Financial Institutions, Inc., (the
Company) is a financial holding company organized in 1931 under the laws of New York State. The Company provides diversified financial services through its subsidiaries, Five Star Bank, Scott Danahy Naylon, LLC (Scott Danahy
Naylon) and Courier Capital, LLC (Courier Capital). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its
wholly-owned New York chartered banking subsidiary, Five Star Bank (the Bank). The Bank has also expanded its indirect lending network to include relationships with franchised automobile dealers in the Capital District of New York and
Northern and Central Pennsylvania. Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 44 states. Acquired on January 5, 2016, Courier Capital provides customized investment management,
investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans across nine states.
The consolidated financial
statements include the accounts of Financial Institutions, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally
accepted accounting principles (GAAP). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations.
However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income,
comprehensive income, changes in shareholders equity and cash flows for the periods indicated, and contain adequate disclosure to make the information presented not misleading. Prior years consolidated financial statements are
re-classified whenever necessary to conform to the current years presentation. These consolidated financial statements should be read in conjunction with the Companys 2015 Annual Report on Form 10-K for the year ended December 31,
2015. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.
Certain reclassifications of
previously reported amounts have been made to conform to the current year presentation. Such reclassifications did not impact net income or shareholders equity as previously reported.
The Company has evaluated events and
transactions for potential recognition or disclosure through the day the financial statements were issued and determined there were no material recognizable subsequent events.
The preparation of these financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates relate
to the determination of the allowance for loan losses, the carrying value of goodwill and deferred tax assets, and assumptions used in the defined benefit pension plan accounting.
In May 2014, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers (Topic 606).
ASU 2014-09 implements a common revenue standard that clarifies
the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the
contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The effective
date was recently deferred for one year to the interim and annual periods beginning on or after December 15, 2017. Early adoption is permitted as of the original effective date interim and annual periods beginning on or after
December 15, 2016. The Company continues to assess the potential impact of ASU 2014-09 on its accounting and disclosures.
On January 5,
2016, the Company completed the acquisition of Courier Capital Corporation, a registered investment advisory and wealth management firm with approximately $1.2 billion in assets under management. Consideration for the acquisition totaled $9.0
million and included stock of $8.1 million and $918 thousand of cash. The acquisition also included up to $2.8 million of potential future payments of stock and up to $2.2 million of potential future cash bonuses contingent upon Courier Capital
meeting certain EBITDA performance targets through 2018. In addition, the Company purchased two pieces of real property in Buffalo and Jamestown, New York used by Courier Capital for total cash considerations of $1.3 million. As a result of the
acquisition, the Company recorded goodwill of $6.0 million and other intangible assets of $3.9 million. The goodwill is not expected to be deductible for income tax purposes. Pro forma results of operations for this acquisition have not been
presented because the effect of this acquisition was not material to the Companys consolidated financial statements.
This acquisition was accounted
for under the acquisition method in accordance with FASB ASC Topic 805. Accordingly, the assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date. Due to the timing of the closing
of the acquisition, the fair values of other intangibles recorded are subject to adjustment as additional information becomes available to indicate a more accurate or appropriate fair value for the intangibles during the measurement period, which is
not to exceed one year from the acquisition date. The following table presents the allocation of acquisition cost to the assets acquired and liabilities assumed, based on their estimated fair values.
The amounts assigned to goodwill and other intangible assets for the Courier Capital acquisition are as follows:
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(3.) EARNINGS PER COMMON SHARE (EPS)
The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted EPS (in thousands, except per share amounts).
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|
|
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Three months ended
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Six months ended
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June 30,
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June 30,
|
|
|
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2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net income available to common shareholders
|
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$
|
6,785
|
|
|
$
|
6,219
|
|
|
$
|
14,038
|
|
|
$
|
12,655
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|
Weighted average common shares outstanding:
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|
|
|
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|
|
|
|
|
|
|
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Total shares issued
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14,692
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|
|
|
14,398
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|
|
|
14,686
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|
|
|
14,398
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Unvested restricted stock awards
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|
|
(75
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)
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|
(100
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)
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|
|
(77
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)
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|
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(87
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)
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Treasury shares
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|
|
(183
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)
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|
|
(220
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)
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|
|
(194
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)
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|
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(240
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)
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|
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Total basic weighted average common shares outstanding
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14,434
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|
14,078
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|
|
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14,415
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|
|
|
14,071
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Incremental shares from assumed:
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Exercise of stock options
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21
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|
|
|
22
|
|
|
|
24
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|
|
|
22
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|
Vesting of restricted stock awards
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34
|
|
|
|
21
|
|
|
|
38
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|
|
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25
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|
|
|
|
|
|
|
|
|
|
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Total diluted weighted average common shares outstanding
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14,489
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14,121
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|
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14,477
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|
14,118
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Basic earnings per common share
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$
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0.47
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|
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$
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0.44
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|
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$
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0.97
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|
|
$
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0.90
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|
|
|
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|
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Diluted earnings per common share
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$
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0.47
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$
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0.44
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$
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0.97
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$
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0.90
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|
|
|
|
|
|
|
|
|
|
|
|
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For each of the periods presented, average shares subject to the following instruments were excluded from the computation of diluted EPS because the effect would be antidilutive:
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Stock options
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Restricted stock awards
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8
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|
|
|
3
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|
|
|
4
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|
|
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2
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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8
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|
|
|
3
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|
|
|
4
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|
|
|
2
|
|
|
|
|
|
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- 11 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(4.) INVESTMENT SECURITIES
The amortized cost and fair value of investment securities are summarized below (in thousands):
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Amortized
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Unrealized
|
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Unrealized
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Fair
|
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Cost
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Gains
|
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Losses
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Value
|
|
June 30, 2016
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Securities available for sale:
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|
|
|
|
|
|
|
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|
|
|
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U.S. Government agencies and government sponsored enterprises
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$
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241,583
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|
$
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6,550
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$
|
7
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|
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$
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248,126
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Mortgage-backed securities:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
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|
|
311,783
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|
|
|
8,776
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|
|
|
|
|
|
|
320,559
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|
Federal Home Loan Mortgage Corporation
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|
|
30,743
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|
|
|
772
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|
|
|
|
|
|
|
31,515
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|
Government National Mortgage Association
|
|
|
17,390
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|
|
|
737
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|
|
|
14
|
|
|
|
18,113
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|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
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|
363
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|
|
|
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|
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|
1
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|
|
|
362
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|
Federal Home Loan Mortgage Corporation
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|
77
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|
|
|
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|
1
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|
|
|
76
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|
Privately issued
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|
|
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|
|
784
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|
784
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|
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Total mortgage-backed securities
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360,356
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|
|
|
11,069
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|
16
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|
|
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371,409
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Asset-backed securities
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|
184
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|
184
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|
|
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Total available for sale securities
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$
|
601,939
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|
|
$
|
17,803
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|
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$
|
23
|
|
|
$
|
619,719
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|
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|
|
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|
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Securities held to maturity:
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|
|
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State and political subdivisions
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|
294,507
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|
|
|
10,061
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|
|
1
|
|
|
|
304,567
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|
Mortgage-backed securities:
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|
|
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|
|
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|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
12,047
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|
|
|
290
|
|
|
|
|
|
|
|
12,337
|
|
Government National Mortgage Association
|
|
|
25,978
|
|
|
|
307
|
|
|
|
4
|
|
|
|
26,281
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
54,246
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|
|
|
525
|
|
|
|
11
|
|
|
|
54,760
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|
Federal Home Loan Mortgage Corporation
|
|
|
76,655
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|
|
|
1,038
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|
|
|
2
|
|
|
|
77,691
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|
Government National Mortgage Association
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|
|
15,116
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|
|
|
85
|
|
|
|
4
|
|
|
|
15,197
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
|
184,042
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|
|
|
2,245
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|
|
|
21
|
|
|
|
186,266
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|
Total held to maturity securities
|
|
$
|
478,549
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|
|
$
|
12,306
|
|
|
$
|
22
|
|
|
$
|
490,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and government sponsored enterprises
|
|
$
|
260,748
|
|
|
$
|
1,164
|
|
|
$
|
1,049
|
|
|
$
|
260,863
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
209,671
|
|
|
|
1,092
|
|
|
|
2,333
|
|
|
|
208,430
|
|
Federal Home Loan Mortgage Corporation
|
|
|
24,564
|
|
|
|
282
|
|
|
|
194
|
|
|
|
24,652
|
|
Government National Mortgage Association
|
|
|
26,465
|
|
|
|
943
|
|
|
|
4
|
|
|
|
27,404
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
16,998
|
|
|
|
90
|
|
|
|
154
|
|
|
|
16,934
|
|
Federal Home Loan Mortgage Corporation
|
|
|
5,175
|
|
|
|
1
|
|
|
|
91
|
|
|
|
5,085
|
|
Privately issued
|
|
|
|
|
|
|
809
|
|
|
|
|
|
|
|
809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
|
282,873
|
|
|
|
3,217
|
|
|
|
2,776
|
|
|
|
283,314
|
|
Asset-backed securities
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale securities
|
|
$
|
543,621
|
|
|
$
|
4,599
|
|
|
$
|
3,825
|
|
|
$
|
544,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
|
294,423
|
|
|
|
6,562
|
|
|
|
4
|
|
|
|
300,981
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
9,242
|
|
|
|
14
|
|
|
|
79
|
|
|
|
9,177
|
|
Government National Mortgage Association
|
|
|
25,607
|
|
|
|
33
|
|
|
|
159
|
|
|
|
25,481
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
56,791
|
|
|
|
|
|
|
|
818
|
|
|
|
55,973
|
|
Federal Home Loan Mortgage Corporation
|
|
|
80,570
|
|
|
|
|
|
|
|
1,120
|
|
|
|
79,450
|
|
Government National Mortgage Association
|
|
|
19,084
|
|
|
|
19
|
|
|
|
101
|
|
|
|
19,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
|
191,294
|
|
|
|
66
|
|
|
|
2,277
|
|
|
|
189,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity securities
|
|
$
|
485,717
|
|
|
$
|
6,628
|
|
|
$
|
2,281
|
|
|
$
|
490,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 12 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(4.) INVESTMENT SECURITIES (Continued)
Investment securities with a total fair value of $856.5 million at June 30, 2016 were pledged and
encumbered as collateral to secure public deposits and for other purposes required or permitted by law.
Sales and calls of securities available for sale
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Proceeds from sales
|
|
$
|
44,648
|
|
|
$
|
|
|
|
$
|
62,275
|
|
|
$
|
29,508
|
|
Gross realized gains
|
|
|
1,387
|
|
|
|
|
|
|
|
2,000
|
|
|
|
1,073
|
|
Gross realized losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
The scheduled maturities of securities available for sale and securities held to maturity at June 30, 2016 are shown
below (in thousands). Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
Debt securities available for sale:
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
5,042
|
|
|
$
|
5,047
|
|
Due from one to five years
|
|
|
175,737
|
|
|
|
179,161
|
|
Due after five years through ten years
|
|
|
306,996
|
|
|
|
317,590
|
|
Due after ten years
|
|
|
114,164
|
|
|
|
117,921
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
601,939
|
|
|
$
|
619,719
|
|
|
|
|
|
|
|
|
|
|
Debt securities held to maturity:
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
38,909
|
|
|
$
|
39,051
|
|
Due from one to five years
|
|
|
176,378
|
|
|
|
182,498
|
|
Due after five years through ten years
|
|
|
92,311
|
|
|
|
96,184
|
|
Due after ten years
|
|
|
170,951
|
|
|
|
173,100
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
478,549
|
|
|
$
|
490,833
|
|
|
|
|
|
|
|
|
|
|
- 13 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(4.) INVESTMENT SECURITIES (Continued)
Unrealized losses on investment securities and the fair value of the related securities, aggregated by
investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and government sponsored enterprises
|
|
$
|
9,997
|
|
|
$
|
3
|
|
|
$
|
1,637
|
|
|
$
|
4
|
|
|
$
|
11,634
|
|
|
$
|
7
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
|
1,258
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
1,258
|
|
|
|
14
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
362
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
362
|
|
|
|
1
|
|
Federal Home Loan Mortgage Corporation
|
|
|
64
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
|
1,684
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
1,684
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale securities
|
|
|
11,681
|
|
|
|
19
|
|
|
|
1,637
|
|
|
|
4
|
|
|
|
13,318
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
|
832
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
832
|
|
|
|
1
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
|
|
|
|
|
|
|
|
|
1,635
|
|
|
|
4
|
|
|
|
1,635
|
|
|
|
4
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
4,119
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
4,119
|
|
|
|
11
|
|
Federal Home Loan Mortgage Corporation
|
|
|
1,196
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
1,196
|
|
|
|
2
|
|
Government National Mortgage Association
|
|
|
3,695
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
3,695
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
|
9,010
|
|
|
|
17
|
|
|
|
1,635
|
|
|
|
4
|
|
|
|
10,645
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity securities
|
|
|
9,842
|
|
|
|
18
|
|
|
|
1,635
|
|
|
|
4
|
|
|
|
11,477
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
21,523
|
|
|
$
|
37
|
|
|
$
|
3,272
|
|
|
$
|
8
|
|
|
$
|
24,795
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and government sponsored enterprises
|
|
$
|
82,298
|
|
|
$
|
735
|
|
|
$
|
26,302
|
|
|
$
|
314
|
|
|
$
|
108,600
|
|
|
$
|
1,049
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
123,774
|
|
|
|
2,134
|
|
|
|
9,562
|
|
|
|
199
|
|
|
|
133,336
|
|
|
|
2,333
|
|
Federal Home Loan Mortgage Corporation
|
|
|
12,660
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
12,660
|
|
|
|
194
|
|
Government National Mortgage Association
|
|
|
1,405
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
1,405
|
|
|
|
4
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
7,778
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
7,778
|
|
|
|
154
|
|
Federal Home Loan Mortgage Corporation
|
|
|
4,998
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
4,998
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
|
150,615
|
|
|
|
2,577
|
|
|
|
9,562
|
|
|
|
199
|
|
|
|
160,177
|
|
|
|
2,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale securities
|
|
|
232,913
|
|
|
|
3,312
|
|
|
|
35,864
|
|
|
|
513
|
|
|
|
268,777
|
|
|
|
3,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
|
3,075
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
3,075
|
|
|
|
4
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
5,666
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
5,666
|
|
|
|
79
|
|
Government National Mortgage Association
|
|
|
8,790
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
8,790
|
|
|
|
159
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association
|
|
|
55,973
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
55,973
|
|
|
|
818
|
|
Federal Home Loan Mortgage Corporation
|
|
|
79,323
|
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
|
79,323
|
|
|
|
1,120
|
|
Government National Mortgage Association
|
|
|
14,559
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
14,559
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities
|
|
|
164,311
|
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
|
164,311
|
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity securities
|
|
|
167,386
|
|
|
|
2,281
|
|
|
|
|
|
|
|
|
|
|
|
167,386
|
|
|
|
2,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
400,299
|
|
|
$
|
5,593
|
|
|
$
|
35,864
|
|
|
$
|
513
|
|
|
$
|
436,163
|
|
|
$
|
6,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 14 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(4.) INVESTMENT SECURITIES (Continued)
The Company had 29 security positions in the investment portfolio in an unrealized loss position at
June 30, 2016 compared to 174 at December 31, 2015. At June 30, 2016, the Company had positions in 6 investment securities with a fair value of $3.3 million and a total unrealized loss of $8 thousand that have been in a continuous
unrealized loss position for more than 12 months. At June 30, 2016, there were a total of 23 securities positions in the Companys investment portfolio with a fair value of $21.5 million and a total unrealized loss of $37 thousand that had
been in a continuous unrealized loss position for less than 12 months. At December 31, 2015, the Company had positions in 14 investment securities with a fair value of $35.9 million and a total unrealized loss of $513 thousand that had been in
a continuous unrealized loss position for more than 12 months. At December 31, 2015, there were a total of 160 securities positions in the Companys investment portfolio with a fair value of $400.3 million and a total unrealized loss of
$5.6 million that had been in a continuous unrealized loss position for less than 12 months. The unrealized loss on investment securities was predominantly caused by changes in market interest rates subsequent to purchase. The fair value of most of
the investment securities in the Companys portfolio fluctuates as market interest rates change.
The Company reviews investment securities on an
ongoing basis for the presence of other than temporary impairment (OTTI) with formal reviews performed quarterly. When evaluating debt securities for OTTI, management considers many factors, including: (1) the length of time and the
extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the
intention to sell the debt security or whether it is more likely than not that it will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment
and is based on the information then available to management. There was no impairment recorded during the six months ended June 30, 2016 and 2015.
Based on managements review and evaluation of the Companys debt securities as of June 30, 2016, the debt securities with unrealized losses
were not considered to be other-than-temporarily impaired. As of June 30, 2016, the Company did not intend to sell any of the securities in a loss position and believes that it is not likely that it will be required to sell any such securities
before the anticipated recovery of amortized cost. Accordingly, as of June 30, 2016, management has concluded that unrealized losses on its investment securities are temporary and no further impairment loss has been realized in the
Companys consolidated statements of income.
- 15 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(5.) LOANS
The Companys loan portfolio consisted of the following as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Amount
Outstanding
|
|
|
Net Deferred
Loan (Fees)
Costs
|
|
|
Loans, Net
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
349,076
|
|
|
$
|
356
|
|
|
$
|
349,432
|
|
Commercial mortgage
|
|
|
615,547
|
|
|
|
(1,406
|
)
|
|
|
614,141
|
|
Residential real estate loans
|
|
|
402,538
|
|
|
|
5,829
|
|
|
|
408,367
|
|
Residential real estate lines
|
|
|
122,360
|
|
|
|
2,694
|
|
|
|
125,054
|
|
Consumer indirect
|
|
|
672,018
|
|
|
|
24,890
|
|
|
|
696,908
|
|
Other consumer
|
|
|
17,752
|
|
|
|
177
|
|
|
|
17,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,179,291
|
|
|
$
|
32,540
|
|
|
|
2,211,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
(28,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net
|
|
|
|
|
|
|
|
|
|
$
|
2,183,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
313,475
|
|
|
$
|
283
|
|
|
$
|
313,758
|
|
Commercial mortgage
|
|
|
567,481
|
|
|
|
(1,380
|
)
|
|
|
566,101
|
|
Residential real estate loans
|
|
|
376,023
|
|
|
|
5,051
|
|
|
|
381,074
|
|
Residential real estate lines
|
|
|
124,766
|
|
|
|
2,581
|
|
|
|
127,347
|
|
Consumer indirect
|
|
|
652,494
|
|
|
|
24,446
|
|
|
|
676,940
|
|
Other consumer
|
|
|
18,361
|
|
|
|
181
|
|
|
|
18,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,052,600
|
|
|
$
|
31,162
|
|
|
|
2,083,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
(27,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net
|
|
|
|
|
|
|
|
|
|
$
|
2,056,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $209
thousand and $1.4 million as of June 30, 2016 and December 31, 2015, respectively.
- 16 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(5.) LOANS (Continued)
Past Due Loans Aging
The Companys recorded investment, by loan class, in current and nonaccrual loans, as well as an analysis of accruing delinquent loans is set forth as of
the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
Than 90
Days
|
|
|
Total
Past Due
|
|
|
Nonaccrual
|
|
|
Current
|
|
|
Total Loans
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
46
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
46
|
|
|
$
|
2,312
|
|
|
$
|
346,718
|
|
|
$
|
349,076
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,547
|
|
|
|
614,000
|
|
|
|
615,547
|
|
Residential real estate loans
|
|
|
562
|
|
|
|
52
|
|
|
|
|
|
|
|
614
|
|
|
|
1,485
|
|
|
|
400,439
|
|
|
|
402,538
|
|
Residential real estate lines
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
315
|
|
|
|
182
|
|
|
|
121,863
|
|
|
|
122,360
|
|
Consumer indirect
|
|
|
1,221
|
|
|
|
233
|
|
|
|
|
|
|
|
1,454
|
|
|
|
1,015
|
|
|
|
669,549
|
|
|
|
672,018
|
|
Other consumer
|
|
|
99
|
|
|
|
25
|
|
|
|
11
|
|
|
|
135
|
|
|
|
4
|
|
|
|
17,613
|
|
|
|
17,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, gross
|
|
$
|
2,243
|
|
|
$
|
310
|
|
|
$
|
11
|
|
|
$
|
2,564
|
|
|
$
|
6,545
|
|
|
$
|
2,170,182
|
|
|
$
|
2,179,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
321
|
|
|
$
|
612
|
|
|
$
|
|
|
|
$
|
933
|
|
|
$
|
3,922
|
|
|
$
|
308,620
|
|
|
$
|
313,475
|
|
Commercial mortgage
|
|
|
68
|
|
|
|
146
|
|
|
|
|
|
|
|
214
|
|
|
|
947
|
|
|
|
566,320
|
|
|
|
567,481
|
|
Residential real estate loans
|
|
|
723
|
|
|
|
395
|
|
|
|
|
|
|
|
1,118
|
|
|
|
1,848
|
|
|
|
373,057
|
|
|
|
376,023
|
|
Residential real estate lines
|
|
|
199
|
|
|
|
34
|
|
|
|
|
|
|
|
233
|
|
|
|
235
|
|
|
|
124,298
|
|
|
|
124,766
|
|
Consumer indirect
|
|
|
1,975
|
|
|
|
286
|
|
|
|
|
|
|
|
2,261
|
|
|
|
1,467
|
|
|
|
648,766
|
|
|
|
652,494
|
|
Other consumer
|
|
|
98
|
|
|
|
13
|
|
|
|
8
|
|
|
|
119
|
|
|
|
13
|
|
|
|
18,229
|
|
|
|
18,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, gross
|
|
$
|
3,384
|
|
|
$
|
1,486
|
|
|
$
|
8
|
|
|
$
|
4,878
|
|
|
$
|
8,432
|
|
|
$
|
2,039,290
|
|
|
$
|
2,052,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no loans past due greater than 90 days and still accruing interest as of June 30, 2016 and December 31,
2015. There were $11 thousand and $8 thousand in consumer overdrafts which were past due greater than 90 days as of June 30, 2016 and December 31, 2015, respectively. Consumer overdrafts are overdrawn deposit accounts which have been
reclassified as loans but by their terms do not accrue interest.
Troubled Debt Restructurings
A modification of a loan constitutes a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulty and the modification
constitutes a concession. Commercial loans modified in a TDR may involve temporary interest-only payments, term extensions, reductions in the interest rate for the remaining term of the loan, extensions of the maturity date at an interest rate lower
than the current market rate for new debt with similar risk, collateral concessions, forgiveness of principal, forbearance agreements, or substituting or adding a new borrower or guarantor.
The following table presents information related to loans modified in a TDR during the quarterly periods indicated (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter-to-Date
|
|
|
Year-to-Date
|
|
|
|
Number of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
Number of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
1
|
|
|
$
|
214
|
|
|
$
|
214
|
|
|
|
3
|
|
|
$
|
526
|
|
|
$
|
526
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
550
|
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
$
|
214
|
|
|
$
|
214
|
|
|
|
4
|
|
|
$
|
1,076
|
|
|
$
|
1,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
2
|
|
|
$
|
1,342
|
|
|
$
|
1,342
|
|
|
|
2
|
|
|
$
|
1,342
|
|
|
$
|
1,342
|
|
Commercial mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
682
|
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
$
|
1,342
|
|
|
$
|
1,342
|
|
|
|
3
|
|
|
$
|
2,024
|
|
|
$
|
1,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 17 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(5.) LOANS (Continued)
The loans identified as a TDR by the Company during the six month periods ended June 30, 2016 and 2015
were previously reported as impaired loans prior to restructuring. Each of the loans restructured during the six months ended June 30, 2016 and 2015 were on nonaccrual status at the end of the respective period. The modifications related to
collateral concessions and forbearance agreements. Nonaccrual loans that are restructured remain on nonaccrual status, but may move to accrual status after they have performed according to the restructured terms for a period of time. The TDR
classifications did not have a material impact on the Companys determination of the allowance for loan losses because the modified loans were impaired and evaluated for a specific reserve both before and after restructuring.
There were no loans modified as a TDR within the previous 12 months that defaulted during the six months ended June 30, 2016 or 2015. For purposes of
this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due.
Impaired Loans
Management has determined that specific commercial loans on nonaccrual status and all loans that have had their terms restructured in a troubled debt
restructuring are impaired loans. The following table presents the recorded investment, unpaid principal balance and related allowance of impaired loans as of the dates indicated and average recorded investment and interest income recognized on
impaired loans for the six month periods ended as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Investment
(1)
|
|
|
Unpaid
Principal
Balance
(1)
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
1,209
|
|
|
$
|
1,752
|
|
|
$
|
|
|
|
$
|
1,678
|
|
|
$
|
|
|
Commercial mortgage
|
|
|
777
|
|
|
|
986
|
|
|
|
|
|
|
|
1,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,986
|
|
|
|
2,738
|
|
|
|
|
|
|
|
2,792
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
1,103
|
|
|
|
1,103
|
|
|
|
476
|
|
|
|
1,323
|
|
|
|
|
|
Commercial mortgage
|
|
|
770
|
|
|
|
900
|
|
|
|
131
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,873
|
|
|
|
2,003
|
|
|
|
607
|
|
|
|
1,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,859
|
|
|
$
|
4,741
|
|
|
$
|
607
|
|
|
$
|
4,625
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
$
|
1,441
|
|
|
$
|
1,810
|
|
|
$
|
|
|
|
$
|
1,352
|
|
|
$
|
|
|
Commercial mortgage
|
|
|
937
|
|
|
|
1,285
|
|
|
|
|
|
|
|
1,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,378
|
|
|
|
3,095
|
|
|
|
|
|
|
|
2,365
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
2,481
|
|
|
|
2,481
|
|
|
|
996
|
|
|
|
1,946
|
|
|
|
|
|
Commercial mortgage
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,491
|
|
|
|
2,491
|
|
|
|
1,006
|
|
|
|
2,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,869
|
|
|
$
|
5,586
|
|
|
$
|
1,006
|
|
|
$
|
4,760
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Difference between recorded investment and unpaid principal balance represents partial charge-offs.
|
- 18 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(5.) LOANS (Continued)
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current
financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors such as the fair value of collateral. The Company analyzes commercial business and commercial mortgage
loans individually by classifying the loans as to credit risk. Risk ratings are updated any time the situation warrants. The Company uses the following definitions for risk ratings:
Special Mention:
Loans classified as special mention have a potential weakness that deserves managements close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Companys credit position at some future date.
Substandard:
Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or
of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the
deficiencies are not corrected.
Doubtful:
Loans classified as doubtful have all the weaknesses inherent in those classified as
Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans that do not meet the criteria above that are analyzed individually as part of the process described above are considered
Uncriticized or pass-rated loans and are included in groups of homogeneous loans with similar risk and loss characteristics.
The following
table sets forth the Companys commercial loan portfolio, categorized by internally assigned asset classification, as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Commercial
Business
|
|
|
Commercial
Mortgage
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
Uncriticized
|
|
$
|
333,564
|
|
|
$
|
594,576
|
|
Special mention
|
|
|
8,796
|
|
|
|
15,098
|
|
Substandard
|
|
|
6,716
|
|
|
|
5,873
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
349,076
|
|
|
$
|
615,547
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Uncriticized
|
|
$
|
298,413
|
|
|
$
|
551,603
|
|
Special mention
|
|
|
4,916
|
|
|
|
9,015
|
|
Substandard
|
|
|
10,146
|
|
|
|
6,863
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
313,475
|
|
|
$
|
567,481
|
|
|
|
|
|
|
|
|
|
|
The Company utilizes payment status as a means of identifying and reporting problem and potential problem retail loans. The
Company considers nonaccrual loans and loans past due greater than 90 days and still accruing interest to be non-performing. The following table sets forth the Companys retail loan portfolio, categorized by payment status, as of the dates
indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Real Estate
Loans
|
|
|
Residential
Real Estate
Lines
|
|
|
Consumer
Indirect
|
|
|
Other
Consumer
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
401,053
|
|
|
$
|
122,178
|
|
|
$
|
671,003
|
|
|
$
|
17,737
|
|
Non-performing
|
|
|
1,485
|
|
|
|
182
|
|
|
|
1,015
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
402,538
|
|
|
$
|
122,360
|
|
|
$
|
672,018
|
|
|
$
|
17,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
374,175
|
|
|
$
|
124,531
|
|
|
$
|
651,027
|
|
|
$
|
18,340
|
|
Non-performing
|
|
|
1,848
|
|
|
|
235
|
|
|
|
1,467
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
376,023
|
|
|
$
|
124,766
|
|
|
$
|
652,494
|
|
|
$
|
18,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(5.) LOANS (Continued)
Allowance for Loan Losses
Loans and the related allowance for loan losses are presented below as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Business
|
|
|
Commercial
Mortgage
|
|
|
Real Estate
Loans
|
|
|
Real Estate
Lines
|
|
|
Consumer
Indirect
|
|
|
Other
Consumer
|
|
|
Total
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
349,076
|
|
|
$
|
615,547
|
|
|
$
|
402,538
|
|
|
$
|
122,360
|
|
|
$
|
672,018
|
|
|
$
|
17,752
|
|
|
$
|
2,179,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated for impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
2,281
|
|
|
$
|
1,532
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
|
|
$
|
346,795
|
|
|
$
|
614,015
|
|
|
$
|
402,538
|
|
|
$
|
122,360
|
|
|
$
|
672,018
|
|
|
$
|
17,752
|
|
|
$
|
2,175,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,197
|
|
|
$
|
9,496
|
|
|
$
|
1,444
|
|
|
$
|
318
|
|
|
$
|
10,696
|
|
|
$
|
374
|
|
|
$
|
28,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated for impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
466
|
|
|
$
|
129
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
|
|
$
|
5,731
|
|
|
$
|
9,367
|
|
|
$
|
1,444
|
|
|
$
|
318
|
|
|
$
|
10,696
|
|
|
$
|
374
|
|
|
$
|
27,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
292,674
|
|
|
$
|
538,034
|
|
|
$
|
95,259
|
|
|
$
|
391,645
|
|
|
$
|
641,871
|
|
|
$
|
19,141
|
|
|
$
|
1,978,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated for impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
4,643
|
|
|
$
|
3,070
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
|
|
$
|
288,031
|
|
|
$
|
534,964
|
|
|
$
|
95,259
|
|
|
$
|
391,645
|
|
|
$
|
641,871
|
|
|
$
|
19,141
|
|
|
$
|
1,970,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,334
|
|
|
$
|
9,358
|
|
|
$
|
465
|
|
|
$
|
1,198
|
|
|
$
|
10,676
|
|
|
$
|
469
|
|
|
$
|
27,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated for impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
1,247
|
|
|
$
|
707
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
|
|
$
|
4,087
|
|
|
$
|
8,651
|
|
|
$
|
465
|
|
|
$
|
1,198
|
|
|
$
|
10,676
|
|
|
$
|
469
|
|
|
$
|
25,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the changes in the allowance for loan losses for the three and six month periods ended
June 30, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Business
|
|
|
Commercial
Mortgage
|
|
|
Real Estate
Loans
|
|
|
Real Estate
Lines
|
|
|
Consumer
Indirect
|
|
|
Other
Consumer
|
|
|
Total
|
|
Three months ended June 30, 2016
|
|
Beginning balance
|
|
$
|
5,436
|
|
|
$
|
9,715
|
|
|
$
|
1,384
|
|
|
$
|
345
|
|
|
$
|
10,297
|
|
|
$
|
391
|
|
|
$
|
27,568
|
|
Charge-offs
|
|
|
(42
|
)
|
|
|
(8
|
)
|
|
|
(134
|
)
|
|
|
(47
|
)
|
|
|
(1,898
|
)
|
|
|
(119
|
)
|
|
|
(2,248
|
)
|
Recoveries
|
|
|
69
|
|
|
|
6
|
|
|
|
100
|
|
|
|
3
|
|
|
|
994
|
|
|
|
81
|
|
|
|
1,253
|
|
Provision (credit)
|
|
|
734
|
|
|
|
(217
|
)
|
|
|
94
|
|
|
|
17
|
|
|
|
1,303
|
|
|
|
21
|
|
|
|
1,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,197
|
|
|
$
|
9,496
|
|
|
$
|
1,444
|
|
|
$
|
318
|
|
|
$
|
10,696
|
|
|
$
|
374
|
|
|
$
|
28,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
5,540
|
|
|
$
|
9,027
|
|
|
$
|
1,347
|
|
|
$
|
345
|
|
|
$
|
10,458
|
|
|
$
|
368
|
|
|
$
|
27,085
|
|
Charge-offs
|
|
|
(644
|
)
|
|
|
(12
|
)
|
|
|
(180
|
)
|
|
|
(51
|
)
|
|
|
(4,396
|
)
|
|
|
(276
|
)
|
|
|
(5,559
|
)
|
Recoveries
|
|
|
169
|
|
|
|
11
|
|
|
|
125
|
|
|
|
7
|
|
|
|
2,164
|
|
|
|
203
|
|
|
|
2,679
|
|
Provision
|
|
|
1,132
|
|
|
|
470
|
|
|
|
152
|
|
|
|
17
|
|
|
|
2,470
|
|
|
|
79
|
|
|
|
4,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,197
|
|
|
$
|
9,496
|
|
|
$
|
1,444
|
|
|
$
|
318
|
|
|
$
|
10,696
|
|
|
$
|
374
|
|
|
$
|
28,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 20 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(5.) LOANS (Continued)
The following table sets forth the changes in the allowance for loan losses for the three and six month
periods ended June 30, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Business
|
|
|
Commercial
Mortgage
|
|
|
Residential
Real Estate
Loans
|
|
|
Residential
Real Estate
Lines
|
|
|
Consumer
Indirect
|
|
|
Other
Consumer
|
|
|
Total
|
|
Three months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
5,395
|
|
|
$
|
8,156
|
|
|
$
|
558
|
|
|
$
|
1,430
|
|
|
$
|
11,205
|
|
|
$
|
447
|
|
|
$
|
27,191
|
|
Charge-offs
|
|
|
(13
|
)
|
|
|
(201
|
)
|
|
|
(22
|
)
|
|
|
(154
|
)
|
|
|
(1,841
|
)
|
|
|
(154
|
)
|
|
|
(2,385
|
)
|
Recoveries
|
|
|
86
|
|
|
|
7
|
|
|
|
13
|
|
|
|
9
|
|
|
|
1,196
|
|
|
|
95
|
|
|
|
1,406
|
|
Provision (credit)
|
|
|
(134
|
)
|
|
|
1,396
|
|
|
|
(84
|
)
|
|
|
(87
|
)
|
|
|
116
|
|
|
|
81
|
|
|
|
1,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,334
|
|
|
$
|
9,358
|
|
|
$
|
465
|
|
|
$
|
1,198
|
|
|
$
|
10,676
|
|
|
$
|
469
|
|
|
$
|
27,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
5,621
|
|
|
$
|
8,122
|
|
|
$
|
570
|
|
|
$
|
1,485
|
|
|
$
|
11,383
|
|
|
$
|
456
|
|
|
$
|
27,637
|
|
Charge-offs
|
|
|
(1,154
|
)
|
|
|
(810
|
)
|
|
|
(77
|
)
|
|
|
(238
|
)
|
|
|
(4,263
|
)
|
|
|
(413
|
)
|
|
|
(6,955
|
)
|
Recoveries
|
|
|
134
|
|
|
|
96
|
|
|
|
46
|
|
|
|
19
|
|
|
|
2,301
|
|
|
|
193
|
|
|
|
2,789
|
|
Provision
|
|
|
733
|
|
|
|
1,950
|
|
|
|
(74
|
)
|
|
|
(68
|
)
|
|
|
1,255
|
|
|
|
233
|
|
|
|
4,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,334
|
|
|
$
|
9,358
|
|
|
$
|
465
|
|
|
$
|
1,198
|
|
|
$
|
10,676
|
|
|
$
|
469
|
|
|
$
|
27,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Characteristics
Commercial business loans primarily consist of loans to small to midsize businesses in our market area in a diverse range of industries. These loans are of
higher risk and typically are made on the basis of the borrowers ability to make repayment from the cash flow of the borrowers business. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise
and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrowers operations or on the value of underlying collateral, if any.
Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, potentially resulting in higher
losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties, as well as on the collateral securing the loan. Economic events or conditions in the real estate market could
have an adverse impact on the cash flows generated by properties securing the Companys commercial real estate loans and on the value of such properties.
Residential real estate loans (comprised of conventional mortgages and home equity loans) and residential real estate lines (comprised of home equity lines)
are generally made on the basis of the borrowers ability to make repayment from his or her employment and other income, but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is
generally influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral.
Consumer
indirect and other consumer loans may entail greater credit risk than residential mortgage loans and home equities, particularly in the case of other consumer loans which are unsecured or, in the case of indirect consumer loans, secured by
depreciable assets, such as automobiles or boats. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are
dependent on the borrowers continuing financial stability, and thus are more likely to be affected by adverse personal circumstances such as job loss, illness or personal bankruptcy. Furthermore, the application of various federal and state
laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.
- 21 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(6.) GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying amount of goodwill totaled $66.4 and $60.4 million as of June 30, 2016 and December 31, 2015, respectively. The Company performs a
goodwill impairment test on an annual basis as of September 30 or more frequently if events and circumstances warrant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
|
Non-Banking
|
|
|
Total
|
|
Balance, December 31, 2015
|
|
$
|
48,536
|
|
|
$
|
11,866
|
|
|
$
|
60,402
|
|
Acquisition
|
|
|
|
|
|
|
6,015
|
|
|
|
6,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
$
|
48,536
|
|
|
$
|
17,881
|
|
|
$
|
66,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangible assets added during the period relates to the Courier Capital acquisition, which was completed
on January 5, 2016. See Note 2 Business Combinations for additional information.
The Company has other intangible assets that are amortized,
consisting of core deposit intangibles and other intangibles (primarily related to customer relationships). Changes in the gross carrying amount, accumulated amortization and net book value, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Other intangibles assets:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
12,610
|
|
|
$
|
8,682
|
|
Accumulated amortization
|
|
|
(2,775
|
)
|
|
|
(2,138
|
)
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
$
|
9,835
|
|
|
$
|
6,544
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for total other intangible assets was $315 thousand and $637 thousand for the three and six months ended
June 30, 2016, $238 thousand and $481 thousand for the three and six months ended June 30, 2015, respectively. As of June 30, 2016, the estimated amortization expense of other intangible assets for the remainder of 2016 and each of
the next five years is as follows (in thousands):
|
|
|
|
|
2016 (remainder of year)
|
|
$
|
612
|
|
2017
|
|
|
1,144
|
|
2018
|
|
|
1,035
|
|
2019
|
|
|
937
|
|
2020
|
|
|
840
|
|
2021
|
|
|
738
|
|
- 22 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(7.) SHAREHOLDERS EQUITY
Common Stock
The changes in shares of common stock were
as follows for the six month periods ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Treasury
|
|
|
Issued
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at December 31, 2015
|
|
|
14,190,192
|
|
|
|
207,317
|
|
|
|
14,397,509
|
|
Common stock issued for acquisition
|
|
|
294,705
|
|
|
|
|
|
|
|
294,705
|
|
Restricted stock awards issued
|
|
|
8,800
|
|
|
|
(8,800
|
)
|
|
|
|
|
Restricted stock awards forfeited
|
|
|
(7,983
|
)
|
|
|
7,983
|
|
|
|
|
|
Stock options exercised
|
|
|
40,561
|
|
|
|
(40,561
|
)
|
|
|
|
|
Stock awards
|
|
|
2,244
|
|
|
|
(2,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at June 30, 2016
|
|
|
14,528,519
|
|
|
|
163,695
|
|
|
|
14,692,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at December 31, 2014
|
|
|
14,118,048
|
|
|
|
279,461
|
|
|
|
14,397,509
|
|
Restricted stock awards issued
|
|
|
49,084
|
|
|
|
(49,084
|
)
|
|
|
|
|
Restricted stock awards forfeited
|
|
|
(2,271
|
)
|
|
|
2,271
|
|
|
|
|
|
Stock options exercised
|
|
|
3,722
|
|
|
|
(3,722
|
)
|
|
|
|
|
Treasury stock purchases
|
|
|
(1,791
|
)
|
|
|
1,791
|
|
|
|
|
|
Stock awards
|
|
|
2,363
|
|
|
|
(2,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at June 30, 2015
|
|
|
14,184,135
|
|
|
|
213,374
|
|
|
|
14,397,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.) ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present the components of other comprehensive income (loss) for the three and six month periods ended June 30, 2016 and 2015 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
Amount
|
|
|
Tax Effect
|
|
|
Net-of-tax
Amount
|
|
Three months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain/loss during the period
|
|
$
|
6,810
|
|
|
$
|
2,629
|
|
|
$
|
4,181
|
|
Reclassification adjustment for net gains included in net income
(1)
|
|
|
(1,417
|
)
|
|
|
(547
|
)
|
|
|
(870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale and transferred securities
|
|
|
5,393
|
|
|
|
2,082
|
|
|
|
3,311
|
|
Amortization of pension and post-retirement items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
|
(12
|
)
|
|
|
(4
|
)
|
|
|
(8
|
)
|
Net actuarial losses
|
|
|
239
|
|
|
|
91
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension and post-retirement obligations
|
|
|
227
|
|
|
|
87
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$
|
5,620
|
|
|
$
|
2,169
|
|
|
$
|
3,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain/loss during the period
|
|
$
|
(9,986
|
)
|
|
$
|
(3,822
|
)
|
|
$
|
(6,164
|
)
|
Reclassification adjustment for net gains included in net income
(1)
|
|
|
(69
|
)
|
|
|
(26
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale and transferred securities
|
|
|
(10,055
|
)
|
|
|
(3,848
|
)
|
|
|
(6,207
|
)
|
Amortization of pension and post-retirement items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
|
(12
|
)
|
|
|
(4
|
)
|
|
|
(8
|
)
|
Net actuarial losses
|
|
|
235
|
|
|
|
87
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension and post-retirement obligations
|
|
|
223
|
|
|
|
83
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
$
|
(9,832
|
)
|
|
$
|
(3,765
|
)
|
|
$
|
(6,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes amounts related to the amortization/accretion of unrealized net gains and losses related to the Companys reclassification of available for sale investment securities to the held to maturity category. The
unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.
|
- 23 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(8.) ACCUMULATED OTHER COMPREHENSIVE LOSS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
Amount
|
|
|
Tax Effect
|
|
|
Net-of-tax
Amount
|
|
Six months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain/loss during the period
|
|
$
|
19,006
|
|
|
$
|
7,335
|
|
|
$
|
11,671
|
|
Reclassification adjustment for net gains included in net income
(1)
|
|
|
(2,079
|
)
|
|
|
(802
|
)
|
|
|
(1,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale and transferred securities
|
|
|
16,927
|
|
|
|
6,533
|
|
|
|
10,394
|
|
Amortization of pension and post-retirement items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
|
(24
|
)
|
|
|
(9
|
)
|
|
|
(15
|
)
|
Net actuarial losses
|
|
|
478
|
|
|
|
184
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension and post-retirement obligations
|
|
|
454
|
|
|
|
175
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$
|
17,381
|
|
|
$
|
6,708
|
|
|
$
|
10,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain/loss during the period
|
|
$
|
(3,590
|
)
|
|
$
|
(1,386
|
)
|
|
$
|
(2,204
|
)
|
Reclassification adjustment for net gains included in net income
(1)
|
|
|
(1,208
|
)
|
|
|
(466
|
)
|
|
|
(742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale and transferred securities
|
|
|
(4,798
|
)
|
|
|
(1,852
|
)
|
|
|
(2,946
|
)
|
Amortization of pension and post-retirement items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
|
(24
|
)
|
|
|
(9
|
)
|
|
|
(15
|
)
|
Net actuarial losses
|
|
|
471
|
|
|
|
181
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension and post-retirement obligations
|
|
|
447
|
|
|
|
172
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
$
|
(4,351
|
)
|
|
$
|
(1,680
|
)
|
|
$
|
(2,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes amounts related to the amortization/accretion of unrealized net gains and losses related to the Companys reclassification of available for sale investment securities to the held to maturity category. The
unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.
|
Activity in accumulated other comprehensive loss, net of tax, for the three and six month periods ended June 30, 2016 and 2015 was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Available for
Sale and
Transferred
Securities
|
|
|
Pension and
Post-
retirement
Obligations
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Three months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
6,387
|
|
|
$
|
(10,492
|
)
|
|
$
|
(4,105
|
)
|
Other comprehensive income before reclassifications
|
|
|
4,181
|
|
|
|
|
|
|
|
4,181
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
(870
|
)
|
|
|
140
|
|
|
|
(730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
3,311
|
|
|
|
140
|
|
|
|
3,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
9,698
|
|
|
$
|
(10,352
|
)
|
|
$
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
4,886
|
|
|
$
|
(10,501
|
)
|
|
$
|
(5,615
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(6,164
|
)
|
|
|
|
|
|
|
(6,164
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
(43
|
)
|
|
|
140
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
(6,207
|
)
|
|
|
140
|
|
|
|
(6,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(1,321
|
)
|
|
$
|
(10,361
|
)
|
|
$
|
(11,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 24 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(8.) ACCUMULATED OTHER COMPREHENSIVE LOSS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Available for
Sale and
Transferred
Securities
|
|
|
Pension and
Post-
retirement
Obligations
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Six months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(696
|
)
|
|
$
|
(10,631
|
)
|
|
$
|
(11,327
|
)
|
Other comprehensive income before reclassifications
|
|
|
11,671
|
|
|
|
|
|
|
|
11,671
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
(1,277
|
)
|
|
|
279
|
|
|
|
(998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
10,394
|
|
|
|
279
|
|
|
|
10,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
9,698
|
|
|
$
|
(10,352
|
)
|
|
$
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1,625
|
|
|
$
|
(10,636
|
)
|
|
$
|
(9,011
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(2,204
|
)
|
|
|
|
|
|
|
(2,204
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
(742
|
)
|
|
|
275
|
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
(2,946
|
)
|
|
|
275
|
|
|
|
(2,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
(1,321
|
)
|
|
$
|
(10,361
|
)
|
|
$
|
(11,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the amounts reclassified out of each component of accumulated other comprehensive loss for the
three and six month periods ended June 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Details About Accumulated Other
Comprehensive Loss Components
|
|
Amount Reclassified from
Accumulated Other
Comprehensive Loss
|
|
|
Affected Line Item in the
Consolidated Statement of Income
|
|
|
Three months ended
June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Realized gain on sale of investment securities
|
|
$
|
1,387
|
|
|
$
|
|
|
|
Net gain on disposal of investment securities
|
Amortization of unrealized holding gains (losses) on investment securities transferred from
available for sale to held to maturity
|
|
|
30
|
|
|
|
69
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,417
|
|
|
|
69
|
|
|
Total before tax
|
|
|
|
(547
|
)
|
|
|
(26
|
)
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
870
|
|
|
|
43
|
|
|
Net of tax
|
Amortization of pension and post-retirement items:
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
(1)
|
|
|
12
|
|
|
|
12
|
|
|
Salaries and employee benefits
|
Net actuarial losses
(1)
|
|
|
(239
|
)
|
|
|
(235
|
)
|
|
Salaries and employee benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227
|
)
|
|
|
(223
|
)
|
|
Total before tax
|
|
|
|
87
|
|
|
|
83
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140
|
)
|
|
|
(140
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassified for the period
|
|
$
|
730
|
|
|
$
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
These items are included in the computation of net periodic pension expense. See Note 10 Employee Benefit Plans for additional information.
|
- 25 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(8.) ACCUMULATED OTHER COMPREHENSIVE LOSS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Details About Accumulated Other
Comprehensive Loss Components
|
|
Amount Reclassified from
Accumulated Other
Comprehensive Loss
|
|
|
Affected Line Item in the
Consolidated Statement of Income
|
|
|
Six months ended
June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Realized gain on sale of investment securities
|
|
$
|
2,000
|
|
|
$
|
1,062
|
|
|
Net gain on disposal of investment securities
|
Amortization of unrealized holding gains (losses) on investment securities transferred from
available for sale to held to maturity
|
|
|
79
|
|
|
|
146
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,079
|
|
|
|
1,208
|
|
|
Total before tax
|
|
|
|
(802
|
)
|
|
|
(466
|
)
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,277
|
|
|
|
742
|
|
|
Net of tax
|
Amortization of pension and post-retirement items:
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
(1)
|
|
|
24
|
|
|
|
24
|
|
|
Salaries and employee benefits
|
Net actuarial losses
(1)
|
|
|
(478
|
)
|
|
|
(471
|
)
|
|
Salaries and employee benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(454
|
)
|
|
|
(447
|
)
|
|
Total before tax
|
|
|
|
175
|
|
|
|
172
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(279
|
)
|
|
|
(275
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassified for the period
|
|
$
|
998
|
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
These items are included in the computation of net periodic pension expense. See Note 10 Employee Benefit Plans for additional information.
|
- 26 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(9.) SHARE-BASED COMPENSATION PLANS
The Company maintains certain stock-based compensation plans that were approved by the Companys shareholders and are administered by the Companys
Board of Directors, or the Management Development and Compensation Committee (the MD&C Committee) of the Board. The share-based compensation plans were established to allow for the grant of compensation awards to attract, motivate
and retain employees, executive officers and non-employee directors who contribute to the success and profitability of the Company and to give such persons a proprietary interest in the Company, thereby enhancing their personal interest in the
Companys success.
The MD&C Committee approved the grant of restricted stock units (RSUs) and performance share units
(PSUs) shown in the table below to certain members of management during the first six months of 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Per Share
|
|
|
|
Underlying
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
RSUs
|
|
|
14,500
|
|
|
$
|
24.21
|
|
PSUs
|
|
|
24,084
|
|
|
|
22.94
|
|
The grant-date fair value for the RSUs granted during the six month period ended June 30, 2016 is equal to the closing
market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.
The
number of PSUs that ultimately vest is contingent on achieving specified EPS targets and specified total shareholder return (TSR) targets relative to the SNL Small Cap Bank & Thrifts Index. Thirty percent of the shares subject
to each grant will be earned based upon achievement of an EPS performance requirement for the Companys fiscal year ended December 31, 2016. The remaining seventy percent of the shares will be earned based on the Companys achievement
of a relative TSR performance requirement, on a percentile basis, compared to the SNL Small Cap Bank & Thrifts Index over a three-year performance period ended December 31, 2018. The shares earned based on the achievement of the EPS
and TSR performance requirements, if any, will vest on February 24, 2019 assuming the recipients continuous service to the Company.
The
grant-date fair value for the EPS portion of the PSUs granted during the six month period ended June 30, 2016 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected
to be paid on the underlying shares. The grant-date fair value of the TSR portion of the PSUs granted during the six month period ended June 30, 2016 was determined using the Monte Carlo simulation model on the date of grant, assuming the
following (i) expected term of 2.85 years, (ii) risk free interest rate of 0.88%, (iii) expected dividend yield of 2.99% and (iv) expected stock price volatility over the expected term of the TSR award of 24.3%.
During the six months ended June 30, 2016, the Company issued a total of 2,244 shares of common stock in-lieu of cash for the annual retainer of four
non-employee directors and granted a total of 8,800 restricted shares of common stock to non-employee directors, of which 4,400 shares vested immediately and 4,400 shares will vest after completion of a one-year service requirement. The market price
of the stock and restricted stock on the date of grant was $28.38.
The following is a summary of restricted stock award activity for the six month period
ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Market
|
|
|
|
Number of
|
|
|
Price at
|
|
|
|
Shares
|
|
|
Grant Date
|
|
Outstanding at beginning of year
|
|
|
82,908
|
|
|
$
|
17.23
|
|
Granted
|
|
|
8,800
|
|
|
|
28.38
|
|
Vested
|
|
|
(9,770
|
)
|
|
|
25.56
|
|
Forfeited
|
|
|
(7,983
|
)
|
|
|
19.47
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
73,955
|
|
|
$
|
17.22
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2016, the total unrecognized compensation cost related to the nonvested awards granted and expected to vest
was $1.3 million. This cost is expected to be recognized over a weighted-average period of 2.1 years.
- 27 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(9.) SHARE-BASED COMPENSATION PLANS (Continued)
The Company uses the Black-Scholes valuation method to estimate the fair value of its stock option awards.
There were no stock options awarded during 2016 or 2015. The following is a summary of stock option activity for the six months ended June 30, 2016 (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
Outstanding at beginning of year
|
|
|
102,249
|
|
|
$
|
19.21
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(40,561
|
)
|
|
|
19.39
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,000
|
)
|
|
|
19.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at end of period
|
|
|
59,688
|
|
|
$
|
19.07
|
|
|
|
1.3
|
|
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value (the amount by which the market price of the stock on the date of exercise exceeded the market
price of the stock on the date of grant) of option exercises for the six months ended June 30, 2016 and 2015 was $334 thousand and $39 thousand, respectively. The total cash received as a result of option exercises under stock compensation
plans for the six months ended June 30, 2016 and 2015 was $787 thousand and $165 thousand, respectively.
The Company amortizes the expense related
to stock-based compensation awards over the vesting period. Share-based compensation expense is recorded as a component of salaries and employee benefits in the consolidated statements of income for awards granted to management and as a component of
other noninterest expense for awards granted to directors. The share-based compensation expense included in the consolidated statements of income is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Salaries and employee benefits
|
|
$
|
157
|
|
|
$
|
113
|
|
|
$
|
255
|
|
|
$
|
191
|
|
Other noninterest expense
|
|
|
146
|
|
|
|
154
|
|
|
|
177
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
303
|
|
|
$
|
267
|
|
|
$
|
432
|
|
|
$
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.) EMPLOYEE BENEFIT PLANS
The components of the Companys net periodic benefit expense for its pension and post-retirement obligations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Service cost
|
|
$
|
721
|
|
|
$
|
581
|
|
|
$
|
1,442
|
|
|
$
|
1,162
|
|
Interest cost on projected benefit obligation
|
|
|
602
|
|
|
|
583
|
|
|
|
1,203
|
|
|
|
1,166
|
|
Expected return on plan assets
|
|
|
(1,150
|
)
|
|
|
(1,205
|
)
|
|
|
(2,300
|
)
|
|
|
(2,410
|
)
|
Amortization of prior service credit
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
|
(24
|
)
|
|
|
(24
|
)
|
Amortization of net actuarial losses
|
|
|
239
|
|
|
|
235
|
|
|
|
478
|
|
|
|
471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense
|
|
$
|
400
|
|
|
$
|
182
|
|
|
$
|
799
|
|
|
$
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net periodic benefit expense is recorded as a component of salaries and employee benefits in the consolidated statements
of income. The Companys funding policy is to contribute, at a minimum, an actuarially determined amount that will satisfy the minimum funding requirements determined under the appropriate sections of the Internal Revenue Code. The Company has
no minimum required contribution for the 2016 fiscal year.
- 28 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(11.) COMMITMENTS AND CONTINGENCIES
The Company has financial instruments with off-balance sheet risk established in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk extending beyond amounts recognized in the Companys
financial statements.
The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is essentially the same as that involved with extending loans to customers. The Company uses the same credit underwriting policies in making commitments and conditional obligations as for
on-balance sheet instruments.
Off-balance sheet commitments consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Commitments to extend credit
|
|
$
|
518,186
|
|
|
$
|
514,818
|
|
Standby letters of credit
|
|
|
11,750
|
|
|
|
11,746
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses which may require payment by the customer of a termination fee. Commitments may expire without being drawn upon; therefore, the total
commitment amounts do not necessarily represent future cash requirements. Each customers creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, is based on managements credit evaluation of the
borrower. Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support private borrowing
arrangements. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers.
The Company also extends rate lock agreements to borrowers related to the origination of residential mortgage loans. To mitigate the interest rate risk
inherent in these rate lock agreements, the Company may enter into forward commitments to sell individual residential mortgages. Rate lock agreements and forward commitments are considered derivatives and are recorded at fair value. Forward sales
commitments totaled $617 thousand and $1.3 million at June 30, 2016 and December 31, 2015, respectively. In addition, the net change in the fair values of these derivatives was recognized as other noninterest income or other noninterest
expense in the consolidated statements of income.
(12.) FAIR VALUE MEASUREMENTS
Determination of Fair Value Assets Measured at Fair Value on a Recurring and Nonrecurring Basis
Valuation Hierarchy
The fair value of an asset or
liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or
liability. ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs. There have been no changes in the valuation techniques used during the current period. The fair value hierarchy is as follows:
|
|
|
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
|
|
|
|
Level 2
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities,
prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
|
|
|
|
Level 3
Unobservable inputs for determining the fair values of assets or liabilities that reflect an entitys own assumptions about the assumptions that market participants would use in pricing the
assets or liabilities.
|
Transfers between levels of the fair value hierarchy are recorded as of the end of the reporting period.
- 29 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(12.) FAIR VALUE MEASUREMENTS (Continued)
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are
not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These
adjustments may include amounts to reflect counterparty credit quality and the companys creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The
Companys valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Companys valuation methodologies are appropriate
and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the
reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed
description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Securities available for sale:
Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For
these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live
trading levels, trade execution data, market consensus prepayment speeds, credit information and the bonds terms and conditions, among other things.
Loans held for sale:
The fair value of loans held for sale is determined using quoted secondary market prices and investor commitments.
Loans held for sale are classified as Level 2 in the fair value hierarchy.
Collateral dependent impaired loans:
Fair value of
impaired loans with specific allocations of the allowance for loan losses is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. Collateral may be real estate and/or business
assets including equipment, inventory and/or accounts receivable and collateral value is determined based on appraisals performed by qualified licensed appraisers hired by the Company. These appraisals may utilize a single valuation approach or a
combination of approaches including comparable sales and the income approach. Appraised and reported values may be discounted based on managements historical knowledge, changes in market conditions from the time of valuation, and/or
managements expertise and knowledge of the client and the clients business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. Impaired loans are reviewed and
evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.
Loan servicing rights:
Loan servicing rights do not trade in an active market with readily observable market data. As a result, the
Company estimates the fair value of loan servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The assumptions used in the discounted cash flow model are those that we believe
market participants would use in estimating future net servicing income, including estimates of loan prepayment rates, servicing costs, ancillary income, impound account balances, and discount rates. The significant unobservable inputs used in the
fair value measurement of the Companys loan servicing rights are the constant prepayment rates and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower
(higher) fair value measurement. Although the constant prepayment rate and the discount rate are not directly interrelated, they will generally move in opposite directions. Loan servicing rights are classified as Level 3 measurements due to the use
of significant unobservable inputs, as well as significant management judgment and estimation.
Other real estate owned (Foreclosed
assets):
Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based
on third party appraisals of the property, resulting in a Level 3 classification. The appraisals are sometimes further discounted based on managements historical knowledge, changes in market conditions from the time of valuation, and/or
managements expertise and knowledge of the client and clients business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. In cases where the carrying amount exceeds
the fair value, less costs to sell, an impairment loss is recognized.
Commitments to extend credit and letters of credit:
Commitments to extend credit and fund letters of credit are principally at current interest rates, and, therefore, the carrying amount approximates fair value. The fair value of commitments is not material.
- 30 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(12.) FAIR VALUE MEASUREMENTS (Continued)
Assets Measured at Fair Value
The following tables present for each of the fair-value hierarchy levels the Companys assets that are measured at fair value on a recurring and
non-recurring basis as of the dates indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets or
Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and government sponsored enterprises
|
|
$
|
|
|
|
$
|
248,126
|
|
|
$
|
|
|
|
$
|
248,126
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
371,409
|
|
|
|
|
|
|
|
371,409
|
|
Asset-backed securities
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
619,719
|
|
|
$
|
|
|
|
$
|
619,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
|
|
|
$
|
209
|
|
|
$
|
|
|
|
$
|
209
|
|
Collateral dependent impaired loans
|
|
|
|
|
|
|
|
|
|
|
1,232
|
|
|
|
1,232
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing rights
|
|
|
|
|
|
|
|
|
|
|
1,183
|
|
|
|
1,183
|
|
Other real estate owned
|
|
|
|
|
|
|
|
|
|
|
281
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
209
|
|
|
$
|
2,696
|
|
|
$
|
2,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and government sponsored enterprises
|
|
$
|
|
|
|
$
|
260,863
|
|
|
$
|
|
|
|
$
|
260,863
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
283,314
|
|
|
|
|
|
|
|
283,314
|
|
Asset-backed securities
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
544,395
|
|
|
$
|
|
|
|
$
|
544,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
|
|
|
$
|
1,430
|
|
|
$
|
|
|
|
$
|
1,430
|
|
Collateral dependent impaired loans
|
|
|
|
|
|
|
|
|
|
|
1,485
|
|
|
|
1,485
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing rights
|
|
|
|
|
|
|
|
|
|
|
1,241
|
|
|
|
1,241
|
|
Other real estate owned
|
|
|
|
|
|
|
|
|
|
|
163
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
1,430
|
|
|
$
|
2,889
|
|
|
$
|
4,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Levels 1 and 2 during the six months ended June 30, 2016 and 2015. There were no
liabilities measured at fair value on a recurring or nonrecurring basis during the six month periods ended June 30, 2016 and 2015.
- 31 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(12.) FAIR VALUE MEASUREMENTS (Continued)
The following table presents additional quantitative information about assets measured at fair value on a
recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
Asset
|
|
Fair
Value
|
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Unobservable Input
Value or Range
|
Collateral dependent impaired loans
|
|
$
|
1,232
|
|
|
Appraisal of collateral
(1)
|
|
Appraisal adjustments
(2)
|
|
35% - 50% discount
|
Loan servicing rights
|
|
|
1,183
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
4.4%
(3)
|
|
|
|
|
|
|
|
|
Constant prepayment rate
|
|
15.4%
(3)
|
Other real estate owned
|
|
|
281
|
|
|
Appraisal of collateral
(1)
|
|
Appraisal adjustments
(2)
|
|
13% - 72% discount
|
(1)
|
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.
|
(2)
|
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.
|
Changes in Level 3 Fair Value Measurements
There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of or during the six months ended
June 30, 2016.
Disclosures about Fair Value of Financial Instruments
The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.
Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including
estimates of timing, amount of expected future cash flows and the credit standing of the issuer. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In some cases, the fair value estimates cannot be
substantiated by comparison to independent markets. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. Care should be exercised in deriving conclusions about our business, its value or
financial position based on the fair value information of financial instruments presented below.
The estimated fair value approximates carrying value for
cash and cash equivalents, Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, accrued interest receivable, non-maturity deposits, short-term borrowings and accrued interest payable. Fair value estimates for
other financial instruments not included elsewhere in this disclosure are discussed below.
Securities held to maturity:
The fair
value of the Companys investment securities held to maturity is primarily measured using information from a third-party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash
flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bonds terms and conditions, among other things.
Loans:
The fair value of the Companys loans was estimated by discounting the expected future cash flows using the current interest
rates at which similar loans would be made for the same remaining maturities. Loans were first segregated by type such as commercial, residential mortgage, and consumer, and were then further segmented into fixed and variable rate and loan quality
categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.
Time
deposits:
The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Companys time deposit liabilities do not
take into consideration the value of the Companys long-term relationships with depositors, which may have significant value.
Long-term borrowings:
Long-term borrowings consist of $40 million of subordinated notes issued during the second quarter of
2015. The subordinated notes are publicly traded and are valued based on market prices, which are characterized as Level 2 liabilities in the fair value hierarchy.
- 32 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(12.) FAIR VALUE MEASUREMENTS (Continued)
The following presents (in thousands) the carrying amount, estimated fair value, and placement in the fair
value measurement hierarchy of the Companys financial instruments as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level in
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Fair Value
Measurement
Hierarchy
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
Level 1
|
|
|
$
|
67,624
|
|
|
$
|
67,624
|
|
|
$
|
60,121
|
|
|
$
|
60,121
|
|
Securities available for sale
|
|
|
Level 2
|
|
|
|
619,719
|
|
|
|
619,719
|
|
|
|
544,395
|
|
|
|
544,395
|
|
Securities held to maturity
|
|
|
Level 2
|
|
|
|
478,549
|
|
|
|
490,833
|
|
|
|
485,717
|
|
|
|
490,064
|
|
Loans held for sale
|
|
|
Level 2
|
|
|
|
209
|
|
|
|
215
|
|
|
|
1,430
|
|
|
|
1,430
|
|
Loans
|
|
|
Level 2
|
|
|
|
2,182,074
|
|
|
|
2,202,286
|
|
|
|
2,055,192
|
|
|
|
2,046,235
|
|
Loans
(1)
|
|
|
Level 3
|
|
|
|
1,232
|
|
|
|
1,232
|
|
|
|
1,485
|
|
|
|
1,485
|
|
Accrued interest receivable
|
|
|
Level 1
|
|
|
|
8,919
|
|
|
|
8,919
|
|
|
|
8,609
|
|
|
|
8,609
|
|
FHLB and FRB stock
|
|
|
Level 2
|
|
|
|
22,086
|
|
|
|
22,086
|
|
|
|
19,991
|
|
|
|
19,991
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-maturity deposits
|
|
|
Level 1
|
|
|
|
2,146,849
|
|
|
|
2,146,849
|
|
|
|
2,093,513
|
|
|
|
2,093,513
|
|
Time deposits
|
|
|
Level 2
|
|
|
|
711,156
|
|
|
|
712,905
|
|
|
|
637,018
|
|
|
|
636,159
|
|
Short-term borrowings
|
|
|
Level 1
|
|
|
|
338,300
|
|
|
|
338,300
|
|
|
|
293,100
|
|
|
|
293,100
|
|
Long-term borrowings
|
|
|
Level 2
|
|
|
|
39,025
|
|
|
|
37,566
|
|
|
|
38,990
|
|
|
|
40,313
|
|
Accrued interest payable
|
|
|
Level 1
|
|
|
|
5,147
|
|
|
|
5,147
|
|
|
|
4,676
|
|
|
|
4,676
|
|
(1)
|
Comprised of collateral dependent impaired loans.
|
(13.) SEGMENT REPORTING
The Company has two reportable segments: Banking and Non-Banking. These reportable segments have been identified and organized based on the nature of the
underlying products and services applicable to each segment, the type of customers to whom those products and services are offered and the distribution channel through which those products and services are made available.
The banking segment includes all of the Companys retail and commercial banking operations. The non-banking segment includes the activities of Scott
Danahy Naylon, a full service insurance agency that provides a broad range of insurance services to both personal and business clients, and Courier Capital, an investment advisor and wealth management firm that provides customized investment
management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. The Company operated as two business segments (banking and insurance) until the acquisition of Courier Capital
on January 5, 2016, at which time the insurance segment was re-named as the non-banking segment to reflect the inclusion of Courier Capital which has similar products, services and reporting, as noted above. Holding company amounts primarily
reflect the differences between segment amounts and consolidated totals, and are reflected in the Holding Company and Other column below, along with amounts to eliminate balances and transactions between segments.
The following tables present information regarding our business segments as of and for the periods indicated (in thousands).
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Banking
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Non-Banking
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Holding
Company and
Other
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Consolidated
Totals
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June 30, 2016
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|
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|
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|
|
|
|
|
|
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Goodwill
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$
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48,536
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$
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17,881
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$
|
|
|
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$
|
66,417
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Other intangible assets, net
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3,733
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6,102
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|
|
|
|
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9,835
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Total assets
|
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3,553,354
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|
|
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30,315
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|
|
|
1,920
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|
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3,585,589
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December 31, 2015
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Goodwill
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$
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48,536
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$
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11,866
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$
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|
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$
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60,402
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Other intangible assets, net
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829
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5,715
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|
|
|
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6,544
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Total assets
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3,356,987
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20,315
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3,722
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3,381,024
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- 33 -
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(13.) SEGMENT REPORTING (Continued)
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Banking
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Non-Banking
(1)
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Holding
Company and
Other
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Consolidated
Totals
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Three months ended June 30, 2016
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Net interest income (expense)
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$
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25,816
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$
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$
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(617
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)
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$
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25,199
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Provision for loan losses
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(1,952
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)
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|
|
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(1,952
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)
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Noninterest income
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|
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6,944
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|
|
|
2,050
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(78
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)
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8,916
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Noninterest expense
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|
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(18,054
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)
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(1,764
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)
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|
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(2,302
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)
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(22,120
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)
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Income (loss) before income taxes
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12,754
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|
286
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(2,997
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)
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10,043
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Income tax (expense) benefit
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(3,889
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)
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|
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(112
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)
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|
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1,109
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|
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(2,892
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)
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|
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|
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|
|
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|
|
|
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Net income (loss)
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$
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8,865
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$
|
174
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$
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(1,888
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)
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|
$
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7,151
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Six months ended June 30, 2016
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Net interest income
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$
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51,153
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$
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$
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(1,235
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)
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$
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49,918
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Provision for loan losses
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(4,320
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)
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(4,320
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)
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Noninterest income
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13,807
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4,534
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(208
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)
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18,133
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Noninterest expense
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(36,399
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)
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(3,570
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)
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(3,369
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)
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(43,338
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)
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Income (loss) before income taxes
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24,241
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|
964
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(4,812
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)
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20,393
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Income tax (expense) benefit
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(6,990
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)
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(376
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)
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1,742
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(5,624
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)
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Net income (loss)
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$
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17,251
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$
|
588
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$
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(3,070
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)
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$
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14,769
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Banking
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Non-Banking
|
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Holding
Company and
Other
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Consolidated
Totals
|
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Three months ended June 30, 2015
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Net interest income
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$
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23,919
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$
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$
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(515
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)
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$
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23,404
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Provision for loan losses
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(1,288
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)
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(1,288
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)
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Noninterest income
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5,522
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1,033
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(100
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)
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6,455
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Noninterest expense
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(17,668
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)
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(1,050
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)
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(518
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)
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(19,236
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)
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Income (loss) before income taxes
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10,485
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(17
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)
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(1,133
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)
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9,335
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Income tax (expense) benefit
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(3,107
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)
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5
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|
352
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(2,750
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)
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|
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|
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|
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|
|
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Net income (loss)
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$
|
7,378
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$
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(12
|
)
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$
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(781
|
)
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$
|
6,585
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|
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|
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|
|
|
|
|
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Six months ended June 30, 2015
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|
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|
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Net interest income
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$
|
47,066
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|
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$
|
|
|
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$
|
(515
|
)
|
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$
|
46,551
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Provision for loan losses
|
|
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(4,029
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)
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|
|
|
|
|
|
|
|
|
|
(4,029
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)
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Noninterest income
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|
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12,353
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|
|
|
2,626
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|
|
(227
|
)
|
|
|
14,752
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Noninterest expense
|
|
|
(34,947
|
)
|
|
|
(2,237
|
)
|
|
|
(1,063
|
)
|
|
|
(38,247
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
20,443
|
|
|
|
389
|
|
|
|
(1,805
|
)
|
|
|
19,027
|
|
Income tax (expense) benefit
|
|
|
(6,056
|
)
|
|
|
(154
|
)
|
|
|
569
|
|
|
|
(5,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income (loss)
|
|
$
|
14,387
|
|
|
$
|
235
|
|
|
$
|
(1,236
|
)
|
|
$
|
13,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
(1)
|
Includes activity from Courier Capital since January 5, 2016 (the date of acquisition).
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- 34 -