |
| 92,243 | | |
| 92,140 | |
Other intangible assets, net | |
| 15,206 | | |
| 16,298 | |
Accrued interest and other assets | |
| 86,878 | | |
| 105,523 | |
Total Assets | |
$ | 5,090,919 | | |
$ | 5,003,039 | |
| |
| | | |
| | |
LIABILITIES | |
| | | |
| | |
Deposits: | |
| | | |
| | |
Interest bearing: | |
| | | |
| | |
Checking, savings and money market | |
| 2,310,629 | | |
| 2,190,616 | |
Time | |
| 930,796 | | |
| 865,702 | |
Noninterest bearing | |
| 971,435 | | |
| 890,898 | |
Total Deposits | |
| 4,212,860 | | |
| 3,947,216 | |
| |
| | | |
| | |
Federal funds purchased and securities sold under agreements to repurchase | |
| 128,368 | | |
| 167,724 | |
Other borrowings, including certain amounts at fair value of $11,032 at
September 30, 2014 and $11,292 at December 31, 2013 | |
| 166,509 | | |
| 331,531 | |
Trust preferred debentures | |
| 37,298 | | |
| 37,169 | |
Other liabilities | |
| 55,273 | | |
| 61,460 | |
Total Liabilities | |
$ | 4,600,308 | | |
$ | 4,545,100 | |
| |
| | | |
| | |
EQUITY | |
| | | |
| | |
Tompkins Financial Corporation shareholders’ equity: | |
| | | |
| | |
Common Stock - par value $.10 per share: Authorized 25,000,000 shares;
Issued: 14,830,002 at September 30, 2014; and 14,785,007 at December 31, 2013 | |
| 1,483 | | |
| 1,479 | |
Additional paid-in capital | |
| 348,992 | | |
| 346,096 | |
Retained earnings | |
| 158,673 | | |
| 137,102 | |
Accumulated other comprehensive loss | |
| (16,810 | ) | |
| (25,119 | ) |
Treasury stock, at cost – 108,788 shares at September 30, 2014, and
105,449 shares at December 31, 2013 | |
| (3,277 | ) | |
| (3,071 | ) |
| |
| | | |
| | |
Total Tompkins Financial Corporation Shareholders’ Equity | |
| 489,061 | | |
| 456,487 | |
Noncontrolling interests | |
| 1,550 | | |
| 1,452 | |
Total Equity | |
$ | 490,611 | | |
$ | 457,939 | |
Total Liabilities and Equity | |
$ | 5,090,919 | | |
$ | 5,003,039 | |
See notes to consolidated financial statements
TOMPKINS FINANCIAL CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
|
| |
Three Months Ended | | |
Nine Months Ended | |
(In thousands, except per share data) (Unaudited) | |
09/30/2014 | | |
09/30/2013 | | |
09/30/2014 | | |
09/30/2013 | |
INTEREST AND DIVIDEND
INCOME | |
| | | |
| | | |
| | | |
| | |
Loans | |
$ | 38,298 | | |
$ | 38,048 | | |
$ | 112,601 | | |
$ | 112,027 | |
Due from banks | |
| 0 | | |
| 1 | | |
| 2 | | |
| 9 | |
Trading securities | |
| 102 | | |
| 147 | | |
| 321 | | |
| 472 | |
Available-for-sale securities | |
| 7,718 | | |
| 7,830 | | |
| 23,637 | | |
| 23,222 | |
Held-to-maturity securities | |
| 288 | | |
| 160 | | |
| 626 | | |
| 528 | |
Federal Home Loan Bank stock and Federal Reserve Bank stock | |
| 212 | | |
| 193 | | |
| 616 | | |
| 538 | |
Total
Interest and Dividend Income | |
| 46,618 | | |
| 46,379 | | |
| 137,803 | | |
| 136,796 | |
INTEREST EXPENSE | |
| | | |
| | | |
| | | |
| | |
Time certificates of deposits of $100,000 or more | |
| 996 | | |
| 1,208 | | |
| 2,900 | | |
| 3,651 | |
Other deposits | |
| 1,830 | | |
| 1,894 | | |
| 5,446 | | |
| 6,093 | |
Federal funds purchased and securities sold under agreements to
repurchase | |
| 683 | | |
| 901 | | |
| 2,263 | | |
| 2,877 | |
Trust preferred debentures | |
| 573 | | |
| 660 | | |
| 1,714 | | |
| 2,037 | |
Other borrowings | |
| 961 | | |
| 1,243 | | |
| 3,362 | | |
| 3,634 | |
Total
Interest Expense | |
| 5,043 | | |
| 5,906 | | |
| 15,685 | | |
| 18,292 | |
Net
Interest Income | |
| 41,575 | | |
| 40,473 | | |
| 122,118 | | |
| 118,504 | |
Less: (Credit) Provision for loan and lease losses | |
| (59 | ) | |
| 2,049 | | |
| 751 | | |
| 5,576 | |
Net Interest Income
After Provision for Loan and Lease Losses | |
| 41,634 | | |
| 38,424 | | |
| 121,367 | | |
| 112,928 | |
NONINTEREST INCOME | |
| | | |
| | | |
| | | |
| | |
Insurance commissions and fees | |
| 7,520 | | |
| 7,160 | | |
| 21,823 | | |
| 21,588 | |
Investment services income | |
| 3,636 | | |
| 3,694 | | |
| 11,549 | | |
| 11,180 | |
Service charges on deposit accounts | |
| 2,506 | | |
| 2,254 | | |
| 7,010 | | |
| 6,186 | |
Card services income | |
| 1,936 | | |
| 1,735 | | |
| 5,968 | | |
| 5,163 | |
Mark-to-market loss on trading securities | |
| (87 | ) | |
| (87 | ) | |
| (181 | ) | |
| (472 | ) |
Mark-to-market gain on liabilities held at fair value | |
| 132 | | |
| 119 | | |
| 260 | | |
| 543 | |
Other income | |
| 1,892 | | |
| 3,372 | | |
| 6,129 | | |
| 7,548 | |
Gain on sale of available-for-sale securities | |
| 20 | | |
| 281 | | |
| 151 | | |
| 723 | |
Total
Noninterest Income | |
| 17,555 | | |
| 18,528 | | |
| 52,709 | | |
| 52,459 | |
NONINTEREST EXPENSES | |
| | | |
| | | |
| | | |
| | |
Salaries and wages | |
| 17,553 | | |
| 16,755 | | |
| 51,859 | | |
| 48,618 | |
Pension and other employee benefits | |
| 4,941 | | |
| 5,606 | | |
| 15,964 | | |
| 17,014 | |
Net occupancy expense of premises | |
| 2,969 | | |
| 2,850 | | |
| 9,296 | | |
| 8,865 | |
Furniture and fixture expense | |
| 1,451 | | |
| 1,448 | | |
| 4,247 | | |
| 4,367 | |
FDIC insurance | |
| 682 | | |
| 808 | | |
| 2,228 | | |
| 2,401 | |
Amortization of intangible assets | |
| 518 | | |
| 544 | | |
| 1,570 | | |
| 1,648 | |
Merger related expenses | |
| 0 | | |
| 0 | | |
| 0 | | |
| 228 | |
Other operating expense | |
| 10,423 | | |
| 9,543 | | |
| 30,511 | | |
| 29,710 | |
Total
Noninterest Expenses | |
| 38,537 | | |
| 37,554 | | |
| 115,675 | | |
| 112,851 | |
Income
Before Income Tax Expense | |
| 20,652 | | |
| 19,398 | | |
| 58,401 | | |
| 52,536 | |
Income
Tax Expense | |
| 6,897 | | |
| 5,316 | | |
| 18,951 | | |
| 15,873 | |
Net
Income attributable to Noncontrolling Interests and Tompkins Financial Corporation | |
| 13,755 | | |
| 14,082 | | |
| 39,450 | | |
| 36,663 | |
Less: Net income attributable to noncontrolling interests | |
| 33 | | |
| 33 | | |
| 98 | | |
| 98 | |
Net
Income Attributable to Tompkins Financial Corporation | |
$ | 13,722 | | |
$ | 14,049 | | |
$ | 39,352 | | |
$ | 36,565 | |
Basic Earnings Per Share | |
$ | 0.92 | | |
$ | 0.96 | | |
$ | 2.65 | | |
$ | 2.51 | |
Diluted
Earnings Per Share | |
$ | 0.92 | | |
$ | 0.95 | | |
$ | 2.64 | | |
$ | 2.50 | |
See notes to consolidated financial statements
Consolidated Statements of Comprehensive Income |
| |
Three Months Ended |
|
(in thousands)
(Unaudited) | |
09/30/2014 | | |
09/30/2013 | |
Net income
attributable to noncontrolling interests and Tompkins Financial Corporation | |
$ | 13,755 | | |
$ | 14,082 | |
Other comprehensive income, net of tax: | |
| | | |
| | |
| |
| | | |
| | |
Available-for-sale securities:
| |
| | | |
| | |
Change in net unrealized gain (loss) during the period | |
| (4,123 | ) | |
| (318 | ) |
Reclassification adjustment for net realized gain on
sale of available-for-sale securities included in net income | |
| (12 | ) | |
| (169 | ) |
| |
| | | |
| | |
Employee benefit plans:
| |
| | | |
| | |
Amortization of net retirement plan actuarial loss | |
| 159 | | |
| 387 | |
Amortization of net retirement plan prior service cost | |
| 1 | | |
| 8 | |
Amortization of net retirement plan transition liability | |
| 0 | | |
| 8 | |
| |
| | | |
| | |
Other comprehensive (loss) income | |
| (3,975 | ) | |
| (84 | ) |
| |
| | | |
| | |
Subtotal comprehensive income attributable to noncontrolling
interests and
Tompkins Financial Corporation | |
| 9,780 | | |
| 13,998 | |
Less: Net income attributable to noncontrolling interests | |
| (33 | ) | |
| (33 | ) |
Total
comprehensive income attributable to Tompkins Financial Corporation | |
$ | 9,747 | | |
$ | 13,965 | |
See notes to unaudited condensed consolidated financial statements.
Consolidated Statements of Comprehensive Income |
| |
Nine Months Ended | |
(in thousands)
(Unaudited) | |
09/30/2014 | | |
09/30/2013 | |
Net income
attributable to noncontrolling interests and Tompkins Financial Corporation | |
$ | 39,450 | | |
$ | 36,663 | |
Other comprehensive income, net of tax: | |
| | | |
| | |
| |
| | | |
| | |
Available-for-sale securities:
| |
| | | |
| | |
Change in net unrealized gain (loss) during the period | |
| 7,918 | | |
| (26,420 | ) |
Reclassification adjustment for net realized gain on
sale of available-for-sale securities included in net income | |
| (90 | ) | |
| (434 | ) |
| |
| | | |
| | |
Employee benefit plans:
| |
| | | |
| | |
Amortization of net retirement plan actuarial gain | |
| 479 | | |
| 1,160 | |
Amortization of net retirement plan prior service cost | |
| 2 | | |
| 26 | |
Amortization of net retirement plan transition liability | |
| 0 | | |
| 23 | |
| |
| | | |
| | |
Other comprehensive income (loss) | |
| 8,309 | | |
| (25,645 | ) |
| |
| | | |
| | |
Subtotal
comprehensive income attributable to noncontrolling interests and Tompkins Financial Corporation | |
| 47,759 | | |
| 11,018 | |
Less: Net income attributable to noncontrolling interests | |
| (98 | ) | |
| (98 | ) |
Total
comprehensive income attributable to Tompkins Financial Corporation | |
$ | 47,661 | | |
$ | 10,920 | |
See notes to unaudited
condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
(In thousands) (Unaudited) | |
09/30/2014 | | |
09/30/2013 | |
OPERATING ACTIVITIES | |
| | | |
| | |
Net income attributable to Tompkins Financial Corporation | |
$ | 39,352 | | |
$ | 36,565 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Provision for loan and lease losses | |
| 751 | | |
| 5,576 | |
Depreciation and amortization of premises, equipment, and software | |
| 4,203 | | |
| 4,284 | |
Amortization of intangible assets | |
| 1,570 | | |
| 1,648 | |
Earnings from corporate owned life insurance | |
| (1,431 | ) | |
| (1,482 | ) |
Net amortization on securities | |
| 7,824 | | |
| 10,724 | |
Amortization/accretion related to purchase accounting | |
| (6,147 | ) | |
| (7,212 | ) |
Mark-to-market loss on trading securities | |
| 181 | | |
| 472 | |
Mark-to-market gain on liabilities held at fair value | |
| (260 | ) | |
| (543 | ) |
Net gain on securities transactions | |
| (151 | ) | |
| (723 | ) |
Net gain on sale of loans | |
| (345 | ) | |
| (212 | ) |
Proceeds from sale of loans | |
| 19,007 | | |
| 7,076 | |
Loans originated for sale | |
| (18,357 | ) | |
| (8,271 | ) |
Gain on conversion of deposits | |
| (140 | ) | |
| 0 | |
Net loss (gain) on sale of bank premises and equipment | |
| 2 | | |
| (7 | ) |
Gain on redemption of trust preferred | |
| 0 | | |
| (1,410 | ) |
Stock-based compensation expense | |
| 1,081 | | |
| 960 | |
Decrease in accrued interest receivable | |
| 92 | | |
| 927 | |
Decrease in accrued interest payable | |
| (294 | ) | |
| (809 | ) |
Proceeds from maturities and payments of trading securities | |
| 1,323 | | |
| 4,425 | |
Decrease in FDIC prepaid insurance | |
| 0 | | |
| 5,386 | |
Other, net | |
| 9,494 | | |
| 20,241 | |
Net Cash Provided by Operating Activities | |
| 57,755 | | |
| 77,615 | |
INVESTING ACTIVITIES | |
| | | |
| | |
Proceeds from maturities, calls and principal paydowns of available-for-sale securities | |
| 157,157 | | |
| 197,009 | |
Proceeds from sales of available-for-sale securities | |
| 48,005 | | |
| 99,378 | |
Proceeds from maturities, calls and principal paydowns of held-to-maturity securities | |
| 10,325 | | |
| 11,798 | |
Purchases of available-for-sale securities | |
| (219,695 | ) | |
| (316,705 | ) |
Purchases of held-to-maturity securities | |
| (38,981 | ) | |
| (7,511 | ) |
Net increase in loans | |
| (60,416 | ) | |
| (167,106 | ) |
Net decrease (increase) in Federal Home Loan Bank stock | |
| 10,203 | | |
| (2,567 | ) |
Proceeds from sale of bank premises and equipment | |
| 172 | | |
| 116 | |
Purchases of bank premises and equipment | |
| (7,445 | ) | |
| (4,811 | ) |
Purchase of corporate owned life insurance | |
| (2,500 | ) | |
| (1,500 | ) |
Net cash used in acquisition | |
| (415 | ) | |
| 0 | |
Other, net | |
| 386 | | |
| (3,417 | ) |
Net Cash Used in Investing Activities | |
| (103,204 | ) | |
| (195,316 | ) |
FINANCING ACTIVITIES | |
| | | |
| | |
Net increase in demand, money market, and savings deposits | |
| 200,550 | | |
| 90,297 | |
Net increase (decrease) in time deposits | |
| 66,568 | | |
| (67,710 | ) |
Net decrease in Federal funds purchases and securities sold under agreements to repurchase | |
| (38,507 | ) | |
| (51,856 | ) |
Increase in other borrowings | |
| 149,845 | | |
| 194,674 | |
Repayment of other borrowings | |
| (314,606 | ) | |
| (63,801 | ) |
Redemption of trust preferred debentures | |
| 0 | | |
| (5,191 | ) |
Cash dividends | |
| (17,781 | ) | |
| (16,574 | ) |
Common stock issued | |
| 50 | | |
| 0 | |
Repurchase of common stock | |
| (2,932 | ) | |
| 0 | |
Shares issued for dividend reinvestment plan | |
| 2,186 | | |
| 3,009 | |
Shares issued for employee stock ownership plan | |
| 1,528 | | |
| 717 | |
Net shares issued related to restricted stock awards | |
| 64 | | |
| (68 | ) |
Net proceeds from exercise of stock options | |
| 633 | | |
| 3,639 | |
Tax benefit from stock option exercises | |
| 84 | | |
| 215 | |
Net Cash Provided by Financing Activities | |
| 47,682 | | |
| 87,351 | |
Net Increase (Decrease) in Cash and Cash Equivalents | |
| 2,233 | | |
| (30,350 | ) |
Cash and cash equivalents at beginning of period | |
| 82,884 | | |
| 118,930 | |
Total Cash & Cash Equivalents at End of Period | |
| 85,117 | | |
| 88,580 | |
See notes to unaudited condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
(In thousands) (Unaudited) | |
09/30/2014 | | |
09/30/2013 | |
Supplemental Information: | |
| | | |
| | |
Cash paid during the year for - Interest | |
$ | 18,033 | | |
$ | 21,534 | |
Cash paid during the year for - Taxes | |
| 3,258 | | |
| 6,283 | |
Transfer of loans to other real estate owned | |
| 4,697 | | |
| 4,407 | |
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 | |
| | | |
| | | |
| 36,565 | | |
| | | |
| | | |
| 98 | | |
| 36,663 | |
Other comprehensive loss | |
| | | |
| | | |
| | | |
| (25,645 | ) | |
| | | |
| | | |
| (25,645 | ) |
Total
Comprehensive Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 11,018 | |
Cash dividends ($1.14 per share) | |
| | | |
| | | |
| (16,574 | ) | |
| | | |
| | | |
| | | |
| (16,574 | ) |
Net exercise of stock options and related
tax benefit (111,307 shares) | |
| 11 | | |
| 3,843 | | |
| | | |
| | | |
| | | |
| | | |
| 3,854 | |
Stock-based compensation
expense | |
| | | |
| 960 | | |
| | | |
| | | |
| | | |
| | | |
| 960 | |
Shares issued for dividend reinvestment plan
(70,530 shares) | |
| 7 | | |
| 3,002 | | |
| | | |
| | | |
| | | |
| | | |
| 3,009 | |
Shares issued for employee stock ownership
plan (17,290 shares) | |
| 2 | | |
| 715 | | |
| | | |
| | | |
| | | |
| | | |
| 717 | |
Directors deferred compensation plan (3,228
shares) | |
| | | |
| 185 | | |
| | | |
| | | |
| (185 | ) | |
| | | |
| 0 | |
Restricted
stock activity (102,743 shares) | |
| 10 | | |
| (78 | ) | |
| | | |
| | | |
| | | |
| | | |
| (68 | ) |
Balances
at September 30, 2013 | |
$ | 1,473 | | |
$ | 343,276 | | |
$ | 128,700 | | |
$ | (27,751 | ) | |
$ | (2,972 | ) | |
$ | 1,550 | | |
$ | 444,276 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
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 | |
| | | |
| | | |
| 39,352 | | |
| | | |
| | | |
| 98 | | |
| 39,450 | |
Other comprehensive
income | |
| | | |
| | | |
| | | |
| 8,309 | | |
| | | |
| | | |
| 8,309 | |
Total
Comprehensive Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 47,759 | |
Cash dividends ($1.20 per share) | |
| | | |
| | | |
| (17,781 | ) | |
| | | |
| | | |
| | | |
| (17,781 | ) |
Net exercise of stock options and related
tax benefit (36,885 shares) | |
| 4 | | |
| 713 | | |
| | | |
| | | |
| | | |
| | | |
| 717 | |
Common stock repurchased
and returned to unissued status (65,059 shares) | |
| (7 | ) | |
| (2,925 | ) | |
| | | |
| | | |
| | | |
| | | |
| (2,932 | ) |
Shares issued for dividend reinvestment plan
(46,081 shares) | |
| 4 | | |
| 2,182 | | |
| | | |
| | | |
| | | |
| | | |
| 2,186 | |
Stock-based compensation
expense | |
| | | |
| 1,081 | | |
| | | |
| | | |
| | | |
| | | |
| 1,081 | |
Shares issued for employee stock ownership
plan (31,192 shares) | |
| 3 | | |
| 1,525 | | |
| | | |
| | | |
| | | |
| | | |
| 1,528 | |
Directors deferred compensation plan (3,339
shares) | |
| | | |
| 206 | | |
| | | |
| | | |
| (206 | ) | |
| | | |
| 0 | |
Restricted stock activity
((5,184) shares) | |
| 0 | | |
| 64 | | |
| | | |
| | | |
| | | |
| | | |
| 64 | |
Stock
issued for purchase acquisition (1,080 shares) | |
| 0 | | |
| 50 | | |
| | | |
| | | |
| | | |
| | | |
| 50 | |
Balances
at September 30, 2014 | |
$ | 1,483 | | |
$ | 348,992 | | |
$ | 158,673 | | |
$ | (16,810 | ) | |
$ | (3,277 | ) | |
$ | 1,550 | | |
$ | 490,611 | |
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 September 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
$70,727 to $62,146, 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.
4. Securities
Available-for-Sale Securities
The following table summarizes available-for-sale securities held by the Company at September 30, 2014:
| |
| Available-for-Sale Securities | |
September
30, 2014 | |
Amortized Cost | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Fair Value | |
(in thousands) | |
| | | |
| | | |
| | | |
| | |
Obligations of U.S. Government sponsored entities | |
$ | 587,933 | | |
$ | 6,061 | | |
$ | 3,100 | | |
$ | 590,894 | |
Obligations of U.S. states and political subdivisions | |
| 69,704 | | |
| 1,179 | | |
| 381 | | |
| 70,502 | |
Mortgage-backed securities – residential, issued by | |
| | | |
| | | |
| | | |
| | |
U.S. Government agencies | |
| 119,049 | | |
| 2,370 | | |
| 1,702 | | |
| 119,717 | |
U.S. Government sponsored entities | |
| 594,700 | | |
| 7,195 | | |
| 12,116 | | |
| 589,779 | |
Non-U.S. Government agencies or sponsored entities | |
| 276 | | |
| 4 | | |
| 0 | | |
| 280 | |
U.S. corporate debt securities | |
| 2,500 | | |
| 0 | | |
| 337 | | |
| 2,163 | |
Total debt securities | |
| 1,374,162 | | |
| 16,809 | | |
| 17,636 | | |
| 1,373,335 | |
Equity securities | |
| 1,475 | | |
| 0 | | |
| 54 | | |
| 1,421 | |
Total available-for-sale
securities | |
$ | 1,375,637 | | |
$ | 16,809 | | |
$ | 17,690 | | |
$ | 1,374,756 | |
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 September 30, 2014:
| |
Held-to-Maturity Securities | |
September 30, 2014 | |
Amortized Cost | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Fair Value | |
(in thousands) | |
| | | |
| | | |
| | | |
| | |
Obligations of U.S. Government sponsored entities | |
$ | 30,869 | | |
$ | 0 | | |
$ | 197 | | |
$ | 30,672 | |
Obligations of U.S. states and political subdivisions | |
$ | 16,739 | | |
$ | 606 | | |
$ | 0 | | |
$ | 17,345 | |
Total held-to-maturity debt securities | |
$ | 47,608 | | |
$ | 606 | | |
$ | 197 | | |
$ | 48,017 | |
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 $20,000 and $186,000
in the third quarter and nine months ending September 30, 2014, respectively, and $303,000 and $808,000 in the same periods of
2013. Realized losses on available-for-sale securities sold were $0 and $78,000 in the third quarter and nine months ending September
30, 2014, respectively, and $22,000 and $85,000 in the third quarter and nine months ending September 30, 2013, respectively.
The following table summarizes available-for-sale securities that had unrealized losses at September 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 | |
$ | 169,741 | | |
$ | 849 | | |
$ | 95,197 | | |
$ | 2,251 | | |
$ | 264,938 | | |
$ | 3,100 | |
Obligations of U.S. states and political subdivisions | |
| 15,235 | | |
| 105 | | |
| 11,929 | | |
| 276 | | |
| 27,164 | | |
| 381 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities – issued by | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. Government agencies | |
| 27,840 | | |
| 101 | | |
| 41,748 | | |
| 1,601 | | |
| 69,588 | | |
| 1,702 | |
U.S. Government sponsored entities | |
| 133,210 | | |
| 1,095 | | |
| 270,358 | | |
| 11,021 | | |
| 403,568 | | |
| 12,116 | |
U.S. corporate debt securities | |
| 0 | | |
| 0 | | |
| 2,163 | | |
| 337 | | |
| 2,163 | | |
| 337 | |
Equity securities | |
| 0 | | |
| 0 | | |
| 946 | | |
| 54 | | |
| 946 | | |
| 54 | |
Total available-for-sale securities | |
$ | 346,026 | | |
$ | 2,150 | | |
$ | 422,341 | | |
$ | 15,540 | | |
$ | 768,367 | | |
$ | 17,690 | |
The following table summarizes held-to-maturity securities that had unrealized losses at September 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 | |
$ | 30,672 | | |
$ | 197 | | |
$ | 0 | | |
$ | 0 | | |
$ | 30,672 | | |
$ | 197 | |
Total held-to-maturity securities | |
$ | 30,672 | | |
$ | 197 | | |
$ | 0 | | |
$ | 0 | | |
$ | 30,672 | | |
$ | 197 | |
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 September 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 September 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 | | |
Nine Months Ended | |
(in thousands) | |
09/30/2014 | | |
09/30/2013 | | |
09/30/2014 | | |
09/30/2013 | |
Credit losses at beginning of the period | |
$ | 0 | | |
$ | 441 | | |
$ | 0 | | |
$ | 441 | |
Sales of securities for which an other-than-temporary
impairment was previously recognized | |
| 0 | | |
| (441 | ) | |
| 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.
September 30, 2014 | |
| | |
| |
(in thousands) | |
Amortized Cost | | |
Fair Value | |
Available-for-sale securities: | |
| | | |
| | |
Due in one year or less | |
$ | 47,644 | | |
$ | 48,142 | |
Due after one year through five years | |
| 409,758 | | |
| 415,198 | |
Due after five years through ten years | |
| 182,467 | | |
| 180,485 | |
Due after ten years | |
| 20,268 | | |
| 19,734 | |
Total | |
| 660,137 | | |
| 663,559 | |
Mortgage-backed securities | |
| 714,025 | | |
| 709,776 | |
Total available-for-sale debt securities | |
$ | 1,374,162 | | |
$ | 1,373,335 | |
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 | |
September 30, 2014 | |
| | |
| |
(in thousands) | |
Amortized Cost | | |
Fair Value | |
Held-to-maturity securities: | |
| | | |
| | |
Due in one year or less | |
$ | 11,454 | | |
$ | 11,534 | |
Due after one year through five years | |
| 3,648 | | |
| 3,938 | |
Due after five years through ten years | |
| 32,133 | | |
| 32,121 | |
Due after ten years | |
| 373 | | |
| 424 | |
Total held-to-maturity debt securities | |
$ | 47,608 | | |
$ | 48,017 | |
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 $9.4 million, $5.3 million and $95,000 at September 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,
as of September 30, 2014, 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) | |
09/30/2014 | | |
12/31/2013 | |
| |
| | |
| |
Obligations of U.S. Government sponsored entities | |
$ | 7,631 | | |
$ | 8,275 | |
Mortgage-backed securities – residential, issued by | |
| | | |
| | |
U.S. Government sponsored entities | |
| 1,842 | | |
| 2,716 | |
Total | |
$ | 9,473 | | |
$ | 10,991 | |
The decrease in trading securities reflects
principal repayments and maturities received during the quarter ended September 30, 2014. The pre-tax mark-to-market losses on
trading securities totaled $87,000 and $181,000 for the third quarter and nine months ending September 30, 2014, respectively,
and $87,000 and $472,000 for the third quarter and nine months ending September 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 September 30, 2014, and December 31, 2013, respectively, were either pledged or sold under agreements to repurchase.
5. Loans and Leases |
Loans and Leases at September 30, 2014 and December 31, 2013 were as follows: |
|
| |
09/30/2014 | | |
12/31/2013 | |
(in thousands) | |
Originated | | |
Acquired | | |
Total Loans and Leases | | |
Originated | | |
Acquired | | |
Total Loans and Leases | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Agriculture | |
$ | 49,828 | | |
$ | 0 | | |
$ | 49,828 | | |
$ | 74,788 | | |
$ | 0 | | |
$ | 74,788 | |
Commercial and industrial other | |
| 627,290 | | |
| 102,601 | | |
| 729,891 | | |
| 562,439 | | |
| 128,503 | | |
| 690,942 | |
Subtotal commercial and industrial | |
| 677,118 | | |
| 102,601 | | |
| 779,719 | | |
| 637,227 | | |
| 128,503 | | |
| 765,730 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction | |
| 51,988 | | |
| 41,313 | | |
| 93,301 | | |
| 46,441 | | |
| 39,353 | | |
| 85,794 | |
Agriculture | |
| 57,158 | | |
| 3,182 | | |
| 60,340 | | |
| 52,627 | | |
| 3,135 | | |
| 55,762 | |
Commercial real estate other | |
| 960,346 | | |
| 321,714 | | |
| 1,282,060 | | |
| 903,320 | | |
| 366,438 | | |
| 1,269,758 | |
Subtotal commercial real estate | |
| 1,069,492 | | |
| 366,209 | | |
| 1,435,701 | | |
| 1,002,388 | | |
| 408,926 | | |
| 1,411,314 | |
Residential real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity | |
| 182,994 | | |
| 58,459 | | |
| 241,453 | | |
| 171,809 | | |
| 67,183 | | |
| 238,992 | |
Mortgages | |
| 685,989 | | |
| 33,200 | | |
| 719,189 | | |
| 658,966 | | |
| 35,336 | | |
| 694,302 | |
Subtotal residential real estate | |
| 868,983 | | |
| 91,659 | | |
| 960,642 | | |
| 830,775 | | |
| 102,519 | | |
| 933,294 | |
Consumer and other | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Indirect | |
| 18,825 | | |
| 0 | | |
| 18,825 | | |
| 21,202 | | |
| 5 | | |
| 21,207 | |
Consumer and other | |
| 34,327 | | |
| 1,119 | | |
| 35,446 | | |
| 32,312 | | |
| 1,219 | | |
| 33,531 | |
Subtotal consumer and other | |
| 53,152 | | |
| 1,119 | | |
| 54,271 | | |
| 53,514 | | |
| 1,224 | | |
| 54,738 | |
Leases | |
| 8,317 | | |
| 0 | | |
| 8,317 | | |
| 5,563 | | |
| 0 | | |
| 5,563 | |
Covered loans | |
| 0 | | |
| 20,910 | | |
| 20,910 | | |
| 0 | | |
| 25,868 | | |
| 25,868 | |
Total loans and leases | |
| 2,677,062 | | |
| 582,498 | | |
| 3,259,560 | | |
| 2,529,467 | | |
| 667,040 | | |
| 3,196,507 | |
Less: unearned income and deferred costs and fees | |
| (2,091 | ) | |
| 0 | | |
| (2,091 | ) | |
| (2,223 | ) | |
| 0 | | |
| (2,223 | ) |
Total loans and leases, net of unearned income and deferred costs and fees | |
$ | 2,674,971 | | |
$ | 582,498 | | |
$ | 3,257,469 | | |
$ | 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 September 30, 2014 and December 31, 2013: |
| |
| | |
| |
(in thousands) | |
09/30/2014 | | |
12/31/2013 | |
Acquired Credit Impaired Loans | |
| | | |
| | |
Outstanding principal balance | |
$ | 49,410 | | |
$ | 62,146 | |
Carrying amount | |
| 38,561 | | |
| 46,809 | |
| |
| | | |
| | |
Acquired Non-Credit Impaired Loans | |
| | | |
| | |
Outstanding principal balance | |
| 551,074 | | |
| 630,600 | |
Carrying amount | |
| 543,937 | | |
| 620,231 | |
| |
| | | |
| | |
Total Acquired Loans | |
| | | |
| | |
Outstanding principal balance | |
| 600,484 | | |
| 692,746 | |
Carrying amount | |
| 582,498 | | |
| 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 difference1 | |
| 7,933 | |
Other changes in expected cash flows2 | |
| 4,792 | |
Balance
at December 31, 2013 | |
$ | 10,954 | |
(in
thousands) | |
| | |
Balance at January 1, 2014 | |
$ | 10,954 | |
Accretion | |
| (3,740 | ) |
Disposals (loans paid in full) | |
| (250 | ) |
Reclassifications to/from nonaccretable difference1 | |
| 1,873 | |
Other changes in expected cash flows2 | |
| 0 | |
Balance
at September 30, 2014 | |
$ | 8,837 | |
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 prepayments. |
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 September 30, 2014, acquired loans included
$20.9 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 September 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. Nonaccrual loans
represent loans that were performing at acquisition date but have subsequently become past due.
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 September 30, 2014 and
December 31, 2013.
September 30, 2014 | |
| | |
| | |
| | |
| | |
| | |
| |
(in thousands) | |
30-89 days | | |
90 days or more | | |
Current Loans | | |
Total Loans | | |
90 days and accruing | | |
Nonaccrual | |
Originated Loans and Leases | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Agriculture | |
$ | 0 | | |
$ | 0 | | |
$ | 49,828 | | |
$ | 49,828 | | |
$ | 0 | | |
$ | 0 | |
Commercial and industrial other | |
| 169 | | |
| 508 | | |
| 626,613 | | |
| 627,290 | | |
| 0 | | |
| 1,639 | |
Subtotal commercial and industrial | |
| 169 | | |
| 508 | | |
| 676,441 | | |
| 677,118 | | |
| 0 | | |
| 1,639 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction | |
| 0 | | |
| 0 | | |
| 51,988 | | |
| 51,988 | | |
| 0 | | |
| 534 | |
Agriculture | |
| 0 | | |
| 29 | | |
| 57,129 | | |
| 57,158 | | |
| 0 | | |
| 132 | |
Commercial real estate other | |
| 473 | | |
| 4,325 | | |
| 955,548 | | |
| 960,346 | | |
| 0 | | |
| 5,162 | |
Subtotal commercial real estate | |
| 473 | | |
| 4,354 | | |
| 1,064,665 | | |
| 1,069,492 | | |
| 0 | | |
| 5,828 | |
Residential real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity | |
| 1,175 | | |
| 1,384 | | |
| 179,785 | | |
| 182,994 | | |
| 60 | | |
| 1,550 | |
Mortgages | |
| 1,250 | | |
| 6,964 | | |
| 676,943 | | |
| 685,989 | | |
| 335 | | |
| 6,850 | |
Subtotal residential real estate | |
| 2,425 | | |
| 8,348 | | |
| 856,728 | | |
| 868,983 | | |
| 395 | | |
| 8,400 | |
Consumer and other | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Indirect | |
| 508 | | |
| 0 | | |
| 18,317 | | |
| 18,825 | | |
| 0 | | |
| 72 | |
Consumer and other | |
| 236 | | |
| 241 | | |
| 33,850 | | |
| 34,327 | | |
| 0 | | |
| 380 | |
Subtotal consumer and other | |
| 744 | | |
| 241 | | |
| 52,167 | | |
| 53,152 | | |
| 0 | | |
| 452 | |
Leases | |
| 0 | | |
| 0 | | |
| 8,317 | | |
| 8,317 | | |
| 0 | | |
| 0 | |
Total
loans and leases | |
| 3,811 | | |
| 14,933 | | |
| 2,658,318 | | |
| 2,677,062 | | |
| 395 | | |
| 16,319 | |
Less: unearned income
and deferred costs and fees | |
| 0 | | |
| 0 | | |
| 0 | | |
| (2,091 | ) | |
| 0 | | |
| 0 | |
Total
originated loans and leases, net of unearned income and deferred costs and fees | |
$ | 3,811 | | |
$ | 14,933 | | |
$ | 2,658,318 | | |
$ | 2,674,971 | | |
$ | 395 | | |
$ | 16,319 | |
Acquired Loans and Leases | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial other | |
| 0 | | |
| 941 | | |
| 101,660 | | |
| 102,601 | | |
| 649 | | |
| 761 | |
Subtotal commercial and industrial | |
| 0 | | |
| 941 | | |
| 101,660 | | |
| 102,601 | | |
| 649 | | |
| 761 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction | |
| 0 | | |
| 1,970 | | |
| 39,343 | | |
| 41,313 | | |
| 1,709 | | |
| 466 | |
Agriculture | |
| 0 | | |
| 0 | | |
| 3,182 | | |
| 3,182 | | |
| 0 | | |
| 0 | |
Commercial real estate other | |
| 0 | | |
| 1,857 | | |
| 319,857 | | |
| 321,714 | | |
| 79 | | |
| 2,084 | |
Subtotal commercial real estate | |
| 0 | | |
| 3,827 | | |
| 362,382 | | |
| 366,209 | | |
| 1,788 | | |
| 2,550 | |
Residential real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity | |
| 156 | | |
| 643 | | |
| 57,660 | | |
| 58,459 | | |
| 173 | | |
| 660 | |
Mortgages | |
| 580 | | |
| 703 | | |
| 31,917 | | |
| 33,200 | | |
| 561 | | |
| 1,027 | |
Subtotal residential real estate | |
| 736 | | |
| 1,346 | | |
| 89,577 | | |
| 91,659 | | |
| 734 | | |
| 1,687 | |
Consumer and other | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Consumer and other | |
| 0 | | |
| 0 | | |
| 1,119 | | |
| 1,119 | | |
| 0 | | |
| 0 | |
Subtotal consumer and other | |
| 0 | | |
| 0 | | |
| 1,119 | | |
| 1,119 | | |
| 0 | | |
| 0 | |
Covered loans | |
| 0 | | |
| 1,149 | | |
| 19,761 | | |
| 20,910 | | |
| 1,149 | | |
| 0 | |
Total
acquired loans and leases, net of unearned income and deferred costs and fees | |
$ | 736 | | |
$ | 7,263 | | |
$ | 574,499 | | |
$ | 582,498 | | |
$ | 4,320 | | |
$ | 4,998 | |
December 31, 2013 |
(in thousands) | |
30-89 days | | |
90 days or more | | |
Current Loans | | |
Total Loans | | |
90
days and accruing | | |
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 | |
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 September 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 September 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 September 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 | |
$ | 8,562 | | |
$ | 10,389 | | |
$ | 5,445 | | |
$ | 2,356 | | |
$ | 0 | | |
$ | 26,752 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Charge-offs | |
| (21 | ) | |
| (6 | ) | |
| (118 | ) | |
| (286 | ) | |
| 0 | | |
| (431 | ) |
Recoveries | |
| 68 | | |
| 944 | | |
| 1 | | |
| 115 | | |
| 0 | | |
| 1,128 | |
Provision (credit) | |
| 249 | | |
| (645 | ) | |
| 95 | | |
| 37 | | |
| | | |
| (264 | ) |
Ending Balance | |
$ | 8,858 | | |
$ | 10,682 | | |
$ | 5,423 | | |
$ | 2,222 | | |
$ | 0 | | |
$ | 27,185 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Allowance for acquired loans | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance | |
$ | 159 | | |
$ | 460 | | |
$ | 49 | | |
$ | 97 | | |
$ | 0 | | |
$ | 765 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Charge-offs | |
| (218 | ) | |
| (80 | ) | |
| (68 | ) | |
| (3 | ) | |
| 0 | | |
| (369 | ) |
Recoveries | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Provision (credit) | |
| 154 | | |
| (20 | ) | |
| 147 | | |
| (76 | ) | |
| 0 | | |
| 205 | |
Ending Balance | |
$ | 95 | | |
$ | 360 | | |
$ | 128 | | |
$ | 18 | | |
$ | 0 | | |
$ | 601 | |
Three months ended September 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 | |
$ | 6,955 | | |
$ | 10,409 | | |
$ | 5,273 | | |
$ | 2,195 | | |
$ | 21 | | |
$ | 24,853 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Charge-offs | |
| (55 | ) | |
| (49 | ) | |
| (116 | ) | |
| (578 | ) | |
| 0 | | |
| (798 | ) |
Recoveries | |
| 48 | | |
| 21 | | |
| 3 | | |
| 96 | | |
| 0 | | |
| 168 | |
Provision (credit) | |
| 790 | | |
| 516 | | |
| 149 | | |
| 65 | | |
| (21 | ) | |
| 1,499 | |
Ending Balance | |
$ | 7,738 | | |
$ | 10,897 | | |
$ | 5,309 | | |
$ | 1,778 | | |
$ | 0 | | |
$ | 25,722 | |
Three months ended September 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 | |
$ | 64 | | |
$ | 381 | | |
$ | 126 | | |
$ | 34 | | |
$ | 0 | | |
$ | 605 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Charge-offs | |
| (1 | ) | |
| 0 | | |
| (467 | ) | |
| 0 | | |
| 0 | | |
| (468 | ) |
Recoveries | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Provision (credit) | |
| (12 | ) | |
| 56 | | |
| 504 | | |
| 1 | | |
| 0 | | |
| 549 | |
Ending Balance | |
$ | 51 | | |
$ | 437 | | |
$ | 163 | | |
$ | 35 | | |
$ | 0 | | |
$ | 686 | |
Nine months ended September 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 | |
| (275 | ) | |
| (619 | ) | |
| (385 | ) | |
| (952 | ) | |
| 0 | | |
| (2,231 | ) |
Recoveries | |
| 557 | | |
| 1,506 | | |
| 87 | | |
| 375 | | |
| 0 | | |
| 2,525 | |
Provision (credit) | |
| 170 | | |
| (664 | ) | |
| (50 | ) | |
| 740 | | |
| (5 | ) | |
| 191 | |
Ending Balance | |
$ | 8,858 | | |
$ | 10,682 | | |
$ | 5,423 | | |
$ | 2,222 | | |
$ | 0 | | |
$ | 27,185 | |
Nine months ended September 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 | |
| (243 | ) | |
| (631 | ) | |
| (345 | ) | |
| (10 | ) | |
| 0 | | |
| (1,229 | ) |
Recoveries | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Provision (credit) | |
| 170 | | |
| 221 | | |
| 199 | | |
| (30 | ) | |
| 0 | | |
| 560 | |
Ending Balance | |
$ | 95 | | |
$ | 360 | | |
$ | 128 | | |
$ | 18 | | |
$ | 0 | | |
$ | 601 | |
Nine months ended September 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 | |
| (487 | ) | |
| (539 | ) | |
| (455 | ) | |
| (1,040 | ) | |
| 0 | | |
| (2,521 | ) |
Recoveries | |
| 1,490 | | |
| 457 | | |
| 32 | | |
| 296 | | |
| 0 | | |
| 2,275 | |
Provision (credit) | |
| (798 | ) | |
| 795 | | |
| 751 | | |
| 582 | | |
| (5 | ) | |
| 1,325 | |
Ending Balance | |
$ | 7,738 | | |
$ | 10,897 | | |
$ | 5,309 | | |
$ | 1,778 | | |
$ | 0 | | |
$ | 25,722 | |
Nine months ended September 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 | |
| (2,930 | ) | |
| (32 | ) | |
| (577 | ) | |
| (25 | ) | |
| 0 | | |
| (3,564 | ) |
Recoveries | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Provision (credit) | |
| 2,981 | | |
| 469 | | |
| 740 | | |
| 60 | | |
| 0 | | |
| 4,250 | |
Ending Balance | |
$ | 51 | | |
$ | 437 | | |
$ | 163 | | |
$ | 35 | | |
$ | 0 | | |
$ | 686 | |
At September 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 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
September 30, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Individually evaluated for impairment | |
$ | 302 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 302 | |
Collectively evaluated
for impairment | |
| 8,556 | | |
| 10,682 | | |
| 5,423 | | |
| 2,222 | | |
| 0 | | |
| 26,883 | |
Ending balance | |
$ | 8,858 | | |
$ | 10,682 | | |
$ | 5,423 | | |
$ | 2,222 | | |
$ | 0 | | |
$ | 27,185 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Allowance for acquired loans | |
| | | |
| | | |
| | | |
| | |
September 30, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Individually evaluated for impairment | |
$ | 80 | | |
$ | 80 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 160 | |
Collectively evaluated
for impairment | |
| 15 | | |
| 280 | | |
| 128 | | |
| 18 | | |
| 0 | | |
| 441 | |
Ending balance | |
$ | 95 | | |
$ | 360 | | |
$ | 128 | | |
$ | 18 | | |
$ | 0 | | |
$ | 601 | |
(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 September 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 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
September 30, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Individually evaluated for impairment | |
$ | 1,917 | | |
$ | 7,889 | | |
$ | 1,038 | | |
$ | 0 | | |
$ | 0 | | |
$ | 10,844 | |
Collectively evaluated
for impairment | |
| 675,201 | | |
| 1,061,603 | | |
| 867,945 | | |
| 53,152 | | |
| 8,317 | | |
| 2,666,218 | |
Total | |
$ | 677,118 | | |
$ | 1,069,492 | | |
$ | 868,983 | | |
$ | 53,152 | | |
$ | 8,317 | | |
$ | 2,677,062 | |
(in thousands) | |
Commercial
and Industrial | | |
Commercial Real Estate | | |
Residential Real Estate | | |
Consumer and Other | | |
Covered Loans | | |
Total | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Acquired loans | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
September 30, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Individually evaluated for impairment | |
$ | 785 | | |
$ | 1,582 | | |
$ | 290 | | |
$ | 0 | | |
$ | 0 | | |
$ | 2,657 | |
Loans acquired with deteriorated credit quality | |
$ | 1,142 | | |
$ | 8,294 | | |
$ | 8,215 | | |
$ | 0 | | |
$ | 20,910 | | |
$ | 38,561 | |
Collectively evaluated
for impairment | |
| 100,674 | | |
| 356,333 | | |
| 83,154 | | |
| 1,119 | | |
| 0 | | |
| 541,280 | |
Total | |
$ | 102,601 | | |
$ | 366,209 | | |
$ | 91,659 | | |
$ | 1,119 | | |
$ | 20,910 | | |
$ | 582,498 | |
(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.
| |
09/30/2014 | | |
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 | |
$ | 1,408 | | |
$ | 1,432 | | |
$ | 0 | | |
$ | 4,664 | | |
$ | 5,069 | | |
$ | 0 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction | |
| 0 | | |
| 0 | | |
| 0 | | |
| 6,073 | | |
| 11,683 | | |
| 0 | |
Commercial real estate other | |
| 7,889 | | |
| 8,567 | | |
| 0 | | |
| 10,196 | | |
| 13,518 | | |
| 0 | |
Residential real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential real estate other | |
| 1,038 | | |
| 1,129 | | |
| 0 | | |
| 1,223 | | |
| 1,299 | | |
| 0 | |
Subtotal | |
$ | 10,335 | | |
$ | 11,128 | | |
$ | 0 | | |
$ | 22,156 | | |
$ | 31,569 | | |
$ | 0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Originated loans and leases with related allowance | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial other | |
| 509 | | |
| 509 | | |
| 302 | | |
| 0 | | |
| 0 | | |
| 0 | |
Subtotal | |
$ | 509 | | |
$ | 509 | | |
$ | 302 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
Total | |
$ | 10,844 | | |
$ | 11,637 | | |
$ | 302 | | |
$ | 22,156 | | |
$ | 31,569 | | |
$ | 0 | |
| |
09/30/2014 | | |
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 | |
$ | 341 | | |
$ | 341 | | |
$ | 0 | | |
$ | 2,231 | | |
$ | 5,081 | | |
$ | 0 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate other | |
| 1,311 | | |
| 1,311 | | |
| 0 | | |
| 1,960 | | |
| 1,960 | | |
| 0 | |
Residential real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential real estate other | |
| 290 | | |
| 290 | | |
| 0 | | |
| 73 | | |
| 73 | | |
| 0 | |
Subtotal | |
$ | 1,942 | | |
$ | 1,942 | | |
$ | 0 | | |
$ | 4,264 | | |
$ | 7,114 | | |
$ | 0 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Acquired loans and leases with related allowance | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial other | |
| 444 | | |
| 444 | | |
| 80 | | |
| 0 | | |
| 0 | | |
| 0 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate other | |
| 271 | | |
| 271 | | |
| 80 | | |
| 469 | | |
| 719 | | |
| 250 | |
Subtotal | |
$ | 715 | | |
$ | 715 | | |
$ | 160 | | |
$ | 469 | | |
$ | 719 | | |
$ | 250 | |
Total | |
$ | 2,657 | | |
$ | 2,657 | | |
$ | 160 | | |
$ | 4,733 | | |
$ | 7,833 | | |
$ | 250 | |
The average recorded investment and interest income recognized on impaired loans for the three months ended September 30, 2014 and 2013 was as follows:
| |
Three Months Ended | | |
Three Months Ended | |
| |
09/30/2014 | | |
09/30/2013 | |
(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 | |
| 1,422 | | |
| 0 | | |
| 4,040 | | |
| 0 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Construction | |
| 0 | | |
| 0 | | |
| 6,184 | | |
| 0 | |
Commercial real estate other | |
| 7,940 | | |
| 42 | | |
| 13,918 | | |
| 0 | |
Residential real estate | |
| | | |
| | | |
| | | |
| | |
Residential real estate other | |
| 1,038 | | |
| 0 | | |
| 1,047 | | |
| 0 | |
Subtotal | |
$ | 10,400 | | |
$ | 42 | | |
$ | 25,189 | | |
$ | 0 | |
| |
| | | |
| | | |
| | | |
| | |
Originated loans and leases with related allowance |
|
|
|
|
| |
| | |
| |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial other | |
| 511 | | |
| 7 | | |
| 1,544 | | |
| 0 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Commercial real estate other | |
| 0 | | |
| 0 | | |
| 360 | | |
| 0 | |
Subtotal | |
$ | 511 | | |
$ | 7 | | |
$ | 1,904 | | |
$ | 0 | |
Total | |
$ | 10,911 | | |
$ | 49 | | |
$ | 27,093 | | |
$ | 0 | |
| |
Three Months Ended | | |
Three Months Ended | |
| |
09/30/2014 | | |
09/30/2013 | |
(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 | |
| 343 | | |
| 0 | | |
| 1,327 | | |
| 0 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Commercial real estate other | |
| 1,312 | | |
| 0 | | |
| 2,764 | | |
| 5 | |
Residential real estate other | |
| 290 | | |
| 0 | | |
| 85 | | |
| 0 | |
Subtotal | |
$ | 1,945 | | |
$ | 0 | | |
$ | 4,176 | | |
$ | 5 | |
| |
| | | |
| | | |
| | | |
| | |
Acquired loans and leases with related allowance |
|
|
|
|
| |
| | |
| |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial other | |
| 449 | | |
| 0 | | |
| 0 | | |
| 0 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Commercial real estate other | |
| 271 | | |
| 0 | | |
| 701 | | |
| 0 | |
Subtotal | |
$ | 720 | | |
$ | 0 | | |
$ | 701 | | |
$ | 0 | |
Total | |
$ | 2,665 | | |
$ | 0 | | |
$ | 4,877 | | |
$ | 5 | |
| |
Nine Months Ended | | |
Nine Months Ended | |
| |
09/30/2014 | | |
09/30/2013 | |
(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 | |
| 1,636 | | |
| 0 | | |
| 4,057 | | |
| 0 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Construction | |
| 0 | | |
| 0 | | |
| 6,374 | | |
| 0 | |
Commercial real estate other | |
| 7,871 | | |
| 42 | | |
| 12,892 | | |
| 0 | |
Residential real estate | |
| | | |
| | | |
| | | |
| | |
Residential real estate other | |
| 1,038 | | |
| 0 | | |
| 1,047 | | |
| 0 | |
Subtotal | |
$ | 10,545 | | |
$ | 42 | | |
$ | 24,370 | | |
$ | 0 | |
| |
| | | |
| | | |
| | | |
| | |
Originated loans and leases with related allowance |
| |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial other | |
| 511 | | |
| 7 | | |
| 1,560 | | |
| 0 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Commercial real estate other | |
| 0 | | |
| 0 | | |
| 319 | | |
| 0 | |
Subtotal | |
$ | 511 | | |
$ | 7 | | |
$ | 1,879 | | |
$ | 0 | |
Total | |
$ | 11,056 | | |
$ | 49 | | |
$ | 26,249 | | |
$ | 0 | |
| |
Nine Months Ended | | |
Nine Months Ended | |
| |
09/30/2014 | | |
09/30/2013 | |
(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 | |
| 346 | | |
| 0 | | |
| 2,783 | | |
| 5 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Commercial real estate other | |
| 1,333 | | |
| 0 | | |
| 2,785 | | |
| 31 | |
Residential real estate | |
| | | |
| | | |
| | | |
| | |
Residential real estate other | |
| 290 | | |
| 0 | | |
| 85 | | |
| 0 | |
Subtotal | |
$ | 1,969 | | |
$ | 0 | | |
$ | 5,653 | | |
$ | 36 | |
| |
| | | |
| | | |
| | | |
| | |
Acquired loans and leases with related allowance |
| |
| | | |
| | | |
| | | |
| | |
Commercial and industrial | |
| | | |
| | | |
| | | |
| | |
Commercial and industrial other | |
| 454 | | |
| 0 | | |
| 0 | | |
| 0 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | |
Commercial real estate other | |
| 271 | | |
| 0 | | |
| 0 | | |
| 0 | |
Residential real estate | |
| | | |
| | | |
| | | |
| | |
Residential real estate other | |
| 0 | | |
| 0 | | |
| 718 | | |
| 4 | |
Subtotal | |
$ | 725 | | |
$ | 0 | | |
$ | 718 | | |
$ | 4 | |
Total | |
$ | 2,694 | | |
$ | 0 | | |
$ | 6,371 | | |
$ | 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.
There we no loans modified in a TDR for the
quarter ending September 30, 2014.
The following tables present information on
loans modified in troubled debt restructuring during the periods indicated.
September 30, 2013 | |
Three months ended | |
| |
| | |
| | | |
| | | |
Defaulted TDRs4 | |
(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 other1 | |
| 4 | | |
$ | 1,275 | | |
| 1,275 | | |
| 0 | | |
$ | 0 | |
Commercial real estate
| |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate
other2 | |
| 6 | | |
| 1,530 | | |
| 1,530 | | |
| 0 | | |
| 0 | |
Residential real estate
| |
| | | |
| | | |
| | | |
| | | |
| | |
Residential
real estate other3 | |
| 1 | | |
| 195 | | |
| 195 | | |
| 0 | | |
| 0 | |
Total
| |
| 11 | | |
$ | 3,000 | | |
| 3,000 | | |
| 0 | | |
$ | 0 | |
1 Represents the following concessions: extension of term and reduction of rate (3 loans: $1.2 million) and extended term (1 loan: $87,000) |
2 Represents the following concessions: extension of term and reduction of rate |
3 Represents the following concessions: extension of term and reduction of rate |
4 TDRs that defaulted in the quarter ended September 30, 2013 that had been restructured in the prior twelve months. |
September
30, 2014 | |
Nine months ended | |
| |
| | |
| | | |
| | | |
Defaulted TDRs3 | |
(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 other1 | |
| 1 | | |
$ | 88 | | |
| 88 | | |
| 0 | | |
$ | 0 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate
other2 | |
| 1 | | |
$ | 480 | | |
| 480 | | |
| 1 | | |
$ | 63 | |
Residential real estate
| |
| | | |
| | | |
| | | |
| | | |
| | |
Residential
real estate other | |
| 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 nine months ended September 30, 2014, that had been restructured
in the prior twelve months.
September
30, 2013 | |
Nine months ended | |
| |
| | |
| | | |
| | | |
Defaulted
TDRs4 | |
(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 other1 | |
| 6 | | |
$ | 1,414 | | |
| 1,414 | | |
| 0 | | |
$ | 0 | |
Commercial real estate
| |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate
other2 | |
| 9 | | |
| 1,901 | | |
| 1,901 | | |
| 0 | | |
| 0 | |
Residential real estate
| |
| | | |
| | | |
| | | |
| | | |
| | |
Residential
real estate other3 | |
| 1 | | |
| 195 | | |
| 195 | | |
| 0 | | |
| 0 | |
Total
| |
| 16 | | |
$ | 3,510 | | |
| 3,510 | | |
| 0 | | |
$ | 0 | |
1 Represents the following concessions: extension of term and reduction in rate (5 loans: $1.3 million ) and extended term (1 loan: $87,000)
2 Represents the following concessions: extension of term and reduction of rate (8 loans: $1.8 million) and extension of term (1 loan: $129,000)
3 Represents the following concessions: extension of term and reduction of rate
4 TDRs that defaulted during the nine months ended September 30, 2013, that had been 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 September 30, 2014 and December 31, 2013.
September 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 | |
$ | 608,164 | | |
$ | 49,405 | | |
$ | 930,551 | | |
$ | 56,540 | | |
$ | 48,207 | | |
$ | 1,692,867 | |
Special Mention | |
| 11,146 | | |
| 197 | | |
| 12,503 | | |
| 227 | | |
| 3,781 | | |
| 27,854 | |
Substandard | |
| 7,980 | | |
| 226 | | |
| 17,292 | | |
| 391 | | |
| 0 | | |
| 25,889 | |
Total | |
$ | 627,290 | | |
$ | 49,828 | | |
$ | 960,346 | | |
$ | 57,158 | | |
$ | 51,988 | | |
$ | 1,746,610 | |
September 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 | |
$ | 99,323 | | |
$ | 0 | | |
$ | 296,680 | | |
$ | 3,182 | | |
$ | 37,986 | | |
$ | 437,171 | |
Special Mention | |
| 109 | | |
| 0 | | |
| 7,496 | | |
| 0 | | |
| 0 | | |
| 7,605 | |
Substandard | |
| 3,169 | | |
| 0 | | |
| 17,538 | | |
| 0 | | |
| 3,327 | | |
| 24,034 | |
Total | |
$ | 102,601 | | |
$ | 0 | | |
$ | 321,714 | | |
$ | 3,182 | | |
$ | 41,313 | | |
$ | 468,810 | |
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 September 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.
September 30, 2014 | |
| | |
| | |
| | |
| | |
| |
(in thousands) | |
Residential Home Equity | | |
Residential Mortgages | | |
Consumer Indirect | | |
Consumer Other | | |
Total | |
Originated Loans and Leases | |
| | | |
| | | |
| | | |
| | | |
| | |
Performing | |
$ | 181,384 | | |
$ | 678,804 | | |
$ | 18,753 | | |
$ | 33,947 | | |
$ | 912,888 | |
Nonperforming | |
| 1,610 | | |
| 7,185 | | |
| 72 | | |
| 380 | | |
| 9,247 | |
Total | |
$ | 182,994 | | |
$ | 685,989 | | |
$ | 18,825 | | |
$ | 34,327 | | |
$ | 922,135 | |
September 30, 2014 | |
| | |
| | |
| | |
| | |
| |
(in thousands) | |
Residential Home Equity | | |
Residential Mortgages | | |
Consumer
Indirect | | |
Consumer Other | | |
Total | |
Acquired Loans and Leases | |
| | | |
| | | |
| | | |
| | | |
| | |
Performing | |
$ | 57,626 | | |
$ | 31,612 | | |
$ | 0 | | |
$ | 1,119 | | |
$ | 90,357 | |
Nonperforming | |
| 833 | | |
| 1,588 | | |
| 0 | | |
| 0 | | |
| 2,421 | |
Total | |
$ | 58,459 | | |
$ | 33,200 | | |
$ | 0 | | |
$ | 1,119 | | |
$ | 92,778 | |
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 nine months ended September 30, 2014 are shown below.
Nine months ended September 30, 2014 |
|
(in thousands) | |
Nine Months Ended | |
| |
| |
Balance, beginning of the period | |
$ | 4,790 | |
Discount accretion of the present value at the acquisition date | |
| 44 | |
Prospective adjustment for additional cash flows | |
| (1,520 | ) |
Increase due to impairment on covered loans | |
| 0 | |
Reimbursements from the FDIC | |
| (1,016 | ) |
Balance, end of period | |
$ | 2,298 | |
8. Earnings Per Share
Earnings per share in the table below, for
the three and nine month periods ending September 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) | |
09/30/2014 | | |
09/30/2013 | |
Basic | |
| | | |
| | |
Net income available to common shareholders | |
$ | 13,722 | | |
$ | 14,049 | |
Less: dividends
and undistributed earnings allocated to unvested restricted stock awards | |
| (119 | ) | |
| (137 | ) |
Net earnings allocated to common shareholders | |
| 13,603 | | |
| 13,912 | |
| |
| | | |
| | |
Weighted average shares outstanding, including participating securities | |
| 14,839,663 | | |
| 14,658,056 | |
| |
| | | |
| | |
Less: average participating securities | |
| (127,954 | ) | |
| (143,003 | ) |
Weighted average shares outstanding - Basic | |
| 14,711,709 | | |
| 14,515,053 | |
| |
| | | |
| | |
Diluted | |
| | | |
| | |
Net earnings allocated to common shareholders | |
| 13,603 | | |
| 13,912 | |
| |
| | | |
| | |
Weighted average shares outstanding - Basic | |
| 14,711,709 | | |
| 14,515,053 | |
| |
| | | |
| | |
Dilutive effect of common stock options or restricted stock awards | |
| 83,634 | | |
| 107,459 | |
| |
| | | |
| | |
Weighted average shares outstanding - Diluted | |
| 14,795,343 | | |
| 14,622,512 | |
| |
| | | |
| | |
Basic EPS | |
| 0.92 | | |
| 0.96 | |
Diluted EPS | |
| 0.92 | | |
| 0.95 | |
The dilutive effect of common stock options or restricted awards calculation for the three months ended September 30, 2014 and 2013 excludes stock options, stock appreciation rights and restricted stock awards covering an aggregate of 208,324 and 221,525 shares, respectively, because the exercise prices were greater than the average market price during these periods.
| |
Nine Months Ended | |
(in thousands, except share and per share data) | |
09/30/2014 | | |
09/30/2013 | |
Basic | |
| | | |
| | |
Net income available to common shareholders | |
$ | 39,352 | | |
$ | 36,565 | |
Less: dividends and
undistributed earnings allocated to unvested restricted stock awards | |
| (353 | ) | |
| (284 | ) |
Net earnings allocated to common shareholders | |
| 38,999 | | |
| 36,281 | |
| |
| | | |
| | |
Weighted average shares outstanding, including participating securities | |
| 14,821,992 | | |
| 14,539,728 | |
| |
| | | |
| | |
Less: average participating securities | |
| (133,066 | ) | |
| (99,794 | ) |
Weighted average shares outstanding - Basic | |
| 14,688,926 | | |
| 14,439,934 | |
| |
| | | |
| | |
Diluted | |
| | | |
| | |
Net earnings allocated to common shareholders | |
| 38,999 | | |
| 36,281 | |
| |
| | | |
| | |
Weighted average shares outstanding - Basic | |
| 14,688,926 | | |
| 14,439,934 | |
| |
| | | |
| | |
Dilutive effect of common stock options or restricted stock awards | |
| 108,594 | | |
| 80,848 | |
| |
| | | |
| | |
Weighted average shares outstanding - Diluted | |
| 14,797,520 | | |
| 14,520,782 | |
| |
| | | |
| | |
Basic EPS | |
| 2.65 | | |
| 2.51 | |
Diluted EPS | |
| 2.64 | | |
| 2.50 | |
The dilutive effect of common stock options or restricted awards calculation for the nine months ended September 30, 2014 and 2013 excludes stock options, stock appreciation rights and restricted stock awards covering an aggregate of 116,527 and 283,725 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 and nine month periods ended September 30, 2014 and 2013.
| |
Three months ended September 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 | |
$ | (6,871 | ) | |
$ | 2,748 | | |
$ | (4,123 | ) |
Reclassification adjustment for net realized gain on sale of
available-for-sale securities included in net income | |
| (20 | ) | |
| 8 | | |
| (12 | ) |
Net unrealized losses | |
| (6,891 | ) | |
| 2,756 | | |
| (4,135 | ) |
| |
| | | |
| | | |
| | |
Employee benefit plans: | |
| | | |
| | | |
| | |
Amortization of net retirement plan actuarial gain | |
| 266 | | |
| (107 | ) | |
| 159 | |
Amortization of net retirement plan prior service cost | |
| 1 | | |
| 0 | | |
| 1 | |
Employee benefit plans | |
| 267 | | |
| (107 | ) | |
| 160 | |
Other comprehensive (loss) income | |
$ | (6,624 | ) | |
$ | 2,649 | | |
$ | (3,975 | ) |
| |
Three months ended September 30, 2013 | |
(in thousands) | |
Before-Tax Amount | | |
Tax (Expense) Benefit | | |
Net of Tax | |
Available-for-sale securities: | |
| | | |
| | | |
| | |
Change in net unrealized gain/loss during the period | |
$ | (531 | ) | |
$ | 213 | | |
$ | (318 | ) |
Reclassification adjustment for net realized gain on
sale of available-for-sale securities included in net income | |
| (281 | ) | |
| 112 | | |
| (169 | ) |
Reclassification adjustment for credit impairment on available-for-sale | |
| | | |
| | | |
| | |
Net unrealized losses | |
| (812 | ) | |
| 325 | | |
| (487 | ) |
| |
| | | |
| | | |
| | |
Employee benefit plans: | |
| | | |
| | | |
| | |
Amortization of net retirement plan actuarial loss | |
| 645 | | |
| (258 | ) | |
| 387 | |
Amortization of net retirement plan prior service cost | |
| 14 | | |
| (6 | ) | |
| 8 | |
Amortization of net retirement plan transition liability | |
| 13 | | |
| (5 | ) | |
| 8 | |
Employee benefit plans | |
| 672 | | |
| (269 | ) | |
| 403 | |
Other comprehensive (loss) income | |
$ | (140 | ) | |
$ | 56 | | |
$ | (84 | ) |
| |
Nine months ended September 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 | |
$ | 13,195 | | |
$ | (5,277 | ) | |
$ | 7,918 | |
Reclassification
adjustment for net realized gain on sale of available-for-sale securities included in net income | |
| (151 | ) | |
| 61 | | |
| (90 | ) |
Net unrealized gains | |
| 13,044 | | |
| (5,216 | ) | |
| 7,828 | |
| |
| | | |
| | | |
| | |
Employee benefit plans: | |
| | | |
| | | |
| | |
Amortization of net retirement plan actuarial gain | |
| 798 | | |
| (319 | ) | |
| 479 | |
Amortization of net retirement plan prior service cost | |
| 3 | | |
| (1 | ) | |
| 2 | |
Employee benefit plans | |
| 801 | | |
| (320 | ) | |
| 481 | |
Other comprehensive income (loss) | |
$ | 13,845 | | |
$ | (5,536 | ) | |
$ | 8,309 | |
| |
Nine months ended September 30, 2013 | |
(in thousands) | |
Before-Tax Amount | | |
Tax (Expense) Benefit | | |
Net of Tax | |
Available-for-sale securities: | |
| | | |
| | | |
| | |
Change in net unrealized gain/loss during the period | |
$ | (44,028 | ) | |
$ | 17,608 | | |
$ | (26,420 | ) |
Reclassification adjustment for net realized gain on
sale of available-for-sale securities included in net income | |
| (723 | ) | |
| 289 | | |
| (434 | ) |
Reclassification adjustment for credit impairment on available-for-sale | |
| | | |
| | | |
| | |
Net unrealized losses | |
| (44,751 | ) | |
| 17,897 | | |
| (26,854 | ) |
| |
| | | |
| | | |
| | |
Employee benefit plans: | |
| | | |
| | | |
| | |
Amortization of net retirement plan actuarial loss | |
| 1,934 | | |
| (774 | ) | |
| 1,160 | |
Amortization of net retirement plan prior service cost | |
| 44 | | |
| (18 | ) | |
| 26 | |
Amortization of net retirement plan transition liability | |
| 38 | | |
| (15 | ) | |
| 23 | |
Employee benefit plans | |
| 2,016 | | |
| (807 | ) | |
| 1,209 | |
| |
| | | |
| | | |
| | |
Other comprehensive (loss) income | |
$ | (42,735 | ) | |
$ | 17,090 | | |
$ | (25,645 | ) |
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 July 1, 2014 | |
$ | 3,606 | | |
$ | (16,441 | ) | |
$ | (12,835 | ) |
Other comprehensive income (loss) before reclassifications | |
| (4,123 | ) | |
| 0 | | |
| (4,123 | ) |
Amounts reclassified from accumulated other comprehensive income | |
| (12 | ) | |
| 160 | | |
| 148 | |
Net current-period other comprehensive (loss) income | |
| (4,135 | ) | |
| 160 | | |
| (3,975 | ) |
Balance at September 30, 2014 | |
$ | (529 | ) | |
$ | (16,281 | ) | |
$ | (16,810 | ) |
| |
| | | |
| | | |
| | |
Balance at January 1, 2014 | |
$ | (8,357 | ) | |
$ | (16,762 | ) | |
$ | (25,119 | ) |
Other comprehensive income (loss) before reclassifications | |
| 7,918 | | |
| 0 | | |
| 7,918 | |
Amounts reclassified from accumulated other comprehensive (loss) income | |
| (90 | ) | |
| 481 | | |
| 391 | |
Net current-period other comprehensive income | |
| 7,828 | | |
| 481 | | |
| 8,309 | |
Balance at September 30, 2014 | |
$ | (529 | ) | |
$ | (16,281 | ) | |
$ | (16,810 | ) |
(in thousands) | |
Available-for-
Sale
Securities | | |
Employee
Benefit
Plans | | |
Accumulated
Other
Comprehensive
Income | |
Balance at July 1, 2013 | |
$ | (11 | ) | |
$ | (27,656 | ) | |
$ | (27,667 | ) |
Other comprehensive (loss) income before reclassifications | |
| (318 | ) | |
| 0 | | |
| (318 | ) |
Amounts reclassified from accumulated other comprehensive (loss) income | |
| (169 | ) | |
| 403 | | |
| 234 | |
Net current-period other comprehensive (loss) income | |
| (487 | ) | |
| 403 | | |
| (84 | ) |
Balance at September 30, 2013 | |
$ | (498 | ) | |
$ | (27,253 | ) | |
$ | (27,751 | ) |
| |
| | | |
| | | |
| | |
Balance at January 1, 2013 | |
$ | 26,356 | | |
$ | (28,462 | ) | |
$ | (2,106 | ) |
Other comprehensive (loss) income before reclassifications | |
| (26,420 | ) | |
| 0 | | |
| (26,420 | ) |
Amounts reclassified from accumulated other comprehensive (loss) income | |
| (434 | ) | |
| 1,209 | | |
| 775 | |
Net current-period other comprehensive (loss) income | |
| (26,854 | ) | |
| 1,209 | | |
| (25,645 | ) |
Balance at September 30, 2013 | |
$ | (498 | ) | |
$ | (27,253 | ) | |
$ | (27,751 | ) |
The following tables present the amounts reclassified out of each component of accumulated other comprehensive income for the three and nine months ended September 30, 2014 and 2013.
Three months ended September 30, 2014 | |
| | | |
|
Details about Accumulated other Comprehensive Income Components (in thousands) | |
| Amount Reclassified from Accumulated Other Comprehensive Income1 | | |
Affected Line Item in the Statement Where Net Income is Presented |
Available-for-sale securities: | |
| | | |
|
Unrealized gains and losses on available-for-sale securities | |
$ | 20 | | |
Net gain on securities transactions |
| |
| (8 | ) | |
Tax expense |
| |
| 12 | | |
Net of tax |
Employee benefit plans: | |
| | | |
|
Amortization of the following 2 | |
| | | |
|
Net retirement plan actuarial
loss | |
| (266 | ) | |
|
Net
retirement plan prior service cost | |
| (1 | ) | |
|
| |
| (267 | ) | |
Total before tax |
| |
| 107 | | |
Tax benefit |
| |
| (160 | ) | |
Net of tax |
Nine months ended September 30, 2014 | |
| | | |
|
Details about Accumulated other Comprehensive Income Components (in thousands) | |
| Amount Reclassified from Accumulated Other Comprehensive Income1 | | |
Affected Line Item in the Statement Where Net Income is Presented |
Available-for-sale securities: | |
| | | |
|
Unrealized gains and losses on available-for-sale securities | |
$ | 151 | | |
Net gain on securities transactions |
| |
| (61 | ) | |
Tax expense |
| |
| 90 | | |
Net of tax |
Employee benefit plans: | |
| | | |
|
Amortization of the following 2 | |
| | | |
|
Net retirement plan actuarial
loss | |
| (798 | ) | |
|
Net
retirement plan prior service cost | |
| (3 | ) | |
|
| |
| (801 | ) | |
Total before tax |
| |
| 320 | | |
Tax benefit |
| |
| (481 | ) | |
Net of tax |
Three months ended September 30, 2013 | |
| | | |
|
Details about Accumulated other Comprehensive Income Components (in thousands) | |
| Amount Reclassified from Accumulated Other Comprehensive Income1 | | |
Affected Line Item in the Statement Where Net Income is Presented |
Available-for-sale securities: | |
| | | |
|
Unrealized gains and losses on available-for-sale securities | |
$ | 281 | | |
Net gain on securities transactions |
| |
| (112 | ) | |
Tax expense |
| |
| 169 | | |
Net of tax |
Employee benefit plans: | |
| | | |
|
Amortization of the following 2 | |
| | | |
|
Net retirement plan actuarial
loss | |
| (645 | ) | |
|
Net retirement plan prior
service cost | |
| (14 | ) | |
|
Net
retirement plan transition liability | |
| (13 | ) | |
|
| |
| (672 | ) | |
Total before tax |
| |
| 269 | | |
Tax benefit |
| |
| (403 | ) | |
Net of tax |
Nine months ended September 30, 2013 | |
| | | |
|
Details about Accumulated other Comprehensive Income Components (in thousands) | |
| Amount Reclassified from Accumulated Other Comprehensive Income1 | | |
Affected Line Item in the Statement Where Net Income is Presented |
Available-for-sale securities: | |
| | | |
|
Unrealized gains and losses on available-for-sale securities | |
$ | 723 | | |
Net gain on securities transactions |
| |
| (289 | ) | |
Tax expense |
| |
| 434 | | |
Net of tax |
Employee benefit plans: | |
| | | |
|
Amortization of the following 2 | |
| | | |
|
Net retirement plan actuarial
loss | |
| (1,934 | ) | |
|
Net retirement plan prior
service cost | |
| (44 | ) | |
|
Net
retirement plan transition liability | |
| (38 | ) | |
|
| |
| (2,016 | ) | |
Total before tax |
| |
| 807 | | |
Tax benefit |
| |
| (1,209 | ) | |
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) | |
09/30/2014 | | |
09/30/2013 | | |
09/30/2014 | | |
09/30/2013 | | |
09/30/2014 | | |
09/30/2013 | |
Service cost | |
$ | 608 | | |
$ | 729 | | |
$ | 50 | | |
$ | 66 | | |
$ | 56 | | |
$ | 120 | |
Interest cost | |
| 767 | | |
| 672 | | |
| 92 | | |
| 86 | | |
| 216 | | |
| 184 | |
Expected return on plan assets | |
| (1,256 | ) | |
| (1,002 | ) | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Amortization of net retirement plan actuarial loss | |
| 215 | | |
| 506 | | |
| 0 | | |
| 24 | | |
| 51 | | |
| 115 | |
Amortization of net retirement plan prior service cost
(credit) | |
| (31 | ) | |
| (31 | ) | |
| 4 | | |
| 4 | | |
| 28 | | |
| 41 | |
Amortization of net retirement plan transition liability | |
| 0 | | |
| 0 | | |
| 0 | | |
| 13 | | |
| 0 | | |
| 0 | |
Net periodic benefit cost | |
$ | 303 | | |
$ | 874 | | |
$ | 146 | | |
$ | 193 | | |
$ | 351 | | |
$ | 460 | |
Components of Net Period Benefit Cost |
| |
| | |
| | |
| | |
| | |
| | |
| |
| |
Pension Benefits | | |
Life and Health | | |
SERP Benefits | |
| |
Nine Months Ended | | |
Nine Months Ended | | |
Nine Months Ended | |
(in thousands) | |
09/30/2014 | | |
09/30/2013 | | |
09/30/2014 | | |
09/30/2013 | | |
09/30/2014 | | |
09/30/2013 | |
Service cost | |
$ | 1,825 | | |
$ | 2,187 | | |
$ | 151 | | |
$ | 199 | | |
$ | 167 | | |
$ | 359 | |
Interest cost | |
| 2,302 | | |
| 2,016 | | |
| 275 | | |
| 259 | | |
| 649 | | |
| 553 | |
Expected return on plan assets | |
| (3,768 | ) | |
| (3,007 | ) | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Amortization of net retirement plan actuarial loss | |
| 644 | | |
| 1,517 | | |
| 0 | | |
| 72 | | |
| 154 | | |
| 345 | |
Amortization of net retirement plan prior service cost
(credit) | |
| (92 | ) | |
| (92 | ) | |
| 12 | | |
| 12 | | |
| 84 | | |
| 124 | |
Amortization of net retirement plan
transition liability | |
| 0 | | |
| 0 | | |
| 0 | | |
| 38 | | |
| 0 | | |
| 0 | |
Net periodic benefit cost | |
$ | 911 | | |
$ | 2,621 | | |
$ | 438 | | |
$ | 580 | | |
$ | 1,054 | | |
$ | 1,381 | |
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 $481,000
and $1.2 million, net of tax, as amortization of amounts previously recognized in accumulated other comprehensive income, for the
nine months ended September 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 nine
months ended September 30, 2014 or 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 | | |
Nine Months Ended | |
(in thousands) | |
09/30/2014 | | |
09/30/2013 | | |
09/30/2014 | | |
09/30/2013 | |
Noninterest Income | |
| | | |
| | | |
| | | |
| | |
Other service charges | |
$ | 708 | | |
$ | 959 | | |
$ | 2,511 | | |
$ | 2,569 | |
Increase in cash surrender value of corporate owned life insurance | |
| 456 | | |
| 444 | | |
| 1,431 | | |
| 1,482 | |
Net gain on sale of loans | |
| 125 | | |
| 115 | | |
| 345 | | |
| 212 | |
Other income | |
| 603 | | |
| 1,854 | | |
| 1,842 | | |
| 3,285 | |
Total other income | |
$ | 1,892 | | |
$ | 3,372 | | |
$ | 6,129 | | |
$ | 7,548 | |
Noninterest Expenses | |
| | | |
| | | |
| | | |
| | |
Marketing expense | |
$ | 1,029 | | |
$ | 1,055 | | |
$ | 3,448 | | |
$ | 3,597 | |
Professional fees | |
| 1,585 | | |
| 1,490 | | |
| 4,484 | | |
| 4,255 | |
Legal fees | |
| 130 | | |
| 410 | | |
| 1,191 | | |
| 1,532 | |
Software licensing and maintenance | |
| 1,196 | | |
| 1,082 | | |
| 3,512 | | |
| 3,642 | |
Cardholder expense | |
| 678 | | |
| 827 | | |
| 2,076 | | |
| 2,363 | |
Other expenses | |
| 5,805 | | |
| 4,679 | | |
| 15,800 | | |
| 14,321 | |
Total other operating expense | |
$ | 10,423 | | |
$ | 9,543 | | |
$ | 30,511 | | |
$ | 29,710 | |
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 September 30, 2014, the Company’s maximum potential obligation under standby letters of credit
was $60.5 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 September 30, 2014 |
(in thousands)
| |
Banking | | |
Insurance | | |
Wealth Management | | |
Intercompany | | |
Consolidated | |
Interest income | |
$ | 46,583 | | |
$ | 1 | | |
$ | 35 | | |
$ | (1 | ) | |
$ | 46,618 | |
Interest expense | |
| 5,044 | | |
| 0 | | |
| 0 | | |
| (1 | ) | |
| 5,043 | |
Net
interest income | |
| 41,539 | | |
| 1 | | |
| 35 | | |
| 0 | | |
| 41,575 | |
Provision for loan and lease losses | |
| (59 | ) | |
| 0 | | |
| 0 | | |
| 0 | | |
| (59 | ) |
Noninterest income | |
| 6,607 | | |
| 7,555 | | |
| 3,746 | | |
| (353 | ) | |
| 17,555 | |
Noninterest expense | |
| 30,129 | | |
| 5,977 | | |
| 2,784 | | |
| (353 | ) | |
| 38,537 | |
Income
before income tax expense | |
| 18,076 | | |
| 1,579 | | |
| 997 | | |
| 0 | | |
| 20,652 | |
Income tax expense | |
| 5,903 | | |
| 653 | | |
| 341 | | |
| 0 | | |
| 6,897 | |
Net Income attributable
to noncontrolling interests and Tompkins Financial Corporation | |
| 12,173 | | |
| 926 | | |
| 656 | | |
| 0 | | |
| 13,755 | |
Less: Net income attributable to noncontrolling interests | |
| 33 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 33 | |
Net Income attributable to Tompkins
Financial Corporation | |
$ | 12,140 | | |
$ | 926 | | |
$ | 656 | | |
$ | 0 | | |
$ | 13,722 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
$ | 1,320 | | |
$ | 75 | | |
$ | 36 | | |
$ | 0 | | |
$ | 1,431 | |
Assets | |
| 5,049,237 | | |
| 34,742 | | |
| 13,634 | | |
| (6,694 | ) | |
| 5,090,919 | |
Goodwill | |
| 64,500 | | |
| 19,662 | | |
| 8,081 | | |
| 0 | | |
| 92,243 | |
Other intangibles, net | |
| 9,681 | | |
| 4,987 | | |
| 538 | | |
| 0 | | |
| 15,206 | |
Net loans and leases | |
| 3,229,683 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 3,229,683 | |
Deposits | |
| 4,219,127 | | |
| 0 | | |
| 0 | | |
| (6,267 | ) | |
| 4,212,860 | |
Total Equity | |
| 453,317 | | |
| 27,177 | | |
| 10,117 | | |
| 0 | | |
| 490,611 | |
As of and for the three months ended September 30, 2013 |
(in thousands) | |
Banking | | |
Insurance | | |
Wealth Management | | |
Intercompany | | |
Consolidated | |
Interest income | |
$ | 46,334 | | |
$ | 2 | | |
$ | 45 | | |
$ | (2 | ) | |
$ | 46,379 | |
Interest expense | |
| 5,908 | | |
| 0 | | |
| 0 | | |
| (2 | ) | |
| 5,906 | |
Net interest income | |
| 40,426 | | |
| 2 | | |
| 45 | | |
| 0 | | |
| 40,473 | |
Provision for loan and lease losses | |
| 2,049 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 2,049 | |
Noninterest income | |
| 7,956 | | |
| 7,077 | | |
| 3,877 | | |
| (382 | ) | |
| 18,528 | |
Noninterest expense | |
| 29,552 | | |
| 5,532 | | |
| 2,852 | | |
| (382 | ) | |
| 37,554 | |
Income before income tax expense | |
| 16,781 | | |
| 1,547 | | |
| 1,070 | | |
| 0 | | |
| 19,398 | |
Income tax expense | |
| 4,308 | | |
| 646 | | |
| 362 | | |
| 0 | | |
| 5,316 | |
Net Income attributable to noncontrolling interests and
Tompkins Financial Corporation | |
| 12,473 | | |
| 901 | | |
| 708 | | |
| 0 | | |
| 14,082 | |
Less: Net income attributable to noncontrolling interests | |
| 33 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 33 | |
Net Income attributable to Tompkins Financial Corporation | |
$ | 12,440 | | |
$ | 901 | | |
$ | 708 | | |
$ | 0 | | |
$ | 14,049 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
$ | 1,310 | | |
$ | 51 | | |
$ | 33 | | |
$ | 0 | | |
$ | 1,394 | |
Assets | |
| 4,894,161 | | |
| 34,087 | | |
| 12,702 | | |
| (8,522 | ) | |
| 4,932,428 | |
Goodwill | |
| 64,500 | | |
| 19,559 | | |
| 8,081 | | |
| 0 | | |
| 92,140 | |
Other intangibles, net | |
| 11,070 | | |
| 5,150 | | |
| 621 | | |
| 0 | | |
| 16,841 | |
Net loans and leases | |
| 3,092,904 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 3,092,904 | |
Deposits | |
| 3,980,890 | | |
| 0 | | |
| 0 | | |
| (8,134 | ) | |
| 3,972,756 | |
Total Equity | |
| 408,102 | | |
| 25,524 | | |
| 10,650 | | |
| 0 | | |
| 444,276 | |
For the nine months ended September 30, 2014 |
(in thousands) | |
Banking | | |
Insurance | | |
Wealth Management | | |
Intercompany | | |
Consolidated | |
Interest income | |
$ | 137,703 | | |
$ | 5 | | |
$ | 100 | | |
$ | (5 | ) | |
$ | 137,803 | |
Interest expense | |
| 15,688 | | |
| 2 | | |
| 0 | | |
| (5 | ) | |
| 15,685 | |
Net interest income | |
| 122,015 | | |
| 3 | | |
| 100 | | |
| 0 | | |
| 122,118 | |
Provision for loan and lease losses | |
| 751 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 751 | |
Noninterest income | |
| 19,835 | | |
| 21,918 | | |
| 11,990 | | |
| (1,034 | ) | |
| 52,709 | |
Noninterest expense | |
| 90,560 | | |
| 17,541 | | |
| 8,608 | | |
| (1,034 | ) | |
| 115,675 | |
Income before income tax expense | |
| 50,539 | | |
| 4,380 | | |
| 3,482 | | |
| 0 | | |
| 58,401 | |
Income tax expense | |
| 15,982 | | |
| 1,776 | | |
| 1,193 | | |
| 0 | | |
| 18,951 | |
Net Income attributable to noncontrolling interests and
Tompkins Financial Corporation | |
| 34,557 | | |
| 2,604 | | |
| 2,289 | | |
| 0 | | |
| 39,450 | |
Less: Net income attributable to noncontrolling interests | |
| 98 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 98 | |
Net Income attributable to Tompkins
Financial Corporation | |
$ | 34,459 | | |
$ | 2,604 | | |
$ | 2,289 | | |
$ | 0 | | |
$ | 39,352 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
$ | 3,909 | | |
$ | 184 | | |
$ | 110 | | |
$ | 0 | | |
$ | 4,203 | |
For the nine months ended September 30, 2013 |
(in thousands) | |
Banking | | |
Insurance | | |
Wealth Management | | |
Intercompany | | |
Consolidated | |
Interest income | |
$ | 136,647 | | |
$ | 5 | | |
$ | 149 | | |
$ | (5 | ) | |
$ | 136,796 | |
Interest expense | |
| 18,297 | | |
| 0 | | |
| 0 | | |
| (5 | ) | |
| 18,292 | |
Net interest income | |
| 118,350 | | |
| 5 | | |
| 149 | | |
| 0 | | |
| 118,504 | |
Provision for loan and lease losses | |
| 5,576 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 5,576 | |
Noninterest income | |
| 20,410 | | |
| 21,371 | | |
| 11,813 | | |
| (1,135 | ) | |
| 52,459 | |
Noninterest expense | |
| 88,555 | | |
| 16,589 | | |
| 8,842 | | |
| (1,135 | ) | |
| 112,851 | |
Income before income tax expense | |
| 44,629 | | |
| 4,787 | | |
| 3,120 | | |
| 0 | | |
| 52,536 | |
Income tax expense | |
| 12,883 | | |
| 1,935 | | |
| 1,055 | | |
| 0 | | |
| 15,873 | |
Net Income attributable to noncontrolling interests and
Tompkins Financial Corporation | |
| 31,746 | | |
| 2,852 | | |
| 2,065 | | |
| 0 | | |
| 36,663 | |
Less: Net income attributable to noncontrolling interests | |
| 98 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 98 | |
Net Income attributable to Tompkins
Financial Corporation | |
$ | 31,648 | | |
$ | 2,852 | | |
$ | 2,065 | | |
$ | 0 | | |
$ | 36,565 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
$ | 4,021 | | |
$ | 160 | | |
$ | 103 | | |
$ | 0 | | |
$ | 4,284 | |
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 September
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 | |
| | |
| | |
| | |
| |
September 30, 2014 | |
| | |
| | |
| | |
| |
(in thousands) | |
Total | | |
(Level
1) | | |
(Level 2) | | |
(Level 3) | |
Trading securities | |
| | | |
| | | |
| | | |
| | |
Obligations of U.S. Government sponsored entities | |
$ | 7,631 | | |
$ | 0 | | |
$ | 7,631 | | |
$ | 0 | |
Mortgage-backed securities – residential | |
| | | |
| | | |
| | | |
| | |
U.S. Government sponsored entities | |
| 1,842 | | |
| 0 | | |
| 1,842 | | |
| 0 | |
Available-for-sale securities | |
| | | |
| | | |
| | | |
| | |
Obligations of U.S. Government sponsored entities | |
| 590,894 | | |
| 0 | | |
| 590,894 | | |
| 0 | |
Obligations of U.S. states and political subdivisions | |
| 70,502 | | |
| 0 | | |
| 70,502 | | |
| 0 | |
Mortgage-backed securities – residential, issued by: | |
| | | |
| | | |
| | | |
| | |
U.S. Government agencies | |
| 119,717 | | |
| 0 | | |
| 119,717 | | |
| 0 | |
U.S. Government sponsored entities | |
| 589,779 | | |
| 0 | | |
| 589,779 | | |
| 0 | |
Non-U.S. Government agencies or sponsored entities | |
| 280 | | |
| 0 | | |
| 280 | | |
| 0 | |
U.S. corporate debt securities | |
| 2,163 | | |
| 0 | | |
| 2,163 | | |
| 0 | |
Equity securities | |
| 1,421 | | |
| 0 | | |
| 0 | | |
| 1,421 | |
| |
| | | |
| | | |
| | | |
| | |
Borrowings | |
| | | |
| | | |
| | | |
| | |
Other borrowings | |
| 11,032 | | |
| 0 | | |
| 11,032 | | |
| 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 September 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 September 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 September 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 third 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 September 30, 2014 |
| |
| | |
Fair value measurements at reporting | |
Gain (losses) from fair | |
| |
| | |
date using: | |
value changes | |
| |
As of | | Quoted prices in active markets for identical assets | |
Significant other observable inputs | | |
Significant unobservable inputs | | |
Three months ended | |
Assets: | |
09/30/2014 | | (Level 1) | |
(Level 2) | | |
(Level 3) | | |
09/30/2014 | |
Impaired Loans | |
$ | 8,149 | | $ |
0 | |
$ | 8,149 | | |
$ | 0 | | |
$ | (67 | ) |
Other real estate owned | |
| 2,689 | | |
0 | |
| 2,689 | | |
| 0 | | |
| 10 | |
Three months ended September 30, 2013 |
| |
| | |
Fair value measurements at reporting | |
Gain (losses) from fair | |
| |
| | |
date using: | |
value changes | |
| |
As of | | Quoted prices in active markets for identical assets | |
Significant other observable inputs | | |
Significant unobservable inputs | | |
Three months ended | |
Assets: | |
09/30/2013 | | (Level 1) | |
(Level 2) | | |
(Level 3) | | |
09/30/2013 | |
Impaired Loans | |
$ | 5,405 | | $ |
0 | |
$ | 5,405 | | |
$ | 0 | | |
$ | (650 | ) |
Other real estate owned | |
| 2,718 | | |
0 | |
| 2,718 | | |
| 0 | | |
| (56 | ) |
Nine months ended September 30, 2014 |
| |
| | |
Fair value measurements at reporting | |
Gain (losses) from fair | |
| |
| | |
date using: | |
value changes | |
| |
As of | | Quoted prices in active markets for identical assets | |
Significant other observable inputs | | |
Significant unobservable inputs | | |
Nine months ended | |
Assets: | |
09/30/2014 | | (Level 1) | |
(Level 2) | | |
(Level 3) | | |
09/30/2014 | |
Impaired Loans | |
$ | 9,226 | | $ |
0 | |
$ | 9,226 | | |
$ | 0 | | |
$ | (252 | ) |
Other real estate owned | |
| 5,182 | | |
0 | |
| 5,182 | | |
| 0 | | |
| (32 | ) |
Nine months ended September 30, 2013 |
| |
| | |
Fair value measurements at reporting | |
Gain (losses) from fair | |
| |
| | |
date using: | |
value changes | |
| |
As of | | Quoted prices in active markets for identical assets | |
Significant other observable inputs | | |
Significant unobservable inputs | | |
Nine months ended | |
Assets: | |
09/30/2013 | | (Level 1) | |
(Level 2) | | |
(Level 3) | | |
09/30/2013 | |
Impaired Loans | |
$ | 10,530 | | $ |
0 | |
$ | 10,530 | | |
$ | 0 | | |
$ | (884 | ) |
Other real estate owned | |
| 1,625 | | |
0 | |
| 1,625 | | |
| 0 | | |
| (247 | ) |
The following table presents the carrying amounts
and estimated fair values of the Company’s financial instruments at September 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 |
September 30, 2014 |
(in thousands) | |
Carrying Amount | | |
Fair Value | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Financial Assets: | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
$ | 85,117 | | |
$ | 85,117 | | |
$ | 85,117 | | |
$ | 0 | | |
$ | 0 | |
Securities - held to maturity | |
| 47,608 | | |
| 48,017 | | |
| 0 | | |
| 48,017 | | |
| 0 | |
FHLB stock | |
| 14,838 | | |
| 14,838 | | |
| 0 | | |
| 14,838 | | |
| 0 | |
Accrued interest receivable | |
| 16,494 | | |
| 16,494 | | |
| 0 | | |
| 16,494 | | |
| 0 | |
Loans/leases, net1 | |
| 3,229,683 | | |
| 3,248,727 | | |
| 0 | | |
| 9,226 | | |
| 3,239,501 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Financial Liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Time deposits | |
$ | 930,796 | | |
$ | 932,938 | | |
$ | 0 | | |
$ | 932,938 | | |
$ | 0 | |
Other deposits | |
| 3,282,064 | | |
| 3,282,064 | | |
| 0 | | |
| 3,282,064 | | |
| 0 | |
Fed funds purchased and securities sold under agreements to repurchase | |
| 128,368 | | |
| 132,383 | | |
| 0 | | |
| 132,383 | | |
| 0 | |
Other borrowings | |
| 155,477 | | |
| 155,739 | | |
| 0 | | |
| 155,739 | | |
| 0 | |
Accrued interest payable | |
| 1,827 | | |
| 1,827 | | |
| 0 | | |
| 1,827 | | |
| 0 | |
Trust preferred debentures | |
| 37,298 | | |
| 43,904 | | |
| 0 | | |
| 43,904 | | |
| 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 September 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. At the end of the third quarter 2014, Tompkins Insurance purchased the
employee benefits book of business from Aigen Financial Group, LLC. of Ithaca, New York in a cash transaction. The purchase price
of $205,000 was allocated as follows: customer related intangibles of $140,000 and a covenant-not-to-compete of $65,000. 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.
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 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 nine months
ended September 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 June 30, 2014 (the most recent report available).
OVERVIEW
Net income for the third quarter was $13.7
million or $0.92 diluted earnings per share, compared to $14.0 million or $0.95 diluted earnings per share for the same period
in 2013. Net income for the first nine months of 2014 was $39.4 million or $2.64 diluted earnings per share, compared to $36.6
million or $2.50 diluted earnings per share in the first nine months of 2013. Prior period net income was impacted by nonrecurring
income and merger related expenses. Third quarter 2013 net income included an after-tax gain of $846,000 related to the redemption
of a Trust Preferred Debenture, while net income for the first nine months of 2013 included the after-tax gain of $846,000 partially
offset by after-tax merger related expenses of $140,000. Excluding these items, the Company’s operating (Non-GAAP) net income
for the third quarter of 2013 was $13.2 million or $0.89 diluted per share and for the nine months ended September 30, 2013 was
$35.9 million or $2.45 diluted per share.
Return on average assets (“ROA”)
for the quarter ended September 30, 2014 was 1.08%, compared to 1.10% for the quarter ended September 30, 2013. Return on average
shareholders’ equity (“ROE”) for the third quarter of 2014 was 11.11%, compared to 12.83%, for the same period
in 2013. Tompkins’ third quarter ROA and ROE compare to the most recent peer average ratios of 0.93% and 8.32%, respectively,
published as of June 30, 2014 by the Federal Reserve, ranking Tompkins’ ROA in the 62nd percentile and ROE in
the 58th percentile of the peer group.
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 and nonrecurring income and 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 | |
Nine months ended |
(in thousands) | |
09/30/2014 |
| |
09/30/2013 |
| |
09/30/2014 |
| |
09/30/2013 |
|
| |
| |
| |
| |
|
Net income attributable to Tompkins Financial Corporation | |
$ | 13,722 | | |
$ | 14,049 | | |
$ | 39,352 | | |
$ | 36,565 | |
| |
| | | |
| | | |
| | | |
| | |
Adjustments for non-operating income and expense, net of tax: | |
| | | |
| | | |
| | | |
| | |
Gain on redemption of trust preferred | |
| 0 | | |
| (846 | ) | |
| 0 | | |
| (846 | ) |
Merger and acquisition integration related expenses | |
| 0 | | |
| 0 | | |
| 0 | | |
| 140 | |
Total adjustments, net of tax | |
| 0 | | |
| (846 | ) | |
| 0 | | |
| (706 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net operating income (Non-GAAP) | |
| 13,722 | | |
| 13,203 | | |
| 39,352 | | |
| 35,859 | |
Amortization of intangibles, net of tax | |
| 311 | | |
| 327 | | |
| 942 | | |
| 990 | |
Adjusted net operating income (Non-GAAP) | |
| 14,033 | | |
| 13,530 | | |
| 40,294 | | |
| 36,849 | |
| |
| | | |
| | | |
| | | |
| | |
Average total assets | |
| 5,058,608 | | |
| 4,897,678 | | |
| 5,023,960 | | |
| 4,921,092 | |
Average goodwill and intangibles | |
| 107,525 | | |
| 109,277 | | |
| 107,990 | | |
| 109,995 | |
Average tangible assets | |
| 4,951,083 | | |
| 4,788,401 | | |
| 4,915,970 | | |
| 4,811,097 | |
| |
| | | |
| | | |
| | | |
| | |
Adjusted operating return on average shareholders’ tangible assets (annualized) (Non-GAAP) | |
| 1.12 | % | |
| 1.12 | % | |
| 1.10 | % | |
| 1.02 | % |
| |
| | | |
| | | |
| | | |
| | |
Average total shareholders’ equity | |
| 489,920 | | |
| 434,482 | | |
| 479,579 | | |
| 441,583 | |
Average goodwill and intangibles | |
| 107,525 | | |
| 109,277 | | |
| 107,990 | | |
| 109,995 | |
Average shareholders’ tangible equity (Non-GAAP) | |
| 382,395 | | |
| 325,205 | | |
| 371,589 | | |
| 331,588 | |
| |
| | | |
| | | |
| | | |
| | |
Adjusted operating return on average shareholders’ tangible equity (annualized) (Non-GAAP) | |
| 14.56 | % | |
| 16.51 | % | |
| 14.50 | % | |
| 14.86 | % |
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, organized under the Tompkins Financial Advisors
brand. All other activities are considered banking.
Banking Segment
The banking segment reported net income
of $12.1 million for the third quarter of 2014, down $300,000 or 2.4% from net income of $12.4 million for the same period in
2013. For the nine months ended September 30, 2014, the banking segment reported net income of $34.5 million, up $2.8 million
or 8.9% from the same period in 2013.
Net interest income of $41.5 million for the
third quarter and $122.0 million for the nine month period ended September 30, 2014 was up 2.8% and 3.1%, respectively over the
same periods in 2013. Growth in average earning assets and lower funding costs neutralized the effect of lower asset yields and
contributed to favorable year-over-year comparisons. Net interest margin for the nine months ended September 30, 2014 was 3.58%
compared to 3.60% for the same period prior year.
The Company recorded a recapture of provision
for loan and lease losses totaling $59,000 for the three months ended September 30, 2014 and a $2.0 million expense for the same
period in 2013. For the nine month period ended September 30, 2014, provision expense of $751,000, decreased $4.8 million or 86.5%
compared to the same period prior year. The decrease in provision expense was largely attributable to improvements in credit quality
as well as recoveries of previously charged off loans, partially offset by growth in total loans over prior year.
Noninterest income for the three months ended
September 30, 2014 of $6.6 million was down $1.3 million or 17.0% compared to the same period in 2013. For the nine months ended
September 30, 2014, noninterest income of $19.8 million was down $575,000 or 2.8% compared to the same period in 2013. Both the
third quarter and nine month period ended September 30, 2013 included pre-tax gains of $1.4 million on the redemption of trust
preferred securities. Additional contributors to the year-to-date decrease in noninterest income include realized gains on securities
transactions (down $572,000), and net mark-to-market gain on liabilities held at fair value (down $283,000). Partially offsetting
these items were the following: a decrease in net mark-to-market loss on trading securities (down $291,000); and increases in service
charges on deposit accounts (up $824,000), card services income (up $805,000) and gains on the sale of residential mortgage loans
(up $133,000).
Noninterest expenses for the third quarter
ended September 30, 2014 of $30.1 million were up $577,000 or 2.0% from the same period in 2013. For the nine months ended September
30, 2014, noninterest expenses were up $2.0 million or 2.3% 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 $926,000 for the three months ended September 30, 2014, up $25,000 or 2.8% from the third quarter of 2013. For the nine months
ended September 30, 2014, net income of $2.6 million was down $248,000 or 8.7% from the same period in 2013. Noninterest income
was up $478,000 or 6.8% for the third quarter and up $547,000 or 2.6% for the nine months ended September 30, 2014, compared to
the same periods in 2013. Noninterest expenses for the three months ended September 30, 2014, were up $445,000 or 8.0% compared
to the third quarter of 2013. Noninterest expenses for the nine months ended September 30, 2014 of $17.5 million were $952,000
or 5.7% 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 $656,000 for the three months ended September 30, 2014, down $52,000 or 7.3% compared to the third quarter of 2013.
Net income for the nine months ended September 30, 2014 of $2.3 million was $224,000 or 10.8% above the same period prior year.
Noninterest income for the third quarter and nine months ended September 30, 2014 was $3.7 million and $12.0 million, which is
down $131,000 or 3.4% from the third quarter of 2013 and up $177,000 or 1.5%, respectively. Noninterest expenses of $2.8 million
for the three months ended September 30, 2014, were down $68,000 or 2.4% compared to the same period of 2013. Noninterest expenses
of $8.6 million for the nine months ended September 30, 2014 were down $234,000 or 2.6% compared to the same period 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 |
| |
September 30, 2014 | |
September 30, 2014 | |
September 30, 2013 |
| |
Average |
| |
| |
| |
Average |
| |
| |
| |
Average |
| |
| |
|
(nts in thousands) | |
Balance |
| |
| |
Average |
| |
Balance |
| |
| |
Average |
| |
Balance |
| |
| |
Average |
|
(Dollar amounts in thousands) | |
(QTD) |
| |
Interest |
| |
Yield/Rate |
| |
(YTD) |
| |
Interest |
| |
Yield/Rate |
| |
(YTD) |
| |
Interest |
| |
Yield/Rate |
|
ASSETS | |
| |
| |
| |
| |
| |
| |
| |
| |
|
Interest-earning assets | |
| |
| |
| |
| |
| |
| |
| |
| |
|
Interest-bearing balances due from banks | |
$ | 579 | | |
$ | — | | |
| 0.00 | % | |
$ | 782 | | |
$ | 2 | | |
| 0.34 | % | |
$ | 2,261 | | |
$ | 9 | | |
| 0.53 | % |
Securities (1) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. Government securities | |
| 1,310,291 | | |
| 7,286 | | |
| 2.21 | % | |
| 1,304,141 | | |
| 22,163 | | |
| 2.27 | % | |
| 1,334,735 | | |
| 21,269 | | |
| 2.13 | % |
Trading securities | |
| 9,823 | | |
| 102 | | |
| 4.12 | % | |
| 10,327 | | |
| 321 | | |
| 4.16 | % | |
| 15,141 | | |
| 472 | | |
| 4.17 | % |
State and municipal (2) | |
| 110,819 | | |
| 1,030 | | |
| 3.69 | % | |
| 96,992 | | |
| 3,157 | | |
| 4.35 | % | |
| 97,253 | | |
| 3,750 | | |
| 5.16 | % |
Other securities (2) | |
| 4,259 | | |
| 32 | | |
| 2.98 | % | |
| 4,571 | | |
| 107 | | |
| 3.13 | % | |
| 7,996 | | |
| 210 | | |
| 3.51 | % |
Total securities | |
| 1,435,192 | | |
| 8,450 | | |
| 2.34 | % | |
| 1,416,031 | | |
| 25,748 | | |
| 2.43 | % | |
| 1,455,125 | | |
| 25,701 | | |
| 2.36 | % |
FHLBNY and FRB stock | |
| 19,252 | | |
| 212 | | |
| 4.37 | % | |
| 20,192 | | |
| 616 | | |
| 4.08 | % | |
| 22,051 | | |
| 538 | | |
| 3.26 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total loans and leases, net of unearned income (2)(3) | |
| 3,240,837 | | |
| 38,765 | | |
| 4.74 | % | |
| 3,218,371 | | |
| 113,924 | | |
| 4.73 | % | |
| 3,025,846 | | |
| 113,440 | | |
| 5.01 | % |
Total interest-earning assets | |
| 4,695,860 | | |
| 47,427 | | |
| 4.01 | % | |
| 4,655,376 | | |
| 140,290 | | |
| 4.03 | % | |
| 4,505,283 | | |
| 139,688 | | |
| 4.15 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other assets | |
| 362,748 | | |
| | | |
| | | |
| 368,584 | | |
| | | |
| | | |
| 415,809 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total assets | |
| 5,058,608 | | |
| | | |
| | | |
| 5,023,960 | | |
| | | |
| | | |
| 4,921,092 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
LIABILITIES & EQUITY | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Deposits | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-bearing deposits | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest bearing checking, savings, & money market | |
| 2,252,622 | | |
| 1,066 | | |
| 0.19 | % | |
| 2,265,787 | | |
| 3,276 | | |
| 0.19 | % | |
| 2,224,540 | | |
| 3,816 | | |
| 0.23 | % |
Time deposits | |
| 913,501 | | |
| 1,760 | | |
| 0.76 | % | |
| 901,283 | | |
| 5,070 | | |
| 0.75 | % | |
| 955,284 | | |
| 5,928 | | |
| 0.83 | % |
Total interest-bearing deposits | |
| 3,166,123 | | |
| 2,826 | | |
| 0.35 | % | |
| 3,167,070 | | |
| 8,346 | | |
| 0.35 | % | |
| 3,179,824 | | |
| 9,744 | | |
| 0.41 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Federal funds purchased & securities sold under | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
agreements to repurchase | |
| 135,647 | | |
| 683 | | |
| 1.99 | % | |
| 147,775 | | |
| 2,263 | | |
| 2.05 | % | |
| 180,939 | | |
| 2,877 | | |
| 2.13 | % |
Other borrowings | |
| 248,633 | | |
| 961 | | |
| 1.53 | % | |
| 258,578 | | |
| 3,362 | | |
| 1.74 | % | |
| 211,828 | | |
| 3,634 | | |
| 2.29 | % |
Trust preferred debentures | |
| 37,270 | | |
| 573 | | |
| 6.10 | % | |
| 37,227 | | |
| 1,714 | | |
| 6.16 | % | |
| 43,160 | | |
| 2,037 | | |
| 6.31 | % |
Total interest-bearing liabilities | |
| 3,587,673 | | |
| 5,043 | | |
| 0.56 | % | |
| 3,610,650 | | |
| 15,685 | | |
| 0.58 | % | |
| 3,615,751 | | |
| 18,292 | | |
| 0.68 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Noninterest bearing deposits | |
| 925,986 | | |
| | | |
| | | |
| 879,691 | | |
| | | |
| | | |
| 790,557 | | |
| | | |
| | |
Accrued expenses and other liabilities | |
| 55,029 | | |
| | | |
| | | |
| 54,040 | | |
| | | |
| | | |
| 73,201 | | |
| | | |
| | |
Total liabilities | |
| 4,568,688 | | |
| | | |
| | | |
| 4,544,381 | | |
| | | |
| | | |
| 4,479,509 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Tompkins Financial Corporation Shareholders’ equity | |
| 488,386 | | |
| | | |
| | | |
| 478,078 | | |
| | | |
| | | |
| 440,082 | | |
| | | |
| | |
Noncontrolling interest | |
| 1,534 | | |
| | | |
| | | |
| 1,501 | | |
| | | |
| | | |
| 1,501 | | |
| | | |
| | |
Total equity | |
| 489,920 | | |
| | | |
| | | |
| 479,579 | | |
| | | |
| | | |
| 441,583 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total liabilities and equity | |
$ | 5,058,608 | | |
| | | |
| | | |
$ | 5,023,960 | | |
| | | |
| | | |
$ | 4,921,092 | | |
| | | |
| | |
Interest rate spread | |
| | | |
| | | |
| 3.45 | % | |
| | | |
| | | |
| 3.45 | % | |
| | | |
| | | |
| 3.47 | % |
Net interest income/margin on earning assets | |
| | | |
| 42,384 | | |
| 3.58 | % | |
| | | |
| 124,605 | | |
| 3.58 | % | |
| | | |
| 121,396 | | |
| 3.60 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Tax Equivalent Adjustment | |
| | | |
| (809 | ) | |
| | | |
| | | |
| (2,487 | ) | |
| | | |
| | | |
| (2,892 | ) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net interest income per consolidated financial statements | |
| | | |
$ | 41,575 | | |
| | | |
| | | |
$ | 122,118 | | |
| | | |
| | | |
$ | 118,504 | | |
| | |
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 70.3% and 69.9% of total revenues for the three and nine month periods ended September
30, 2014, compared to 68.6% and 69.3% 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 nine months ended September 30, 2014 was up 2.3% and 2.6%, respectively, over the same periods in 2013. Taxable-equivalent
net interest income in 2014 benefitted from growth in average earning assets, which increased by 3.6% and 3.3% for the three and
nine month periods ended September 30, 2014, and growth in noninterest bearing deposits which increased by 13.6% and 11.3% compared
to the same periods prior year. These factors helped 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 3.58% for the three and nine month periods
ended September 30, 2014 compared to 3.63% and 3.60%, respectively, for the same periods in 2013.
Taxable-equivalent interest income for the
three and nine month periods ended September 30, 2014 was $47.4 million and $140.3 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.
The average yield on interest earning assets declined 13 basis points or 3.1% and 12 basis points or 2.9% for the three and nine
months ended September 30, 2014 compared to the same period in 2013. Average loan balances for the three and nine months ended
September 30, 2014 were up $167.0 million or 5.4%, and $192.5 million or 6.4%, respectively, while the average yields on loans
for the same periods were down 23 basis points and 28 basis points, respectively, compared to the same periods in 2013. Average
loan balances represented about 69.0% and 69.1% of average earning assets for the three and nine months ended September 30, 2014,
up from 67.8% and 67.2%, respectively, for the same periods in 2013. Average securities balances for the three months ended September
30, 2014 were in line with prior year, and for the nine months ended September 30, 2014 were down by $39.1 million or 2.7% from
the nine months ended September 30, 2013. The average yield on securities for the third quarter of 2014 was up 4 basis points and
for the nine months ended September 30, 2014 was up 7 basis points.
Interest expense for the three and nine months
ended September 30, 2014 decreased by $863,000 or 14.6% and $2.6 million or 14.3%, 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 was 0.35%
during both the three and nine months ended September 30, 2014, down 5 basis points and 6 basis points, respectively, from the
same periods in 2013. Average interest bearing deposits for the third quarter of 2014 were up $75.9 million or 2.5% compared to
the same period in 2013, while year-to-date average interest bearing deposits were in line with the same period in 2013. Average
noninterest bearing deposits for the three and nine month periods ended September 30, 2014 were up $111.1 million or 13.6% and
$89.1 million or 11.3%, respectively, compared to the same periods in 2013. Year-to-date average other borrowings increased by
$46.8 million or 22.1% 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 a credit of $59,000 for the third quarter of 2014 and an expense of $751,000
for the nine months ended September 30, 2014, compared to expenses of $2.0 million and $5.6 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 $17.6 million
for the third quarter of 2014 and $52.7 million for the nine months ended September 30, 2014. Noninterest income for the third
quarter of 2014 is down 5.3% compared to the same period prior year, and is in line with the year-to-date period ending September
30, 2014. Third quarter 2013 noninterest income included non-recurring gains of $1.4 million on the redemption of trust preferred
securities. Noninterest income represented 29.7% of total revenue for the three months ended September 30, 2014 compared to 31.4%
in the third quarter of 2013, and 30.1% for the nine months ended September 30, 2014 compared to 30.7% for the same period in
2013.
Insurance commissions and fees were
$7.5 million and $21.8 million for the three and nine months ended September 30, 2014, compared to $7.2 million and $21.6
million, respectively, for the same periods in 2013. The health and benefit portfolio grew by 2.6% compared to the same
three month period in 2013.
Investment services income was $3.6 million
in third quarter of 2014, a decrease of 1.6% from $3.7 million in the third quarter of 2013. Investment services income of $11.5
million for the first nine months of 2014 was up 3.3% 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 $3.7 billion at September 30, 2014, up 8.8% from $3.4 billion
at September 30, 2013. These figures include $1.0 billion and $921.8 million, respectively, of Company-owned securities where Tompkins
Trust Company is custodian.
Service charges on deposit accounts were up
$252,000 or 11.2% for the third quarter of 2014 compared to the third quarter of 2013 and up $824,000 or 13.3% for the nine months
ended September 30, 2014 compared to the same period in 2013. The increase was mainly due to growth in noninterest bearing accounts,
and an increase in account analysis fees, partially a result of fee increases on certain types of deposit accounts. Overdraft fees,
the largest component of service charges on deposit accounts, were flat for both the three and nine months ended September 30,
2014 compared to same periods prior year.
Card services income for the three months and
nine months ended September 30, 2014 was up $201,000 or 11.6% and $805,000 or 15.6% 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 $20,000 and $151,000 for the three and nine months ended September 30, 2014, which were down
from gains of $281,000 and $723,000, 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 $1.9 million in the third quarter
of 2014 was down 43.9% from the third quarter of 2013. For the first nine months of 2014, other income was $6.1 million, down 18.8%
from 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 three and nine month periods in 2013 included a pre-tax gain of
$1.4 million on the redemption of a trust preferred debenture acquired as part of the VIST acquisition.
Noninterest Expense
Noninterest expense of $38.5 million and $115.7
million for the three and nine months ended September 30, 2014, was up 2.6% and 2.5%, respectively, compared to the same periods
in 2013. The increase in noninterest expense compared to the same period prior year is mainly a result of higher salary and wages
expense and other operating expense.
Salaries and wages expense for the three and
nine months ended September 30, 2014 were up by $798,000 or 4.8% and $3.2 million or 6.7%, respectively, over the same periods
in 2013. The increases reflect additional employees, annual merit increases and higher accruals for incentive compensation. Pension
and other employee related benefits were down 11.9% for the third quarter of 2014 and down 6.2% for the nine months ended September
30, 2014 compared to the same periods in 2013. Pension and other post-retirement benefit expenses in 2014 were down compared to
2013, mainly a result of an increase in the discount rate used to calculate the annual expense of these plans.
Net occupancy expense was $3.0 million for
the third quarter of 2014, up $119,000 or 4.2% form the same period in 2013 and was $9.3 million for the nine months ended September
30, 2013, up $431,000 or 4.9% from the same period in 2013. The increase reflects higher expenses related to rent, utilities, real
estate taxes, depreciation and general maintenance of properties for both the three and nine month periods ended September 30,
2014.
Other operating expense for the three and nine
months ended September 30, 2014 was up 9.2% and 2.7%, respectively, compared to the same periods prior year. The increase is mainly
due to amortization of the FDIC indemnification asset as a result of better than expected performance on FDIC covered loans.
Overall, all other expense categories remained
relatively flat compared to the same period prior year.
Income Tax Expense
The provision for income taxes was $6.9
million for an effective rate of 33.4% for the third quarter of 2014, compared to tax expense of $5.3 million and an effective
rate of 27.4% for the same quarter in 2013. The third quarter 2013 tax provision and effective rate were favorably impacted by
the recognition of the tax benefit of an historical tax credit investment. For the first nine months of 2014, the tax provision
was $19.0 million for an effective rate of 32.5% compared to a tax provision of $15.9 million and an effective rate of 30.2% 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 September
30, 2014, up $87.9 million or 1.8% over December 31, 2013. The growth over year-end was primarily attributable to growth in originated
loans, which were up $147.7 million or 5.9%, growth in available-for-sale securities, which were up $19.9 million or 1.5%, and
growth in held-to-maturity securities which were up $28.6 million or 150.8%. This growth was partially offset by a decrease in
acquired loans, which were down $84.5 million or 12.7%. Total deposits increased $265.6 million or 6.7% compared to December 31,
2013, mainly a result of an inflow of municipal deposits. Other borrowings decreased $165.0 million or 49.8% from December 31,
2013, as a result of the paydown of short-term advances with the FHLB.
Securities
As of September 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 $1.4 billion
or 28.2% at September 30, 2013. The following table details the composition of available-for-sale and held-to-maturity securities.
Available-for-Sale Securities
| |
09/30/2014 |
| |
12/31/2013 |
|
(in thousands) | |
Amortized Cost | | |
Fair Value |
| |
Amortized Cost |
| |
Fair Value |
|
| |
| |
| |
| |
|
Obligations of U.S. Government sponsored entities | |
$ | 587,933 | | |
$ | 590,894 | | |
$ | 558,130 | | |
$ | 556,345 | |
Obligations of U.S. states and political subdivisions | |
| 69,704 | | |
| 70,502 | | |
| 68,216 | | |
| 67,962 | |
Mortgage-backed securities | |
| | | |
| | | |
| | | |
| | |
U.S. Government agencies | |
| 119,049 | | |
| 119,717 | | |
| 147,766 | | |
| 146,678 | |
U.S. Government sponsored entities | |
| 594,700 | | |
| 589,779 | | |
| 587,843 | | |
| 577,472 | |
Non-U.S. Government agencies or sponsored entities | |
| 276 | | |
| 280 | | |
| 306 | | |
| 311 | |
U.S. corporate debt securities | |
| 2,500 | | |
| 2,163 | | |
| 5,000 | | |
| 4,633 | |
Total debt securities | |
| 1,374,162 | | |
| 1,373,335 | | |
| 1,367,261 | | |
| 1,353,401 | |
Equity securities | |
| 1,475 | | |
| 1,421 | | |
| 1,475 | | |
| 1,410 | |
Total available-for-sale securities | |
$ | 1,375,637 | | |
$ | 1,374,756 | | |
$ | 1,368,736 | | |
$ | 1,354,811 | |
Held-to-Maturity Securities
| |
09/30/2014 | |
12/31/2013 |
(in thousands) | |
Amortized Cost |
| |
Fair Value |
| |
Amortized Cost |
| |
Fair Value |
|
Obligations of U.S. Government sponsored entities | |
$ | 30,869 | | |
$ | 30,672 | | |
$ | 0 | | |
$ | 0 | |
Obligations of U.S. states and political subdivisions | |
$ | 16,739 | | |
$ | 17,345 | | |
$ | 18,980 | | |
$ | 19,625 | |
Total held-to-maturity debt securities | |
$ | 47,608 | | |
$ | 48,017 | | |
$ | 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 nine 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 September 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 September 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 maintained a trading portfolio
with a fair value of $9.5 million as of September 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 nine months ended September 30, 2014. For the three and
nine months ended September 30, 2014, net mark-to-market losses related to the securities trading portfolio were $87,000 and $181,000,
respectively, compared to net mark-to-market losses for the three and nine months ended September 30, 2013 of $87,000 and $472,000,
respectively.
Loans and Leases
Loans and leases at September 30, 2014 and December 31, 2013 were as follows:
| |
09/30/2014 | |
12/31/2013 |
(in thousands) | |
Originated |
| |
Acquired |
| |
Total Loans and Leases |
| |
Originated |
| |
Acquired |
| |
Total Loans and Leases |
|
Commercial and industrial | |
| |
| |
| |
| |
| |
|
Agriculture | |
$ | 49,828 | | |
$ | 0 | | |
$ | 49,828 | | |
$ | 74,788 | | |
$ | 0 | | |
$ | 74,788 | |
Commercial and industrial other | |
| 627,290 | | |
| 102,601 | | |
| 729,891 | | |
| 562,439 | | |
| 128,503 | | |
| 690,942 | |
Subtotal commercial and industrial | |
| 677,118 | | |
| 102,601 | | |
| 779,719 | | |
| 637,227 | | |
| 128,503 | | |
| 765,730 | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction | |
| 51,988 | | |
| 41,313 | | |
| 93,301 | | |
| 46,441 | | |
| 39,353 | | |
| 85,794 | |
Agriculture | |
| 57,158 | | |
| 3,182 | | |
| 60,340 | | |
| 52,627 | | |
| 3,135 | | |
| 55,762 | |
Commercial real estate other | |
| 960,346 | | |
| 321,714 | | |
| 1,282,060 | | |
| 903,320 | | |
| 366,438 | | |
| 1,269,758 | |
Subtotal commercial real estate | |
| 1,069,492 | | |
| 366,209 | | |
| 1,435,701 | | |
| 1,002,388 | | |
| 408,926 | | |
| 1,411,314 | |
Residential real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity | |
| 182,994 | | |
| 58,459 | | |
| 241,453 | | |
| 171,809 | | |
| 67,183 | | |
| 238,992 | |
Mortgages | |
| 685,989 | | |
| 33,200 | | |
| 719,189 | | |
| 658,966 | | |
| 35,336 | | |
| 694,302 | |
Subtotal residential real estate | |
| 868,983 | | |
| 91,659 | | |
| 960,642 | | |
| 830,775 | | |
| 102,519 | | |
| 933,294 | |
Consumer and other | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Indirect | |
| 18,825 | | |
| 0 | | |
| 18,825 | | |
| 21,202 | | |
| 5 | | |
| 21,207 | |
Consumer and other | |
| 34,327 | | |
| 1,119 | | |
| 35,446 | | |
| 32,312 | | |
| 1,219 | | |
| 33,531 | |
Subtotal consumer and other | |
| 53,152 | | |
| 1,119 | | |
| 54,271 | | |
| 53,514 | | |
| 1,224 | | |
| 54,738 | |
Leases | |
| 8,317 | | |
| 0 | | |
| 8,317 | | |
| 5,563 | | |
| 0 | | |
| 5,563 | |
Covered loans | |
| 0 | | |
| 20,910 | | |
| 20,910 | | |
| 0 | | |
| 25,868 | | |
| 25,868 | |
Total loans and leases | |
| 2,677,062 | | |
| 582,498 | | |
| 3,259,560 | | |
| 2,529,467 | | |
| 667,040 | | |
| 3,196,507 | |
Less: unearned income and deferred costs and fees | |
| (2,091 | ) | |
| 0 | | |
| (2,091 | ) | |
| (2,223 | ) | |
| 0 | | |
| (2,223 | ) |
Total loans and leases, net of unearned income and deferred costs
and fees | |
$ | 2,674,971 | | |
$ | 582,498 | | |
$ | 3,257,469 | | |
$ | 2,527,244 | | |
$ | 667,040 | | |
$ | 3,194,284 | |
Residential real estate loans, including home
equity loans at September 30, 2014 were $960.6 million, up $27.3 million or 2.9% compared to December 31, 2013, and comprised 29.5%
of total loans and leases. 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 September 30, 2014 is insignificant. The Company has never had to repurchase a
loan sold with recourse.
During the first nine months of 2014 and 2013,
the Company sold residential mortgage loans totaling $18.7 million and $6.9 million, respectively, and realized gains on these
sales of $345,000 and $212,000, 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 $1.1 million
at September 30, 2014 and $1.0 million at 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 44.1% of total loans as of September 30, 2014. Commercial and industrial loans at September 30, 2014 were $779.7
million, and represented 23.9% of total loans. As of September 30, 2014, agriculturally-related loans totaled $110.2 million or
3.4% 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 $38.6 million at September 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 $543.9 million
at September 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 September 30, 2014, acquired loans included
$20.9 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 September 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 September 30, 2014, management considers the allowance to be appropriate. Under 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 loan losses by type.
(in thousands) | |
09/30/2014 |
| |
12/31/2013 |
| |
09/30/2013 | |
| |
| |
| |
|
Allowance for originated loans and leases | |
| |
| |
|
Commercial and industrial | |
$ | 8,858 | | |
$ | 8,406 | | |
$ | 7,738 | |
Commercial real estate | |
| 10,682 | | |
| 10,459 | | |
| 10,897 | |
Residential real estate | |
| 5,423 | | |
| 5,771 | | |
| 5,309 | |
Consumer and other | |
| 2,222 | | |
| 2,059 | | |
| 1,778 | |
Leases | |
| 0 | | |
| 5 | | |
| 0 | |
Total | |
$ | 27,185 | | |
$ | 26,700 | | |
$ | 25,722 | |
| |
| | | |
| | | |
| | |
(in thousands) | |
09/30/2014 |
| |
12/31/2013 |
| |
09/30/2013 | |
| |
| |
| |
|
Allowance for acquired loans | |
| |
| |
|
Commercial and industrial | |
$ | 95 | | |
$ | 168 | | |
$ | 51 | |
Commercial real estate | |
| 360 | | |
| 770 | | |
| 437 | |
Residential real estate | |
| 128 | | |
| 274 | | |
| 163 | |
Consumer and other | |
| 18 | | |
| 58 | | |
| 35 | |
Total | |
$ | 601 | | |
$ | 1,270 | | |
$ | 686 | |
As of
September 30, 2014, the total allowance for loan and lease losses was $27.8 million, which was comparable to year-end 2013. Growth
in the originated loan portfolio was offset by improved asset quality. 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 108.9% of nonperforming loans and leases as of September 30, 2014, compared to 71.7% at December 31, 2013, and 61.2% at
September 30, 2013.
The Company’s
allowance for originated loan and lease losses totaled $27.2 million at September 30, 2014, which represented 1.02% of total originated
loans which was comparable to prior quarter, and 1.06% at September 30, 2013. Originated loans internally-classified as Special
Mention, Substandard and Doubtful totaled $53.7 million at September 30, 2014, which were in down $3.0 million or 5.3% compared
to prior quarter, and down $26.2 million or 32.8% compared to September 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 decrease in the residential real
estate allocation compared to year end 2013, 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 and growth in the commercial portfolio.
The allowance
for acquired loans at September 30, 2014 was $601,000, down $668,000 or 52.6% compared to year-end 2013. The amount of acquired
loans internally-classified as Special Mention, Substandard and Doubtful totaled $31.6 million at September 30, 2014, down from
$50.9 million at year-end 2013 and $66.4 million at September 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 $5.0 million at September 30, 2014.
Activity in the Company’s allowance for loan and lease losses
during the nine months of 2014 and 2013 is illustrated in the table below.
Analysis of the Allowance for Originated Loan and Lease Losses
(in thousands) | |
09/30/2014 |
| |
09/30/2013 |
|
Average originated loans outstanding during period | |
$ | 2,586,982 | | |
$ | 2,260,793 | |
Balance of originated allowance at beginning of year | |
$ | 26,700 | | |
$ | 24,643 | |
| |
| | | |
| | |
ORIGINATED LOANS CHARGED-OFF: | |
| | | |
| | |
Commercial and industrial | |
| 275 | | |
| 487 | |
Commercial real estate | |
| 619 | | |
| 539 | |
Residential real estate | |
| 385 | | |
| 455 | |
Consumer and other | |
| 952 | | |
| 1,040 | |
Total loans charged-off | |
$ | 2,231 | | |
$ | 2,521 | |
| |
| | | |
| | |
RECOVERIES OF ORIGINATED LOANS PREVIOUSLY CHARGED-OFF: | |
| | | |
| | |
Commercial and industrial | |
| 557 | | |
| 1,490 | |
Commercial real estate | |
| 1,506 | | |
| 457 | |
Residential real estate | |
| 87 | | |
| 32 | |
Consumer and other | |
| 375 | | |
| 296 | |
Total loans recoveries | |
$ | 2,525 | | |
$ | 2,275 | |
Net loans (recovered) charged-off | |
| (294 | ) | |
| 246 | |
Additions to originated allowance charged to operations | |
| 191 | | |
| 1,325 | |
Balance of originated
allowance at end of period | |
$ | 27,185 | | |
$ | 25,722 | |
Allowance for originated
loans and leases as a percentage of originated loans and leases | |
| 1.02 | % | |
| 1.06 | % |
Annualized net (recoveries)
charge-offs on originated loans to average total originated loans and leases during the period | |
| (0.02 | %) | |
| 0.01 | % |
Analysis of the Allowance for Acquired Loan Losses
(in thousands) | |
09/30/2014 |
| |
09/30/2013 |
|
Average acquired loans outstanding during period | |
$ | 631,389 | | |
$ | 765,053 | |
Balance of acquired allowance at beginning of year | |
| 1,270 | | |
| 0 | |
| |
| | | |
| | |
ACQUIRED LOANS CHARGED-OFF: | |
| | | |
| | |
Commercial and industrial | |
| 243 | | |
| 2,930 | |
Commercial real estate | |
| 631 | | |
| 32 | |
Residential real estate | |
| 345 | | |
| 577 | |
Consumer and other | |
| 10 | | |
| 25 | |
Total loans charged-off | |
$ | 1,229 | | |
$ | 3,564 | |
| |
| | | |
| | |
Net loans charged-off | |
| 1,229 | | |
| 3,564 | |
Additions to acquired allowance charged to operations | |
| 560 | | |
| 4,250 | |
Balance of acquired allowance at end of period | |
$ | 601 | | |
$ | 686 | |
Allowance for acquired loans as a percentage of acquired loans outstanding acquired loans and leases | |
| 0.10 | % | |
| 0.09 | % |
Annualized net charge-offs on acquired loans as a percentage of average acquired loans and leases outstanding during the period | |
| 0.26 | % | |
| 0.67 | % |
Annualized total net charge-offs as a percentage of average loans and leases outstanding during the period | |
| 0.04 | % | |
| 0.12 | % |
Net loan and lease (recoveries)/charge-offs
totaled $(328,000) and $935,000 for the three and nine months ended September 30, 2014, compared to $1.1 million and $3.8 million
for the same periods in 2013. Recoveries in originated commercial loans in 2014 were mainly related to one larger commercial relationship
that was charged off in 2012. Annualized net charge offs for the period ended September 30, 2014 as a percentage of average total
loans and leases was 0.04% compared to 0.09% for the twelve months ended December 31, 2013 and 0.17% for the nine months ended
September 30, 2013. The most recent peer percentage is 0.15%. 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 June 30, 2014, the one most
recent data available. The gross charge-offs in the acquired commercial real estate in 2014 are mainly related to one loan that
was previously provided for in the allowance calculation and that was charged-off in the second quarter.
The (credit)/provision for loan and lease losses
was $(59,000) and $751,000 for the three and nine months ended September 30, 2014, compared to $2.0 million and $5.6 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 compared to the same period last year.
Analysis of Past Due and Nonperforming
Loans
(in thousands) | |
09/30/20141 |
| |
12/31/20131 |
| |
09/30/20131 |
|
Loans 90 days past due and accruing | |
| |
| |
|
Commercial and industrial | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
Commercial real estate | |
| 0 | | |
| 161 | | |
| 140 | |
Residential real estate | |
| 395 | | |
| 446 | | |
| 1,077 | |
Total loans 90 days past due and accruing | |
| 395 | | |
| 607 | | |
| 1,217 | |
Nonaccrual loans2 | |
| | | |
| | | |
| | |
Commercial and industrial | |
| 2,400 | | |
| 1,679 | | |
| 2,767 | |
Commercial real estate | |
| 8,378 | | |
| 23,364 | | |
| 25,860 | |
Residential real estate | |
| 10,087 | | |
| 13,086 | | |
| 13,082 | |
Consumer and other | |
| 452 | | |
| 254 | | |
| 180 | |
Total nonaccrual loans | |
| 21,317 | | |
| 38,383 | | |
| 41,889 | |
Troubled debt restructurings not included above | |
| 3,800 | | |
| 45 | | |
| 46 | |
Total nonperforming loans and leases | |
| 25,512 | | |
| 39,035 | | |
| 43,152 | |
Other real estate owned | |
| 6,533 | | |
| 4,253 | | |
| 6,264 | |
Total nonperforming assets | |
$ | 32,045 | | |
$ | 43,288 | | |
$ | 49,416 | |
Allowance as a percentage of nonperforming loans and leases
| |
| 108.92 | % | |
| 71.65 | % | |
| 61.20 | % |
Total nonperforming loans and leases as percentage of total
loans and leases | |
| 0.78 | % | |
| 1.22 | % | |
| 1.38 | % |
Total nonperforming assets as percentage of total assets
| |
| 0.63 | % | |
| 0.87 | % | |
| 1.00 | % |
1 The September 30, 2014, December 31, 2013, and September 30, 2013 columns in the above
table exclude $4.3 million, $7.0 million, and $13.5 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 September 30, 2014, December 31, 2013, and September 30, 2013 include $5.0 million and $8.5 million, and $8.0 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
0.63% of total assets at September 30, 2014, compared to 0.87% at December 31, 2013, and 1.00% at September 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 1.47% at June 30, 2014.
Total nonperforming loans and leases were
down $13.5 million or 34.6% from year end 2013, and down $17.6 million or 40.9% from September 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 payoffs of two large commercial relationships during the nine
months ended September 30, 2014. In addition, one larger commercial real estate property was acquired through foreclosure
during the second quarter of 2014 and is included in the table above under the caption ‘Other Real Estate
Owned’.
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 September 30, 2014 the Company had $5.1 million in TDRs, of that total $1.3 million
were reported as nonaccrual and $3.8 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 $13.5 million at September 30, 2014, down 49.8% 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 $13.7 million at September 30, 2014, $29.0 million at December 31, 2013, and $32.6 million at
September 30, 2013. At September 30, 2014 there was a specific reserve of $462,000 on impaired loans compared to $250,000 of specific
reserves at December 31, 2013 and $976,000 of specific reserves at September 30, 2013. The specific reserve of $462,000 reported
at September 30, 2014 includes a specific reserve of $302,000 on the originated portfolio that includes two loans with balances
totaling $509,000, and a specific reserve of $160,000 on the acquired portfolio that includes 3 loans with balances totaling $715,000.
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 108.9% at September 30, 2014,
improved from 71.7% in December 31, 2013, and 61.2% at September 30, 2013. The improvement in the ratio reflects the decrease in
nonperforming loans over the year as well as an increase in the total allowance. 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. The Company’s peer group ratio as provided by the Federal Reserve
Bank was 131.3% as of June 30, 2014.
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, identified 34 commercial relationships from the originated portfolio and
27 commercial relationships from the acquired portfolio totaling $19.2 million and $12.4 million, respectively at September
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 34 commercial relationships in the originated portfolio at September 30, 2014, that were Substandard,
there were 6 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $13.5 million, the largest of
which was $3.6 million. Of the 27 commercial relationships from the acquired loan portfolio at September 30, 2014, there were
2 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $2.9 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 $490.6 million at September
30, 2014, an increase of $32.6 million or 7.1% 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 $2.9
million, from $346.1 million at December 31, 2013, to $349.0 million at September 30, 2014. The increase is primarily attributable
to the following: $2.2 million related to shares issued for dividend reinvestment, $1.5 million related to shares issued under
the employee stock ownership plan, $1.1 million related to stock-based compensation, and $712,000 related to shares issued for
the exercise of stock options. These were partially offset by $2.9 million related to the Company’s repurchase of shares
under a repurchase program authorized by the Company’s Board of Directors. Retained earnings increased by $21.6 million from
$137.1 million at December 31, 2013, to $158.7 million at September 30, 2014, reflecting net income of $39.4 million less dividends
paid of $17.8 million. Accumulated other comprehensive loss decreased from a net loss of $25.1 million at December 31, 2013 to
a net loss of $16.8 million at September 30, 2014, reflecting a $7.8 million increase in unrealized gains on available-for-sale
securities due to a decrease in market rates, and a $481,000 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 nine months
of 2014 totaled approximately $17.8 million, representing 45.2% of year to date 2014 earnings. Cash dividends of $1.20 per common
share paid in the first nine months of 2014 were up 5.3% over cash dividends of $1.14 per common share paid in the first nine 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.
During the third quarter of 2014, the Company repurchased 65,059 shares at an average price of $45.06.
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 September 30, 2014, compared to the regulatory capital requirements for “well capitalized” institutions.
REGULATORY CAPITAL ANALYSIS
September 30, 2014 | |
Actual |
| |
Well Capitalized Requirement |
|
(dollar amounts in thousands) | |
Amount |
| |
Ratio |
| |
Amount |
| |
Ratio |
|
Total Capital (to risk weighted assets) | |
$ | 466,402 | | |
| 13.92 | % | |
$ | 334,971 | | |
| 10.00 | % |
Tier 1 Capital (to risk weighted assets) | |
$ | 438,203 | | |
| 13.08 | % | |
$ | 200,982 | | |
| 6.00 | % |
Tier 1 Capital (to average assets) | |
$ | 438,203 | | |
| 8.85 | % | |
$ | 247,512 | | |
| 5.00 | % |
As illustrated above, the Company’s capital
ratios on September 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 September 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 September 30, 2014. Tier 1 capital as a percent
of average assets was 8.9% at September 30, 2014 up from 8.5% at year end December 31, 2013.
As of September 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 September 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 TRUP, 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 $4.2 billion at September 30, 2014
increased $265.6 million or 6.7% from December 31, 2013. The increase from year-end 2013 was comprised mainly of increases in
money market savings and interest bearing checking deposits (up $120.0 million), non interest bearing deposits (up $80.5 million)
and time deposit accounts (up $65.1 million).
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 $3.4 billion increased $132.8 million at September
30, 2014 compared to year-end 2013. Core deposits represented 81.3% of total deposits at September 30, 2014, compared to 83.4%
of total deposits at December 31, 2013.
Municipal money market savings and interest
checking accounts of $709.0 million at September 30, 2014 increased $108.7 million or 18.1% 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 $41.8 million at September 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 $86.6
million at September 30, 2014 and included $55.0 million with the FHLB and $31.6 million with a large financial institution. Wholesale
repurchase agreements totaled $112.4 million at December 31, 2013.
The Company’s
other borrowings totaled $166.5 million at September 30, 2014, down $165.0 million or 49.8% from $331.5 million at December 31,
2013. Borrowings at September 30, 2014 included $42.0 million in FHLB overnight advances, $111.0 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 $111.0 million in FHLB term advance at September
30, 2014, $71.0 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 $260,000 (net mark-to-market gain of $260,000) over
the nine months ended September 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 $1.1 billion at September 30, 2014
decreased $71.5 million or 6.2% as compared to year end 2013. Non-core funding sources, as a percentage of total liabilities, were
23.6% at September 30, 2014, compared to 25.4% at December 31, 2013. The decrease in non-core funding sources reflects the repayment
of overnight borrowings with the FHLB as a result of deposit growth.
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 September 30, 2014 and December
31, 2013, respectively, were either pledged or sold under agreements to repurchase. Pledged securities represented 77.5% of total
securities at September 30, 2014, compared to 74.7% of total securities at December 31, 2013.
Cash and cash equivalents totaled $85.1 million as of September
30, 2014 which was relatively 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 $59.6 million on September 30, 2014. The Company
also had $9.5 million of securities designated as trading securities at September 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 $709.8 million at September
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 September 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 September 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 September 30, 2014, total unencumbered residential mortgage
loans and securities of the Company were $699.3 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.
Item
3. Quantitative and Qualitative Disclosure About Market Risk
Interest rate risk is the primary market risk
category associated with the Company’s operations. Interest rate risk refers to the volatility of earnings caused by changes
in interest rates. The Company manages interest rate risk using income simulation to measure interest rate risk inherent in its
on-balance sheet and off-balance sheet financial instruments at a given point in time. The simulation models are used to estimate
the potential effect of interest rate shifts on net interest income for future periods. Each quarter, the Company’s Asset/Liability
Management Committee reviews the simulation results to determine whether the exposure of net interest income to changes in interest
rates remains within levels approved by the Company’s Board of Directors. The Committee also considers strategies to manage
this exposure and incorporates these strategies into the investment and funding decisions of the Company. The Company does not
currently use derivatives, such as interest rate swaps, to manage its interest rate risk exposure, but may consider such instruments
in the future.
The Company’s Board of Directors has
set a policy that interest rate risk exposure will remain within a range whereby net interest income will not decline by more than
10% in one year as a result of a 100 basis point parallel change in rates. Based upon the simulation analysis performed as of August
31, 2014 a 200 basis point parallel upward change in interest rates over a one-year time frame would result in a one-year decrease
in net interest income from the base case of approximately 0.5%, while a 100 basis point parallel decline in interest rates over
a one-year period would result in an decrease in one-year net interest income from the base case of 1.2%. The simulation assumes
no balance sheet growth and no management action to address balance sheet mismatches.
If rates rise in a parallel fashion (+200 basis
points over 12 months, or +400 basis points over 24 months), net interest income is expected to trend slightly below the base assumption,
as upward adjustments to rate sensitive deposits and short-term funding outpace increases to asset yields which are concentrated
in intermediate to longer-term products. Once market rates stabilize, increases to funding costs dissipate while asset yields continue
to cycle higher. As a result, net interest income improves for the remainder of the projection period.
Although the simulation model is useful in
identifying potential exposure to interest rate movements, actual results may differ from those modeled as the repricing, maturity,
and prepayment characteristics of financial instruments may change to a different degree than modeled. In addition, the model does
not reflect actions that management may employ to manage the Company’s interest rate risk exposure. The
Company’s current liquidity profile, capital position, and growth prospects, offer a level of flexibility for management
to take actions that could offset some of the negative effects of unfavorable movements in interest rates. Management
believes the current exposure to changes in interest rates is not significant in relation to the earnings and capital strength
of the Company.
In addition
to the simulation analysis, management uses an interest rate gap measure. The table below is a Condensed Static Gap Report, which
illustrates the anticipated repricing intervals of assets and liabilities as of September 30, 2014. The Company’s one-year
net interest rate gap was a negative $226.9 million or 4.46% of total assets at September 30, 2014, compared with a negative $288.7
million or 5.77% of total assets at December 31, 2013. A negative gap position exists when the amount of interest-bearing liabilities
maturing or repricing exceeds the amount of interest-earning assets maturing or repricing within a particular time period. This
analysis suggests that the Company’s net interest income is moderately more vulnerable to an increasing rate environment
than it is to a prolonged declining interest rate environment. An interest rate gap measure could be significantly affected by
external factors such as a rise or decline in interest rates, loan or securities prepayments, and deposit withdrawals.
Condensed Static Gap –September 30, 2014 | |
Repricing Interval |
| |
|
| |
| |
| |
| |
|
| |
|
(in thousands) | |
Total | | |
0-3 months | | |
3-6 months | | |
6-12 months | | |
Cumulative 12 months | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-earning assets1 | |
$ | 4,706,012 | | |
$ | 956,999 | | |
$ | 242,673 | | |
$ | 407,767 | | |
$ | 1,607,439 | |
Interest-bearing liabilities | |
| 3,573,601 | | |
| 1,405,681 | | |
| 174,952 | | |
| 253,679 | | |
| 1,834,312 | |
Net gap position | |
| | | |
| (448,682 | ) | |
| 67,721 | | |
| 154,088 | | |
| (226,873 | ) |
Net gap position as a percentage of total assets | |
| | | |
| (8.81 | %) | |
| 1.33 | % | |
| 3.03 | % | |
| (4.46 | %) |
1 Balances of available securities are shown at amortized cost
Item 4. Controls and Procedures
Evaluation of Disclosure Controls
and Procedures
The Company’s management, with the participation
of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation
of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934,
as amended) as of September 30, 2014. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial
Officer concluded that, as of the end of the period covered by this Report on Form 10-Q, the Company’s disclosure controls
and procedures were effective.
Changes in Internal Control Over
Financial Reporting
There were no changes in the Company’s
internal control over financial reporting that occurred during the quarter ended September 30, 2014, that materially affected,
or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
There have been no material changes in the
risk factors previously disclosed under Item 1A. of the Company’s Annual Report on Form 10-K, as amended, for the fiscal
year ended December 31, 2013.
Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds
Issuer Purchases of Equity Securities
|
|
Total Number of Shares Purchased (a) |
| |
Average Price Paid Per Share (b) |
| |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (c) |
| |
Maximum Number of Shares that May Yet Be Purchased Under the Plans or
Programs (d) |
|
|
|
| |
| |
| |
|
July 1, 2014 through July 31, 2014 | |
| 2,010 | | |
$ | 48.23 | | |
| 0 | | |
| 400,000 | |
| |
| | | |
| | | |
| | | |
| | |
August 1, 2014 through August 31, 2014 | |
| 27,558 | | |
| 45.09 | | |
| 26,909 | | |
| 373,091 | |
| |
| | | |
| | | |
| | | |
| | |
September 1, 2014 through September 30, 2014 | |
| 38,150 | | |
| 45.03 | | |
| 38,150 | | |
| 334,941 | |
| |
| | | |
| | | |
| | | |
| | |
Total | |
| 67,718 | | |
$ | 45.15 | | |
| 65,059 | | |
| 334,941 | |
Included in the table above are 2,010 shares
purchased in July 2014, at an average cost of $48.23 and 649 shares purchased in August 2014, at an average cost of $44.50, in
each case by the trustee of the rabbi trust established by the Company under the Company’s Amended and Restated Retainer
Plan For Eligible Directors of Tompkins Financial Corporation and its wholly-owned Subsidiaries. The shares purchased were part
of the director deferred compensation under that plan.
On July 24, 2014, the Company’s Board
of Directors authorized a new stock repurchase plan for the Company to repurchase up to 400,000 shares of the Company’s common
stock. Purchases may be made on the open market or in privately negotiated transactions over the 24 months following adoption of
the plan. The repurchase program may be suspended, modified or terminated at any time for any reason. During the third quarter
of 2014, the Company repurchased 65,059 shares at an average price of $45.06.
Recent
Sales of Unregistered Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosure
Not applicable
Item 5. Other Information
On September 2, 2014, the Company and James W. Fulmer, Vice
Chairman of the Company, entered into an amendment to Mr. Fulmer’s Supplemental Executive Retirement Agreement dated
December 28, 2005. A copy of the amendment is being filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.
Item 6. Exhibits
The information called for by this item is incorporated by reference
to the Exhibit Index included in this Quarterly Report on Form 10-Q, immediately following the signature page.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 10, 2014
TOMPKINS FINANCIAL CORPORATION
By: |
/S/ Stephen S. Romaine |
|
|
Stephen S. Romaine |
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer)
|
|
|
|
|
By: |
/S/ Francis M. Fetsko |
|
|
Francis M. Fetsko |
|
|
Executive Vice President, Chief Financial Officer, and Chief Operating Officer |
|
|
(Principal Financial Officer) |
|
|
(Principal Accounting Officer) |
|
EXHIBIT INDEX
Exhibit Number |
Description |
Pages |
|
|
|
10.1 |
Amendment to Supplemental Executive
Retirement Agreement between James W. Fulmer and the Company (f/k/a Tompkins Trustco. Inc.), dated as of September 2,
2014. |
|
|
|
|
31.1 |
Certification of Principal Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
|
|
|
|
31.2 |
Certification of Principal Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
|
|
|
|
32.1 |
Certification of Principal Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350. |
|
|
|
|
32.2 |
Certification of Principal Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350. |
|
|
|
|
101 |
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Condition as of September 30, 2014 and December 31, 2013; (ii) Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30,2014 and 2013; (iv)Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013; (v) Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2014 and 2013; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements. |
|
|
|
|
70
Tompkins Financial Corporation 10-Q
Exhibit 10.1
AMENDMENT TO
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Amendment (the “Amendment”)
to the Supplemental Executive Retirement Agreement dated September 2, 2014 between Tompkins Trustco, Inc. and James W. Fulmer (the
“Agreement”), is entered into between Tompkins Financial Corporation, as successor to Tompkins Trustco, Inc., with
offices at 110 The Commons, Ithaca, New York 14851 (the “Company”), and James W. Fulmer, residing at 38 Wolcott St,
Leroy, NY (the “Executive”).
IT IS AGREED AS FOLLOWS:
| 1. | For good and valuable consideration, the receipt of which is hereby acknowledged by the Company
and the Executive, the Agreement is hereby modified to eliminate the provisions requiring the reduction of the Executive’s
retirement benefit if the Executive’s Retirement Date occurs prior to the Executive attaining age sixty-five (65), and the
retirement benefit payable to the Executive shall be unreduced on account of the Executive’s attained age at his Retirement
Date. |
| | |
| 2. | Except as modified by this Amendment, the remaining provisions of the Agreement shall remain in
full force and effect. |
| | |
| 3. | This Amendment shall be effective on the date of signing set forth below. |
IN WITNESS WHEREOF, this
Agreement has been executed on this second day of September, 2014.
|
|
|
TOMPKINS FINANCIAL CORPORATION |
|
|
|
|
|
|
|
|
By: |
/s/ Kathleen Manley |
|
|
|
Name: |
Kathleen A. Manley |
ATTEST: |
/s/ Cindy A. Cute |
|
Title: |
AVP, Corporate Secretary |
|
|
|
|
|
|
|
|
By: |
/s/
James W. Fulmer |
ATTEST: |
/s/ Heather Robbins |
|
Name: |
James W. Fulmer |
Tompkins Financial Corporation 10-Q
Exhibit 31.1
CERTIFICATION
I, Stephen S. Romaine, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of Tompkins Financial Corporation;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in
the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 10, 2014
/S/Stephen S. Romaine |
|
|
Stephen S. Romaine |
|
|
|
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
Tompkins Financial Corporation 10-Q
Exhibit 31.2
CERTIFICATION
I, Francis M. Fetsko, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of Tompkins Financial Corporation;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in
the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 10, 2014
/S/ Francis M. Fetsko |
|
|
Francis M. Fetsko |
|
|
Executive Vice President, Chief Financial Officer, and Chief Operating Officer |
|
|
(Principal Financial Officer) |
|
|
(Principal Accounting Officer) |
|
|
Tompkins Financial Corporation 10-Q
Exhibit 32.1
CERTIFICATION
In connection with the filing of the Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2014 (the “Report”) by Tompkins Financial Corporation
(the “Company”), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
The Report fully complies with the requirements
of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and
The information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written
statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
November 10, 2014
|
|
/S/ Stephen S. Romaine |
|
|
Stephen S. Romaine |
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
Tompkins Financial Corporation 10-Q
Exhibit 32.2
CERTIFICATION
In connection with the filing of the Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2014 (the “Report”) by Tompkins Financial Corporation
(the “Company”), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
The Report fully complies with the requirements
of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and
The information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement
required by Section 906 has ben provided to the Company and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
November 10, 2014
|
|
/S/ Francis M. Fetsko |
|
|
Francis M. Fetsko |
|
|
Executive Vice President, Chief Financial Officer, and Chief Operating
Officer |
|
|
(Principal Financial Officer) |
|
|
(Principal Accounting Officer) |
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