Service charges on deposit accounts were $2.1 million in the first
quarter of 2010, down 7.3% compared to $2.2 million in the first quarter of
2009. The largest component of this category is overdraft fees, which is
largely driven by customer activity.
Net mark-to-market gains on securities and borrowing held at fair value
totaled $38,000 in the first quarter of 2010, down 100.0% compared to the same
period prior year. Mark-to-market gains or losses relate to the change in the
fair value of securities and borrowings where the Company has elected the fair
value option. The favorable quarter-over-quarter variance is due to improved
market conditions.
Other income of $1.3 million in the first quarter of 2010 is up 1.7%
over the first quarter of 2009. The primary components of other income are
other service charges, increases in cash surrender value of corporate owned
life insurance (COLI), gains on the sales of residential mortgage loans and
income from miscellaneous equity investments, including the Companys
investment in a Small Business Investment Company (SBIC).
Other service charge income of $593,000 in the first quarter of 2010
was up $151,000 or 34.2% from the same period in 2009. The growth over the
first quarter of 2009 was mainly in safe deposit income, loan servicing income
and loan related fees.
Increases in COLI, net of mortality expenses, were $393,000 in the
first quarter of 2010, up $171,000 or 77.0% from the first quarter of 2009.
COLI relates to life insurance policies covering certain senior officers of the
Company and its subsidiaries. The Companys average investment in COLI was
$36.1 million during the first three months of 2010, compared to $34.9 million
during the first three months of 2009.
For the first quarter of 2010, net gains on the sales of residential
mortgage loans totaled $192,000, compared to net gains of $401,000 for the
first quarter of 2009. Low market interest rates have contributed to a strong
volume of residential mortgage originations/refinancing in 2009 and 2010. To
manage interest rate risk exposures, the Company sells certain fixed rate loan
originations that have rates below or maturities greater than the standards set
by the Companys Asset/Liability Committee.
Other income includes income from the Companys miscellaneous equity
investments, including its investment in an SBIC. For the first quarter of 2010, income related to these investments
totaled $9,000 compared to $29,000 in the first quarter of 2009. The Company
believes that, as of March 31, 2010, there was no impairment with respect to
its investment in the SBIC.
For the three months ended March 31, 2010, net gains from securities
transactions totaled $118,000, up $111,000 compared to the same period in 2009.
Management may periodically sell available-for-sale securities for liquidity
purposes, to improve yields, or to adjust the risk profile of the portfolio.
Noninterest Expense
Noninterest expense for the first quarter of 2010 was $24.5 million, an
increase of $1.2 million or 5.2% over noninterest expense of $23.3 million for
the first quarter of 2009.
Personnel-related expense increased by $1.3 million or 10.3% in the
first quarter of 2010 over the same period in 2009. Salaries and wages were up
$811,000 or 8.5%, reflecting an increase in average full time equivalents
(FTE), and annual merit increases. Year-to-date March 31, 2010 average FTEs
of 725 were up from 711 at March 31, 2009. Pension and other employee related
benefits were up $524,000 or 15.5% in the first quarter compared to the first
quarter of 2009. Contributing to the increase over the prior year was pension
(up $161,000), and health and dental insurance (up $134,000)
FDIC deposit insurance expense increased by $557,000 in the three
months ended March 31, 2010, over the same prior year period reflecting higher
insurance rates and increases in insurable deposits.
Other operating expenses decreased by $573,000 or 8.6% in the first
quarter of 2010 compared to the first quarter of 2009. The primary components of
other operating expense are marketing expense, professional fees, software
licensing and maintenance, cardholder expense and other.
Marketing expense for the first quarter of 2010 increased by $210,000
or 23.6% compared to the same period in 2009. New marketing campaigns for
television and radio in the first quarter of 2010 resulted in the increased
expense.
Software licensing and maintenance fee expense increased by $119,000 or
15.2% in the first quarter of 2010 compared with the first quarter of 2009. New
software purchases as well as software upgrades accounted for the increase over
March 31, 2009
29
Cardholder expenses totaled $417,000 in the first quarter of 2010, an
increase of $92,000 or 28.3% over the first quarter of 2009. The increase is
mainly due to a higher volume of customer transactions.
Additional items contributing to the change in other operating expenses
were the following: education and training (down $52,000), legal expense (down
$76,000) and telephone expense (down $208,000).
Income Tax Expense
The provision for income taxes provides for Federal and New York State
income taxes. The provision for the first quarter of 2010 was $4.1 million,
compared to $3.7 million for the same period in 2009. The Companys effective
tax rate for the first quarter of 2010 was 32.9% compared to 32.4% for the
first quarter of 2009. The increase in the effective rate in 2010 compared to
2009 was primarily the result of a lower proportion of tax advantaged income as
a percentage of total pre-tax income.
FINANCIAL CONDITION
Total assets were $3.2 billion at March 31, 2010, up $53.5 million or
1.7% over December 31, 2009, and up $213.5 million or 7.1% over March 31, 2009.
Asset growth over year-end 2009 was mainly in cash and equivalents, which were
up $71.2 million and available-for-sale securities, which were up $23.6
million. Total deposits at March 31, 2010 were up $72.3 million or 3.0% over
December 31, 2009 driven by an increase in municipal deposits.
Loans and leases totaled $1.89 billion or 58.8% of total assets at
March 31, 2010, compared to $1.91 billion or 60.7% of total assets at December
31, 2009. The $27.8 million or 1.5% decrease in total loans and leases from
year-end 2009 was across all loan categories with the exception of commercial
real estate loans. In general, weak economic conditions have strained some
borrowers and softened the demand for lending products. Commercial real estate
loans at March 31, 2010 were up $28.4 million or 4.4% over December 31, 2009.
Commercial loans are down $35.4 million or 7.2%, reflecting paydowns and some
seasonality in agricultural lending. Residential mortgage loan volume has been
strong over the past year, largely driven by the current low interest rate
environment. However, residential portfolio balances are down from year end and
from prior year, as the Company decided to sell certain fixed rate residential
mortgage loans in the secondary market because of the interest rate risk
considerations. The Company originated $11.2 million of residential mortgage
loans for sale during the first three months of 2010 and sold $11.6 million
during the same period. The consumer and leasing portfolios are down 5.6% and
0.63% at March 31, 2010 compared to year-end 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan and Lease Portfolio Balances (in thousands)
|
|
03/31/2010
|
|
%
of
Total
Loans
|
|
12/31/2009
|
|
% of
Total
Loans
|
|
Residential
real estate
|
|
$
|
613,718
|
|
|
32.5%
|
|
$
|
623,863
|
|
|
32.6%
|
|
Commercial
real estate
|
|
|
670,180
|
|
|
35.5%
|
|
|
641,737
|
|
|
33.5%
|
|
Real estate
construction
|
|
|
52,378
|
|
|
2.8%
|
|
|
58,125
|
|
|
3.0%
|
|
Commercial
|
|
|
457,280
|
|
|
24.2%
|
|
|
492,647
|
|
|
25.7%
|
|
Consumer and
other
|
|
|
81,771
|
|
|
4.3%
|
|
|
86,661
|
|
|
4.5%
|
|
Leases
|
|
|
11,711
|
|
|
0.6%
|
|
|
11,785
|
|
|
0.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases, net of unearned income
|
|
$
|
1,887,038
|
|
|
|
|
$
|
1,914,818
|
|
|
|
|
Nonperforming loans (loans in nonaccrual status, loans past due 90 days
or more and still accruing interest, and loans restructured in a troubled debt
restructuring) were $33.3 million at March 31, 2010, down from $34.9 million at
December 31, 2009, and up from $16.2 million at March 31, 2009. Nonperforming
loans represented 1.76% of total loans at March 31, 2010, compared to 1.82% of
total loans at December 31, 2009, and 0.89% of total loans at March 31, 2009.
For the first quarter of 2010, net charge-offs were $1.2 million, up from
$728,000 in the same period of 2009, and down slightly from $1.2 million for
the fourth quarter of 2009. In general, the increase in nonperforming loans is
reflective of the current weak economic conditions. A more detailed discussion
of nonperforming loans is provided below in this section under the caption
Allowance for Loan and Lease Losses.
As of March 31, 2010, total securities were $1.03 billion or 32.0% of
total assets, compared to $1.01 billion or 31.9% of total assets at December
2009. The portfolio is comprised primarily of mortgage-backed securities,
obligations of U.S. government sponsored entities, and obligations of U.S.
states and political subdivisions. The Company has no investments in preferred
stock of U.S. government sponsored entities and no investments in pools of
Trust Preferred securities. Quarterly,
30
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. The
Company maintains a trading portfolio valued at a fair value of $30.5 million
as of March 31, 2010, compared to $31.7 million at December 31, 2009. The
decrease in the trading portfolio reflects maturities or payments during 2010.
For the three months ended March 31, 2010, mark-to-market gains related to the
securities trading portfolio were $90,000.
Total deposits were $2.5 billion at March 31, 2010, up $72.3 million or
3.0% over December 31, 2009, and up $176.3 million or 7.6% over March 31, 2009.
The growth in total deposits from December 31, 2009 was mainly in checking,
money market and savings balances, which were up $73.8 million or 16.2%. 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 $21.4 million or 2.7% at March 31, 2010 compared to December
31, 2009. Other funding sources include Federal funds purchased, securities
sold under agreements to repurchase, other borrowings, and trust preferred
debentures. These funding sources totaled $396.9 million at March 31, 2010,
down $29.9 million or 7.0% from $426.8 million at December 31, 2009. A more
detailed discussion of deposits and borrowings is provided below in this
section under the caption Deposits and Other Liabilities.
Capital
Total equity was $254.4 million at March 31, 2010, an increase of $9.4
million or 3.9% from December 31, 2009, mainly a result of net income of $8.5
million less cash dividends paid of $3.3 million. The Company also paid a 10%
stock dividend in the first quarter of 2010, which resulted in a $35.4 million
decrease in retained earnings and a $35.3 million increase in additional
paid-in capital.
Additional paid-in capital increased by $37.8 million, from $155.6
million at December 31, 2009, to $193.4 million at March 31, 2010, reflecting
the $35.3 million related to the 10% stock dividend, $1.3 million related to
shares issued for the employee stock ownership plan, $640,000 related to shares
issued for dividend reinvestment plans, $360,000 related to stock option
exercises and related tax benefits, and $288,000 related to stock-based
compensation. Retained earnings decreased by $30.3 million from $92.4 million
at December 31, 2009, to $62.1 million at March 31, 2010, reflecting net income
of $8.4 million less dividends paid of $3.3 million, and $35.4 million related
to the 10% stock dividend. Accumulated other comprehensive loss declined from a
net unrealized loss of $3.1 million at December 31, 2009, to a net unrealized
loss of $1.4 million at March 31, 2010, 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 three months of 2010 totaled
approximately $3.3 million, representing 39.4% of year to date 2010 earnings.
Cash dividends of $0.31 per common share paid in the first three months of 2010
were flat compared to cash dividends of $0.31 per common share paid in the
first three months of 2009. Cash dividends per share were retroactively
adjusted to reflect the 10% stock dividend paid on February 15, 2010.
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 repurchase any shares during the first quarter of
2010. Since inception of the 2008 Plan, the Company has repurchased 6,500
shares at an average price of $36.21.
During 2009, the Company issued $20.5 million aggregate liquidation
amount of 7.0% cumulative trust preferred securities through a newly-formed
subsidiary, Tompkins Capital Trust I, a wholly-owned Delaware statutory trust
(Tompkins Capital Trust I). The Trust Preferred Securities were offered and
sold in reliance upon the exemption from registration provided by Rule 506 of
Regulation D of the Securities Act of 1933, as amended (the Securities Act).
The proceeds from the issuance of the Trust Preferred Securities, together with
the Companys capital contribution of $636,000 to the trust, were used to
acquire the Companys Subordinated Debentures that are due concurrently with
the Trust Preferred Securities. The net proceeds of the offering are being used
to support business growth and for general corporate purposes.
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, $20.5
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.
31
The Company and its banking subsidiaries are subject to various
regulatory capital requirements administered by Federal banking agencies. The
table below reflects the Companys capital position at March 31, 2010, compared
to the regulatory capital requirements for well capitalized institutions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REGULATORY CAPITAL ANALYSIS March 31, 2010
|
|
|
|
Actual
|
|
Well Capitalized
Requirement
|
|
(Dollar amounts in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total
Capital (to risk weighted assets)
|
|
|
$
|
261,094
|
|
|
|
|
12.56
|
%
|
|
|
$
|
207,577
|
|
|
|
|
10.00
|
%
|
|
Tier 1
Capital (to risk weighted assets)
|
|
|
$
|
235,622
|
|
|
|
|
11.40
|
%
|
|
|
$
|
124,546
|
|
|
|
|
6.00
|
%
|
|
Tier 1
Capital (to average assets)
|
|
|
$
|
235,622
|
|
|
|
|
7.48
|
%
|
|
|
$
|
157,452
|
|
|
|
|
5.00
|
%
|
|
As illustrated above, the Companys capital ratios on March 31, 2010
remain above the minimum requirements for well capitalized institutions. Total
capital as a percent of risk weighted assets increased 46 basis points from
12.1% at December 31, 2009. Tier 1 capital as a percent of risk weighted assets
increased 50 basis points from 10.9% at the end of 2009. Tier 1 capital as a
percent of average assets increased 10 basis points from 7.4% at December 31,
2009. The increase in capital ratios over year-end 2009 reflects growth in
retained earnings and the issuance of trust preferred securities.
During the first quarter of 2010, the Comptroller of the Currency
(OCC) notified the Company that it was requiring Mahopac National Bank, one
of the Companys three banking subsidiaries, to maintain certain minimum
capital ratios at levels higher than those otherwise required by applicable
regulations. The OCC is requiring Mahopac to maintain a Tier 1 capital to
average assets ratio of 8.0%, a Tier 1 risk-based capital to risk-weighted
capital ratio of 10.0% and a Total risk-based capital to risk-weighted assets
ratio of 12.0%. Mahopac exceeded these minimum requirements at the time of the
notification and continues to maintain ratios above these minimums. As of March
31, 2010, Mahopac had a Tier 1 capital to average assets ratio of 8.3%, a Tier
1 risk-based capital to risk-weighted capital ratio of 11.6% and a Total risk-based
capital to risk-weighted assets ratio of 12.8%.
As of March 31, 2010, the capital ratios for the Companys other two
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 (allowance) on a regular basis. Management considers the accounting
policy relating to the allowance to be a critical accounting policy, given the
inherent uncertainty in evaluating the levels of the allowance required to
cover credit losses in the portfolio and the material effect that assumptions
could have on the Companys results of operations. The Companys methodology
for determining and allocating the allowance for loan and lease losses focuses
on ongoing reviews of larger individual loans and leases, historical net
charge-offs, delinquencies in the loan and lease portfolio, the level of
impaired and nonperforming assets, values of underlying loan and lease
collateral, the overall risk characteristics of the portfolios, changes in
character or size of the portfolios, geographic location, current economic
conditions, changes in capabilities and experience of lending management and
staff, and other relevant factors. The various factors used in the
methodologies are reviewed on a periodic basis.
The Company has developed a methodology to measure the amount of
estimated loan loss exposure inherent in the loan portfolio to assure that an
adequate allowance is maintained. The Companys methodology is based upon
guidance provided in SEC Staff Accounting Bulletin No. 102,
Selected Loan Loss Allowance Methodology and
Documentation Issues
and includes an estimate of exposure for the
following: specifically reviewed and graded loans; historical loss experience
by product type; past due and nonperforming loans; and other internal and
external factors such as local and regional economic conditions, growth trends,
and credit policy and underwriting standards.
At least annually, management reviews all commercial and commercial
real estate loans exceeding a certain threshold and assigns a risk rating
grade. At least quarterly, management reviews all loans and leases over a
certain dollar threshold that are internally risk rated below a predetermined
grade, giving consideration to payment history, debt service payment capacity,
collateral support, strength of guarantors, industry trends, and other factors
relevant to the particular borrowing relationship. Through this process,
management identifies impaired loans. For loans and leases considered impaired,
estimated exposure amounts are based upon collateral values or discounted cash
flows. For internally reviewed commercial and commercial real estate loans that
are not impaired but whose internal risk rating is below a certain level,
estimated exposures are assigned based upon several factors, including the
borrowers financial condition, payment history, collateral adequacy, and
business conditions, and historical loss factors.
32
For commercial loans and commercial mortgage loans not specifically
reviewed, and for homogenous loan portfolios such as residential mortgage loans
and consumer loans, estimated exposure amounts are assigned based upon
historical loss experience and current charge-off trends, past due status, and
managements judgment of the effects of current economic conditions on
portfolio performance.
In addition to the above components, amounts are maintained based upon
managements judgment and assessment of other quantitative and qualitative
factors such as regional and local economic conditions, concentrations of
credit, industry concerns, adverse market changes in estimated or appraised
collateral value, and portfolio growth trends.
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 March 31, 2010. 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 three months of 2010 and 2009 and for the 12 months ended December
31, 2009, is illustrated in the table below.
|
|
|
|
|
|
|
|
|
|
|
ANALYSIS OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES (In thousands)
|
|
|
|
Three months
ended
03/31/2010
|
|
Twelve months
ended
12/31/2009
|
|
Three months
ended
03/31/2009
|
|
Average
loans and leases outstanding during the period
|
|
$
|
1,896,466
|
|
$
|
1,850,453
|
|
$
|
1,810,474
|
|
Total loans
and leases outstanding at end of period
|
|
$
|
1,887,038
|
|
$
|
1,914,818
|
|
$
|
1,811,792
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE FOR LOAN AND LEASE LOSSES
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
24,350
|
|
$
|
18,672
|
|
$
|
18,672
|
|
Provision
for loan and lease losses
|
|
|
2,183
|
|
|
9,288
|
|
|
2,036
|
|
Loans charged off
|
|
|
(1,403
|
)
|
|
(4,234
|
)
|
|
(902
|
)
|
Loan recoveries
|
|
|
236
|
|
|
624
|
|
|
174
|
|
Net
charge-offs
|
|
|
(1,167
|
)
|
|
(3,610
|
)
|
|
(728
|
)
|
Ending
balance
|
|
$
|
25,366
|
|
$
|
24,350
|
|
$
|
19,980
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan and lease losses to total loans and leases
|
|
|
1.34
|
%
|
|
1.27
|
%
|
|
1.10
|
%
|
Annualized
net charge-offs to average loans and leases
|
|
|
0.25
|
%
|
|
0.20
|
%
|
|
0.16
|
%
|
As of March 31, 2010, the allowance was $25.4 million or 1.34% of total
loans and leases outstanding. This represents an increase of 7 basis points
from December 31, 2009 and an increase of 24 basis points from March 31, 2009.
The increase in the allowance and the ratio of allowance to total loans and
leases outstanding is consistent with the increase in nonperforming loans, net
charge-offs and internally criticized and classified loans as well as overall
weakness in the economy. The provision for loan and lease losses was $2.2
million for the three months ended March 31, 2010, compared to $2.0 million for
the three months ended March 31, 2009, and $2.8 million for the three months
ended December 31, 2009.
Net charge-offs for the first quarter of 2010 totaled $1.2 million
compared to $728,000 in the comparable year ago period. Annualized net
charge-offs for the first three months of 2010 represented 0.25% of average
loans, up from 0.16% for the first three months of 2009, but is favorable to a
peer ratio of 1.58%. The peer data is from the Federal Reserve Board and
represents banks or bank holding companies with assets between $3 billion and
$10.0 billion. The peer ratio is as of December 31, 2009, the most recent data
available from the Federal Reserve Board.
The allowance coverage of nonperforming loans (loans past due 90 days
and accruing, nonaccrual loans, and restructured troubled debt) was 0.76 times
at March 31, 2010, compared to 0.70 times at December 31, 2009, and 1.24 times
at March 31, 2009. Although nonperforming loans are up over prior year, the
Companys loss experience continues to be low compared to industry levels.
33
|
|
|
|
|
|
|
|
|
|
|
NONPERFORMING ASSETS (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03/31/2010
|
|
12/31/2009
|
|
03/31/2009
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans and leases
|
|
$
|
29,521
|
|
$
|
31,289
|
|
$
|
15,478
|
|
Loans past
due 90 days and accruing
|
|
|
51
|
|
|
369
|
|
|
677
|
|
Troubled
debt restructuring not included above
|
|
|
3,703
|
|
|
3,265
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
33,275
|
|
|
34,923
|
|
|
16,155
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real
estate, net of allowances
|
|
|
558
|
|
|
299
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
33,833
|
|
$
|
35,222
|
|
$
|
16,258
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
nonperforming loans and leases as a percentage of total loans and leases
|
|
|
1.76
|
%
|
|
1.82
|
%
|
|
0.89%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
nonperforming assets as a percentage of total assets
|
|
|
1.06
|
%
|
|
1.12
|
%
|
|
0.54%
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
assets include nonaccrual loans, troubled debt restructurings (TDR) and
foreclosed real estate. The level of nonperforming assets at March 31, 2010,
and 2009, and December 31, 2009 is illustrated in the table above.
Nonperforming assets of $33.8 million at March 31, 2010, were down from
December 31, 2009, and up from March 31, 2009. The decrease in nonperforming
assets compared to year-end 2009 was mainly due to one commercial relationship
that was paid down as a result of the liquidation of collateral. In general,
the increase in nonperforming assets from March 31, 2010 is reflective of the
weak economic conditions that have persisted over the past few years, which
have pressured real estate values in some markets and stressed the financial
conditions of various commercial and residential borrowers. Approximately $5.1
million of nonperforming loans at March 31, 2010, were secured by U.S.
government guarantees, while $4.3 million were secured by one-to-four family
residential properties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
Loans by Type (in thousands)
|
|
|
03/31/2010
|
|
12/31/2009
|
|
|
|
|
|
|
% of
Total
Loans
|
|
|
|
|
% of
Total
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
4,283
|
|
|
0.23
|
%
|
$
|
6,396
|
|
|
0.33%
|
|
Commercial
real estate
|
|
|
21,810
|
|
|
1.16
|
%
|
|
19,714
|
|
|
1.03%
|
|
Real estate
construction
|
|
|
178
|
|
|
0.01
|
%
|
|
964
|
|
|
0.05%
|
|
Commercial
|
|
|
6,458
|
|
|
0.34
|
%
|
|
7,223
|
|
|
0.38%
|
|
Consumer and
other
|
|
|
521
|
|
|
0.03
|
%
|
|
598
|
|
|
0.03%
|
|
Leases
|
|
|
25
|
|
|
0.00
|
%
|
|
28
|
|
|
0.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
and leases, net of unearned income
|
|
$
|
33,275
|
|
|
1.77
|
%
|
$
|
34,923
|
|
|
1.82%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
assets represented 1.06% of total assets at March 31, 2010, compared to 1.12%
at December 31, 2009, and 0.54% at March 31, 2009. Although higher than the
same period prior year, the Companys ratio of nonperforming assets to total
assets of 1.06% continues to compare favorably to our peer group ratio of 3.36%
at December 31, 2009.
As of March
31, 2010, the Companys recorded investment in loans and leases that are
considered impaired totaled $28.7 million compared to $30.0 million at December
31, 2009, and $15.5 million at March 31, 2009. A loan is impaired when, based
on current information and events, it is probable that we will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Impaired loans consist of our non-homogenous nonaccrual loans, and
loans that are 90 days or more past due, and accruing and all loans
restructured in a troubled debt restructuring, and other loans for which the
Company determine that noncompliance with contractual terms of the loan
agreement is probable. Losses on individually identified impaired loans that
are not collateral dependent are measured based on the present value of
expected future cash flows discounted at the original effective interest rate
of each loan. For loans that are collateral dependent, impairment is measured
based on the fair value of the collateral less estimated selling costs. At
March 31, 2010 $12.7 million of impaired loans had specific reserve allocations
of $931,000, and $16.0 million had no specific reserve allocation.
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 March 31, 2010, the
Companys internal loan review function had identified 72
34
commercial
relationships, totaling $89.1 million, which it classified as Substandard,
which continue to accrue interest. As of December 31, 2009, the Companys
internal loan review function had classified 67 commercial relationships as
Substandard totaling $83.9 million, which continued to accrue interest. Of the
72 commercial relationships, there are 17 relationships that equal or exceed
$1.0 million, which in aggregate total $75.3 million. The Company has seen an
increase in potential problem loans over the past few years as weak economic
conditions have strained borrowers cash flows and collateral values. 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. Management cannot predict the extent to which continued weak economic
conditions or other factors may further impact its borrowers. The increase in
the dollar amount of commercial relationships classified as Substandard and
still accruing interest between December 31, 2009 and March 31, 2010 was mainly
due to the addition of one larger commercial relationships totaling $2.9
million that was classified as Substandard and accruing at March 31, 2010, and
were not classified as Substandard at December 31, 2009.
Deposits and Other Liabilities
Total deposits
of $2.5 billion at March 31, 2010 increased $72.3 million or 3.0% from December
31, 2009, due primarily to a $73.8 million increase in interest checking,
savings and money market balances, a $21.4 million increase in time deposits
offset by a $22.8 million decrease in noninterest bearing deposits. Growth in
municipal deposits accounted for a majority of the increase in savings and
money market balances from year end 2009. 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 $176.3 million or
7.6% over March 31, 2009. The increase was primarily due to a $97.7 million
increase in checking, savings and money market accounts of which $58.6 million
was attributable to growth in municipal deposits. Additionally, time deposits
increased $50.1 million over March 31, 2009, mainly attributable to growth in
time deposits of$100,000 or more.
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 $56.6 million or 3.3% over December
31, 2009 to $1.8 billion, and represented 70.9% of total deposits at March 31,
2010 compared to 70.7% of total deposits at December 31, 2009.
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 $35.7 million at March 31, 2010, and $47.3 million at
December 31, 2009. Management generally views local repurchase agreements as an
alternative to large time deposits. The Companys wholesale repurchase
agreements are primarily with the FHLB and amounted to $145.5 million at March
31, 2010, comparable to December 31, 2009. Included in the $145.5 million of
wholesale repurchase agreements at March 31, 2010, are $5.5 million of
repurchase agreements with the FHLB where the Company elected to adopt the fair
value option under FASB ASC Topic 825. The fair value of these borrowings
increased by $47,000 (net mark-to-market pre-tax loss of $47,000) over the
three months ended March 31, 2010.
The Companys
other borrowings totaled $190.5 million at March 31, 2010, down $18.4 million
or 8.8% from $209.0 million at December 31, 2009. Borrowings at March 31, 2010
included $165.4 million in FHLB term advances, and a $25.0 million advance from
a money center bank. Borrowings at year-end 2009 included $170.3 million in
FHLB term advances, $13.5 million of overnight FHLB advances, and a $25.0
million advance from a money center bank. The decrease in borrowings reflects
the pay down of FHLB borrowings as a result of deposit growth. Of the $165.4
million in FHLB term advances at March 31, 2010, $131.4 million are due over
one year. In 2007, the Company elected the fair value option under FASB ASC
Topic 825 for a $10.0 million advance with the FHLB. The fair value of this
advance increased by $81,000 (net mark-to-market loss of $81,000) over the
three months ended March 31, 2010.
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. The Companys Asset/Liability Management Committee monitors asset
and liability positions of the Companys subsidiary banks individually and on a
combined basis. The Committee reviews periodic reports on liquidity and
interest rate sensitivity positions. Comparisons with industry and peer
35
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 decreased by $14.2 million or 1.3% from December 31,
2009 to $1.1 billion at March 31, 2010. Non-core funding sources, as a
percentage of total liabilities, were 37.3% at March 31, 2010, compared to
38.4% at December 31, 2009. The decrease in non-core funding sources was mainly
due to the decline of brokered time deposits, FHLB advances, and securities
sold under agreements to repurchase, partially offset by an increase in time
deposits of $100,000 or more.
Non-core
funding sources may require securities to be pledged against the underlying
liability. Securities carried at $808.8 million and $772.7 million at March 31,
2010 and December 31, 2009, respectively, were either pledged or sold under
agreements to repurchase. Pledged securities represented 87.1% of total
securities at March 31, 2010, compared to 83.9% of total securities at December
31, 2009.
Cash and cash
equivalents totaled $116.6 million as of March 31, 2010, up from $45.5 million
at December 31, 2009. Short-term investments, consisting of Federal funds sold
and interest-bearing deposit balances of $71.7 million increased by $70.0
million above December 31, 2009 levels. The Company also has $30.5 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 mortgage-backed securities, at fair value, were
$465.1 million at March 31, 2010 compared with $477.7 million at December 31,
2009. Outstanding principal balances of residential mortgage loans, consumer
loans, and leases totaled approximately $707.2 million at March 31, 2010 as
compared to $722.5 million at December 31, 2009. 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 March 31, 2010, the unused borrowing
capacity on established lines with the FHLB was $521.9 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 March
31, 2010, total unencumbered residential mortgage loans of the Company were
$219.3 million. Additional assets may also qualify as collateral for FHLB
advances upon approval of the FHLB.
The Company
has not identified any trends or circumstances that are reasonably likely to
result in material increases or decreases in liquidity in the near term.
I
tem 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 Companys
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 February 28, 2010, a 200
basis point parallel upward change in interest rates over a one-year time frame
would result in a one-year decrease in net interest income from the base case
of approximately 1.74%, while a 100 basis point parallel decline in interest
rates over a one-year period would result in a decrease in one-year
36
net interest income from the base case of 0.55%. The simulation assumes
no balance sheet growth and no management action to address balance sheet
mismatches.
The negative exposure in a rising interest rate environment is mainly
driven by the repricing assumptions of the Companys core deposit base which
exceed increases in asset yields in the short-term. 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
slight decline in net interest margin over the next twelve months.
Although the simulation model is useful in identifying potential
exposure to interest rate movements, actual results may differ from those
modeled as the repricing, maturity, and prepayment characteristics of financial
instruments may change to a different degree than modeled. In addition, the
model does not reflect actions that management may employ to manage the
Companys 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 March 31, 2010. The Companys one-year net
interest rate gap was a negative $ 113.0 million or 3.53% of total assets at
March 31, 2010, compared with a negative $113.0 million or 3.53% of total
assets at December 31, 2009. 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 an increasing rate environment than it is to a prolonged
declining interest rate environment. An interest rate gap measure could be
significantly affected by external factors such as a rise or decline in
interest rates, loan or securities prepayments, and deposit withdrawals.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Static Gap March 31, 2010
|
|
|
|
|
Repricing Interval
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
Total
|
|
0-3 months
|
|
3-6 months
|
|
6-12 months
|
|
Cumulative
12 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets
1
|
|
$
|
2,982,246
|
|
$
|
766,461
|
|
$
|
195,755
|
|
$
|
337,671
|
|
$
|
1,299,887
|
|
Interest-bearing liabilities
|
|
|
2,469,890
|
|
|
951,181
|
|
|
224,331
|
|
|
237,548
|
|
|
1,413,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gap position
|
|
|
|
|
|
(184,720
|
)
|
|
(28,576
|
)
|
|
100,123
|
|
|
(113,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gap position as a percentage of total assets
|
|
|
|
|
|
(5.76%
|
)
|
|
(0.89%
|
)
|
|
3.12%
|
|
|
(3.53%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Balances of available securities
are shown at amortized cost
|
|
I
tem
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 March 31, 2010. 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.
37
Changes in Internal
Control Over Financial Reporting
There were no changes in the Companys internal control over financial
reporting that occurred during the quarter ended March 31, 2010, that
materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
PART
II - O
THER INFORMATION
|
|
I
tem
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, 2009.
|
|
I
tem 2.
|
Unregistered Sales of Equity Securities and
the Use of Proceeds
|
Issuer Purchases of
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Number of
Shares
Purchased
(a)
|
|
Average Price Paid
Per Share (b)
|
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (c)
|
|
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2010 through
January 31, 2010
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
|
143,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1,
2010 through
February 28, 2010
|
|
|
430
|
|
|
36.55
|
|
|
0
|
|
|
143,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2010
through
March 31, 2010
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
143,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
430
|
|
$
|
36.55
|
|
|
0
|
|
|
143,500
|
|
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
first quarter of 2010.
Included in the table above are 430 shares purchased in February 2010,
at an average cost of $36.55 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
None
|
|
I
tem
3.
|
Defaults Upon
Senior Securities
|
|
|
|
None
|
|
|
I
tem
4.
|
(Removed and
Reserved)
|
38
|
|
I
tem
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)
|
S
IGNATURES
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.
|
|
|
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)
|
39
E
XHIBIT 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.
|
|
41
|
|
|
|
|
|
|
|
31.2
|
|
Certification of Principal
Financial Officer as required by Rule 13a-14(a) of
|
|
|
|
|
|
the Securities
E
xchange Act of 1934, as amended.
|
|
42
|
|
|
|
|
|
|
|
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
|
|
43
|
|
|
|
|
|
|
|
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
|
|
44
|
|
40
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