FDIC deposit insurance
expense increased by $2.0 million and $2.3 million for the three and six months
ended June 30, 2009, over the same prior year periods. The increase reflects
higher insurance premiums and a special deposit insurance assessment of $1.4
million in the second quarter of 2009. Deposit insurance expense in 2008 was
also favorably impacted by the Companys utilization of available credits to
offset deposit assessments; these credits were fully utilized in 2008. The
increase in 2009 was also partly related to the additional 10 basis point
assessment paid on covered transaction accounts exceeding $250,000 under the
Temporary Liquidity Guaranty Program.
In December 2008, the
FDIC raised insurance assessments by seven basis points, effective beginning
with the assessments payable in the second quarter of 2009. On February 27,
2009, the FDIC approved an interim rule for a special assessment of $0.20 per
$100.0 in domestic deposits to restore the Deposit Insurance Fund. Recent
legislation approved by lawmakers on May 19, 2009, The Depositor Protection
Act of 2009, increased the FDICs borrowing authority with the U.S. Treasury
to $100.0 billion from $30.0 billion. As a result of this increased borrowing
authority, the FDIC voted 4 to 1 to reduce the size of the special assessment
to 5 basis points on an expanded base of total assets less Tier 1 capital
(capped at 10 basis points times an institutions domestic deposits as of June
30, 2009). The
Company accrued a charge of $1.4 million for the special assessment in the
quarter ending June 30, 2009.
Other operating expenses
decreased by $241,000 or 7.2% and increased by $545,000 or 8.3% for the three
and six months ended June 30, 2009 over the same periods prior year.
Contributing to the year-to-date increases over prior year were the following:
telephone (up $178,000); legal expenses (up $115,000); audit and tax fees (up
$112,000); and loan origination related expenses (up $178,000). Printing and
supplies were down $99,000 and $115,000 for the three and six months ended June
30, 2009 from the same periods in 2008.
Income Tax Expense
The provision for income taxes provides for Federal and New
York State income taxes. The provision for the second quarter of 2009 was $3.5
million, compared to $3.3 million for the same period in 2008. For the six
month period ending June 30, the tax provision totaled $7.2 million in 2009 and
$7.1 million in 2008. The Companys effective tax rate for the second quarter
of 2009 was 32.0% compared to 31.2% for the second quarter of 2008. For the six
month period ending June 30, the Companys effective tax rate was 32.2% in 2009
and 32.4% in 2008.
FINANCIAL
CONDITION
Total assets were $3.0 billion at June 30, 2009, up $100.3
million or 3.5% over December 31, 2008, and up $262.9 million or 9.7% over June
30, 2008. The acquisition of Sleepy Hollow in May 2008 added $269.1 million of
assets, including $151.2 million of loans, $51.5 million of securities, and
$5.8 million of cash and equivalents. Asset growth over year-end 2008 was
mainly in available-for-sale securities, which were up $81.8 million. Total
deposits at June 30, 2009 were up $154.8 million or 7.3% over December 31,
2008, driven by increases in savings and money market balances as well as in time deposits.
Loans and leases totaled
$1.8 billion or 62.0% of total assets at June 30, 2009, compared to $1.8
billion or 63.4% of total assets at December 31, 2008. Commercial real estate
loans at June 30, 2009 were up $46.5 million or 7.5% over December 31, 2008,
while commercial loans were unchanged during the period. Demand for residential
mortgage loans was strong during the first quarter of 2009, largely driven by
refinancings in the current low interest rate environment. The Company
originated $69.2 million of residential mortgage loans for sale during the
first six months of 2009 and sold $68.4 million during the same period. The
Company sells certain fixed rate residential mortgage loans in the secondary
market because of interest rate risk considerations. The consumer and leasing
portfolios at June 30, 2009 were flat compared to year-end 2008.
Nonperforming loans (loans
on nonaccrual, loans past due 90 days or more and still accruing interest, and
loans restructured in a troubled debt restructuring) were $25.7 million at June
30, 2009, up from $16.0 million at December 31, 2008, and up $12.6 million from
June 30, 2008. Nonperforming loans represented 1.40% of total loans at June 30,
2009, compared to 0.88% of total loans at December 31, 2008, and 0.73% of total
loans at June 30, 2008. For the second quarter of 2009, net charge-offs were
$1.0 million, up from $615,000 in the same period of 2008, and up compared to
$728,000 for the first quarter of 2009. In general, the increase in
nonperforming loans is reflective of the current weak economic conditions.
Over the past year, there
has been significant attention to subprime consumer real estate lending in the
media. The Company has not engaged in the origination or purchase of subprime
loans as a line of business. As a result, gross losses in the Companys
residential portfolio have been relatively low, totaling $369,000 for the six
months ended June 30, 2009, compared to $16,000 for the same period in 2008.
The combined nonperforming loan balances in our construction and home equity
lending portfolios represented less than 0.13% of total loans at June 30, 2009.
As of June 30, 2009,
total securities were $923.8 million or 31.1% of total assets, compared to
$856.7 million or 29.9% of total assets at year-end 2008. The increase over
year-end 2008 was mainly in debt obligations of U.S. government sponsored
32
enterprises and mortgage-backed securities issued by U.S. government sponsored
enterprises and was partially due to the seasonal inflow of municipal deposits in
the first quarter of the year. The portfolio is comprised primarily of
mortgage-backed securities, obligations of U.S. Government sponsored entities,
and obligations of states and political subdivisions. As of June 30, 2009, the
Company had $14.9 million of non-agency issued mortgage-backed securities. The
Company has no investments in preferred stock of U.S. Government sponsored
enterprises and no investments in pools of Trust Preferred securities. Quarterly,
the Company evaluates all investment securities with a fair value less than
amortized cost to determine if there exists other-than-temporary impairment as
defined under generally accepted accounting principles. Management does not believe
that the investment securities that were in an unrealized loss position as of June
30, 2009, represent an other-than-temporary impairment. Total gross unrealized
losses were primarily attributable to changes in interest rates and levels of
market liquidity, relative to when the investment securities were purchased,
and not due to the credit quality of the investment securities. The
Company maintains a trading portfolio valued at a fair value of $34.6 million
as of June 30, 2009, compared to $38.1 million at December 31, 2008. The
decrease in the portfolio reflects maturities or payments during 2009. For the
six months ended June 30, 2009, mark-to-market gains related to the securities
trading portfolio were $98,000.
Total deposits were $2.3
billion at June 30, 2009, up $154.8 million or 7.3% over December 31, 2008, and
up $231.6 million or 11.3% over June 30, 2008. The Company acquired $229.0
million of deposits, including $109.2 million of time deposits, $93.1 million
of savings and money market, and $24.5 million of noninterest bearing deposits,
in the acquisition of Sleepy Hollow in May 2008. The growth in total deposits
from December 31, 2008 was mainly in money market and savings balances, which
were up $104.7 million or 10.7%. The increase in money market and savings
balances was mainly in municipal deposits and is partially due to the seasonal
nature of these deposits. Time deposit balances were up $64.2 million or 9.1%
at June 30, 2009 compared to December 31, 2008.
Other borrowings
decreased $80.0 million or 29.1% from year-end 2008 to $194.8 million at June
30, 2009 as the Company used deposit inflows to reduce advances from the FHLB.
Capital
Total equity was $229.3 million at June 31, 2009, an increase
of $9.9 million from December 31, 2008. Additional paid-in capital increased by
$1.3 million, from $152.8 million at December 31, 2008, to $154.2 million at
June 30, 2009, reflecting $977,000 in proceeds from stock option exercises and
$435,000 related to stock-based compensation. Retained earnings increased by
$8.6 million from $73.8 million at December 31, 2008, to $82.3 million at June
30, 2009, reflecting net income of $15.2 million less dividends paid of $6.6
million. Accumulated other comprehensive loss remained relatively flat from a
net unrealized loss of $7.6 million at December 31, 2008, to a net unrealized
loss of $7.5 million at June 30, 2009, reflecting an increase in unrealized
gains on available-for-sale securities due to lower market rates, offset by
amounts recognized in other comprehensive income related to postretirement
benefit plans. Under regulatory requirements, amounts reported as accumulated
other comprehensive income/loss related to net unrealized gain or loss on
available-for-sale securities and the funded status of the Companys defined
benefit post-retirement benefit plans do not increase or reduce regulatory
capital and are not included in the calculation of risk-based capital and
leverage ratios.
Cash dividends paid in
the first six months of 2009 totaled approximately $6.6 million, representing
43.5% of year to date 2009 earnings. Cash dividends of $0.34 per common share
paid in the first and second quarters of 2009 were each up 6.3% over cash
dividends of $0.32 per common share paid in the first and second quarters of 2008.
On July 22, 2008, the
Companys Board of Directors approved a stock repurchase plan (the 2008
Plan). The 2008 Plan authorizes the repurchase of up to 150,000 shares of the
Companys outstanding common stock over a two-year period. The Company
repurchased 5,000 shares of common stock at an average price of $35.51 under
the 2008 Plan during the first quarter and none during the second quarter of
2009. Since inception of the 2008 Plan, the Company has repurchased 6,500 shares
at an average price of $36.21.
In the second quarter of
2009, Tompkins issued $18.6 million aggregate liquidation amount of Trust
Preferred Securities, through Tompkins Capital Trust I. The proceeds from the
issuance of the Trust Preferred Securities, together with Tompkins capital
contribution to the trust, were used to acquire Tompkins Subordinated
Debentures, totaling $19.1 million, which are due concurrently with the Trust
Preferred Securities.
The Trust Preferred
Securities have a 30 year maturity, and carry a fixed rate of interest of 7.0%.
The Trust Preferred Securities have a liquidation amount of $1,000 per
security. The Company has retained the right to redeem the Trust Preferred
Securities at par (plus accrued but unpaid interest) at a date which is no
earlier than 5 years from the date of issuance. Commencing in 2019, and during
specified annual windows thereafter, holders may convert the Trust Preferred
Securities into shares of the Companys common stock at a conversion price
equal to the greater of (i) $41.35, or (ii) the
33
average closing price of
Tompkins Financial Corporations common stock during the first three months of
the year in which the conversion will be completed.
The Company has
guaranteed the distributions with respect to, and amounts payable upon
liquidation or redemption of, the Trust Preferred Securities on a subordinated
basis as and to the extent set forth in the Preferred Securities Guarantee
Agreement entered into on April 10, 2009, between the Company and Wilmington
Trust Company, as Preferred Guarantee Trustee.
In accordance with the
applicable accounting standards related to variable interest entities, the
accounts of Tompkins Capital Trust I will not be included in the Companys
consolidated financial statements. However, $18.6 million in Tompkins
Subordinated Debentures issued to Tompkins Capital Trust I will be included in
the Tier 1 capital of the Company for regulatory capital purposes pursuant to
regulatory guidelines.
The Company and its
banking subsidiaries are subject to various regulatory capital requirements
administered by Federal banking agencies. Management believes the Company and
its subsidiaries meet all capital adequacy requirements to which they are
subject. The table below reflects the Companys capital position at June 30,
2009, compared to the regulatory capital requirements for well capitalized
institutions.
REGULATORY
CAPITAL ANALYSIS June 30, 2009
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Actual
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|
Well Capitalized
Requirement
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|
(Dollar amounts in thousands)
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|
Amount
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Ratio
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Amount
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Ratio
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Total Capital
(to risk weighted assets)
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|
$
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235,808
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11.7
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%
|
|
$
|
200,780
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|
10.0
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%
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|
Tier I Capital
(to risk weighted assets)
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|
$
|
214,333
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10.7
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%
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|
$
|
120,468
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|
6.0
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%
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|
Tier I Capital (to
average assets)
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|
$
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214,333
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7.3
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%
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|
$
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146,285
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5.0
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%
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|
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|
As illustrated above, the
Companys capital ratios on June 30, 2009 remain above the minimum requirements
for well capitalized institutions. As of June 30, 2009, the capital ratios for
each of the Companys subsidiary banks also exceeded the minimum levels
required to be considered well capitalized.
Allowance for Loan and Lease Losses
and Nonperforming Assets
Management reviews the adequacy of the allowance for loan and
lease losses (the allowance) on a regular basis. Management considers the
accounting policy relating to the allowance to be a critical accounting policy,
given the inherent uncertainty in evaluating the levels of the allowance
required to cover credit losses in the Companys portfolio and the material
effect that assumption could have on the Companys results of operations.
Factors considered in determining the adequacy of the allowance and the related
provision include: managements approach to granting new credit; the ongoing
monitoring of existing credits by the internal and external loan review
functions; the growth and composition of the loan and lease portfolio; the
level and trend of market interest rates; comments received during the course
of regulatory examinations; current local economic conditions; past due and
nonperforming loan statistics; estimated collateral values; and a historical
review of loan and lease loss experience.
Based upon consideration
of the above factors, management believes that the allowance is adequate to
provide for the risk of loss inherent in the current loan and lease portfolio
as of June 30, 2009. Should any of the factors considered by management in
evaluating the adequacy of the allowance change, the Companys estimate of
probable loan losses could also change, which could affect the level of future
provisions for possible loan and lease losses.
Activity in the Companys
allowance for loan and lease losses during the first six months of 2009 and
2008 and for the 12 months ended December 31, 2008, is illustrated in the table
below.
34
ANALYSIS OF THE ALLOWANCE FOR LOAN
AND LEASE LOSSES
(In thousands)
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Six months ended
06/30/09
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Twelve months ended
12/31/08
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Six months ended
06/30/08
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Average loans
and leases outstanding during the period
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$
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1,818,307
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$
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1,612,716
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$
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1,506,250
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Total loans and
leases outstanding at end of period
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$
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1,841,198
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$
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1,817,531
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$
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1,652,831
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ALLOWANCE FOR LOAN AND LEASE LOSSES
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Beginning
balance
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$
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18,672
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$
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14,607
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$
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14,607
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Provision for
loan and lease losses
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4,403
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|
|
5,428
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|
1,808
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Loans charged
off
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|
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(2,069
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)
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(3,290
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)
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(1,293
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)
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Loan recoveries
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|
|
313
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|
|
442
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|
|
228
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|
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|
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Net charge-offs
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|
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(1,756
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)
|
|
(2,848
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)
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(1,065
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)
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Allowance
acquired in purchase acquisition
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0
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|
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1,485
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1,485
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Ending balance
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$
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21,319
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$
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18,672
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$
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16,835
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Allowance for
loan and lease losses to total loans and leases
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1.16
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%
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1.03
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%
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1.02
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%
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|
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Annualized net
charge-offs to average loans and leases
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0.19
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%
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0.18
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%
|
|
0.14
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%
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|
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|
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|
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|
As
of June 30, 2009, the allowance was $21.3 million or 1.16% of total loans and
leases outstanding. This represents an increase of 13 basis points from
December 31, 2008 and an increase of 14 basis points from June 30, 2008. The
provision for loan and lease losses was $2.4 million and $4.4 million for the
three and six months ended June 30, 2009 compared to $1.2 million and $1.8
million for the three and six months ended June 30, 2008. The increase
in the provision in 2009 over the comparable periods in 2008, reflects the
increase in net charge-offs and nonperforming loans, growth in total loans from
June 30, 2008 to June 30, 2009, as well as concerns over weak economic
conditions and uncertain real estate markets.
Net
charge-offs for the three and six months ended June 30, 2009 were $1.0 million
and $1.8 million compared to $614,000 and $1.1 million in the comparable year
ago periods. Annualized net charge-offs for the first six months of 2009
represented 0.19% of average loans, up from 0.14% for the first six months of
2008, but is favorable to our peer group ratio of 0.74% at March 31, 2009. A continuation or worsening of current
economic conditions may result in further declines in asset quality measures
and increases in loan and lease losses.
The allowance coverage of
nonperforming loans (loans past due 90 days and accruing, nonaccrual loans, and
restructured troubled debt) was 0.83 times at June 30, 2009, compared to 1.17
times at December 31, 2008, and 1.39 times at June 30, 2008.
NONPERFORMING ASSETS
(In thousands)
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|
06/30/09
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12/31/08
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06/30/08
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Nonaccrual loans
and leases
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$
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24,662
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$
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15,798
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$
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10,552
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Loans past due
90 days and accruing
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1,073
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|
|
161
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|
1,422
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Troubled debt
restructuring not included above
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0
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69
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|
135
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Total
nonperforming loans
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25,735
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|
16,028
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|
|
12,109
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|
|
|
Other real
estate, net of allowances
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|
|
68
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|
|
110
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|
|
481
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|
|
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|
|
|
|
|
|
|
|
|
Total
nonperforming assets
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|
$
|
25,803
|
|
$
|
16,138
|
|
$
|
12,590
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|
|
|
|
|
|
|
|
|
|
|
|
Total
nonperforming loans and leases as a percentage of total loans and leases
|
|
|
1.40
|
%
|
|
0.88
|
%
|
|
0.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
nonperforming assets as a percentage of total assets
|
|
|
0.87
|
%
|
|
0.56
|
%
|
|
0.47
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%
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|
|
|
|
|
|
|
|
|
|
|
The level of
nonperforming assets at June 30, 2009, and 2008, and December 31, 2008 is
illustrated in the table above. Nonperforming assets of $25.8 million at June
30, 2009, were up from December 31, 2008, and June 30, 2008. The increase was
partially due to the addition of four credit relationships totaling $6.3
million during the second quarter of 2009. In general, the increasing trend in
nonperforming assets is reflective of the current weak economic conditions,
which has pressured real estate values in some markets and stressed the
financial conditions of various commercial borrowers. Approximately $7.8
million of nonperforming loans at June 30, 2009, were secured by U.S. government
guarantees, while $3.6 million were secured by one-to-four family residential
properties.
Nonperforming assets
represented 0.87% of total assets at June 30, 2009, compared to 0.56% at
December 31, 2008, and 0.47% at June 30, 2008. Although up over the same period prior year, the Companys ratio of
nonperforming assets to total assets of 0.87% continues to compare favorably to
our peer group ratio of 2.63% at March 31, 2009.
35
As of June 30, 2009, the
Companys recorded investment in loans and leases that are considered impaired
totaled $20.9 million compared to $9.7 million at December 31, 2008, and $8.8
million at June 30, 2008. The $20.9 million of impaired loans at June 30, 2009,
had related allowances of $1.1 million, the $9.7 million of impaired loans at
December 31, 2008, had related allowances of $520,000, and the $8.8 million at
June 30, 2008, had related allowances of $657,000.
Potential problem loans
and leases are loans and leases that are currently performing, but where known
information about possible credit problems of the related borrowers causes
management to have doubt as to the ability of such borrowers to comply with the
present loan payment terms and may result in disclosure of such loans and
leases as nonperforming at some time in the future. Management considers loans
and leases classified as Substandard that continue to accrue interest to be
potential problem loans and leases. At June 30, 2009, the Companys internal
loan review function had identified 55 commercial relationships, totaling $39.6
million, which it classified as Substandard, which continue to accrue interest.
As of December 31, 2008, the Companys internal loan review function had
classified 36 commercial relationships as Substandard totaling $20.3 million,
which continued to accrue interest. These loans remain in a performing status
due to a variety of factors, including payment history, the value of collateral
supporting the credits, and personal or government guarantees. These factors,
when considered in the aggregate, give management reason to believe that the
current risk exposure on these loans is not significant. However, these loans
do exhibit certain risk factors, which have the potential to cause them to
become nonperforming. Accordingly, managements attention is focused on these
loans, which are reviewed at least quarterly. The increase in the dollar amount
of commercial relationships classified as Substandard and still accruing
interest between December 31, 2008 and June 30, 2009 was mainly due to the addition
of six larger commercial relationships totaling $23.8 million that were
classified as Substandard and accruing at June 30, 2009, and were not
classified as Substandard at December 31, 2008.
Deposits
and Other Liabilities
Total deposits of $2.3 billion at June 30, 2009 increased
$154.8 million or 7.3% from December 31, 2008. A $104.7 million increase in
interest checking, savings and money market balances and a $64.2 million
increase in time deposits was partially offset by a $14.1 million decline in noninterest
bearing deposits. Growth in municipal deposits accounted for a majority of the
increase in savings and money market balances from year end 2008. With interest
rates on time deposits lower and more in line with money market rates,
municipalities are placing tax deposits into money market accounts. Municipal
deposit balances are somewhat seasonal, increasing as tax deposits are
collected and decreasing as these monies are used by the municipality. Total
deposits were up $231.6 million or 11.3% over June 30, 2008. The increase was
primarily due to a $146.9 million increase in savings and money market accounts
of which $90.0 million was attributable to growth in municipal deposits.
Additionally, time deposits increased $68.3 million over June 30, 2008, of
which $40.0 million was due to the acquisition of brokered time deposits. The
Sleepy Hollow acquisition during the second quarter of 2008 added $229.0
million at the time of the acquisition and expanded the existing customer
deposit base. In 2007 and 2008, the Federal Reserve reduced short-term market
rates, which led to a decrease in rates paid on deposits.
The Companys primary
funding source is core deposits, defined as total deposits less time deposits
of $100,000 or more, brokered time deposits, and municipal money market
deposits. Core deposits increased $34.9 million or 2.1% over December 31, 2008
to $1.7 billion, and represented 72.8% of total deposits at June 30, 2009
compared to 76.4% of total deposits at December 31, 2008. The increase in core deposits
is attributable to the same factors discussed above with respect to the
increase in total deposits.
The Company uses both
retail and wholesale repurchase agreements. Retail repurchase agreements are
arrangements with local customers of the Company, in which the Company agrees
to sell securities to the customer with an agreement to repurchase those
securities at a specified later date. Retail repurchase agreements totaled
$32.0 million at June 30, 2009, and $42.1 million at December 31, 2008. Management
generally views local repurchase agreements as an alternative to large time
deposits. The Companys wholesale repurchase agreements are primarily with the
Federal Home Loan Bank (FHLB) and amounted to $158.0 million at June 30, 2009
and $153.2 million at December 31, 2008. Included in the $158.0 million of
wholesale repurchase agreements at June 30, 2009, are $16.0 million of
repurchase agreements with the FHLB where the Company elected to adopt the fair
value option under SFAS 159. The fair value of these borrowings decreased by
$128,000 (net mark-to-market pre-tax gain of $128,000) over the six months
ended June 30, 2009.
The
Companys other borrowings totaled $194.8 million at June 30, 2009, down $80.0
million or 29.1% from $274.8 million at December 31, 2008. Borrowings at June
30, 2009 included $175.6 million in term advances, and a $19.0 million advance
from a bank. Borrowings at year-end 2008 included $177.2 million in term
advances, $73.5 million of overnight FHLB advances and a $24.0 million advance
from a bank. The decrease in borrowings reflects the pay down of FHLB
borrowings as a result of deposit growth. Of the $175.6 million of the FHLB
term advances at June 30, 2009, $160.6 million are due over one year. The Company elected the fair value option under
SFAS 159 for a $10.0 million advance with the FHLB. The fair value of this
advance decreased by $560,000 (net mark-to-market gain of $560,000) over the six months ended June 30, 2009.
36
As previously mentioned,
Tompkins issued $18.6 million of 7.0% cumulative Trust Preferred Securities
during the second quarter of 2009 through Tompkins Capital Trust I. The
proceeds from the issuance of the Trust Preferred Securities, together with
Tompkins capital contribution of $574,000 to the trust, were used to acquire
Tompkins Subordinated Debentures, totaling $19.1 million, which are due
concurrently with the Trust Preferred Securities. The acquisition of Sleepy
Hollow in May 2008 included the assumption of additional trust preferred
securities. The outstanding balance of these securities as of June 30, 2009 was
$3.9 million.
Liquidity
The objective of liquidity management is to ensure the
availability of adequate funding sources to satisfy the demand for credit,
deposit withdrawals, and business investment opportunities. The Companys
large, stable core deposit base and strong capital position are the foundation
for the Companys liquidity position. The Company uses a variety of resources
to meet its liquidity needs, which include deposits, cash and cash equivalents,
short-term investments, cash flow from lending and investing activities,
repurchase agreements, and borrowings. Asset and liability positions are
monitored primarily through Asset/Liability Management Committees of the
Companys subsidiary banks individually and on a combined basis. These
Committees review periodic reports on liquidity and interest rate sensitivity
positions. Comparisons with industry and peer groups are also monitored. The
Companys strong reputation in the communities it serves, along with its strong
financial condition, provides access to numerous sources of liquidity as
described below. Management believes these diverse liquidity sources provide
sufficient means to meet all demands on the Companys liquidity that are reasonably
likely to occur.
Core deposits, discussed
above under Deposits and Other Liabilities, are a primary and low cost
funding source obtained primarily through the Companys branch network. In
addition to core deposits, the Company uses non-core funding sources to support
asset growth. These non-core funding sources include time deposits of $100,000
or more, brokered time deposits, municipal money market deposits, securities
sold under agreements to repurchase and term advances from the FHLB. Rates and
terms are the primary determinants of the mix of these funding sources.
Non-core funding sources increased by $33.6 million or 3.5% from December 31,
2008 to $1.0 billion at June 30, 2009. Non-core funding sources, as a
percentage of total liabilities, were 36.8% at June 30, 2009, which is equal to
December 31, 2008. The increase in non-core funding sources was mainly in
municipal money market deposit balances and brokered time deposits, partially
offset by a decrease in FHLB advances.
Non-core funding sources
may require securities to be pledged against the underlying liability.
Securities carried at $653.3 million and $677.8 million at June 30, 2009 and
December 31, 2008, respectively, were either pledged or sold under agreements
to repurchase. Pledged securities represented 70.7% of total securities at June
30, 2009, compared to 79.1% of total securities at December 31, 2008.
Cash and cash equivalents
totaled $68.0 million at June 30, 2009, up from $52.2 million at December 31,
2008. Short-term investments, consisting of securities due in one year or less,
decreased from $41.9 million at December 31, 2008, to $29.1 million at June 30,
2009. The Company also has $34.6 million of securities designated as trading
securities.
Cash flow from the loan
and investment portfolios provides a significant source of liquidity. These assets may have stated maturities in
excess of one year, but have monthly principal reductions. Total
available-for-sale mortgage-backed securities, at book value, were $504.2
million at June 30, 2009, compared with $469.2 million at December 31, 2008.
Outstanding principal balances of residential mortgage loans, consumer
loans, and leases totaled approximately $709.7 million at June 30, 2009, as
compared to $732.5 million at December 31, 2008. Aggregate amortization from
monthly payments on these assets provides significant additional cash flow to
the Company.
Liquidity is enhanced by
ready access to national and regional wholesale funding sources, including
Federal funds purchased, repurchase agreements, brokered certificates of
deposit, and FHLB advances. Through its subsidiary banks, the Company has
borrowing relationships with the FHLB and correspondent banks, which provide
secured and unsecured borrowing capacity. At June 30, 2009 the unused borrowing
capacity on established lines with the FHLB was $435.8 million. As members of
the FHLB, the Companys subsidiary banks can use certain unencumbered
mortgage-related assets to secure additional borrowings from the FHLB. At June
30, 2009, total unencumbered residential mortgage loans of the Company were
$136.7 million. Additional assets may also qualify as collateral for FHLB
advances upon approval of the FHLB.
The Company has not
identified any trends or circumstances that are reasonably likely to result in
material increases or decreases in liquidity in the near term.
37
|
|
Item 3.
|
Quantitative and Qualitative Disclosure About Market Risk
|
Interest rate risk is the
primary market risk category associated with the Companys operations. Interest
rate risk refers to the volatility of earnings caused by changes in interest
rates. The Company manages interest rate risk using income simulation to
measure interest rate risk inherent in its on-balance sheet and off-balance
sheet financial instruments at a given point in time. The simulation models are
used to estimate the potential effect of interest rate shifts on net interest
income for future periods. Each quarter, the Asset/Liability Management
Committee reviews the simulation results to determine whether the exposure of
net interest income to changes in interest rates remains within levels approved
by the Companys Board of Directors. The Committee also considers strategies to
manage this exposure and incorporates these strategies into the investment and
funding decisions of the Company. The Company does not currently use
derivatives, such as interest rate swaps, to manage its interest rate risk
exposure, but may consider such instruments in the future.
The Companys Board of
Directors has set a policy that interest rate risk exposure will remain within
a range whereby net interest income will not decline by more than 10% in one
year as a result of a 100 basis point parallel change in rates. Based upon the
simulation analysis performed as of May 31, 2009, a 200 basis point parallel
upward change in interest rates over a one-year time frame would result in a
one-year increase in net interest income from the base case of approximately
0.7%, while a 100 basis point parallel decline in interest rates over a
one-year period would result in a marginal decrease in one-year net interest
income from the base case of 0.4%. The simulation assumes no balance sheet
growth and no management action to address balance sheet mismatches.
The positive exposure in
a rising interest rate environment is mainly driven by the repricing
assumptions of the Companys core deposit base are met with slightly higher
increases to asset yields. Longer-term, the impact of a rising rate environment
is positive as the asset base continues to reset at higher levels, while the
repricing of the rate sensitive liabilities moderates. The moderate exposure in
the 100 basis point decline scenario results from the Companys assets
repricing downward to a greater degree than the rates on the Companys
interest-bearing liabilities, mainly deposits. Rates on savings and money
market accounts are at low levels as a result of the historically low interest
rate environment experienced in recent years. In addition, the model assumes
that prepayments accelerate in the down interest rate environment resulting in
additional pressure on asset yields as proceeds are reinvested at lower rates.
In our most recent
simulation, the base case scenario, which assumes interest rates remain
unchanged from the date of the simulation, showed a relatively flat net
interest margin during the remainder of 2009.
Although the simulation
model is useful in identifying potential exposure to interest rate movements,
actual results may differ from those modeled as the repricing, maturity, and
prepayment characteristics of financial instruments may change to a different
degree than modeled. In addition, the model does not reflect actions that
management may employ to manage its interest rate risk exposure. The Companys current liquidity profile, capital
position, and growth prospects, offer a level of flexibility for
management to take actions that could offset some of the negative effects of
unfavorable movements in interest rates. Management
believes the current exposure to changes in interest rates is not
significant in relation to the earnings and capital strength of the Company.
In addition to the simulation analysis, management
uses an interest rate gap measure. The table below is a Condensed Static Gap Report, which illustrates
the anticipated repricing intervals of assets and liabilities as of June 30,
2009. The Companys one-year net interest rate gap was a negative $83,000 or
2.79% of total assets at June 30, 2009, compared with a negative $12,000 or
0.44% of total assets at December 31, 2008. A negative gap position exists when
the amount of interest-bearing liabilities maturing or repricing exceeds the
amount of interest-earning assets maturing or repricing within a particular
time period. This analysis suggests that the Companys net interest income is
more vulnerable to a increasing rate environment than it is to a prolonged
declining interest rate environment. An interest rate gap measure could be
significantly affected by external factors such as a rise or decline in
interest rates, loan or securities prepayments, and deposit withdrawals.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Static Gap June 30,
2009
|
|
Repricing Interval
|
|
(Dollar amounts in thousands)
|
|
Total
|
|
0-3
months
|
|
3-6
months
|
|
6-12
months
|
|
Cumulative
12 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
|
|
$
|
2,759,179
|
|
$
|
717,628
|
|
$
|
155,901
|
|
$
|
355,281
|
|
$
|
1,228,810
|
|
Interest-bearing liabilities
|
|
|
2,236,754
|
|
|
913,180
|
|
|
191,148
|
|
|
207,298
|
|
$
|
1,311,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gap position
|
|
|
|
|
|
(195,552
|
)
|
|
(35,247
|
)
|
|
147,983
|
|
|
(82,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gap position as a percentage of total
assets
|
|
|
|
|
|
(6.59
|
)%
|
|
(1.19
|
)%
|
|
4.99
|
%
|
|
(2.79
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
Item
4.
|
Controls
and Procedures
|
Evaluation of Disclosure Controls and Procedures
The Companys management,
including its Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of the design and operations of the Companys disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended (the Exchange Act)) as of June 30, 2009.
Based upon that evaluation, the Companys Chief Executive Officer and Chief
Financial Officer concluded that as of the end of the period covered by this
Report on Form 10-Q the Companys disclosure controls and procedures were
effective in providing reasonable assurance that any information required to be
disclosed by the Company in its reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms and that
material information relating to the Company and its subsidiaries is made known
to the Companys management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding
disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in
the Companys internal control over financial reporting that occurred during
the Companys second quarter ended June 30, 2009, that materially affected, or
are reasonably likely to materially affect, the Companys internal control over
financial reporting.
PART II - OTHER INFORMATION
|
|
Item
1.
|
Legal
Proceedings
|
The Company is involved
in legal proceedings in the normal course of business, none of which are
expected to have a material adverse impact on the financial condition or
results of operations of the Company.
There have been no
material changes in the risk factors previously disclosed under Item 1A. of the
Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2008.
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
Issuer Purchases of Equity Securities
The following table
includes all Company repurchases made on a monthly basis during the period
covered by this Quarterly Report on Form 10-Q, including those made pursuant to
publicly announced plans or programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
Purchased
|
|
Average Price Paid Per
Share
|
|
Total Number of Shares
Purchased as Part of Publicly Announced Plans or Programs
|
|
Maximum Number of Shares that May Yet Be Purchased
Under the Plans or Programs
|
|
Period
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2009 through
April 30, 2009
|
|
|
0
|
|
|
0.00
|
|
|
0
|
|
|
143,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2009 through
May 31, 2009
|
|
|
1,361
|
|
|
45.01
|
|
|
0
|
|
|
143,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2009 through
June 30, 2009
|
|
|
0
|
|
|
0.00
|
|
|
0
|
|
|
143,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,361
|
|
$
|
45.01
|
|
|
0
|
|
|
143,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
On July 22, 2008, the
Companys Board of Directors approved a stock repurchase plan (the 2008
Plan). The 2008 Plan authorizes the repurchase of up to 150,000 shares of the
Companys outstanding common stock over a two-year period. The Company did not
purchase any shares under the 2008 Plan during the second quarter of 2009. The
Company purchased 5,000 shares at an average price of $35.51 during the first
quarter of 2009.
Included above are 1,361
shares purchased in May 2009, at an average cost of $45.01, by the trustee of
the rabbi trust established by the Company under the Companys Stock Retainer
Plan For Eligible Directors of Tompkins Financial Corporation and Participating
Subsidiaries, and were part of the director deferred compensation under that
plan. Shares purchased under the rabbi trust are not part of the 2008 Plan.
Recent Sales of Unregistered
Securities
Recent sales of trust
preferred securities were previously disclosed on the Companys Current Report
on Form 8-K.
|
|
Item 3
|
Defaults
Upon Senior Securities
|
|
|
|
None
|
|
|
Item 4
|
Submission
of Matters to a Vote of Security Holders
|
(a) The Annual Meeting
of Stockholders of the Company was held on May 11, 2009.
(b) All director nominees
were elected. At the meeting, the stockholders elected the following twelve
directors for a one year term expiring in 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Votes
Cast
|
|
% of
Shares
Outstanding
|
|
Director
|
|
Number
of
Shares Voted For
|
|
Number of
Shares Withheld
|
|
|
|
|
|
|
|
|
|
|
|
7,697,000
|
|
9,700,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.36
|
|
77.26
|
|
|
|
Russell K. Achzet
|
|
7,494,156
|
|
|
202,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81.16
|
|
64.40
|
|
|
|
John E. Alexander
|
|
6,247,101
|
|
|
1,449,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99.10
|
|
78.63
|
|
|
|
Daniel J. Fessenden
|
|
7,627,666
|
|
|
69,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.95
|
|
77.72
|
|
|
|
James W. Fulmer
|
|
7,539,068
|
|
|
157,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.69
|
|
77.51
|
|
|
|
James R. Hardie
|
|
7,519,146
|
|
|
177,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99.06
|
|
78.61
|
|
|
|
Elizabeth W. Harrison
|
|
7,625,003
|
|
|
71,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98.93
|
|
78.50
|
|
|
|
Patricia A. Johnson
|
|
7,614,371
|
|
|
82,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.00
|
|
59.51
|
|
|
|
Hunter R. Rawlings, III
|
|
5,772,763
|
|
|
1,924,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99.07
|
|
78.61
|
|
|
|
Thomas R. Rochon
|
|
7,625,159
|
|
|
71,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.98
|
|
77.74
|
|
|
|
Stephen S. Romaine
|
|
7,541,417
|
|
|
155,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99.12
|
|
78.65
|
|
|
|
Thomas R. Salm
|
|
7,629,594
|
|
|
67,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98.49
|
|
78.15
|
|
|
|
Craig Yunker
|
|
7,580,741
|
|
|
116,251
|
|
|
The directors continuing
in office are: James J. Byrnes; Reeder D. Gates; Carl E. Haynes; Michael H.
Spain, and William D. Spain, Jr. Michael D. Shay chose not to stand for
re-election, and his term expired effective May 11, 2009.
(c) At the meeting, the
stockholders also approved a proposal to approve ratification of the selection
of the independent registered public accounting firm, KPMG LLP, as the
Companys independent auditor for the fiscal year ending December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Votes
Cast
|
|
% of
Shares
Outstanding
|
|
Number
of
Shares Voted For
|
|
Number
of
Shares Against
|
|
Number
of
Shares Abstain
|
|
Broker
Non-Votes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.88
|
|
77.66
|
|
|
7,533,629
|
|
|
131,751
|
|
|
31,607
|
|
|
12
|
|
(d) At the meeting, the
stockholders also approved a proposal to approve the proposed Tompkins
Financial Corporation 2009 Equity Plan:
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Votes
Cast
|
|
% of
Shares
Outstanding
|
|
Number
of
Shares Voted For
|
|
Number
of
Shares Against
|
|
Number
of
Shares Abstain
|
|
Broker
Non-Votes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63.44
|
|
50.34
|
|
|
4,882,901
|
|
|
1,210,671
|
|
|
42,639
|
|
|
1,560,789
|
|
|
|
|
Item 5
|
Other
Information
|
|
|
|
None
|
|
|
I
tem 6
|
Exhibits
|
|
|
|
|
31.1
|
Certification of Principal
Executive Officer as required by Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended (filed herewith).
|
|
|
|
|
31.2
|
Certification of Principal
Financial Officer as required by Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended (filed herewith).
|
|
|
|
|
32.1
|
Certification of Principal
Executive Officer as required by Rule 13a-14(b) of the Securities Exchange
Act of 1934, as amended, 18 U.S.C. Section 1350 (filed herewith)
|
|
|
|
|
32.2
|
Certification of Principal
Financial Officer as required by Rule 13a-14(b) of the Securities Exchange
Act of 1934, as amended, 18 U.S.C. Section 1350 (filed herewith)
|
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
Date: August 10, 2009
|
|
|
TOMPKINS
FINANCIAL CORPORATION
|
|
|
By:
|
/s/ Stephen S. Romaine
|
|
|
|
Stephen S. Romaine
|
|
President and
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
|
By:
|
/s/ Francis M. Fetsko
|
|
|
|
Francis
M. Fetsko
|
|
Executive Vice President and
|
|
Chief Financial Officer
|
|
(Principal Financial Officer)
|
41
EXHIBIT INDEX
|
|
|
|
|
Exhibit
Number
|
Description
|
|
Pages
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
Certification of Principal
Executive Officer as required by Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended.
|
|
43
|
|
|
|
|
|
|
31.2
|
Certification of Principal
Financial Officer as required by Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended.
|
|
44
|
|
|
|
|
|
|
32.1
|
Certification of Principal
Executive Officer as required by Rule 13a-14(b) of the Securities Exchange
Act of 1934, as amended, 18 U.S.C. Section 1350
|
|
45
|
|
|
|
|
|
|
32.2
|
Certification of Principal
Financial Officer as required by Rule 13a-14(b) of the Securities Exchange
Act of 1934, as amended, 18 U.S.C. Section 1350
|
|
46
|
|
42
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