UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended June 30, 2008 |
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OR |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Tompkins Financial Corporation |
(Exact name of registrant as specified in its charter) |
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New York |
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16-1482357 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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The Commons, P.O. Box 460, Ithaca, NY |
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14851 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code: (607) 273-3210
Registrants former name (if changed since last report): NA
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer o |
Accelerated Filer x |
Non-Accelerated Filer o |
Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes o No x .
Indicate the number of shares of the Registrants Common Stock outstanding as of the latest practicable date:
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Class |
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Outstanding as of July 28, 2008 |
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Common Stock, $.10 par value |
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9,664,081 shares |
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TOMPKINS FINANCIAL CORPORATION
FORM 10-Q
INDEX
2
PART I - FINANCIAL INFORMATION
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Financial Statements |
TOMPKINS
FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data) (Unaudited)
See accompanying notes to unaudited condensed consolidated financial statements.
3
TOMPKINS
FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) (Unaudited)
|
|
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|
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|
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|
|
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Three months ended |
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Six months ended |
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||||||||
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06/30/2008 |
|
06/30/2007 |
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06/30/2008 |
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06/30/2007 |
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||||
INTEREST AND DIVIDEND INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
25,065 |
|
$ |
24,298 |
|
$ |
49,478 |
|
$ |
47,697 |
|
Due from banks |
|
|
27 |
|
|
59 |
|
|
104 |
|
|
154 |
|
Federal funds sold |
|
|
55 |
|
|
107 |
|
|
75 |
|
|
203 |
|
Trading securities |
|
|
467 |
|
|
607 |
|
|
1,093 |
|
|
1,176 |
|
Available-for-sale securities |
|
|
8,473 |
|
|
7,548 |
|
|
16,554 |
|
|
14,792 |
|
Held-to-maturity securities |
|
|
459 |
|
|
527 |
|
|
934 |
|
|
1,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest and Dividend Income |
|
|
34,546 |
|
|
33,146 |
|
|
68,238 |
|
|
65,085 |
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|
|
|
|
|
|
|
|
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|
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|
|
|
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INTEREST EXPENSE |
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Deposits: |
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|
|
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|
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|
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|
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Time certificates of deposits of $100,000 or more |
|
|
2,285 |
|
|
4,125 |
|
|
5,081 |
|
|
8,544 |
|
Other deposits |
|
|
6,394 |
|
|
7,696 |
|
|
13,556 |
|
|
15,123 |
|
Federal funds purchased and securities sold under agreements to repurchase |
|
|
1,986 |
|
|
2,037 |
|
|
4,022 |
|
|
4,000 |
|
Other borrowings |
|
|
1,971 |
|
|
798 |
|
|
3,836 |
|
|
1,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense |
|
|
12,636 |
|
|
14,656 |
|
|
26,495 |
|
|
29,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
21,910 |
|
|
18,490 |
|
|
41,743 |
|
|
36,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Less: Provision for loan/lease losses |
|
|
1,183 |
|
|
192 |
|
|
1,808 |
|
|
663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After Provision for Loan/Lease Losses |
|
|
20,727 |
|
|
18,298 |
|
|
39,935 |
|
|
35,389 |
|
|
|
|
|
|
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|
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|
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|||||||||||||
NONINTEREST INCOME |
|
|
|
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|
|
|
|
|
|
|
|
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Investment services income |
|
|
3,568 |
|
|
3,538 |
|
|
7,237 |
|
|
7,008 |
|
Insurance commissions and fees |
|
|
2,936 |
|
|
2,814 |
|
|
5,726 |
|
|
5,530 |
|
Service charges on deposit accounts |
|
|
2,467 |
|
|
2,805 |
|
|
4,992 |
|
|
4,728 |
|
Card services income |
|
|
979 |
|
|
905 |
|
|
1,781 |
|
|
1,702 |
|
Other service charges |
|
|
575 |
|
|
639 |
|
|
1,196 |
|
|
1,298 |
|
Mark-to-market (loss) on trading securities |
|
|
(670 |
) |
|
(577 |
) |
|
(375 |
) |
|
(125 |
) |
Mark-to-market gain (loss) on liabilities held at fair value |
|
|
889 |
|
|
(23 |
) |
|
41 |
|
|
(23 |
) |
Increase in cash surrender value of corporate owned life insurance |
|
|
352 |
|
|
283 |
|
|
689 |
|
|
556 |
|
Gains on sale of loans |
|
|
44 |
|
|
42 |
|
|
41 |
|
|
97 |
|
Gain on VISA stock redemption |
|
|
0 |
|
|
0 |
|
|
1,639 |
|
|
0 |
|
Other income |
|
|
254 |
|
|
392 |
|
|
696 |
|
|
469 |
|
Net gain (loss) on sale of available-for-sale securities |
|
|
159 |
|
|
(17 |
) |
|
406 |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest Income |
|
|
11,553 |
|
|
10,801 |
|
|
24,069 |
|
|
21,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and wages |
|
|
9,787 |
|
|
8,770 |
|
|
19,157 |
|
|
17,572 |
|
Pension and other employee benefits |
|
|
2,484 |
|
|
2,611 |
|
|
5,179 |
|
|
5,114 |
|
Net occupancy expense of bank premises |
|
|
1,747 |
|
|
1,543 |
|
|
3,367 |
|
|
3,048 |
|
Furniture and fixture expense |
|
|
1,153 |
|
|
999 |
|
|
2,077 |
|
|
1,946 |
|
Marketing expense |
|
|
876 |
|
|
544 |
|
|
1,438 |
|
|
1,180 |
|
Professional fees |
|
|
738 |
|
|
910 |
|
|
1,366 |
|
|
1,560 |
|
Software licenses and maintenance |
|
|
780 |
|
|
503 |
|
|
1,388 |
|
|
1,003 |
|
Cardholder expense |
|
|
197 |
|
|
256 |
|
|
491 |
|
|
491 |
|
Amortization of intangible assets |
|
|
214 |
|
|
162 |
|
|
362 |
|
|
343 |
|
Other operating expense |
|
|
3,782 |
|
|
3,376 |
|
|
7,314 |
|
|
6,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest Expenses |
|
|
21,758 |
|
|
19,674 |
|
|
42,139 |
|
|
38,772 |
|
|
|
|
|
|
|
|
|
|
|
|
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Income Before Income Tax Expense and Minority |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest in Consolidated Subsidiaries |
|
|
10,522 |
|
|
9,425 |
|
|
21,865 |
|
|
17,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in consolidated subsidiaries |
|
|
115 |
|
|
33 |
|
|
147 |
|
|
65 |
|
Income Tax Expense |
|
|
3,288 |
|
|
3,031 |
|
|
7,091 |
|
|
5,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
7,119 |
|
$ |
6,361 |
|
$ |
14,627 |
|
$ |
12,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share |
|
$ |
0.74 |
|
$ |
0.65 |
|
$ |
1.52 |
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share |
|
$ |
0.73 |
|
$ |
0.65 |
|
$ |
1.50 |
|
$ |
1.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
|
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|
Six months ended |
|
||||
|
|
06/30/2008 |
|
06/30/2007 |
|
||
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|
||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net income |
|
$ |
14,627 |
|
$ |
12,141 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
1,808 |
|
|
663 |
|
Depreciation and amortization premises, equipment, and software |
|
|
2.400 |
|
|
2,222 |
|
Amortization of intangible assets |
|
|
362 |
|
|
343 |
|
Earnings from corporate owned life insurance |
|
|
(689 |
) |
|
(556 |
) |
Net amortization on securities |
|
|
643 |
|
|
703 |
|
Mark-to-market loss on trading securities |
|
|
375 |
|
|
125 |
|
Mark-to-market (gain) loss on liabilities held at fair value |
|
|
(41 |
) |
|
23 |
|
Net gain on sale of available-for-sale securities |
|
|
(406 |
) |
|
(6 |
) |
Net gain on sale of loans |
|
|
(41 |
) |
|
(97 |
) |
Proceeds from sale of loans |
|
|
5,621 |
|
|
5,176 |
|
Loans originated for sale |
|
|
(5,405 |
) |
|
(4,970 |
) |
Net (gain) loss on sale of bank premises and equipment |
|
|
(13 |
) |
|
24 |
|
Stock-based compensation expense |
|
|
458 |
|
|
353 |
|
Decrease (increase) in accrued interest receivable |
|
|
507 |
|
|
(279 |
) |
(Decrease) increase in accrued interest payable |
|
|
(514 |
) |
|
273 |
|
Purchases of trading securities |
|
|
(3,998 |
) |
|
(63,143 |
) |
Payments/maturities from trading securities |
|
|
23,490 |
|
|
2,361 |
|
Proceeds from sale of trading securities |
|
|
0 |
|
|
61,533 |
|
Contribution to pension plan |
|
|
(5,000 |
) |
|
0 |
|
Other, net |
|
|
2,526 |
|
|
(3,418 |
) |
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities |
|
|
36,710 |
|
|
13,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Proceeds from maturities of available-for-sale securities |
|
|
151,807 |
|
|
48,229 |
|
Proceeds from sales of available-for-sale securities |
|
|
46,878 |
|
|
12,454 |
|
Proceeds from maturities of held-to-maturity securities |
|
|
10,640 |
|
|
10,988 |
|
Purchases of available-for-sale securities |
|
|
(272,965 |
) |
|
(76,297 |
) |
Purchases of held-to-maturity securities |
|
|
(9,947 |
) |
|
(3,152 |
) |
Net increase in loans |
|
|
(62,783 |
) |
|
(35,860 |
) |
Proceeds from sale of bank premises and equipment |
|
|
9 |
|
|
67 |
|
Purchases of bank premises and equipment |
|
|
(1,740 |
) |
|
(3,072 |
) |
Net cash acquired in acquisition |
|
|
12,476 |
|
|
0 |
|
Other, net |
|
|
(103 |
) |
|
0 |
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities |
|
|
(125,728 |
) |
|
(46,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Net increase in demand, money market, and savings deposits |
|
|
112,209 |
|
|
26,422 |
|
Net decrease in time deposits |
|
|
(4,828 |
) |
|
(37,699 |
) |
Net increase (decrease) in securities sold under agreements to repurchase and Federal funds purchased |
|
|
8,233 |
|
|
(2,506 |
) |
Increase in other borrowings |
|
|
56,700 |
|
|
115,800 |
|
Repayment of other borrowings |
|
|
(74,876 |
) |
|
(45,595 |
) |
Cash dividends |
|
|
(6,149 |
) |
|
(5,882 |
) |
Common stock repurchased and returned to unissued status |
|
|
0 |
|
|
(8,332 |
) |
Net proceeds from exercise of stock options |
|
|
2,603 |
|
|
392 |
|
Tax benefit from stock options exercises |
|
|
377 |
|
|
13 |
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities |
|
|
94,269 |
|
|
42,613 |
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents |
|
|
5,251 |
|
|
9,441 |
|
Cash and cash equivalents at beginning of period |
|
|
49,859 |
|
|
52,174 |
|
|
|
|
|
|
|
|
|
Total Cash & Cash Equivalents at End of Period |
|
$ |
55,110 |
|
$ |
61,615 |
|
|
|
|
|
|
|
|
|
Supplemental Information: |
|
|
|
|
|
|
|
Cash paid during the year for - Interest |
|
$ |
27,009 |
|
$ |
28,760 |
|
Cash paid during the year for Taxes |
|
$ |
9,713 |
|
$ |
8,583 |
|
Transfer of available-for-sale securities to trading securities with adoption of SFAS No. 159 |
|
$ |
0 |
|
$ |
63,383 |
|
Fair value of assets acquired in purchase acquisition |
|
$ |
269,061 |
|
$ |
0 |
|
Fair value of liabilities assumed in purchase acquisition |
|
$ |
238,627 |
|
$ |
0 |
|
See accompanying notes to unaudited condensed consolidated financial statements .
5
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(In thousands, except share data) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
Common
|
|
Additional
|
|
Retained
|
|
Accumulated
|
|
Treasury
|
|
Total |
|
||||||
|
|||||||||||||||||||
Balances
at
|
|
$ |
989 |
|
$ |
158,203 |
|
$ |
44,429 |
|
($ |
12,487 |
) |
($ |
1,514 |
) |
$ |
189,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
12,141 |
|
|
|
|
|
|
|
|
12,141 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
(3,267 |
) |
|
|
|
|
(3,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.60 per share) |
|
|
|
|
|
|
|
|
(5,882 |
) |
|
|
|
|
|
|
|
(5,882 |
) |
Exercise of stock options and related tax benefit (26,403 shares, net) |
|
|
3 |
|
|
402 |
|
|
|
|
|
|
|
|
|
|
|
405 |
|
Common stock repurchased and returned to unissued status (212,279 shares) |
|
|
(21 |
) |
|
(8,311 |
) |
|
|
|
|
|
|
|
|
|
|
(8,332 |
) |
Directors deferred compensation plan (2,968 shares, net) |
|
|
|
|
|
127 |
|
|
|
|
|
|
|
|
(127 |
) |
|
0 |
|
Stock-based compensation expense |
|
|
|
|
|
353 |
|
|
|
|
|
|
|
|
|
|
|
353 |
|
Cumulative effect adjustment adoption of SFAS 159 |
|
|
|
|
|
|
|
|
(1,522 |
) |
|
1,522 |
|
|
|
|
|
0 |
|
Shares issued for purchase acquisition (2,812 shares) |
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2007 |
|
$ |
971 |
|
$ |
150,785 |
|
$ |
49,166 |
|
($ |
14,232 |
) |
($ |
1,641 |
) |
$ |
185,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at
|
|
$ |
962 |
|
$ |
147,657 |
|
$ |
57,255 |
|
($ |
6,900 |
) |
($ |
1,779 |
) |
$ |
197,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
14,627 |
|
|
|
|
|
|
|
|
14,627 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
(5,312 |
) |
|
|
|
|
(5,312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.64 per share) |
|
|
|
|
|
|
|
|
(6,149 |
) |
|
|
|
|
|
|
|
(6,149 |
) |
Exercise of stock options and related tax benefit (82,511 shares, net) |
|
|
9 |
|
|
2,971 |
|
|
|
|
|
|
|
|
|
|
|
2,980 |
|
Directors deferred compensation plan (2,513 shares, net) |
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
(153 |
) |
|
0 |
|
Stock-based compensation expense |
|
|
|
|
|
458 |
|
|
|
|
|
|
|
|
|
|
|
458 |
|
Cumulative effect adjustment split-dollar life insurance |
|
|
|
|
|
|
|
|
(582 |
) |
|
|
|
|
|
|
|
(582 |
) |
Reduction in shares issued for purchase acquisition (-2,748 shares) |
|
|
(1 |
) |
|
79 |
|
|
|
|
|
|
|
|
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2008 |
|
$ |
970 |
|
$ |
151,318 |
|
$ |
65,151 |
|
($ |
12,212 |
) |
($ |
1,932 |
) |
$ |
203,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements .
6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Headquartered in Ithaca, New York, Tompkins Financial Corporation (Tompkins or the Company) is registered as a financial holding company with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. The Company conducts its business through its (i) three wholly-owned banking subsidiaries, Tompkins Trust Company, The Bank of Castile and The Mahopac National Bank (Mahopac National Bank), (ii) wholly-owned insurance subsidiary, Tompkins Insurance Agencies, Inc., and (iii) wholly-owned investment services subsidiary, AM&M Financial Services, Inc. (AM&M). 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 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. Unless the context otherwise requires, the term Company refers to Tompkins Financial Corporation and its subsidiaries. The Companys principal offices are located at The Commons, Ithaca, New York 14851, and its telephone number is (607) 273-3210. The Companys common stock is traded on the American Stock Exchange under the Symbol TMP.
2. Basis of Presentation
The unaudited condensed consolidated financial statements included in this quarterly report have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. In the application of certain accounting policies management is required to make assumptions regarding the effect of matters that are inherently uncertain. These estimates and assumptions affect the reported amounts of certain assets, liabilities, revenues, and expenses in the unaudited condensed consolidated financial statements. Different amounts could be reported under different conditions, or if different assumptions were used in the application of these accounting policies. The accounting policies that management considers critical in this respect are the determination of the allowance for loan and lease losses, and the expenses and liabilities associated with the Companys pension and post-retirement benefits.
In managements opinion, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year ended December 31, 2008. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2007. The Company adopted Financial Accounting Standards Board Emerging Issues Task Force (EITF) Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements , effective January 1, 2008. Other than the adoption of this EITF, there have been no significant changes to the Companys accounting policies from those presented in the 2007 Annual Report on Form 10-K.
The consolidated financial information included herein combines the results of operations, the assets, liabilities, and shareholders equity of the Company and its subsidiaries. Amounts in the prior periods consolidated financial statements are reclassified when necessary to conform to the current periods presentation. All significant intercompany balances and transactions are eliminated in consolidation.
3. Accounting Pronouncements
In September 2006, the Emerging Issues Task Force (EITF) reached a final consensus on Issue 06-4, 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 06-4 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 adopted EITF 06-4 on January 1, 2008 as a change in accounting principle through a cumulative-effect adjustment to retained earnings of $582,000.
7
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 a 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 Companys financial statements.
In March 2008, the FASB issued SFAS No. 161 , Disclosures About Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133. SFAS 161 amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities, to amend and expand the disclosure requirements of SFAS 133 to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entitys financial position, results of operations and cash flows. To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for the Company on January 1, 2009 and is not expected to have a significant impact on the Companys financial statements.
On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings (SAB No. 109). SAB No. 109 supersedes SAB 105, Application of Accounting Principles to Loan Commitments , and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The guidance in SAB No. 109 became effective on January 1, 2008 and did not have a material impact on the Corporations financial statements.
4. Mergers and Acquisitions
On May 9, 2008, the Company acquired control of Sleepy Hollow Bancorp, Inc., (Sleepy Hollow), a privately held bank holding company located in Sleepy Hollow, New York. The outstanding shares of common stock of Sleepy Hollow were cancelled and exchanged for the right to receive the per-share merger cash consideration totaling $30.2 million. The cost of the Sleepy Hollow acquisition was approximately $30.4 million, including acquisition related costs of approximately $209,000. Sleepy Hollow Bank, the wholly-owned subsidiary of Sleepy Hollow operates five full-service offices and one limited-service facility, all in Westchester County, New York. Upon completion of the Sleepy Hollow acquisition, Sleepy Hollow Bank was merged into Mahopac National Bank. The Companys acquisition of Sleepy Hollow Bancorp offers an excellent opportunity to expand our presence in Westchester County, with established locations and experienced staff.
The total purchase price paid for the acquisition was allocated based upon the estimated fair values of the assets acquired and liabilities assumed as set forth below.
8
|
|
|
|
|
|
|
May 9, 2008 |
|
|
Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
42,910 |
|
Securities available-for-sale |
|
|
46,912 |
|
Loans, net |
|
|
149,681 |
|
Premises and equipment, net |
|
|
3,247 |
|
Core deposit intangible asset |
|
|
2,431 |
|
Goodwill |
|
|
18,252 |
|
Other assets |
|
|
5,628 |
|
|
|
|
|
|
Total asset acquired |
|
$ |
269,061 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Deposits |
|
$ |
229,038 |
|
Other liabilities |
|
|
9,589 |
|
|
|
|
|
|
Total liabilities assumed |
|
$ |
238,627 |
|
|
|
|
|
|
The goodwill is not being amortized but will be evaluated at least annually for impairment. The goodwill is not deductible for taxes. The core deposit intangible asset is being amortized over 10 years using an accelerated method. The results of operations of Sleepy Hollow are included in the Companys consolidated earnings commencing on May 9, 2008 and were not material to the three and six-month ended June 30, 2008, results of operations.
5. Earnings Per Share
The Company follows the provisions of SFAS No. 128, Earnings Per Share (EPS). A computation of Basic EPS and Diluted EPS for the three- and six-month periods ending June 30, 2008, and 2007 is presented in the table below.
The effect of dilutive securities calculation for the three-month period ended June 30, 2008, excludes stock options covering 489,927 shares of common stock because they are anti-dilutive.
9
The effect of dilutive securities calculation for the three month period ended June 30, 2007, excludes stock options covering 450,036 shares of common stock because they are anti-dilutive.
The effect of dilutive securities calculation for the six-month period ended June 30, 2008, excludes stock options of 490,519 because they are anti-dilutive.
The effect of dilutive securities calculation for the six-month period ended June 30, 2007, excludes stock options of 368,770 because they are anti-dilutive.
6. Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
||||||||
(In thousands) |
|
06/30/2008 |
|
06/30/2007 |
|
06/30/2008 |
|
06/30/2007 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
7,119 |
|
$ |
6,361 |
|
$ |
14,627 |
|
$ |
12,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses arising during period |
|
|
(11,885 |
) |
|
(4,147 |
) |
|
(5,274 |
) |
|
(3,479 |
) |
Memo: Pre-tax net unrealized holding loss |
|
|
(19,808 |
) |
|
(6,912 |
) |
|
(8,791 |
) |
|
(5,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for (gains) losses included in net income |
|
|
(95 |
) |
|
10 |
|
|
(244 |
) |
|
(4 |
) |
Memo: Pre-tax net realized (gain) loss |
|
|
(159 |
) |
|
17 |
|
|
(406 |
) |
|
(6 |
) |
Employee benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial losses, prior service cost, and Transition obligation |
|
|
98 |
|
|
121 |
|
|
206 |
|
|
216 |
|
Memo: Pre-tax amounts |
|
|
163 |
|
|
202 |
|
|
343 |
|
|
360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
(11,882 |
) |
|
(4,016 |
) |
|
(5,312 |
) |
|
(3,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income |
|
($ |
4,763 |
) |
$ |
2,345 |
|
$ |
9,315 |
|
$ |
8,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
7. Employee Benefit Plans
The following table sets forth the amount of the net periodic benefit cost recognized by the Company for the Companys pension plan, post-retirement plan (Life and Health), and supplemental employee retirement plans (SERP) including the following components: the service cost and interest cost; the expected return on plan assets for the period; the amortization of the unrecognized transitional obligation or transition asset; and the amounts of recognized gains and losses, prior service cost recognized, and gain or loss recognized due to settlement or curtailment.
Components of Net Period Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Life and Health |
|
SERP Benefits |
|
||||||||||||
|
|
Three months ended |
|
Three months ended |
|
Three months ended |
|
||||||||||||
(In thousands) |
|
06/30/2008 |
|
06/30/2007 |
|
06/30/2008 |
|
06/30/2007 |
|
06/30/2008 |
|
06/30/2007 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Service cost |
|
$ |
477 |
|
$ |
468 |
|
$ |
33 |
|
$ |
27 |
|
$ |
42 |
|
$ |
32 |
|
Interest cost |
|
|
562 |
|
|
512 |
|
|
87 |
|
|
75 |
|
|
129 |
|
|
116 |
|
Expected return on plan assets for the period |
|
|
(819 |
) |
|
(721 |
) |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
Amortization of transition liability |
|
|
0 |
|
|
0 |
|
|
17 |
|
|
17 |
|
|
0 |
|
|
0 |
|
Amortization of prior service cost |
|
|
(26 |
) |
|
(27 |
) |
|
4 |
|
|
0 |
|
|
25 |
|
|
23 |
|
Amortization of net loss |
|
|
136 |
|
|
144 |
|
|
0 |
|
|
0 |
|
|
15 |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
330 |
|
$ |
376 |
|
$ |
141 |
|
$ |
119 |
|
$ |
211 |
|
$ |
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Life and Health |
|
SERP Benefits |
|
||||||||||||
|
|
Six months ended |
|
Six months ended |
|
Six months ended |
|
||||||||||||
(In thousands) |
|
06/30/2008 |
|
06/30/2007 |
|
06/30/2008 |
|
06/30/2007 |
|
06/30/2008 |
|
06/30/2007 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Service cost |
|
$ |
954 |
|
$ |
936 |
|
$ |
67 |
|
$ |
54 |
|
$ |
84 |
|
$ |
64 |
|
Interest cost |
|
|
1,124 |
|
|
1,024 |
|
|
173 |
|
|
150 |
|
|
258 |
|
|
232 |
|
Expected return on plan assets for the period |
|
|
(1,639 |
) |
|
(1,442 |
) |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
Amortization of transition liability |
|
|
0 |
|
|
0 |
|
|
34 |
|
|
34 |
|
|
0 |
|
|
0 |
|
Amortization of prior service cost |
|
|
(52 |
) |
|
(54 |
) |
|
8 |
|
|
0 |
|
|
50 |
|
|
46 |
|
Amortization of net loss |
|
|
273 |
|
|
288 |
|
|
0 |
|
|
0 |
|
|
31 |
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
660 |
|
$ |
752 |
|
$ |
282 |
|
$ |
238 |
|
$ |
423 |
|
$ |
386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company realized approximately $206,000 net of tax, for the six months ended June 30, 2008, as amortization of amounts previously recognized in accumulated other comprehensive income.
The Company previously disclosed in its audited consolidated financial statements for the year ended December 31, 2007, contained in the Companys Annual Report on Form 10-K, that although the Company is not required to contribute to the pension plan in 2008, it may voluntarily contribute to the pension plan in 2008. The Company contributed $5.0 million to the pension plan in the first six months of 2008.
8. Financial Guarantees
Financial Accounting Standards Board (FASB) Interpretation No. 45 (FIN No. 45), Guarantors 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 managements 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 June 30, 2008, the Companys maximum potential obligation under standby letters of credit was $50.7 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.
11
In the fourth quarter of 2007, the Company, as a Visa member bank, recorded a pre-tax charge of $862,000, representing an estimate of the Companys proportional share of certain costs and liabilities associated with litigation (Covered Litigation) involving Visa. During the first quarter of 2008, Visa successfully completed its initial public offering (IPO) and used a portion of the proceeds from the IPO to fund a $3.0 billion litigation escrow account. As a result, the Company reversed $455,000 of the $862,000 total pre-tax charges, which the Company had recorded in the fourth quarter of 2007.
9. 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 Companys 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, information systems, accounting and marketing services provided by any of the Banks and the holding company. All other accounting policies are the same as those described in the summary of significant accounting policies.
Summarized financial information concerning the Companys reportable segments and the reconciliation to the Companys 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 three months ended June 30, 2008 |
|
||||||||||
|
|
|
|
||||||||||
(in thousands) |
|
Banking |
|
Financial Services |
|
Intercompany |
|
Consolidated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
$ |
34,507 |
|
$ |
54 |
|
$ |
(15 |
) |
$ |
34,546 |
|
Interest expense |
|
|
12,650 |
|
|
1 |
|
|
(15 |
) |
|
12,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
21,857 |
|
|
53 |
|
|
0 |
|
|
21,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
1,183 |
|
|
0 |
|
|
0 |
|
|
1,183 |
|
Noninterest income |
|
|
5,220 |
|
|
6,490 |
|
|
(157 |
) |
|
11,553 |
|
Noninterest expense |
|
|
16,993 |
|
|
4,922 |
|
|
(157 |
) |
|
21,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
8,901 |
|
|
1,621 |
|
|
0 |
|
|
10,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
115 |
|
|
0 |
|
|
0 |
|
|
115 |
|
Provision for income taxes |
|
|
2,697 |
|
|
591 |
|
|
0 |
|
|
3,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
6,089 |
|
$ |
1,030 |
|
$ |
0 |
|
$ |
7,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
1,244 |
|
$ |
60 |
|
$ |
0 |
|
$ |
1,304 |
|
Assets |
|
|
2,677,078 |
|
|
32,130 |
|
|
(4,012 |
) |
|
2,705,196 |
|
Goodwill |
|
|
23,629 |
|
|
17,808 |
|
|
0 |
|
|
41,437 |
|
Other intangibles |
|
|
3,555 |
|
|
2,055 |
|
|
0 |
|
|
5,610 |
|
Loans, net |
|
|
1,632,474 |
|
|
3,522 |
|
|
0 |
|
|
1,635,996 |
|
Deposits |
|
|
2,059,285 |
|
|
1,589 |
|
|
(3,630 |
) |
|
2,057,244 |
|
Equity |
|
|
178,058 |
|
|
25,237 |
|
|
0 |
|
|
203,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the three months ended June 30, 2007 |
|
||||||||||
|
|
|
|
||||||||||
(in thousands) |
|
Banking |
|
Financial Services |
|
Intercompany |
|
Consolidated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
$ |
33,074 |
|
$ |
87 |
|
$ |
(15 |
) |
$ |
33,146 |
|
Interest expense |
|
|
14,667 |
|
|
4 |
|
|
(15 |
) |
|
14,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
18,407 |
|
|
83 |
|
|
0 |
|
|
18,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
192 |
|
|
0 |
|
|
0 |
|
|
192 |
|
Noninterest income |
|
|
4,561 |
|
|
6,347 |
|
|
(107 |
) |
|
10,801 |
|
Noninterest expense |
|
|
15,295 |
|
|
4,486 |
|
|
(107 |
) |
|
19,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
7,481 |
|
|
1,944 |
|
|
0 |
|
|
9,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
33 |
|
|
0 |
|
|
0 |
|
|
33 |
|
Provision for income taxes |
|
|
2,328 |
|
|
703 |
|
|
0 |
|
|
3,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
5,120 |
|
$ |
1,241 |
|
$ |
0 |
|
$ |
6,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
1,095 |
|
$ |
61 |
|
$ |
0 |
|
$ |
1,156 |
|
Assets |
|
|
2,235,479 |
|
|
29,052 |
|
|
(3,474 |
) |
|
2,261,057 |
|
Goodwill |
|
|
5,377 |
|
|
15,840 |
|
|
0 |
|
|
21,217 |
|
Other intangibles |
|
|
1,477 |
|
|
2,202 |
|
|
0 |
|
|
3,679 |
|
Loans, net |
|
|
1,343,362 |
|
|
3,696 |
|
|
0 |
|
|
1,347,058 |
|
Deposits |
|
|
1,698,754 |
|
|
2,326 |
|
|
(2,937 |
) |
|
1,698,143 |
|
Equity |
|
|
163,790 |
|
|
21,259 |
|
|
0 |
|
|
185,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2008 |
|
||||||||||
|
|
|
|
||||||||||
(in thousands) |
|
Banking |
|
Financial Services |
|
Intercompany |
|
Consolidated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
$ |
68,150 |
|
$ |
117 |
|
$ |
(29 |
) |
$ |
68,238 |
|
Interest expense |
|
|
26,520 |
|
|
4 |
|
|
(29 |
) |
|
26,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
41,630 |
|
|
113 |
|
|
0 |
|
|
41,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
1,808 |
|
|
0 |
|
|
0 |
|
|
1,808 |
|
Noninterest income |
|
|
11,431 |
|
|
12,968 |
|
|
(330 |
) |
|
24,069 |
|
Noninterest expense |
|
|
32,386 |
|
|
10,083 |
|
|
(330 |
) |
|
42,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
18,867 |
|
|
2,998 |
|
|
0 |
|
|
21,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
147 |
|
|
0 |
|
|
0 |
|
|
147 |
|
Provision for income taxes |
|
|
6,020 |
|
|
1,071 |
|
|
0 |
|
|
7,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
12,700 |
|
$ |
1,927 |
|
$ |
0 |
|
$ |
14,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
2,281 |
|
$ |
119 |
|
$ |
0 |
|
$ |
2,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2007 |
|
||||||||||
|
|
|
|
||||||||||
(in thousands) |
|
Banking |
|
Financial Services |
|
Intercompany |
|
Consolidated |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
$ |
64,946 |
|
$ |
156 |
|
$ |
(17 |
) |
$ |
65,085 |
|
Interest expense |
|
|
29,045 |
|
|
5 |
|
|
(17 |
) |
|
29,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
35,901 |
|
|
151 |
|
|
0 |
|
|
36,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
663 |
|
|
0 |
|
|
0 |
|
|
663 |
|
Noninterest income |
|
|
8,906 |
|
|
12,477 |
|
|
(137 |
) |
|
21,246 |
|
Noninterest expense |
|
|
29,928 |
|
|
8,981 |
|
|
(137 |
) |
|
38,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
14,216 |
|
|
3,647 |
|
|
0 |
|
|
17,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
65 |
|
|
0 |
|
|
0 |
|
|
65 |
|
Provision for income taxes |
|
|
4,334 |
|
|
1,323 |
|
|
0 |
|
|
5,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
9,817 |
|
$ |
2,324 |
|
$ |
0 |
|
$ |
12,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
2,104 |
|
$ |
118 |
|
$ |
0 |
|
$ |
2,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
10. Fair Value
The Company adopted SFAS No. 157, Fair Value Measurements , on January 1, 2007. The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2008, segregated by the level of valuation inputs within the fair value hierarchy used to measure fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Carrying
|
|
Quoted Prices
|
|
Significant Other Observable Inputs (Level 2) |
|
Significant
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities |
|
$ |
40,085 |
|
$ |
40,085 |
|
$ |
0 |
|
$ |
0 |
|
Available-for-sale securities |
|
|
751,030 |
|
|
0 |
|
|
748,935 |
|
|
2,095 |
|
Borrowings |
|
|
26,307 |
|
|
0 |
|
|
26,307 |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in the book value of the $2.1 million of available-for-sale securities valued using significant unobservable inputs (Level 3), between January 1, 2008 and June 30, 2008 was immaterial in relation to the total market value of available-for-sale securities.
The Company determines fair value for its trading securities using independently quoted market prices. The Company determines fair value for its available-for-sale securities using an independent bond pricing service for identical assets or very similar securities. The pricing service uses a variety of techniques to determine fair value, including market maker bids, quotes and pricing models. Inputs to the model include recent trades, benchmark interest rates, spreads, and actual and projected cash flows.
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 Companys 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 three and six months ended June 30, 2008.
Certain assets are measured at fair value on a nonrecurring basis. For the Company, these include loans held for sale, collateral dependent impaired loans, other real estate owned, goodwill and other intangible assets. During the three and six months ended June 30, 2008, the impact of any fair value adjustments on these nonrecurring items was not material. The charge to reduce the other real estate owned to its fair value, less estimated cost to sell, was recorded as a loan charge-off, prior to the transfer to other real estate owned.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
(In thousands) |
|
Carrying
|
|
Quoted Prices
|
|
Significant Other
|
|
Significant
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Other Real Estate Owned |
|
$ |
480 |
|
$ |
|
|
$ |
480 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
BUSINESS
Tompkins Financial Corporation (Tompkins or the Company) is a registered financial holding company incorporated in 1995 under the laws of the State of New York and its common stock is listed on the American Stock Exchange (Symbol: TMP). Tompkins is headquartered at The Commons, Ithaca, New York. Tompkins 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); an insurance agency, Tompkins Insurance Agencies, Inc. (Tompkins Insurance); and a fee-based financial planning and wealth management firm, AM&M Financial Services, Inc. (AM&M). Unless the context otherwise requires, the term Company refers collectively to Tompkins Financial Corporation and its subsidiaries.
The Company has identified two business segments, banking and financial services. Financial services activities include the results of the Companys trust, financial planning, wealth management and broker-dealer services, risk management, and insurance agency operations. All other activities are considered banking. Information about the Companys business segments is included in Note 9, Segment and Other Related Information, in Notes to Unaudited Condensed Consolidated Financial Statements.
Banking services consist primarily of attracting deposits from the areas served by the Companys 45 banking offices and using those deposits to originate a variety of commercial loans, consumer loans, real estate loans (including commercial loans collateralized by real estate), and leases. The Companys principal expenses are interest on deposits, interest on borrowings, and operating and general administrative expenses, as well as provisions for loan/lease losses. Funding sources, other than deposits, include borrowings, securities sold under agreements to repurchase, and cash flow from lending and investing activities.
The Company provides trust and investment services through Tompkins Investment Services (TIS), a division of Trust Company, and investment services through AM&M. TIS, with office locations at all three of the Companys 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. TIS also expanded its retail brokerage services in 2006. AM&M provides fee-based financial planning for small business owners, professionals and corporate executives and other individuals with complex financial needs. AM&M also provides wealth management services and operates a broker-dealer subsidiary, which is an outsourcing company for financial planners and investment advisors.
The Company provides property and casualty insurance services through Tompkins Insurance and life, long-term care and disability insurance through AM&M. Tompkins Insurance is headquartered in Batavia, New York, and offers property and casualty insurance to individuals and businesses primarily in Western New York. Over the past several years, Tompkins Insurance has acquired smaller insurance agencies in the market areas serviced by the Companys banking subsidiaries. Tompkins Insurance offers services to customers of the Companys 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.
AM&M is headquartered in Pittsford, New York and offers fee-based financial planning 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 for commercial banking and other financial services is strong in the Companys market area. Competition includes other commercial banks, savings and loan associations, credit unions, finance companies, Internet-based financial services companies, mutual funds, insurance companies, brokerage and investment companies, and other financial intermediaries. The Company differentiates itself from its competitors through its full complement of banking and related financial services, and through its community commitment and involvement in its primary market areas, as well as its commitment to quality and personalized banking services. Banking and financial services are also highly regulated. As a financial holding company of three community banks, the Company is subject to examination and regulation by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of Currency, and the New York State Banking Department. Additionally, the Company is subject to examination and regulation from the New York State Insurance Department, the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
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Other external factors affecting the Companys operating results are market rates of interest, the condition of financial markets, and both national and regional economic conditions. Trends in market interest rates and competitive pressures have been challenging for the banking subsidiaries over the past several years. Growth in loans and deposits as well as continued efforts to expand fee-based businesses have helped to offset the pressures of the current interest rate environment. Subprime lending and declining real estate values have also adversely affected the financial services industry in 2007 and 2008, with significant write-downs taken by large financial institutions related to subprime exposure. The Company has not engaged in the origination or purchase of subprime loans or securities as a line of business. The Companys asset quality remains solid. Refer to the section captioned Allowance for Loan and Lease Losses and Nonperforming Assets elsewhere in this report for further details on asset quality. The Companys community bank subsidiaries operate, in the aggregate, 45 banking offices, including two limited-service offices, serving communities in many upstate New York markets. Economic climates in these markets vary by region.
The following discussion is intended to provide an understanding of the consolidated financial condition and results of operations of the Company for the three and six months ended June 30, 2008. It should be read in conjunction with the Companys audited consolidated financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2007, and the unaudited condensed consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
The Company is making this statement in order to satisfy the Safe Harbor provision contained in the Private Securities Litigation Reform Act of 1995. The statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are made based on managements expectations and beliefs concerning future events impacting the Company and are subject to certain uncertainties and factors relating to the Companys 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 such forward-looking statements. The following factors are among those that could cause actual results to differ materially from the forward-looking statements: changes in general economic, market and regulatory conditions; the development of an interest rate environment that may adversely affect the Companys interest rate spread, other income or cash flow anticipated from the Companys operations, investment and/or lending activities; changes in laws and regulations affecting banks, insurance companies, 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 Companys 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 the Companys 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 and lease losses 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 and lease portfolio and the material effect that these estimates can have on the Companys results of operations.
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 reserve 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 borrowers 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,
16
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 and portfolio growth trends.
Since the methodology is based upon historical experience and trends, as well as managements 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 changes in local property values. While managements evaluation of the allowance for loan and lease losses as of June 30, 2008, determined the allowance to be adequate, 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 Companys pension and other post-retirement expenses and liabilities.
All accounting policies are important and the reader of the Companys financial statements should review these policies, described in Note 1 to the notes to consolidated financials statements to the Companys audited consolidated financial statements contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2007, to gain a greater understanding of how the Companys financial performance is reported.
Return on average assets (ROA) for the quarter ended June 30, 2008 was 1.10% compared to 1.13% for the quarter ended June 30, 2007. Return on average shareholders equity (ROE) for the second quarter of 2008 was 13.67%, compared to 13.54% for the same period in 2007. For the six month period ended June 30, 2008, ROA was 1.17%, compared to 1.09% for the same period in 2007. ROE for the six months ended June 30, 2008, was 14.29%, compared to 12.98% for the same period in 2007.
Total revenues, consisting of net interest income and noninterest income, were $33.5 million in the second quarter of 2008 and $65.8 million for the first six months of 2008, up 14.2% and 14.9% over the comparable periods in 2007. Both periods benefited from growth in both net interest income and noninterest income. Net interest income for the second quarter of 2008, was up 18.5% over the same period prior year, and up 10.5% over the first quarter of 2008. For the year-to-date period ended June 30, 2008, net interest income of $41.7 million was up 15.8% over the comparable year ago period. The growth in net interest income reflects lower interest expense on deposits and growth in average earning assets.
Noninterest income for the second quarter of 2008 was up 7.0% over the same period in 2007, mainly due to mark-to-market adjustments on liabilities held at fair value as well as net realized gains on sales of available-for-sale securities. Noninterest income for the first six months of 2008 is up 13.3% over the first six months of 2007. The growth in noninterest income reflects the successful implementation of certain profit improvement initiatives (implemented in 2007), the $1.6 million pre-tax gain related to the Visa IPO, and gains on sales of available-for-sale securities. Partially offsetting these positive factors in the six months ended June 30, 2008, are net mark-to-market losses of $334,000 related to securities and borrowings held at fair value.
Noninterest expenses were up 10.6% for the second quarter of 2008 and 8.7% for the first six months of 2008 over the same periods in 2007. The increase was mainly in salary and wages, premises and fixed asset expenses, marketing expense, and other operating expenses, which were all impacted by the Sleepy Hollow acquisition completed in May 2008.
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Segment Reporting
The Company has identified two business segments, banking and financial services. Financial services activities consist of the results of the Companys trust, financial planning and wealth management, broker-dealer services, and risk management operations. All other activities are considered banking.
Banking Segment
The Banking segment reported net income of $6.1 million for the second quarter of 2008, up $969,000 or 18.9% from net income of $5.1 million in 2007. For the year to date period, net income was $12.7 million, an increase of $2.9 million, or 29.4% over the same period in 2007. The increase in net income in both the quarter and year to date period in 2008 over the same periods in the prior year was mainly the result of record net interest income due to growth in average earning assets and favorable changes in the interest rate environment, which contributed to lower interest expense on deposits. Year-to-date June 30, 2008, net income also includes income of $983,000 after-tax, related to the Visa IPO.
Net interest income for the three and six months ended June 30, 2008, was up $3.5 million or 18.7%, and $5.7 million or 16.0%, respectively, over same periods in 2007, driven by growth in average earning assets and a decrease in funding costs. The decrease in short term rates in late 2007 and early 2008 contributed to a decrease in interest expense on deposits in 2008 over 2007.
The provision for loan and lease losses for the three and six months ended June 30, 2008, were $1.2 million and $1.8 million, compared to $192,000 and $663,000 for the same periods in 2007. The increase reflects growth in total loans and leases, an increase in nonperforming loans, and the impacts of a slowing economy.
Noninterest income for the three and six months ended June 30, 2008, was up $659,000 or 14.4% and $2.5 million, or 28.4%, respectively, over the same periods in 2007. The quarter over quarter increase is due to mark-to-market adjustments on liabilities held at fair value as well as net realized gains on sales of available-for-sale securities. The growth in noninterest income for the first six months of 2008 over the same period in 2007 reflects the successful implementation of certain profit improvement initiatives (implemented in 2007), the $1.6 million pre-tax gain related to the Visa IPO, and gains on sales of available-for-sale securities. Partially offsetting these positive factors are net mark-to-market losses of $334,000 related to securities and borrowings held at fair value.
Noninterest expenses for the three and six months ended June 30, 2008, were up $1.7 million or 11.1% and $2.5 million or 8.2%, respectively, over the same periods in 2007. The increase was mainly in salary and wages, reflecting annual merit increases, and stock-based and other incentive compensation accruals, occupancy expenses, and other operating expenses. Second quarter 2008 expenses were also impacted by the acquisition of Sleepy Hollow on May 9, 2008.
Financial Services Segment
The Financial Services segment had net income of $1.0 million in the second quarter of 2008, a decrease of $211,000 or 17.0% from net income of $1.2 million in the same quarter of the prior year. For the year to date period, net income was $1.9 million, a decrease of $397,000, or 17.1% over the same period in 2007. Noninterest income for the three and six months ended June 30, 2008, was up $143,000 or 2.3% and $491,000, or 3.9%, respectively, over the same periods in 2007. Trust and investment fees are generally based on the market value of assets within each account. Volatility in the equity and bond markets impacts the market value of assets and related investment fees. Noninterest expenses for the three and six months ended June 30, 2008, were up $436,000 or 9.7% and $1.1 million or 12.3%, respectively, over the same periods in the prior year. The increase was mainly in salary and wages, reflecting annual merit increases, and stock-based and other incentive compensation accruals, and other operating expenses.
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RESULTS OF OPERATIONS
Net
Interest Income
The following table shows
average interest-earning assets and interest-bearing liabilities, and the
corresponding yield or cost associated with each. Taxable-equivalent net
interest income for the second quarter of 2008 was $22.6 million, an increase
of $3.5 million, or 18.2%, compared to the same period in 2007. For the six
months ended June 30, 2008, taxable-equivalent net interest income was $43.0
million, up $5.8 million or 15.5% over the same period in the prior year.
Taxable-equivalent net interest income for both the quarter and year-to-date
periods ended June 30, 2008 were records for the Company. The favorable
quarterly and year-to-date comparison primarily resulted from increases in the
average volume of interest-earning assets, and increases in net interest margin
compared to same periods in the prior year. For the three months ended June 30,
2008, average earning assets were up $316.1 million or 15.1%, over the same
period in 2007. For the six months ended June 30, 2008, average earning assets
were up $236.5 million or 11.3%, over the same period in 2007. For the three
and six months ended June 30, 2008, the Companys net interest margin was 3.77%
and 3.73%, compared to 3.66% and 3.61% for the same periods in 2007. The net
interest margin benefited from the decrease in short term market interest rates
during the latter part of 2007 and early 2008. The lower short-term market
rates led to a decrease in the yield on average earning assets for the quarter
and year-to-date ended June 30, 2008; however, the decrease in yield on average
earning assets was more than offset by lower funding costs.
Taxable-equivalent interest income was up 4.3% for the second quarter of 2008 and 4.9% year to date 2008 over the comparable periods in 2007. The growth in taxable-equivalent interest income was primarily a result of higher average volume of loans and securities as average yields were down with the decrease in market interest rates. Average loan balances were up 16.4% quarter to date and 12.7% year to date over the same periods in 2007. For the three and six months ended June 30, 2008, the average yield on loans and leases was down 80 basis points and 58 basis points, respectively, compared to the same periods in 2007. For the three months and six months ended June 30, 2008, average securities balances were up 11.5% and 8.5%, respectively, compared to the same periods in 2007. The average yield on securities for the second quarter of 2008 was down 14 basis points from the second quarter of 2007, while the year-to-date June 30, 2008 average yields was in line with the same period in 2007.
Interest expense was down 13.8% for the second quarter of 2008 and was down 8.7% for the six months ending June 30, 2008, compared to the same periods in the prior year. Lower deposit rates and an increase in the volume of noninterest bearing deposits and lower cost savings and money market deposits were all factors in the lower interest expense. The average rate paid on deposits for the three and six months ended June 30, 2008, were 2.22% and 2.50%, respectively, down 114 basis points and 87 basis points from the same periods in 2007. The decrease in short-term market rates during late 2007 and early 2008 contributed to the decrease in the average rate paid on deposits compared to the same periods in 2007. Average interest-bearing deposit balances increased by $160.6 million or 11.4% and by $80.7 million or 5.7% for the three and six months ended June 30, 2008, respectively, compared to the same periods in 2007. Average time deposits of $100,000 or more for the second quarter and year-to-date period ended June 30, 2008, were down $63.0 million or 18.7% and $73.0 million, or 21.1%, respectively, from 2007, as management lowered the rates on these deposit products in response to rate cuts by the Federal Reserve Board. For the three and six month periods ended June 30, 2008, average noninterest bearing deposit balances were up 14.3% and 11.5%, respectively, over the same periods in 2007. Average balances of securities sold under agreements to repurchase and other borrowings were up by $117.7 million or 45.4% compared to the first six months of 2007, to offset the lower average time deposit balances and to partially fund loan growth.
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Average Consolidated Balance Sheet and Net Interest Analysis
|
|
(1) |
Average balances and yields on available-for-sale securities are based on historical amortized cost. |
(2) |
Interest income includes the tax effects of taxable-equivalent adjustments using a combined New York State and Federal effective income tax rate of 40% to increase tax exempt interest income to taxable-equivalent basis. |
(3) |
Nonaccrual loans are included in the average asset totals presented above. Payments received on nonaccrual loans have been recognized as disclosed in Note 1 of the consolidated financial statements. |
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Provision for Loan and Lease Losses
The provision for loan and lease losses represents
managements 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 $1.2 million and $1.8 million for the three and six months ended
June 30, 2008, compared to $192,000 and $663,000 for the same period in 2007.
The increase in the provision for the three and six months ended June 30, 2008
reflects the growth in loans and leases, an increase in nonperforming loans and
the impacts of a slowing economy. The allowance for loan and lease losses, as a
percentage of period end loans was 1.02% at June 30, 2008, compared to 1.05% at
June 30, 2007. The section captioned Allowance for Loan and Lease Losses and
Nonperforming Assets contained elsewhere in report has further details on the
allowance for loan and lease losses.
Noninterest Income
Noninterest income is a significant source of income
for the Company, representing 36.6% of total revenues for the first six months
of 2008, compared to 37.1% for the same period in 2007. Noninterest income for
the three months ended June 30, 2008 was $11.6 million, an increase of 7.0%
from the same period in 2007. Year-to-date 2008, noninterest income was $24.1
million, up 13.3% over the same period in 2007. Noninterest income in 2008
included $1.6 million of pre-tax other income related to proceeds received from
the Companys allocation of the Visa, Inc. initial public offering (the Visa
IPO), consisting of a $1.2 million gain on the partial redemption of Visa
stock and a $0.4 million partial reversal of a fourth quarter 2007 accrual for
indemnification charges. Visa withheld a portion of the shares allocated to its
member banks to create an escrow account to cover the costs and liabilities
associated with certain litigation for which its member banks are obligated to
indemnify Visa. Visas funding of this escrow account allowed member banks to
reverse litigation related accruals made in the fourth quarter of 2007, up to
each banks proportionate membership interest of the $3.0 billion used to fund
the escrow account. Although management does not expect additional expense
related to the Visa litigation, additional accruals may be required in future periods
should the Companys estimate of its obligations under the indemnification
agreement change.
Investment services income was $3.6 million in the second quarter of 2008, up 0.8% over the same period in 2007. For the first six months of 2008, investment services income was $7.2 million, an increase of 3.3% over the same period in 2007. Investment services income 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 Companys banking offices. TIS revenues for the three months ended June 30, 2008, decreased by $122,000 or 6.9%, compared to the same period in 2007. TIS revenues for the six months ended June 30, 2008, were in line with the same period in 2007. With fees largely based on the market value and the mix of assets managed, the general direction of the stock market has a considerable impact on fee income. The market value of assets managed by, or in custody of, TIS was $1.84 billion at June 30, 2008, up 3.2% from $1.79 billion at June 30, 2007. These figures include $556.4 million and $523.2 million, respectively, of Company-owned securities of which TIS is custodian. We believe that trends for new business in trust and investment services remain positive.
AM&M provides fee-based financial planning services, wealth management services, and brokerage services to independent financial planners and investment advisors. AM&M revenues increased by $239,000 or 12.9% and by $358,000 or 9.7% for the three and six months ended June 30, 2008, compared to the same periods in 2007. Growth in financial planning and wealth management fees and insurance commissions were partially offset by lower broker-dealer fees, which were unfavorably impacted by weak equities markets. The market value of assets under management by AM&M was $545.3 million at June 30, 2008, up 8.4% from $503.0 million at June 30, 2007.
Insurance commissions and fees for the three and six months ended June 30, 2008 increased by $122,000 or 4.3%, and $196,000 or 3.5%, respectively, as compared to the same periods in 2007. The growth in insurance commissions and fees was mainly in personal line revenues, and was partly due to an acquisition in the third quarter of 2007.
Service charges on deposit accounts for the first half of 2008, increased by $264,000 or 5.6% as compared to the same period in 2007. For the three months ended June 30, 2008, services charges on deposit accounts were down by $338,000 or 12.1%, from the same period prior year. 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.
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Net mark-to-market gains on securities and borrowings held at fair value totaled $219,000 for the three months ending June 30, 2008, compared to net mark-to-market losses on securities and borrowings held at fair value of $600,000 for the three months ended June 30, 2007. Year-to-date 2008, mark-to-market losses were $334,000, compared to losses of $148,000 for the same period in 2007. Mark-to-market losses or gains relate to the change in the fair value of securities and borrowings where the Company has elected the fair value option. An uptick in market rates contributed to the unfavorable mark-to-market losses during the quarter for the securities held at fair value and the favorable mark-to-market gains during the quarter for the borrowings held at fair value.
Noninterest income for the second quarter of 2008 includes $352,000 of income relating to increases in the cash surrender value of corporate owned life insurance (COLI). This compares to $283,000 for the same period in 2007. For the year-to-date period income from this source was up $133,000 or 23.9% over the same period last year. The COLI relates to life insurance policies covering certain executive officers of the Company. The Companys average investment in COLI was $34.0 million for the six month period ended June 30, 2008, compared to $26.2 million for the same period in 2007. The Company purchased $3.0 million of additional insurance in the fourth quarter of 2007 and acquired $3.5 million in the acquisition of Sleepy Hollow. Although income associated with the insurance policies is not included in interest income, the COLI produced a tax-equivalent return of 7.4% for the first six months of 2008, compared to 7.2% for the same period in 2007.
Other income for the second quarter of 2008 was $254,000, down $138,000 or 35.2% from the second quarter of 2007. Other income for the second quarter of 2007 included an $89,000 gain on the sale of fixed assets. For the six months ended June 30, 2008, other income was $696,000, an increase of $227,000 from the same period prior year.
Noninterest Expenses
Total noninterest expenses increased 10.6% to $21.8
million for the three months ended June 30, 2008, compared to $19.7 million for
the same period in 2007, and increased 8.7% to $42.1 million for the six months
ended June 30, 2008, from $38.8 million for the same period in 2007. The
increase in 2008 over 2007 was primarily in salary and wages and occupancy
related expenses, which were all impacted by the Sleepy Hollow acquisition. Changes in the components of noninterest
expense are discussed below.
Personnel-related expense increased by $890,000 or 7.8%, and $1.7 million or 7.3%, respectively, for the three and six month periods ended June 30, 2008. Salaries and wages for the three months ended June 30, 2008 were up $1.0 million or 11.6%, compared to the same period in 2007, while pension and other employee benefits were down $127,000 or 4.9% compared to the same period in 2007. The increase included the staffing requirement for six new branches added in May 2008, with the acquisition of Sleepy Hollow.
Expenses related to bank premises and furniture and fixtures increased by $358,000 or 14.1% and by $450,000 or 9.0% for the three and six month periods ended June 30, 2008. Additions to the companys branch network as well as increases in depreciation, real estate taxes and utilities contributed to the increased expenses for premises and furniture and fixtures year-over-year. The acquisition of Sleepy Hollow in May of 2008 added six banking offices to the Companys branch network.
Marketing expense for the three and six months ended June 30, 2008, were up by $332,000 or 61.0%, and $258,000 or 21.9%, respectively, compared to the same periods in 2007. The primary reason for the period over period increase was the ad campaigns and mailings related to the addition of six new branches acquired in the acquisition of Sleepy Hollow.
Software licensing and maintenance expense for the three and six months ended June 30, 2008 increased by $277,000 or 55.1%, and $385,000 or 38.4% over the same periods in 2007. Contributing to the increase in 2008 was an increase in core operating system expense, and process improvement related initiatives.
Other operating expenses increased by $406,000 or 12.0%, and $799,000 or 12.3% for the three and six month periods ended June 30, 2008, compared to the same period in 2007. Contributing to the year-to-date increase in other operating expenses were the following: telephone and leased data line (up $132,000), printing and supplies (up $113,000); deposit insurance (up $127,000), and merger related expenses (up $73,000).
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Income Tax Expense
The provision for income taxes provides for Federal
and New York State income taxes. The provision for the three months ended June
30, 2008, was $3.3 million, compared to $3.0 million for the same period in
2007. For the year-to-date period ended June 30, 2008, the provision was $7.1
million compared to $5.7 million for the same period in 2007. The Companys
effective tax rate for the second quarter of 2008 was 31.2%, compared to 32.2%
for the same period in 2007. For the six months ended June 30, 2008, the
effective tax rate was 32.4% compared to 31.7% for the comparable prior year
period. The increase in the effective tax rate for the first six months of 2008
compared to 2007 was primarily the result of nontaxable items representing a
smaller percentage of the higher pre-tax income for the six months ended June
30, 2008 as compared to the prior year period.
FINANCIAL CONDITION
Total assets were $2.7 billion at June 30, 2008, up
$345.7 million or 14.7% over December 31, 2007, and up 19.6% over June 30,
2007. Asset growth includes $269.1 million of assets acquired in the
acquisition of Sleepy Hollow. Asset growth over year-end 2007 included a $91.1
million increase in securities ($46.9 million acquired from Sleepy Hollow), a
$212.7 million increase in the total loans and leases ($151.2 million acquired
from Sleepy Hollow), and a $5.3 million increase in cash and equivalents. The
14.8% growth in total loans from year-end 2007 was mainly in commercial real
estate, residential real estate, and commercial loans. Commercial real estate
loans were up $92.5 million or 20.1% ($87.9 million acquired from Sleepy
Hollow; residential real estate loans were up $84.3 million or 16.6% ($55.2
million acquired from Sleepy Hollow); and commercial loans were up $30.6
million or 8.0% ($4.5 million acquired from Sleepy Hollow). The consumer
portfolio was in line with the prior year.
Total securities were up 12.2% compared to year-end 2007, primarily in bonds issued by U.S. Government sponsored agencies. The portfolio is comprised primarily of mortgage-backed securities, obligations U.S. of Government sponsored agencies, and obligations of states and political subdivisions. The Company has no investments in preferred stock of U.S. Government sponsored agencies, no investments in pools of Trust Preferred securities, and no securities where management has deemed impairment to be other than temporary. The after-tax unrealized loss on the available-for-sale securities was $4.2 million at June 30, 2008, compared to an after-tax unrealized gain of $1.3 million at December 31, 2007.
As of June 30, 2008, the trading portfolio totaled $40.1 million, down from $60.1 million at December 31, 2007. The decrease reflects maturities during the first and second quarters of 2008.
Total deposits were $2.1 billion at June 30, 2008, up $336.4 million or 19.5% over December 31, 2007, and up $359.1 million or 21.2% over June 30, 2007. The Company acquired $229.0 million of deposits in the acquisition of Sleepy Hollow. The growth in total deposits from December 31, 2007 was mainly in money market and savings balances, which were up $181.9 million or 24.5% ($93.1 million acquired in Sleepy Hollow acquisition). Noninterest bearing deposit balances were up $48.2 million or 12.2% ($24.5 million acquired in Sleepy Hollow acquisition). Time deposit balances were up $106.3 million or 18.2% ($109.2 million acquired in Sleepy Hollow acquisition). Other borrowings decreased $18.2 million from year-end 2007 to $192.6 million at June 30, 2008, as the Company paid down some overnight FHLB borrowings with the increase in deposit balances. During the second quarter of 2007, the Company elected the fair value option for $25.0 million of FHLB borrowings incurred during the quarter. Since December 31, 2007, the fair value of these borrowings decreased by $41,000.
Nonperforming loans were $12.1 million at June 30, 2008, up from $9.3 million at December 31, 2007. Nonperforming loans represented 0.73% of total loans at June 30, 2008, compared to 0.65% of total loans at December 31, 2007, and 0.62% at June 30, 2007. The increase in nonperforming loans was mainly a result of nonperforming loans acquired in the Sleepy Hollow acquisition. For the six months ended June 30, 2008, net charge-offs were $1.1 million, up from $634,000 in the same period of 2007.
Recently, 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 amount to only $16,000 for the current year-to-date compared to $97,000 for the same period in 2007. In addition, the combined nonperforming loan balances in our construction and home equity lending portfolios represents less than 0.03% of total loans.
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Capital
Total shareholders equity totaled $203.3 million at
June 30, 2008, an increase of $6.1 million from December 31, 2007. Additional
paid-in capital increased by $3.7 million, from $147.7 million at December 31,
2007, to $151.3 million at June 30, 2008, reflecting $3.0 million in proceeds
from stock option exercises and $458,000 related to stock-based compensation.
Retained earnings increased $7.9 million from $57.3 million at December 31,
2007, to $65.2 million at June 30, 2008, reflecting net income of $14.6 million
less dividends paid of $6.1 million and a cumulative-effect adjustment of
$582,000 related to the adoption of EITF 06-4,
Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements.
Accumulated
other comprehensive loss increased by $5.3 million from a net unrealized loss
of $6.9 million at December 31, 2007, to a net unrealized loss of $12.2 million
at June 30, 2008, reflecting an increase in unrealized losses on
available-for-sale securities due to higher market rates, partially offset by
amounts recognized in other comprehensive income related to postretirement
benefit plans.
Cash dividends paid in the first six months of 2008 totaled approximately $6.1 million, representing 42.0% of year-to-date earnings. Cash dividends of $0.64 per share paid during the first six months of 2008 were up 6.7% over cash dividends of $0.60 per share paid in the first six months of 2007.
On July 22, 2008, the Companys Board of Directors approved a stock repurchase plan (the 2008 Plan). The 2008 Plan authorizes the repurchase of up to 150,000 shares of the Companys outstanding common stock over a two-year period. The 2008 Plan replaces a previous repurchase plan that expired in July 2008. The Company did not repurchase any shares of common stock under the previous plan during the first six months of 2008. Over the life of the plan approved in 2006, the Company repurchased 420,575 shares.
The Company and its banking subsidiaries are subject to various regulatory capital requirements administered by Federal banking agencies. Management believes the Company and its subsidiaries meet all capital adequacy requirements to which they are subject. The table below reflects the Companys capital position at June 30, 2008, compared to the regulatory capital requirements for well capitalized institutions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REGULATORY CAPITAL ANALYSIS June 30, 2008 |
|
||||||||||||
|
|
|
|
|
|
||||||||
|
|
Actual |
|
Well Capitalized
|
|
||||||||
(Dollar amounts in thousands) |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total Capital (to risk weighted assets) |
|
$ |
197,757 |
|
|
11.0 |
% |
$ |
179,553 |
|
|
10.0 |
% |
Tier I Capital (to risk weighted assets) |
|
$ |
180,766 |
|
|
10.1 |
% |
$ |
107,732 |
|
|
6.0 |
% |
Tier I Capital (to average assets) |
|
$ |
180,766 |
|
|
7.1 |
% |
$ |
127,735 |
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As illustrated above, the Companys capital ratios on June 30, 2008, remain well above the minimum requirements for well capitalized institutions. As of June 30, 2008, the capital ratios for each of the Companys subsidiary banks also exceeded the minimum levels required to be considered well capitalized. The Company and its affiliates remained well capitalized after the May 9, 2008 acquisition of Sleepy Hollow Bancorp.
Allowance for Loan and Lease Losses and Nonperforming
Assets
Management reviews the adequacy of the allowance for
loan and lease losses (the allowance) on a regular basis. Management
considers the accounting policy relating to the allowance to be a critical
accounting policy, given the inherent uncertainty in evaluating the levels of
the allowance required to cover credit losses in the Companys portfolio and
the material effect that assumption could have on the Companys results of
operations. Factors considered in determining the adequacy of the allowance and
the related provision include: managements approach to granting new credit;
the ongoing monitoring of existing credits by the internal and external loan
review functions; the growth and composition of the loan and lease portfolio;
the level and trend of market interest rates; comments received during the
course of regulatory examinations; current local economic conditions; past due
and nonperforming loan statistics; estimated collateral values; and an
historical review of loan and lease loss experience.
The allowance represented 1.02% of total loans and leases outstanding at June 30, 2008, compared to 1.01% at December 31, 2007 and 1.05% at June 30, 2007. The allowance coverage of nonperforming loans (loans past due 90 days and accruing, nonaccrual loans, and restructured troubled debt) was 1.4 times at June 30, 2008, 1.6 times at December 31, 2007, and 1.6 times at June 30, 2007. Based upon consideration of the above factors, management believes that the allowance is adequate to provide for the risk of loss inherent in the current loan and lease portfolio. Activity in the Companys allowance for loan and lease losses during the first six months of 2008 and 2007 and for the 12 months ended December 31, 2007 is illustrated in the table below.
24
|
|
|
|
|
|
|
|
|
|
|
ANALYSIS OF THE ALLOWANCE FOR LOAN/LEASE LOSSES (In thousands) |
||||||||||
|
|
|
|
|
|
|
|
|||
|
|
June 30, 2008 |
|
December 31, 2007 |
|
June 30, 2007 |
|
|||
|
|
|
|
|
|
|
|
|||
Average Loans and Leases Outstanding Year to Date |
|
$ |
1,506,250 |
|
$ |
1,362,417 |
|
$ |
1,336,595 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
|
|
14,607 |
|
|
14,328 |
|
|
14,328 |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan and lease losses |
|
|
1,808 |
|
|
1,529 |
|
|
663 |
|
Loans charged off |
|
|
(1,293 |
) |
|
(1,760 |
) |
|
(908 |
) |
Loan recoveries |
|
|
228 |
|
|
510 |
|
|
274 |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(1,065 |
) |
|
(1,250 |
) |
|
(634 |
) |
|
|
|
|
|
|
|
|
|
|
|
Allowance acquired in purchase acquisition |
|
|
1,485 |
|
|
0 |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
$ |
16,835 |
|
$ |
14,607 |
|
$ |
14,357 |
|
|
|
|
|
|
|
|
|
|
|
|
The level of nonperforming assets at June 30, 2008, and 2007, and December 31, 2007 is illustrated in the table below. Nonperforming assets of $12.6 million as of June 30, 2008, were up $3.2 million from nonperforming assets of $9.4 million at year-end 2007. Nonperforming assets represented 0.47% of total assets at June 30, 2008, compared to 0.40% at December 31, 2007, and 0.39% at June 30, 2007. Approximately $3.7 million of nonperforming loans at June 30, 2008, were secured by U.S. government guarantees, while $947,000 were secured by one-to-four family residential properties.
|
|
|
|
|
|
|
|
|
|
|
NONPERFORMING ASSETS (In thousands) |
||||||||||
|
|
|
|
|
|
|
|
|||
|
|
June 30, 2008 |
|
December 31, 2007 |
|
June 30, 2007 |
|
|||
|
|
|
|
|
|
|
|
|||
Nonaccrual loans and leases |
|
$ |
10,552 |
|
$ |
8,890 |
|
$ |
8,474 |
|
Loans past due 90 days and accruing |
|
|
1,422 |
|
|
312 |
|
|
2 |
|
Troubled debt restructuring not included above |
|
|
135 |
|
|
145 |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
12,109 |
|
|
9,347 |
|
|
8,476 |
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate, net of allowances |
|
|
481 |
|
|
5 |
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
12,590 |
|
$ |
9,352 |
|
$ |
8,838 |
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans/leases as a percent of total loans/leases |
|
|
0.73 |
% |
|
0.65 |
% |
|
0.62 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets as a percentage of total assets |
|
|
0.47 |
% |
|
0.40 |
% |
|
0.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
Potential problem loans and leases are loans and leases that are currently performing, but where known information about possible credit problems of the related borrowers causes management to have doubt as to the ability of such borrowers to comply with the present loan payment terms and may result in disclosure of such loans/leases as nonperforming at some time in the future. Management considers loans and leases classified as Substandard that continue to accrue interest to be potential problem loans and leases. At June 30, 2008, the Companys internal loan review function had identified 28 commercial relationships totaling $10.2 million, which it has classified as Substandard, which continue to accrue interest. As of December 31, 2007, the Companys internal loan review function had classified 34 commercial relationships as Substandard totaling $13.4 million, 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 is not significant. However, these loans do exhibit certain risk factors, which have the potential to cause them to become nonperforming. Accordingly, managements attention is focused on these credits, which are reviewed at least quarterly.
Deposits and Other Liabilities
Total deposits of $2.1 billion at June 30, 2008, were
up $336.4 million or 19.6% from December 31, 2007. Deposit growth included
$181.9 million in savings and money market balances, $106.3 million in time
deposits and $48.2 million in noninterest bearing deposits. A portion of the
growth was due to the Sleepy Hollow acquisition and merger. Growth in municipal
deposits accounted for a majority of the increase in savings and money market
balances from year-end 2007. In 2007 and 2008, the Federal Reserve reduced
short-term market rates, which led to a decrease in rates paid on deposits.
With deposit rates down on time deposits and more in line with money market
rates, municipalities are placing tax deposits into money market accounts.
Municipal deposit balances are somewhat seasonal, increasing as tax deposits
are collected and decreasing as these monies are used by the municipality.
The Companys primary funding source is core deposits, defined as total deposits less time deposits of $100,000 or more, brokered time deposits, and municipal money market deposits. Core deposits increased 17.6% from year-end 2007 to $1.6 billion at June 30, 2008 and represented 63.7% of total liabilities.
25
Non-core funding sources for the Company totaled $863.9 million at June 30, 2008, up from $775.7 million at December 31, 2007. Non-core funding at June 30, 2008, included municipal money market deposits, time deposits of $100,000 or more, term advances and securities sold under agreements to repurchase (repurchase agreements) with the Federal Home Loan Bank (FHLB), and retail repurchase agreements. The increase in non-core funding between December 31, 2007, and June 30, 2008, was concentrated in municipal money market deposits, which were up $57.3 million to $177.1 million at June 30, 2008 and time deposits of $100,000 or more which were up $42.5 million.
The Companys liability for repurchase agreements amounted to $203.7 million at June 30, 2008, which is up from $195.4 million at December 31, 2007. Included in repurchase agreements at June 30, 2008, were $147.6 million in FHLB repurchase agreements and $56.1 million in retail 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. Included in the $147.6 million of repurchase agreements with the FHLB are $140.0 million that have call dates between 2007 and 2017 and are callable if certain conditions are met. Also included in the $147.6 million are $15.0 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 repurchase agreements has increased by $7,000 since December 31, 2007.
At June 30, 2008, other borrowings of $192.6 million included $171.5 million of term advances with the FHLB, and a $21.0 million term borrowing with a money center Bank. Included in the $171.5 million in term advances with the FHLB are $144.0 million of advances that have call dates between 2007 and 2017 and are callable if certain conditions are met. 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 has decreased by $48,000 from year-end 2007.
Liquidity
The objective of liquidity management is to ensure the
availability of adequate funding sources to satisfy the demand for credit,
deposit withdrawals, and business investment opportunities. The Companys
large, stable core deposit base and strong capital position are the foundation
for the Companys liquidity position. The Company uses a variety of resources
to meet its liquidity needs, which include deposits, cash and cash equivalents,
short-term investments, cash flow from lending and investing activities,
repurchase agreements, and borrowings. Asset and liability positions are
monitored primarily through Asset/Liability Management Committees of the
Companys subsidiary banks individually and on a combined basis. These
Committees review periodic reports on liquidity and interest rate sensitivity
positions. Comparisons with industry and peer groups are also monitored. The
Companys strong reputation in the communities it serves, along with its strong
financial condition, provides access to numerous sources of liquidity as
described below. Management believes these diverse liquidity sources provide
sufficient means to meet all demands on the Companys liquidity that are
reasonably likely to occur.
Core deposits are a primary and low cost funding source obtained primarily through the Companys branch network. Core deposits totaled $1.6 billion at June 30, 2008, up $238.3 million or 17.6% from year-end 2007, and $280.9 million or 21.5% from June 30, 2007. Core deposits represented 77.3% of total deposits and 63.7% of total liabilities at June 30, 2008, compared to 78.5% of total deposits and 62.5% of total liabilities at December 31, 2007.
In addition to core deposits, the Company uses non-core funding sources to support asset growth. These non-core funding sources include time deposits of $100,000 or more, brokered time deposits, municipal money market deposits, securities sold under agreements to repurchase and term advances from the FHLB. Rates and terms are the primary determinants of the mix of these funding sources. Non-core funding sources, as a percentage of total liabilities, were 34.6% at June 30, 2008, down from 35.9% at December 31, 2007.
Cash and cash equivalents totaled $55.1 million as of June 30, 2008, up from $49.9 million at December 31, 2007. Short-term investments, consisting of securities due in one year or less, decreased from $68.0 million at December 31, 2007, to $37.9 million on June 30, 2008. The Company also has $40.1 million of securities designated as trading securities. The Company pledges securities as collateral for certain non-core funding sources. Securities carried at $577.5 million at December 31, 2007, and $630.3 million at June 30, 2008, were pledged as collateral for public deposits or other borrowings, and pledged or sold under agreements to repurchase. Pledged securities represented 75.0% of total securities as of June 30, 2008, compared to 77.1% as of December 31, 2007.
26
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 $445.0 million at June 30, 2008, compared with $382.2 million at December 31, 2007. Outstanding principle balances of residential mortgage loans, consumer loans, and leases totaled approximately $687.1 million at June 30, 2008 as compared to $597.4 million at December 31, 2007. Aggregate amortization from monthly payments on these assets provides significant additional cash flow to the Company.
Liquidity is enhanced by ready access to national and regional wholesale funding sources including Federal funds purchased, repurchase agreements, brokered certificates of deposit, and FHLB advances. Through its subsidiary banks, the Company has borrowing relationships with the FHLB and correspondent banks, which provide secured and unsecured borrowing capacity. At June 30, 2008, the unused borrowing capacity on established lines with the FHLB was $423.4 million. As members of the FHLB, the Companys subsidiary banks can use certain unencumbered mortgage-related assets to secure additional borrowings from the FHLB. At June 30, 2008, total unencumbered residential mortgage loans of the Company were $170.1 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.
|
|
Quantitative and Qualitative Disclosure About Market Risk |
Interest rate risk is the primary market risk category associated with the Companys operations. Interest rate risk refers to the volatility of earnings caused by changes in interest rates. The Company manages interest rate risk using income simulation to measure interest rate risk inherent in its on-balance sheet and off-balance sheet financial instruments at a given point in time. The simulation models are used to estimate the potential effect of interest rate shifts on net interest income for future periods. Each quarter the Asset/Liability Management Committee reviews the simulation results to determine whether the exposure of net interest income to changes in interest rates remains within board-approved levels. The Committee also considers strategies to manage this exposure and incorporates these strategies into the investment and funding decisions of the Company. The Company does not currently use derivatives, such as interest rate swaps, to manage its interest rate risk exposure, but may consider such instruments in the future.
In our most recent simulation, the base case scenario, which assumes interest rates remain unchanged from the date of the simulation, showed an increase in the net interest margin over the next six months as funding costs benefit from the recent reduction in interest rates, followed by a relatively flat net interest margin for the next six months.
The Companys Board of Directors has set a policy that interest rate risk exposure will remain within a range whereby net interest income will not decline by more than 10% in one year as a result of a 200 basis point parallel change in rates. Based upon the simulation analysis performed as of June 30, 2008, a 200 basis point parallel upward shift in interest rates over a one-year time frame would result in a one-year decline from the base case in net interest income of approximately 1.3%, while a 200 basis point parallel decline in interest rates over a one-year period would result in a decrease from the base case in net interest income of 0.8%. This simulation assumes no balance sheet growth and no management action to address balance sheet mismatches.
The negative exposure in the 200 basis point parallel rising rate environment is mainly driven by the repricing assumptions of the Companys core deposit base and the lag in the repricing of the Companys 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 parallel declining interest rate scenario results from the Companys assets repricing downward more rapidly than the rates on the Companys interest-bearing liabilities, mainly deposits. Rates on savings and money market accounts are at low levels given the recent Federal Reserve cuts in short-term market rates. In addition, the model assumes that prepayments accelerate in the down interest rate environment resulting in additional pressure on asset yields and cash flows are reinvested at lower rates.
Although the simulation model is useful in identifying potential exposure to interest rate movements, actual results may differ from those modeled as the repricing, maturity, and prepayment characteristics of financial instruments may change to a different degree than modeled. In addition, the model does not reflect actions that management may employ to manage its interest rate risk exposure. The Companys current liquidity profile, capital position, and growth prospects offer management a level of flexibility 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.
27
In addition to the simulation analysis, management uses an interest rate gap measure. The table below is a Condensed Static Gap Report, which illustrates the anticipated repricing intervals of assets and liabilities as of June 30, 2008. The analysis reflects sensitivity to rising interest rates in all repricing intervals shown. The Companys one-year interest rate gap was a negative $180,000 or 6.7% of total assets at June 30, 2008, compared to a negative $110,000 or 4.7% of total assets at December 31, 2007. A negative gap position exists when the amount of interest-bearing liabilities maturing or repricing exceeds the amount of interest-earning assets maturing or repricing within a particular time period. This analysis suggests that the Companys net interest income is more vulnerable to a 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.
|
|
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Companys management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operations of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of June 30, 2008. Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this Report on Form 10-Q the Companys disclosure controls and procedures were effective in providing reasonable assurance that any information required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms and that material information relating to the Company and its subsidiaries is made known to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred during the Companys first quarter ended June 30, 2008, that materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
28
Issuer Purchases of Equity Securities
The following table includes all Company repurchases made on a monthly basis during the period covered by this Quarterly Report on Form 10-Q, including those made pursuant to publicly announced plans or programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Period |
|
Total Number of Shares Purchased
|
|
Average Price Paid Per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans
or Programs
|
|
Maximum Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
April 1,
2008 through
|
|
|
0 |
|
|
0 |
|
|
0 |
|
|
29,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2008
through
|
|
|
0 |
|
|
|
|
|
0 |
|
|
29,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2008
through
|
|
|
290 |
|
|
44.66 |
|
|
0 |
|
|
29,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
290 |
|
$ |
44.66 |
|
|
0 |
|
|
29,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On July 22, 2008, the Companys Board of Directors approved a stock repurchase plan (the 2008 Plan). The 2008 Plan authorizes the repurchase of up to 150,000 shares of the Companys outstanding common stock over a two-year period. The 2008 Plan replaces a previous repurchase plan that expired in July 2008.
Included above are 290 shares purchased in June 2008 at an average cost of $44.66, by the trustee of the rabbi trust established by the Company under the Companys Stock Retainer Plan For Eligible Directors of Tompkins Financial Corporation, and Participating Subsidiaries and were part of the director deferred compensation under that plan. Shares purchased under the rabbi trust are not part of the Board approved stock repurchase plan.
Recent Sales of Unregistered Securities
On April 25, 2008, the Company issued 18,150 shares of common stock as additional earn-out consideration relating to the acquisition of AM&M in January of 2006.
|
|
Defaults Upon Senior Securities |
|
|
|
|
None |
29
|
|
Submission of Matters to a Vote of Security Holders |
(a) The Annual Meeting of Stockholders of the Company was held on May 5, 2008.
(b) All director nominees were elected. At the meeting, the stockholders elected the following five directors for a one year term: John E. Alexander; Elizabeth W. Harrison; Hunter R. Rawlings, III; Stephen S. Romaine; and Craig Yunker. The directors continuing in office are: James J. Byrnes; Reeder D. Gates; Carl E. Haynes; Michael D. Shay; Michael H. Spain; William D. Spain, Jr.; Russell K. Achzet; James W. Fulmer; James R. Hardie; Patricia A. Johnson; and Thomas R. Salm
(c) At the meeting, the stockholders also: approved a proposal to amend the Companys Certificate of Incorporation and Bylaws to permit the annual election of directors; approved a proposal to amend the Companys Certificate of Incorporation to increase the number of shares of common stock authorized for issuance from 15,000,000 to 25,000,000; and approved a proposal to amend the Companys Certificate of Incorporation to authorize the issuance of up to 3,000,000 shares of Series Preferred Stock. Subsequent to adjournment of the meeting, the Company discovered that certain shareholder votes, although timely cast, had not been included in the tabulation of votes by the inspectors of election. As permitted by section 611(c) of the New York Business Corporation Law, the New York Supreme Court, in and for Tompkins County, issued an order directing the inspectors of election to include the previously unreported votes in the final tabulation of votes, which was as follows:
|
|
|
|
|
|
|
|
|
Director |
|
|
Shares For |
|
Shares Withheld |
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
John E. Alexander |
|
7,640,990 |
|
|
101,003 |
|
|
|
Elizabeth W. Harrison |
|
7,670,489 |
|
|
71,503 |
|
|
|
Hunter R. Rawlings, III |
|
6,731,349 |
|
|
1,010,643 |
|
|
|
Stephen S. Romaine |
|
7,661,782 |
|
|
80,210 |
|
|
|
Craig Yonker |
|
7,679,673 |
|
|
62,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
Votes Cast |
|
|
|
|
|
||||||||
|
|
|
|
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Broker |
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||||||||
Proposal |
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For |
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Against |
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Abstain |
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Non-Votes |
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||||||
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||||||
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||||||
(1) Annual Election of Directors |
|
|
7,663,974 |
|
32,513 |
|
|
45,501 |
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|
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|
|||
|
|
|
|
|
|
|
|
|
|
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|
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|
|||
(2) Increase in Common Stock |
|
|
7,314,226 |
|
365,904 |
|
|
61,854 |
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|
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|
|||
|
|
|
|
|
|
|
|
|
|
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|||
(3) Approval of Preferred |
|
|
5,035,843 |
|
1,193,341 |
|
|
126,212 |
|
|
1,386,596 |
|
|
|
|
Other Information |
|
|
|
|
None |
30
|
|
Exhibits |
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31.1 |
Certification of Principal Executive Officer and required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). |
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31.2 |
Certification of Principal Financial Officer and required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). |
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32.1 |
Certification of Principal Executive Officer and required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350 (filed herewith) |
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|
|
32.2 |
Certification of Principal Financial Officer and required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350 (filed herewith) |
|
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3(i) |
Amended and restated Certificate of Incorporation |
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3(ii) |
Amended and restated Bylaws of the Company |
Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 7, 2008
TOMPKINS FINANCIAL CORPORATION
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By: |
/s/ Stephen S. Romaine |
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Stephen S. Romaine |
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President and |
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Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ Francis M. Fetsko |
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|
|
|
Francis M. Fetsko |
|
|
Executive Vice President and |
|
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Chief Financial Officer |
|
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(Principal Financial Officer) |
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31
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|
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Exhibit Number |
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Description |
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Pages |
|
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|
|
31.1 |
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Certification of Principal Executive Officer and required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
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33 |
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31.2 |
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Certification of Principal Financial Officer and required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. |
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34 |
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|
|
|
32.1 |
|
Certification of Principal Executive Officer and required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350 |
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35 |
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32.2 |
|
Certification of Principal Financial Officer and required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350 |
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36 |
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3(i) |
|
Amended and restated Certificate of Incorporation |
|
37 |
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3(ii) |
|
Amended and restated Bylaws of the Company |
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45 |
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|
32
Exhibit 31.1
CERTIFICATION
I, Stephen S. Romaine, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tompkins Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 7, 2008
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/s/ Stephen S. Romaine |
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Stephen S. Romaine |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
33
Exhibit 31.2
CERTIFICATION
I, Francis M. Fetsko, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tompkins Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 7, 2008
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/s/ Francis M. Fetsko |
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Francis M. Fetsko |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
34
Exhibit 32.1
CERTIFICATION
In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008 (the Report) by Tompkins Financial Corporation (the Company), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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August 7, 2008 |
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/s/ Stephen S. Romaine |
|
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|
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Stephen S. Romaine |
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President and |
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Chief Executive Officer |
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(Principal Executive Officer) |
35
Exhibit 32.2
CERTIFICATION
In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008 (the Report) by Tompkins Financial Corporation (the Company), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
August 7, 2008 |
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|
|
/s/ Francis M. Fetsko |
|
|
|
|
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Francis M. Fetsko |
|
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Executive Vice President and |
|
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Chief Financial Officer |
|
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(Principal Financial Officer) |
36
Exhibit 3(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
TOMPKINS FINANCIAL CORPORATION
Under Section 807 of the Business Corporation Law
The undersigned, being the Assistant Vice President and Secretary of Tompkins Financial Corporation (the Corporation), in accordance with Section 807 of the Business Corporation Law, hereby certifies:
A. The name of the Corporation is Tompkins Financial Corporation. The name under which it was formed is Tompkins County Trustco, Inc.
B. The Certificate of Incorporation was filed by the Department of State on March 6, 1995.
C. The Certificate of Incorporation is hereby amended to effect the following changes as authorized by Section 801 of the Business Corporation Law:
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(i) Article IV is hereby amended to increase the number of shares of common stock which the Corporation shall have authority to issue to 25,000,000 shares of common stock with a par value of $0.10 per share. |
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(ii) Article IV is hereby further amended to create shares of series preferred stock by authorizing the issuance of 3,000,000 shares of preferred stock with a par value of $0.01 per share and to authorize the Board of Directors of the Corporation to fix or alter the rights, preferences, limitations and restrictions granted to or imposed upon such series of preferred stock, and the number of shares constituting any such series and the designation thereof. |
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(iii) Article V, Section 2 is hereby amended to remove classification of the Board of Directors and provide for annual election of directors. |
The text of the Certificate of Incorporation is hereby restated as amended to read as herein set forth in full:
37
CERTIFICATE OF INCORPORATION
OF
TOMPKINS FINANCIAL CORPORATION
Under Section 402 of the Business Corporation Law
ARTICLE I
NAME
The name by which the Corporation is to be known is Tompkins Financial Corporation.
ARTICLE II
PRINCIPAL OFFICE
The principal office of the Corporation is located in the County of Tompkins, State of New York.
ARTICLE III
PURPOSE
Subject to any limitation provided in the Business Corporation Law or any other statute of the State of New York and except as otherwise specifically provided in this Certificate, the purpose for which the Corporation is formed is to engage in any lawful act or activity for which a corporation may be organized under the New York Business Corporation Law, provided that the Corporation is not formed to, nor will it, engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained.
ARTICLE IV
CAPITAL STOCK
The aggregate total number of shares of capital stock which the Corporation shall have authority to issue is 28,000,000 shares, of which 25,000,000 shares shall be common stock with a par value of $0.10 each and 3,000,000 shares shall be preferred stock with a par value of $0.01 each. The Board of Directors of the Corporation (the Board of Directors) is authorized, subject to limitations prescribed by law, to provide for the issuance of the shares of preferred stock from time to time in one or more series. The Board of Directors is expressly authorized to provide for the issue of all or any of the shares of preferred stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or
38
limited, or no voting powers, and such designations, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such shares and as may be permitted by the New York Business Corporation Law. The Board of Directors is also expressly authorized to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of that series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.
ARTICLE V
BOARD OF DIRECTORS
SECTION 1. Number of Directors . The number of directors of the Corporation shall not be less than seven (7) nor more than nineteen (19), the exact number within such limits to be decided by the Board of Directors of the Corporation.
SECTION 2. Annual Election of Directors . Commencing with the 2008 Annual Meeting of Stockholders, Directors shall be elected at each Annual Meeting of Stockholders for a term which shall expire at the next Annual Meeting of Stockholders; provided, however, each Director elected prior to the 2008 Annual Meeting of Stockholders shall serve the term for which he or she was elected.
SECTION 3. Removal of Directors . Directors may not be removed without cause. Directors may be removed for cause at anytime only by the holders of not less than a majority of the outstanding shares of capital stock entitled to vote for the election of directors.
SECTION 4. Limitation of Liability of Directors . No director of the Corporation shall be personally liable to the Corporation or its stockholders for damages for any breach of duty in such capacity except where a judgment or other final adjudication adverse to said director establishes: that the directors acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law; that the director personally gained a financial profit or other advantage to which he was not entitled; or that the directors acts violated Section 719 of the New York Business Corporation Law. If the New York Business Corporation Law is further amended or if any other law is enacted to authorize corporation action further eliminating or limiting the personal liability of directors, then the liability of directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the New York Business Corporation Law, as amended or such other law.
SECTION 5. Amendments . The provisions set forth in this Article V may not be altered, amended, rescinded or repealed in any respect unless such action is approved by the affirmative vote of the holders of not less than seventy-five percent (75%) of the outstanding shares of capital stock entitled to vote, and not less than fifty percent (50%) of the shares beneficially owned by stockholders other than Interested Stockholders and their Affiliates and Associates, as such terms are hereafter defined. An Interested Stockholder for these purposes shall be any corporation, person or other entity which is (or is controlled by or is under common
39
control with) the beneficial owner, directly or indirectly, of shares possessing 20% or more of the votes of the outstanding shares of stock entitled to vote in the election of directors. The terms Affiliates and Associates shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as in effect on January 1, 1995.
SECTION 6. Vacancies . Vacancies in the Board of Directors (including any resulting from an increase in the number of Directors) created for any reason except the removal by the Stockholders of a Director or Directors, may be filled by affirmative vote of two-thirds of the Directors then in office. A Director elected by the Board of Directors to fill a vacancy under this Section shall hold office until the next meeting of Stockholders at which the election of directors is in the regular order of business, and until his successor has been duly elected or appointed and qualified.
ARTICLE VI
PREEMPTIVE RIGHTS
No holder of any class of shares of this Corporation shall be entitled, as such, as a matter of preemptive right, to subscribe for, purchase or otherwise acquire in any offering by this Corporation any part of a new or additional issue of shares of the Corporation of any class whatsoever, or of securities convertible into or exchangeable for shares of this Corporation of any class whatsoever, or of any warrants or other instruments evidencing rights or options to subscribe for, purchase or otherwise acquire such shares or securities, whether such shares be now or hereafter authorized and whether such shares, securities, or warrants or other instruments be issued for cash, property or services.
ARTICLE VII
FAIR PRICE PROVISION
Notwithstanding any other provision of this Certificate of Incorporation or any provision of law, (a) in the event (i) the merger or consolidation of the Corporation, (ii) the dissolution of the Corporation, or (iii) the sale, lease or exchange of all or substantially all of the assets of the Corporation, involves a corporation, person or other entity which is (or is controlled by or is under common control with) the beneficial owner, directly or indirectly, of shares possessing 20% or more of the votes of the outstanding shares of stock of the Corporation entitled to vote in the election of directors (hereinafter referred to as an Interested Stockholder), or (b) in the event of any reclassification of securities, recapitalization or other transaction which has the effect, directly or indirectly, of increasing an Interested Stockholder's proportionate share of the outstanding stock of any class of the Corporation (any such transaction set forth in (a) and (b) is hereinafter referred to as a Business Combination), then in addition to any other vote required under applicable law, the affirmative vote of the holders of at least 80% of the voting power of all of the then outstanding shares of each class of stock of the Corporation entitled to vote generally in the election of directors (excluding those shares beneficially owned by the Interested Stockholder) shall be necessary, except that the 80% stockholder vote required in this Article VII shall not be necessary if (y)such Business Combination has been approved by a majority of the Continuing Directors (as defined below), or (z) all of the following requirements have been met:
40
A. The aggregate amount of cash, and the Fair Market Value (as defined below) as of the date of the consummation of the Business Combination (the Consummation Date) of consideration, other than cash, to be received per share by holders of the outstanding Common Stock of the Corporation in such Business Combination shall be at least equal to the highest amount determined under clauses (1), (2) and (3) below:
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1. The highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it (a) within the two year period immediately prior to the first public announcement of the proposal of the Business Combination (the Announcement Date) or (b) in the transaction in which it became an Interested Stockholder (the date of such transaction being referred to herein as the Determination Date), whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest of a major bank headquartered in New York, New York selected by a majority of the Continuing Directors from time to time in effect less the aggregate amount of any cash dividends paid, and the Fair Market Value of any dividend paid other than in cash, per share of Common Stock from the Determination Date through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of Common Stock; |
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2. the Fair Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher; and |
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3. (if applicable) the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to clause (2) above, multiplied by the ratio of (a) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it within the two-year period immediately prior to the Announcement Date to (b) the Fair Market Value per share of Common Stock on the first day in such two-year period on which the Interested Stockholder acquired any shares of Common Stock. |
B. The consideration to be received by holders of outstanding Common Stock of the Corporation (hereinafter referred to as the Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Stock with equitable adjustments made for any stock splits or stock dividends. If the Interested Stockholder has paid for shares of Stock with varying forms of consideration, the form of consideration for such Stock shall be either cash or the form used to acquire the largest number of shares of such Stock previously acquired by it.
C. After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (1) except as approved by a majority of the Continuing Directors, there shall have been (a) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), and (b) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction
41
which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the continuing Directors; and (2) such Interested Stockholder shall have not become the beneficial owner of any additional shares of stock of the Corporation entitled to vote in the election of directors, except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder.
D. After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.
E. A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 (the Act), and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to the Act).
F. For the purpose of this Article VII:
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1. Affiliate and Associate shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulation under the Act, as in effect on January 1, 1995. |
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2. A person shall be a beneficial owner of any Stock: |
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(a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; |
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(b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or |
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(c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of stock. |
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3. Continuing Director means any member of the Board of Directors of the Corporation who is unaffiliated with, and not a nominee or representative of, the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director who is unaffiliated with, and not a nominee or representative of, the |
42
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Interested Stockholder and is recommended to succeed a Continuing Director by a majority of the Continuing Directors then serving as members of the Board. |
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4. The term Fair Market Value means: (a) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the principal United States securities exchange registered under the Act on which such stock is listed, or, if such stock is not listed on any such exchange but is listed as a National Market System stock in the National Association of Securities Dealers, Inc. Automated Quotation System, as reported in that National Market System, or, if such stock is not listed on any such exchange or reported in such system, the highest closing bid quotation with respect to a share of such stock during the 30-day period. |
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5. For the purposes of determining whether a person is an Interested Stockholder pursuant to this Article VII, the number of shares of Stock deemed to be outstanding shall include shares deemed owned through application of Subsection (z)(F)(2) but shall not include any other shares of Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. |
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6. Whenever the approval or a determination by a majority of the Continuing Directors is required or permitted by this Article VII, such approval shall be effective only if obtained at a meeting at which a quorum of Continuing Directors is present. |
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7. In the event of any Business Combination in which the Corporation survives, the phrase consideration other than cash as used in Subsection (z)(A) above shall include the shares of Common Stock retained by the holders of such shares. |
G. The directors of the Corporation shall have the power and duty to determine for the purpose of this Article VII, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article VII, including without limitation, (1) whether the person is an Interested Stockholder, (2) the number of shares of Stock beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another, and (4) whether the applicable conditions set forth in Subsection (z) above have been met with respect to any Business Combination.
H. Nothing contained in this Article VII shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.
I. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise, permit a lesser vote or no vote, the affirmative vote of the holders of at least 80% of the then outstanding shares of stock of the Corporation having voting power for the election of directors (excluding those shares beneficially owned by the Interested Stockholder) shall be required to alter, amend or repeal this Article VII.
43
ARTICLE VIII
BYLAWS
The Board of Directors of the Corporation is authorized to adopt, alter, amend, rescind or repeal from time to time any of the bylaws of the Corporation to the extent not inconsistent with this Certificate of Incorporation, provided that any such action may be altered, amended or repealed by a majority vote of the stockholders entitled to vote thereon. Notwithstanding the foregoing, any bylaw pertaining to the number, classification or removal of directors, call of special meetings of stockholders and adoption, amendment or repeal of the bylaws may not be adopted, altered, rescinded or repealed except by a vote of the majority of stockholders entitled to vote thereon.
ARTICLE IX
DESIGNATION OF AGENT FOR SERVICE OF PROCESS
The Secretary of State of the State of New York is hereby designated as the agent of the Corporation upon whom process in any action or proceeding against it may be served and the address to which the Secretary of State shall mail a copy of process in any action or proceeding against the Corporation which may be served upon him is Tompkins Financial Corporation, 110 North Tioga Street, Ithaca, New York 14850.
D. The foregoing amendments and the restatement of the Certificate of Incorporation were duly authorized by vote of the Board of Directors of the Corporation followed by the affirmative vote of the holders of a majority of all outstanding shares entitled to vote on the amendment and restatement at a duly called meeting of the shareholders of the Corporation.
IN WITNESS WHEREOF, I have signed this Certificate this 20 day of August, 2008.
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/s/ Linda M. Carlton |
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Linda M. Carlton |
|
Assistant Vice President and Secretary |
44
Exhibit 3(ii)
AMENDED AND RESTATED BYLAWS
OF
TOMPKINS FINANCIAL CORPORATION
As Amended through and including May 5, 2008
ARTICLE I
NAME
The name of the corporation is Tompkins Financial Corporation (the Corporation).
ARTICLE II
LOCATION
SECTION 1. Principal Office . The principal office of the Corporation shall be located in the County of Tompkins, State of New York.
SECTION 2. Additional Offices . The Corporation may also have offices at such other places within or without the State of New York as the Board of Directors may designate.
ARTICLE III
MEETING OF STOCKHOLDERS
SECTION 1. Annual Meeting . The Annual Meeting of the Stockholders of the Corporation shall be held in each calendar year at such time and place as may be fixed by the Board of Directors and stated in the notice, for the election of Directors and for the transaction of such other business as may properly be brought before such meeting.
SECTION 2. Special Meetings . Special Meetings of the Stockholders of the Corporation may be held at any time in the interval between Annual Meetings. Special Meetings may be called by the Chairman of the Board, the Vice Chairman of the Board, the President, or by request of a majority of the Stockholders, which written request shall state the purpose or purposes of the Meeting and matters proposed to be acted upon thereat. Nothing contained herein shall limit the right and power of Directors and Stockholders to require a Special Meeting as may otherwise be prescribed by statute.
SECTION 3. Place of Meetings . Annual and Special Meetings of the Stockholders of the Corporation shall be held at the principal office of the Corporation or at such other place within or without the State of New York as the Board of Directors may from time to time determine.
SECTION 4. Notice of Meetings; Waiver . Written or printed notice of the date, time and place of all meetings of the Stockholders shall be given electronically, personally, or by first class mail, not less than 10 days nor more than 60 days before the date fixed for the meeting, to each Stockholder entitled to vote at said meeting. Unless the meeting is an Annual Meeting, such notice must also state the purpose or purposes for which the meeting is called and must indicate that it is being issued by or at the direction of the person or persons calling the meeting. If, at any meeting, action is proposed to be taken which would, if taken, entitle Stockholders fulfilling the requirements of section 623 of the New York Business Corporation Law to receive payment for their shares, the notice of such meeting shall include a statement of that purpose and to that effect and shall be accompanied by a copy of section 623 of the New York Business Corporation Law or an outline of its material terms. If notice of meeting is given personally, such notice shall be given to the Stockholder by leaving the same with him or her at his or her residence or usual place of business. If mailed, notice shall be deposited in the United States mail, with postage thereon paid, directed to the Stockholder at
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his or her address as it appears on the record of Stockholders, or, if he or she shall have filed with the Corporate Secretary of the Corporation, a written request that notices intended for him or her be mailed to some other address, then directed to him or her at such other address. If the notice of meeting is given electronically, such notice is given when directed to the Stockholders electronic mail address as supplied by the Stockholder to the Corporate Secretary or as otherwise designated by the Stockholders authorization or instruction.
The notices, as provided for in this Section 4 of Article III of these Bylaws, are not required to be given to any Stockholder who submits a signed waiver (including a facsimile signature) of notice, in person or by proxy, whether before or after the meeting. Waiver of notice may be written or electronic. The attendance of any Stockholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by such Stockholder. No notice of an adjourned meeting of Stockholders need be given, unless the Board of Directors fixes a new record date for the adjourned meeting.
SECTION 5. Record Dates . For the purposes of determining the Stockholders entitled to notice of or to vote at any Stockholders meeting or any adjournment thereof, the Board of Directors may fix a date of record for such determination, which shall not be more than 60 days nor less than 10 days before the date of such meeting. For the purpose of determining Stockholders entitled to express consent to or dissent from any proposal without a meeting, or for determining Stockholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix a date of record which shall not be more than 60 days prior to such action.
SECTION 6. Quorum . At all meetings of Stockholders, except as otherwise provided by law or the Corporations certificate of incorporation, a quorum shall exist if there is present in person or represented by proxy, Stockholders owning a majority of the number of the shares of the Corporation issued and outstanding and entitled to vote at such meeting, in order to constitute a quorum. When a quorum is present, it is not broken by the subsequent withdrawal of any Stockholders. In the absence of a quorum, the Stockholders present may adjourn the meeting, and at the adjourned meeting, any business may be transacted which might have been transacted at the original meeting.
SECTION 7. Adjournment . If a quorum is not present at any annual or special meeting, the Stockholders present, in person or by proxy, may by the affirmative vote of a majority of the holders of shares entitled to vote, adjourn the meeting to a future date and time as they shall determine. Any meeting at which a quorum is present may also be adjourned in a like manner.
No notice of an adjourned meeting of Stockholders need be given unless the Board of Directors fixes a new record date for the adjourned meeting. At any adjournment, provided a quorum is present, any action may be taken and any business may be transacted which might have been transacted at the meeting as originally called.
SECTION 8. Voting; Proxies . At all meetings of the Stockholders, each Stockholder entitled to vote thereat may vote in person or by proxy, and shall have one (1) vote for each share of common stock of the Corporation, standing in his or her name on the books of the Corporation as of the record date fixed for the meeting, unless otherwise provided in the Corporations certificate of incorporation or any amendments thereto. Each Stockholder entitled to vote at a meeting of Stockholders may vote in person, or may authorize another person or persons to act for him or her by proxy. Without limiting the manner in which a Stockholder may authorize another person or persons to act for him or her as proxy, a Stockholder may execute (as may be accomplished under applicable law) a writing authorizing another person or persons to act for him or her as proxy and a Stockholder may authorize another person or persons to act for the Stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission. Nothing contained herein shall or is intended to limit the manner in which a
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Stockholder may authorize or grant authority to another person or persons to act for him or her as proxy under applicable law. A plurality of votes cast shall be sufficient to elect Directors, and a majority of votes cast shall be sufficient to take any other corporate action, except as otherwise provided by law or the Corporations certificate of incorporation.
SECTION 9. Conduct of Meetings . Meetings of the Stockholders shall be presided over by the Chairman of the Board of Directors, if any, or, in his or her absence, by the Chief Executive Officer of the Corporation, or, in the absence of both of them, by the President, if any, or, in the absence of all such officers, by a chairman to be chosen at the meeting. The Corporate Secretary shall act as secretary of the meeting.
SECTION 10. Stockholder Business; Advance Notice Procedures .
(a) At an annual or special meeting of the Stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting of Stockholders business must be (i) specified in the notice of the meeting given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a Stockholder in accordance with this Section 10, of Article III of these Bylaws.
(b) For business to be properly brought before an annual meeting by a Stockholder, the Stockholder must (i) be a Stockholder of record of the Corporation at the time of giving of notice provided for in this Section 10, (ii) be entitled to vote at the meeting, and (iii) have complied with the notice procedures set forth in this Section 10.
(c) For business to be properly brought before an annual meeting by a Stockholder: (i) the Stockholder must have given timely notice thereof in writing to the Corporate Secretary and (ii) the subject matter thereof must be a matter which is a proper subject matter for Stockholder action. To be considered timely, a Stockholders notice shall be delivered to the Corporate Secretary at the principal executive offices of the Corporation not less than the close of business on the 120th calendar day prior to the date on which the Corporation first mailed its proxy materials for the previous years annual meeting of Stockholders; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed (other than as a result of adjournment) by more than 30 days from the anniversary of the previous years annual meeting, notice by the Stockholder to be timely must be delivered not later than the close of business on the later of the 60th calendar day prior to such annual meeting or the 10th calendar day following the day on which public announcement of the date of such meeting is first made. Such Stockholders notice shall set forth as to each matter the Stockholder proposes to bring before the annual meeting (i) a description in reasonable detail of the business desired to brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporations books, of the Stockholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made, (iii) the number of shares of the Corporation that are owned beneficially and of record by the Stockholder proposing such business and by the beneficial owner, if any, on whose behalf the proposal is made, and (iv) any personal or other material interest of such Stockholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made in such business. In addition, a Stockholder seeking to submit such business at an annual meeting shall promptly provide any other information reasonably requested by the Corporation.
(d) In no event shall the public announcement of an adjournment of an annual meeting or special meeting of Stockholders commence a new time period for the giving of a Stockholders notice as described herein.
(e) Notwithstanding the provisions of this Section 10 of this Article III, a Stockholder must also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 10 of this Article III. For purposes of this Article III, Section 10, public announcement means disclosure in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service or in a document
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publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended, or furnished to Stockholders.
(f) The determination of whether any business sought to be brought before any annual or special meeting of Stockholders is properly brought before the meeting in accordance with the procedures set forth in this Section 10, will be made by the presiding officer of the meeting. If the presiding officer determines that any business is not properly brought before such meeting, he or she will so declare to the meeting and any such business will not be conducted or considered.
SECTION 11. Action Without a Meeting . Whenever Stockholders are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken, signed by the holders of all outstanding shares entitled to vote thereon. Such written consent shall have the same effect as a unanimous vote of Stockholders. Nothing contained herein shall limit the holders of less than all outstanding shares to take corporate action upon their written consent if authorized by the Corporations certificate of incorporation.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 1. Election and Powers . The Board of Directors shall have the management and control of the affairs and business of the Corporation. The Directors shall be elected by the Stockholders at each annual meeting of Stockholders and each Director shall serve until his or her successor is elected or appointed and qualified, unless his or her directorship be theretofore vacated by resignation, death, removal or otherwise.
SECTION 2. Number . The number of Directors constituting the entire Board of Directors shall not be less than seven (7) nor more than nineteen (19), the exact number within such limits to be decided by the Board of Directors of the Corporation by resolution of the Board of Directors adopted prior to the election of Directors at the Annual Meeting of Stockholders. In the absence of such resolution the number of Directors to be elected at such Annual Meeting shall be the number last fixed by the Board of Directors. Any Board action designating a change in the number of Directors shall require a vote of a majority of the entire Board. The entire Board, as used in this Article, shall mean the total number of Directors which the Corporation would have if there were no vacancies.
SECTION 3. Annual Election of Directors. Commencing with the 2008 Annual Meeting of Stockholders, Directors shall be elected at each Annual Meeting of Stockholders for a term which shall expire at the next Annual Meeting of Stockholders; provided, however, each Director elected prior to the 2008 Annual Meeting of Stockholders shall serve the term for which he or she was elected.
SECTION 4. Mandatory Retirement . The age of 72 is the mandatory retirement age for all Directors. No person who has attained the age of 72 as of the date of the Annual Meeting of Stockholders may stand for election or re-election to any Directors position to be filled at such meeting. On reaching age 72, a Directors term shall expire at the end of the calendar quarter in which he reaches the age of 72.
SECTION 5. Vacancies . Vacancies in the Board of Directors (including any resulting from an increase in the number of Directors) created for any reason except the removal by the Stockholders of a Director or Directors, may be filled by affirmative vote of two-thirds of the Directors then in office. A Director elected by the Board of Directors to fill a vacancy under this Section shall hold office until the next meeting of Stockholders at which the election of Directors is in the regular order of business, and until his successor has been duly elected or appointed and qualified.
SECTION 6. Removal . At any meeting of the Stockholders duly called, any Director may, by vote of the holders of a majority of the shares entitled to vote in the election of Directors, be removed from office with cause.
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SECTION 7. Meetings of the Directors . The Board of Directors shall hold an Annual Meeting each calendar year at such time and place as the Directors shall determine. The Board of Directors shall hold special and regular meetings of the Board of Directors at such times as the Board of Directors may determine; provided, however, that the Board shall hold regular meetings no less frequently than quarterly. Special meetings of the Board of Directors shall be held at any time, upon call from the Chairman of the Board, the Vice Chairman of the Board, the President or at least three of the Directors.
SECTION 8. Place of Meetings . Meetings of the Board of Directors shall be held at the principal office of the Corporation or at such other place, within or without the State of New York, as the Board of Directors may from time to time determine.
SECTION 9. Notice of Meeting . Notice of each regular, special or annual meeting of the Board of Directors, stating the time and place thereof shall be given by the Corporate Secretary, any Assistant Secretary or any member of the Board to each member of the Board not less than two days before the meeting by depositing such notice in the United States mail, with first-class mail postage thereon prepaid, directed to each member of the Board at his or her residence or usual place of business appearing on the records of the Corporation, or by either delivering the same to a Director personally, or sending the same by electronic mail, facsimile or telegraph to the address designated by him or her for such purpose. In the event a meeting is to be held on the same day upon which it is called, each Director shall be notified on that day by telephone or by personal notice or by telecopy or by electronic mail or by leaving a written notice at his or her residence or place of business. The notice need not specify the purpose of the meeting. No notice of any adjourned meeting of the Board of Directors need be given other than by announcement at the meeting, subject to the provisions of Section 11 of this Article.
SECTION 10. Waiver of Notice . Notice of a meeting need not be given to any Director who submits a signed waiver thereof, whether before, during or after the meeting, nor to any Director who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him or her.
SECTION 11. Quorum . A majority of the entire Board shall be necessary to constitute a quorum for the transaction of business at each meeting of the Board of Directors; but if at any meeting there be less than a quorum present, a majority of those Directors present may adjourn the meeting to another time and place without notice other than by announcement at the meeting, until a quorum shall attend. At any such adjournment, at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. Except as otherwise prescribed by law or by the Corporations certificate of incorporation, the vote of a majority of the Directors present, if a quorum is present at such time, shall constitute the action of the Board of Directors.
SECTION 12. Action Without a Meeting . Any action required or permitted to be taken by the Board of Directors or any committee thereof at a duly held meeting may be taken without a meeting if all members of the Board of Directors or the committee consent in writing to the adoption of a resolution authorizing the action. Such resolution and the written consents thereto by the members of the Board of Directors or committee shall be filed with the minutes of the proceedings of the Board of Directors or the committee.
SECTION 13. Personal Attendance by Conference Communication Equipment . Any one or more members of the Board of Directors or any committee thereof may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting.
SECTION 14. Compensation . Directors may receive compensation for their services as Directors (including but not limited to reimbursement of expenses and fees for service on committees of the Board of Directors) as determined from time to time by the Board of Directors. Nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity as an officer, agent, employee or otherwise, and receiving compensation therefor.
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SECTION 15. Designation of Committees . The Board of Directors, by resolution or resolutions adopted by a majority of the entire board, shall designate from among its members an executive committee, compensation committee, audit committee, nominating committee, a corporate governance committee or any other committee, each consisting of three or more Directors, and may designate from among its members other committees, each consisting of such number of Directors as the Board may from time to time determine, provided that the composition of each committee shall comply with all applicable independence, expertise and such other requirements prescribed from time to time by applicable law or stock exchange rules. Nothing in this Section 15 of Article IV will be construed to preclude combining the duties, responsibilities and purposes of one named committee into one committee, so that, for example, the corporate governance committee may also perform the duties of the nominating committee, unless otherwise prohibited by applicable law or stock exchange rules. The executive committee shall have, and may exercise between meetings of the Board of Directors, all the powers of the Board of Directors in the management of the business and affairs of the Corporation, and other committees shall have those powers conferred upon them by the Board of Directors, except that no committee shall have power:
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to amend or repeal any Board resolution which is not, by its terms, amendable or repealable by such committee; |
In the absence of any member of the executive committee or of any other committee, the members thereof present at any meeting may appoint a member of the Board of Directors previously designated by the Board of Directors as a committee alternate to act in place of such absent member. The Board of Directors shall have the power at any time to change the membership of any committee, to fill vacancies in it, or dissolve it. The executive committee and any other committee may make rules for the conduct of its business, and may appoint such committees and assistants as may from time to time be necessary, unless the Board of Directors shall provide otherwise. A majority of the members of the executive committee and of any other committee shall constitute a quorum unless otherwise required by applicable law or stock exchange rules. The executive committee and any other committee shall keep minutes of all meetings of such committee, which minutes shall be made available to the Board of Directors, and shall make regular reports to the Board of Directors.
ARTICLE V
OFFICERS
SECTION 1. Election of Officers . The Board of Directors, at the annual meeting thereof, shall elect a Chief Executive Officer, President, one or more Vice Presidents, a Corporate Secretary and a Treasurer, and may elect a Chairman of the Board, a Vice Chairman of the Board and such other officers as it may determine, and may at any other meeting and from time to time elect or appoint such additional officers as it may determine. Such additional officers shall have such authority and perform such duties as the Board of Directors may from time to time prescribe. The Chief Executive Officer, President, Chairman of the Board, if so elected, and Vice Chairman of the Board, if so elected, shall hold office until the next annual meeting of the Board of Directors and until their successors are elected, unless sooner disqualified or removed in the manner provided in Section 3 of this Article V. All other officers appointed or elected by the Board shall serve at the pleasure of the Board of Directors or until his or her successor shall have been duly elected or appointed and qualifies, or until he or she shall have resigned, shall have deceased or shall have been removed in the manner provided in Section 3 of this Article V. Any two or more offices may be held by the
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same person. Any vacancies in the above offices shall be filled by the Board of Directors at any duly held meeting thereof.
SECTION 2. Removal . Any officers of the Corporation may be removed with or without cause by a vote of the Board of Directors of the Corporation at a meeting called for that purpose whenever in its judgment the best interests of the Corporation may be served thereby.
SECTION 3. Compensation . The compensation committee, or in the absence of the compensation committee, a majority of the independent directors on the Board of Directors of the Corporation, shall determine, or recommend to the Board for determination, the salary and other compensation of the Chief Executive Officer of the Corporation, and the salaries and compensation of such other officers of the Corporation as shall be determined by the Board of Directors.
SECTION 4. Chairman of the Board . The Chairman of the Board, if there be one, shall preside at all meetings of the Stockholders and meetings of the Board of Directors and shall perform such other duties as the Board of Directors may direct. The Chairman of the Board may be designated as Chief Executive Officer of the Corporation, and if so designated, shall have general supervision of the policies of the Corporation subject to the direction and control of the Board of Directors.
SECTION 5. Vice Chairman of the Board . The Vice Chairman of the Board, if there be one, shall serve as chairman of the executive committee. He or she shall act in the absence of or inability of the Chairman of the Board to act. In the absence of the Chairman of the Board, the Vice Chairman of the Board shall have the same powers given to the Chairman of the Board as contained in all Sections of these Bylaws.
SECTION 6. The Chief Executive Officer. The Chief Executive Officer shall, under the control of the Board of Directors and the executive committee, have the general management of the Corporations business affairs and property and shall exercise general supervision over all activities of the Corporation and the other officers. If there be no Chairman of the Board or Vice Chairman of the Board, or in his, her or their absence or inability to act, the Chief Executive Officer shall perform all duties of the Chairman of the Board, subject, however, to the control of the Board of Directors (or the executive committee).
SECTION 7. President . The President of the Corporation shall, subject to the direction of the Board of Directors (or the executive committee) and subject to the supervision, control and authority of the Chief Executive Officer, have general management of the business and affairs of the Corporation. In the absence or incapacity of the Chief Executive Officer the powers and duties of that office shall be vested in the President, subject, however, to the control of the Board of Directors (or the executive committee).
SECTION 8. Vice Presidents . Any one or more of the Vice Presidents may be designated by the Board of Directors (or the executive committee) as an Executive Vice President or Senior Vice President. At the request of the President, or in his or her absence or during his or her disability, the Executive Vice President shall perform the duties and exercise the functions of the President. If there be no Executive Vice President, or if there be more than one, the Board of Directors (or the executive committee) shall determine which one or more of the Vice Presidents shall perform any of such duties or exercise any of such functions. Each Vice President shall have such other powers and duties as may be properly designated by the Board of Directors (or the executive committee) and the Chief Executive Officer, or such other executive officer(s) or committee of the Board of Directors as authorized by the Board of Directors.
SECTION 9. Corporate Secretary . The Corporate Secretary shall keep full minutes of all meetings of the Stockholders and of the Board of Directors in books provided for that purpose. The Corporate Secretary shall see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law. The Corporate Secretary shall be the custodian of the records and of the seal or seals of the Corporation. The Corporate Secretary shall affix the corporate seal to all documents, the execution of which on behalf of the Corporation, under the seal, is duly authorized by the Board of Directors (or executive committee), and when so affixed may attest the same. The Corporate Secretary shall have such other powers
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and duties as may be properly designated by the Board of Directors (or the executive committee) and the Chief Executive Officer, or such other executive officer(s) or committee of the Board of Directors as authorized by the Board of Directors.
SECTION 10. Treasurer . The Treasurer shall be the Chief Financial Officer of the Corporation and shall keep correct and complete books and records of account for the Corporation. Subject to the control and supervision of the Board of Directors (or the executive committee) and the Chief Executive Officer, or such other executive officer(s) or committee of the Board of Directors as the Board of Directors may designate, the Treasurer shall handle all receipts, deposits, disbursements and banking arrangements and any other financial matters on behalf of the Corporation. The Treasurer shall perform all other duties incident to the office of Treasurer and shall have such other powers and duties as may be properly designated by the Board of Directors (or the executive committee) and the Chief Executive Officer, or such other executive officer(s) or committee of the Board of Directors as the Board of Directors may designate.
SECTION 11. Assistant and Subordinate Officers . The Board of Directors (or the executive committee) may elect one or more Assistant Treasurers, one or more Assistant Secretaries and such other subordinate officers or agents as it may deem proper from time to time, who shall hold office at the pleasure of the Board of Directors (or the executive committee). Such additional officers shall have such authority and perform such duties as the Board of Directors (or the executive committee) may from time to time prescribe. The Board of Directors may from time to time authorize the Chief Executive Officer or such other executive officer or committee of the Board of Directors to appoint and remove such assistant and subordinate officers and agents and prescribe the powers and duties thereof.
SECTION 12. Retirement . An officer of the Corporation may be compelled to retire from service at the end of the calendar year in which he or she reaches the age of 65 years, provided that such officers compulsory retirement is otherwise permitted by applicable state and federal law. In any event, any officer whose compulsory retirement is allowable by law may continue to serve if requested by the Board of Directors and approved by an affirmative vote of the majority of the entire Board of Directors.
ARTICLE VI
SHARE CERTIFICATES
SECTION 1. Form and Signatures . The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Within a reasonable time after the issue or transfer of shares without certificates, the Corporation shall send or cause its transfer agent or registrar to send the registered owner thereof a written statement of the information required on certificates by the New York Business Corporation Law. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, the Chairman of the Board or a Vice-Chairman of the Board or the President or a Vice President and by the Corporate Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or facsimile thereof. Where any share certificate is countersigned by a transfer agent or registered by a registrar, other than the Corporation itself or its employees, or if the shares are listed on a registered national security exchange, the signatures of any such Chairman of the Board, Vice-Chairman of the Board, President, Vice President, Corporate Secretary, Assistant Secretary, Treasurer or Assistant Treasurer may be facsimiles engraved or printed. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before the share certificate is issued, such certificate may be issued by the Corporation with the same effect as if such person had not ceased to be such officer.
SECTION 2. Transfer of Shares . Shares of stock of the Corporation shall be transferred on the books of the Corporation only (1) upon presentation and surrender of the appropriate certificate by the registered holder of such shares in person or by his or her duly authorized attorney or by a person presenting proper
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evidence of succession, assignment or authority to transfer such shares or (2) in the case of uncertificated shares upon receipt of proper transfer instructions from the registered holder of such shares or from a duly authorized attorney or upon presentation of proper evidence of succession, assignment or authority to transfer such shares. Except as otherwise provided by law, the Corporation shall be entitled to treat the holder of record of any share as the owner thereof and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof. The Board of Directors, to the extent permitted by law, shall have power and authority to make all rules and regulations as it may deem proper or expedient concerning the issue, transfer and registration of shares of stock and may appoint one or more transfer agents and registrars of the shares of the Corporation.
SECTION 3. Mutilated, Lost, Stolen or Destroyed Certificates . The holder of any certificates representing shares of the Corporation shall immediately notify the Corporation of any mutilation, loss, theft or destruction thereof, and the Board of Directors may, in its discretion, cause one or more new certificates, for the same number of shares in aggregate, to be issued to such holder upon the surrender of the mutilated certificate, or, in case of an alleged loss, theft or destruction of the certificate, upon satisfactory proof of such loss, theft or destruction and the deposit of indemnity, by way of bond or otherwise, in such form and amount and with such sureties as the Board of Directors may require, to indemnify the Corporation and transfer agent and registrar, if any, against loss or liability by reason of the issuance of such new certificates; but the Board of Directors may, in its discretion, refuse to issue such new certificates except upon the order of some court having jurisdiction in such matters.
SECTION 4. Stock Ledgers . The Stock Ledgers of the Corporation containing the names and addresses of the Stockholders and the number of shares held by them respectively shall be maintained at the principal office of the Corporation, or if there be a transfer agent, at the office of such transfer agent, as the Board of Directors shall determine.
SECTION 5. Transfer Agents and Registrars . The Corporation may have one or more transfer agents and one or more registrars of its stock or of any class or classes of its shares whose respective duties the Board of Directors may from time to time determine.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
SECTION 1. Indemnification of Directors and Officers . Each Director and officer of the Corporation, whether or not then in office, and any person whose testator or intestate was such a Director or officer, shall be indemnified by the Corporation for the defense of, or in connection with, any threatened, pending or completed actions or proceedings and appeals therein, whether civil, criminal, governmental, administrative or investigative, in accordance with and to the fullest extent permitted by the Business Corporation Law of the State of New York or other applicable law, as such law now exists or may hereafter be amended; provided, however, that the Corporation shall provide indemnification in connection with an action or proceeding (or part thereof) initiated by such a Director or officer only if such action or proceeding (or part thereof) was authorized by the Board of Directors. The Corporation and its Directors and officers are hereby authorized to enter into agreements for indemnification. The Corporation is further hereby authorized to indemnify its employees and agents to the fullest extent permitted by law.
SECTION 2. Advancement of Expenses . Expenses incurred by a Director or officer in connection with any action or proceeding as to which indemnification may be given under Section 1 of this Article VII may be paid by the Corporation in advance of the final disposition of such action or proceeding upon (a) receipt of an agreement by or on behalf of such Director or officer to repay such advancement in the event that such Director or officer is ultimately found not to be entitled to indemnification as authorized by this Article VII and (b) approval by the Board of Directors acting by a quorum consisting of Directors who are not parties to such action or proceeding or, if such a quorum is not obtainable, then approval by Stockholders. To the extent permitted by law, the Board of Directors or, if applicable, the Stockholders, shall not be required under this Section 2 of Article VII, to find that the Director or officer has met the applicable standard of conduct provided by law for indemnification in connection with such action or proceeding.
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SECTION 3. Availability and Interpretation . To the extent permitted under applicable law, the rights of indemnification and to the advancement of expenses provided in this Article VII (a) shall be available with respect to events occurring prior to the adoption of this Article VII, (b) shall continue to exist after any rescission or restrictive amendment of this Article VII with respect to events occurring prior to such rescission or amendment, (c) may be interpreted on the basis of applicable law in effect at the time of the occurrence of the event or events giving rise to the action or proceeding, or on the basis of applicable law in effect at the time such rights are claimed, and (d) are in the nature of contract rights which may be enforced in any court of competent jurisdiction as if the Corporation and the Director or officer for whom such rights are sought were parties to a separate written agreement.
SECTION 4. Other Rights . The rights of indemnification and to the advancement of expenses provided in this Article VII shall not be deemed exclusive of any other rights to which any such Director, officer or other person may now or hereafter be otherwise entitled whether contained in the certificate of incorporation of the Corporation, these Bylaws, a resolution of Stockholders, a resolution of the Board of Directors, or an agreement providing such indemnification, the creation of such other rights being hereby expressly authorized. Without limiting the generality of the foregoing, the rights of indemnification and to the advancement of expenses provided in this Article VII shall not be deemed exclusive of any rights, pursuant to statute or otherwise, of any such Director, officer or other person in any such action or proceeding to have assessed or allowed in his or her favor, against the Corporation or otherwise, his or her costs and expenses incurred therein or in connection therewith or any part thereof.
SECTION 5. Insurance . The Board of Directors may, in its sole discretion, authorize the Corporation to purchase liability insurance to indemnify its Directors, officers and employees as permitted by law.
SECTION 6. Severability . If this Article VII or any part hereof shall be held unenforceable in any respect by a court of competent jurisdiction, it shall be deemed modified to the minimum extent necessary to make it enforceable, and the remainder of this Article VII shall remain fully enforceable.
ARTICLE VIII
FINANCES
SECTION 1. Dividends . Subject to law and to the provisions of the certificate of incorporation of the Corporation, and any amendments thereof, the Board of Directors may declare dividends on the stock of the Corporation, payable upon such dates as the Board of Directors may designate.
SECTION 2. Reserves . Before payment of any dividends, there may be set aside out of any funds of the Corporation available for dividends such sum or sums, as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall deem conducive to the interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
SECTION 3. Bills, Notes, Etc. All checks or demands for money and notes or other instruments evidencing indebtedness or obligations of the Corporation shall be made in the name of the Corporation and shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
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ARTICLE IX
AMENDMENTS
SECTION 1. Power to Amend . Except as otherwise provided by law or by the certificate of incorporation of the Corporation or these Bylaws, the Board of Directors shall have the power to adopt, amend, rescind or repeal the Bylaws of the Corporation at any regular or special meeting of the Board. However, any such action by the Board of Directors may be altered, amended or repealed by a majority vote of the holders of shares entitled at the time to vote in the election of Directors.
SECTION 2. Notice of Amendment Affecting Election of Directors . If any Bylaw regulating an impending election of Directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the Notice of the next Meeting of Stockholders for the election of Directors the Bylaw so adopted, amended or repealed, together with a concise statement of the changes made.
ARTICLE X
CORPORATE SEAL
The seal of the Corporation shall be in the form of a circle, inscribed with the name of the Corporation, and the word seal. The Corporate Secretary, and any other officers authorized by the Board of Directors, shall be empowered to use and affix the corporate seal on all documents.
ARTICLE XI
MISCELLANEOUS
All pronouns and any variations thereof, including references to Chairman, shall be deemed to be gender neutral.
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