UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to ________
Commission File Number 1-12709
![[TOMPKINS FINANCIAL LOGO]](img001.jpg)
Tompkins Financial Corporation
(Exact name of registrant as specified in its charter)
New York 16-1482357
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
The Commons, P.O. Box 460, Ithaca, New York 14851
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 273-3210
Securities registered pursuant to Section 12(b) of the Act:
Common Stock ($.10 Par Value Per Share) American Stock Exchange
--------------------------------------- ------------------------------------
(Title of class) (Name of exchange on which traded)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of Securities Act. Yes [ ] No [X].
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X].
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a nonaccelerated filer, or a smaller reporting company.
Large Accelerated Filer [ ] Accelerated Filer [X] Nonaccelerated Filer [ ]
Smaller Reporting Company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
The aggregate market value of the registrant's voting stock held by
non-affiliates was $303,049,956 on June 30, 2007, based on the closing sales
price of a share of the registrant's common stock, $.10 par value (the "Common
Stock"), as reported on the American Stock Exchange, on such date.
The number of shares of the registrant's Common Stock outstanding as of March 1,
2008, was 9,619,746 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement relating to its 2008
Annual Meeting of stockholders to be held on May 5, 2008, which will be
subsequently filed with the Securities and Exchange Commission within 120 days
after the end of the fiscal year to which this Report relates, are incorporated
by reference into Part III of this Form 10-K where indicated.
TOMPKINS FINANCIAL CORPORATION
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2007
Table of Contents
Page
PART I
Item 1. Business 1
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 9
Item 2. Properties 9
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Registrant 12
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities 13
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 39
Item 8. Financial Statements and Supplementary Data 41
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 81
Item 9A. Controls and Procedures 81
Item 9B. Other Information 81
PART III
Item 10. Directors, Executive Officers, and Corporate Governance 81
Item 11. Executive Compensation 82
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters 82
Item 13. Certain Relationships and Related Transactions, and Director Independence 82
Item 14. Principal Accounting Fees and Services 82
Part IV
Item 15. Exhibits and Financial Statement Schedules 82
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PART I
Item 1. Business
The disclosures set forth in this Item1. Business are qualified by the section
captioned "Forward-Looking Statements" in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations of this Report and
other cautionary statements set forth elsewhere in this Report.
General
Tompkins Financial Corporation, ("Tompkins" or the "Company") is headquartered
in Ithaca, New York and is registered as a Financial Holding Company with the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended.
The Company is a locally oriented, community-based financial services
organization that offers a full array of products and services, including
commercial and consumer banking, leasing, trust and investment management,
financial planning and wealth management, insurance, and brokerage services. The
Company conducts its business through its three wholly-owned banking
subsidiaries, Tompkins Trust Company (the "Trust Company"), The Bank of Castile
and The Mahopac National Bank ("Mahopac National Bank"), through its
wholly-owned insurance subsidiary, Tompkins Insurance Agencies, Inc. ("Tompkins
Insurance"), and through its wholly-owned financial planning, wealth management
and broker-dealer subsidiary, AM&M Financial Services, Inc. (AM&M).
Unless the context otherwise requires, the term "Company" refers to Tompkins
Financial Corporation and its subsidiaries. The Company's principal offices are
located at The Commons, Ithaca, New York, 14851, and its telephone number is
(607) 273-3210. The Company's common stock is traded on the American Stock
Exchange under the Symbol "TMP."
Tompkins was organized in 1995, under the laws of the State of New York, as a
bank holding company for the Trust Company, a commercial bank that has operated
in Ithaca and surrounding communities since 1836. On December 31, 1999, the
Company completed a merger with Letchworth Independent Bancshares Corporation
("Letchworth"), at which time Letchworth was merged with and into Tompkins. Upon
completion of the merger, Letchworth's two subsidiary banks, The Bank of Castile
and Mahopac National Bank, became subsidiaries of Tompkins. Information relating
to revenues, profit and loss, and total assets for the Company's two business
segments - banking and financial services - is incorporated herein by reference
to Part II, Item 8. of this Report.
Recent Acquisitions
On January 6, 2006, the Company completed its acquisition of AM&M Financial
Services, Inc. (AM&M), a fee-based financial planning firm headquartered in
Pittsford, New York. AM&M operates as a wholly-owned subsidiary of the
Company. It has three operating companies: (1) AM&M Planners, Inc., which
provides fee based financial planning and wealth management services for
corporate executives, small business owners and high net worth individuals; (2)
Ensemble Financial Services, Inc., an independent broker-dealer and leading
outsourcing company for financial planners and investment advisors; and (3)
Ensemble Risk Solutions, Inc., which creates customized risk management plans
using life, disability, and long-term care insurance products.
During 2007, Tompkins Insurance continued to expand its insurance business with
the acquisition of Flint-Farrell Insurance Agency, an insurance agency in New
York. The transaction resulted in goodwill of $110,000, customer related
intangibles of $58,000 and a covenant-not-to-compete valued at $24,000.
On September 28, 2007, AM&M acquired the assets of Francis M. Celona, CPA,
P.C., a local accounting and financial services company in Honeoye Falls, New
York, in a cash transaction. The transaction resulted in goodwill of $47,000,
customer related intangibles of $56,000 and a covenant-not-to-compete valued at
$6,000.
In November 2007, the Company entered into a definitive agreement under which
Tompkins will acquire Sleepy Hollow Bancorp in a cash transaction valued at
$30.2 million, subject to various regulatory approvals. Headquartered in Sleepy
Hollow, New York, Sleepy Hollow Bancorp, Inc. has assets of approximately $245
million and is the parent company of Sleepy Hollow Bank, which operates five
full-service offices and one limited-service facility, all in Westchester
County, New York. Sleepy Hollow Bank has approximately $160 million in loans and
$225 million in deposits. Upon completion of the transaction, Sleepy Hollow Bank
will be merged into Mahopac National Bank, resulting in a community bank with
$750 million in total assets and fifteen offices serving Westchester, Putnam and
Dutchess Counties.
Additional information on these acquisitions is provided in "Note 2 Mergers and
Acquisitions" in the Notes to Consolidated Financial Statements in Part II, Item
8. of this Report.
Narrative Description of Business
Information about the Company's business segments is included in "Note 20
Segment and Related Information" in the Notes to Consolidated Financial
Statements in Part II, Item 8. of this Report. The Company has identified two
business segments, banking and financial services. Financial services activities
consist of the results of the Company's trust, financial planning and wealth
management, broker-dealer services, and risk management operations. All other
activities are considered banking.
1
Banking services consist primarily of attracting deposits from the areas served
by the Company's banking subsidiaries' 39 banking offices and using those
deposits to originate a variety of commercial loans, consumer loans, real estate
loans, and leases in those same areas. Residential real estate mortgage loans
are generally underwritten in accordance with Federal Home Loan Mortgage
Corporation (FHLMC) guidelines, which enhances the liquidity of these lending
products. The Company's subsidiary banks have sold residential mortgage loans to
FHLMC over the past several years to manage exposure to changing interest rates
and to take advantage of favorable market conditions. The Company's subsidiary
banks retain the servicing of the loans sold to FHLMC and record a servicing
asset at the time of sale. For additional details on loan sales, refer to "Note
5 Loan and Lease Classification Summary and Related Party Transactions" in the
Notes to Consolidated Financial Statements in Part II, Item 8. of this Report.
The Company's lending function is managed within the guidelines of a
comprehensive Board-approved lending policy. Policies and procedures are
reviewed on a regular basis. Reporting systems are in place to provide
management with ongoing information related to loan production, loan quality,
concentrations of credit, loan delinquencies and nonperforming and potential
problem loans. The Company has an independent loan review process that reviews
and validates the risk identification and assessment made by the lenders and
credit personnel. The results of these reviews are presented to the Board of
Directors of each of the Company's banking subsidiaries.
The Company's principal expenses are interest on deposits, interest on
borrowings, and operating and general administrative expenses, as well as
provisions for loan and lease losses. Funding sources, other than deposits,
include borrowings, securities sold under agreements to repurchase, and cash
flow from lending and investing activities. Tompkins provides a variety of
financial services to individuals and small business customers. Some of the
traditional banking services and financial services are detailed below.
Commercial Services
The Company's subsidiary banks provide financial services to corporations and
other business clients. Lending activities include loans for a variety of
business purposes, including real estate financing, construction, equipment
financing, accounts receivable financing, and commercial leasing. Other
commercial services include deposit and cash management services, letters of
credit, sweep accounts, credit cards, purchasing cards, Internet-based account
services, and remote deposit services.
Retail Services
The Company's subsidiary banks provide a variety of retail banking services
including checking accounts, savings accounts, time deposits, IRA products,
brokerage services, residential mortgage loans, personal loans, home equity
loans, credit cards, debit cards and safe deposit services. Retail services are
accessible through a variety of delivery systems including branch facilities,
ATMs, voice response, Internet banking, and remote deposit services, a
convenient new service that brings deposit capability to an individuals desk any
time of the day or night.
Securities Portfolio
The Company maintains a portfolio of securities such as U.S. government and
government sponsored agency securities, obligations of states and political
subdivisions thereof, equity securities, and interest-bearing deposits.
Management typically invests in securities with short to intermediate average
lives in order to better match the interest rate sensitivities of its assets and
liabilities.
Investment decisions are made within policy guidelines established by the
Company's Board of Directors. The investment policy established by the Company's
Board of Directors is based on the asset/liability management goals of the
Company, and is monitored by the Company's Asset/Liability Management Committee.
The intent of the policy is to establish a portfolio of high quality diversified
securities, which optimizes net interest income within safety and liquidity
limits deemed acceptable by the Asset/Liability Management Committee.
Securities, other than certain obligations of states and political subdivisions
thereof, are classified as available-for-sale. Securities available-for-sale may
be used to enhance total return, provide additional liquidity, or reduce
interest rate risk.
The Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities -- Including an amendment of FASB Statement No. 115 ("SFAS
159") effective January 1, 2008. With the adoption of SFAS 159, the Company
elected to account for certain securities and certain borrowings at fair value,
with unrealized gains or losses included in earnings. Refer "Note 1 Summary of
Significant Accounting Policies" in the Notes to Consolidated Financial
Statements in Part II, Item 8. of this Report for additional details.
Trust and Investment Management Services
The Company provides trust and investment services through Tompkins Investment
Services (TIS), a division of Tompkins Trust Company, and investment services
through AM&M. Tompkins Investment Services, with office locations at all
three of the Company's subsidiary banks, provides a full range of money
management services, including investment management accounts, custody accounts,
trusts, retirement plans and rollovers, estate settlement, and financial
planning. AM&M provides fee-based financial planning and wealth management
services for small business owners, professionals and corporate executives and
other individuals with complex financial needs.
Broker-Dealer Services
AM&M also operates a broker-dealer subsidiary, which is a leading
outsourcing company for financial planners and investment advisors.
2
Insurance Services
The Company provides property and casualty insurance services and employee
benefits consulting through Tompkins Insurance. Tompkins Insurance is an
independent insurance agency, representing many major insurance carriers.
Tompkins Insurance has automated systems for record keeping, claim processing
and coverage confirmation, and can provide insurance pricing comparisons from
some of the country's finest insurance companies. Tompkins Insurance provides
employee benefits consulting to employers in Western and Central New York,
assisting them with their medical, group life insurance and group disability. In
addition to its seven stand-alone offices, Tompkins Insurance shares several
offices with The Bank of Castile and The Trust Company. AM&M operates a
subsidiary that creates customized risk management plans using life, disability
and long-term care insurance products.
Subsidiaries
The Company operates three banking subsidiaries, an insurance agency subsidiary,
and a financial planning, wealth management, and broker-dealer subsidiary in New
York. The Company's subsidiary banks operate 39 offices, including 2
limited-service office, serving communities in New York. The decision to operate
as three locally managed community banks reflects management's commitment to
community banking as a business strategy. For Tompkins, personal delivery of
high quality services, a commitment to the communities in which we operate, and
the convergence of a single-source financial service provider characterize
management's community banking approach. The combined resources of the Tompkins
organization provides increased capacity for growth and greater capital
resources necessary to make investments in technology and services. Tompkins has
developed several specialized financial services that are now available in
markets served by all three subsidiary banks. These services include trust and
investment services, insurance, leasing, card services, Internet banking, and
remote deposit services.
Tompkins Trust Company (the "Trust Company")
The Trust Company is a commercial bank that has operated in Ithaca, New York and
surrounding communities since 1836. The Trust Company operates 15 banking
offices, including 2 limited-service banking offices in the counties of
Tompkins, Cortland, Cayuga and Schuyler, New York.
The Trust Company's market area consists primarily of Tompkins County, New York
with a population of approximately 100,000. The majority of Tompkins Trust
Company's 13 full-service offices are located within Tompkins County. Education
plays a significant role in the local economy with Cornell University and Ithaca
College being two of the county's major employers. Current economic trends
include low unemployment and moderate growth. The Trust Company has a
full-service office in Cortland, New York and a full-service office in Auburn,
New York. Both of these offices are located in counties contiguous to Tompkins
County.
The Bank of Castile ("The Bank of Castile")
The Bank of Castile conducts its operations through its 15 banking offices, in
towns situated in and around the areas commonly known as the Letchworth State
Park area and the Genesee Valley region of New York State. The main business
office for The Bank of Castile is located in Batavia, New York and is shared
with Tompkins Insurance. The Bank of Castile serves a five-county market that is
primarily rural in nature. Excluding Monroe County, which includes Rochester,
the population of the counties served by The Bank of Castile is approximately
209,000. Economic growth has been relatively flat in The Bank of Castile's
market area, although the significant population base of the suburban Rochester
market (in excess of 700,000 people) provides continued opportunities for
growth.
The Mahopac National Bank ("Mahopac National Bank")
Mahopac National Bank is located in Putnam County, New York and operates five
full-service offices in that county, three full-service offices in Dutchess
County, New York and one full-service office in Westchester County, New York.
The primary market area for Mahopac National Bank is Putnam County, with a
population of approximately 101,000. Putnam County is about 60 miles north of
Manhattan, and is one of the fastest growing counties in New York State. Mahopac
National Bank's Hopewell Junction and LaGrange offices are located in Dutchess
County, which has a population of approximately 295,000. Mahopac National Bank's
Mount Kisco office is located in Westchester County, which has a population of
949,000.
Tompkins Insurance Agencies, Inc. ("Tompkins Insurance")
Tompkins Insurance is headquartered in Batavia, New York, and offers property
and casualty insurance to individuals and businesses primarily in Western and
Central New York. Over the past several years, Tompkins Insurance has acquired
smaller insurance agencies generally in the market areas serviced by the
Company's banking subsidiaries. Tompkins Insurance offers services to customers
of the Company's banking subsidiaries by sharing offices with The Bank of
Castile and The Trust Company. In addition, to these shared offices, Tompkins
Insurance has five stand-alone offices in Western New York, and two stand-alone
offices in Tompkins County, New York.
3
AM&M Financial Services, Inc. ("AM&M")
AM&M is headquartered in Pittsford, New York and offers financial services
through three operating companies: (1) AM&M Planners, Inc., which provides
fee based financial planning and wealth management services for corporate
executives, small business owners and high net worth individuals; (2) Ensemble
Financial Services, Inc., an independent broker-dealer and leading outsourcing
company for financial planners and investment advisors; and (3) Ensemble Risk
Solutions, Inc., which creates customized risk management plans using life,
disability and long-term care insurance products.
Competition
Competition for commercial banking and other financial services is strong in the
Company's market areas. In one or more aspects of its business, the Company's
subsidiaries compete with other commercial banks, savings and loan associations,
credit unions, finance companies, Internet-based financial services companies,
mutual funds, insurance companies, brokerage and investment banking companies,
and other financial intermediaries. Some of these competitors have substantially
greater resources and lending capabilities and may offer services that the
Company does not currently provide. In addition, many of the Company's non-bank
competitors are not subject to the same extensive Federal regulations that
govern financial holding companies and Federally insured banks.
Competition among financial institutions is based upon interest rates offered on
deposit accounts, interest rates charged on loans and other credit and service
charges, the quality and scope of the services rendered, the convenience of
facilities and, in the case of loans to commercial borrowers, relative lending
limits. Management believes that a community based financial organization is
better positioned to establish personalized financial relationships with both
commercial customers and individual households. The Company's community
commitment and involvement in its primary market areas, as well as its
commitment to quality and personalized financial services, are factors that
contribute to the Company's competitiveness. Management believes that each of
the Company's subsidiary banks can compete successfully in its primary market
areas by making prudent lending decisions quickly and more efficiently than its
competitors, without compromising asset quality or profitability, although no
assurances can be given that such factors will assure success.
Supervision and Regulation
Regulatory Agencies
As a registered financial holding company, the Company is subject to examination
and comprehensive regulation by the Federal Reserve Board (FRB). The Company's
banking subsidiaries are subject to examination and comprehensive regulation by
various regulatory authorities, including the Federal Deposit Insurance
Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the
New York State Banking Department (NYSBD). Each of these agencies issues
regulations and requires the filing of reports describing the activities and
financial condition of the entities under its jurisdiction. Likewise, such
agencies conduct examinations on a recurring basis to evaluate the safety and
soundness of the institutions, and to test compliance with various regulatory
requirements, including: consumer protection, privacy, fair lending, the
Community Reinvestment Act, the Bank Secrecy Act, sales of non-deposit
investments, electronic data processing, and trust department activities.
The Company's financial services subsidiaries are subject to examination and
regulation by various regulatory agencies, including the New York State
Insurance Department, Securities and Exchange Commission (SEC), the Financial
Industry Regulatory Authority (FINRA), and the National Association of
Securities Dealers (NASD). Tompkins Investment Services is subject to
examination and comprehensive regulation by various regulatory authorities,
including the FDIC and NYSBD.
Share Repurchases and Dividends
Under FRB regulations, the Company may not, without providing prior notice to
the FRB, purchase or redeem its own common stock if the gross consideration for
the purchase or redemption, combined with the net consideration paid for all
such purchases or redemptions during the preceding twelve months, is equal to
ten percent or more of the Company's consolidated net worth.
FRB policy provides that dividends shall not be paid except out of current
earnings and unless the prospective rate of earnings retention by the Company
appears consistent with its capital needs, asset quality, and overall financial
condition. Tompkins' primary source of funds to pay dividends on its common
stock is dividends from its subsidiary banks. The subsidiary banks are subject
to regulations that restrict the dividends that they may pay to Tompkins.
Liability of Commonly Controlled Institutions
FDIC-insured depository institutions can be held liable for any loss incurred,
or reasonably expected to be incurred, by the FDIC due to the default of an
FDIC-insured depository institution controlled by the same bank holding company,
or for any assistance provided by the FDIC to a FDIC-insured depository
institution controlled by the same bank holding company that is in danger of
default. "Default" means generally the appointment of a conservator or receiver.
"In danger of default" means generally the existence of certain conditions
indicating that default is likely to occur in the absence of regulatory
assistance.
4
Intercompany Transactions
There are Federal laws and regulations that govern transactions between the
Company's non-bank subsidiaries and its banking subsidiaries. These laws
establish certain quantitative limits and other prudent requirements for loans,
purchases of assets, and certain other transactions between a member bank and
its affiliates.
Capital Adequacy
The Federal Reserve Board, the OCC and the FDIC have substantially similar
risk-based capital ratio and leverage ratio guidelines for banking
institutions. The guidelines are intended to ensure that banking organizations
have adequate capital given the risk levels of assets and off-balance sheet
financial instruments. Under the guidelines, banking organizations are required
to maintain minimum ratios for Tier I capital and total capital to risk-weighted
assets. For purposes of calculating the ratios, a banking organization's assets
and some of its specified off-balance sheet commitments and obligations are
assigned to various risk categories. A depository institution's or holding
company's capital, in turn, is classified in one of three tiers, depending upon
type:
Core Capital (Tier 1). Tier 1 capital includes common equity, retained earnings,
qualifying non-cumulative preferred stock, a limited amount of qualifying
cumulative preferred stock at the holding company level, minority interests in
equity accounts of consolidated subsidiaries, qualifying trust preferred
securities, less goodwill, most intangible assets and certain other assets.
Supplementary Capital (Tier 2). Tier 2 capital includes, among other things,
perpetual preferred stock and trust preferred securities not meeting the Tier 1
definition, qualifying mandatory convertible debt securities, qualifying
subordinated debt, and allowances for possible loan losses, subject to
limitations.
Market Risk Capital (Tier 3). Tier 3 capital includes qualifying unsecured
subordinated debt.
Tompkins, like other bank holding companies, is required to maintain Tier 1
capital and "total capital" (the sum of Tier 1, Tier 2 and Tier 3 capital) equal
to at least 4.0% and 8.0%, respectively, of its total risk-weighted assets. The
bank subsidiaries, like other depository institutions, are required to maintain
similar capital levels under capital adequacy guidelines. For a depository
institution to be "well capitalized" under the regulatory framework for prompt
corrective action, its Tier 1 and total capital ratios must be at least 6% and
10.0% on a risk-adjusted basis, respectively.
Bank holding companies and banks are also required to comply with minimum
leverage ratio requirements. The leverage ratio is the ratio of a banking
organization's Tier 1 capital to its total adjusted quarterly average assets.
The minimum permissible leverage ratio is 3.0% for financial holding companies
and banks that either have the highest supervisory rating or have implemented
the appropriate federal regulatory authority's risk-adjusted measure for market
risk. All other financial holding companies and banks are required to maintain a
minimum leverage ration of 4.0%, unless a different minimum is specified by an
appropriate regulatory authority. For a depository institution to be considered
"well capitalized" under the regulatory framework for prompt corrective action,
its leverage ration must be at least 5.0%.
For further information concerning the regulatory capital requirements, actual
capital amounts and the ratios of Tompkins and its bank subsidiaries, see the
discussion in "Note 18 Regulations and Supervision" in Notes to Consolidated
Financial Statements in Part II, Item 8. of this Report.
Deposit Insurance
All deposit accounts of the Company's subsidiary banks are insured by the
Deposit Insurance Fund ("DIF"), generally in amounts up to $100,000 per
depositor. Legislation, discussed below, was passed in 2006 that increased
insurance coverage for certain self-directed retirement accounts to $250,000 and
indexed insurance levels for inflation. Deposit insurance coverage is maintained
by payment of premiums assessed to banks insured by the DIF. The FDIC uses a
risk-based assessment system that determines insurance premiums based upon a
bank's capital level and supervisory rating. Based on capital strength and
favorable FDIC risk classifications, the Company's subsidiary banks are not
currently subject to BIF insurance assessments.
In February 2006, The Federal Deposit Insurance Reform Act of 2005 and The
Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (collectively
the "Reform Act") were signed into law. The Reform Act provided for the merging
of the Bank Insurance Fund and Savings Association Insurance Fund into the new
DIF, effective March 31, 2006. Under the Reform Act, the FDIC has modified its
risk-based deposit premium assessment system under which each depository
institution is placed in one of four assessment categories based on the
institution's capital classification under the prompt corrective action
provisions and an institution's long-term debt issuer ratings. Effective January
1, 2007, the adjusted assessment rates for insured institutions under the
modified system range from .05% to .43% depending upon the assessment category
into which the insured institution is placed. Under the previous assessment
system, the adjusted assessment rates ranged from .00% to .27%.
The Reform Act provides for a one-time assessment credit for eligible insured
depository institutions (those institutions that were in existence on December
31, 1996 and paid a deposit insurance assessment prior to that date, or are a
successor to any such institution). The credit is determined based on the
assessment base of the institution as of December 31, 1996 as compared with the
combined aggregate assessment base of all eligible institutions as of that date.
The credit may be used to offset up to 100% of the 2007 DIF assessment, and if
not completely used in 2007, may be applied to not more than 90% of each of the
aggregate 2008, 2009 and 2010 DIF assessments. The Company's one-time historical
assessment credit was $1.0 million. This credit offset the Federal deposit
insurance assessments in 2007. The remaining credit will be completely used in
2008 and will only partially offset the 2008 assessments. The insurance
assessments under the Reform Act are not expected to have a significant adverse
impact on the results of operations and financial condition of the Company's
subsidiary banks in 2008.
5
In addition to the risk-based deposit insurance assessments, additional
assessments may be imposed by the Financing Corporation, a separate U.S.
government agency affiliated with the FDIC, on insured deposits to pay for the
interest cost of Financing Corporation bonds. Financing Corporation assessment
rates for 2007 ranged from $0.114 to $0.122 per $100 of deposits. The Company
paid Financing Corporation assessments of $206,000 in 2007, $227,000 in 2006 and
$201,000 in 2005, which are included in other expense.
Depositor Preference
The Federal Deposit Insurance Act provides that, in the event of the
"liquidation or other resolution" of an insured depository, the claims of
depositors of the institution, including the claims of the FDIC, as subrogee of
the insured depositors, and certain claims for administrative expenses of the
FDIC as receiver, will have priority over other general unsecured claims against
the institution. If an insured depository institution fails, insured and
uninsured depositors, along with the FDIC, will have priority in payment ahead
of unsecured, non-deposit creditors, including the parent bank holding company,
with respect to any extensions of credit they have made to such insured
depository institutions.
Community Reinvestment Act
The Company's subsidiary banks are subject to the Community Reinvestment Act
(CRA) and to certain fair lending and reporting requirements that relate to home
mortgage lending. The CRA requires the federal banking regulators to assess the
record of a financial institution in meeting the credit needs of the local
communities, including low-and moderate-income neighborhoods, consistent with
the safe and sound operation of the bank. The federal agencies consider an
institution's performance under the CRA in evaluating applications for mergers
and acquisitions, and new offices. The ratings assigned by the federal agencies
are publicly disclosed.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 implemented a broad range of corporate
governance, accounting and reporting requirements for companies that have
securities registered under the Exchange Act of 1934. These requirements
include: (1) requirements for audit committees, including independence and
financial expertise; (2) certification of financial statements by the chief
executive officer and chief financial officer of the reporting company; (3)
standards for auditors and regulation of audits; (4) disclosure and reporting
requirements for the reporting company and directors and executive officers; and
(5) a range of civil and criminal penalties for fraud and other violations of
securities laws.
The USA Patriot Act
The Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act) imposes
obligations on financial institutions, including banks and broker-dealer
subsidiaries to implement policies, procedures and controls which are reasonably
designed to detect and report instances of money laundering and the financing of
terrorism.
Financial Privacy
In accordance with the Gramm Leach Bliley Act, federal banking regulators
adopted rules that limit the ability of banks and other financial institutions
to disclose non-public information about consumers to non-affiliated third
parties. These limitations require disclosure of privacy policies to consumers
and, in some circumstances, allow consumers to prevent disclosure of certain
personal information to a non-affiliated third party. These provisions affect
how consumer information is transmitted through diversified financial companies
and conveyed to outside vendors.
Office of Foreign Assets Control Regulation
The United States has imposed economic sanctions that affect transactions with
designated foreign countries, nationals and others. These are known as the
"OFAC" rules based on their administration by the US Treasury Department Office
of Foreign Assets Control ("OFAC"). The OFAC-administered sanctions take many
forms. Generally, however, they include restrictions on trade with or investment
in a sanctioned country and a blocking of assets in which the government or
specially designated nationals of the sanctioned country have an interest.
Other Initiatives
From time to time, various legislative and regulatory initiatives are introduced
in Congress and state legislatures, as well as by regulatory authorities. These
initiatives may include proposals to expand or contract the powers of bank
holding companies and depository institutions or proposals to change the
financial institution regulatory environment. Such legislation could change
banking laws and the operating environment of Tompkins in substantial, but
unpredictable ways. We can not predict whether any such legislation will be
enacted, and, if enacted, the effect that it, or any implementing regulations
would have on our financial condition or results of operations.
6
Employees
At December 31, 2007, the Company employed 688 employees, approximately 70 of
whom were part-time. No employees are covered by a collective bargaining
agreement and the Company believes its employee relations are excellent.
Available Information
The Company maintains a website at www.tompkinsfinancialcorp.com. The Company
makes available free of charge (other than an investor's own Internet access
charges) through its website its annual reports on Form 10-K, quarterly reports
on Form 10-Q, and current reports on Form 8-K, its proxy statements related to
its annual shareholders' meetings, and amendments to these reports or
statements, filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 as amended (the "Exchange Act"), as soon as
reasonably practicable after the Company electronically files such material
with, or furnishes such material to, the Securities and Exchange Commission (the
"SEC"). Copies of these reports are also available at no charge to any person
who requests them, with such requests directed to Tompkins Financial
Corporation, Investor Relations Department, The Commons, Ithaca, New York 14851,
telephone no. (607) 273-3210. Materials that the Company files with the SEC may
be read and copied at the SEC's Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. This information may also be obtained by calling the SEC
at 1-800-SEC-0330. The SEC also maintains an Internet website that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC at www.sec.gov. The Company is not
including the information contained on the Company's website as a part of, or
incorporating it by reference into, this Annual Report on Form 10-K, or into any
other report filed with or furnished to the SEC by the Company.
Item 1A. Risk Factors
The Company's business, operating results, financial condition, liquidity, and
cash flow may be impacted by numerous factors, including but not limited to
those discussed below. These items may cause the Company's results to vary
materially from recent results.
Interest Rate Risk
The Company's earnings, financial condition and liquidity are susceptible to
fluctuations in market interest rates. Net interest income, which is the
difference between interest earned on loans and investments and interest paid on
deposits and borrowings, is the largest component of the Company's total
revenues. The level of net interest income is dependent upon the volume and mix
of interest-earning assets and interest-bearing liabilities, the level of
nonperforming assets, and the level and trend of interest rates. Changes in
market interest rates will also affect the level of prepayments on the Company's
loans and payments on mortgage-backed securities, resulting in the receipt of
proceeds that may be reinvested at a lower rate than the loan or mortgage-backed
security being prepaid. Interest rates are highly sensitive to many factors,
including: inflation, economic growth, employment levels, monetary policy and
international markets. Significant fluctuations in interest rates could have a
material adverse affect on the Company's earnings, financial condition, and
liquidity.
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 by showing the potential effect
of interest rate shifts on net interest income for future periods. Each quarter
the Company's Asset/Liability Management Committee reviews the simulation
results to determine whether the exposure of net interest income to changes in
interest rates remains within board-approved levels. The Committee also
discusses strategies to manage this exposure and incorporates these strategies
into the investment and funding decisions of the Company. In addition, the
Company has focused on expanding its fee-based business as a percentage of
revenues to help mitigate its exposure to fluctuations in interest rates.
For additional information about how the Company manages its interest rate risk,
refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures About
Market Risk" of this Report.
Credit Risk
The Company's business of originating and underwriting loans involves credit
risk, which is the risk of loss of principal or interest because borrowers,
guarantors and related parties fail to perform in accordance with the terms of
their loan agreements. The Company has adopted comprehensive credit policies,
underwriting standards and loan review procedures and maintains a reserve for
loan/lease losses to mitigate credit losses. The Company continually monitors
asset quality and reviews the adequacy of its allowance for loan and lease
losses on a regular basis to ensure that the allowance is adequate to cover the
estimated loss exposure in its portfolio. Management believes that it has
established policies and procedures that are appropriate to mitigate the risk of
loss. Nonetheless, these policies and procedures may not prevent unexpected
losses that could have a material adverse effect on the Company's business,
financial condition, results of operations, or liquidity. See Part II, Item 7,
"Loans and Leases" and "The Allowance for Loan and Lease Losses" of this Report
for further discussion of the lending portfolio and the allowance for loan/lease
losses.
Government Laws and Regulations
The Company is subject to extensive state and federal laws and regulations,
supervision, and legislation that affect how it conducts its business. The
majority of these laws and regulations are for the protection of consumers,
depositors and the deposit insurance funds.
7
Any changes to state and federal banking laws and regulations may negatively
impact the Company's ability to expand services and to increase shareholder
value. There can also be significant cost related to compliance with various
laws and regulations. The Company has established an extensive internal control
structure to ensure compliance with governing laws and regulations, including
those related to financial reporting. Refer to "Supervision and Regulation" for
additional information on laws and regulations.
The Federal Reserve's monetary policies also affect the Company's operating
results and financial condition. These policies, which include open market
operations in U.S. Government securities, changes in the discount rate on member
bank borrowings, and changes in reserve requirements against member bank
deposits, can have a major effect upon the source and cost of funds and the
rates of return earned on loans and investments.
The Company is subject to state and federal tax laws and regulations. Changes to
these regulations could impact future tax expense and the value of deferred tax
assets. Each of the Company's banking subsidiaries is a majority owner in a real
estate investment trust ("REIT"). Changes to the laws governing the taxation of
REITs could likely result in additional income tax expense.
Competition
Competition for commercial banking and other financial services is strong in the
Company's market areas. In one or more aspects of its business, the Company's
subsidiaries compete with other commercial banks, savings and loan associations,
credit unions, finance companies, Internet-based financial services companies,
mutual funds, insurance companies, brokerage and investment banking companies,
and other financial intermediaries. Some of these competitors have substantially
greater resources and lending capabilities and may offer services that the
Company does not currently provide. In addition, many of the Company's non-bank
competitors are not subject to the same extensive Federal regulations that
govern financial holding companies and Federally insured banks. The Company
focuses on providing unparalleled customer service, which includes offering a
strong suite of products and services.
Economic Conditions
General economic conditions have an impact on the banking and financial services
industry. The Company's operating results depend on providing products and
services to customers in our local market areas. Unemployment rates, real estate
values, demographic changes, property tax rates, and local and state governments
have an impact on local and regional economic conditions. An increase in
unemployment, a decrease in real estate values, an increase in property tax
rates, or a decrease in population could weaken the local economies in which the
Company operates. Weak economic conditions could lead to credit quality concerns
related to repayment ability and collateral protection. The Company operates in
three primary market areas which mitigates the impact on local economic
conditions and has focused on providing a full suite of products to increase its
fee based business as a percentage of total revenues.
Operational Risk
The Company is subject to certain operational risks, including, but not limited
to, data processing system failures and errors, customer or employee fraud and
catastrophic failures resulting from terrorist acts or natural disasters. The
Company depends upon data processing, software, communication, and information
exchange on a variety of computing platforms and networks and over the Internet.
Despite instituted safeguards, the Company cannot be certain that all of its
systems are entirely free from vulnerability to attack or other technological
difficulties or failures. If information security is breached or other
technology difficulties or failures occur, information may be lost or
misappropriated, services and operations may be interrupted and the Company
could be exposed to claims from customers. Any of these results could have a
material adverse effect on the Company's business, financial condition, results
of operations or liquidity. The Company maintains a system of internal controls
to mitigate against such occurrences and maintains insurance coverage for
exposures that are insurable. The Company regularly tests internal controls to
ensure that they are appropriate and functioning as designed.
Technological Development and Changes
The financial services industry is subject to rapid technological changes with
frequent introductions of new technology driven products and services. In
addition to improving the Company's ability to serve customers, the effective
use of technology increases efficiencies and helps to maintain or reduce
expenses. The Company's ability to keep pace with technological changes
affecting the financial industry and to introduce new products and services
based on this new technology will be important to the Company's continued
success.
Integration of Acquisitions
The Company periodically reviews potential acquisition opportunities involving
other financial institutions and financial services companies. The Company seeks
merger or acquisition partners that are culturally similar, present long-term
growth opportunities, have experienced management, and have the potential for
improved profitability through economies of scale or expanded services. Risks
associated with acquisitions include potential exposure to asset quality issues
of the acquired entity, the difficulty and expense of integrating the operations
and personnel of the acquired entity, potential disruption to the business of
the acquired entity, potential diversion of management time and attention from
other matters and impairment of relationships with, and the possible loss of,
key employees and customers of the acquired entity. Failure to realize expected
revenue increases, cost savings, and/or other projected benefits from an
acquisition could have a material adverse effect on the Company's financial
condition and results of operation.
8
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The following table provides information relating to the Company's facilities:
Location Facility Type Square Feet Owned/Leased*
---------------------------------------------------------------------------------------------------------------------
110 N. Tioga St., The Commons Trust Company 23,900 Owned
Ithaca, NY Main Office
119 E. Seneca Street Trust Company 18,550 Owned
Ithaca, NY Trust and Investment Services
121 E. Seneca Street Tompkins Financial Corporation/Trust Company 18,900 Owned
Ithaca, NY Administration and Executive Offices
215 E. State St., The Commons Tompkins Financial Corporation/Trust Company 24,500 Leased
Rothschilds Building Operations and Data Processing
Ithaca, NY
86 North Street Trust Company 4,600 Owned
Auburn, NY Auburn Office
905 Hanshaw Road Trust Company 790 Leased
Ithaca, NY Community Corners Office
Cornell Bookstore Trust Company 400 Leased
Central Avenue Cornell Campus Office
Cornell University, Ithaca, NY
33 Clinton Avenue Trust Company 1,900 Leased
Cortland, NY Cortland Office
139 N. Street Extension Trust Company 2,250 Owned
Dryden, NY Dryden Office
1020 Ellis Hollow Road Trust Company 650 Leased
Ithaca, NY East Hill Plaza Office
2230 N. Triphammer Road Trust Company 204 Leased
Ithaca, NY Kendal Office (Part-time office)
100 Main Street Trust Company 3,115 Owned
Odessa, NY Odessa Office
775 S. Meadow Street Trust Company 2,280 Owned
Ithaca, NY Plaza Office
116 E. Seneca Street Trust Company 775 Owned
Ithaca, NY Seneca Street Drive-In Office
2251 N. Triphammer Road Trust Company 3,000 Leased
Ithaca, NY Triphammer Road Office
2 W. Main Street Trust Company 2,720 Owned
Trumansburg, NY Trumansburg Office
|
9
Location Facility Type Square Feet Owned/Leased*
---------------------------------------------------------------------------------------------------------------------
701 W. Seneca Street Trust Company 2,150 Owned
Ithaca, NY West End Office
832 Hanshaw Road Tompkins Financial Center 5,200 Leased
Ithaca, NY Trust Company/Tompkins Insurance/Tompkins
Investment Services
90 Main Street Trust Company 18,000 Owned
Batavia, NY Administrative Office for Bank of Castile and
Tompkins Insurance
50 N. Main Street The Bank of Castile 6,662 Owned
Castile, NY Castile/Main Office
604 W. Main Street The Bank of Castile 4,662 Owned
Arcade, NY Arcade Office
263 E. Main Street The Bank of Castile 3,303 Owned
Avon, NY Avon Office
408 E. Main Street The Bank of Castile 3,496 Owned
Batavia, NY Batavia Office
358 W. Main Street The Bank of Castile 1,050 Owned
Batavia, NY Drive-In Office
3155 State Street The Bank of Castile 4,680 Owned
Caledonia, NY Caledonia Office
3252 Chili Avenue The Bank of Castile 4,000 Owned
Chili, NY Chili Office
1 Main Street The Bank of Castile 1,448 Owned
Gainesville, NY Gainesville Office
11 South Street The Bank of Castile 9,700 Owned
Geneseo, NY Geneseo Office
724 Long Pond Road The Bank of Castile 6,500 Owned
Greece, NY Greece Office
29 Main Street The Bank of Castile 3,084 Owned
LeRoy, NY LeRoy Office
1410 S. Main Street The Bank of Castile 1,250 Owned
Medina, NY Medina Office
133 N. Center Street The Bank of Castile 4,702 Owned
Perry, NY Perry Office
129 N. Center Street The Bank of Castile 11,138 Owned
Perry, NY Processing Center **
2727 Genesee Street The Bank of Castile 2,220 Leased
Retsof, NY Retsof Office
2367 Route 19 North The Bank of Castile 6,950 Owned
Warsaw, NY Warsaw Office
1441 Route 22 Mahopac National Bank 34,000 Owned
Brewster, NY Brewster Office and Administration
|
10
Location Facility Type Square Feet Owned/Leased*
---------------------------------------------------------------------------------------------------------------------
831 Route 82 Mahopac National Bank 3,670 Leased
Hopewell Junction, NY Hopewell Office
706 Freedom Plains Rd Mahopac National Bank 2,200 Leased
Poughkeepsie, NY Lagrange Office
630 Route 6 Mahopac National Bank 2,800 Owned
Mahopac, NY Mahopac Office
293 Lexington Avenue Mahopac National Bank 4,400 Leased
Mt. Kisco, NY Mt. Kisco Office
591 Route 6N Mahopac National Bank 3,000 Owned
Mahopac Falls, NY Red Mills Office
21 Peekskill Hollow Road Mahopac National Bank 17,950 Owned
Putnam Valley, NY Putnam Valley Office
100 - D Independent Way Mahopac National Bank 3,100 Leased
Southeast, NY Southeast Office
1281 Route 9 Mahopac National Bank 4,700 Leased
Wappingers Falls, NY Wappingers Falls Office
13360 Broadway Tompkins Insurance 1,200 Owned
Alden, NY Alden Office ***
14 Market Street Tompkins Insurance 4,000 Leased
Attica, NY Attica Office ***
170 Franklin Street Tompkins Insurance 1,920 Owned
Dansville, NY Dansville Office ***
415 N. Tioga Street Tompkins Insurance 1,100 Leased
Ithaca, NY Ithaca Office ***
40 Main Street Tompkins Insurance 3,700 Leased
Leroy, NY Leroy Office ***
25 North State Street Tompkins Insurance 1,350 Owned
Nunda, NY Nunda Office ***
44 East Main Street Tompkins Insurance 1,600 Leased
Trumansburg, NY Trumansburg Office ***
179 Sully'sTrail AM&M Financial Services, Inc. 23,285 Leased
Pittsford, NY Rochester Office
================================================================================================================================
|
* Lease terminations for the Company's leased properties range from 2008 through
2042.
** Office includes two parcels of land that are being leased through 2008 and
2090, respectively.
*** Offices for Tompkins Insurance shown above are stand-alone offices; Tompkins
Insurance also shares office space with The Bank of Castile and The Trust
Company.
Management believes the current facilities are suitable for their present and
intended purposes. For additional information about the Company's facilities,
including rental expenses, see "Note 8 Bank Premises and Equipment" in Notes to
Consolidated Financial Statements in Part II, Item 8. of this Report.
11
Item 3. Legal Proceedings
In October 2007, Visa USA ("Visa") completed a reorganization in contemplation
of its initial public offering ("IPO") expected to occur in 2008. As part of
that reorganization, Tompkins and other member banks of Visa received shares of
common stock of Visa, Inc. Those banks are also obligated under various
agreements with Visa to share in losses stemming from certain litigation
("Covered Litigation"). Tompkins is not a named defendant in any of the Covered
Litigation. Although Visa is expected to set aside a portion of the proceeds
from its IPO in an escrow account to fund any judgments or settlements that may
arise out of the Covered Litigation, recent guidance from the Securities and
Exchange Commission ("SEC") indicates that Visa member banks should record a
liability for the fair value of the contingent obligation to Visa. The
estimation of the Company's proportionate share of any potential losses related
to the Covered Litigation is extremely difficult and involves a great deal of
judgment. Nevertheless, in the fourth quarter of 2007 the Company recorded a
pre-tax charge of $862,000 ($517,000 after tax effect) related to the Covered
Litigation. In accordance with GAAP and consistent with the SEC guidance, the
Company did not recognize any value for its common stock ownership interest in
Visa, Inc. While the Company expects that our proportional share of the proceeds
of Visa's IPO in 2008 will exceed the amount of the Company's charge, there can
be no assurance that the restructuring and initial public offering of Visa, Inc.
will be successful and that the shares of Visa, Inc. allocated to the Company
will have sufficient value to cover the Company's obligations under the
indemnification agreement.
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.
Item 4. Submission of Matters to a Vote by Security Holders
There were no matters submitted to a vote of the Tompkins stockholders in the
fourth quarter of 2007.
Executive Officers of the Registrant
The information concerning the Company's executive officers is provided below as
of March 1, 2008. Unless otherwise stated, executive officers' terms run until
the first meeting of the board of directors after the Company's annual meeting
of shareholders, and until their successors are elected and qualified.
Age Title Joined Company
Stephen S. Romaine 43 President and CEO January 2000
James W. Fulmer 56 Vice Chairman of the Board January 2000
Robert B. Bantle 56 Executive Vice President March 2001
David S. Boyce 41 Executive Vice President January 2001
Francis M. Fetsko 43 Executive Vice President and Chief Financial Officer October 1996
Gregory J. Hartz 47 Executive Vice President August 2002
Gerald J. Klein, Jr. 49 Executive Vice President January 2000
Thomas J. Rogers 37 Executive Vice President January 2006
Kathleen M. Rooney 55 Executive Vice President April 2004
|
Business Experience of the Executive Officers:
Stephen S. Romaine was appointed President and Chief Executive Officer of the
Company effective January 1, 2007. From 2003 through 2006, he served as
President and Chief Executive Officer of Mahopac National Bank. Prior to this
appointment, Mr. Romaine was Executive Vice President and Chief Financial
Officer of Mahopac National Bank. Mr. Romaine currently serves on the boards of
the New York Bankers Association and the Independent Bankers Association of New
York State.
James W. Fulmer has served as Vice Chairman since January 1, 2007, and Director
of the Company since 2000. He previously served as President of the Company
since 2000. He also serves as a Director of The Bank of Castile since 1988 and
as its Chairman since 1992. Effective December 18, 2002, he assumed the
additional responsibilities of President and Chief Executive Officer of The Bank
of Castile. Mr. Fulmer has served as a Director of Mahopac National Bank since
1999, as Chairman of Tompkins Insurance Agencies since January 1, 2001, and as
Chairman of AM&M Financial Services, Inc. since January 2006. He served as
the President and Chief Executive Officer of Letchworth Independent Bancshares
Corporation from 1991 until its merger with the Company in 1999. Mr. Fulmer also
served as the Chief Executive Officer of The Bank of Castile from 1996 through
April 2000. He was elected to the Board of the Federal Home Loan Bank in 2006,
effective January 2007.
Robert B. Bantle has been employed by the Company since March 2001. He currently
serves as Executive Vice President of Tompkins Services, a group that provides
support to the Company in the areas of Operations, Information Technology, Human
Resources, Training & Development, Remote Banking, Collections, and Card
Services. Prior to this assignment, he was primarily responsible for the
Company's retail banking services.
12
David S. Boyce has been employed by the Company since January 2001 and was
promoted to Executive Vice President in April 2004. He was appointed President
and Chief Executive Officer of Tompkins Insurance Agencies in 2002. He has been
employed by Tompkins Insurance Agencies, and a predecessor company to Tompkins
Insurance Agencies for 16 years.
Francis M. Fetsko has been employed by the Company since 1996, and has served as
Chief Financial Officer since December 2000. In July 2003, he was promoted to
Executive Vice President. Mr. Fetsko also serves as Chief Financial Officer of
Tompkins Trust Company, The Bank of Castile, and Mahopac National Bank.
Gregory J. Hartz has been employed by the Company since 2002 and was appointed
President and Chief Executive Officer of Tompkins Trust Company and Executive
Vice President of the Company effective January 1, 2007. Previously, he was
Senior Vice President of Tompkins Trust Company, with responsibility for
Tompkins Investment Services.
Gerald J. Klein, Jr. has been employed by the Company since 2000 and was
appointed President and Chief Executive Officer of Mahopac National Bank and
Executive Vice President of the Company effective January 1, 2007. Previously,
he was Executive Vice President of Mahopac National Bank, responsible for all
lending and credit functions at the Bank.
Thomas J. Rogers has been employed by the Company since its acquisition of
AM&M Financial Services, Inc. in January 2006, and was appointed President
and Chief Executive Officer of AM&M Financial Services, Inc. at that time.
He was appointed Executive Vice President of the Company on January 24, 2007. He
was been employed by AM&M Financial Services, Inc. since 1998.
Kathleen M. Rooney has been employed by the Company since April 2004 and served
as Senior Vice President and Corporate Marketing Officer since April 2005. She
was appointed Executive Vice President, Corporate Marketing Officer of the
Company on April 24, 2007. Ms. Rooney is also a Senior Vice President of Mahopac
National Bank with responsibility for the Bank's Community Banking Division.
Prior to joining the Company, Ms. Rooney was employed by JPMorgan Chase for over
28 years in various capacities, most recently as the Senior Vice President and
Investments Executive responsible for sales, service, operation and compliance
of brokerage, portfolio management and trust products for the retail bank.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Market Price and Dividend Information
The Company's common stock is traded under the symbol "TMP" on the American
Stock Exchange ("AMEX"). The high and low closing sale prices, which represent
actual transactions as quoted on AMEX, of the Company's common stock for each
quarterly period in 2007 and 2006 are presented below. The per share dividends
paid by the Company in each quarterly period in 2007 and 2006 are also presented
below. Cash dividends on Tompkins common stock were paid on the 15th day of
February, May, August and November of 2006; and the 15th day of February, May,
August and November of 2007.
Market Price (1) Cash Dividends
High Low Paid
-----------------------------------------------------------------------------------------
2006 1st Quarter $ 44.08 $ 40.18 $ .273
2nd Quarter 44.00 38.10 .273
3rd Quarter 45.95 41.37 .300
4th Quarter 50.80 44.00 .300
2007 1st Quarter $ 46.42 $ 39.11 $ .300
2nd Quarter 42.75 36.17 .300
3rd Quarter 43.34 30.60 .320
4th Quarter 44.21 34.49 .320
|
Note 1 - Per share data has been retroactively adjusted to reflect a 10% stock
dividend paid on May 15, 2006.
As of March 1, 2008, there were approximately 2,063 holders of record of the
Company's common stock.
The Company's ability to pay dividends is generally limited to earnings from the
prior year, although retained earnings and dividends from its subsidiaries may
also be used to pay dividends under certain circumstances. The Company's primary
source of funds to pay for shareholder dividends is receipt of dividends from
its subsidiaries. Future dividend payments to the Company by its subsidiaries
will be dependent on a number of factors, including the earnings and financial
condition of each subsidiary, and are subject to the regulatory limitations
discussed in "Note 18 Regulations and Supervision" in Notes to Consolidated
Financial Statements in Part II, Item 8. of this Report.
13
Issuer Purchases of Equity Securities
The following table includes all Company repurchases, including those made
pursuant to publicly announced plans or programs during the quarter ended
December 31, 2007.
Maximum Number
(or Approximate
Total Number of Dollar Value) of
Shares Purchased Shares that May Yet
as Part of Publicly Be Purchased Under
Total Number of Average Price Paid Announced Plans or the Plans or
Shares Purchased Per Share Programs Programs
Period (a) (b) (c) (d)
---------------------------------------------------------------------------------------------------------
October 1, 2007 through
October 31, 2007 24,583 $ 40.61 23,248 29,425
November 1, 2007 through
November 30, 2007 289 $ 41.32 0 29,425
December 1, 2007 through
December 31, 2007 0 0 0 29,425
---------------------------------------------------------------------------------------------------------
Total 24,872 $ 40.62 23,248 29,425
=========================================================================================================
|
On July 18, 2006, the Company's Board of Directors approved the Company's
current stock repurchase plan (the "2006 Plan"). The 2006 Plan authorizes the
repurchase of up to 450,000 shares of the Company's outstanding common stock
over a two-year period. Under the 2006 Plan, the Company repurchased 332,347
shares at an average price of $38.86 in 2007. Since inception of the 2006 Plan,
the Company has repurchased 420,575 shares at an average price of $39.85.
Included above are 1,335 shares purchased in October 2007 at an average cost of
$40.04 and 289 shares purchased in November 2007 at an average cost of $41.32 by
the trustee of a rabbi trust established by the Company under the Company's
Stock Retainer Plan For Eligible Directors of Tompkins Trustco, Inc., and
Participating Subsidiaries and were part of the director deferred compensation
under that plan. Shares purchased by the rabbi trust are not part of the 2006
Plan.
Recent Sales of Unregistered Securities
As part of the Company's acquisition of AM&M Financial Services, Inc., the
Company issued 20,901 shares of Tompkins common stock pursuant to an exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended.
Equity Compensation Plan Information
Information regarding securities authorized for issuance under equity
compensation plans is provided in Part III, "Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters" of
this Report.
14
Performance Graph
The following graph compares the Company's cumulative total stockholder return
since December 31, 2002, with (1) the total return index for the NASDAQ
Composite and (2) the total return index for SNL Bank Index. The graph assumes
$100.00 was invested on December 31, 2002, in the Company's common stock and the
comparison groups and assumes the reinvestment of all cash dividends prior to
any tax effect and retention of all stock dividends.
In accordance with and to the extent permitted by applicable law or regulation,
the information set forth below under the heading "Performance Graph" shall not
be incorporated by reference into any future filing under the Securities Act of
1933, as amended (the "Securities Act"), or Exchange Act and shall not be deemed
to be "soliciting material" or to be "filed" with the SEC under the Securities
Act or the Exchange Act. The performance graph represents past performance and
should not be considered an indication of future performance.
![[PERFORMANCE GRAPH]](img002.jpg)
Period Ending
----------------------------------------------------------
Index 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07
-------------------------------------------------------------------------------------------
Tompkins Financial Corporation 100.00 117.87 140.54 133.00 152.41 134.35
NASDAQ Composite 100.00 150.01 162.89 165.13 180.85 198.60
SNL Bank Index 100.00 134.90 151.17 153.23 179.24 139.28
|
15
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with the
consolidated financial statements and the notes thereto in Part II, Item 8. of
this Report.
Year ended December 31
(in thousands except per share data) 2007 2006 2005 2004 2003
----------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENT HIGHLIGHTS
Assets $ 2,359,459 $ 2,210,837 $ 2,106,870 $ 1,970,295 $ 1,864,446
Deposits 1,720,826 1,709,420 1,683,010 1,560,873 1,411,125
Other borrowings 210,862 85,941 63,673 63,303 87,111
Shareholders' equity 197,195 189,620 181,221 171,002 158,970
Interest and dividend income 132,441 121,041 106,707 94,673 90,995
Interest expense 58,412 48,184 31,686 23,327 23,493
Net interest income 74,029 72,857 75,021 71,346 67,502
Provision for loan and lease losses 1,529 1,424 2,659 2,860 2,497
Net securities gains (losses) 384 15 (1,526) 98 43
Net income 26,371 27,767 27,685 25,615 24,205
PER SHARE INFORMATION
Basic earnings per share 2.72 2.82 2.81 2.60 2.46
Diluted earnings per share 2.70 2.78 2.77 2.56 2.42
Cash dividends per share 1.24 1.15 1.07 0.99 0.92
Book value per share 20.58 19.24 18.37 17.37 16.10
SELECTED RATIOS
Return on average assets 1.16% 1.30% 1.36% 1.32% 1.37%
Return on average equity 13.99% 15.02% 15.82% 15.68% 15.90%
Shareholders' equity to average assets 8.32% 8.86% 8.89% 8.82% 8.98%
Dividend payout ratio 45.59% 40.78% 37.94% 38.11% 37.25%
OTHER SELECTED DATA (in whole numbers, unless otherwise noted)
----------------------------------------------------------------------------------------------------------------------
Employees (average full-time equivalent) 662 658 587 578 546
Banking offices 39 37 34 34 33
Bank access centers (ATMs) 61 59 51 51 49
Trust and investment services assets under
management, or custody (in thousands) $ 2,345,575 $ 2,183,114 $ 1,534,557 1,495,196 $ 1,389,879
======================================================================================================================
|
Per share data has been retroactively adjusted to reflect a 10% stock dividend
paid on May 15, 2006 and a 10% stock dividend paid on February 15, 2005.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following analysis is intended to provide the reader with a further
understanding of the consolidated financial condition and results of operations
of the Company and its operating subsidiaries for the periods shown. This
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with other sections of this Report on
Form 10-K, including Part I, "Item 1. Business", Part II, "Item 6. Selected
Financial Data", and Part III, "Item 8. Financial Statements and Supplementary
Data".
OVERVIEW
Tompkins Financial Corporation ("Tompkins" or the "Company"), is the corporate
parent of three community banks, Tompkins Trust Company ("Trust Company"), The
Bank of Castile, and The Mahopac National Bank ("Mahopac National Bank"), which
together operate 39 banking offices, including 2 limited-service office, in
local market areas throughout New York State. Through its community banking
subsidiaries, the Company provides traditional banking services, and offers a
full range of money management services through Tompkins Investment Services, a
division of Tompkins Trust Company. The Company also offers insurance services
through its wholly-owned subsidiary, Tompkins Insurance Agencies, Inc.
("Tompkins Insurance"), an independent insurance agency with a history of over
100 years of service to individual and business clients throughout Western New
York. Tompkins Insurance has expanded its geographic footprint into the Ithaca,
New York market area with the acquisition of three insurance agencies over the
past three years. The Company completed its acquisition of AM&M Financial
Services, Inc. (AM&M), a fee-based financial planning and wealth management
firm headquartered in Pittsford, New York, effective January 6, 2006. AM&M
has three operating companies: (1) AM&M Planners, Inc., which provides fee
based financial planning and wealth management services for corporate
executives, small business owners, and high net worth individuals; (2) Ensemble
Financial Services, Inc., an independent broker-dealer and leading outsourcing
company for financial planners and investment advisors; and (3) Ensemble Risk
Solutions, Inc., which creates customized risk management plans using life,
disability and long-term care insurance products.
16
Each Tompkins subsidiary operates with a community focus, meeting the needs of
the unique communities served. The Company conducts its business through its
wholly-owned subsidiaries, Tompkins Trust Company, The Bank of Castile, Mahopac
National Bank, Tompkins Insurance, and AM&M. Unless the context otherwise
requires, the term "Company" refers to Tompkins Financial Corporation and its
subsidiaries.
Headquartered in Ithaca, New York, Tompkins is registered as a financial holding
company with the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended. Tompkins was organized in 1995 under the laws of the State of
New York, as a bank holding company for Tompkins Trust Company, a commercial
bank that has operated in Ithaca and surrounding communities since 1836.
Forward-Looking Statements
The Company is making this statement in order to satisfy the "Safe Harbor"
provision contained in the Private Securities Litigation Reform Act of 1995. The
statements contained in this Report on Form 10-K that are not statements of
historical fact may include forward-looking statements that involve a number of
risks and uncertainties. Such forward-looking statements are made based on
management's expectations and beliefs concerning future events impacting the
Company and are subject to certain uncertainties and factors relating to the
Company's operations and economic environment, all of which are difficult to
predict and many of which are beyond the control of the Company, that could
cause actual results of the Company to differ materially from those matters
expressed and/or implied by forward-looking statements. The following factors
are among those that could cause actual results to differ materially from the
forward-looking statements: changes in general economic, market and regulatory
conditions; the development of an interest rate environment that may adversely
affect the Company's interest rate spread, other income or cash flow anticipated
from the Company's operations, investment and/or lending activities; changes in
laws and regulations affecting banks, bank holding companies and/or financial
holding companies; technological developments and changes; the ability to
continue to introduce competitive new products and services on a timely,
cost-effective basis; governmental and public policy changes, including
environmental regulation; protection and validity of intellectual property
rights; reliance on large customers; and financial resources in the amounts, at
the times and on the terms required to support the Company's future businesses.
In addition, such forward-looking statements could be affected by general
industry and market conditions and growth rates, general economic and political
conditions, including interest rate and currency exchange rate fluctuations, and
other factors.
Critical Accounting Policies
In the course of normal business activity, management must select and apply many
accounting policies and methodologies that lead to the financial results
presented in the consolidated financial statements of the Company. Some of these
policies are more critical than others. Management considers the accounting
policy relating to the allowance for loan/lease losses ("allowance") to be a
critical accounting policy because of the uncertainty and subjectivity inherent
in estimating the levels of allowance needed to cover probable credit losses
within the loan portfolio and the material effect that these estimates can have
on the Company's results of operations.
The Company has developed a methodology to measure the amount of estimated loan
loss exposure inherent in the loan portfolio to assure that an adequate
allowance is maintained. The Company's methodology is based upon guidance
provided in SEC Staff Accounting Bulletin No. 102, "Selected Loan Loss Allowance
Methodology and Documentation Issues" and 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. The methodology includes a
review of loans considered impaired in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan", as well as other commercial loans and commercial mortgage
loans that are evaluated using an internal rating system. An estimated exposure
amount is assigned to these internally reviewed credits based upon a review of
the borrower's financial condition, payment history, collateral adequacy, and
business conditions. For commercial loans and commercial mortgage loans not
specifically reviewed, and for more homogenous loan portfolios such as
residential mortgage loans and consumer loans, estimated exposure amounts are
assigned based upon historical loss experience as well as past due status.
Lastly, additional reserves are maintained based upon management's judgment and
assessment of other quantitative and qualitative factors such as regional and
local economic conditions and portfolio growth trends.
Since the methodology is based upon historical experience, market trends, and
management's judgment, factors may arise that result in different estimations.
Significant factors that could give rise to changes in these estimates may
include, but are not limited to, changes in economic conditions in the local
area, changes in interest rates, concentration of risk, and declines in local
property values. While management considers the allowance to be adequate as of
December 31, 2007, under adversely different conditions or assumptions, the
Company would need to increase the allowance.
Another critical accounting policy is the policy for pensions and other
post-retirement benefits. The calculation of the expenses and liabilities
related to pensions and post-retirement benefits requires estimates and
assumptions of key factors including, but not limited to, discount rate, return
on plan assets, future salary increases, employment levels, employee retention,
and life expectancies of plan participants. The Company uses an actuarial firm
in making these estimates and assumptions. Changes in these assumptions due to
market conditions, governing laws and regulations, or Company specific
circumstances may result in material changes to the Company's pension and other
post-retirement expenses and liabilities.
17
All accounting policies are important and the reader of the financial statements
should review these policies, described in "Note 1 Summary of Significant
Accounting Policies" in Notes to Consolidated Financial Statements in Part II,
Item 8. of this Form 10-K, to gain a better understanding of how the Company's
financial performance is reported.
RESULTS OF OPERATIONS
(Comparison of December 31, 2007 and 2006 results)
General
The Company reported diluted earnings per share of $2.70 in 2007, compared with
$2.78 in 2006. Net income for the year ended December 31, 2007, was $26.4
million compared to $27.8 million in 2006. Both 2007 and 2006 net income
included certain nonrecurring items. Net income for 2007 included an after-tax
charge of $517,000 for the Company's estimated contingent obligation related to
VISA USA litigation indemnification and an after-tax charge of $712,000 for
reorganization and associated consulting charges related to certain profit
improvement initiatives. These two items reduced diluted earnings per share by
$0.12. Net income for 2006 included an after-tax gain of $1.5 million on the
sale of the Company's credit card portfolio and $685,000 of life insurance
proceeds. These two items added $0.22 to 2006 diluted earnings per share.
Earnings per share benefited from the repurchase of common shares made under the
Company's previously announced share repurchase plan. The Company repurchased
332,347 shares at an average price of $38.86 in 2007.
In addition to earnings per share, key performance measurements for the Company
include return on average shareholders' equity (ROE) and return on average
assets (ROA). ROE was 13.99% in 2007, compared to 15.02% in 2006, while ROA was
1.16% in 2007, compared to 1.30% in 2006. The decrease in ROA and ROE in 2007
reflects the decrease in net income coupled with growth in average assets and
average shareholders' equity. ROA and ROE for Tompkins continue to compare
favorably to peer ratios for bank holding companies with assets between $1.0
billion and $3.0 billion, widely available from the Federal Reserve Board.
Total revenues, consisting of net interest income and noninterest income, were
$118.1 million in 2007, up $4.1 million or 3.6% over 2006. The growth rate over
the prior year was tempered by the fact that 2006 included $3.3 million in
nonrecurring revenue, including $2.6 million from the sale of the credit card
portfolio and $685,000 of life insurance proceeds. Total revenues in 2007
benefited from solid growth in key fee income categories as well as growth in
average earning assets. The interest rate environment continued to be a
challenge in 2007. The flat or inverted yield curve through much of 2007
resulted in funding costs increasing faster than asset yields which led to a
lower net interest margin in 2007 compared to 2006.
Total assets were up 6.7% to $2.4 billion at December 31, 2007. Asset growth
over the past twelve months included a $113.8 million increase in total loans
and leases and a $34.5 million increase in the securities portfolio.
Nonperforming assets represented a modest 0.40% of total assets, up from 0.15%
at year-end 2006.
Segment Reporting
The Company has identified two business segments, banking and financial
services. Financial services activities consist of the results of the Company's
trust, financial planning and wealth management, broker-dealer services, and
risk management operations. All other activities are considered banking.
The Banking segment reported net income of $21.5 million in 2007, down $1.9
million or 7.9% from net income of $23.4 million in 2006. Both 2007 and 2006 had
nonrecurring items, which affect the year-over year comparison of net income.
Net income in 2007 included a pre-tax charge of $1.2 million ($712,000
after-tax) in reorganization and associated consulting charges related to
certain profit improvement initiatives and a pre-tax charge of $862,000
($517,000 after-tax) related to certain contingent liability associated with the
Company's membership in VISA USA. Net income in 2006 included pre-tax gains on
$2.6 million ($1.5 million after-tax) on the sale of the credit card portfolio
and $685,000 of life insurance proceeds. Net interest income was $73.7 million,
up $1.2 million or 1.6% over 2006, driven by growth in average earning assets.
Noninterest income of $19.1 million in 2007 was down $529,000 or 2.7% from the
same period in 2006, mainly a result of the $3.3 million of nonrecurring income
in 2006. Growth in service charges on deposit accounts and card services income
partially offset the nonrecurring items. Noninterest expenses totaled $60.4
million in 2007, an increase of $3.6 million or 6.3% over the same period in
2006. Two nonrecurring expenses had a significant impact on 2007 expenses. These
include $1.2 million in pre-tax reorganization and associated consulting charge
related to certain profit improvement initiatives and an $862,000 pre-tax charge
to other operating expense related to certain contingent litigation liabilities
associated with the Company's membership in VISA USA.
The Financial Services segment had net income of $4.8 million in 2007, an
increase of $456,000 or 10.4% over net income of $4.4 million in 2006.
Noninterest income derived from the Financial Services segment was $25.4 million
in 2007, and increase of $3.8 million or 17.4% over the same period in 2006.
Noninterest expenses of $18.2 million in 2007 were $2.8 million or 18.5% over
the same period prior year. Tompkins Insurance's acquisition of four insurance
agencies in 2006 contributed to the growth in noninterest income and noninterest
expenses. Investment services income was up over prior year, reflecting growth
in trust fees, financial planning and wealth management fees, and brokerage
income. Growth in assets under management and favorable market conditions
contributed to the growth in these areas.
18
Net Interest Income
Table 1 - Average Statements of Condition and Net Interest Analysis shows
average interest-earning assets and interest-bearing liabilities, and the
corresponding yield or cost associated with each. Taxable-equivalent net
interest income increased by $794,000, or 1.0% compared to the same period in
2006. The Company's taxable-equivalent net interest income benefited from growth
in average earnings assets for the twelve months ended December 31, 2007, over
the same period in 2006; however, offsetting this benefit has been a narrower
net interest margin as increases in funding costs have outpaced improvements in
asset yields. The taxable-equivalent net interest margin for 2007 of 3.63% is
down from the 3.81% for 2006. The interest rate environment has been challenging
over the past few years, as the flat or inverted yield curve has resulted in
narrowing spreads between loan and securities yields and the various funding
sources used to support these activities.
The Company has been able to offset the impact of the margin compression on net
interest income by growing average earning assets and average
noninterest-bearing deposits. The average volume of earning assets for 2007 was
up $118.3 million or 6.0% compared to the same period in 2006. The average
volume of noninterest-bearing deposits for 2007 increased $18.0 million or 5.3%
compared to 2006.
Taxable-equivalent interest income was up 8.9% in 2007 over 2006. The growth in
taxable-equivalent interest income was primarily a result of higher average loan
and investment balances and improved yields. Average loan balances were up $92.8
million or 7.3% in 2007 over 2006, while the average yield on loans improved 8
basis points to 7.16%. Loan growth in 2007 included a $46.9 million increase in
average commercial loans; a $32.1 million increase in average commercial real
estate loans; and a $27.0 million increase in average residential real estate
loans. The $11.1 million or 11.9% decrease in average consumer loan balances
year-over-year is mainly due to the sale of the credit card portfolio in the
fourth quarter of 2006. The improvement in average loan yields in 2007 compared
to 2006 reflects the benefit of higher interest rates as the prime interest rate
increased 50 basis points in the first quarter of 2006 and 50 basis points in
the second quarter of 2006. The 50 basis point decreases in the prime interest
rate in both the third and fourth quarters of 2007 and the 125 basis point
decrease in January 2008 will place some pressure on asset yields going forward.
Average securities balances were up $19.3 million in 2007 over 2006, while
average yields were up 30 basis points.
Interest expense was up 21.2% for 2007 over 2006, reflecting both higher average
rates paid on deposits and borrowings as well as higher volumes. The rise in
short-term market rates during 2006 and competitive market conditions
contributed to higher funding costs in 2007. The average rate paid on deposits
during 2007 of 3.28% was 42 basis points higher than the average rate paid in
2006. The Company was able to offset some of the impact of higher deposit rates
by growing average noninterest bearing deposits to $356.5 million, up 5.3% over
average balances for 2006. The average rate paid on borrowings for 2007 was also
up over 2006, as a result of the increase in short-term interest rates. Average
borrowings were up $61.5 million or 25.8% over prior year.
19
Table 1 - Average Statements of Condition and Net Interest Analysis
December 31
2007 2006 2005
Average Average Average Average Average Average
(dollar amounts in thousands) Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Certificates of deposit, other
banks $ 4,820 $ 217 4.50% $ 2,486 $ 86 3.46% $ 3,668 $ 89 2.43%
Securities (1)
U.S. Government securities 535,700 25,619 4.78 570,585 25,381 4.45 529,732 20,805 3.93
Trading securities 59,213 2,762 4.66 0 0 0.00 0 0 0.00
State and municipal (2) 103,213 6,270 6.07 121,305 7,134 5.88 120,891 6,882 5.69
Other securities (2) 36,098 2,246 6.22 23,001 1,290 5.61 21,072 905 4.29
------------------------------------------------------------------------------------------------------------------------------------
Total securities 734,224 36,897 5.03 714,891 33,805 4.73 671,695 28,592 4.26
Federal funds sold 4,120 217 5.27 231 15 6.49 818 24 2.93
Loans, net of unearned income (3)
Residential real estate 490,839 31,359 6.39 463,825 28,745 6.20 465,124 27,042 5.81
Commercial real estate 424,748 31,418 7.40 392,636 28,112 7.16 349,190 23,923 6.85
Commercial loans (2) 355,084 28,272 7.96 308,207 25,086 8.14 287,455 20,238 7.04
Consumer and other 81,865 5,862 7.16 92,959 7,289 7.84 102,845 8,649 8.41
Lease financing (2) 9,881 627 6.35 12,023 709 5.90 15,402 988 6.41
------------------------------------------------------------------------------------------------------------------------------------
Total loans, net of
unearned income 1,362,417 97,538 7.16 1,269,650 89,941 7.08 1,220,016 80,840 6.63
------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets 2,105,581 134,869 6.41 1,987,258 123,847 6.23 1,896,197 109,545 5.78
------------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 160,643 151,934 141,843
Total assets $2,266,224 $2,139,192 $2,038,040
====================================================================================================================================
Liabilities & Shareholders' Equity
Deposits:
Interest-bearing deposits
Interest checking,
savings, and money market $ 723,297 $ 14,361 1.99% $ 702,826 $ 11,247 1.60% $ 733,596 $ 7,519 1.02%
Time Deposits > $100,000 304,614 14,750 4.84 296,714 13,350 4.50 224,248 6,973 3.11
Time Deposits < $100,000 343,969 15,651 4.55 318,648 12,486 3.92 290,370 7,943 2.74
Brokered Time Deposits:
<$100,000 14,729 723 4.91 31,566 1,482 4.69 38,545 1,228 3.19
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 1,386,609 45,485 3.28 1,349,754 38,565 2.86 1,286,759 23,663 1.84
Federal funds purchased and
securities sold under
agreements to repurchase 199,126 8,125 4.08 159,147 5,905 3.71 157,817 4,852 3.07
Other borrowings 100,824 4,802 4.76 79,310 3,714 4.68 70,486 3,171 4.50
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,686,559 58,412 3.46 1,588,211 48,184 3.03 1,515,062 31,686 2.09
------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 356,457 338,448 323,976
Accrued expenses and other
liabilities 33,246 26,181 22,533
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,076,262 1,952,840 1,861,571
Minority Interest 1,480 1,480 1,483
Shareholders' equity 188,482 184,872 174,986
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,266,224 $2,139,192 $2,038,040
-----------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.95% 3.20% 3.69%
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin
on earning assets $ 76,457 3.63% $ 75,663 3.81% $ 77,859 4.11%
===================================================================================================================================
|
(1) Average balances and yields on available-for-sale securities are based on
amortized cost.
(2) Interest income includes the tax effects of taxable-equivalent adjustments
using a combined New York State and Federal effective income tax rate of 40% to
increase tax-exempt interest income to a taxable equivalent basis. The tax
equivalent adjustments for 2007, 2006, and 2005 were as follows: $2,428,000,
$2,806,000, and $2,838,000, respectively.
(3) Nonaccrual loans are included in the average loan totals presented above.
Payments received on nonaccrual loans have been recognized as disclosed in "Note
1 Summary of Significant Accounting Policies" in the Notes to Consolidated
Financial Statements in Part II, Item 8. of this Report.
20
Table 2 - Analysis of Changes in Net Interest Income
(in thousands)(taxable equivalent) 2007 vs. 2006 2006 vs. 2005
---------------------------------------------------------------------------------------------------------------
Increase (Decrease) Due to Change in Increase (Decrease) Due to Change in
Average Average
Volume Yield/Rate Total Volume Yield/Rate Total
---------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Certificates of deposit, other
banks $ 99 $ 32 $ 131 $ (34) $ 31 $ (3)
Federal funds sold 205 (3) 202 (25) 16 (9)
Investments:
Taxable 1,727 2,228 3,955 1,741 3,220 4,961
Tax-exempt (1,061) 198 (863) 64 188 252
Loans, net:
Taxable 6,688 988 7,676 3,456 5,763 9,219
Tax-exempt (43) (36) (79) (79) (39) (118)
---------------------------------------------------------------------------------------------------------------
Total interest income $ 7,615 $ 3,407 $ 11,022 $ 5,123 $ 9,179 $ 14,302
---------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest-bearing deposits:
Interest checking,
savings, and money market 336 2,778 3,114 (328) 4,056 3,728
Time 706 3,100 3,806 3,073 8,101 11,174
Federal funds purchased and
Securities sold under
agreements to repurchase 1,589 631 2,220 41 1,012 1,053
Other borrowings 1,024 64 1,088 409 134 543
---------------------------------------------------------------------------------------------------------------
Total interest expense $ 3,655 $ 6,573 $ 10,228 $ 3,195 $ 13,303 $ 16,498
---------------------------------------------------------------------------------------------------------------
Net interest income $ 3,960 $ (3,166) $ 794 $ 1,928 $ (4,124) $ (2,196)
===============================================================================================================
|
Notes: See notes to Table 1 above.
Changes in net interest income occur from a combination of changes in the volume
of interest-earning assets and interest-bearing liabilities, and in the rate of
interest earned or paid on them. The above table illustrates changes in interest
income and interest expense attributable to changes in volume (change in average
balance multiplied by prior year rate), changes in rate (change in rate
multiplied by prior year volume), and the net change in net interest income. The
net change attributable to the combined impact of volume and rate has been
allocated to each in proportion to the absolute dollar amounts of the change.
The $794,000 increase in taxable-equivalent net interest income from 2006 to
2007 resulted from an $11.0 million increase in interest income and a $10.2
million increase in interest expense. An increased volume of interest earning
assets, in excess of interest bearing liabilities contributed to a net $4.0
million increase in taxable-equivalent net interest income between 2006 and
2007, while changes in interest rates reduced taxable-equivalent net interest
income by $3.2 million, resulting in the net increase of $794,000 from 2006.
Provision for Loan and Lease Losses
The provision for loan and lease losses represents management's estimate of the
expense necessary to maintain the allowance for loan and lease losses at an
adequate level. The provision for loan and lease losses was $1.5 million in
2007, compared to $1.4 million in 2006. Nonperforming loans and leases were $9.3
million or 0.65% of total loans and leases at December 31, 2007, compared with
$3.0 million or 0.23% of total loans and leases at December 31, 2006. The
increase over the prior year is mainly due to the addition of four commercial
credits. The largest of these credits is $4.0 million, of which $3.7 million is
90% guaranteed by a government agency. Net charge-offs of $1.3 million in 2007
represented 0.09% of average loans and leases during the period, compared to net
charge-offs of $773,000 in 2006, representing 0.06% of average loans and leases.
See the section captioned "The Allowance for Loan and Lease Losses" included
within "Management's Discussion and Analysis of Financial Condition and Results
of Operations-Financial Condition" of this Report for further analysis of the
Company's allowance for loan and lease losses.
Noninterest Income
Noninterest income is a significant source of income for the Company,
representing 37.3% of total revenues in 2007, 36.1% in 2006 and 29.1% in 2005,
and is an important factor in the Company's results of operations. Total
noninterest income was $44.0 million in 2007, an increase of 7.1% over 2006.
Noninterest income in 2006 included some nonrecurring items. In the fourth
quarter of 2006 the Company sold its credit card portfolio of nearly $9.4
million, resulting in a net pre-tax gain of approximately $2.6 million. Through
an ongoing relationship with the purchaser, the Company is able to offer an
expanded suite of credit card products to its customers. Noninterest income in
2006 also included $685,000 in life insurance proceeds.
21
Investment services income was $14.4 million in 2007, an increase of 18.2% over
$12.2 million in 2006. Investment services reflects income from Tompkins
Investment Services ("TIS"), a division within The Trust Company, and AM&M.
Investment services income includes: trust services, financial planning, wealth
management services, and brokerage related services. TIS generates fee income
through managing trust and investment relationships, managing estates, providing
custody services, and managing investments in employee benefits plans. TIS also
oversees retail brokerage activities in the Company's banking offices. TIS
income was $7.2 million in 2007, an increase of $1.0 million or 16.5% over the
same period in 2006. With fees largely based on the market value and the mix of
assets managed, the general direction of the stock market can have a
considerable impact on fee income. The market value of assets managed by, or in
custody of, TIS was $1.8 billion at December 31, 2007, up 5.4% from $1.7 billion
at December 31, 2006. These figures include $484.5 million and $480.1 million,
respectively, of Company-owned securities where TIS is custodian. The number of
accounts increased by 5.2% between December 31, 2007, and December 31, 2006.
AM&M revenues increased by $1.2 million or 19.9% in 2007 over 2006, driven
by growth in wealth management services and broker-dealer services. AM&M
provides financial planning services, wealth management services, and brokerage
services to independent financial planners and investment advisors. The market
value of assets under management by AM&M was $539.5 million at December 31,
2007 compared with $468.8 million at December 31, 2006.
Insurance commissions and fees were $11.0 million in 2007, an increase of $1.6
million or 17.0% over 2006. The growth was mainly at Tompkins Insurance, and
reflected increases in both personal lines and commercial property and casualty
lines. Tompkins Insurance acquired four insurance agencies during 2006 (March,
April, July, and December). These acquisitions added approximately $1.5 million
to the increase in commission and fees in 2007. Additionally, Tompkins Insurance
continues to increase its penetration rate for customers of the Company's
banking subsidiaries. Efforts in this area include locating Tompkins Insurance
representatives in offices of The Bank of Castile and The Trust Company.
Service charges on deposit accounts were $10.4 million in 2007, up 29.1%
compared to $8.1 million in 2006. The largest component of this category is
overdraft fees, which is largely driven by customer activity. Customer activity
has been changing over the past several years, with electronic transactions such
as debit cards and Internet banking reducing the volume of checks. The Company
reviewed and revised the way that it processes these transactions during the
second quarter of 2007 to process electronic transactions substantially the same
as paper transactions, which has had a favorable impact on overdraft income.
Card services income of $3.5 million in 2007 was up $481,000 or 16.2% over
income of $3.0 million in 2006. The primary component of card services income is
fees related to debit card transactions. An increased number of cardholders and
higher transaction volumes contributed to the growth in card services income in
2007.
Mark-to-market gains on trading securities were $612,000 in 2007. There was no
trading activity in 2006. Trading gains reflect the change in the fair value of
securities designated as trading that were positively affected by lower interest
rates during the latter part of the year. The Company designated approximately
$62.0 million of securities as trading in the first quarter of 2007 with the
adoption of SFAS 159, effective January 1, 2007. In April 2007, the Company sold
the $62.0 million of trading securities and subsequently reinvested the majority
of the proceeds in other securities designated as trading securities. In
addition, the Company had mark-to-market losses of $1.3 million in 2007,
reflecting the change in fair value on the $25.0 million of FHLB borrowings for
which the Company elected the fair value option in the second quarter of 2007.
Net gains from loan sales of $2.7 million in 2006 includes the net pre-tax gain
of $2.6 million on the sale of the credit card portfolio in the fourth quarter
of 2006.
Noninterest income includes $1.1 million of increases, net of the related
mortality expense, in cash surrender value of corporate owned life insurance
(COLI), which is in line with 2006. The COLI relates to life insurance policies
covering certain senior officers of the Company and its subsidiaries. The
Company's average investment in COLI was $26.5 million during 2007, compared to
$26.4 million during 2006. Although income associated with the insurance
policies is not included in interest income, the COLI produced an annualized
tax-equivalent return of 7.06% for 2007, compared to 7.02% for 2006. In 2006,
the Company recognized $685,000 in proceeds from death benefits on corporate
owned life insurance.
The net gain on sale of available-for-sale securities of $384,000 for 2007 was
primarily on the sale of the Company's Mastercard stock that it received as a
member bank at the time of Mastercard's initial public offering.
The $267,000 or 19.1% decrease in other income in 2007 from 2006 was mainly a
result of lower income related to the Company's investment in a Small Business
Investment Company, Cephas Capital Partners, L.P. ("Cephas"). The Company's
investment totaled $3.4 million at December 31, 2007 compared to $3.6 million at
December 31, 2006. Because the Company's percentage ownership in Cephas exceeds
20%, the equity method of accounting is utilized, such that the Company's
percentage of Cephas' income is recognized as income on its investment; and
likewise, any loss by Cephas is recognized as a loss on the Company's
investment. For 2007, the Company recognized income from this investment of
$237,000, compared with income of $600,000 in 2006. The Company believes that as
of December 31, 2007, there is no impairment with respect to this investment.
22
Noninterest Expense
Noninterest expenses for the year ended December 31, 2007, were $78.1 million,
an increase of 8.5% over noninterest expenses of $71.9 million for the year
ended December 31, 2006. The increase in 2007 over 2006 was primarily in
compensation and benefits related expenses, premises and fixed asset expenses,
and professional fees. Two nonrecurring items had a significant impact on 2007
noninterest expenses. These include $1.2 million in pre-tax reorganization and
associated consulting charges related to certain profit improvement initiatives
and an $862,000 pre-tax charge to other operating expense related to certain
contingent litigation liabilities associated with the Company's membership in
VISA USA. Changes in the components of noninterest expense are discussed below.
Personnel-related expense increased by $3.1 million or 7.5% in 2007 over 2006.
Contributing to the increase is the previously mentioned charges related to the
reorganization and profit improvement initiatives. In the third quarter of 2007,
the Company recognized $740,000 pre-tax of severance charges related to these
initiatives. Actual full time equivalent employees (FTEs) totaled 653 at
December 31, 2007 compared to 677 at December 30, 2006. Year-to-date December
31, 2007 average FTE of 662 were up from 658 at December 31, 2006. Since the
reorganization happened later in the year, average FTEs for 2007 were up
slightly over 2006. Staffing requirements at the Company's newer offices and
insurance agency acquisitions also contributed to the increase in average FTEs.
Salaries and wages associated with the increased number of average FTEs, annual
salary adjustments, and higher employee benefit related expenses all contributed
to the increases over 2006.
Expenses related to bank premises and furniture and fixtures increased by $1.1
million or 12.6% for the twelve months ended December 31, 2007 over the same
period in 2006. Additions to the Company's branch network, insurance agency
acquisitions, as well as higher real estate taxes, insurance and utility costs
contributed to the increased expenses for premises and furniture and fixtures
year-over-year.
Professional fees increased by $1.2 million or 55.2% in 2007 compared to 2006.
In the first quarter of 2007, the Company engaged a consulting group to assist
management in continuing to identify and implement profit improvement
initiatives designed to reduce expenses and increase revenue. Consulting fees
related to profit improvement initiatives were $827,000 for the year-ended
December 31, 2007. Implementation of certain initiatives took place in the
second quarter, and management is pleased by the results of these efforts and
expects these initiatives to have a positive impact on financial results in
future periods.
Cardholder expenses were down $245,000 or 20.1% for the year ended December 31,
2007 from the same period prior year, driven by the fourth quarter 2006 sale of
the Company's credit card portfolio.
Other operating expenses increased by $970,000 or 7.6% for the twelve months
ended December 31, 2007 from the same period in 2006. The Company accrued
$862,000 in connection with the Company's obligation related to the Visa USA
Covered Litigation. Refer to page 12, Item 3. Legal Proceedings for details on
the Company's obligation related to the Covered Litigation.
The Company's efficiency ratio, defined as operating expense excluding
amortization of intangible assets, divided by tax-equivalent net interest income
plus noninterest income before securities gains and losses (increase in the cash
surrender value of COLI is shown on a tax equivalent basis), was 64.1% in 2007,
compared to 60.7% in 2006. This ratio is negatively impacted by growth in fee
income businesses such as insurance and investment services. Tax equivalency was
based upon a 40% tax rate. Excluding the tax equivalent adjustments for
tax-exempt securities and tax-exempt loans and leases, the efficiency ratio
would be 65.4% in 2007 and 62.5% in 2006.
Minority Interest in Consolidated Subsidiaries
Minority interest expense represents the portion of net income in consolidated
majority-owned subsidiaries that is attributable to the minority owners of a
subsidiary. The Company had minority interest expense of $131,000 in 2007 and
2006, related to minority interests in three real estate investment trusts,
which are substantially owned by the Company's banking subsidiaries.
Income Tax Expense
The provision for income taxes provides for Federal and New York State income
taxes. The 2007 provision was $12.0 million, compared to $12.7 million in 2006.
The effective tax rate for the Company was 31.3% in 2007 compared to 31.4% in
2006. Each of the Company's banking subsidiaries is a majority owner in a real
estate investment trust ("REIT"). The taxation of REITs is and has been the
subject of tax policy debates by state legislatures. Legislation is periodically
proposed at the State level that would change the tax treatment of dividends
paid by REITs.
23
RESULTS OF OPERATIONS
(Comparison of December 31, 2006 and 2005 results)
General
Net income for the year ended December 31, 2006, was $27.8 million compared to
$27.7 million in 2005. On a per share basis, the Company earned $2.78 per
diluted share in 2006, compared to $2.77 per diluted share in 2005. Return on
average shareholders' equity (ROE) was 15.02% in 2006, compared to 15.82% in
2005, while return on average assets (ROA) was 1.30% in 2006, compared to 1.36%
in 2005. The decrease in ROA and ROE in 2006 was mainly a result of the decline
in net interest margin as well as the growth in average assets and average
shareholders' equity exceeding growth in net income.
Earnings performance in 2006 reflected continued execution of the Company's key
business strategies, including ongoing investment in traditional banking
services with the opening of three new banking offices in 2006, and the
expansion of our fee-based financial services businesses of trust, investment
services, and insurance with the acquisitions of AM&M Financial Services,
Inc. ("AM&M") and four insurance agencies in 2006, as well as the expansion
of retail brokerage services. These initiatives contributed to the 7.7% growth
in revenues (net interest income plus noninterest income) to $113.9 million in
2006 over $105.8 million in 2005.
The rise in short-term interest rates contributed to increases in funding costs,
while the inverted yield curve constrained the yields of longer-term earning
assets. Interest income of $121.0 million in 2006 was up 13.4% over 2005,
reflecting both growth in average earning assets and increases in loan and
securities yields. The increase in interest income was offset by higher funding
costs, resulting in a decrease in net interest margin for the year when compared
to 2005. The net interest margin was 3.81% in 2006, compared to 4.11% in 2005.
Total assets were up 4.9% to $2.2 billion at December 31, 2006. Asset growth
over the past twelve months included a $54.9 million increase in total loans and
leases and a $55.5 million increase in the securities portfolio. Growth in
average total loans and leases is net of the securitization of $32.0 million of
residential mortgage loans in the second quarter of 2006. These residential
loans were packaged into mortgage-backed securities, which are held in the
Company's available-for-sale securities portfolio. Asset quality remained strong
with reductions in nonperforming assets and net charge-offs compared with the
prior year. Improvement in asset quality trends, along with the lower level of
net charge-offs, resulted in a lower provision expense for 2006 compared to
comparable prior year periods.
Noninterest income for 2006 was $41.1 million, an increase of 33.5% over 2005.
Growth in noninterest income benefited from the first quarter 2006 acquisition
of AM&M, the expansion of retail brokerage services, and the acquisition of
three insurance agencies during 2006. Noninterest income in 2006 and 2005 also
included some nonrecurring items. In the fourth quarter of 2006 the Company
recognized a net pre-tax gain of $2.6 million on the sale of approximately $9.4
million of credit card loans. Concurrent with the sale, the Company entered into
a sales and servicing agreement with a large credit card issuer to expand its
card product offerings. Earnings in 2005 included a net pre-tax gain of $3.0
million, resulting from an agreement with NOVA Information Systems ("NOVA") to
transfer the Company's merchant card processing relationships, and a pre-tax
loss of $1.5 million on the sale of approximately $80 million of
available-for-sale securities.
Noninterest expenses were $71.9 million in 2006, up 15.8% over 2005. The
increase in 2006 was primarily due to higher compensation and benefits related
expenses. Contributing to the increase in noninterest expense is the acquisition
of AM&M, stock-based compensation expense related to the adoption of FAS 123R,
insurance agency acquisitions, expansion of retail brokerage services, and the
expansion of banking offices.
Net Interest Income
Table 1-Average Statements of Condition and Net Interest Analysis on page 20
illustrates the trend in average interest-earning assets and interest-bearing
liabilities, and the corresponding yield or cost associated with each.
Taxable-equivalent net interest income of $75.7 million in 2006 was down 2.8%
from $77.9 million in 2005, driven by higher funding costs. The Federal Reserve
continued to raise short-term interest rates in 2006, which contributed to a 100
basis point increase in the prime rate in 2006. The higher prime rate had a
favorable impact on commercial loan yields as the Company's prime rate based
loans repriced upwards. The yield on average earning assets increased 45 basis
points from 5.78% for the fiscal year ended December 31, 2005, to 6.23% for
fiscal 2006, while the cost of interest bearing liabilities increased 94 basis
points from 2.09% to 3.03% over the same time period, resulting in a 49 basis
point decline in the net interest spread. Growth in noninterest-bearing
liabilities offset some of the decline in the net interest spread.
24
Taxable-equivalent interest income was up 13.1% in 2006 over the same period in
the prior year, driven by an increase in loan and investment volumes and yields.
Average loan balances grew by $49.6 million in 2006, or 4.1%, while average loan
yields increased 45 basis points to 7.08%. Average investment balances were up
$43.2 million in 2006, or 6.4%, while average securities yields were up 47 basis
points to 4.73%. Loan growth in 2006 included a $43.4 million increase in
average commercial real estate loans and a $20.8 million increase in average
commercial loans. Average residential loan balances were flat; however, balances
are net of the securitization of $32.0 million of residential mortgage loans in
the second quarter of 2006. These residential loans were packaged into
mortgage-backed securities, which are held in the Company's available-for-sale
securities portfolio. Average consumer loans were down $9.9 million in 2006,
mainly in credit card loans, due in part to the fourth quarter sale of the
entire $9.4 million portfolio, and indirect auto loans. Yields on commercial and
industrial loans, and commercial real estate loans benefited from increases in
market interest rates. Home equity loan yields were also higher due to the
variable rate nature of the majority of this portfolio.
Increases in taxable-equivalent interest income in 2006 were offset by a 52.1%
increase in interest expense driven by the rise in short-term market interest
rates. The average rate paid on deposits during 2006 of 2.86% was 102 basis
points higher than the average rate paid in 2005. Rates on time deposits moved
higher with the rise in short-term rates and resulted in an increased volume of
these deposits. Average time deposit balances increased $93.8 million or 17.0%
to $646.9 million at December 31, 2006, from $553.2 million at December 31,
2005. The Company was able to offset some of the impact of higher deposit rates
by growing average noninterest bearing deposits to $338.4 million, up 4.5% over
average balances for 2005. The average rate paid on borrowings for 2006 was also
up over 2005, as a result of the increase in short-term interest rates. Average
borrowings were up $10.2 million or 4.4% over prior year.
Changes in net interest income occur from a combination of changes in the volume
of interest-earning assets and interest-bearing liabilities, and in the rate of
interest earned or paid on them. Table 2-Analysis of Changes in Net Interest
Income on page 21 illustrates changes in interest income and interest expense
attributable to changes in volume (change in average balance multiplied by prior
year rate), changes in rate (change in rate multiplied by prior year volume),
and the net change in net interest income. The net change attributable to the
combined impact of volume and rate has been allocated to each in proportion to
the absolute dollar amounts of the change. The $2.2 million decrease in
taxable-equivalent net interest income from 2005 to 2006 resulted from a $14.3
million increase in interest income and a $16.5 million increase in interest
expense. An increased volume of earning assets, in excess of interest bearing
liabilities contributed to a net $1.9 million increase in taxable-equivalent net
interest income between 2005 and 2006, while changes in interest rates reduced
taxable-equivalent net interest income by $4.1 million, resulting in the net
decrease of $2.2 million from 2005.
Provision for Loan and Lease Losses
The provision for loan and lease losses was $1.4 million in 2006, compared to
$2.7 million in 2005. The decrease in 2006 is primarily due to positive trends
in asset quality measures. Nonperforming loans and leases were $3.0 million or
0.23% of total loans and leases at December 31, 2006, compared with $4.1 million
or 0.33% of total loans and leases at December 31, 2005. Net charge-offs of
$773,000 in 2006 represented 0.06% of average loans and leases during the
period, compared to net charge-offs of $1.5 million in 2005, representing 0.13%
of average loans and leases.
Noninterest Income
Total noninterest income was $41.1 million in 2006, an increase of 33.5% over
2005. The majority of the growth was concentrated in investment services income
and insurance commissions and fees and reflects the benefit of the first quarter
2006 acquisition of AM&M, acquisitions of insurance agencies during 2006,
and the expansion of retail brokerage services. In addition to the growth in
these fee-based businesses, noninterest income in both 2006 and 2005 included
nonrecurring items. In the fourth quarter of 2006 the Company entered into an
agreement with Elan Financial Services (Elan) to sell its credit card portfolio
of nearly $9.4 million, resulting in a net pre-tax gain of approximately $2.6
million. Through a relationship with Elan, the Company offers an expanded suite
of credit card products to its customers. Fourth quarter 2005 earnings included
a net pre-tax gain of approximately $3.0 million resulting from an agreement
with NOVA Information Systems (NOVA) related to the transfer of merchant card
processing relationships. The fourth quarter 2005 results were also affected by
the sale of approximately $80 million of available-for-sale securities, which
resulted in approximately $1.5 million in pre-tax securities losses being
realized during the fourth quarter of 2005.
The Company was able to expand the contribution of noninterest income to total
revenues by developing and introducing new products and by marketing its
services across all of the Company's markets. Noninterest income represented
36.1% of total revenue in 2006, compared with 29.1% in 2005.
Investment services generated $12.2 million in revenue in 2006, an increase of
125.9% over revenue of $5.4 million in 2005. Investment services reflects income
from Tompkins Investment Services (TIS), a division within Tompkins Trust
Company, and AM&M. Investment services income includes: trust services,
financial planning, wealth management services, and brokerage related services.
TIS generates fee income through managing trust and investment relationships,
managing estates, providing custody services, and managing investments in
employee benefits plans. TIS also oversees retail brokerage activities in the
Company's banking offices. TIS income was $6.2 million in 2006, an increase of
$777,000 or 14.4% over the same period in 2005. With fees largely based on the
market value and the mix of assets managed, the general direction of the stock
market can have a considerable impact on fee income. The market value of assets
managed by, or in custody of, TIS was $1.7 billion at December 31, 2006, up 8.1%
from $1.5 billion at December 31, 2005. These figures include $480.1 million and
$435.2 million, respectively, of Company-owned securities where TIS is
custodian. Trends for new business in trust and investment services remained
positive. The number of accounts increased by 7.2% between December 31, 2006,
and December 31, 2005.
25
AM&M contributed $6.0 million to the growth in 2006 investment services
revenues. AM&M provides fee-based financial planning services, wealth
management services, and brokerage services to independent financial planners
and investment advisors. The acquisition of AM&M also contributed
approximately $618,000 to 2006 insurance commissions and fees. AM&M offers
customized risk management plans using life, disability and long-term care
insurance products.
Insurance commissions and fees were $9.4 million in 2006, an increase of $1.9
million or 25.8% over 2005. The growth was mainly at Tompkins Insurance, and
primarily related to revenue from commercial property and casualty lines.
Tompkins Insurance acquired three insurance agencies during (March, April and
July) 2006 and a fourth agency, effective December 31, 2006. These acquisitions
added approximately $784,000 to the increase in commission and fees in 2006.
Additionally, Tompkins Insurance continued its efforts to offer services to
customers of the Company's banking subsidiaries. These efforts included locating
Tompkins Insurance representatives in offices of The Bank of Castile and The
Trust Company. The Company opened a Tompkins Financial Center office in Ithaca,
New York in 2006 to cater to customer needs for mortgage, investments, financial
planning, and insurance services.
Service charges on deposit accounts were $8.1 million, down 2.4% compared to
$8.3 million in 2005, mainly as a result of lower cycle fees on checking and
savings deposits. Overdraft fees, the largest component of service charges on
deposit accounts were flat year-over-year.
Card services income of $3.0 million in 2006 was up $327,000 or 12.4% over
income of $2.6 million in 2005. The primary component of card services income is
fees related to debit card transactions. An increased number of cardholders and
higher transaction volume contributed to the growth in card services income in
2006.
Net gains from loan sales of $2.7 million included the net pre-tax gain of $2.6
million on the sale of the credit card portfolio in the fourth quarter of 2006.
Other service charges were down $478,000 or 16.1% to $2.5 million in 2006. The
decrease was primarily the result of the sale of the Company's merchant card
processing relationships in the fourth quarter of 2005. Merchant card processing
income was $42,000 in 2006 compared to $453,000 in 2005.
Noninterest income included $1.1 million of increases, net of the related
mortality expense, in cash surrender value of corporate owned life insurance
(COLI), which was in line with 2005. The COLI relates to life insurance policies
covering certain senior officers of the Company and its subsidiaries. The
Company's average investment in COLI was $26.4 million during 2006, compared to
$25.8 million during 2005. Although income associated with the insurance
policies was not included in interest income, the COLI produced an annualized
tax-equivalent return of 7.02% for 2006, compared to 7.08% for 2005. In 2006,
the Company recognized $685,000 in proceeds from death benefits on corporate
owned life insurance. The Company did not purchase additional COLI in 2006.
The $148,000 increase in other income in 2006 over 2005 was largely driven by
increased income related to the Company's investment in a Small Business
Investment Company, Cephas Capital Partners, L.P. ("Cephas"). The Company's
investment totaled $3.6 million at December 31, 2006 compared to $3.4 million at
December 31, 2005. For 2006, the Company recognized income from this investment
of $600,000, compared with income of $333,000 in 2005. The Company believes that
as of December 31, 2006, there is no impairment with respect to this investment.
Noninterest Expense
Noninterest expenses for the year ended December 31, 2006, were $71.9 million,
an increase of 15.8% over noninterest expenses of $62.1 million for the year
ended December 31, 2005. The increase in 2006 over 2005 was primarily due to
higher compensation and benefits related expenses. Factors contributing to the
increase in noninterest expense include the acquisition of AM&M, stock-based
compensation expense related to the adoption of FAS 123R, insurance agency
acquisitions, expansion of retail brokerage services, and the expansion of
banking offices. The addition of AM&M contributed approximately $5.5 million
of the $9.8 million increase in 2006 noninterest expense. Changes in the various
components of noninterest expense are discussed below.
Personnel-related expenses comprised the largest segment of noninterest expense,
representing 58.4% of noninterest expenses in 2006, compared to 58.2% in 2005.
Total personnel-related expenses increased by $5.9 million or 16.3% in 2006, to
$42.0 million from $36.1 million. The increase was primarily a result of higher
salaries and wages related to an increase in average full-time equivalent
employees (FTEs), from 587 at December 31, 2005, to 658 at December 31, 2006,
along with, annual salary adjustments. The acquisitions of AM&M and three
smaller insurance agencies in 2006, the staffing requirements at the Company's
newer offices, and the expansion of retail brokerage services were the primary
contributors to the increase in FTEs. Personnel-related expenses in 2006
included $692,000 related to the expensing of stock options required by the
Company's adoption of Statement of Financial Accounting Standard No. 123
(Revised) "Share-Based Payment" on January 1, 2006. Refer to "Note 1 Summary of
Significant Accounting Policies" in Notes to Consolidated Financial Statements
in Part II, Item 8. of this Report. Healthcare and pension expenses were also up
in 2006 over 2005.
26
Expense for premises, furniture, and fixtures totaled $8.8 million in 2006, an
increase of $1.1 million, or 14.1% over expense of $7.7 million in 2005. The
addition of new banking offices, the acquisition of AM&M, as well as higher
real estate taxes, maintenance, and insurance contributed to the increased
expenses for bank premises and furniture and fixtures year-over-year.
Marketing expense was up 10.3% in 2006 over 2005. Planned marketing initiatives
for 2006, included special promotions related to new office openings accounted
for the increase in marketing expenditures over the prior year.
Professional fees totaled $1.7 million in 2006 compared with $1.5 million in
2005. The acquisition of AM&M contributed approximately $151,000 to the
increase in this category.
Software licenses and maintenance expenses were $1.9 million, an increase of
$162,000 or 9.1% over 2005. Increases in annual maintenance contracts
contributed to the increase in this category, as did expenses related to the
implementation of new systems.
Other operating expenses were $13.1 million for 2006 and $10.9 million for 2005.
The acquisition of AM&M contributed approximately $1.3 million to the
increase in this category. Charitable contributions in 2006 were up $290,000
over the same period in 2005, reflecting contributions to a charitable fund in
support of future community needs. Business development, telephone, postage,
printing and supplies, legal fees, education and training, and loss on sale of
other real estate were also up over the same periods in 2005.
The Company's efficiency ratio, defined as operating expense excluding
amortization of intangible assets, divided by tax-equivalent net interest income
plus noninterest income before securities gains and losses (increase in the cash
surrender value of COLI is shown on a tax equivalent basis), was 60.7% in 2006,
compared to 55.5% in 2005. This ratio was negatively impacted by growth in fee
income businesses such as insurance and investment services. Tax equivalency was
based upon a 40% tax rate. Excluding the tax equivalent adjustments for
tax-exempt securities, tax-exempt loans/leases, and COLI income, the efficiency
ratio would have been 62.5% in 2006 and 57.3% in 2005.
Minority Interest in Consolidated Subsidiaries
Minority interest expense represents the portion of net income in consolidated
majority-owned subsidiaries that is attributable to the minority owners of a
subsidiary. The Company had minority interest expense of $131,000 in 2006 and
2005, related to minority interests in three real estate investment trusts,
which are substantially owned by the Company's banking subsidiaries.
Income Tax Expense
The provision for income taxes provides for Federal and New York State income
taxes. The 2006 provision was $12.7 million, compared to $13.2 million in 2005.
The effective tax rate for the Company decreased in 2006 to 31.4%, from 32.3% in
2005. The recognition of $685,000 of life insurance proceeds in the second
quarter of 2006 contributed to the decrease in the effective rate in 2006
compared with 2005. Also contributing to the lower effective rate was higher
levels of tax-advantaged income, such as income from investments in municipal
bonds, and economic zone credits as well as additional investments in real
estate investment trusts in 2006. Each of the Company's banking subsidiaries is
a majority owner in a REIT. The Company's tax benefit associated with the REIT
dividends was approximately $884,000 in 2006.
FINANCIAL CONDITION
Total assets grew by $148.7 million or 6.7% to $2.4 billion at December 31,
2007, compared to $2.2 billion at December 31, 2006. Table 3-Balance Sheet
Comparisons below provides a comparison of average and year-end balances of
selected balance sheet categories over the past three years, and the change in
those balances between 2006 and 2007. Over the past several years, the Company
has focused on growing average earning assets to increase net interest income
and offset the negative impact of a narrowing spread between the yield on
earning assets and the cost of interest bearing liabilities. Earning asset
growth over year-end 2006 included a $113.8 million increase in the total loans
and leases, and a $34.5 million increase in securities. The 6.7% growth in total
loans and leases from year-end 2006 was primarily in commercial and residential
real estate loans. The consumer and leasing portfolios were down from year-end
2006. A more detailed discussion of the loan portfolio is provided below in this
section under the caption "Loan and Leases".
Total securities were up 4.8% compared to year-end 2006, primarily in
mortgage-backed securities issued by U.S. Government agencies. The Company's
decision to early adopt SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities ("SFAS 159"), effective January 1, 2007, resulted in
transfer of securities from the available-for-sale portfolio to the trading
portfolio. As of December 31, 2007, the trading portfolio totaled $60.1 million.
For the twelve months ended December 31, 2007, mark-to-market gains related to
the securities trading portfolio were $612,000. A more detailed discussion of
the investment portfolio is provided below in this section under the caption
"Securities".
27
Core deposits remain the primary source of funding for the Company, with core
deposits increasing by $82.0 million or 6.5% to $1.4 billion at year-end 2007.
The growth in core deposits was mainly in money market and savings balances and
noninterest bearings balances, which are up are up 7.6% and 9.6%, respectively,
from December 31, 2006. The growth in core deposits was partially offset by a
decrease in time deposits of $100,000 and more, which decreased by $67.8 million
or 21.6% between year-end 2006 and year-end 2007. The decrease was mainly in
municipal time deposits.
The Company also uses wholesale funding sources, which include borrowings and
securities sold under agreements to repurchase, to support asset growth. These
funding sources were up $128.9 million or 46.5% to $406.3 million at December
31, 2007, from $277.4 million at December 31, 2006. The Company used borrowings
with the Federal Home Loan Bank ("FHLB") to support asset growth as an
alternative to higher costing wholesale deposits. During the second quarter of
2007, the Company elected to apply the fair value option for approximately $25.0
million of borrowings incurred during the quarter. The borrowings are with the
FHLB and include: a $10.0 million, 10-year fixed convertible advance at 5.183%,
convertible at the end of 3 years; a $10.0 million, 3-year repo convertible
advance at 5.046%, convertible at the end of 1 year; and a $5.0 million, 7-year
repo convertible advance at 4.715%, convertible at the end of 3 years. As of
December 31, 2007, the aggregate fair value of the $25.0 million of FHLB
advances was approximately $26.3 million. For the twelve months ended December
31, 2007, the fair value of these borrowings decreased by $1.3 million. Refer to
"Note 9 Securities Sold Under Agreements to Repurchase and Federal Funds
Purchased" and "Note 10 Other Borrowings" in Notes to Consolidated Financial
Statements in Part II, Item 8. of this Report for further details on these
funding sources.
Nonperforming loans were $9.3 million at December 31, 2007, up from $3.0 million
at December 31, 2006. The increase over the prior year is mainly due to the
addition of four commercial credits. The largest of these credits is $4.0
million, of which approximately $3.7 million is 90% guaranteed by a government
agency. For the twelve months ended December 31, 2007, net charge-offs were $1.3
million, up from $773,000 for the same period of 2006.
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 or securities as a line of business and residential loan
charge-offs amounted to only $118,000 for 2007 compared to $43,000 for the same
period in 2006.
Table 3 - Balance Sheet Comparisons
AVERAGE BALANCE SHEET
Change (2006-2007)
(in thousands) 2007 2006 2005 Amount Percentage
------------------------------------------------------------------------------------------------------------
Total assets $ 2,266,224 $ 2,139,192 $ 2,038,040 $ 127,032 5.94%
Earning assets * 2,105,581 1,987,258 1,896,197 118,323 5.95%
Total loans and leases,
less unearned income and
net deferred costs and fees 1,362,417 1,269,650 1,220,016 92,767 7.31%
Securities * 734,224 714,891 671,695 19,333 2.70%
Core deposits ** 1,318,859 1,254,536 1,221,082 64,323 5.13%
Time deposits of $100,000
and more 304,614 296,714 224,248 7,900 2.66%
Federal funds purchased and
securities sold under
agreements to repurchase 199,126 159,147 157,817 39,979 25.12%
Other borrowings 100,824 79,310 70,486 21,514 27.13%
Shareholders' equity 188,482 184,872 174,986 3,610 1.95%
============================================================================================================
ENDING BALANCE SHEET
Change (2006-2007)
(in thousands) 2007 2006 2005 Amount Percentage
------------------------------------------------------------------------------------------------------------
Total assets $ 2,359,459 $ 2,210,837 $ 2,106,870 $ 148,622 6.72%
Earning assets * 2,189,920 2,052,478 1,944,124 137,442 6.70%
Total loans and leases,
less unearned income and
net deferred costs and fees 1,440,122 1,326,298 1,271,349 113,824 8.58%
Securities * 746,644 722,257 669,414 24,387 3.38%
Core deposits ** 1,351,412 1,269,428 1,248,314 81,984 6.46%
Time deposits of $100,000
and more 245,375 313,137 296,806 (67,762) (21.64%)
Federal funds purchased and
securities sold under
agreements to repurchase 195,447 191,490 152,651 3,957 2.07%
Other borrowings 210,862 85,941 63,673 124,921 145.36%
Shareholders' equity 197,195 189,620 181,221 7,575 3.99%
============================================================================================================
|
* Balances of available-for-sale securities are shown at amortized cost.
** Core deposits equal total deposits less time deposits of $100,000 and more,
brokered deposits, and municipal money market deposits.
28
Shareholders' Equity
The Consolidated Statements of Changes in Shareholders' Equity included in the
Consolidated Financial Statements of the Company contained in Part II, Item 8.
of this Report, detail the changes in equity capital, including payments to
shareholders in the form of cash and stock dividends. The Company continued its
long history of increasing cash dividends with a per share increase of 7.8% in
2007, which follows an increase of 7.5% in 2006. Dividends per share amounted to
$1.24 in 2007, compared to $1.15 in 2006, and $1.07 in 2005. Cash dividends paid
represented 45.6%, 40.7%, and 37.9% of after-tax net income in each of 2007,
2006, and 2005, respectively.
Total shareholders' equity was up $7.6 million or 4.0% to $197.2 million at
December 31, 2007, from $189.6 million at December 31, 2006. Additional paid-in
capital decreased by $10.5 million, from $158.2 million at December 31, 2006, to
$147.7 million at December 31, 2007, reflecting the effects of repurchases of
the Company's common stock, which were partially offset by the exercise of stock
options and stock-based compensation expense. The Company repurchased 332,347
shares of its common stock for $12.9 million during the twelve month period
ended December 31, 2007. Retained earnings increased $12.8 million from $44.4
million at December 31, 2006, to $57.3 million at December 31, 2007, reflecting
net income of $26.4 million less dividends paid of $12.0 million and a
cumulative-effect adjustment of $1.5 million related to the adoption of SFAS
159. The early adoption of SFAS 159 required that any cumulative unrealized
losses or gains related to securities where the fair value option was elected be
included in the cumulative-effect adjustment, net of tax. Accumulated other
comprehensive loss decreased by nearly $5.6 million between December 31, 2006
and December 31, 2007, reflecting the effects of the adoption of SFAS 159, a
decrease in unrealized losses on available-for-sale securities due to lower
market rates, and amounts recognized in other comprehensive income related to
postretirement benefit plans.
On July 18, 2006, the Company's Board of Directors approved the Company's
current stock repurchase plan (the "2006 Plan"). The 2006 Plan authorizes the
repurchase of up to 450,000 shares of the Company's outstanding common stock
over a two-year period. Under the 2006 Plan, the Company repurchased 332,347
shares at an average price of $38.86 in 2007. Since inception of the 2006 Plan,
the Company has repurchased 420,575 shares at an average price of $39.85.
Under the prior stock repurchase plan (the "2004 Plan"), which was approved by
the Company's Board of Directors on July 27, 2004, the Company was authorized to
repurchase up to 484,000 shares of Tompkins common stock over a two-year period,
which ended July 27, 2006. During 2006, the Company repurchased 151,742 shares
at an average cost of $42.30 per share under the 2004 Plan. Over the two-year
term of the 2004 Plan, the Company repurchased 175,924 shares at an average cost
of $40.03.
Total shareholders' equity was up $8.4 million or 4.6% to $189.6 million at
December 31, 2006, from $181.2 million at December 31, 2005. On May 15, 2006,
the Company paid a 10% stock dividend. The stock dividend had no impact on the
Company's total equity capital, but did result in a reallocation of equity,
primarily by reducing retained earnings and increasing additional paid-in
capital. Retained earnings were down $24.8 million between year-end 2005 and
year-end 2006, from $69.2 million to $44.4 million, while additional paid-in
capital increased by $39.5 million, from $118.7 million at December 31, 2005, to
$158.2 million at December 31, 2006, mainly due to the 10% stock dividend. The
increase in accumulated other comprehensive loss is due to adoption of SFAS No.
158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans--An Amendment of FASB No. 87, 88, 106 and 132(R)" ("SFAS 158"). SFAS 158
requires that the funded status of defined benefit postretirement plans be
recognized on the company's balance sheet, and changes in the funded status be
reflected in comprehensive income, effective for fiscal years ending after
December 15, 2006. The Company's adoption of SFAS 158, effective December 31,
2006, resulted in a $7.7 million, net of tax, increase in accumulated other
comprehensive loss, a component of shareholders' equity.
The Company and its subsidiary banks are subject to quantitative capital
measures established by regulation to ensure capital adequacy. Consistent with
the objective of operating a sound financial organization, the Company and its
subsidiary banks maintain capital ratios well above regulatory minimums, as
detailed in "Note 18 Regulations and Supervision" in Notes to Consolidated
Financial Statements in Part II, Item 8. of this Report on Form 10-K.
Securities
The Company's securities portfolio (excluding fair value adjustments on
available-for-sale securities) at December 31, 2007, was $746.6 million,
reflecting an increase of 3.4% from $722.3 million at December 31, 2006. "Note 3
Securities" in Notes to Consolidated Financial Statements in Part II, Item 8. of
this Report, details the types of securities held, the carrying and fair values,
and the contractual maturities as of December 31, 2007 and 2006. Qualified
tax-exempt debt securities, primarily obligations of state and political
subdivisions, were $101.4 million at December 31, 2007, or 13.6% of total
securities, compared to $106.8 million, or 14.8% of total securities at December
31, 2006. Available-for-sale mortgage-backed securities, consisting mainly of
securities issued by U.S. Government sponsored agencies, totaled $381.3 million
at year-end 2007, compared to $356.6 million at year-end 2006.
In the first quarter of 2007, the Company elected to apply the fair value option
for certain securities within its available-for-sale portfolio with an aggregate
cost basis of $65.9 million and an aggregate book value of $63.4 million as of
the January 1, 2007 date of adoption. Included in the $65.9 million were $40.6
million of U.S. Government agencies (total portfolio of $217.5 million) and
$25.3 million of mortgage-backed securities (total portfolio of $349.8 million).
The Company selected these securities based upon yield and average remaining
life. The securities selected had yields of less than 4.0% and average lives
greater than 1.5 years. As a result of the election to early adopt, the
cumulative unrealized loss related to these available-for-sale securities of
$2.5 million was recorded directly in the Company's financial statements as a
cumulative-effect adjustment, net of tax, to retained earnings.
29
Tompkins sold the approximately $62.0 million in securities that were carried in
the Company's trading portfolio subsequent to the adoption of SFAS 159 and
reinvested the proceeds in trading securities that provide for a higher yield
and will reflect an improvement in the Company's liquidity and interest rate
risk exposure position. However, while in the aggregate the impacts of the SFAS
159 early adoption and related transactions resulted in overall improvement in
earnings for accounting purposes, it had no impact on the overall cash proceeds.
As of December 31, 2007, the Company's trading securities totaled $60.1 million.
The unrealized gains on the $60.1 million of trading securities held at December
31, 2007 were $349,000. Refer to "Note 3 Securities" in Notes to Consolidated
Financial Statements in Part II, Item 8. of this Report for additional details.
The amortized cost and fair value of the Company's securities portfolio at
December 31, 2007 and December 31, 2006 are included in "Note 3 Securities" in
Notes to Consolidated Financial Statements in Part II, Item 8. of this Report.
The amortized cost and fair value of the Company's securities portfolio at
December 31, 2005, is presented in the table below.
Available-for-Sale Securities
---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 2005 (in thousands) Cost Gains Losses Value
---------------------------------------------------------------------------------------------------
Obligations of U.S. Government sponsored agencies $ 205,723 $ 25 $ 5,114 $ 200,634
Obligations of states and political subdivisions 46,821 642 421 47,042
Mortgage-backed securities 321,168 645 6,291 315,522
U.S. corporate securities 2,500 0 0 2,500
---------------------------------------------------------------------------------------------------
Total debt securities 576,212 1,312 11,826 565,698
Equity securities 10,544 0 0 10,544
---------------------------------------------------------------------------------------------------
Total available-for-sale securities $ 586,756 $ 1,312 $ 11,826 $ 576,242
===================================================================================================
Held-to-Maturity Securities
---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 2005 (in thousands) Cost Gains Losses Value
---------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions $ 82,658 $ 773 $ 663 $ 82,768
---------------------------------------------------------------------------------------------------
Total held-to-maturity debt securities $ 82,658 $ 773 $ 663 $ 82,768
===================================================================================================
|
Available-for-sale securities at year-end 2005 include $10.3 million in
nonmarketable equity securities, which are carried at cost since fair values are
not readily determinable. This figure includes $8.8 million of Federal Home Loan
Bank ("FHLB") stock, and $721,000 of Federal Reserve Bank ("FRB") stock, which
are required to be held for regulatory purposes and for borrowings availability.
The required investment in FHLB stock is tied to the Company's borrowing levels
with the FHLB. Substantially all of the above mortgage-backed securities are
direct pass through securities or collateralized mortgage obligations issued or
backed by Federal agencies.
Management's policy is to purchase investment grade securities that, on average,
have relatively short expected durations. This policy helps mitigate interest
rate risk and provides sources of liquidity without significant risk to capital.
A large percentage of securities are direct obligations of the Federal
government and its agencies. The contractual maturity distribution of debt
securities and mortgage-backed securities as of December 31, 2007, along with
the weighted average yield of each category, is presented in Table 4-Maturity
Distribution below. Balances are shown at amortized cost and weighted average
yields are calculated on a fully taxable-equivalent basis. Expected maturities
will differ from contractual maturities presented in Table 4-Maturity
Distribution below, because issuers may have the right to call or prepay
obligations with or without penalty and mortgage-backed securities will pay
throughout the periods prior to contractual maturity.
30
Table 4 - Maturity Distribution
As of December 31, 2007
------------------------------------------------------------------------------------------
Securities Securities
Available-for-Sale * Held-to-Maturity
------------------------------------------------------------------------------------------
(dollar amounts in thousands) Amount Yield (FTE) Amount Yield (FTE)
------------------------------------------------------------------------------------------
Obligations of U.S. Government
sponsored agencies
Within 1 year $ 52,741 3.60% $ 0 0.00%
Over 1 to 5 years 39,990 4.41% 0 0.00%
Over 5 to 10 years 63,725 5.20% 0 0.00%
Over 10 years 24,309 5.39% 0 0.00%
-------------------------------------------------------------------------------------------
$ 180,765 4.58% $ 0 0.00%
-------------------------------------------------------------------------------------------
State and political subdivisions
Within 1 year $ 4,235 5.14% $ 9,813 5.34%
Over 1 to 5 years 16,512 5.56% 22,912 5.36%
Over 5 to 10 years 23,192 5.53% 14,375 5.96%
Over 10 years 7,913 5.66% 2,493 7.13%
-------------------------------------------------------------------------------------------
$ 51,852 5.53% $ 49,593 5.47%
-------------------------------------------------------------------------------------------
Mortgage-backed securities
Within 1 year $ 992 4.21% $ 0 0.00%
Over 1 to 5 years 18,886 4.56% 0 0.00%
Over 5 to 10 years 127,913 4.96% 0 0.00%
Over 10 years 233,499 5.36% 0 0.00%
-------------------------------------------------------------------------------------------
$ 381,290 5.18% $ 0 0.00%
-------------------------------------------------------------------------------------------
Other securities
Within 1 year $ 0 0.00% $ 0 0.00%
Over 1 to 5 years 0 0.00% 0 0.00%
Over 5 to 10 years 0 0.00% 0 0.00%
Over 10 years 2,500 7.98% 0 0.00%
Equity securities 20,509 6.39% 0 0.00%
-------------------------------------------------------------------------------------------
$ 23,009 6.56% $ 0 0.00%
-------------------------------------------------------------------------------------------
Total securities
Within 1 year $ 57,968 3.72% $ 9,813 5.34%
Over 1 to 5 years 75,388 4.70% 22,912 5.36%
Over 5 to 10 years 214,830 5.09% 14,375 5.96%
Over 10 years 268,221 5.39% 2,493 7.13%
Equity securities 20,509 6.39% 0 0.00%
-------------------------------------------------------------------------------------------
$ 636,916 5.09% $ 49,593 5.47%
===========================================================================================
|
* Balances of available-for-sale securities are shown at amortized cost.
At December 31, 2007, there were no holdings of any one issuer, other than the
U.S. Government sponsored agencies, in an amount greater than 10% of the
Company's shareholders' equity.
31
Loans and Leases
Interest and fees earned on loans is the one of the Company's primary source of
revenues. Total loans and leases, net of unearned income and net deferred loan
fees and costs, grew 8.6%, to $1.44 billion at December 31, 2007, from $1.33
billion at December 31, 2006. As of December 31, 2007, total loans represented
61.0% of total assets compared to 60.0% as of December 31, 2006. Table 5-Loan
and Lease Classification Summary below details the composition and volume
changes in the loan and lease portfolio over the past five years.
Table 5 - Loan and Lease Classification Summary
As of December 31,
(in thousands) 2007 2006 2005 2004 2003
------------------------------------------------------------------------------------------------------
Residential real estate $ 504,353 $ 469,146 $ 475,155 $ 451,014 $ 404,487
Commercial real estate 422,279 393,829 347,443 296,614 242,248
Real estate construction 43,002 26,130 30,309 27,163 21,788
Commercial 381,666 345,194 306,410 277,082 275,666
Consumer and other 80,730 82,341 100,249 100,971 104,647
Leases 10,832 11,962 14,864 23,121 24,340
------------------------------------------------------------------------------------------------------
Total loans and leases 1,442,862 1,328,602 1,274,430 1,175,965 1,073,176
Less: unearned income and
deferred costs and fees (2,740) (2,304) (3,081) (3,817) (4,036)
------------------------------------------------------------------------------------------------------
Total loans and leases, net of
unearned income and deferred
costs and fees $ 1,440,122 $ 1,326,298 $ 1,271,349 $ 1,172,148 $ 1,069,140
======================================================================================================
|
Residential real estate loans of $504.4 million at year-end 2007 increased by
$35.2 million or 7.5% from $469.1 million at year-end 2006, and comprised 35.0%
of total loans and leases at December 31, 2007. Residential real estate mortgage
loans are generally underwritten in accordance with secondary market guidelines
to enhance the liquidity of these generally longer-term assets. As part of its
asset/liability management strategy the Company may sell certain residential
mortgage loans in the secondary market. Loans are generally sold to Federal Home
Loan Mortgage Corporation ("FHLMC") or State of New York Mortgage Agency
("SONYMA"). During 2007, 2006, and 2005, the Company sold residential mortgage
loans totaling $10.7 million, $12.5 million, and $16.5 million, respectively,
and realized gains on these sales of $159,000, $177,000, and $238,000,
respectively. During 2006, the Company securitized $32.0 million of Company
originated residential real estate loans with FHLMC. There were no
securitizations in 2007 or 2005. When residential mortgage loans are sold or
securitized, the Company typically retains all servicing, providing the Company
with a source of fee income. The Company generally sells loans without recourse.
In connection with the loan sales and securitizations in 2007, 2006, and 2005,
the Company recorded mortgage-servicing assets of $46,000, $294,000, and
$98,000, respectively. Amortization of mortgage servicing amounted to $122,000,
in 2007, $116,000 in 2006 and $127,000 in 2005. Residential mortgage loans
serviced for others totaled $154.5 million at December 31, 2007, compared to
$162.0 million at December 31, 2006. Capitalized mortgage servicing rights
totaled $1.1 million at December 31, 2007, and December 31, 2006, and are
reported as intangible assets on the consolidated statements of condition.
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 and residential loan charge-offs amounted
to only $118,000 for 2007 compared to $43,000 for the same period in 2006.
Commercial real estate loans increased by $28.5 million, or 7.2%, in 2007 over
2006, from $393.8 million at year-end 2006 to $422.3 million at year-end 2007.
Commercial real estate loans of $422.3 million represented 29.3% of total loans
and leases at December 31, 2007. Commercial loans totaled $381.7 million at
December 31, 2007, which is a 10.6% increase from commercial loans of $345.2
million at December 31, 2006. Growth in commercial lending, including commercial
real estate reflects the Company's continued emphasis on commercial lending.
Management believes that the Company's community banking strategy provides value
to small business customers, while commercial lending products are typically
attractive to the Company from a yield and interest rate risk perspective. The
combined legal lending limits of the Company's three subsidiary banks has
allowed the Company to attract larger lending relationships.
The consumer loan portfolio includes personal installment loans, indirect
automobile financing, and overdraft lines of credit. The Company faces
significant competition from local and national lenders as well as auto finance
companies for consumer lending products. Consumer and other loans were $80.7
million at December 31, 2007, down from $82.3 million at December 31, 2006. The
fourth quarter 2006 sale of the Company's credit card portfolio contributed to
the decrease in consumer loans at year-end 2006.
The lease portfolio decreased by 9.5% to $10.8 million at December 31, 2007 from
$12.0 million at December 31, 2006. The lease portfolio has traditionally
consisted of leases on vehicles for consumers and small businesses. Competition
for automobile financing has led to a decline in the consumer lease portfolio
over the past several years. Management continues to review leasing
opportunities, primarily commercial leasing and municipal leasing. As of
December 31, 2007, commercial leases and municipal leases represented 97.5% of
total leases, while consumer leases made up the remaining 2.5%. As of December
31, 2006, commercial leases and municipal leases represented 99.2% of total
leases, while consumer leases made up the remaining 0.8%.
32
The Company's loan and lease customers are located primarily in the New York
communities served by its three subsidiary banks. The Trust Company operates
fifteen banking offices in the counties of Tompkins, Cayuga, Cortland, and
Schuyler, New York. The Bank of Castile operates fifteen banking offices in
towns situated in and around the areas commonly known as the Letchworth State
Park area and the Genesee Valley region of New York State. Mahopac National Bank
is located in Putnam County, New York and operates five banking offices in that
county, three full service offices in neighboring Dutchess County, New York and
one full service office in Westchester County, New York. Other than general
economic risks, management is not aware of any material concentrations of credit
risk to any industry or individual borrower. Further information on the
Company's lending activities, including related party transactions, is provided
in "Note 4 Loan and Lease Classification Summary and Related Party Transactions"
in Notes to Consolidated Financial Statements in Part II, Item 8. of this
Report.
The Allowance for Loan and Lease Losses
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 Company's results of operations. Factors considered in determining the
adequacy of the allowance and related provision include: management's 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; comments received during the course of independent
examinations; current local economic conditions; past due and nonperforming loan
statistics; the impact of competition on loan structuring and pricing; the
estimated values of collateral; and a historical review of loan and lease loss
experience.
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 Company's 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. The methodology includes a
review of loans considered impaired in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan", as well as other commercial loans and commercial mortgage
loans that are evaluated using an internal rating system. An estimated exposure
amount is assigned to these internally reviewed credits based upon a review of
the borrower's financial condition, payment history, collateral adequacy, and
business conditions. 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, past due status, and management's judgment of
the effects of recent and forecasted economic conditions on portfolio
performance. Lastly, additional amounts are maintained based upon management's
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.
Since the methodology is based upon historical experience and trends as well as
management's judgment, factors may arise that result in different estimations.
Significant factors that could give rise to changes in these estimates may
include, but are not limited to, changes in economic conditions in the local
area, concentration of risk, changes in interest rates, and declines in local
property values. While management's evaluation of the allowance as of December
31, 2007, considers the allowance to be adequate, under adversely different
conditions or assumptions, the Company would need to increase the allowance.
The allocation of the Company's allowance as of December 31, 2007, and each of
the previous four years is illustrated in Table 6- Allocation of the Allowance
for Loan and Lease Losses, below.
33
Table 6 - Allocation of the Allowance for Loan and Lease Losses
December 31
(dollar amounts in thousands) 2007 2006 2005 2004 2003
--------------------------------------------------------------------------------------------------------
Total loans outstanding at end
of year $1,440,122 $1,326,298 $1,271,349 $1,172,148 $1,069,140
--------------------------------------------------------------------------------------------------------
ALLOCATION OF THE ALLOWANCE BY
LOAN TYPE:
Commercial $ 6,135 $ 6,308 $ 5,354 $ 5,871 $ 5,872
Real estate 6,640 5,609 5,357 3,947 2,909
Consumer and all other 1,832 2,236 2,850 2,731 2,904
Unallocated 0 175 116 0 0
--------------------------------------------------------------------------------------------------------
Total $ 14,607 $ 14,328 $ 13,677 $ 12,549 $ 11,685
--------------------------------------------------------------------------------------------------------
ALLOCATION OF THE ALLOWANCE AS
A PERCENTAGE OF TOTAL ALLOWANCE:
Commercial 42% 44% 39% 47% 50%
Real estate 45% 39% 39% 31% 25%
Consumer and all other 13% 16% 21% 22% 25%
Unallocated 0% 1% 1% 0% 0%
--------------------------------------------------------------------------------------------------------
Total 100% 100% 100% 100% 100%
--------------------------------------------------------------------------------------------------------
LOAN AND LEASE TYPES AS A
PERCENTAGE OF TOTAL LOANS
AND LEASES:
Commercial 27% 26% 24% 24% 26%
Real estate 67% 67% 67% 66% 62%
Consumer and all other 6% 7% 9% 10% 12%
--------------------------------------------------------------------------------------------------------
Total 100% 100% 100% 100% 100%
========================================================================================================
|
Management is committed to early recognition of loan problems and to maintaining
an adequate allowance. The above allocation is neither indicative of the
specific amounts or the loan categories in which future charge-offs may occur,
nor is it an indicator of future loss trends. The allocation of the allowance to
each category does not restrict the use of the allowance to absorb losses in any
category. The increase in the allowance between year-end 2006 and year-end 2007
reflects higher allocations due to growth in the loan portfolio and additional
allocations based upon historical loss experience. The increase in the allowance
allocated to real estate loans in 2007 over 2006 was a result of the growth in
the portfolio as well as the overall weakening conditions in the real estate
market.
The level of future charge-offs are dependent upon a variety of factors such as
national and local economic conditions, trends in various industries,
underwriting characteristics, and conditions unique to each borrower. Given
uncertainties surrounding these factors, it is difficult to estimate future
losses.
The principal balances of nonperforming loans and leases, including impaired
loans and leases, as of December 31, are detailed in the table below.
(dollar amounts in thousands) 2007 2006 2005 2004 2003
---------------------------------------------------------------------------------------------------
Loans 90 days past due and accruing $ 312 $ 8 $ 12 $ 31 $ 26
Nonaccrual loans 8,890 2,994 4,072 7,392 7,321
Troubled debt restructurings not included above 145 0 50 189 246
---------------------------------------------------------------------------------------------------
Total nonperforming loans and leases 9,347 3,002 4,134 7,612 7,593
---------------------------------------------------------------------------------------------------
Other real estate owned 5 348 366 89 385
---------------------------------------------------------------------------------------------------
Total nonperforming assets $9,352 $3,350 $4,500 $7,701 $7,978
---------------------------------------------------------------------------------------------------
Allowance as a percentage of loans and leases
outstanding 1.01% 1.08% 1.08% 1.07% 1.09%
---------------------------------------------------------------------------------------------------
Allowance as a percentage of nonperforming loans
and leases 156.27% 477.28% 330.84% 164.86% 153.89%
---------------------------------------------------------------------------------------------------
Total nonperforming assets as percentage of
total assets 0.40% 0.15% 0.21% 0.39% 0.43%
===================================================================================================
|
The allowance represented 1.01% of total loans and leases outstanding at
December 31, 2007, down from 1.08% at December 31, 2006. The allowance coverage
of nonperforming loans (loans past due 90 days and accruing, nonaccrual loans,
and restructured troubled debt) was 1.56 times at December 31, 2007, compared to
4.77 times at December 31, 2006. The decline in the nonaccrual coverage is
largely due to the addition of a $4.0 million nonaccrual loan that is largely
protected by a U.S. government agency guarantee. The difference between the
interest income that would have been recorded if nonaccrual loans and leases had
been paid in accordance with their original terms and the interest income
recorded for the years ended December 31, 2007, 2006 and 2005 was not material.
A discussion of the Company's policy for placing loans on nonaccrual status is
included in "Note 1 Summary of Significant Accounting Policies" in Notes to
Consolidated Financial Statements in Part II, Item 8. of this Report.
34
The Company's historical loss experience is detailed in Table 7-Analysis of the
Allowance for Loan and Lease Losses
Table 7 - Analysis of the Allowance for Loan and Lease Losses
December 31
(in thousands) 2007 2006 2005 2004 2003
--------------------------------------------------------------------------------------------------------
Average loans outstanding during year $1,362,417 $1,269,650 $1,220,016 $1,116,965 $1,030,299
Balance of allowance at beginning
of year 14,328 13,677 12,549 11,685 11,704
LOANS CHARGED-OFF:
Commercial, financial, agricultural 672 333 890 1,221 1,595
Real estate - mortgage 118 43 408 78 122
Installment loans to individuals 448 504 595 977 887
Lease financing 0 210 0 27 9
Other loans 522 174 344 487 394
--------------------------------------------------------------------------------------------------------
Total loans charged-off $ 1,760 $ 1,264 $ 2,237 $ 2,790 $ 3,007
--------------------------------------------------------------------------------------------------------
RECOVERIES OF LOANS PREVIOUSLY
CHARGED-OFF:
Commercial, financial, agricultural 143 136 210 198 73
Real estate - mortgage 9 19 32 54 26
Installment loans to individuals 241 226 277 406 311
Lease financing 0 3 37 23 5
Other loans 117 107 150 113 76
--------------------------------------------------------------------------------------------------------
Total loans recovered $ 510 $ 491 $ 706 $ 794 $ 491
--------------------------------------------------------------------------------------------------------
Net loans charged-off 1,250 773 1,531 1,996 2,516
Additions to allowance charged to
operations 1,529 1,424 2,659 2,860 2,497
--------------------------------------------------------------------------------------------------------
Balance of allowance at end of year $ 14,607 $ 14,328 $ 13,677 $ 12,549 $ 11,685
--------------------------------------------------------------------------------------------------------
Net charge-offs as a percentage of
average loans and leases outstanding
during the year 0.09% 0.06% 0.13% 0.18% 0.24%
========================================================================================================
|
Management reviews the loan portfolio continuously for evidence of potential
problem loans and leases. Potential problem loans and leases are loans and
leases that are currently performing in accordance with contractual terms, but
where known information about possible credit problems of the related borrowers
causes management to have doubt as to the ability of such borrowers to comply
with the present loan payment terms and may result in such loans and leases
becoming nonperforming at sometime in the future. Management considers loans and
leases classified as Substandard, which continue to accrue interest, to be
potential problem loans and leases. The Company, through its internal loan
review function identified 34 commercial relationships totaling $13.4 million at
December 31, 2007, and 25 commercial relationships totaling $19.7 million at
December 31, 2006, which it classified as Substandard, which continue 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 does not warrant accounting for these loans as nonperforming.
However, these loans do exhibit certain risk factors, which have the potential
to cause them to become nonperforming. Accordingly, management's attention is
focused on these credits, which are reviewed on at least a quarterly basis. The
decrease in the dollar amount of commercial relationships classified as
Substandard and still accruing between December 31, 2006 and December 31, 2007
was mainly due to three commercial relationships totaling $6.0 million that were
classified as Substandard and accruing at December 31, 2006, and Substandard and
nonaccruing at December 31, 2007.
35
Deposits and Other Liabilities
Total deposits of $1.7 billion at December 31, 2007, were up less than 1.0% over
year-end 2006; however, the composition of the deposit base changed between
year-end 2007 and year-end 2006. In 2006, market rates and deposit rates were
trending up which led to growth in more rate sensitive deposit categories, such
as time deposits of $100,000 or more. In 2007, rates stabilized in the first
half of the year, and decreased over the second half as the Federal Reserve cut
short-term interest rates. This contributed to a decrease in time deposits of
$100,000 or more and an increase in core deposits, defined as total deposits
less time deposits of $100,000 or more, brokered deposits and municipal money
market deposits. Core deposits grew by $82.0 million or 6.5% to $1.4 billion at
year-end 2007 from $1.3 billion at year-end 2006. The growth in core deposits
since December 31, 2006, was mainly in money market and savings balances and
noninterest bearing balances, which are up 7.6% and 9.6%, respectively, from
December 31, 2006. Core deposits represented 78.5% of total deposits at December
31, 2007, compared to 74.3% of total deposits at December 31, 2006. The growth
in core deposits was partially offset by a decrease in time deposits of $100,000
and more, which were down by $67.8 million or 21.6% between year-end 2006 and
year-end 2007. The decrease was mainly in municipal time deposits. Table
1-Average Statements of Condition and Net Interest Analysis on page 20 shows the
average balance and average rate paid on the Company's primary deposit
categories for the years ended December 31, 2007, 2006, and 2005. A maturity
schedule of time deposits outstanding at December 31, 2007, is included in "Note
9 Deposits" in Notes to Consolidated Financial Statements in Part II, Item 8. of
this Report.
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 $67.9 million at December 31, 2007, and $69.5 million at
December 31, 2006. Management generally views local repurchase agreements as an
alternative to large time deposits. The Company's wholesale repurchase
agreements are primarily with the Federal Home Loan Bank ("FHLB") and amounted
to $127.6 million at December 31, 2007, and $122.0 million at December 31, 2006.
Included in the $127.6 million of wholesale repurchase agreements at year-end
2007, are $15.6 million of repurchase agreements with the FHLB where the Company
has elected to adopt the fair value option under SFAS 159. The fair value of
these borrowings decreased $553,000 over the 12-months ended December 31, 2007.
Refer to "Note 10 Securities Sold Under Agreements to Repurchase and Federal
Funds Purchased" in Notes to Consolidated Financial Statements in Part II, Item
8. of this Report for further details on the Company's repurchase agreements.
The Company's other borrowings totaled $210.9 million at year-end 2007, up
$124.9 million or 145.4% from $85.9 million at year-end 2006. The $210.9 million
in borrowings at December 31, 2007, included $135.9 million in term advances and
$74.8 million of overnight FHLB advances. At December 31, 2006, there were $45.2
million in term advances with the FHLB. Of the $135.9 million of the FHLB term
advances at year-end 2007, $135.8 million are due over one year and have a
weighted average rate of 4.74%. 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 $795,000 over the 12-months ended December 31, 2007. Refer
to "Note 11 Other Borrowings" in Notes to Consolidated Financial Statements in
Part II, Item 8. of this Report for further details on the Company's term
borrowings with the FHLB.
Other borrowings also include a Treasury Tax and Loan Note account with the
Federal Reserve Bank of New York totaling $100,000 at December 31, 2007 and
December 31, 2006. At December 31, 2007 and 2006, Tompkins Insurance had
borrowings of $48,000 and $160,000, respectively, from unrelated financial
institutions.
LIQUIDITY MANAGEMENT
The objective of liquidity management is to ensure the availability of adequate
funding sources to satisfy the demand for credit, deposit withdrawals, operating
expenses, and business investment opportunities. The Company's large, stable
core deposit base and strong capital position are the foundation for the
Company's liquidity position. The Company uses a variety of resources to meet
its liquidity needs, which include deposits, cash and cash equivalents,
short-term investments, cash flow from lending and investing activities,
repurchase agreements, and borrowings. The Company may also use borrowings as
part of a growth strategy. Asset and liability positions are monitored primarily
through the Asset/Liability Management Committee of the Company's subsidiary
banks. This Committee reviews periodic reports on the liquidity and interest
rate sensitivity positions. Comparisons with industry and peer groups are also
monitored. The Company's strong reputation in the communities it serves, along
with its strong financial condition, provide access to numerous sources of
liquidity as described below. Management believes these diverse liquidity
sources provide sufficient means to meet all demands on the Company's liquidity
that are reasonably likely to occur.
Core deposits are a primary low cost funding source obtained primarily through
the Company's branch network. Core deposits totaled $1.4 billion at year-end
2007, up $82.0 million or 6.5% from year-end 2006, with the increase mainly in
money market and savings deposits and noninterest-bearing deposits. Core
deposits represented 78.5% of total deposits and 62.5% of total liabilities at
December 31, 2007, compared to 74.3% of total deposits and 62.9% of total
liabilities at December 31, 2006. The addition of three new banking offices in
2006 contributed to the growth in core deposits in 2007 over 2006.
36
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 accounts,
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 $58.3 million from $717.4 million
at year-end 2007 to $775.7 million at year-end 2006. As a percentage of total
liabilities, non-core funding sources increased from 35.5% at year-end 2006 to
35.7% at year-end 2007. The increase in the dollar volume of non-core funding
was concentrated in overnight and term advances from the FHLB, which were up
$34.3 million and $90.7 million, respectively. Time deposits of $100,000 or more
were down $67.8 million or 21.6% from year-end 2006 to year-end 2007.
Non-core funding sources may require securities to be pledged against the
underlying liability. Securities carried at $577.5 million and $584.0 million at
December 31, 2007 and 2006, respectively, were either pledged or sold under
agreements to repurchase. Pledged securities represented 77.1% of total
securities at December 31, 2007, compared to 81.8% of total securities at
December 31, 2006.
Cash and cash equivalents totaled $50.0 million as of December 31, 2007, down
from $52.2 million at December 31, 2006. Short-term investments, consisting of
securities due in one year or less, increased from $49.1 million at December 31,
2006, to $68.0 million on December 31, 2007. The Company also has $60.1 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 $382.2 million at December 31, 2007 compared with $352.4 million at
December 31, 2006. Outstanding principle balances of residential mortgage loans,
consumer loans, and leases totaled approximately $597.4 million at December 31,
2007 as compared to $563.4 million at December 31, 2006. 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 December 31, 2007, the
unused borrowing capacity on established lines with the FHLB was $348.6 million.
As members of the FHLB, the Company's subsidiary banks can use certain
unencumbered mortgage-related assets to secure additional borrowings from the
FHLB. At December 31, 2007, total unencumbered residential mortgage loans of the
Company were $200.0 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.
Table 8-Loan Maturity details total scheduled maturities of selected loan
categories.
Table 8 - Loan Maturity
Remaining maturity of selected loans At December 31, 2007
(in thousands) Total Within 1 year 1-5 years After 5 years
-------------------------------------------------------------------------------------------------
Commercial real estate $ 421,100 $ 31,808 $ 74,442 $ 314,850
Real estate construction 43,002 23,657 6,076 13,269
Commercial 381,460 203,335 112,262 65,863
-------------------------------------------------------------------------------------------------
Total $ 845,562 $ 258,800 $ 192,780 $ 393,982
=================================================================================================
|
Loan balances are shown net of unearned income and deferred costs and fees
Of the loan amounts shown above in Table 8-Loan Maturity maturing over one year,
$210.4 million have fixed rates and $376.4 million have adjustable rates.
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business the Company is party to certain financial
instruments, which in accordance with accounting principles generally accepted
in the United States, are not included in its Consolidated Statements of
Condition. These transactions include commitments under stand-by letters of
credit, unused portions of lines of credit, and commitments to fund new loans
and are undertaken to accommodate the financing needs of the Company's
customers. Loan commitments are agreements by the Company to lend monies at a
future date. These loan and letter of credit commitments are subject to the same
credit policies and reviews as the Company's loans. Because most of these loan
commitments expire within one year from the date of issue, the total amount of
these loan commitments as of December 31, 2007, are not necessarily indicative
of future cash requirements. Further information on these commitments and
contingent liabilities is provided in "Note 14 Commitments and Contingent
Liabilities" in Notes to Consolidated Financial Statements in Part II, Item 8.
of this Report.
37
CONTRACTUAL OBLIGATIONS
The Company leases land, buildings, and equipment under operating lease
arrangements extending to the year 2090. Most leases include options to renew
for periods ranging from 5 to 20 years. In addition, the Company has a software
contract for its core banking application through August 1, 2010, along with
contracts for more specialized software programs through 2016. Further
information on the Company's lease arrangements is provided in "Note 8 Bank
Premises and Equipment" in Notes to Consolidated Financial Statements in Part
II, Item 8. of this Report. The Company's contractual obligations as of December
31, 2007, are shown in Table 9-Contractual Obligations and Commitments below.
Table 9 - Contractual Obligations and Commitments
Contractual Cash Obligations Payments Due By Period
(in thousands) Within Over 5
As of December 31, 2007 Total 1 year 1-3 years 3-5 years years
-----------------------------------------------------------------------------------------------
Long-term debt $ 333,064 $ 31,373 $ 63,336 $ 65,084 $ 173,271
Operating leases 19,400 1,741 3,074 1,900 12,685
Software contracts 3,177 1,404 1,366 359 48
-----------------------------------------------------------------------------------------------
Total contractual cash obligations $ 355,641 $ 34,518 $ 67,776 $ 67,343 $ 186,004
===============================================================================================
|
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to "Note 1 Summary of Significant Accounting Policies" in Notes to
Consolidated Financial Statements in Part II, Item 8. of this Form 10-K for
details of recently issued accounting pronouncements and their expected impact
on the Company's financial statements.
Fourth Quarter Summary
The Company reported diluted earnings per share of $0.77 for the fourth quarter
of 2007, a 1.3% decline from $0.78 for the comparable year-ago period, and a 10%
increase from $0.70 per share reported in the third quarter of 2007. Fourth
quarter 2007 net income was $7.4 million, down from fourth quarter 2006 net
income of $7.8 million and up from third quarter 2007 net income of $6.8
million. Fourth quarter 2007 results included a pre-tax charge of $862,000
($517,000 after-tax effect or $0.05 per diluted share) related to the VISA
Covered Litigation. Fourth quarter 2006 results included a pre-tax gain of $2.6
million ($1.5 million after-tax effect or $0.15 per diluted share) on the sale
of $9.4 million of credit card loans.
Net interest income of $19.5 million for the quarter ended December 31, 2007 was
a record level for the Company, and was up $1.5 million, or 8.4% from the
quarter ended December 31, 2006. Net interest income benefited from growth in
average interest-earning assets and average core deposits, which were up 8.6%
and 6.0%, respectively, over average balances for the quarter ended December 31,
2006. The net interest margin was 3.70% for the fourth quarter 2007 compared to
3.64% for the fourth quarter of 2006. The recent cuts in the prime interest rate
by the Federal Reserve will pressure asset yields in 2008.
Total noninterest income in the fourth quarter of 2007 was $11.2 million, down
$928,000, or 7.6%, from the fourth quarter of 2006, mainly due to the
nonrecurring pre-tax gains of $2.6 million on the sale of the credit card
portfolio. Key fee income categories showed solid growth over the same quarter
of the prior year. Investment services income was up 23.2%, insurance revenues
were up 8.4%, and service charges on deposit accounts were up 42.3%, over the
same quarter in 2006.
Noninterest expense totaled $19.6 million for the 2007 fourth quarter, up $1.5
million, or 8.3%, from $18.1 million for the 2006 fourth quarter. As previously
mentioned, fourth quarter 2007 noninterest expenses include pre-tax accruals of
$862,000 related to the VISA Covered Litigation. Salary and benefit related
expenses were up over the same quarter prior year reflecting annual salary
adjustments and higher average FTEs.
38
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
MARKET RISK
Interest rate risk is the primary market risk category associated with the
Company's operations. Interest rate risk refers to the volatility of earnings
caused by changes in interest rates. The Company manages interest rate risk
using income simulation to measure interest rate risk inherent in its on-balance
sheet and off-balance sheet financial instruments at a given point in time by
showing the potential effect of interest rate shifts on net interest income for
future periods. Each quarter the Company's Asset/Liability Management Committee
reviews the simulation results to determine whether the exposure of net interest
income to changes in interest rates remains within board-approved levels. The
Committee also discusses strategies to manage this exposure and incorporates
these strategies into the investment and funding decisions of the Company. The
Company does not currently use derivatives, such as interest rate swaps, to
manage its interest rate risk exposure, but may consider such instruments in the
future.
The Company's board of directors has set a policy that interest rate risk
exposure will remain within a range whereby net interest income will not decline
by more than 10% in one year as a result of a 200 basis point parallel change in
rates. Based upon the simulation analysis performed as of December 31, 2007, a
200 basis point parallel upward change in interest rates over a one-year time
frame would result in a one-year decline in net interest income from the base
case of approximately 0.8%, while a 200 basis point parallel decline in interest
rates over a one-year period would result in a one-year decline in net interest
income from the base case of 3.6%. The simulation assumes no balance sheet
growth and no management action to address balance sheet mismatches.
The negative exposure in a rising rate environment is mainly driven by the
repricing assumptions of the Company's core deposit base and the lag in the
repricing of the Company's adjustable rate assets. 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 negative exposure in the 200 basis point decline scenario results from the
Company's assets repricing downward to a greater degree than the rates on the
Company's interest-bearing liabilities, mainly deposits. Rates on savings and
money market accounts are at low levels given the historically low interest rate
environment experienced in recent years. In addition, the model assumes that
prepayment accelerate in the down interest rate environment resulting in
addition 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 2008.
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 Company's current liquidity profile, capital position, and growth
prospects, offer a level of flexibility for management to take actions that
could offset some of the negative effects of unfavorable movements in interest
rates. Management believes the current exposure to changes in interest rates is
not significant in relation to the earnings and capital strength of the Company.
In addition to the simulation analysis, management uses an interest rate gap
measure. Table 10-Interest Rate Risk Analysis below is a Condensed Static Gap
Report, which illustrates the anticipated repricing intervals of assets and
liabilities as of December 31, 2007. The Company's one-year interest rate gap
was a negative $110,000, or 4.7% of total assets at December 31, 2007, compared
with a negative $353,000 or 16.0% of total assets at December 31, 2006. A
negative gap position exists when the amount of interest-bearing liabilities
maturing or repricing exceeds the amount of interest-earning assets maturing or
repricing within a particular time period. This analysis suggests that the
Company's net interest income is more vulnerable to a rising rate environment
than it is to sustained low interest rates. 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.
Table 10 - Interest Rate Risk Analysis
Condensed Static Gap - December 31, 2007
Repricing Interval
Cumulative
(dollar amounts in thousands) Total 0-3 months 3-6 months 6-12 months 12 months
--------------------------------------------------------------------------------------------------------
Interest-earning assets* $ 2,189,920 $ 567,105 $ 154,180 $ 237,492 $ 958,777
Interest-bearing liabilities 1,733,286 699,101 192,680 176,774 1,068,555
--------------------------------------------------------------------------------------------------------
Net gap position (131,996) (38,500) 60,718 (109,778)
--------------------------------------------------------------------------------------------------------
Net gap position as a percentage
of total assets (5.59%) (1.63%) 2.57% (4.65%)
========================================================================================================
|
* Balances of available-for-sale securities are shown at amortized cost.
39
[This Page Intentionally Left Blank]
40
Item 8. Financial Statements and Supplementary Data
Financial Statements and Supplementary Data consist of the consolidated
financial statements as indexed and presented below and the Unaudited Quarterly
Financial Data presented in Part II, Item 8. of this Report
Index to Financial Statements Page
Management's Statement of Responsibility 42
Report of Independent Registered Public Accounting Firm on
Consolidated Financial Statements 43
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting 44
Consolidated Statements of Condition - December 31, 2007
and 2006 45
Consolidated Statements of Income - Years ended December
31, 2007, 2006 and 2005 46
Consolidated Statements of Cash Flows - Years ended December
31, 2007, 2006 and 2005 47
Consolidated Statements of Changes in Shareholders'
Equity - Years ended December 31, 2007, 2006 and 2005 49
Notes to Consolidated Financial Statements 50
Unaudited Quarterly Financial Data 80
41
Management's Statement of Responsibility
Management is responsible for preparation of the consolidated financial
statements and related financial information contained in all sections of this
annual report, including the determination of amounts that must necessarily be
based on judgments and estimates. It is the belief of management that the
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America.
Management establishes and monitors the Company's system of internal accounting
controls to meet its responsibility for reliable financial statements. The
system is designed to provide reasonable assurance that assets are safeguarded,
and that transactions are executed in accordance with management's authorization
and are properly recorded.
The Audit/Examining Committee of the board of directors, composed solely of
outside directors, meets periodically and privately with management, internal
auditors, and independent registered public accounting firm, KPMG LLP, to review
matters relating to the quality of financial reporting, internal accounting
control, and the nature, extent, and results of audit efforts. The independent
registered public accounting firm and internal auditors have unlimited access to
the Audit/Examining Committee to discuss all such matters. The consolidated
financial statements have been audited by KPMG, LLP for the purpose of
expressing an opinion on the consolidated financial statements. In addition,
KPMG, LLP has audited internal control over financial reporting.
/s/ Stephen S. Romaine /s/ Francis M. Fetsko Date: March 10, 2008
---------------------- ---------------------
Stephen S. Romaine Francis M. Fetsko
Chief Executive Officer Chief Financial Officer
42
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Tompkins Financial Corporation:
We have audited the accompanying consolidated statements of condition of
Tompkins Financial Corporation and subsidiaries (the Company) as of December 31,
2007 and 2006, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2007. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tompkins Financial
Corporation and subsidiaries as of December 31, 2007 and 2006, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2007, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Tompkins Financial Corporation's
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 10, 2008 expressed an unqualified opinion on internal control
over financial reporting.
/s/ KPMG LLP
Syracuse, New York
March 10, 2008
43
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Tompkins Financial Corporation:
We have audited Tompkins Financial Corporation's (the "Company") internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management's
Annual Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures, as
we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and the
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated statements of
condition of Tompkins Financial Corporation and subsidiaries as of December 31,
2007 and 2006, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2007, and our report dated March 10, 2008 expressed an
unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Syracuse, New York
March 10, 2008
44
Consolidated Statements of Condition
As of December 31
(in thousands except share and per share data) 2007 2006
-----------------------------------------------------------------------------------------------------
ASSETS
Cash and noninterest bearing balances due from banks $ 46,705 $ 48,251
Interest bearing balances due from banks 3,154 1,723
Federal funds sold 0 2,200
Trading securities, at fair value 60,135 0
Available-for-sale securities, at fair value 639,148 655,322
Held-to-maturity securities, fair value of $50,297 at
December 31, 2007, and $59,606 at December 31, 2006 49,593 59,038
Loans and leases, net of unearned income and deferred costs and fees 1,440,122 1,326,298
Less: Allowance for loan/lease losses 14,607 14,328
-----------------------------------------------------------------------------------------------------
Net Loans/Leases 1,425,515 1,311,970
Bank premises and equipment, net 44,811 43,273
Corporate owned life insurance 29,821 25,622
Goodwill 22,894 21,235
Other intangible assets 3,497 4,051
Accrued interest and other assets 34,186 38,152
-----------------------------------------------------------------------------------------------------
Total Assets $ 2,359,459 $ 2,210,837
-----------------------------------------------------------------------------------------------------
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES,
AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings, and money market $ 741,836 $ 680,844
Time 585,142 669,222
Noninterest bearing 393,848 359,354
-----------------------------------------------------------------------------------------------------
Total Deposits 1,720,826 1,709,420
Securities sold under agreements to repurchase ($15,553 valued at
fair value at December 31, 2007) 195,447 191,490
Other borrowings ($10,795 valued at fair value at December 31, 2007) 210,862 85,941
Other liabilities 33,677 32,914
-----------------------------------------------------------------------------------------------------
Total Liabilities 2,160,812 2,019,765
-----------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 1,452 1,452
Shareholders' equity:
Common stock - par value $0.10 per share: Authorized 15,000,000
shares; Issued: 9,615,430 shares at December 31, 2007,
and 9,889,569 shares at December 31, 2006 962 989
Additional paid-in capital 147,657 158,203
Retained earnings 57,255 44,429
Accumulated other comprehensive loss (6,900) (12,487)
Treasury stock at cost: 70,896 shares at December 31, 2007,
and 64,418 shares at December 31, 2006 (1,779) (1,514)
-----------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 197,195 $ 189,620
-----------------------------------------------------------------------------------------------------
Total Liabilities, Minority Interest in
Consolidated Subsidiaries, and Shareholders' Equity $ 2,359,459 $ 2,210,837
=====================================================================================================
|
Share data has been retroactively adjusted to reflect a 10% stock dividend paid
on May 15, 2006.
See notes to consolidated financial statements.
45
Consolidated Statements of Income
Year ended December 31
(in thousands except per share data) 2007 2006 2005
--------------------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans $ 97,418 $ 89,784 $ 80,617
Due from banks 217 86 89
Federal funds sold 217 15 24
Trading securities 2,762 0 0
Available-for-sale securities 29,773 28,536 23,491
Held-to-maturity securities 2,054 2,620 2,486
--------------------------------------------------------------------------------------------------------
Total Interest and Dividend Income 132,441 121,041 106,707
--------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposit of $100,000 or more 14,750 13,350 6,973
Other deposits 30,735 25,215 16,690
Federal funds purchased and securities sold under agreements to
repurchase 8,125 5,905 4,852
Other borrowings 4,802 3,714 3,171
--------------------------------------------------------------------------------------------------------
Total Interest Expense 58,412 48,184 31,686
--------------------------------------------------------------------------------------------------------
Net Interest Income 74,029 72,857 75,021
Less Provision for Loan/Lease Losses 1,529 1,424 2,659
--------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan/Lease Losses 72,500 71,433 72,362
--------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Investment services income 14,446 12,225 5,412
Insurance commissions and fees 11,046 9,444 7,516
Service charges on deposit accounts 10,401 8,054 8,256
Card services income 3,453 2,972 2,645
Other service charges 2,643 2,483 2,961
Mark-to-market gain on trading securities 612 0 0
Mark-to-market loss on liabilities held at fair value (1,348) 0 0
Gains on sale of loans 159 2,741 238
Gain on sale of merchant card processing relationships 0 0 2,971
Increase in cash surrender value of corporate owned life insurance 1,122 1,111 1,097
Life insurance proceeds 0 685 0
Other operating income 1,131 1,398 1,250
Net gain (loss) on available-for-sale securities 384 15 (1,526)
--------------------------------------------------------------------------------------------------------
Total Noninterest Income 44,049 41,128 30,820
--------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and wages 35,225 33,365 28,306
Pension and other employee benefits 9,986 8,696 7,873
Net occupancy expense of bank premises 6,046 5,068 4,086
Net furniture and fixture expense 3,866 3,733 3,628
Marketing expense 2,284 2,432 2,205
Software licensing and maintenance 2,071 1,938 1,776
Professional fees 3,258 2,099 1,938
Cardholder expense 974 1,219 1,350
Amortization of intangible assets 653 674 593
Other operating expenses 13,693 12,723 10,404
--------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 78,056 71,947 62,159
--------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense and Minority
Interest in Consolidated Subsidiaries 38,493 40,614 41,023
Minority interest in consolidated subsidiaries 131 131 131
Income Tax Expense 11,991 12,716 13,207
--------------------------------------------------------------------------------------------------------
Net Income $ 26,371 $ 27,767 $ 27,685
--------------------------------------------------------------------------------------------------------
Basic earnings per share $ 2.72 $ 2.82 $ 2.81
Diluted earnings per share $ 2.70 $ 2.78 $ 2.77
========================================================================================================
|
Per share data has been retroactively adjusted to reflect a 10% stock dividend
paid on May 15, 2006.
See notes to consolidated financial statements
46
Consolidated Statements of Cash Flows
Year ended December 31
(in thousands) 2007 2006 2005
-----------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 26,371 $ 27,767 $ 27,685
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan/lease losses 1,529 1,424 2,659
Depreciation and amortization premises, equipment,
and software 4,334 4,155 3,824
Amortization of intangible assets 653 674 593
Earnings from corporate owned life insurance, net (1,122) (1,111) (1,097)
Net amortization on securities 1,443 1,566 1,778
Mark-to-market gain on trading securities (612) 0 0
Mark-to-market loss on liabilities held at fair value 1,348 0 0
Deferred income tax (benefit) expense (1,529) (2,264) (2,222)
Net (gain) loss on sale of securities (384) (15) 1,526
Net gain on sale of loans (159) (2,741) (238)
Proceeds from sale of loans 10,906 12,680 16,770
Loans originated for sale (11,059) (12,491) (16,445)
Net loss (gain) on sale of bank premises and equipment 27 (19) (234)
Stock-based compensation expense 713 692 0
Tax benefit of stock option exercises 0 0 239
Increase in interest receivable (203) (1,527) (1,436)
(Decrease) increase in interest payable (399) 1,255 962
Proceeds from sales of trading securities 61,912 0 0
Purchases of trading securities (72,300) 0 0
Proceeds from payments/maturities of trading securities 14,034 0 0
Other, net 2,070 7,509 3,823
------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 37,573 37,554 38,187
------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale
securities 125,292 79,266 87,695
Proceeds from sales of available-for-sale securities 61,714 34,692 117,872
Proceeds from maturities of held-to-maturity securities 16,961 39,748 26,393
Purchases of available-for-sale securities (227,361) (159,021) (205,882)
Purchases of held-to-maturity securities (7,622) (16,263) (39,924)
Net increase in loans/leases (114,762) (96,520) (100,819)
Proceeds from sale of credit card portfolio 0 11,310 0
Proceeds from sales of bank premises and equipment 134 86 381
Purchase of bank premises and equipment (5,548) (9,648) (7,195)
Purchase of corporate owned life insurance (3,000) 0 (2,077)
Net cash used in acquisitions (314) (3,294) 0
Other, net (43) (207) (620)
------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (154,549) (119,851) (124,176)
------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in demand, money market, and
savings deposits 95,486 (8,205) (56,528)
Net (decrease) increase in time deposits (84,080) 34,615 178,665
Net increase (decrease) in securities sold under
agreements to repurchase and Federal funds purchased 3,404 38,839 (1,064)
Increase in other borrowings 208,100 116,075 78,577
Repayment of other borrowings (83,974) (94,011) (78,207)
Cash dividends (12,023) (11,307) (10,504)
Cash paid in lieu of fractional shares - 10% stock
dividend 0 (10) (13)
Repurchase of common stock (12,914) (9,983) (897)
Net proceeds from exercise of stock options 611 2,251 825
Tax benefit from stock option exercises 51 410 0
------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 114,661 68,674 110,854
------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (2,315) (13,623) 24,865
------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 52,174 65,797 40,932
------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 49,859 $ 52,174 $ 65,797
======================================================================================================
|
47
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for - Interest $ 58,811 $ 46,930 $ 30,724
Cash paid during the year for - Income taxes $ 9,802 $ 8,783 $ 14,483
Non-cash investing and financing activities:
Fair value of non-cash assets acquired in purchase
acquisition $ 9 $ 1,375 $ 0
Fair value of liabilities assumed in purchase
acquisitions $ 0 $ 2,276 $ 0
Fair value of shares issued for acquisitions $ 701 $ 4,758 $ 0
Securitization of loans $ 0 $ 32,040 $ 0
Transfer of available-for-sale securities to trading
securities with adopting of SFAS No. 159 $ 63,383 $ 0 $ 0
|
See notes to consolidated financial statements.
48
Consolidated Statements of Changes in Shareholders' Equity
------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other
(in thousands except share and per Common Paid-in Retained Comprehensive Treasury
share data) Stock Capital Earnings Income (Loss) Stock Total
------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2004 $ 816 $ 75,837 $ 94,522 $ 871 $ (1,044) $ 171,002
------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 27,685 27,685
Other comprehensive loss (7,179) (7,179)
------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income 20,506
------------------------------------------------------------------------------------------------------------------
Cash dividends ($1.07 per share) (10,504) (10,504)
Exercise of stock options, and
related tax benefit (45,982
shares, net) 4 1,060 1,064
Common stock repurchased and returned
to unissued status (24,182 shares) (2) (895) (897)
Effect of 10% stock dividend 82 42,380 (42,462) 0
Cash paid in lieu of fractional
shares (307 shares) (13) (13)
Directors deferred compensation plan
(5,240 shares) 218 (218) 0
Stock-based compensation expense 63 63
------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2005 $ 900 $ 118,663 $ 69,228 $ (6,308) $ (1,262) $ 181,221
------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 27,767 27,767
Other comprehensive loss 1,570 1,570
------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income 29,337
------------------------------------------------------------------------------------------------------------------
Cash dividends ($1.15 per share) (11,307) (11,307)
Exercise of stock options and
related tax benefit (101,881
shares, net) 10 2,651 2,661
Common stock repurchased and returned
to unissued status (239,970 shares) (24) (9,959) (9,983)
Effect of 10% stock dividend 91 41,158 (41,249) 0
Cash paid in lieu of fractional shares
(262 shares) (10) (10)
Stock issued for purchase acquisition
(128,374 shares) 12 4,746 4,758
Directors deferred compensation plan
(7,967 shares) 252 (252) 0
Adjustment to initially apply FASB
Statement No. 158, net of tax (7,749) (7,749)
Stock-based compensation expense 692 692
------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2006 $ 989 $ 158,203 $ 44,429 $ (12,487) $ (1,514) $ 189,620
------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 26,371 26,371
Other comprehensive income 4,065 4,065
------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income 30,436
------------------------------------------------------------------------------------------------------------------
Cash dividends ($1.24 per share) (12,023) (12,023)
Exercise of stock options and related
tax benefit (34,495 shares, net) 4 658 662
Common stock repurchased and returned
to Unissued status (332,347 shares) (33) (12,881) (12,914)
Stock issued for purchase acquisition
(23,713 shares) 2 699 701
Directors deferred compensation plan
(6,478 shares) 265 (265) 0
Cumulative effect adjustment -
adoption of SFAS 159 (1,522) 1,522 0
Stock-based compensation expense 713 713
------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2007 $ 962 $ 147,657 $ 57,255 $ (6,900) $ (1,779) $ 197,195
==================================================================================================================
|
Share data has been retroactively adjusted to reflect a 10% stock dividend paid
on May 15, 2006 and a 10% dividend paid on February 15, 2005.
See notes to consolidated financial statements
49
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies
BASIS OF PRESENTATION: Tompkins Financial Corporation ("Tompkins" or "the
Company") is a registered Financial Holding Company with the Federal Reserve
Board pursuant to the Bank Holding Company Act of 1956, as amended, organized
under the laws of New York State, and is the parent company of Tompkins Trust
Company (the "Trust Company"), The Bank of Castile, The Mahopac National Bank
("Mahopac National Bank"), Tompkins Insurance Agencies, Inc. ("Tompkins
Insurance") and AM&M Financial Services, Inc. ("AM&M"). The consolidated
financial information included herein combines the results of operations, the
assets, liabilities, and shareholders' equity (including comprehensive income)
of the Company and its subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation.
The consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclose contingent assets and
liabilities, at the date of the financial statements and the reported amounts of
revenue and expense during the reporting period. Actual results could differ
from those estimates. Significant items subject to such estimates and
assumptions include the allowance for loan/lease losses, valuation of intangible
assets, deferred income tax assets, and obligations related to employee
benefits. Amounts in the prior years' consolidated financial statements are
reclassified when necessary to conform to the current year's presentation.
CASH EQUIVALENTS: Cash equivalents in the Consolidated Statements of Cash Flows
include cash and noninterest bearing balances due from banks, interest-bearing
balances due from banks, and Federal funds sold. Management regularly evaluates
the credit risk associated with the counterparties to these transactions and
believes that the Company is not exposed to any significant credit risk on cash
and cash equivalents.
The Company's banking subsidiaries are required to maintain reserve balances
with the Federal Reserve Bank of New York. As of December 31, 2007 and 2006, the
reserve requirements for the Company's banking subsidiaries totaled $3.7
million.
SECURITIES: Management determines the appropriate classification of debt and
equity securities at the time of purchase. Securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost. Debt securities not classified as held-to-maturity and marketable equity
securities are classified as either available-for-sale or trading.
Available-for-sale securities are stated at fair value with the unrealized gains
and losses, net of tax, excluded from earnings and reported as a separate
component of accumulated comprehensive income or loss, in shareholders' equity.
Trading securities are stated at fair value, with unrealized gains or losses
included in earnings. Securities with limited marketability or restricted equity
securities, such as Federal Home Loan Bank stock and Federal Reserve Bank stock,
are carried at cost.
Premiums and discounts are amortized or accreted over the expected life of the
related security as an adjustment to yield using the interest method. Dividend
and interest income are recognized when earned. Realized gains and losses on the
sale of securities are included in securities gains (losses). The cost of
securities sold is based on the specific identification method.
The Company reviews its investment portfolio quarterly for any declines in fair
value that are deemed other-than-temporary. A decline in the fair value of any
available-for-sale or held-to-maturity security below cost that is deemed to be
other than temporary is charged to earnings, resulting in the establishment of a
new cost basis for the security. In estimating other-than-temporary impairment
losses, management considers, among other factors, the length of time and extent
to which the fair value has been less than cost, the financial condition and
near term prospects of the issuer, and the intent and ability of the Company to
hold the security for a period of time sufficient to allow for any anticipated
recovery in fair value.
LOANS AND LEASES: Loans are reported at their principal outstanding balance, net
of deferred loan origination fees and costs, and unearned income. The Company
has the ability and intent to hold its loans for the foreseeable future, except
for certain residential real estate loans held-for-sale. The Company provides
motor vehicle and equipment financing to its customers through direct financing
leases. These leases are carried at the aggregate of lease payments receivable,
plus estimated residual values, less unearned income. Unearned income on direct
financing leases is amortized over the lease terms, resulting in a level rate of
return.
Interest income on loans is accrued and credited to income based upon the
principal amount outstanding. Loan origination fees and costs are deferred and
recognized over the life of the loan as an adjustment to yield.
Residential real estate loans originated and intended for sale in the secondary
market are carried at the lower of aggregate cost or estimated market value.
Fair value is determined on the basis of the rates quoted in the secondary
market. Net unrealized losses attributable to changes in market interest rates
are recognized through a valuation allowance by charges to income. Loans are
generally sold on a non-recourse basis with servicing retained. Any gain or loss
on the sale of loans is recognized at the time of sale as the difference between
the recorded basis in the loan and the net proceeds from the sale. The Company
may use commitments at the time loans are originated or identified for sale to
mitigate interest rate risk. The commitments to sell loans are considered
derivatives under SFAS No. 133. The impact of the estimated fair value
adjustment was not significant to the consolidated financial statements.
ALLOWANCE FOR LOAN AND LEASE LOSSES: Management regularly reviews the allowance
for loan and lease losses in order to maintain the allowance at a level
consistent with the inherent risk of loss in the loan and lease portfolios.
Management's evaluation of the adequacy of the allowance is based upon a review
of the Company's historical loss experience, known and inherent risks in the
loan and lease portfolios, the estimated value of collateral, the level of
nonperforming loans, and trends in delinquencies. External factors, such as the
level and trend of interest rates and the national and local economies, are also
considered. Management believes that the current allowance for loan and lease
losses is adequate.
50
Note 1 Summary of Significant Accounting Policies (continued)
The Company accounts for impaired loans under SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." SFAS No. 114, as amended, which requires
that impaired loans, except for large groups of smaller-balance homogeneous
loans, be measured based on either the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. If the measurement of the impaired loan is less than the recorded
investment in the loan, an impairment reserve is recognized as part of the
allowance for loan losses.
The Company applies the provisions of SFAS No. 114 to all impaired commercial
and commercial real estate loans over $250,000 and to all loans restructured
subsequent to the adoption of SFAS No. 114. Allowances for loan losses for the
remaining loans are recognized in accordance with SFAS No. 5. Management
considers a loan to be impaired if, based on current information, it is probable
that the Company will be unable to collect all scheduled payments of principal
or interest when due, according to the contractual terms of the loan agreement.
When a loan is considered to be impaired, the amount of the impairment is
measured based on the present value of expected future cash flows discounted at
the effective interest rate of the loan or, as a practical expedient, at the
observable market price or the fair value of collateral if the loan is
collateral dependent. Management excludes large groups of smaller balance
homogeneous loans such as residential mortgages, consumer loans, and leases,
which are collectively evaluated.
The Company has developed a methodology to measure the amount of estimated loan
loss exposure inherent in the loan portfolio to ensure that an adequate
allowance is maintained. The methodology 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. The methodology includes a
review of loans considered impaired in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan", as well as other commercial loans and commercial mortgage
loans that are evaluated using an internal rating system. An estimated exposure
amount is assigned to these internally reviewed credits based upon a review of
the borrower's financial condition, payment history, collateral adequacy, and
business conditions. 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 as well as past due status. Lastly, additional
allowances are maintained based upon management judgment and assessment of other
quantitative and qualitative factors such as regional and local economic
conditions, portfolio growth trends, new lending products, and new market areas.
Since the methodology is based upon historical experience and trends as well as
management's judgment, factors may arise that result in different estimations.
Significant factors that could give rise to changes in these estimates may
include, but are not limited to, changes in economic conditions in the local
area, concentration of risk, and declines in local property values. In addition,
various Federal and State regulatory agencies, as part of their examination
process, review the Company's allowance and may require the Company to recognize
additions to the allowance based on their judgments about information available
to them at the time of their examination which may not be currently available to
management.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS AND LEASES: Loans and
leases, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well secured and in the process of
collection. Loans that are past due less than 90 days may also be classified as
nonaccrual if repayment in full of principal or interest is in doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable time period, and there is a sustained period of repayment
performance by the borrower in accordance with the contractual terms of the loan
agreement. Payments received on loans carried as nonaccrual are generally
applied as a reduction to the outstanding balance on the Company's books. When
the future collectibility of the recorded loan balance is expected, interest
income may be recognized on a cash basis.
OTHER REAL ESTATE OWNED: Other real estate owned consists of properties formerly
pledged as collateral to loans, which have been acquired by the Company through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Upon
transfer of a loan to foreclosure status, an appraisal is obtained and any
excess of the loan balance over the fair value, less estimated costs to sell, is
charged against the allowance for loan/lease losses. Expenses and subsequent
adjustments to the fair value are treated as other operating expense.
PREMISES AND EQUIPMENT: Land is carried at cost. Premises and equipment are
stated at cost, less allowances for depreciation. The provision for depreciation
for financial reporting purposes is computed generally by the straight-line
method at rates sufficient to write-off the cost of such assets over their
estimated useful lives. Buildings are amortized over a period of 10-39 years,
and furniture, fixtures, and equipment are amortized over a period of 2-20
years. Maintenance and repairs are charged to expense as incurred. Gains or
losses on disposition are reflected in earnings.
INCOME TAXES: Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred taxes are reviewed quarterly
and reduced by a valuation allowance if, based upon the information available,
it is more likely than not that some or all of the deferred tax assets will not
be realized. Realization of deferred tax assets is dependent upon the generation
of a sufficient level of future taxable income and recoverable taxes paid in
prior years. Although realization is not assured, management believes it is more
likely than not that all of the deferred tax assets will be realized. The
Company's policy is to recognize interest and penalties on unrecognized tax
benefits in income tax expense in the Consolidated Statements of Income.
51
Note 1 Summary of Significant Accounting Policies (continued)
GOODWILL: Goodwill represents the excess of purchase price over the fair value
of assets acquired in a transaction using purchase accounting. The Company tests
goodwill for impairment at least annually.
OTHER INTANGIBLE ASSETS: Other intangible assets include core deposit
intangibles, customer related intangibles, covenants not to compete, and
mortgage servicing rights. Core deposit intangibles represent a premium paid to
acquire a base of stable, low cost deposits in the acquisition of a bank, or a
bank branch, using purchase accounting. The amortization period for core deposit
intangible ranges from 5 years to 10 years, using an accelerated method. The
covenants not to compete are amortized on a straight-line basis over 5 to 6
years, while the customer related intangible is amortized on an accelerated
basis over a range of 6 to 15 years. The amortization period is monitored to
determine if circumstances require such periods to be revised. The Company
periodically reviews its intangible assets for changes in circumstances that may
indicate the carrying amount of the asset is impaired. The Company tests its
intangible assets for impairment on an annual basis or more frequently if
conditions indicate that an impairment loss has more likely than not been
incurred.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: Securities sold under agreements
to repurchase (repurchase agreements) are agreements in which the Company
transfers the underlying securities to a third-party custodian's account that
explicitly recognizes the Company's interest in the securities. The agreements
are accounted for as secured financing transactions provided the Company
maintains effective control over the transferred securities and meets other
criteria as specified in SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." The Company's
agreements are accounted for as secured financings; accordingly, the transaction
proceeds are reflected as liabilities and the securities underlying the
agreements continue to be carried in the Company's securities portfolio.
With the adoption of SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities -- Including an amendment of FASB Statement No. 115
("SFAS 159"), the Company elected to account for certain repurchase agreements
at fair value, with unrealized gains or losses included in earnings.
TREASURY STOCK: The cost of treasury stock is shown on the Consolidated
Statements of Condition as a separate component of shareholders' equity, and is
a reduction to total shareholders' equity. Shares are released from treasury at
fair value, identified on an average cost basis.
TRUST AND INVESTMENT SERVICES: Assets held in fiduciary or agency capacities for
customers are not included in the accompanying Consolidated Statements of
Condition, since such items are not assets of the Company. Fees associated with
providing trust and investment services are included in noninterest income.
EARNINGS PER SHARE: Basic earnings per share is calculated by dividing net
income available to common shareholders by the weighted average number of shares
outstanding during the year. Diluted earnings per share is calculated by
dividing net income available to common shareholders by the weighted average
number of shares outstanding during the year plus the dilutive effect of stock
issuable upon conversion of stock options or certain other contingencies.
SEGMENT REPORTING: The Company has identified two business segments, banking and
financial services. Financial services activities consist of the results of the
Company's trust, financial planning and wealth management, broker-dealer, and
risk management operations. All other activities are considered banking.
COMPREHENSIVE INCOME: For the Company, comprehensive income represents net
income plus the net change in unrealized gains or losses on securities
available-for-sale for the period (net of taxes), and the actuarial gain or loss
and amortization of unrealized amounts in the Company's defined-benefit
retirement and pension plan, supplemental employee retirement plan, and
post-retirement life and healthcare benefit plan (net of taxes), and is
presented in the Consolidated Statements of Changes in Shareholders' Equity.
Accumulated other comprehensive income (loss) represents the net unrealized
gains or losses on securities available-for-sale (net of tax) and unrecognized
net actuarial gain or loss, unrecognized prior service costs, and unrecognized
net initial obligation (net of tax) in the Company's defined-benefit retirement
and pension plan, supplemental employee retirement plan, and post-retirement
life and healthcare benefit plan.
PENSION AND OTHER EMPLOYEE BENFITS: The Company incurs certain
employment-related expenses associated with its noncontributory defined-benefit
pension plan, supplemental employee retirement plan and post-retirement
healthcare benefit plan. In order to measure the expense associated with these
plans, various assumptions are made including the discount rate used to value
certain liabilities, expected return on plan assets, anticipated mortality
rates, and expected future healthcare costs. The assumptions are based on
historical experience as well as current facts and circumstances. A third-party
actuarial firm is used to assist management in measuring the expense and
liability associated with the plans. The Company uses a December 31 measurement
date for its plans. As of the measurement date, plan assets are determined based
on fair value, generally representing observable market prices. The projected
benefit obligation is primarily determined based on the present value of
projected benefit distributions at an assumed discount rate.
Periodic pension expense or credits include interest costs based on the assumed
discount rate, the expected return on plan assets based on an actuarially
derived market-related values, and amortization of actuarial gains or losses.
Periodic postretirement benefit expense or credits include service costs,
interest costs based on the assumed discount rate, amortization of unrecognized
net transition obligations, and recognized actuarial gains or losses.
52
Note 1 Summary of Significant Accounting Policies (continued)
STOCK BASED COMPENSATION: The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123 (Revised), "Share-Based Payment" ("SFAS No. 123(R)") on
January 1, 2006, using the modified prospective method. Under this method,
compensation costs recognized beginning in 2006 includes: (a) the compensation
cost for all share-based payments granted prior to, but not yet vested as of
January 1, 2006, based upon the grant date fair value estimated in accordance
with the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation",
and (b) the compensation cost for all share-based payments granted subsequent to
January 1, 2006, based on the grant date fair value estimated in accordance with
the provisions of SFAS No. 123(R). Compensation cost is recorded on a
straight-line basis over the vesting period of the awards. Results from prior
periods have not been restated. Prior to adoption of SFAS No. 123(R) on January
1, 2006, the Company applied Accounting Principles Board Opinion (APB Opinion)
No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25") and related
interpretations in accounting for its stock option plan. Under APB No. 25,
compensation expense is recognized only if the exercise price of the option is
less than the fair value of the underlying stock at the grant date.
The following table illustrates the effects on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS no.
123(R) to all outstanding and unvested awards in 2005.
(in thousands except per share data) 2005
-------------------------------------------------------------------------------------
Net income:
As reported $ 27,685
Add: Stock-based compensation expense included in reported net
income, net of related tax effects 63
Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related
tax effects 1,976
-------------------------------------------------------------------------------------
Pro forma 25,772
-------------------------------------------------------------------------------------
Basic earnings per share:
As reported $ 2.81
Pro forma 2.62
-------------------------------------------------------------------------------------
Diluted earnings per share
As reported $ 2.77
Pro forma 2.58
=====================================================================================
|
Per share data has been retroactively adjusted to reflect a 10% stock dividend
paid on May 15, 2006.
In December 2005, the Compensation Committee of the Board of Directors of
Tompkins approved the accelerated vesting of all currently outstanding unvested
stock options, except for those options issued to executive officers of
Tompkins. The affected options were previously awarded to officers and employees
under the Company's 2001 Stock Option Plan. There is no change to the Company's
compensation philosophy and all other terms and conditions applicable to such
options, including the exercise prices and exercise periods, remain unchanged.
No options held by executive vice presidents or chief executive officers are
affected by the vesting acceleration. The acceleration of the unvested options
contributed to the increase in total stock-based compensation expense, net of
tax effects, determined under the fair value method shown above from $757,000 in
2004 to $1.9 million in 2005. As a result, the acceleration lowered compensation
expense related to stock options by approximately $1.2 million, net of taxes,
which would have been recognized in its financial statements over future years.
As a result of the acceleration, the Company also recognized $63,000 of
compensation expense in 2005 earnings. Compensation expense related to stock
options was $713,000 in 2007 and $692,000 in 2006. The acceleration also
resulted in options to purchase up to 221,307 shares of common stock becoming
exercisable immediately. Without the acceleration, the options would have vested
on dates ranging from April 18, 2006 to October 3, 2010. This action contributed
to the increase in exercisable shares at year-end 2005 to 504,484 from 232,558
at year-end 2004.
The Company's stock-based employee compensation plan is described in Note 13
"Stock Plans and Stock Based Compensation", of this Report.
Statements of Financial Accounting Standards
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities --
Including an amendment of FASB Statement No. 115 ("SFAS 159"). SFAS 159 allows
companies to report selected financial assets and liabilities at fair value. The
changes in fair value are recognized in earnings and the assets and liabilities
measured under this methodology are required to be displayed separately in the
balance sheet. SFAS 159's objective is to reduce both complexity in accounting
for financial instruments and the volatility in earnings caused by measuring
related assets and liabilities differently. SFAS 159 establishes presentation
and disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 requires companies to provide additional information that
will help investors and other users of financial statements to more easily
understand the effect of the company's choice to use fair value on its earnings.
It also requires entities to display the fair value of those assets and
liabilities for which the company has chosen to use fair value on the face of
the balance sheet. The Company elected to early adopt SFAS 159, effective
January 1, 2007, and also apply the provisions of SFAS 157 Fair Value
Measurements ("SFAS 157").
53
Note 1 Summary of Significant Accounting Policies (continued)
The Company determines fair value for its trading securities using independently
quoted market prices. Interest income on trading securities is recognized when
earned and included on the Company's Consolidated Statements of Income in
"Interest and Dividend Income Trading Securities."
The Company determines fair value for its borrowings using a discounted cash
flow technique based upon expected cash flows and current spreads on FHLB
advances with the same structure and terms. The Company also receives pricing
information from third parties, including the FHLB. The pricing obtained is
considered representative of the transfer price if the liabilities were assumed
by a third party. The Company's potential credit risk did not have a material
impact on the quoted settlement prices used in measuring the fair value of the
FHLB borrowings for the twelve months ended December 31, 2007. Interest expense
on these borrowings is accrued and included on the Company's Consolidated
Statements of Income in "Interest Expense Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase" and "Interest Expense Other Borrowings."
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value,
establishes guidelines for measuring fair value and expands disclosures
regarding fair value measurements. SFAS 157 does not require any new fair value
measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements. SFAS 157 provides a single definition of fair
value, together with a framework for measuring it, and requires additional
disclosure about the use of fair value to measure assets and liabilities. SFAS
157 also emphasizes that fair value is a market-based measurement, not an
entity-specific measurement, and sets out a fair value hierarchy with the
highest priority being quoted prices in active markets. Under SFAS 157, fair
value measurements are disclosed by level within that hierarchy. SFAS 157 is
effective for fiscal years beginning after November 15, 2007. The Company
elected to adopt SFAS 157 effective January 1, 2007.
In December 2007 the FASB issued SFAS No. 141, Business Combinations (Revised
2007) ("SFAS 141R"). SFAS 141R replaces SFAS 141, Business Combinations, and
applies to all transactions and other events in which one entity obtains control
over one or more other businesses. SFAS 141R requires an acquirer, upon
initially obtaining control of another entity, to recognize the assets,
liabilities and any non-controlling interest in the acquiree at fair value as of
the acquisition date. Contingent consideration is required to be recognized and
measured at fair value on the date of acquisition rather than at a later date
when the amount of that consideration may be determinable beyond a reasonable
doubt. This fair value approach replaces the cost-allocation process required
under SFAS 141 whereby the cost of an acquisition was allocated to the
individual assets acquired and liabilities assumed based on their estimated fair
value. SFAS 141R requires acquirers to expense acquisition-related costs as
incurred rather than allocating such costs to the assets acquired and
liabilities assumed, as was previously the case under SFAS 141. Under SFAS 141R,
the requirements of SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities, would have to be met in order to accrue for a restructuring
plan in purchase accounting. Pre-acquisition contingencies are to be recognized
at fair value, unless it is a non-contractual contingency that is not likely to
materialize, in which case, nothing should be recognized in purchase accounting
and, instead, that contingency would be subject to the probable and estimable
recognition criteria of SFAS 5, "Accounting for Contingencies." SFAS 141R may
have a significant impact on any future business combinations closing on or
after January 1, 2009.
In December 2007 the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB Statement No. 51." SFAS
160 amends Accounting Research Bulletin (ARB) No. 51, "Consolidated Financial
Statements," to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 clarifies that a non-controlling interest in a subsidiary,
which is sometimes referred to as minority interest, is an ownership interest in
the consolidated entity that should be reported as a component of equity in the
consolidated financial statements. Among other requirements, SFAS 160 requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the non-controlling interest. It also
requires disclosure, on the face of the consolidated income statement, of the
amounts of consolidated net income attributable to the parent and to the
non-controlling interest. SFAS 160 is effective on January 1, 2009 and is not
expected to have a significant impact on the Company's financial statements.
In July 2006, FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48
establishes a recognition threshold and measurement for income tax positions
recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. FIN 48 also establishes a
two-step evaluation process for tax positions, recognition and measurement. For
recognition, a determination is made whether it is more-likely-than-not that a
tax position will be sustained upon examination, including resolution of related
appeals or litigation processes, based on the technical merits of the position.
If the tax position meets the more-likely-than-not recognition threshold, it is
measured and recognized in the financial statements as the largest amount of tax
benefit that is greater than 50% likely of being realized. If a tax position
does not meet the more-likely-than-not recognition threshold, the benefit of
that position is not recognized in the financial statements. Tax positions that
meet the more-likely-than-not recognition threshold at the effective date of FIN
48 may be recognized or, continue to be recognized, upon adoption of this
Interpretation. The cumulative effect of applying the provisions of FIN 48 shall
be reported as an adjustment to the opening balance of retained earnings for
that fiscal year. FIN 48 is effective for fiscal years beginning after December
15, 2006. The Company's adoption of FIN 48 on January 1, 2007, did not have a
material impact on the consolidated financial position, results of operations or
cash flows. As of December 31, 2007 and January 1, 2007, the Company did not
have any significant unrecognized tax benefits.
54
Note 1 Summary of Significant Accounting Policies (continued)
In September 2006, the Emerging Issues Task Force ("EITF") reached a final
consensus on Issue 06-04, Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. The consensus stipulates that an agreement by an employer to share
a portion of the proceeds of a life insurance policy with an employee during the
postretirement period is a postretirement benefit arrangement required to be
accounted for under SFAS No. 106 or Accounting Principles Board Opinion ("APB")
No. 12, "Omnibus Opinion -- 1967." The consensus concludes that the purchase of
a split-dollar life insurance policy does not constitute a settlement under SFAS
No. 106 and, therefore, a liability for the postretirement obligation must be
recognized under SFAS No. 106 if the benefit is offered under an arrangement
that constitutes a plan or under APB No. 12 if it is not part of a plan. Issue
06-04 is effective for annual or interim reporting periods beginning after
December 15, 2007. The provisions of Issue 06-04 should be applied through
either a cumulative-effect adjustment to retained earnings as of the beginning
of the year of adoption or retrospective application. The Company estimates that
the adoption of the provisions of Issue 06-04 will result in a cumulative-effect
adjustment to retained earnings of $584,000 and increase expenses in 2008 by
$79,000 pre-tax.
In September 2006, the EITF also reached a final consensus on Issue 06-05,
Accounting for Purchases of Life Insurance -- Determining the Amount That Could
be Realized in Accordance with FASB Technical Bulletin No. 85-4. The consensus
concludes that in determining the amount that could be realized under an
insurance contract accounted for under FASB Technical Bulletin No. 85-4,
"Accounting for Purchases of Life Insurance," the policyholder should (1)
consider any additional amounts included in the contractual terms of the policy;
(2) assume the surrender value on a individual-life by individual-life policy
basis; and (3) not discount the cash surrender value component of the amount
that could be realized when contractual restrictions on the ability to surrender
a policy exist. Issue 06-05 is effective for fiscal years beginning after
December 15, 2006. The consensus in Issue 06-05 should be adopted through either
(1) a change in accounting principle through a cumulative-effect adjustment to
retained earning as of the beginning of the year of adoption or (2) a change in
accounting principle through retrospective application to all prior periods. At
December 31, 2007, the Company had bank owned life insurance policies with a
carrying value of $29.8 million. The Company's adoption of the provisions of
Issue 06-05 did not have a material effect on the Company's financial position
or results of operations.
Note 2 Mergers and Acquisitions
The acquisitions discussed below were accounted for as purchase transactions.
The purchase price was allocated to the underlying assets and liabilities based
on estimated fair values at the date of acquisition. The operating results of
the acquired companies are included in the Company's results of operations since
their respective dates of acquisition.
On January 6, 2006, the Company completed its acquisition of AM&M Financial
Services, Inc. (AM&M), a fee-based financial planning firm headquartered in
Pittsford, New York. Under the terms of the Agreement and Plan of Merger dated
November 21, 2005 by and between the Company and AM&M, the Company acquired
all of the issued and outstanding shares of AM&M stock for an initial merger
consideration of $2,375,000 in cash and 59,377 shares of Tompkins common stock.
The transaction resulted in intangible assets of $4.7 million, including
goodwill of $3.7 million, customer related intangible of $968,000, and a
covenant-not-to-compete of $108,000. The customer related intangible and the
covenant-not-to-compete are being amortized over 15 years and 5 years,
respectively.
In addition to the merger consideration paid at closing, additional contingent
amounts of up to $8.5 million (payable one-half in cash and one-half in Tompkins
common stock) may be paid over a period of four years from closing, depending on
the operating results of AM&M. Operating results for AM&M in 2006 and
2007 resulted in additional consideration of $2.5 million in 2006 and $1.7
million in 2007, respectively. Management has concluded that, under criteria
established by SFAS No. 141, these payments will be recorded as additional
goodwill at the time of payment. The amount of additional goodwill recorded in
2007 and 2006 were $1.5 million and $2.2 million, respectively.
On March 1, 2006, Tompkins Insurance acquired the Farrell-Messler Agency, an
insurance agency in Trumansburg, New York, in a cash transaction. The
transaction resulted in goodwill of $631,000, customer related intangibles of
$159,000 and a covenant-not-to-compete of $79,000. The customer related
intangibles and covenant-not-to-compete are being amortized over 15 and 5 years,
respectively.
55
Note 2 Mergers and Acquisitions (continued)
On April 1, 2006, Tompkins Insurance acquired certain assets of the Potter
Enterprises of WNY, Inc., an insurance agency headquartered in Orchard Park, New
York, in a cash transaction. Only the operations attributable to the Castile, NY
branch were included in this transaction. The transaction resulted in goodwill
of $180,000, customer related intangibles of $56,000 and a
covenant-not-to-compete of $14,000. The customer related intangibles and
covenant-not-to-compete are being amortized over 15 and 4 years, respectively.
On July 1, 2006, Tompkins Insurance acquired the Kemp Agency, an insurance
agency with offices in Dansville and Nunda, New York in a stock and cash
transaction. The transaction resulted in goodwill of $611,000, customer related
intangibles of $195,000 and a covenant-not-to-compete of $65,000. The customer
related intangibles and covenant-not-to-compete are being amortized over 15 and
5 years, respectively.
On December 31, 2006, Tompkins Insurance acquired the Carey McKinney Group, an
insurance agency in Ithaca, New York, in a cash and stock transaction. The
transaction resulted in goodwill of $1.5 million, customer related intangibles
of $457,000 and a covenant-not-to-compete of $246,000. The customer related
intangibles and covenant-not-to-compete are being amortized over 15 and 5 years,
respectively.
On September 1, 2007, Tompkins Insurance acquired Flint-Farrell Insurance
Agency, an insurance agency in Amherst, New York, in a cash transaction. The
transaction resulted in goodwill of $110,000, customer related intangibles of
$58,000 and a covenant-not-to-compete of $24,000. The customer related
intangibles and covenant-not-to-compete are being amortized over 15 and 5 years,
respectively.
On September 28, 2007, AM&M acquired the assets of Francis M. Celona, CPA,
P.C., a local accounting and financial services company in Honeoye Falls, New
York, in a cash transaction. The transaction resulted in goodwill of $47,000,
customer related intangibles of $56,000 and a covenant-not-to-compete of $6,000.
The customer related intangibles and covenant-not-to-compete are being amortized
over 15 years and 5 years, respectively.
In November 2007, the Company entered into a definitive agreement under which
Tompkins will acquire Sleepy Hollow Bancorp in a cash transaction valued at
$30.2 million, subject to various regulatory approvals. Headquartered in Sleepy
Hollow, New York, Sleepy Hollow Bancorp, has assets of approximately $245
million and is the parent company of Sleepy Hollow Bank, which operates five
full-service offices and one limited-service facility, all in Westchester
County, New York. Sleepy Hollow Bank has approximately $160 million in loans and
$225 million in deposits. Upon completion of the transaction, Sleepy Hollow Bank
and Mahopac National Bank will be combined, resulting in a $750 million
community bank, with fourteen branches and one limited-service office serving
Westchester, Putnam and Dutchess Counties.
Note 3 Securities
Available-for-Sale and Held-to-Maturity Securities
--------------------------------------------------
The following summarizes available-for-sale and held-to-maturity securities held
by the Company:
Available-for-Sale Securities
-------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 2007 (in thousands) Cost Gains Losses Value
-------------------------------------------------------------------------------------------
Obligations of U.S. Government
sponsored agencies $ 180,765 $ 1,025 $ 168 $ 181,622
Obligations of states and political
subdivisions 51,852 563 123 52,292
Mortgage-backed securities 381,290 2,395 1,460 382,225
U.S. corporate securities 2,500 0 0 2,500
-------------------------------------------------------------------------------------------
Total debt securities 616,407 3,983 1,751 618,639
Equity securities 20,509 0 0 20,509
-------------------------------------------------------------------------------------------
Total available-for-sale securities $ 636,916 $ 3,983 $ 1,751 $ 639,148
===========================================================================================
|
Available-for-sale securities include $20.4 million in nonmarketable equity
securities, which are carried at cost since fair values are not readily
determinable. This figure includes $17.6 million of Federal Home Loan Bank
("FHLB") stock and $729,000 of Federal Reserve Bank ("FRB") stock, which are
required to be held for regulatory purposes and for borrowings availability. The
required investment in FHLB stock is tied to the Company's borrowing levels with
the FHLB. Substantially all of the above mortgage-backed securities are direct
pass through securities or collateralized mortgage obligations issued or backed
by Federal agencies.
56
Note 3 Securities (continued)
Held-to-Maturity Securities
-------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 2007 (in thousands) Cost Gains Losses Value
-------------------------------------------------------------------------------------------
Obligations of states and political
subdivisions $ 49,593 $ 833 $ 129 $ 50,297
-------------------------------------------------------------------------------------------
Total held-to-maturity debt
securities $ 49,593 $ 833 $ 129 $ 50,297
===========================================================================================
|
Available-for-Sale Securities
-------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 2006 (in thousands) Cost Gains Losses Value
-------------------------------------------------------------------------------------------
Obligations of U.S. Government
sponsored agencies $ 241,600 $ 49 $ 3,981 $ 237,668
Obligations of states and political
subdivisions 47,791 523 290 48,024
Mortgage-backed securities 356,619 559 4,757 352,421
U.S. corporate securities 2,500 0 0 2,500
-------------------------------------------------------------------------------------------
Total debt securities 648,510 1,131 9,028 640,613
Equity securities 14,709 0 0 14,709
-------------------------------------------------------------------------------------------
Total available-for-sale securities $ 663,219 $ 1,131 $ 9,028 $ 655,322
===========================================================================================
|
Available-for-sale securities include $14.5 million in nonmarketable equity
securities, which are carried at cost since fair values are not readily
determinable. This figure includes $11.6 million of FHLB stock and $724,000 of
FRB stock, which are required to be held for regulatory purposes and for
borrowings availability. The required investment in FHLB stock is tied to the
Company's borrowing levels with the FHLB. Substantially all of the above
mortgage-backed securities are direct pass through securities or collateralized
mortgage obligations issued or backed by Federal agencies.
Held-to-Maturity Securities
-------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 2006 (in thousands) Cost Gains Losses Value
-------------------------------------------------------------------------------------------
Obligations of states and political
subdivisions $ 59,038 $ 897 $ 329 $ 59,606
-------------------------------------------------------------------------------------------
Total held-to-maturity debt
securities $ 59,038 $ 897 $ 329 $ 59,606
===========================================================================================
|
The amortized cost and estimated fair value of debt securities by contractual
maturity are shown in the following table. Expected maturities may differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties. Mortgage-backed
securities are shown separately since they are not due at a single maturity
date.
Amortized Fair
December 31, 2007 (in thousands) Cost Value
----------------------------------------------------------------------
Available-for-sale securities:
Due in one year or less $ 56,976 $ 56,912
Due after one year through five years 56,502 56,822
Due after five years through ten years 86,917 88,044
Due after ten years 34,722 34,636
----------------------------------------------------------------------
Total 235,117 236,414
----------------------------------------------------------------------
Mortgage-backed securities 381,290 382,225
----------------------------------------------------------------------
Total available-for-sale debt securities $ 616,407 $ 618,639
======================================================================
57
Note 3 Securities (continued)
Amortized Fair
December 31, 2007 (in thousands) Cost Value
----------------------------------------------------------------------
Held-to-maturity securities:
Due in one year or less $ 9,813 $ 9,829
Due after one year through five years 22,912 23,159
Due after five years through ten years 14,375 14,737
Due after ten years 2,493 2,572
----------------------------------------------------------------------
Total held-to-maturity debt securities $ 49,593 $ 50,297
======================================================================
Realized gains on available-for-sale securities were $424,000 in 2007, $15,000
in 2006, and $39,000 in 2005; realized losses on available-for-sale securities
were $39,000 in 2007, $0 in 2006, and $1,565,000 in 2005.
The following table summarizes available-for-sale and held-to-maturity
securities that had unrealized losses at December 31, 2007:
--------------------------------------------------------------------------------------------------------
Less than 12 Months 12 Months or Longer Total
--------------------------------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
(in thousands) Value Losses Value Losses Value Losses
--------------------------------------------------------------------------------------------------------
Obligations of U.S.
Government sponsored
agencies $ 8,837 $ 6 $ 42,913 $ 90 $ 51,750 $ 96
Obligations of states and
political subdivisions 7,956 76 20,992 176 28,948 252
Mortgage-backed securities 36,935 231 97,995 1,301 134,930 1,532
--------------------------------------------------------------------------------------------------------
Total securities $ 53,728 $ 313 $ 161,900 $ 1,567 $ 215,628 $ 1,880
========================================================================================================
|
The following table summarizes available-for-sale and held-to-maturity
securities that had unrealized losses at December 31, 2006:
--------------------------------------------------------------------------------------------------------
Less than 12 Months 12 Months or Longer Total
--------------------------------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
(in thousands) Value Losses Value Losses Value Losses
--------------------------------------------------------------------------------------------------------
Obligations of U.S.
Government sponsored
agencies $ 40,299 $ 171 $ 176,675 $ 3,810 $ 216,974 $ 3,981
Obligations of states and
political subdivisions 13,275 85 37,617 534 50,892 619
Mortgage-backed securities 100,649 496 188,086 4,261 288,735 4,757
--------------------------------------------------------------------------------------------------------
Total securities $ 154,223 $ 752 $ 402,378 $ 8,605 $ 556,601 $ 9,357
========================================================================================================
|
Declines in the fair value of held-to-maturity and available-for-sale securities
below their cost that are deemed to be other than temporary are reflected in
earnings as realized losses. In estimating other-than-temporary impairment
losses, management considers, among other things, (i) the length of time and the
extent to which the fair value has been less than cost, (ii) the financial
condition and near-term prospects of the issuer, and (iii) the intent and
ability of the Company to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair value, which could
be maturity.
Management has the ability and intent to hold the securities classified as
held-to-maturity until they mature, at which time the Company will receive full
value for the securities. Furthermore, as of December 31, 2007 and December 31,
2006, management also had the ability and intent to hold the securities
classified as available-for-sale for a period of time sufficient for a recovery
of cost, which could be maturity. The unrealized losses are largely due to
increases in market interest rates over the yields available at the time the
underlying securities were purchased. The fair value is expected to recover as
the bonds approach their maturity date or repricing date or if market yields for
similar investments decline. Management does not believe any of the securities
are impaired due to reasons of credit quality. Accordingly, as of December 31,
2007, and December 31, 2006, management believes the impairments detailed in the
tables above are temporary and no impairment loss has been realized in the
Company's Consolidated Statements of Income.
The Company pledges securities as collateral for public deposits and other
borrowings, and sells securities under agreements to repurchase (see Note 10
Securities Sold Under Agreements to Repurchase and Federal Funds Purchased).
Securities carried at $577.5 million and $584.0 million at December 31, 2007 and
2006, respectively, were either pledged or sold under agreements to repurchase.
58
Note 3 Securities (continued)
Except for U.S. government securities, there were no holdings, when taken in the
aggregate, of any single issuer that exceeded 10% of shareholders' equity at
December 31, 2007.
The Company has an equity investment in a small business investment company
(SBIC) established for the purpose of providing financing to small businesses in
market areas served by the Company. As of December 31, 2007 and 2006, this
investment totaled $3.4 million and $3.6 million, respectively, and was included
in other assets on the Company's Consolidated Statements of Condition. The
investment is accounted for under the equity method of accounting.
Trading Securities
------------------
The following summaries trading securities, at estimated fair value, as of
December 31, 2007 and 2006:
(in thousands) 2007 2006
--------------------------------------------------------------------------
Obligations of U.S. Government sponsored agencies $ 37,110 $ 0
Mortgage-backed securities 23,025 0
--------------------------------------------------------------------------
Total 60,135 0
==========================================================================
In the first quarter of 2007, the Company elected to apply the fair value option
for certain securities within its available-for-sale portfolio with an aggregate
cost basis of $65.9 million and an aggregate book value of $63.4 million as of
the January 1, 2007 date of adoption. Included in the $65.9 million were $40.6
million of U.S. Government agencies (total portfolio of $217.5 million) and
$25.3 million of mortgage-backed securities (total portfolio of $349.8 million).
The Company selected these securities based upon yield and average remaining
life. The securities selected had yields of less than 4.0% and average lives
greater than 1.5 years. As a result of the election to early adopt, the
cumulative unrealized loss related to these available-for-sale securities of
$2.5 million was recorded directly in the Company's financial statements as a
cumulative-effect adjustment, net of tax, to retained earnings. This net of tax
amount of $1.5 million was previously included within accumulated other
comprehensive loss as of December 31, 2006, based on the Company's ability and
intent to hold these securities to recovery. The Company changed its intent with
respect to these securities to enable the Company to record the losses directly
to retained earnings rather than current income based on the transition provided
and after evaluating various alternative investments that could have improved
returns and met certain liquidity objectives that more closely match the
Company's needs.
Tompkins sold the approximately $62.0 million in securities that were carried in
the Company's trading portfolio subsequent to the adoption of SFAS 159 and
reinvested the majority of the proceeds in securities designated as trading
securities. As of December 31, 2007, the Company's trading securities totaled
$60.1 million. The unrealized gain on the $60.1 million of trading securities
held at December 31, 2007 was $349,000. These mark-to-market adjustments are
reflected in the Company's Consolidated Statements of Income in "Mark-to-Market
Gain on Trading Securities."
The following table shows the fair value hierarchy required by SFAS 157.
Fair Value Measurements at December 31, 2007 Using
--------------------------------------------------------------------------------------------------------
Quoted Prices Significant
Carrying in Active Markets Significant Other Unobservable
Value for Identical Assets Observable Inputs Inputs
(In thousands) 12/31/07 (Level 1) (Level 2) (Level 3)
--------------------------------------------------------------------------------------------------------
Trading securities $ 60,135 $ 60,135 $ 0 $ 0
Available-for-sale securities 639,148 566,448 70,629 2,071
========================================================================================================
|
The change in the fair value of the $2.1 million of available-for-sale
securities valued using significant unobservable inputs (Level 3), between
January 1, 2007 and December 31, 2007 was immaterial in relation to the total
market value of available-for-sale securities.
59
Note 4 Comprehensive Income
Comprehensive income for the three years ended December 31 is summarized below:
(in thousands) 2007 2006 2005
-------------------------------------------------------------------------------------------------------
Net income $ 26,371 $ 27,767 $ 27,685
-------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available-for-sale securities:
Net unrealized holding gain (loss) on available-for-sale
securities arising during the year. Pre-tax net unrealized
holding gain (loss) was $7,977 in 2007 $2,632 in 2006,
$(13,490) in 2005. 4,786 1,579 (8,095)
Reclassification adjustment for net realized (gain) loss
on the sale of available-for-sale securities (pre-tax net
(gain) loss of $(384) in 2007, $(15) in 2006, and $1,526
in 2005). (230) (9) 916
Employee benefit plans:
Recognized actuarial losses, prior service cost, and transition
obligation (pre-tax of $1,299 in 2007, $0 in 2006,
and $0 in 2005 (491) 0 0
-------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 4,065 1,570 (7,179)
-------------------------------------------------------------------------------------------------------
Total comprehensive income $ 30,436 $ 29,337 $ 20,506
=======================================================================================================
|
The components of accumulated other comprehensive loss, net of tax, as of
year-end were are follows:
(in thousands) 2007 2006
-------------------------------------------------------------------------------------------------------
Net unfunded liability for defined benefit post-retirement plans (8,239) (7,748)
Net unrealized gain (loss) on available-for-sale securities 1,339 (4,739)
-------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive loss $ (6,900) $ (12,487)
=======================================================================================================
|
Note 5 Loan and Lease Classification Summary and Related Party Transactions
Loans and Leases at December 31 were as follows:
(in thousands) 2007 2006
--------------------------------------------------------------------------------------------------------
Residential real estate $ 504,353 $ 469,146
Commercial real estate 422,279 393,829
Real estate construction 43,002 26,130
Commercial 381,666 345,194
Consumer and other 80,730 82,341
Leases 10,832 11,962
--------------------------------------------------------------------------------------------------------
Total loans and leases 1,442,862 1,328,602
Less unearned income and net deferred costs and fees (2,740) (2,304)
--------------------------------------------------------------------------------------------------------
Total loans and leases, net of unearned income and deferred costs and fees $1,440,122 $ 1,326,298
========================================================================================================
|
As part of its asset/liability management strategy the Company may sell certain
residential mortgage loans in the secondary market. During 2007, 2006, and 2005,
the Company sold residential mortgage loans totaling $10.7 million, $12.5
million, and $16.5 million, respectively, and realized gains on these sales of
$159,000, $177,000, and $238,000, respectively. When residential mortgage loans
are sold or securitized, the Company typically retains all servicing rights,
which provides the Company with a source of fee income. In connection with the
sales in 2007, 2006, and 2005, the Company recorded mortgage-servicing assets of
$46,000, $294,000, and $98,000, respectively. As of December 31, 2007, the
Company serviced $154.5 million of residential loans for others compared to
$162.0 million at December 31, 2006.
Amortization of mortgage servicing assets amounted to $122,000 in 2007, $116,000
in 2006 and $127,000 in 2005. At December 31, 2007 and 2006, the Company
serviced residential mortgage loans aggregating $154.5 million and $162.0
million, including loans securitized and held as available-for-sale securities.
Mortgage servicing rights totaled $1.1 million at December 31, 2007 and 2006.
Loans held for sale, which are included in residential real estate in the table
above, totaled $482,000, and $169,000 at December 31, 2007 and 2006,
respectively. Residential mortgage loans secured in 2006 totaled $32.0 million.
No loans were securitized in 2007.
60
Note 5 Loan and Lease Classification Summary and Related Party Transactions
(continued)
As members of the FHLB, the Company's subsidiary banks may use unencumbered
mortgage related assets to secure borrowings from the FHLB. At December 31,
2007, the Company had $135.1 million in term advances from the FHLB that were
secured by residential mortgage loans.
The Company's loan and lease customers are located primarily in the upstate New
York communities served by its three subsidiary banks. The Trust Company
operates fourteen banking offices in the counties of Tompkins, Cayuga, Cortland,
and Schuyler, New York. The Bank of Castile operates fourteen banking offices in
towns situated in and around the areas commonly known as the Letchworth State
Park area and the Genesee Valley region of New York State. Mahopac National Bank
is located in Putnam County, New York, and operates five offices in that county,
three offices in neighboring Dutchess County, New York, and one office in
Westchester County, New York. Other than general economic risks, management is
not aware of any material concentrations of credit risk to any industry or
individual borrower.
Directors and officers of the Company and its affiliated companies were
customers of, and had other transactions with, the Company's banking
subsidiaries in the ordinary course of business. Such loans and commitments were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons,
and did not involve more than normal risk of collectibility or present other
unfavorable features.
Loan transactions with related parties are summarized as follows:
(in thousands) 2007 2006
----------------------------------------------------------------------------
Balance at beginning of year $ 11,031 $ 10,854
New Directors/Executive Officers 2,307 250
Former Directors/Executive Officers (42) (336)
New loans and advancements 1,945 2,383
Loan payments (2,588) (2,120)
----------------------------------------------------------------------------
Balance at end of year $ 12,653 $ 11,031
============================================================================
Note 6 Allowance for Loan and Lease Losses
Changes in the allowance for loan and lease losses are summarized as follows:
(in thousands) 2007 2006 2005
--------------------------------------------------------------------------
Allowance at beginning of year $ 14,328 $ 13,677 $ 12,549
Provisions charged to operations 1,529 1,424 2,659
Recoveries on loans and leases 510 491 706
Loans and leases charged-off (1,760) (1,264) (2,237)
--------------------------------------------------------------------------
Allowance at end of year $ 14,607 $ 14,328 $ 13,677
==========================================================================
The Company's recorded investment in loans and leases that are considered
impaired totaled $7.1 million at December 31, 2007 and $2.1 million at December
31, 2006. The average recorded investment in impaired loans and leases was $6.8
million in 2007, $2.0 million in 2006, $3.6 million in 2005. The December 31,
2007, recorded investment in impaired loans and leases includes $7.1 million of
loans and leases that had related allowances of $520,000. The December 31, 2006,
recorded investment in impaired loans and leases includes $1.3 million of loans
and leases that had related allowances of $322,000. Interest income recognized
on impaired loans and leases, all collected in cash, was $283,000 for 2007,
$92,000 for 2006, and $93,000 for 2005.
The principal balances of nonperforming loans and leases, including impaired
loans and leases, are detailed in the table below.
December 31
(in thousands) 2007 2006
----------------------------------------------------------------------------
Loans 90 days past due and accruing $ 312 $ 8
Nonaccrual loans 8,890 2,994
Troubled debt restructurings not included above 145 0
----------------------------------------------------------------------------
Nonperforming loans and leases $ 9,347 $ 3,002
============================================================================
61
Note 6 Allowance for Loan and Lease Losses (continued)
The difference between the interest income that would have been recorded if
these loans and leases had been paid in accordance with their original terms and
the interest income that recorded for the years ended December 31, 2007, 2006,
and 2005 was not significant.
Note 7 Goodwill and Other Intangible Assets
Information regarding the carrying amount and the amortization expense of the
Company's acquired intangible assets are disclosed in the tables below.
Gross Carrying Accumulated Net Carrying
December 31, 2007 (in thousands) Amount Amortization Amount
-------------------------------------------------------------------------------------------
Amortized intangible assets:
Core deposit intangible $ 5,459 $ 5,202 $ 257
Other intangibles 5,373 2,133 3,240
-------------------------------------------------------------------------------------------
Subtotal amortized intangible assets 10,832 7,335 3,497
Goodwill - Banking segment 7,100 1,723 5,377
Goodwill - Financial Services segment 17,818 301 17,517
-------------------------------------------------------------------------------------------
Subtotal goodwill 24,918 2,024 22,894
-------------------------------------------------------------------------------------------
Total intangible assets $ 35,750 $ 9,359 $ 26,391
-------------------------------------------------------------------------------------------
Gross Carrying Accumulated Net Carrying
December 31, 2006 (in thousands) Amount Amortization Amount
-------------------------------------------------------------------------------------------
Amortized intangible assets:
Core deposit intangible $ 5,459 $ 4,924 $ 535
Other intangibles 5,152 1,636 3,516
-------------------------------------------------------------------------------------------
Subtotal amortized intangible assets 10,611 6,560 4,051
Goodwill - Banking segment 7,100 1,723 5,377
Goodwill - Financial Services segment 16,159 301 15,858
-------------------------------------------------------------------------------------------
Subtotal goodwill 23,259 2,024 21,235
-------------------------------------------------------------------------------------------
Total intangible assets $ 33,870 $ 8,584 $ 25,286
===========================================================================================
|
The changes in the carrying amount of goodwill for the year ended December 31,
2007 are provided in the following table. The changes in goodwill were in the
Financial Services segment; there were no changes in goodwill in the Banking
segment.
Gross Carrying Net Carrying
(in thousands) Amount Amount
--------------------------------------------------------------------------------------------------------
Balance as of January 1, 2007 $ 23,259 $ 21,235
Goodwill acquired during the year 157 157
Goodwill related to acquisition of AM&M 1,531 1,531
Goodwill adjusted related to acquisition of Carey McKinney Group (29) (29)
--------------------------------------------------------------------------------------------------------
Balance as of December 31, 2007 $ 24,918 $ 22,894
========================================================================================================
|
At December 31, 2007, the Company had unamortized goodwill related to its
various acquisitions totaling $22.9 million compared with $21.2 million at
December 31, 2006. During 2007, the Company recorded additional goodwill of $1.5
million related to the acquisition of AM&M as the requirement for contingent
consideration was met resulting in additional consideration being paid. The
Company also recorded goodwill of $110,000 related to the acquisition of Flint
Farrell Agency, and $47,000 related to the acquisition of the assets of Francis
M. Celona, CPA, P.C. Goodwill recorded in the December 2006 acquisition of the
Carey McKinney Group was adjusted downward by $29,000 based on additional
information related to the valuation of certain assets acquired and liabilities
assumed.
At December 31, 2007 the Company had core deposit intangible assets related to
various acquisitions of $257,000 compared to $535,000 at December 31, 2006. The
amortization of these intangible assets amounted to $278,000 in 2007 and
$381,000 in 2006.
At December 31, 2007, other intangible assets, consisting of mortgage servicing
rights, customer lists and contracts, and covenants-not-to-compete, totaled $3.2
million compared with $3.5 million at December 31, 2006.
The Company reviews its goodwill and intangible assets annually, or more
frequently if conditions warrant, for impairment. Based on the Company's 2007
review, there was no impairment of its goodwill or intangible assets.
62
Note 7 Goodwill and Other Intangible Assets (continued)
Amortization expense related to other intangibles totaled $653,000 in 2007 and
$674,000 in 2006. The estimated aggregate future amortization expense for
intangible assets remaining as of December 31, 2007 is as follows:
Estimated amortization expense: *
For the year ended December 31, 2008 $535
For the year ended December 31, 2009 383
For the year ended December 31, 2010 275
For the year ended December 31, 2011 192
For the year ended December 31, 2012 153
==================================================================
*Excludes the amortization of mortgage servicing rights. Amortization of
mortgage servicing rights was $122,000, $116,000, and $127,000 in 2007, 2006,
and 2005, respectively.
Note 8 Premises and Equipment
Premises and equipment at December 31 were as follows:
(in thousands) 2007 2006
--------------------------------------------------------------------------------
Land $ 7,591 $ 7,611
Premises 47,473 41,122
Furniture, fixtures, and equipment 31,934 31,118
Accumulated depreciation and amortization (42,187) (36,578)
--------------------------------------------------------------------------------
Total $ 44,811 $ 43,273
================================================================================
Depreciation and amortization expenses in 2007, 2006, and 2005 are included in
operating expenses as follows:
(in thousands) 2007 2006 2005
--------------------------------------------------------------------------------
Premises $ 1,378 $ 1,148 $ 1,056
Furniture, fixtures, and equipment 2,431 2,390 2,172
--------------------------------------------------------------------------------
Total $ 3,809 $ 3,538 $ 3,228
================================================================================
The following is a summary of the future minimum lease payments under
non-cancelable operating leases as of December 31, 2007:
(in thousands)
---------------------------------------------------------
2008 $ 1,741
2009 1,551
2010 1,523
2011 1,016
2012 885
Thereafter 12,684
---------------------------------------------------------
Total $ 19,400
=========================================================
The Company leases land, buildings and equipment under operating lease
arrangements extending to the year 2090. Total rental expense amounted to $2.1
million in 2007, $1.7 million in 2006, and $1.1 million in 2005. Most leases
include options to renew for periods ranging from 5 to 20 years. Options to
renew are not included in the above future minimum rental commitments. The
Company has two land lease commitments with terms expiring in 2042 and 2090.
63
Note 9 Deposits
The aggregate time deposits of $100,000 or more were $245.4 million at December
31, 2007, and $313.1 million at December 31, 2006. Scheduled maturities of time
deposits at December 31, 2007, were as follows:
Less than $100,000
(in thousands) $100,000 and over Total
--------------------------------------------------------------------------
Maturity
Three months or less $ 124,443 $ 97,778 $ 222,221
Over three through six months 117,953 71,911 189,864
Over six through twelve months 69,477 70,835 140,312
--------------------------------------------------------------------------
Total due in 2008 311,873 240,524 552,397
2009 15,328 2,903 18,231
2010 4,200 1,560 5,760
2011 2,495 0 2,495
2012 3,720 0 3,720
2013 and thereafter 2,151 388 2,539
--------------------------------------------------------------------------
Total $ 339,767 $ 245,375 $ 585,142
==========================================================================
Note 10 Securities Sold Under Agreements to Repurchase and Federal Funds
Purchased
Information regarding securities sold under agreements to repurchase and Federal
funds purchased for the years ended December 31, is detailed in the tables
below:
Securities Sold Under Agreements to Repurchase
(dollar amounts in thousands) 2007 2006 2005
----------------------------------------------------------------------------------------------------
Total outstanding at December 31 $ 195,447 $ 191,490 $ 152,651
Maximum month-end balance 206,888 191,490 172,353
Average balance during the year 198,950 158,818 157,646
Weighted average rate at December 31 3.97% 3.92% 3.21%
Average interest rate paid during the year 4.08% 3.71% 3.07%
====================================================================================================
|
Federal Funds Purchased
(dollar amounts in thousands) 2007 2006 2005
----------------------------------------------------------------------------------------------------
Total outstanding at December 31 $ 0 $ 0 $ 0
Maximum month-end balance 6,800 3,500 3,000
Average balance during the year 176 328 171
Weighted average rate at December 31 N/A N/A N/A
Average interest rate paid during the year 5.39% 3.71% 3.25%
====================================================================================================
|
Securities sold under agreements to repurchase are secured borrowings that
typically mature within thirty to ninety days, although the Company has entered
into repurchase agreements with the Federal Home Loan Bank ("FHLB") with
maturities that extend through 2017. As of December 31, 2007, the Company had
$127.0 million in repurchase agreements with the FHLB, of which $107.0 million
mature over one year. Maturities of repurchase agreements due over one year
include $12.0 million in 2009, $15.0 million in 2010, $10.0 million in 2011,
$10.0 million in 2013, $5.0 million in 2014, $45.0 million in 2016, and $10.0
million in 2017.
Securities sold under agreements to repurchase are stated at the amount of cash
received in connection with the transaction. The Company may be required to
provide additional collateral based on the fair value of the underlying
securities.
Total securities sold under agreements to repurchase at December 31, 2007,
includes a $10.0 million, 3-year repo convertible FHLB advance at 5.046%,
convertible at the end of 1 year; and a $5.0 million, and a 7-year repo
convertible FHLB advance at 4.715%, convertible at the end of 3 years, where the
Company elected to apply the fair value option under SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities -- Including an
amendment of FASB Statement No. 115 ("SFAS 159"). The $15.0 million identified
for fair value were selected because their durations were similar to the
durations of trading securities. As of December 31, 2007, the aggregate fair
value of the $15.0 million of securities sold under agreements to repurchase was
$15.6 million. For the twelve months ended December 31, 2007, the fair value of
these borrowings decreased by $553,000. The change in fair value is included on
the Company's Consolidated Statements of Income in "Mark-to-Market (Loss) Gain
on Liabilities Held at Fair Value."
Federal funds purchased are short-term borrowings that typically mature within
one to ninety days.
64
Note 11 Other Borrowings
The following table summaries the Company's borrowings for the years ending
December 31, 2007 and 2006.
(in thousands) 2007 2006
--------------------------------------------------------------------------
Overnight FHLB advances $ 74,800 $ 40,500
Term FHLB advances 135,914 45,181
Other 148 260
--------------------------------------------------------------------------
Total borrowings $ 210,862 $ 85,941
==========================================================================
The Company, through its subsidiary banks, had available line-of-credit
agreements with banks permitting borrowings to a maximum of approximately $31.6
million at December 31, 2007 and $31.6 million at December 31, 2006. There were
no outstanding advances against those lines at December 31, 2006 or 2005.
Through its subsidiary banks, the Company has borrowing relationships with the
FHLB and correspondent banks, which provide secured and unsecured borrowing
capacity. At December 31, 2007, the unused borrowing capacity on established
lines with the FHLB was $348.6 million.
As members of the FHLB, the Company's subsidiary banks can use certain
unencumbered mortgage-related assets to secure additional borrowings from the
FHLB. At December 31, 2007, total unencumbered residential mortgage loans of the
Company were $200.0 million. Additional assets may also qualify as collateral
for FHLB advances upon approval of the FHLB. At December 31, 2007, there were
$135.9 million in term advances with the FHLB with a weighted average rate of
4.75% compared to $45.2 million at December 31, 2006 with a weighted average
rate of 4.46%. The $135.9 million of term advances with the FHLB at December 31,
2007, mature over one year. Maturities of advances due over one year include
$6.1 million in 2009, $10.0 million in 2010, $14.0 million in 2011, $25.0
million in 2012, $20.0 million in 2014, $10.8 million in 2015, and $50.0 million
in 2017.
The Company's FHLB borrowings at December 31, 2007 included $129.0 million in
fixed-rate callable borrowings, which can be called by the FHLB if certain
conditions are met. Additional details on the fixed-rate callable advances are
provided in the following table.
Current Call
Balance Rate Maturity Date Call Date Frequency Call Features
------------------------------------------------------------------------------------------------------
$ 10,000,000 4.945 December 21, 2010 March 21, 2008 Quarterly FHLB option
3,000,000 5.120 January 31, 2011 April 30, 2008 Quarterly FHLB option
3,000,000 4.880 January 31, 2011 April 30, 2008 Quarterly FHLB option
3,000,000 5.120 March 7, 2011 March 5, 2008 Quarterly FHLB option
5,000,000 4.710 November 28, 2011 February 28, 2008 Quarterly FHLB option
12,500,000 4.245 September 28, 2012 September 28, 2009 One time FHLB option
12,500,000 4.416 September 28, 2012 September 28, 2010 One time FHLB option
10,000,000 4.680 June 9, 2014 March 8, 2008 Quarterly FHLB option
10,000,000 4.756 June 9, 2014 June 8, 2008 Quarterly FHLB option
10,000,000 3.850 June 3, 2015 June 3, 2010 One time FHLB option
5,000,000 4.405 March 29, 2017 March 29, 2009 Quarterly Libor strike 6.0%
5,000,000 4.894 May 22, 2017 May 22, 2009 Quarterly Libor strike 7.0%
10,000,000 4.915 June 8, 2017 June 8, 2010 Quarterly FHLB option
10,000,000 5.135 June 8, 2017 June 8, 2008 Quarterly Libor strike 7.0%
10,000,000 5.189 June 8, 2017 June 8, 2012 Quarterly FHLB option
10,000,000 5.183 June 28, 2017 June 28, 2012 One time FHLB option
------------------------------------------------------------------------------------------------------
Total $ 129,000,000
======================================================================================================
|
Other borrowings included a Treasury Tax and Loan Note account with the Federal
Reserve Bank of New York totaling $100,000 at December 31, 2007 and 2006, and
borrowings from unrelated financial institutions totaling $48,000 and $160,000
at December 31, 2007 and 2006, respectively.
The Company elected to apply the fair value option for a $10.0 million, 10-year
fixed convertible FLHB advance at 5.183%, convertible at the end of 3 years with
a maturity of June 28, 2017. The $10.0 million advance identified for fair value
was selected because its duration was similar to the durations of trading
securities. As of December 31, 2007, the aggregate fair value of the $10.0
million FHLB advance was approximately $10.8 million. For the twelve months
ended December 31, 2007, the fair value of this advance decreased by $795,000.
The change in fair value is included on the Company's Consolidated Statements of
Income in "Mark-to-Market (Loss) Gain on Liabilities Held at Fair Value."
65
Note 11 Other Borrowings (continued)
The following table shows the fair value hierarchy required by SFAS 157.
Fair Value Measurements at December 31, 2007 Using
------------------------------------------------------------------
Quoted Prices Significant
Carrying in Active Markets Significant Other Unobservable
Value for Identical Assets Observable Inputs Inputs
(In thousands) 12/31/07 (Level 1) (Level 2) (Level 3)
-----------------------------------------------------------------------------------------------
Securities sold under
agreements to repurchase $ 15,553 $ 0 $ 15,553 $ 0
Other borrowings 10,795 0 10,795 0
===============================================================================================
|
Note 12 Employee Benefit Plans
The Company maintains a noncontributory defined-benefit retirement and pension
plan (the "Pension Plan") covering substantially all employees of the Company.
The benefits are based on years of service and percentage of the employees'
average compensation. Assets of the Company's Pension Plan are invested in
common and preferred stock, U. S. Government securities, corporate bonds and
notes, and mutual funds. At December 31, 2007, the plan assets included 38,357
shares of Tompkins common stock that had a fair value of $1.5 million.
The Company maintains supplemental employee retirement plans (the "SERP") for
certain executives. All benefits provided under the SERP are unfunded and the
Corporation makes payments to plan participants.
The Company also maintains a post-retirement life and healthcare benefit plan
(the "Life and Healthcare Plan"), which was amended in 2005. For employees
commencing employment after January 1, 2005, the Company does not contribute
towards the Life and Healthcare Plan. Retirees and employees who were eligible
to retire when the Life and Healthcare Plan was amended were unaffected.
Generally, all other employees were eligible for Health Savings Accounts ("HSA")
with an initial balance equal to the amount of the Company's estimated then
current liability. Contributions to the plan are limited to an annual
contribution of 4% of the total HSA balances. Employees, upon retirement, will
be able to utilize their HSA for qualified health costs and deductibles.
The Company accounts for the Pension Plan in accordance with Statement of
Financial Accounting Standard (SFAS) No. 87 "Employers' Accounting for
Pensions," and SFAS No. 88 "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," as
amended by SFAS No. 158 "Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans". SFAS No. 158 requires companies to reflect each
defined benefit and other postretirement benefits plan's funded status on the
company's balance sheet. The Company implemented these provisions for the year
ended December 31, 2006. The funded or unfunded status of the Pension Plan, Life
and Healthcare Plan, and the SERP are recognized in the accompanying
Consolidated Statements of Condition as other assets or other liabilities.
The Company engages independent, external actuaries to compute the amounts of
liabilities and expenses relating to these plans, subject to the assumptions
that the Company selects. The benefit obligation for these plans represents the
liability of the Company for current and retired employees, and is affected
primarily by the following: service cost (benefits attributed to employee
service during the period); interest cost (interest on the liability due to the
passage of time); actuarial gains/losses (experience during the year different
from that assumed and changes in plan assumptions); and benefits paid to
participants.
The following table sets forth the changes in the projected benefit obligation
for the Pension Plan and SERP and the accumulated benefit obligation for the
Life and Healthcare Plan; and the respective plan assets, and the plans' funded
status and amounts recognized in the Company's consolidated statements of
condition at December 31, 2007 and 2006 (the measurement dates of the plans).
66
Note 12 Employee Benefit Plans (continued)
Pension Plan Life and Healthcare Plan SERP Plan
--------------------------------------------------------------------------------------------------------
(in thousands) 2007 2006 2007 2006 2007 2006
--------------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at
beginning of year $ 34,088 $ 32,947 $ 5,111 $ 4,590 $ 7,767 $ 6,917
Service cost 1,872 1,577 120 108 173 70
Interest cost 2,049 1,865 306 260 484 438
Plan participants'
contributions 0 0 81 70 0 0
Actuarial loss (gain) 1,034 (1,348) (100) (148) 338 (254)
Benefits paid (1,474) (1,306) (273) (241) (256) (43)
Business combinations 0 0 0 472 0 0
Plan amendments 27 353 0 0 0 639
--------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 37,596 $ 34,088 $ 5,245 $ 5,111 $ 8,506 $ 7,767
--------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at
beginning of year $ 35,717 $ 33,064 $ 0 $ 0 $ 0 $ 0
Actual return on plan assets 2,164 3,959 0 0 0 0
Plan participants'
contributions 0 0 81 70 0 0
Employer contribution 0 0 192 171 256 43
Benefits paid (1,474) (1,306) (273) (241) (256) (43)
--------------------------------------------------------------------------------------------------------
Fair value of plan assets at
end of year $ 36,407 $ 35,717 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------------------------------------------------------
(Unfunded) funded status $ (1,189) $ 1,629 $ (5,245) $ (5,111) $ (8,506) $ (7,767)
========================================================================================================
|
The accumulated benefit obligation for the Pension Plan for 2007 and 2006 was
$36.1 million and $34.1 million, respectively. The accumulated benefit
obligation for the SERP for 2007 and 2006 was $5.5 million and $5.2 million,
respectively. The unfunded status of the pension, life and healthcare and SERP
plans has been recognized in other liabilities in the consolidated statement of
condition at December 31, 2007, in the amounts of $1.2 million, $5.2 million,
and $8.5 million, respectively. The funded status of the pension plan has been
recognized in other assets in the consolidated statement of condition at
December 31, 2006, in the amount of $1.6 million. The unfunded status of the
life and healthcare and SERP plans has been recognized in other liabilities in
the consolidated balance sheets at December 31, 2006, in the amounts of $5.1
million, and $7.8 million, respectively. An asset is recognized for an
overfunded plan and a liability is recognized for an underfunded plan.
Net periodic benefit cost and other comprehensive income includes the following
components:
(in thousands) Pension Plan Life and Healthcare Plan SERP Plan
--------------------------------------------------------------------------------------------------------
Components of net
periodic benefit cost 2007 2006 2005 2007 2006 2005 2007 2006 2005
--------------------------------------------------------------------------------------------------------
Service cost $ 1,872 $ 1,577 $ 1,624 $ 120 $ 108 $ 140 $ 173 $ 70 $ 122
Interest cost 2,049 1,865 1,746 306 260 272 484 438 414
Expected return on plan
assets (2,885) (2,754) (2,647) 0 0 0 0 0 0
Amortization of prior
service cost (107) (107) (131) 0 0 5 93 93 106
Recognized net actuarial
loss 577 716 669 0 0 0 92 111 111
Amortization of
transition liability 0 0 0 67 67 103 0 0 0
Other N/A N/A N/A N/A N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------------------
Net periodic benefit
cost $ 1,506 $ 1,297 $ 1,261 $ 493 $ 435 $ 520 $ 842 $ 712 $ 753
--------------------------------------------------------------------------------------------------------
Other changes in plan
assets and benefit
obligations recognized
in other comprehensive
income
--------------------------------------------------------------------------------------------------------
Net actuarial loss
(gain) $ 1,755 $ 0 $ 0 $ (99) $ 0 $ 0 $ 338 $ 0 $ 0
Recognized actuarial
loss (gain) (577) 0 0 0 0 0 (92) 0 0
Prior service cost
(credit) 27 0 0 0 0 0 0 0 0
Recognized prior
service cost (credit) 107 0 0 0 0 0 (93) 0 0
Recognized net initial
obligation 0 0 0 (67) 0 0 0 0 0
--------------------------------------------------------------------------------------------------------
Recognized in other
comprehensive income $ 1,312 $ 0 $ 0 $ (166) $ 0 $ 0 $ 153 $ 0 $ 0
--------------------------------------------------------------------------------------------------------
Total recognized in net
periodic benefit cost
and other
comprehensive income $ 2,818 $ 1,297 $ 1,261 $ 327 $ 435 $ 520 $ 995 $ 712 $ 753
========================================================================================================
|
67
Note 12 Employee Benefit Plans (continued)
Pre-tax amounts recognized as a component of accumulated other comprehensive
income as of year-end that have not been recognized as a component of the
Company's combined net periodic benefit cost of the Company's defined benefit
retirement and pension plan, post-retirement healthcare benefit plan and SERP
are presented in the following table.
Pension Plan Life and Healthcare Plan SERP Plan
--------------------------------------------------------------------------------------------------------
(in thousands) 2007 2006 2007 2006 2007 2006
--------------------------------------------------------------------------------------------------------
Net actuarial loss (gain) $ 11,857 $ 10,678 $ (204) $ (105) $ 1,906 $ 1,660
Prior service cost
(credit) (811) (944) 0 0 598 691
Unrecognized net initial
obligation 0 0 386 453 0 0
--------------------------------------------------------------------------------------------------------
Total $ 11,046 $ 9,734 $ 182 $ 348 $ 2,504 $ 2,351
========================================================================================================
|
The pre-tax amounts included in accumulated other comprehensive income that are
expected to be recognized in net periodic pension cost during the fiscal year
ended December 31, 2008 are shown below.
Life and
Pension Healthcare
(in thousands) Plan Plan SERP Plan
---------------------------------------------------------------------------------------
Actuarial loss $ 590 $ 0 $ 81
Prior service cost (105) 0 93
Net initial obligation 0 67 0
---------------------------------------------------------------------------------------
Total $ 485 $ 67 $ 174
=======================================================================================
|
Weighted-average assumptions used in accounting for the plans were as follows:
Pension Plan Life and Healthcare Plan SERP Plan
--------------------------------------------------------------------------------------------------------
2007 2006 2005 2007 2006 2005 2007 2006 2005
--------------------------------------------------------------------------------------------------------
Discount rates:
Benefit Cost for
Plan Year 6.00% 5.75% 6.00% 6.00% 5.75% 6.00% 6.00% 5.75% 6.00%
Benefit Obligation
at End of Plan Year 6.25% 6.00% 5.75% 6.25% 6.00% 5.75% 6.25% 6.00% 5.75%
Expected long-term
return on plan assets 8.25% 8.50% 8.50% N/A N/A N/A N/A N/A N/A
Rate of compensation
increase
Benefit Cost for Plan
Year (1) 5.00% 4.00% 4.00% 4.00% 4.00% 4.00% 5.00% 5.00% 5.00%
Benefit Obligation at
End of Plan Year 5.50% 4.00% 4.00% 5.50% 4.00% 4.00% 5.00% 5.00% 5.00%
========================================================================================================
|
Tompkins Trust Company offers post-retirement life and healthcare benefits,
although as previously mentioned, has discontinued adding participants to the
plan effective January 1, 2005. The weighted average annual assumed rate of
increase in the per capita cost of covered benefits (the health care cost trend
rate) is 8.25% beginning in 2007, and is assumed to decrease gradually to 5.0%
in 2012 and beyond. For every 1% change in the assumed health care cost trend
rate, service and interest costs will change approximately $18,000 and the
Company's benefit obligation will change approximately $189,000.
Pension Protection Act of 2006
In August 2006, the President of the United States signed the Pension Protection
Act of 2006 into law. Included in this legislation were changes to the method of
valuing pension plan assets and liabilities for funding purposes, as well as the
minimum funding levels required by 2008. The Company believes the new
requirements will not have a material impact on the Company's cash flow in 2008,
as the plan is currently fully funded. The Company will not be required to make
a contribution if plan assets exceed plan obligations and current costs.
Cash Flows
Plan assets are amounts that have been segregated and restricted to provide
benefits, and include amounts contributed by the Company and amounts earned from
investing contributions, less benefits paid. The Company funds the cost of the
SERP and the post-retirement medical and life insurance benefits on a
pay-as-you-go basis.
68
Note 12 Employee Benefit Plans (continued)
The benefits as of December 31, 2007, expected to be paid in each of the next
five fiscal years, and in the aggregate for the five fiscal years thereafter
were as follows:
Pension Life and
(in thousands) Plan Healthcare Plan SERP Plan
-------------------------------------------------------------------------------
2008 $ 1,578 $ 293 $ 267
2009 1,644 305 266
2010 1,831 331 264
2011 2,037 356 262
2012 2,202 362 287
2013-2017 13,842 1,996 1,847
-------------------------------------------------------------------------------
Total $23,134 $ 3,643 $ 3,193
===============================================================================
|
Plan Assets
The Company's defined benefit retirement and pension plan weighted-average asset
allocations at December 31, 2007 and 2006, by asset category are as follows:
2007 2006
----------------------------------------------------------------
Equity securities 71% 73%
Debt securities 25% 20%
Other 4% 7%
----------------------------------------------------------------
Total Allocation 100% 100%
================================================================
|
The Company is not required to make a contribution to its Pension Plan in 2008;
however, the Company expects to contribute $5.0 million to the Pension Plan
during the first quarter of 2008.
To develop the expected long-term rate of return on asset assumption, the
Company considered the historical returns and the future expectations for
returns for each asset class, as well as target asset allocations of the pension
portfolio. Based on this analysis, the Company selected 8.25% as the long-term
rate of return on assets assumption.
The discount rate used to determine the Company's pension and other
post-retirement benefit obligations as of December 31, 2007, and December 31,
2006, were determined by matching estimated benefit cash flows to a yield curve
derived from Citigroup's regular bond yield and above-median bond yield curve at
December 31, 2007.
It is the policy of the Trustees to invest the Pension Trust Fund (the "Fund")
for total return. The Trustees seek the maximum return consistent with the
interests of the participants and beneficiaries and prudent investment
management. The management of the Fund's assets is in compliance with the
guidelines established in the Company's Pension Plan and Trust Investment
Policy, which is reviewed and approved annually by the Tompkins Board of
Directors, and the Pension Investment Review Committee.
The intention is for the Fund to be prudently diversified. The Fund's
investments will be invested among the fixed income, equity and cash equivalent
sectors. The pension committee will designate minimum and maximum positions in
any of the sectors. In no case shall more than 10% of the Fund assets consist of
qualified securities or real estate of the Company. In addition, the following
investments are prohibited:
1. Restricted stock, private placements, short positions, calls,
puts, or margin transactions;
2. Commodities, oil and gas properties, real estate properties,
or
3. Any investment that would constitute a prohibited transaction
as described in the Employee Retirement Income Security Act of
1974 ("ERISA"), section 407, 29 U.S.C. 1106.
In general, the investment in debt securities is limited to readily marketable
debt securities having a Standard & Poor's rating of "A" or Moody's rating
of "A", securities of, or guaranteed by the United States Government or it
agencies, or obligations of banks or their holding companies that are rated in
the three highest ratings assigned by Fitch Investor Service, Inc. In addition,
investments in equity securities must be listed on the New York Stock Exchange
(NYSE), the American Stock Exchange (AMEX) or are traded on the national Over
The Counter market or listed on the NASDAQ. Cash equivalents generally may be
United States Treasury obligations, commercial paper having a Standard &
Poor's rating of "A-1" or Moody's National Credit Officer rating of "P-1"or
higher.
69
Note 12 Employee Benefit Plans (continued)
The Company has an Employee Stock Ownership Plan (ESOP) and a 401(k) Investment
and Stock Ownership Plan (ISOP) covering substantially all employees of the
Company. The ESOP allows for Company contributions in the form of common stock
of the Company. Annually, the Tompkins Board of Directors determines a
profit-sharing payout to its employees in accordance with a performance-based
formula. A percentage of the approved amount is paid in Company common stock
into the ESOP. Contributions are limited to a maximum amount as stipulated in
the ESOP. The remaining percentage is either paid out in cash or deferred into
the ISOP at the direction of the employee. Compensation expense related to the
ESOP and ISOP totaled $1.4 million in 2007, and $1.6 million in 2006 and 2005.
Under the ISOP, employees may contribute a percentage of their eligible
compensation with a Company match of such contributions up to a maximum match of
4%. The Company provided certain matching contributions to the ISOP based upon
the amount of contributions made by plan participants. The expense associated
with these matching provisions was $1.1 million in 2007, $1.0 million in 2006,
and $871,000 in 2005.
Life insurance benefits are provided to certain officers of the Company. In
connection with these benefits, the Company reflects life insurance assets on
its Consolidated Statements of Condition of $29.8 million at December 31, 2007,
and $25.6 million at December 31, 2006. The insurance is carried at its cash
surrender value on the Consolidated Statements of Condition. Increases in the
cash surrender value of the insurance are reflected as noninterest income, net
of any related mortality expense.
Note 13 Stock Plans and Stock Based Compensation
The Company's 2001 Stock Option Plan, as amended, (the "Stock Option Plan")
authorizes the grant of options to purchase up to 1,131,350 shares of the
Company's common stock. At December 31, 2007, there were 180,611 shares
available for grant under the 2001 Plan. The Board of Directors of Tompkins may
grant stock options to officers, employees and certain other qualified
individuals. Stock options are granted at an exercise price equal to the stock's
fair market value at the date of grant, may not have a term in excess of ten
years, and have vesting periods that range between one and seven years from the
grant date. Prior to the adoption of the Stock Option Plan, the Company had
similar stock option plans, which remain in effect solely with respect to
unexercised options issued under these plans.
The following table presents the activity related to options under all plans for
the twelve months ended December 31, 2007.
Weighted Average
Weighted Average Remaining Aggregate
Number of Shares Exercise Price Contractual Term Intrinsic Value
--------------------------------------------------------------------------------------------------------
Outstanding at January 1, 2007 700,877 $ 35.50
Granted 296,250 41.25
Exercised (44,186) 24.08
Expired (8,440) 38.95
Forfeited (5,885) 42.39
--------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2007 938,616 $ 37.78 7.19 $ 2,556,047
========================================================================================================
Exercisable at December 31, 2007 394,321 $ 32.54 4.88 $ 2,556,047
--------------------------------------------------------------------------------------------------------
|
The Company's practice is to issue original issue shares of its common stock
upon exercise of stock options rather than treasury shares. The Company granted
296,250 options to its employees in 2007, 234,465 in 2006, and 2,200 in 2005.
The Company uses the Black-Scholes option-valuation model to determine the fair
value of each option at the date of grant. This valuation model estimates fair
value based on the assumptions listed in the table below. The risk-free interest
rate is the interest rate available on zero-coupon U.S. Treasury instruments
with a remaining term equal to the expected term of the share option at the time
of grant. The expected dividend yield is based on dividend trends and the market
price of the Company's stock price at grant. Volatility is largely based on
historical volatility of the Company's stock price. Expected term is based upon
historical experience of employee exercises and terminations as well as the
vesting term of the grants.
2007 2006 2005
----------------------------------------------------------------------------------------------------
Weighted per share average fair value at grant date $ 11.19 $ 11.48 $ 10.10
Risk-free interest rate 3.55% 4.32% 4.20%
Expected dividend yield 3.12% 2.60% 2.60%
Volatility 32.97% 28.28% 30.00%
Expected life (years) 6.50 6.50 5.00
====================================================================================================
|
70
Note 13 Stock Plans and Stock Based Compensation (continued)
The total intrinsic value, which is the amount by which the fair value of the
underlying stock exceeds the exercise price of an option on the exercise date,
of options exercised was $780,000 in 2007, $2.3 million in 2006 and $1.0 million
in 2005.
As of December 31, 2007, unrecognized compensation cost related to unvested
stock options totaled $4.3 million. The cost is expected to be recognized over a
weighted average period of 5.6 years. The amount of cash received from the
exercise of stock options was $647,000 for 2007, $2.2 million for 2006 and
$825,000 for 2005, respectively. The tax benefit realized from stock options
exercised during 2007, 2006, and 2005 was $51,000, $410,000, and $239,000,
respectively.
The following summarizes outstanding and exercisable options at December 31,
2007:
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------------------
Range of Weighted Average Weighted Weighted
Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
-------------------------------------------------------------------------------------------------
$15.15-39.25 235,767 3.92 $ 27.97 235,767 $ 27.97
$39.34-39.45 192,869 6.23 $ 39.34 158,554 $ 39.34
$41.00-41.00 266,250 9.91 $ 41.00 0 $ 00.00
$42.39-42.39 243,730 8.15 $ 42.53 0 $ 00.00
-------------------------------------------------------------------------------------------------
938,616 7.19 $ 37.78 394,321 $ 32.54
=================================================================================================
|
Note 14 Income Taxes
The income tax expense (benefit) attributable to income from operations is
summarized as follows:
(in thousands) Current Deferred Total
-------------------------------------------------------------------------------------------------------
2007
Federal $ 12,806 $ (1,351) $ 11,455
State 714 (178) 536
-------------------------------------------------------------------------------------------------------
Total $ 13,520 $ (1,529) $ 11,991
-------------------------------------------------------------------------------------------------------
2006
Federal $ 13,468 $ (1,845) $ 11,623
State 1,512 (419) 1,093
-------------------------------------------------------------------------------------------------------
Total $ 14,980 $ (2,264) $ 12,716
-------------------------------------------------------------------------------------------------------
2005
Federal $ 13,927 $ (1,843) $ 12,084
State 1,502 (379) 1,123
-------------------------------------------------------------------------------------------------------
Total $ 15,429 $ (2,222) $ 13,207
=======================================================================================================
|
The primary reasons for the differences between income tax expense and the
amount computed by applying the statutory federal income tax rate to earnings
are as follows:
2007 2006 2005
------------------------------------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 0.9 1.8 1.8
Tax exempt income (3.2) (3.6) (3.6)
All other (1.4) (1.8) (0.9)
------------------------------------------------------------------------------------------------------
Total 31.3% 31.4% 32.3%
======================================================================================================
|
71
Note 14 Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 were as
follows:
(in thousands) 2007 2006
------------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan/lease losses $ 5,803 $ 5,668
Compensation and benefits 6,860 6,200
Other 2,704 1,712
------------------------------------------------------------------------------------------------------
Total deferred tax assets $ 15,367 $ 13,580
------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Prepaid pension $ 3,895 $ 4,521
Depreciation 382 581
Intangibles 499 668
Other 817 567
------------------------------------------------------------------------------------------------------
Total deferred tax liabilities $ 5,593 $ 6,337
------------------------------------------------------------------------------------------------------
Net deferred tax asset at year-end $ 9,774 $ 7,243
------------------------------------------------------------------------------------------------------
Net deferred tax asset at beginning of year $ 7,243 $ 5,438
------------------------------------------------------------------------------------------------------
Increase in net deferred tax asset 2,531 1,805
Purchase accounting adjustments, net (1,002) 459
------------------------------------------------------------------------------------------------------
Deferred tax benefit $ (1,529) $ (2,264)
======================================================================================================
|
This analysis does not include recorded deferred tax liabilities of $893,000 as
of December 31, 2007 and deferred tax assets of $3.2 million as of December 31,
2006 related to the net unrealized holding gain/loss in the available-for-sale
securities portfolio. In addition, the analysis excludes the recorded deferred
tax assets of $5.5 million and $4.7 million, as of December 31, 2007 and 2006,
respectively, related to the employee benefit plans.
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carry-back period. A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax assets will not be realized. In
assessing the need for a valuation allowance, management considers the scheduled
reversal of the deferred tax liabilities, the level of historical taxable
income, and the projected future taxable income over the periods in which the
temporary differences comprising the deferred tax assets will be deductible.
Based on its assessment, management determined that no valuation allowance is
necessary at December 31, 2007 and 2006.
The tax years open to examination by Federal taxing authorities are 2003 through
2006, and the tax years open to State taxing authorities are 2004 through 2006.
Note 15 Commitments and Contingent Liabilities
The Company, in the normal course of business, is a party to financial
instruments with off-balance-sheet risk to meet the financial needs of its
customers. These financial instruments include loan commitments, stand-by
letters of credit, and unused portions of lines of credit. The contract, or
notional amount, of these instruments represents the Company's involvement in
particular classes of financial instruments. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized on the consolidated statements of condition.
Financial Accounting Standards Board ("FASB") Interpretation No. 45 (FIN No.
45), Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others; an Interpretation of
FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34
requires certain disclosures and potential liability recognition for the fair
value at issuance of guarantees that fall within its scope. Based upon
management's interpretation of FIN No. 45, the Company currently does not issue
any guarantees that would require liability recognition under FIN No. 45, other
than standby letters of credit. The Company extends standby letters of credit to
its customers in the normal course of business. The standby letters of credit
are generally short-term. As of December 31, 2007, the Company's maximum
potential obligation under standby letters of credit was $52.2 million.
Management uses the same credit policies to extend standby letters of credit
that it uses for on-balance sheet lending decisions and may require collateral
to support standby letters of credit based upon its evaluation of the
counterparty. Management does not anticipate any significant losses as a result
of these transactions.
72
Note 15 Commitments and Contingent Liabilities (continued)
The Company's maximum potential obligations to extend credit for loan
commitments (unfunded loans, unused lines of credit, and stand-by letters of
credit) outstanding on December 31 were as follows:
(in thousands) 2007 2006
--------------------------------------------------------------------------------
Loan commitments $ 76,152 $ 72,504
Stand-by letter of credit 52,223 53,875
Undisbursed portion of lines of credit 272,219 240,325
--------------------------------------------------------------------------------
Total $ 400,594 $ 366,704
================================================================================
Commitments to extend credit (including lines of credit) are agreements to lend
to a customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Stand-by letters of credit
are conditional commitments to guarantee the performance of a customer to a
third party. Management uses the same credit policies in making commitments to
extend credit and stand-by letters of credit as are used for on-balance-sheet
lending decisions. Based upon management's evaluation of the counterparty, the
Company may require collateral to support commitments to extend credit and
stand-by letters of credit. The credit risk amounts are equal to the contractual
amounts, assuming the amounts are fully advanced and collateral or other
security is of no value. The Company does not anticipate losses as a result of
these transactions. These commitments also have off-balance-sheet interest-rate
risk, in that the interest rate at which these commitments were made may not be
at market rates on the date the commitments are fulfilled. Since some
commitments and stand-by letters of credit are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash flow requirements.
At December 31, 2007, the Company had rate lock agreements associated with
mortgage loans to be sold in the secondary market (certain of which relate to
loan applications for which no formal commitment has been made) amounting to
approximately $560,000. In order to limit the interest rate risk associated with
rate lock agreements, as well as the interest rate risk associated with
mortgages held for sale, if any, the Company enters into agreements to sell
loans in the secondary market to unrelated investors on a loan-by-loan basis. At
December 31, 2007, the Company had approximately $656,000 of commitments to sell
mortgages to unrelated investors on a loan-by-loan basis.
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, based upon the review with counsel,
the proceedings are not expected to have a material effect on the Company's
financial condition or results of operations.
In October 2007, Visa USA ("Visa") completed a reorganization in contemplation
of its initial public offering ("IPO") expected to occur in 2008. As part of
that reorganization, Tompkins and other member banks of Visa received shares of
common stock of Visa, Inc. Those banks are also obligated under various
agreements with Visa to share in losses stemming from certain litigation
("Covered Litigation"). Tompkins is not a named defendant in any of the Covered
Litigation. Although Visa is expected to set aside a portion of the proceeds
from its IPO in an escrow account to fund any judgments or settlements that may
arise out of the Covered Litigation, recent guidance from the Securities and
Exchange Commission ("SEC") indicates that Visa member banks should record a
liability for the fair value of the contingent obligation to Visa. The
estimation of the Company's proportionate share of any potential losses related
to the Covered Litigation is extremely difficult and involves a great deal of
judgment. Nevertheless, in the fourth quarter of 2007 the Company recorded a
pre-tax charge of $862,000 ($517,000 after tax effect) related to the Covered
Litigation. In accordance with GAAP and consistent with the SEC guidance, the
Company did not recognize any value for its common stock ownership interest in
Visa, Inc. While the Company expects that our proportional share of the proceeds
of Visa's IPO in 2008 will exceed the amount of the Company's charge, there can
be no assurance that the restructuring and initial public offering of Visa, Inc.
will be successful and that the shares of Visa, Inc. allocated to the Company
will have sufficient value to cover the Company's obligations under the
indemnification agreement. Furthermore, additional accruals may be required in
future periods should the Company's estimate of its obligations under the
indemnification agreement change.
73
Note 16 Earnings Per Share
Calculation of basic earnings per share (Basic EPS) and diluted earnings per
share (Diluted EPS) is shown below. Per share data has been retroactively
adjusted to reflect a 10% stock dividend paid on May 15, 2006.
Weighted
Net Average
For year ended December 31, 2007 Income Shares Per Share
(in thousands except share and per share data) (Numerator) (Denominator) Amount
-------------------------------------------------------------------------------------------------------
Basic EPS:
Income available to common shareholders $ 26,371 9,696,724 $ 2.72
Effect of dilutive securities:
Stock options 75,572
Shares issuable as contingent consideration
for acquisition 9,493
Diluted EPS:
Income available to common shareholders plus
assumed conversions $ 26,371 9,781,789 $ 2.70
=======================================================================================================
|
The effect of dilutive securities calculation for the year ended December 31,
2007, excludes stock options of 383,706 because they are anti-dilutive.
Weighted
Net Average
For year ended December 31, 2006 Income Shares Per Share
(in thousands except share and per share data) (Numerator) (Denominator) Amount
-------------------------------------------------------------------------------------------------------
Basic EPS:
Income available to common shareholders $ 27,767 9,857,787 $ 2.82
Effect of dilutive securities:
Stock options 130,997
10,581
Diluted EPS:
Income available to common shareholders plus
assumed conversions $ 27,767 9,999,365 $ 2.78
=======================================================================================================
|
The effect of dilutive securities calculation for the year ended December 31,
2006, excludes stock options of 206,378 because they are anti-dilutive.
Weighted
Net Average
For year ended December 31, 2005 Income Shares Per Share
(in thousands except share and per share data) (Numerator) (Denominator) Amount
-------------------------------------------------------------------------------------------------------
Basic EPS:
Income available to common shareholders $ 27,685 9,852,789 $ 2.81
Effect of dilutive securities:
Stock options 147,511
Diluted EPS:
Income available to common shareholders plus
assumed conversions $ 27,685 10,000,300 $ 2.77
=======================================================================================================
|
The effect of dilutive securities calculation for the year ended December 31,
2005, excludes stock options of 58,776 because they are anti-dilutive.
74
Note 17 Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 2007 and 2006. The carrying
amounts shown in the table are included in the consolidated statements of
condition under the indicated captions.
Estimated Fair Value of Financial Instruments 2007 2006
-------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
-------------------------------------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 49,859 $ 49,859 $ 52,174 $ 52,174
Securities - trading 60,135 60,135 0 0
Securities - available-for-sale 639,148 639,148 655,322 655,322
Securities - held-to-maturity 49,593 50,297 59,038 59,606
Loans and leases, net (1) 1,425,515 1,429,109 1,311,970 1,304,968
Accrued interest receivable 11,928 11,928 11,725 11,725
Financial Liabilities
Time deposits $ 585,142 $ 583,188 $ 669,222 $ 667,298
Other deposits 1,135,684 1,135,684 1,040,198 1,040,198
Securities sold under agreements to repurchase 179,894 179,153 191,490 188,375
Securities sold under agreements to repurchase
(valued at fair value) 15,553 15,553 0 0
Other borrowings 200,067 203,061 85,941 85,633
Other borrowings (valued at fair value) 10,795 10,795 0 0
Accrued interest payable 4,147 4,147 4,545 4,545
=======================================================================================================
|
(1) Lease receivables, although excluded from the scope of SFAS No. 107, are
included in the estimated fair value amounts at their carrying value.
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments.
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the consolidated
statements of condition for cash, noninterest-bearing deposits, and Federal
funds sold approximate the fair value of those assets.
SECURITIES: Fair values for securities are based on quoted market prices, where
available, as provided by third party pricing vendors. If quoted market prices
were not available, fair values are based on quoted market prices of comparable
instruments in active markets and/or based upon matrix pricing methodology,
which uses comprehensive interest rate tables to determine market price,
movement and yield relationships. The carrying amount of FHLB and FRB stock
approximates fair value. If the stock is redeemed, the Company will receive an
amount equal to the par value of the stock.
LOANS AND LEASES: The fair values of residential loans are estimated using
discounted cash flow analyses, based upon available market benchmarks for rates
and prepayment assumptions. The fair values of commercial and consumer loans are
estimated using discounted cash flow analyses, based upon interest rates
currently offered for loans and leases with similar terms and credit quality.
DEPOSITS: The fair values disclosed for noninterest bearing accounts and
accounts with no stated maturities are equal to the amount payable on demand at
the reporting date. The fair value of time deposits is based upon discounted
cash flow analyses using rates offered for FHLB advances, which is the Company's
primary alternative source of funds.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: The carrying amounts of
repurchase agreements and other short-term borrowings approximate their fair
values. Fair values of long-term borrowings are estimated using a discounted
cash flow approach, based on current market rates for similar borrowings. For
securities sold under agreements to repurchases where the Company has elected
the fair value option, the Company also receives pricing information from third
parties, including the FHLB.
OTHER BORROWINGS: The fair values of other borrowings are estimated using
discounted cash flow analysis, discounted at the Company's current incremental
borrowing rate for similar borrowing arrangements. For other borrowings where
the Company has elected the fair value option, the Company also receives pricing
information from third parties, including the FHLB.
OFF-BALANCE-SHEET INSTRUMENTS: The fair values of outstanding loan commitments,
including unused lines of credit and stand-by letters of credit are based on
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements, the counterparties' credit standing, and
discounted cash flow analyses. In fixed rate loan commitments, fair value
estimates also consider the difference between current market rates and the
committed rates. At December 31, 2007 and 2006, the fair values of these
instruments approximate the value of the related fees and are not significant.
75
Note 18 Regulations and Supervision
The Company and its subsidiary banks are subject to various regulatory capital
requirements administered by Federal bank regulatory agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material adverse effect on the Company's business, results of operation
and financial condition. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action (PCA), banks must meet specific
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. Capital amounts and classifications of the Company and its subsidiary
banks are also subject to qualitative judgments by regulators concerning
components, risk weightings, and other factors. Quantitative measures
established by regulation to ensure capital adequacy require the maintenance of
minimum amounts and ratios (set forth in the table below) of total capital and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital to average assets (as defined). Management
believes that the Company and its subsidiary banks meet all capital adequacy
requirements to which they are subject.
As of December 31, 2007, the most recent notifications from Federal bank
regulatory agencies categorized the Tompkins Trust Company, The Bank of Castile
and Mahopac National Bank as "well capitalized" under the regulatory framework
for PCA. To be categorized as well capitalized, the Company and its subsidiary
banks must maintain total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table below. There are no conditions or events since
that notification that management believes have changed the capital category of
the Company or its subsidiary banks. Actual capital amounts and ratios of the
Company and its subsidiary banks are as follows:
Required Required
to be to be
Actual Adequately Capitalized Well Capitalized
-------------------------------------------------------------------------------------------------------
(dollar amounts in thousands) Amount/Ratio Amount/Ratio Amount/Ratio
-------------------------------------------------------------------------------------------------------
December 31, 2007
Total Capital (to risk-weighted assets)
The Company (consolidated) $ 194,977/12.2% >$ 127,837/>8.0% >$ 159,797/>10.0%
Trust Company $ 93,009/12.8% >$ 57,981/>8.0% >$ 72,476/>10.0%
Castile $ 49,292/10.3% >$ 38,141/>8.0% >$ 47,676/>10.0%
Mahopac $ 40,048/10.3% >$ 30,994/>8.0% >$ 38,742/>10.0%
Tier I Capital (to risk-weighted assets)
The Company (consolidated) $ 180,236/11.3% >$ 63,919/>4.0% >$ 95,878/>6.0%
Trust Company $ 87,028/12.0% >$ 28,990/>4.0% >$ 43,485/>6.0%
Castile $ 43,729/9.2% >$ 19,070/>4.0% >$ 28,605/>6.0%
Mahopac $ 36,844/9.5% >$ 15,497/>4.0% >$ 23,245/>6.0%
Tier I Capital (to average assets)
The Company (consolidated) $ 180,236/7.9% >$ 68,809/>3.0% >$ 114,681/>5.0%
Trust Company $ 87,028/7.4% >$ 35,235/>3.0% >$ 58,725/>5.0%
Castile $ 43,729/6.8% >$ 19,202/>3.0% >$ 32,003/>5.0%
Mahopac $ 36,844/7.5% >$ 14,843/>3.0% >$ 24,738/>5.0%
=======================================================================================================
December 31, 2006
Total Capital (to risk-weighted assets)
The Company (consolidated) $ 193,830/13.1% > 118,458/>8.0% >$ 148,073/>10.0%
Trust Company $ 101,750/14.9% >$ 54,753/>8.0% >$ 68,441/>10.0%
Castile $ 46,604/10.7% >$ 34,724/>8.0% >$ 43,405/>10.0%
Mahopac $ 38,308/10.8% >$ 28,262/>8.0% >$ 35,327/>10.0%
Tier I Capital (to risk-weighted assets)
The Company (consolidated) $ 179,502/12.1% >$ 59,229/>4.0% >$ 88,844/>6.0%
Trust Company $ 95,928/14.0% >$ 27,377/>4.0% >$ 41,065/>6.0%
Castile $41,184/9.5% >$ 17,362/>4.0% >$ 26,043/>6.0%
Mahopac $ 35,222/10.0% >$ 14,131/>4.0% >$ 21,196/>6.0%
Tier I Capital (to average assets)
The Company (consolidated) $ 179,502/8.3% >$ 64,918/>3.0% >$ 108,197/>5.0%
Trust Company $ 95,928/8.5% >$ 33,815/>3.0% >$ 56,358/>5.0%
Castile $ 41,184/7.1% >$ 17,320/>3.0% >$ 28,866/>5.0%
Mahopac $ 35,222/7.5% >$ 14,111/>3.0% >$ 23,519/>5.0%
=======================================================================================================
|
76
Note 18 Regulations and Supervision (continued)
The above capital ratios exclude the impact of the adoption of SFAS 158,
"Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans." The federal bank regulatory agencies adopted on December 14, 2006, an
interim decision excluding any amounts recorded in accumulated other
comprehensive income (loss) resulting from the adoption of SFAS 158.
Generally, dividends from the banking subsidiaries to the Company are limited to
retained net profits for the current year and two preceding years, unless
specific approval is received from the appropriate bank regulatory authority. At
December 31, 2007 the retained net profits of the Company's bank subsidiaries
available to pay dividends were $15.6 million.
Each bank subsidiary is required to maintain reserve balances by the Federal
Reserve Bank of New York. At December 31, 2007, and 2006 the reserve
requirements for the Company's banking subsidiaries totaled $3,675,000.
Note 19 Condensed Parent Company Only Financial Statements
Condensed financial statements for Tompkins (the Parent Company) as of December
31 are presented below.
Condensed Statements of Condition
(in thousands) 2007 2006
-------------------------------------------------------------------------------------------------------
ASSETS
Cash $ 1,341 $ 11
Available-for-sale securities, at fair value 1,161 1,161
Investment in subsidiaries, at equity 189,528 185,057
Other 6,536 6,004
-------------------------------------------------------------------------------------------------------
Total Assets $ 198,566 $ 192,233
-------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS EQUITY
Liabilities $ 1,371 $ 2,613
Shareholders' Equity 197,195 189,620
-------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 198,566 $ 192,233
=======================================================================================================
|
Condensed Statements of Income
(in thousands) 2007 2006 2005
-------------------------------------------------------------------------------------------------------
Dividends from available-for-sale securities $ 2 $ 44 $ 4
Dividends received from subsidiaries 30,545 20,664 15,556
Other income 129 198 111
-------------------------------------------------------------------------------------------------------
Total Operating Income 30,676 20,906 15,671
-------------------------------------------------------------------------------------------------------
Other expenses 3,413 2,835 923
-------------------------------------------------------------------------------------------------------
Total Operating Expenses 3,413 2,835 923
Income Before Taxes and Equity in Undistributed 27,263 18,071 14,748
Earnings of Subsidiaries
Income tax benefit 1,330 1,108 331
(Distributions in excess of earnings of subsidiaries) equity in
undistributed earnings of subsidiaries (2,222) 8,588 12,606
-------------------------------------------------------------------------------------------------------
Net Income $ 26,371 $ 27,767 $ 27,685
=======================================================================================================
|
77
Note 19 Condensed Parent Company Only Financial Statements (continued)
Condensed Statements of Cash Flows
(in thousands) 2007 2006 2005
-------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 26,371 $ 27,767 $ 27,685
Adjustments to reconcile net income to net cash provided by
operating activities:
Distributions in excess of earnings of subsidiaries
(equity in undistributed earnings of 2,222 (8,588) (12,606)
subsidiaries)
Tax benefit of stock options exercised 0 0 239
Stock-based compensation expense 713 692 0
Other, net (3,658) (4,232) (537)
-------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 25,648 15,639 14,781
-------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net cash used in acquisitions 0 (1,693) 0
Other, net (43) (207) (1,250)
-------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (43) (1,900) (1,250)
-------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash dividends (12,023) (11,307) (10,504)
Cash paid in lieu of fractional shares - 10% stock dividend 0 (10) (13)
Repurchase of common shares (12,914) (9,983) (897)
Net proceeds from exercise of stock options 611 2,251 825
Tax benefits of stock options exercised 51 410 0
-------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (24,275) (18,639) (10,589)
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 1,330 (4,900) 2,942
Cash at beginning of year 11 4,911 1,969
-------------------------------------------------------------------------------------------------------
Cash at End of Year $ 1,341 $ 11 $ 4,911
=======================================================================================================
|
A statement of changes in shareholders' equity has not been presented since it
is the same as the Consolidated Statement of Changes in Shareholders' Equity
previously presented.
Note 20 Segment and Related Information
The Company manages its operations through two business segments: banking and
financial services. Financial services activities consist of the results of the
Company's trust, wealth and risk management operations. All other activities,
including holding company activities, are considered banking. The Company
accounts for intercompany fees and services at an estimated fair value according
to regulatory requirements for the services provided. Intercompany items relate
primarily to the use of human resources, accounting and marketing services
provided by any of the Banks and the holding company. All other accounting
policies are the same as those described in the summary of significant
accounting policies.
78
Note 20 Segment and Related Information (continued)
Summarized financial information concerning the Company's reportable segments
and the reconciliation to the Company's consolidated results is shown in the
following table. Investment in subsidiaries is netted out of the presentations
below. The "Intercompany" column identifies the intercompany activities of
revenues, expenses and other assets between the banking and financial services
segment.
As of and for the year ended December 31, 2007
-------------------------------------------------------------------------------------------------------
Financial
(in thousands) Banking Services Intercompany Consolidated
-------------------------------------------------------------------------------------------------------
Interest income $ 132,172 $ 324 $ (55) $ 132,441
Interest expense 58,457 10 (55) 58,412
Net interest income 73,715 314 0 74,029
-------------------------------------------------------------------------------------------------------
Provision for loan losses 1,529 0 0 1,529
Noninterest income 19,106 25,416 (473) 44,049
Noninterest expense 60,377 18,152 (473) 78,056
-------------------------------------------------------------------------------------------------------
Income before income taxes 30,915 7,578 0 38,493
-------------------------------------------------------------------------------------------------------
Minority interest 131 0 0 131
Provision for income taxes 9,257 2,734 0 11,991
-------------------------------------------------------------------------------------------------------
Net Income $ 21,527 $ 4,844 $ 0 $ 26,371
=======================================================================================================
-------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 4,103 $ 232 $ 0 $ 4,334
Assets 2,333,513 29,210 (3,264) 2,359,459
Goodwill 5,377 17,517 0 22,894
Other intangibles 1,340 2,157 0 3,497
Loans, net 1,422,098 3,417 0 1,425,515
Deposits 1,723,510 329 (3,013) 1,720,826
Equity 172,531 24,664 0 197,195
-------------------------------------------------------------------------------------------------------
|
As of and for the year ended December 31, 2006
-------------------------------------------------------------------------------------------------------
Financial
(in thousands) Banking Services Intercompany Consolidated
-------------------------------------------------------------------------------------------------------
Interest income $ 120,736 $ 311 $ (6) $ 121,041
Interest expense 48,179 11 (6) 48,184
-------------------------------------------------------------------------------------------------------
Net interest income 72,557 300 0 72,857
-------------------------------------------------------------------------------------------------------
Provision for loan losses 1,424 0 0 1,424
Noninterest income 19,635 21,689 (196) 41,128
Noninterest expense 56,788 15,355 (196) 71,947
-------------------------------------------------------------------------------------------------------
Income before income taxes 33,980 6,634 0 40,614
-------------------------------------------------------------------------------------------------------
Minority interest 131 0 0 131
Provision for income taxes 10,470 2,246 0 12,716
-------------------------------------------------------------------------------------------------------
Net Income $ 23,379 $ 4,388 $ 0 $ 27,767
=======================================================================================================
-------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 3,932 $ 223 $ 0 $ 4,155
Assets 2,183,880 28,455 (1,498) 2,210,837
Goodwill 5,377 15,858 0 21,235
Other intangibles 1,663 2,388 0 4,051
Loans, net 1,308,544 3,551 (125) 1,311,970
Deposits 1,708,792 1,984 (1,356) 1,709,420
Equity 168,178 21,442 0 189,620
-------------------------------------------------------------------------------------------------------
|
79
Note 20 Segment and Related Information (continued)
For the year ended December 31, 2005
-------------------------------------------------------------------------------------------------------
Financial
(in thousands) Banking Services Intercompany Consolidated
-------------------------------------------------------------------------------------------------------
Interest income $ 106,394 $ 320 $ (7) $ 106,707
Interest expense 31,686 7 (7) 31,686
-------------------------------------------------------------------------------------------------------
Net interest income 74,708 313 0 75,021
-------------------------------------------------------------------------------------------------------
Provision for loan losses 2,659 0 0 2,659
Noninterest income 17,946 12,922 (48) 30,820
Noninterest expense 53,546 8,661 (48) 62,159
-------------------------------------------------------------------------------------------------------
Income before income taxes 36,449 4,574 0 41,023
-------------------------------------------------------------------------------------------------------
Minority interest 131 0 0 131
Provision for income taxes 11,602 1,605 0 13,207
-------------------------------------------------------------------------------------------------------
Net Income $ 24,716 $ 2,969 $ 0 $ 27,685
=======================================================================================================
|
Unaudited Quarterly Financial Data
2007
-------------------------------------------------------------------------------------------------------
(in thousands except per share data) First Second Third Fourth
-------------------------------------------------------------------------------------------------------
Interest and dividend income $ 31,939 $ 33,146 $ 33,224 $ 34,132
Interest expense 14,376 14,656 14,721 14,659
Net interest income 17,563 18,490 18,503 19,473
Provision for loan/lease losses 471 192 387 479
Income before income tax 8,407 9,392 9,968 10,595
Net income 5,781 6,361 6,805 7,424
Net income per common share (basic) .59 .65 .71 .78
Net income per common share (diluted) .58 .65 .70 .77
=======================================================================================================
|
2006
-------------------------------------------------------------------------------------------------------
(in thousands except per share data) First Second Third Fourth
-------------------------------------------------------------------------------------------------------
Interest and dividend income $ 29,022 $ 29,739 $ 30,719 $ 31,561
Interest expense 10,303 11,670 12,615 13,596
Net interest income 18,719 18,069 18,104 17,965
Provision for loan/lease losses 459 74 482 409
Income before income tax 9,211 9,597 10,090 11,585
Net income 6,397 6,779 6,803 7,788
Net income per common share (basic) .64 .69 .69 .79
Net income per common share (diluted) .63 .68 .68 .78
=======================================================================================================
|
Per share data has been retroactively adjusted to reflect a 10% stock dividend
paid on May 15, 2006.
80
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management, including its Chief Executive Officer and Chief
Financial Officer evaluated the effectiveness of the design and operations of
the Company's disclosure controls and procedures (as defined in Rule 13a-15
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as
of December 31, 2007. Based upon that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer, concluded that as of the end of the period
covered by this Form 10-K, the Company's disclosure controls and procedures were
effective in providing reasonable assurance that 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 Commission's rules and forms and that
material information relating to the Company and its subsidiaries is made known
to management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding disclosure.
Management's Annual Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. As of
December 31, 2007, management assessed the effectiveness of the Company's
internal control over financial reporting based on the framework for effective
internal control over financial reporting established in "Internal Control -
Integrated Framework," issued by the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission. Based on its evaluation under the COSO
framework, management concluded that the Company's internal control over
financial reporting was effective as of December 31, 2007 to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external reporting purposes in accordance with
generally accepted accounting principles. The results of management's assessment
was reviewed with the Company's Audit Committee of its Board of Directors.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting
that occurred during the Company's fourth quarter ended December 31, 2007, that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated herein by reference to the
material under the captions "Proposal 1 - Election of Directors" and Section
16(a) Beneficial Ownership Reporting Compliance"; the discussion of the
Company's code of ethics under the caption "Corporate Governance Matters-Policy
Regarding Director Attendance at Annual Meetings"; the discussion of director
nominees by stockholders and the Audit/Examining Committee under the caption
"Board of Director Meetings and Committees" in the Company's definitive proxy
statement relating to its 2008 annual meeting of shareholders to be held May 5,
2008 (the "Proxy Statement"); and the material captioned "Executive Officers of
the Registrant" in Part I of this Report on Form 10-K.
81
Item 11. Executive Compensation
The information called for by this item is incorporated herein by reference to
the material under the captions, "Executive Compensation", "Compensation
Committee Interlocks and Insider Participation" and "Compensation Committee
Report" in the Proxy Statement.
The material incorporated herein by reference to the material under the caption
"Compensation Committee Report" in the Proxy Statement shall be deemed
furnished, and not filed, in this Report on Form 10-K and shall not be deemed
incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, as a result of this
furnishing, except to the extent that the Company specifically incorporates it
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information regarding stock-based compensation awards outstanding and available
for future grant as of December 31, 2007 is presented in the table below.
-------------------------------------------------------------------------------------------------------
Number of Securities
Number of Securities to Remaining Available For
be Issued Upon Exercise Weighted Average Future Issuance Under
of Outstanding Options, Exercise Price of Equity Compensation
Warrants Outstanding Options, Plans (excluding
and Rights Warrants and Rights Securities in Column (a)
Plan Category (a) (b) (c)
-------------------------------------------------------------------------------------------------------
Equity Compensation Plans
Approved by Security
Holders 938,616 $ 37.78 180,611
Equity Compensation Plans
Not Approved by Security
Holders 0 0 0
-------------------------------------------------------------------------------------------------------
|
Item 13. Certain Relationships and Related Transactions, and Director
Independence
The information called for by this item is incorporated herein by reference to
the material under the captions "Director Independence" and "Transactions with
Related Persons" in the Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information called for by this item is incorporated herein by reference to
the material under the caption "Independent Auditors" in the Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) The following financial statements and Report of KPMG are included
in this Annual Report on Form 10-K:
Report of KPMG LLP, Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Condition for the years ended December
31, 2007 and 2006
Consolidated Statements of Income for the years ended December 31,
2007, 2006, and 2005
82
Consolidated Statements of Cash Flows for the years ended December
31, 2007, 2006, and 2005
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 2007, 2006, and 2005
Notes to Consolidated Financial Statements
Unaudited Quarterly Financial Data
(a)(2) List of Financial Schedules
Not Applicable.
(a)(3) Exhibits
Item No. Description
2.1 Agreement and Plan of Reorganization, dated as of March 14,
1995, among the Bank, the Company and the Interim Bank
incorporated herein by reference to Exhibit 2 to the Company's
Registration Statement on Form 8-A (No. 0-27514), filed with the
Commission on December 29, 1995, and amended by the Company's
Form 8-A/A filed with the Commission of January 22, 1996.
2.2 Agreement and Plan of Reorganization, dated as of July 30, 1999
between the Company and Letchworth, incorporated by reference to
Annex A to the Company's Registration Statement of Form S-4
(Registration No. 333-90411), filed with the Commission of
November 5, 1999.
3.1 Certificate of Incorporation of the Company, incorporated herein
by reference to Exhibit 3.1 to the Company's Registration
Statement on Form 8-A (No. 0-27514), filed with the Commission
on December 29, 1995, as amended by Certificate of Amendment of
the Certificate of Incorporation of the Company filed in 1999,
as further amended by Certificate of Amendment of the
Certificate of Incorporation of the Company, filed with the
Company's Form 10-Q on August 9, 2007.
3.2 Bylaws of the Company, as amended through and including July 17,
2007, incorporated herein by reference to Exhibit 3(ii) to the
Company's Form 10-Q, filed with the Commission on August 9,
2007.
4. Form of Specimen Common Stock Certificate of the Company,
incorporated herein by reference to Exhibit 4 to the Company's
Registration Statement on Form 8-A (No. 0-27514), filed with the
Commission on December 29, 1995.
10.1* 1992 Stock Option Plan, incorporated herein by reference to
Exhibit 10.2 to the Company's Registration Statement on Form 8-A
(No. 0-27514), filed with the Commission on December 29, 1995.
10.2* Stock Retainer Plan for Eligible Directors of Tompkins Trustco,
Inc. and Participating Subsidiaries, incorporated herein by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K, filed with the Commission on May 15, 2005.
10.3* Form of Director Deferred Compensation Agreement, incorporated
herein by reference to Exhibit 10.4 to the Company's
Registration Statement on Form 8-A (No. 0-27514), filed with the
Commission on December 29, 1995.
10.4* Deferred Compensation Plan for Senior Officers, incorporated
herein by reference to Exhibit 10.5 to the Company's
Registration Statement on Form 8-A (No. 0-27514), filed with the
Commission on December 29, 1995
10.5* Supplemental Executive Retirement Agreement with James J.
Byrnes, incorporated herein by reference to Exhibit 10.6 to the
Company's Registration Statement on Form 8-A (No. 0-27514),
filed with the Commission on December 29, 1995.
10.6* Severance Agreement with James J. Byrnes, incorporated herein by
reference to Exhibit 10.7 to the Company's Registration
Statement on Form 8-A (No. 0-27514), filed with the Commission
on December 29, 1995.
10.7 Lease Agreement dated August 20, 1993, between Tompkins County
Trust Company and Comex Plaza Associates, relating to leased
property at the Rothschilds Building, Ithaca, NY, incorporated
herein by reference to Exhibit 10.8 to the Company's Form 10-K,
filed with the Commission on March 26, 1996.
83
10.8* Employment Agreement, dated September 12, 1989, by and between
Registrant and James W. Fulmer, incorporated by reference to the
Registrant's Amendment No. 1 to Form S-18 Registration Statement
(Reg. No. 33-3114-NY), filed with the Commission on October 31,
1989 and wherein such Exhibit is designated as Exhibit 10(a).
10.9* 2001 Stock Option Plan, incorporated herein by reference to
Exhibit 99 to the Company's Registration Statement on Form S-8
(No. 333-75822), filed with the Commission on December 12, 2001.
10.10* Mahopac National Bank Supplemental Executive Retirement
Agreement, dated May 15, 2000, by and between Mahopac National
Bank and Stephen E. Garner, incorporated by reference to Exhibit
10.32 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, filed with the Commission on March 29,
2002.
10.11* Summary of Compensation Arrangements for Named Executive
Officers and Directors, incorporated herein by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K, filed
with the Commission on January 26, 2007.
10.12* Supplemental Executive Retirement Agreement between James W.
Fulmer and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.13* Supplemental Executive Retirement Agreement between Stephen E.
Garner and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.14* Supplemental Executive Retirement Agreement between Stephen S.
Romaine and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.15* Supplemental Executive Retirement Agreement between Francis M.
Fetsko and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.16* Supplemental Executive Retirement Agreement between David S.
Boyce and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.17* Supplemental Executive Retirement Agreement between Robert B.
Bantle and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.18* Form of Officer Group Term Life Replacement Plan (the "Plan")
among Tompkins Trustco, Inc., or Tompkins Trust Company and the
Participants in the Plan, including form of Split Dollar Policy
Endorsement - Exhibit D to the Plan, including Exhibit D to
Officer Group Term Replacement Plan for each executive officer
filed individually.
10.19* Consulting Agreement between Russell K. Achzet and Tompkins
Trustco, Inc., dated January 5, 2006, incorporated herein by
reference to Exhibit 10.21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2005, filed with the
Commission on March 16, 2006.
10.20* Amendment to the Tompkins Trustco, Inc. Supplemental Retirement
Agreement with James J. Byrnes, incorporated herein by reference
to Exhibit 10.1 to the Company's Form 10-Q, filed with the
Commission on August 9, 2006.
10.21* Tompkins Trustco, Inc. Officer Group Term Replacement Plan, as
amended on June 26, 2006, incorporated herein by reference to
Exhibit 10.2 to the Company's Form 10-Q, filed with the
Commission on August 9, 2006.
10.22* Tompkins Financial Corporation Director Compensation for 2008
(filed herewith)
14. Tompkins Trustco, Inc. Code of Ethics For Chief Executive
Officer and Senior Financial Officers dated April 25, 2006,
incorporated herein by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2006, filed with the Commission on March 15, 2007.
84
21. Subsidiaries of Registrant, incorporated by reference to Exhibit
21 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2003, filed with the Commission on March 15,
2004.
23. Consent of Independent Registered Public Accounting Firm (filed
herewith)
24. Power of Attorney, included on page 86 of this Report on Form
10-K.
31.1 Certification of the Chief Executive Officer as required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
31.2 Certification of the Chief Financial Officer as required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
32.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
32.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
* Management contracts and compensatory plans and arrangements required to
be filed as Exhibits to this Report on Form 10-K pursuant to Item 15(c)
of the Report.
85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: Stephen S. Romaine
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 10, 2008
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, jointly and severally, Stephen S. Romaine and
Frank M. Fetsko, and each of them, as his or her true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him or
her, and in his or her name, place and stead, in any and all capacities, to sign
any amendments to this Report on Form 10-K, and to file the same, with Exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Date Capacity Signature Date Capacity
/S/ James J. Byrnes 3/10/08 Chairman of the Board /S/ Elizabeth W. Harrison 3/10/08 Director
---------------------- ------- --------------------------- -------
James J. Byrnes Elizabeth W. Harrison
/S/ Stephen S. Romaine 3/10/08 President and Chief /S/ Carl E. Haynes 3/10/08 Director
---------------------- ------- Executive Officer --------------------------- -------
Stephen S. Romaine (Principal Executive Carl E. Haynes
Officer)
/S/ Thomas R. Salm 3/10/08 Vice Chairman, /S/ Patricia A. Johnson 3/10/08 Director
---------------------- ------- Director --------------------------- -------
Thomas R. Salm Patricia A. Johnson
/S/ James W. Fulmer 3/10/08 Vice Chairman, /S/ Hunter R. Rawlings, III 3/10/08 Director
---------------------- ------- Director --------------------------- -------
James W. Fulmer Hunter R. Rawlings, III
/S/ Francis M. Fetsko 3/10/08 Executive Vice /S/ Michael D. Shay 3/10/08 Director
---------------------- ------- President and --------------------------- -------
Francis M. Fetsko Chief Financial Michael D. Shay
Officer (Principal
Financial Officer)
/S/ Russell K. Achzet 3/10/08 Director /S/ Michael H. Spain 3/10/08 Director
---------------------- ------- --------------------------- -------
Russell K. Achzet Michael H. Spain
/S/ John E. Alexander 3/10/08 Director /S/ William D. Spain, Jr. 3/10/08 Director
---------------------- ------- --------------------------- -------
John E. Alexander William D. Spain, Jr.
/S/ Reeder D. Gates 3/10/08 Director /S/ Craig Yunker 3/10/08 Director
---------------------- ------- --------------------------- -------
Reeder D. Gates Craig Yunker
/S/ James R. Hardie 3/10/08 Director
---------------------- -------
James R. Hardie
|
86
Exhibits Index
Item No. Description
2.1 Agreement and Plan of Reorganization, dated as of March 14,
1995, among the Bank, the Company and the Interim Bank
incorporated herein by reference to Exhibit 2 to the Company's
Registration Statement on Form 8-A (No. 0-27514), filed with the
Commission on December 29, 1995, and amended by the Company's
Form 8-A/A filed with the Commission of January 22, 1996.
2.2 Agreement and Plan of Reorganization, dated as of July 30, 1999
between the Company and Letchworth, incorporated by reference to
Annex A to the Company's Registration Statement of Form S-4
(Registration No. 333-90411), filed with the Commission of
November 5, 1999.
3.1 Certificate of Incorporation of the Company, incorporated herein
by reference to Exhibit 3.1 to the Company's Registration
Statement on Form 8-A (No. 0-27514), filed with the Commission
on December 29, 1995, as amended by Certificate of Amendment of
the Certificate of Incorporation of the Company filed in 1999,
as further amended by Certificate of Amendment of the
Certificate of Incorporation of the Company, filed with the
Company's Form 10-Q on August 9, 2007.
3.2 Bylaws of the Company, as amended through and including July 17,
2007, incorporated herein by reference to Exhibit 3(ii) to the
Company's Form 10-Q, filed with the Commission on August 9,
2007.
4. Form of Specimen Common Stock Certificate of the Company,
incorporated herein by reference to Exhibit 4 to the Company's
Registration Statement on Form 8-A (No. 0-27514), filed with the
Commission on December 29, 1995.
10.1* 1992 Stock Option Plan, incorporated herein by reference to
Exhibit 10.2 to the Company's Registration Statement on Form 8-A
(No. 0-27514), filed with the Commission on December 29, 1995.
10.2* Stock Retainer Plan for Eligible Directors of Tompkins Trustco,
Inc. and Participating Subsidiaries, incorporated herein by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K, filed with the Commission on May 15, 2005.
10.3* Form of Director Deferred Compensation Agreement, incorporated
herein by reference to Exhibit 10.4 to the Company's
Registration Statement on Form 8-A (No. 0-27514), filed with the
Commission on December 29, 1995.
10.4* Deferred Compensation Plan for Senior Officers, incorporated
herein by reference to Exhibit 10.5 to the Company's
Registration Statement on Form 8-A (No. 0-27514), filed with the
Commission on December 29, 1995
10.5* Supplemental Executive Retirement Agreement with James J.
Byrnes, incorporated herein by reference to Exhibit 10.6 to the
Company's Registration Statement on Form 8-A (No. 0-27514),
filed with the Commission on December 29, 1995.
10.6* Severance Agreement with James J. Byrnes, incorporated herein by
reference to Exhibit 10.7 to the Company's Registration
Statement on Form 8-A (No. 0-27514), filed with the Commission
on December 29, 1995.
10.7 Lease Agreement dated August 20, 1993, between Tompkins County
Trust Company and Comex Plaza Associates, relating to leased
property at the Rothschilds Building, Ithaca, NY, incorporated
herein by reference to Exhibit 10.8 to the Company's Form 10-K,
filed with the Commission on March 26, 1996.
10.8* Employment Agreement, dated September 12, 1989, by and between
Registrant and James W. Fulmer, incorporated by reference to the
Registrant's Amendment No. 1 to Form S-18 Registration Statement
(Reg. No. 33-3114-NY), filed with the Commission on October 31,
1989 and wherein such Exhibit is designated as Exhibit 10(a).
10.9* 2001 Stock Option Plan, incorporated herein by reference to
Exhibit 99 to the Company's Registration Statement on Form S-8
(No. 333-75822), filed with the Commission on December 12, 2001.
10.10* Mahopac National Bank Supplemental Executive Retirement
Agreement, dated May 15, 2000, by and between Mahopac National
Bank and Stephen E. Garner, incorporated by reference to Exhibit
10.32 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, filed with the Commission on March 29,
2002.
10.11* Summary of Compensation Arrangements for Named Executive
Officers and Directors, incorporated herein by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K, filed
with the Commission on January 26, 2007.
10.12* Supplemental Executive Retirement Agreement between James W.
Fulmer and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.13* Supplemental Executive Retirement Agreement between Stephen E.
Garner and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.14* Supplemental Executive Retirement Agreement between Stephen S.
Romaine and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.15* Supplemental Executive Retirement Agreement between Francis M.
Fetsko and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.16* Supplemental Executive Retirement Agreement between David S.
Boyce and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.17* Supplemental Executive Retirement Agreement between Robert B.
Bantle and Tompkins Trustco, Inc., dated December 28, 2005,
incorporated herein by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2005, filed with the Commission on March 16, 2006.
10.18* Form of Officer Group Term Life Replacement Plan (the "Plan")
among Tompkins Trustco, Inc., or Tompkins Trust Company and the
Participants in the Plan, including form of Split Dollar Policy
Endorsement - Exhibit D to the Plan, including Exhibit D to
Officer Group Term Replacement Plan for each executive officer
filed individually.
10.19* Consulting Agreement between Russell K. Achzet and Tompkins
Trustco, Inc., dated January 5, 2006, incorporated herein by
reference to Exhibit 10.21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2005, filed with the
Commission on March 16, 2006.
10.20* Amendment to the Tompkins Trustco, Inc. Supplemental Retirement
Agreement with James J. Byrnes, incorporated herein by reference
to Exhibit 10.1 to the Company's Form 10-Q, filed with the
Commission on August 9, 2006.
10.21* Tompkins Trustco, Inc. Officer Group Term Replacement Plan, as
amended on June 26, 2006, incorporated herein by reference to
Exhibit 10.2 to the Company's Form 10-Q, filed with the
Commission on August 9, 2006.
10.22* Tompkins Financial Corporation Director Compensation for 2008
(filed herewith)
14. Tompkins Trustco, Inc. Code of Ethics For Chief Executive
Officer and Senior Financial Officers dated April 25, 2006,
incorporated herein by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2006, filed with the Commission on March 15, 2007.
21. Subsidiaries of Registrant, incorporated by reference to Exhibit
21 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2003, filed with the Commission on March 15,
2004.
23. Consent of Independent Registered Public Accounting Firm (filed
herewith)
24. Power of Attorney, included on page 86 of this Report on Form
10-K.
31.1 Certification of the Chief Executive Officer as required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
31.2 Certification of the Chief Financial Officer as required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
32.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
32.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
* Management contracts and compensatory plans and arrangements required to
be filed as Exhibits to this Report on Form 10-K pursuant to Item 15(c)
of the Report.
P.O. Box 460, Ithaca, New York 14851
(607) 273-3210
www.tompkinsfinancialcorp.com
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