United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to ______
Commission File Number 1-12709
Tompkins Financial Corporation
(Exact name of registrant as specified in its charter)
New York | 16-1482357 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
The Commons, P.O. Box 460, Ithaca, NY | 14851 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (888) 503-5753
Former name, former address, and former fiscal year, 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 ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐.
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 the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☐ | Accelerated Filer ☒ | |
Non-Accelerated Filer ☐ (Do not check if a smaller reporting company) | Smaller Reporting Company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒.
Indicate the number of shares of the Registrant’s Common Stock outstanding as of the latest practicable date:
Class | Outstanding as of October 31, 2016 | |||
Common Stock, $0.10 par value |
15,055,954 shares |
1 |
TOMPKINS FINANCIAL CORPORATION
FORM 10-Q
INDEX
2 |
TOMPKINS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share and per share data) | As of | As of | ||||||
ASSETS | 09/30/2016 | 12/31/2015 | ||||||
(unaudited) | (audited) | |||||||
Cash and noninterest bearing balances due from banks | $ | 177,342 | $ | 56,261 | ||||
Interest bearing balances due from banks | 2,244 | 1,996 | ||||||
Cash and Cash Equivalents | 179,586 | 58,257 | ||||||
Trading securities, at fair value | 0 | 7,368 | ||||||
Available-for-sale securities, at fair value (amortized cost of $1,352,845 at September 30, 2016 and $1,390,255 at December 31, 2015) | 1,371,111 | 1,385,684 | ||||||
Held-to-maturity securities, at amortized cost (fair value of $151,626 at September 30, 2016 and $146,686 at December 31, 2015) | 144,650 | 146,071 | ||||||
Originated loans and leases, net of unearned income and deferred costs and fees | 3,672,539 | 3,310,768 | ||||||
Acquired loans and leases, covered | 0 | 14,031 | ||||||
Acquired loans and leases, non-covered | 417,008 | 447,243 | ||||||
Less: Allowance for loan and lease losses | 34,112 | 32,004 | ||||||
Net Loans and Leases | 4,055,435 | 3,740,038 | ||||||
Federal Home Loan Bank and other stock | 34,246 | 29,969 | ||||||
Bank premises and equipment, net | 63,687 | 60,331 | ||||||
Corporate owned life insurance | 77,409 | 75,792 | ||||||
Goodwill | 92,623 | 91,792 | ||||||
Other intangible assets, net | 11,902 | 12,448 | ||||||
Accrued interest and other assets | 71,566 | 82,245 | ||||||
Total Assets | $ | 6,102,215 | $ | 5,689,995 | ||||
LIABILITIES | ||||||||
Deposits: | ||||||||
Interest bearing: | ||||||||
Checking, savings and money market | 2,618,465 | 2,401,519 | ||||||
Time | 877,427 | 855,133 | ||||||
Noninterest bearing | 1,194,408 | 1,138,654 | ||||||
Total Deposits | 4,690,300 | 4,395,306 | ||||||
Federal funds purchased and securities sold under agreements to repurchase | 77,218 | 136,513 | ||||||
Other borrowings, including certain amounts at fair value of $0 at September 30, 2016 and $10,576 at December 31, 2015 | 671,000 | 536,285 | ||||||
Trust preferred debentures | 37,638 | 37,509 | ||||||
Other liabilities | 64,869 | 67,916 | ||||||
Total Liabilities | $ | 5,541,025 | $ | 5,173,529 | ||||
EQUITY | ||||||||
Tompkins Financial Corporation shareholders’ equity: | ||||||||
Common Stock - par value $.10 per share: Authorized 25,000,000 shares; Issued: 15,091,864 at September 30, 2016; and 15,015,594 at December 31, 2015 | 1,509 | 1,502 | ||||||
Additional paid-in capital | 357,468 | 350,823 | ||||||
Retained earnings | 221,235 | 197,445 | ||||||
Accumulated other comprehensive loss | (16,660 | ) | (31,001 | ) | ||||
Treasury stock, at cost – 116,203 shares at September 30, 2016, and 116,126 shares at December 31, 2015 | (3,912 | ) | (3,755 | ) | ||||
Total Tompkins Financial Corporation Shareholders’ Equity | 559,640 | 515,014 | ||||||
Noncontrolling interests | 1,550 | 1,452 | ||||||
Total Equity | $ | 561,190 | $ | 516,466 | ||||
Total Liabilities and Equity | $ | 6,102,215 | $ | 5,689,995 |
3 |
TOMPKINS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended | Nine Months Ended | |||||||||||||||
(In thousands, except per share data) (Unaudited) | 09/30/2016 | 09/30/2015 | 09/30/2016 | 09/30/2015 | ||||||||||||
INTEREST AND DIVIDEND INCOME | ||||||||||||||||
Loans | $ | 43,057 | $ | 39,235 | $ | 125,378 | $ | 114,670 | ||||||||
Due from banks | 2 | 1 | 5 | 3 | ||||||||||||
Trading securities | 62 | 86 | 220 | 270 | ||||||||||||
Available-for-sale securities | 6,683 | 7,031 | 21,498 | 22,219 | ||||||||||||
Held-to-maturity securities | 898 | 915 | 2,712 | 2,185 | ||||||||||||
Federal Home Loan Bank and other stock | 375 | 262 | 990 | 834 | ||||||||||||
Total Interest and Dividend Income | 51,077 | 47,530 | 150,803 | 140,181 | ||||||||||||
INTEREST EXPENSE | ||||||||||||||||
Time certificates of deposits of $250,000 or more | 402 | 369 | 1,214 | 1,058 | ||||||||||||
Other deposits | 2,291 | 2,284 | 6,764 | 6,837 | ||||||||||||
Federal funds purchased and securities sold under agreements to repurchase | 630 | 685 | 1,940 | 2,020 | ||||||||||||
Trust preferred debentures | 600 | 583 | 1,783 | 1,726 | ||||||||||||
Other borrowings | 1,837 | 1,223 | 4,840 | 3,596 | ||||||||||||
Total Interest Expense | 5,760 | 5,144 | 16,541 | 15,237 | ||||||||||||
Net Interest Income | 45,317 | 42,386 | 134,262 | 124,944 | ||||||||||||
Less: Provision for loan and lease losses | 782 | 281 | 2,615 | 1,412 | ||||||||||||
Net Interest Income After Provision for Loan and Lease Losses | 44,535 | 42,105 | 131,647 | 123,532 | ||||||||||||
NONINTEREST INCOME | ||||||||||||||||
Insurance commissions and fees | 7,729 | 7,564 | 22,808 | 22,341 | ||||||||||||
Investment services income | 3,735 | 3,674 | 11,355 | 11,518 | ||||||||||||
Service charges on deposit accounts | 2,203 | 2,410 | 6,559 | 6,812 | ||||||||||||
Card services income | 2,037 | 2,001 | 5,980 | 5,844 | ||||||||||||
Mark-to-market loss on trading securities | (76 | ) | (69 | ) | (182 | ) | (206 | ) | ||||||||
Mark-to-market gain on liabilities held at fair value | 77 | 81 | 227 | 226 | ||||||||||||
Other income | 1,745 | 1,669 | 4,819 | 6,390 | ||||||||||||
Gain on sale of available-for-sale securities | 455 | 92 | 926 | 1,105 | ||||||||||||
Total Noninterest Income | 17,905 | 17,422 | 52,492 | 54,030 | ||||||||||||
NONINTEREST EXPENSES | ||||||||||||||||
Salaries and wages | 19,801 | 18,357 | 58,123 | 54,319 | ||||||||||||
Pension and other employee benefits | 5,218 | 5,368 | 15,435 | 10,843 | ||||||||||||
Net occupancy expense of premises | 3,046 | 2,891 | 9,193 | 9,303 | ||||||||||||
Furniture and fixture expense | 1,707 | 1,532 | 4,973 | 4,465 | ||||||||||||
FDIC insurance | 783 | 729 | 2,388 | 2,218 | ||||||||||||
Amortization of intangible assets | 524 | 496 | 1,572 | 1,503 | ||||||||||||
Other operating expense | 9,245 | 8,509 | 27,534 | 27,841 | ||||||||||||
Total Noninterest Expenses | 40,324 | 37,882 | 119,218 | 110,492 | ||||||||||||
Income Before Income Tax Expense | 22,116 | 21,645 | 64,921 | 67,070 | ||||||||||||
Income Tax Expense | 7,219 | 7,115 | 21,208 | 22,405 | ||||||||||||
Net Income attributable to Noncontrolling Interests and Tompkins Financial Corporation | 14,897 | 14,530 | 43,713 | 44,665 | ||||||||||||
Less: Net income attributable to noncontrolling interests | 33 | 33 | 98 | 98 | ||||||||||||
Net Income Attributable to Tompkins Financial Corporation | $ | 14,864 | $ | 14,497 | $ | 43,615 | $ | 44,567 | ||||||||
Basic Earnings Per Share | $ | 0.99 | $ | 0.97 | $ | 2.90 | $ | 2.98 | ||||||||
Diluted Earnings Per Share | $ | 0.97 | $ | 0.96 | $ | 2.87 | $ | 2.96 |
4 |
TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended | ||||||||
(In thousands) (Unaudited) | 09/30/2016 | 09/30/2015 | ||||||
Net income attributable to noncontrolling interests and Tompkins Financial Corporation | $ | 14,897 | $ | 14,530 | ||||
Other comprehensive (loss) income, net of tax: | ||||||||
Available-for-sale securities: | ||||||||
Change in net unrealized (gain) loss during the period | (3,333 | ) | 5,515 | |||||
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income | (273 | ) | (55 | ) | ||||
Employee benefit plans: | ||||||||
Amortization of net retirement plan actuarial gain | 201 | 122 | ||||||
Amortization of net retirement plan prior service cost | 12 | 11 | ||||||
Other comprehensive (loss) income | (3,393 | ) | 5,593 | |||||
Subtotal comprehensive income attributable to noncontrolling interests and Tompkins Financial Corporation | 11,504 | 20,123 | ||||||
Less: Net income attributable to noncontrolling interests | (33 | ) | (33 | ) | ||||
Total comprehensive income attributable to Tompkins Financial Corporation | $ | 11,471 | $ | 20,090 |
Nine Months Ended | ||||||||
(In thousands) (Unaudited) | 09/30/2016 | 09/30/2015 | ||||||
Net income attributable to noncontrolling interests and Tompkins Financial Corporation | $ | 43,713 | $ | 44,665 | ||||
Other comprehensive income, net of tax: | ||||||||
Available-for-sale securities: | ||||||||
Change in net unrealized gain during the period | 14,260 | 3,883 | ||||||
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income | (556 | ) | (663 | ) | ||||
Employee benefit plans: | ||||||||
Recognized actuarial gain due to curtailment | 0 | (3,196 | ) | |||||
Net actuarial gain due to curtailment | 0 | 1,170 | ||||||
Amortization of net retirement plan actuarial gain | 602 | 999 | ||||||
Amortization of net retirement plan prior service cost (credit) | 35 | (210 | ) | |||||
Other comprehensive income | 14,341 | 1,983 | ||||||
Subtotal comprehensive income attributable to noncontrolling interests and Tompkins Financial Corporation | 58,054 | 46,648 | ||||||
Less: Net income attributable to noncontrolling interests | (98 | ) | (98 | ) | ||||
Total comprehensive income attributable to Tompkins Financial Corporation | $ | 57,956 | $ | 46,550 |
See notes to unaudited condensed consolidated financial statements.
5 |
TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended | ||||||||
(In thousands) (Unaudited) | 09/30/2016 | 09/30/2015 | ||||||
OPERATING ACTIVITIES | ||||||||
Net income attributable to Tompkins Financial Corporation | $ | 43,615 | $ | 44,567 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan and lease losses | 2,615 | 1,412 | ||||||
Depreciation and amortization of premises, equipment, and software | 5,049 | 4,834 | ||||||
Amortization of intangible assets | 1,572 | 1,503 | ||||||
Earnings from corporate owned life insurance | (1,615 | ) | (1,643 | ) | ||||
Net amortization on securities | 8,214 | 9,011 | ||||||
Amortization/accretion related to purchase accounting | (2,320 | ) | (4,348 | ) | ||||
Mark-to-market loss on trading securities | 182 | 206 | ||||||
Mark-to-market gain on liabilities held at fair value | (227 | ) | (226 | ) | ||||
Net gain on securities transactions | (926 | ) | (1,105 | ) | ||||
Net gain on sale of loans originated for sale | (57 | ) | (21 | ) | ||||
Proceeds from sale of loans originated for sale | 2,018 | 1,402 | ||||||
Loans originated for sale | (1,661 | ) | (1,784 | ) | ||||
Net loss on sale of bank premises and equipment | 18 | 24 | ||||||
Gain on pension curtailment | 0 | (6,003 | ) | |||||
Stock-based compensation expense | 1,715 | 1,410 | ||||||
Decrease in accrued interest receivable | (927 | ) | (920 | ) | ||||
(Decrease) increase in accrued interest payable | (111 | ) | 84 | |||||
Proceeds from sales of trading securities | 1,397 | 0 | ||||||
Proceeds from maturities and payments of trading securities | 5,781 | 1,026 | ||||||
Other, net | (227 | ) | 11,242 | |||||
Net Cash Provided by Operating Activities | 64,105 | 60,671 | ||||||
INVESTING ACTIVITIES | ||||||||
Proceeds from maturities, calls and principal paydowns of available-for-sale securities | 188,137 | 181,015 | ||||||
Proceeds from sales of available-for-sale securities | 84,270 | 115,800 | ||||||
Proceeds from maturities, calls and principal paydowns of held-to-maturity securities | 8,411 | 10,567 | ||||||
Purchases of available-for-sale securities | (241,991 | ) | (285,625 | ) | ||||
Purchases of held-to-maturity securities | (7,277 | ) | (68,939 | ) | ||||
Net increase in loans | (317,012 | ) | (237,574 | ) | ||||
Net increase in Federal Home Loan Bank stock | (4,277 | ) | (2,303 | ) | ||||
Proceeds from sale of bank premises and equipment | 72 | 73 | ||||||
Purchases of bank premises and equipment | (8,049 | ) | (4,621 | ) | ||||
Net cash used in acquisition | (218 | ) | 0 | |||||
Other, net | 123 | 514 | ||||||
Net Cash Used in Investing Activities | (297,811 | ) | (291,093 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Net increase in demand, money market, and savings deposits | 272,700 | 288,578 | ||||||
Net increase (decrease) in time deposits | 23,283 | (19,559 | ) | |||||
Net decrease in Federal funds purchased and securities sold under agreements to repurchase | (59,137 | ) | (11,247 | ) | ||||
Increase in other borrowings | 536,301 | 285,960 | ||||||
Repayment of other borrowings | (401,359 | ) | (243,330 | ) | ||||
Cash dividends | (19,825 | ) | (18,827 | ) | ||||
Common stock issued | 0 | 50 | ||||||
Repurchase of common stock | (1,166 | ) | (3,279 | ) | ||||
Shares issued for dividend reinvestment plan | 2,237 | 0 | ||||||
Shares issued for employee stock ownership plan | 1,938 | 1,595 | ||||||
Net shares issued related to restricted stock awards | (201 | ) | (195 | ) | ||||
Net proceeds from exercise of stock options | (124 | ) | 1,469 | |||||
Tax benefit from stock option exercises | 388 | 230 | ||||||
Net Cash Provided by Financing Activities | 355,035 | 281,445 | ||||||
Net Increase in Cash and Cash Equivalents | 121,329 | 51,023 | ||||||
Cash and cash equivalents at beginning of period | 58,257 | 56,070 | ||||||
Total Cash & Cash Equivalents at End of Period | $ | 179,586 | $ | 107,093 |
See notes to unaudited condensed consolidated financial statements.
6 |
TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited) | 09/30/2016 | 09/30/2015 | ||||||
Supplemental Information: | ||||||||
Cash paid during the year for - Interest | $ | 17,641 | $ | 16,253 | ||||
Cash paid during the year for - Taxes | 17,746 | 15,102 | ||||||
Transfer of loans to other real estate owned | 1,179 | 1,046 |
See notes to unaudited condensed consolidated financial statements.
7 |
TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands except share and per share data) |
Common
Stock |
Additional Paid-in Capital |
Retained
Earnings |
Accumulated Other Comprehensive (Loss) Income |
Treasury
Stock |
Non-
controlling Interests |
Total | |||||||||||||||||||||
Balances at January 1, 2015 | $ | 1,493 | $ | 348,889 | $ | 165,160 | $ | (24,011 | ) | $ | (3,400 | ) | $ | 1,452 | $ | 489,583 | ||||||||||||
Net income attributable to noncontrolling interests
and Tompkins Financial Corporation |
44,567 | 98 | 44,665 | |||||||||||||||||||||||||
Other comprehensive income | 1,983 | 1,983 | ||||||||||||||||||||||||||
Total Comprehensive Income | 46,648 | |||||||||||||||||||||||||||
Cash dividends ($1.26 per share) | (18,827 | ) | (18,827 | ) | ||||||||||||||||||||||||
Net exercise of stock options and related
tax benefit (59,973 shares) |
6 | 1,693 | 1,699 | |||||||||||||||||||||||||
Stock-based compensation expense | 1,410 | 1,410 | ||||||||||||||||||||||||||
Common stock repurchased and returned
to unissued status (63,181 shares) |
(6 | ) | (3,273 | ) | (3,279 | ) | ||||||||||||||||||||||
Shares issued for employee stock ownership
plan (29,575 shares) |
3 | 1,592 | 1,595 | |||||||||||||||||||||||||
Directors deferred compensation plan (2,351 shares) | 229 | (229 | ) | 0 | ||||||||||||||||||||||||
Common stock issued for purchase
acquisition (960 shares) |
50 | 50 | ||||||||||||||||||||||||||
Restricted stock activity ((17,195) shares) | (2 | ) | (193 | ) | (195 | ) | ||||||||||||||||||||||
Adoption of ASU 2014-01 | ||||||||||||||||||||||||||||
Accounting for Investments in Qualified
Affordable Housing Projects |
(725 | ) | (725 | ) | ||||||||||||||||||||||||
Balances at September 30, 2015 | $ | 1,494 | $ | 350,397 | $ | 190,175 | $ | (22,028 | ) | $ | (3,629 | ) | $ | 1,550 | $ | 517,959 | ||||||||||||
Balances at January 1, 2016 | $ | 1,502 | $ | 350,823 | $ | 197,445 | $ | (31,001 | ) | $ | (3,755 | ) | $ | 1,452 | $ | 516,466 | ||||||||||||
Net income attributable to noncontrolling
interests and Tompkins Financial Corporation |
43,615 | 98 | 43,713 | |||||||||||||||||||||||||
Other comprehensive income | 14,341 | 14,341 | ||||||||||||||||||||||||||
Total Comprehensive Income | 58,054 | |||||||||||||||||||||||||||
Cash dividends ($1.32 per share) | (19,825 | ) | (19,825 | ) | ||||||||||||||||||||||||
Net exercise of stock options and related tax
benefit (19,018 shares) |
2 | 262 | 264 | |||||||||||||||||||||||||
Common stock repurchased and returned to
unissued status (22,356 shares) |
(2 | ) | (1,164 | ) | (1,166 | ) | ||||||||||||||||||||||
Shares issued for dividend reinvestment
plan (33,124 shares) |
3 | 2,234 | 2,237 | |||||||||||||||||||||||||
Stock-based compensation expense | 1,715 | 1,715 | ||||||||||||||||||||||||||
Shares issued for employee stock ownership
plan (31,435 shares) |
3 | 1,935 | 1,938 | |||||||||||||||||||||||||
Directors deferred compensation
plan (77) shares) |
157 | (157 | ) | 0 | ||||||||||||||||||||||||
Restricted stock activity ((17,504) shares) | (2 | ) | (199 | ) | (201 | ) | ||||||||||||||||||||||
Stock issued for purchase acquisition
(32,553 shares) |
3 | 1,705 | 1,708 | |||||||||||||||||||||||||
Balances at September 30, 2016 | $ | 1,509 | $ | 357,468 | $ | 221,235 | $ | (16,660 | ) | $ | (3,912 | ) | $ | 1,550 | $ | 561,190 |
See notes to unaudited condensed consolidated financial statements
8 |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Tompkins Financial Corporation (“Tompkins” or the “Company”) is headquartered in Ithaca, New York and is registered as a Financial Holding Company with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. The Company is a locally oriented, community-based financial services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, and insurance services. At September 30, 2016, the Company’s subsidiaries included: four wholly-owned banking subsidiaries, Tompkins Trust Company (the “Trust Company”), The Bank of Castile (DBA Tompkins Bank of Castile), Mahopac Bank (formerly known as Mahopac National Bank, DBA Tompkins Mahopac Bank), VIST Bank (DBA Tompkins VIST Bank); and a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. (“Tompkins Insurance”). The trust division of the Trust Company provides a full array of investment services, including investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. The Company’s principal offices are located at The Commons, Ithaca, New York, 14851, and its telephone number is (888) 503-5753. The Company’s common stock is traded on the NYSE MKT LLC under the Symbol “TMP.”
As a registered financial holding company, the Company is regulated under the Bank Holding Company Act of 1956 (“BHC Act”), as amended and is subject to examination and comprehensive regulation by the Federal Reserve Board (“FRB”). The Company is also subject to the jurisdiction of the Securities and Exchange Commission (“SEC”) and is subject to disclosure and regulatory requirements under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The Company is subject to the rules of the NYSE MKT LLC for listed companies.
The Company’s banking subsidiaries are subject to examination and comprehensive regulation by various regulatory authorities, including the Federal Deposit Insurance Corporation (“FDIC”), the New York State Department of Financial Services (“NYSDFS”), and the Pennsylvania Department of Banking and Securities (“PDBS”). Each of these agencies issues regulations and requires the filing of reports describing the activities and financial condition of the entities under its jurisdiction. Likewise, such agencies conduct examinations on a recurring basis to evaluate the safety and soundness of the institutions, and to test compliance with various regulatory requirements, including: consumer protection, privacy, fair lending, the Community Reinvestment Act, the Bank Secrecy Act, sales of non-deposit investments, electronic data processing, and trust department activities.
The trust division of Tompkins Trust Company is subject to examination and comprehensive regulation by the FDIC and NYSDFS.
The Company’s insurance subsidiary is subject to examination and regulation by the NYSDFS and the Pennsylvania Insurance Department.
2. Basis of Presentation
The unaudited consolidated financial statements included in this quarterly report do not include all of the information and footnotes required by GAAP for a full year presentation and certain disclosures have been condensed or omitted in accordance with rules and regulations of the SEC. 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, the expenses and liabilities associated with the Company’s pension and post-retirement benefits, and the review of its securities portfolio for other than temporary impairment.
In management’s 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, 2016. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. There have been no significant changes to the Company’s accounting policies from those presented in the 2015 Annual Report on Form 10-K. Refer to Note 3- “Accounting Standards Updates” of this Report for a discussion of recently issued accounting guidelines.
9 |
Cash and cash equivalents in the consolidated statements of cash flow include cash and noninterest bearing balances due from banks, interest-bearing balances due from banks, and money market funds. Management regularly evaluates the credit risk associated with the counterparties to these transactions and believes that the Company is not exposed to any significant credit risk on cash and cash equivalents.
The Company has evaluated subsequent events for potential recognition and/or disclosure, and determined that no further disclosures were required.
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’ unaudited condensed 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 Standards Updates
ASU 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) – Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. ASU 2015-01 became effective for Tompkins on January 1, 2016 and did not have a significant impact on our financial statements.
ASU 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis.” ASU 2015-02 implements changes to both the variable interest consolidation model and the voting interest consolidation model. ASU 2015-02 (i) eliminates certain criteria that must be met when determining when fees paid to a decision maker or service provider do not represent a variable interest, (ii) amends the criteria for determining whether a limited partnership is a variable interest entity and (iii) eliminates the presumption that a general partner controls a limited partnership in the voting model. ASU 2015-02 became effective for Tompkins on January 1, 2016 and did not have a significant impact on our financial statements.
ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs . ” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03. ASU 2015-03 became effective for Tompkins on January 1, 2016 and unamortized debt issuance costs are now presented as a direct deduction from the carrying amount of the related debt liability in our accompanying consolidated Statements of Condition.
ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. “ ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.
ASU 2015-16, “Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period Adjustments.” ASU 2015-16 requires that adjustments to provisional amounts that are identified during the measurement period of a business combination be recognized in the reporting period in which the adjustment amounts are determined. Furthermore, the income statement effects of such adjustments, if any, must be calculated as if the accounting had been completed at the acquisition date. Any amounts that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date should be recorded in current-period earnings. Under previous guidance, adjustments to provisional amounts identified during the measurement period were to be recognized retrospectively. ASU 2015-16 became effective for Tompkins on January 1, 2016 and did not have a significant impact on our financial statements.
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ASU 2016-1, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-1, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-1 will be effective for Tompkins on January 1, 2018 and is not expected to have a significant impact on our financial statements.
ASU 2016-02,“Leases (Topic 842).” ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for Tompkins on January 1, 2019 and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Tompkins is currently evaluating the potential impact of ASU 2016-02 on our financial statements.
ASU 2016-05“Derivatives and Hedging (Topic 815) Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” ASU 2016-05 clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under ASC Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-05 will be effective for Tompkins on January 1, 2017 and is not expected to have a significant impact on our financial statements.
ASU 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. ASU 2016-07 simplifies the transition to the equity method of accounting by eliminating retroactive adjustment of the investment when an investment qualifies for use of the equity method, among other things. ASU 2016-07 will be effective for Tompkins on January 1, 2017 and is not expected to have a significant impact on our financial statements.
ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” ASU 2016-08 was issued to clarify certain principal versus agent considerations within the implementation guidance of ASC Topic 606, “Revenue from Contracts with Customers.” The effective date and transition of ASU 2016-08 is the same as the effective date and transition of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . Tompkins is currently evaluating the potential impact of ASU 2016-08 on our financial statements.
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ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 will be effective on January 1, 2017 and is not expected to have a significant impact on our financial statements.
ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” ASU 2016-10 was issued to clarify ASC Topic 606, “Revenue from Contracts with Customers” related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. The effective date and transition of ASU 2016-10 is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606) . ” Tompkins is currently evaluating the potential impact of ASU 2016-10 on our financial statements.
ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective on January 1, 2020. Tompkins is currently evaluating the potential impact of ASU 2016-13 on our financial statements.
ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance related to certain cash flow issues in order to reduce the current and potential future diversity in practice. ASU 2016-15 will be effective for us on January 1, 2018. Tompkins is currently evaluating the potential impact of ASU 2016-15 but does not expect it to have a significant impact on our financial statements.
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4. Securities | ||||||||||
Available-for-Sale Securities | ||||||||||
The following table summarizes available-for-sale securities held by the Company at September 30, 2016: |
Available-for-Sale Securities | |||||||||||||
September 30, 2016 |
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair Value | |||||||||
(in thousands) | |||||||||||||
Obligations of U.S. Government sponsored entities | $ | 513,251 | $ | 13,447 | $ | 2 | $ | 526,696 | |||||
Obligations of U.S. states and political subdivisions | 83,596 | 1,098 | 13 | 84,681 | |||||||||
Mortgage-backed securities – residential, issued by | |||||||||||||
U.S. Government agencies | 160,464 | 1,721 | 436 | 161,749 | |||||||||
U.S. Government sponsored entities | 591,908 | 5,202 | 2,357 | 594,753 | |||||||||
Non-U.S. Government agencies or sponsored entities | 126 | 0 | 0 | 126 | |||||||||
U.S. corporate debt securities | 2,500 | 0 | 338 | 2,162 | |||||||||
Total debt securities | 1,351,845 | 21,468 | 3,146 | 1,370,167 | |||||||||
Equity securities | 1,000 | 0 | 56 | 944 | |||||||||
Total available-for-sale securities | $ | 1,352,845 | $ | 21,468 | $ | 3,202 | $ | 1,371,111 |
The following table summarizes available-for-sale securities held by the Company at December 31, 2015:
Available-for-Sale Securities | |||||||||||||
December 31, 2015 |
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair Value | |||||||||
(in thousands) | |||||||||||||
Obligations of U.S. Government sponsored entities | $ | 551,176 | $ | 3,512 | $ | 1,795 | $ | 552,893 | |||||
Obligations of U.S. states and political subdivisions | 83,981 | 898 | 153 | 84,726 | |||||||||
Mortgage-backed securities – residential, issued by | |||||||||||||
U.S. Government agencies | 94,459 | 1,535 | 1,316 | 94,678 | |||||||||
U.S. Government sponsored entities | 656,947 | 3,599 | 10,449 | 650,097 | |||||||||
Non-U.S. Government agencies or sponsored entities | 192 | 2 | 0 | 194 | |||||||||
U.S. corporate debt securities | 2,500 | 0 | 338 | 2,162 | |||||||||
Total debt securities | 1,389,255 | 9,546 | 14,051 | 1,384,750 | |||||||||
Equity securities | 1,000 | 0 | 66 | 934 | |||||||||
Total available-for-sale securities | $ | 1,390,255 | $ | 9,546 | $ | 14,117 | $ | 1,385,684 |
Held-to-Maturity Securities
The following table summarizes held-to-maturity securities held by the Company at September 30, 2016:
Held-to-Maturity Securities | |||||||||||||
September 30, 2016 |
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair Value | |||||||||
(in thousands) | |||||||||||||
Obligations of U.S. Government sponsored entities | $ | 132,195 | $ | 6,592 | $ | 0 | $ | 138,787 | |||||
Obligations of U.S. states and political subdivisions | 12,455 | 384 | 0 | 12,839 | |||||||||
Total held-to-maturity debt securities | $ | 144,650 | $ | 6,976 | $ | 0 | $ | 151,626 |
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The following table summarizes held-to-maturity securities held by the Company at December 31, 2015:
Held-to-Maturity Securities | ||||||||||||||||
December 31, 2015 |
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair Value | ||||||||||||
(in thousands) | ||||||||||||||||
Obligations of U.S. Government sponsored entities | $ | 132,482 | $ | 649 | $ | 444 | $ | 132,687 | ||||||||
Obligations of U.S. states and political subdivisions | 13,589 | 414 | 4 | 13,999 | ||||||||||||
Total held-to-maturity debt securities | $ | 146,071 | $ | 1,063 | $ | 448 | $ | 146,686 | ||||||||
The Company may from time to time sell investment securities from its available-for-sale portfolio. Realized gains on available-for-sale securities were $455,000 and $926,000 for the three and nine months ended September 30, 2016 and $92,000 and $1,107,000 in the same periods during 2015. Realized losses on available-for-sale securities were $0 for the three and nine months ended September 30, 2016 and $0 and $2,000 for the three and nine months ended September 30, 2015. The sales of available-for-sale investment securities were the result of general investment portfolio and interest rate risk management.
The following table summarizes available-for-sale securities that had unrealized losses at September 30, 2016:
Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||
(in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||
Obligations of U.S. Government sponsored entities | $ | 1,347 | $ | 2 | $ | 0 | $ | 0 | $ | 1,347 | $ | 2 | |||||||
Obligations of U.S. states and political subdivisions | 8,175 | 12 | 754 | 1 | 8,929 | 13 | |||||||||||||
Mortgage-backed securities – issued by | |||||||||||||||||||
U.S. Government agencies | 32,598 | 89 | 23,615 | 347 | 56,213 | 436 | |||||||||||||
U.S. Government sponsored entities | 92,646 | 481 | 131,532 | 1,876 | 224,178 | 2,357 | |||||||||||||
U.S. corporate debt securities | 0 | 0 | 2,163 | 338 | 2,163 | 338 | |||||||||||||
Equity securities | 0 | 0 | 944 | 56 | 944 | 56 | |||||||||||||
Total available-for-sale securities | $ | 134,766 | $ | 584 | $ | 159,008 | $ | 2,618 | $ | 293,774 | $ | 3,202 |
There were no unrealized losses on held-to-maturity securities for September 30, 2016.
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The following table summarizes available-for-sale securities that had unrealized losses at December 31, 2015:
Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||
(in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||
Obligations of U.S. Government sponsored entities | $ | 183,697 | $ | 1,618 | $ | 5,844 | $ | 177 | $ | 189,541 | $ | 1,795 | |||||||
Obligations of U.S. states and political subdivisions | 25,402 | 141 | 3,408 | 12 | 28,810 | 153 | |||||||||||||
Mortgage-backed securities – residential, issued by | |||||||||||||||||||
U.S. Government agencies | 32,636 | 350 | 30,244 | 966 | 62,880 | 1,316 | |||||||||||||
U.S. Government sponsored entities | 364,420 | 4,102 | 176,325 | 6,347 | 540,745 | 10,449 | |||||||||||||
U.S. corporate debt securities | 0 | 0 | 2,163 | 338 | 2,163 | 338 | |||||||||||||
Equity securities | 0 | 0 | 934 | 66 | 934 | 66 | |||||||||||||
Total available-for-sale securities | $ | 606,155 | $ | 6,211 | $ | 218,918 | $ | 7,906 | $ | 825,073 | $ | 14,117 |
The following table summarizes held-to-maturity securities that had unrealized losses at December 31, 2015.
Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||
(in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||
Obligations of U.S. Government sponsored entities | $ | 29,671 | $ | 444 | $ | 0 | $ | 0 | $ | 29,671 | $ | 444 | |||||||
Obligations of U.S. sponsored entities | 1,966 | 4 | 0 | 0 | 1,966 | 4 | |||||||||||||
Total held-to-maturity securities | $ | 31,637 | $ | 448 | $ | 0 | $ | 0 | $ | 31,637 | $ | 448 |
The gross unrealized losses reported for residential mortgage-backed securities relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and U.S. government agencies such as Government National Mortgage Association. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.
The Company does not intend to sell other-than-temporarily impaired investment securities that are in an unrealized loss position until recovery of unrealized losses (which may be until maturity), and it is not more-likely-than not that the Company will be required to sell the investment securities, before recovery of their amortized cost basis, which may be at maturity. Accordingly, as of September 30, 2016, and December 31, 2015, management has determined that the unrealized losses detailed in the tables above are not other-than-temporary.
Ongoing Assessment of Other-Than-Temporary Impairment
On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis (including any previous OTTI charges) at the reporting date. If impaired, the Company then assesses whether the unrealized loss is other-than-temporary. An unrealized loss on a debt security is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value, discounted at the security’s effective rate, of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining portion of the impairment loss is recognized, net of tax, in other comprehensive income provided that the Company does not intend to sell the underlying debt security and it is more-likely-than not that the Company would not have to sell the debt security prior to recovery of the unrealized loss, which may be to maturity. If the Company intended to sell any securities with an unrealized loss or it is more-likely-than not that the Company would be required to sell the investment securities, before recovery of their amortized cost basis, then the entire unrealized loss would be recorded in earnings.
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The Company considers the following factors in determining whether a credit loss exists.
- | The length of time and the extent to which the fair value has been less than the amortized cost basis; |
- | The level of credit enhancement provided by the structure which includes, but is not limited to, credit subordination positions, excess spreads, overcollateralization, protective triggers; |
- | Changes in the near term prospects of the issuer or underlying collateral of a security, such as changes in default rates, loss severities given default and significant changes in prepayment assumptions; |
- | The level of excess cash flow generated from the underlying collateral supporting the principal and interest payments of the debt securities; and |
- | Any adverse change to the credit conditions of the issuer or the security such as credit downgrades by the rating agencies. |
As a result of the other-than-temporarily impairment review process, the Company does not consider any investment security held at September 30, 2016 to be other-than-temporarily impaired.
The amortized cost and estimated fair value of debt securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are shown separately since they are not due at a single maturity date.
September 30, 2016 | |||||||
(in thousands) | Amortized Cost | Fair Value | |||||
Available-for-sale securities: | |||||||
Due in one year or less | $ | 32,150 | $ | 32,317 | |||
Due after one year through five years | 359,863 | 367,936 | |||||
Due after five years through ten years | 196,728 | 202,923 | |||||
Due after ten years | 10,606 | 10,363 | |||||
Total | 599,347 | 613,539 | |||||
Mortgage-backed securities | 752,498 | 756,628 | |||||
Total available-for-sale debt securities | $ | 1,351,845 | $ | 1,370,167 |
December 31, 2015 | |||||||
(in thousands) | Amortized Cost | Fair Value | |||||
Available-for-sale securities: | |||||||
Due in one year or less | $ | 53,936 | $ | 54,735 | |||
Due after one year through five years | 351,462 | 353,736 | |||||
Due after five years through ten years | 219,161 | 218,561 | |||||
Due after ten years | 13,098 | 12,749 | |||||
Total | 637,657 | 639,781 | |||||
Mortgage-backed securities | 751,598 | 744,969 | |||||
Total available-for-sale debt securities | $ | 1,389,255 | $ | 1,384,750 |
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September 30, 2016 | |||||||
(in thousands) | Amortized Cost | Fair Value | |||||
Held-to-maturity securities: | |||||||
Due in one year or less | $ | 8,798 | $ | 8,833 | |||
Due after one year through five years | 28,281 | 29,496 | |||||
Due after five years through ten years | 107,571 | 113,297 | |||||
Total held-to-maturity debt securities | $ | 144,650 | $ | 151,626 |
December 31, 2015 | |||||||
(in thousands) | Amortized Cost | Fair Value | |||||
Held-to-maturity securities: | |||||||
Due in one year or less | $ | 9,249 | $ | 9,294 | |||
Due after one year through five years | 14,069 | 14,341 | |||||
Due after five years through ten years | 122,585 | 122,853 | |||||
Due after ten years | 168 | 198 | |||||
Total held-to-maturity debt securities | $ | 146,071 | $ | 146,686 |
The Company also holds non-marketable Federal Home Loan Bank New York (“FHLBNY”) stock, non-marketable Federal Home Loan Bank Pittsburgh (“FHLBPITT”) stock and non-marketable Atlantic Community Bankers Bank stock, all of which are required to be held for regulatory purposes and for borrowing availability. The required investment in FHLB stock is tied to the Company’s borrowing levels with the FHLB. Holdings of FHLBNY stock, FHLBPITT stock, and ACBB stock totaled $19.8 million, $14.3 million and $95,000 at September 30, 2016, respectively. These securities are carried at par, which is also cost. The FHLBNY and FHLBPITT continue to pay dividends and repurchase stock. Quarterly, we evaluate our investment in the FHLB for impairment. We evaluate recent and long-term operating performance, liquidity, funding and capital positions, stock repurchase history, dividend history and impact of legislative and regulatory changes. Based on our most recent evaluation, as of September 30, 2016, we have determined that no impairment write-downs are currently required.
Trading Securities
The following summarizes trading securities, at estimated fair value, as of:
(in thousands) | 09/30/2016 | 12/31/2015 | |||||
Obligations of U.S. Government sponsored entities | $ | 0 | $ | 6,601 | |||
Mortgage-backed securities – residential, issued by U.S. Government sponsored entities | 0 | 767 | |||||
Total | $ | 0 | $ | 7,368 |
In September 2016, the Company sold the remaining $1.5 million of trading securities, after maturities and principal repayments. For the three and nine months ended September 30, 2016, net mark-to-market losses related to the securities trading portfolio were $76,000 and $182,000, respectively, compared to net mark-to-market losses for the three and nine months ended September 30, 2015 of $69,000 and $206,000, respectively.
The Company pledges securities as collateral for public deposits and other borrowings, and sells securities under agreements to repurchase. Securities carried of $1.3 billion and $1.1 billion at September 30, 2016, and December 31, 2015, respectively, were either pledged or sold under agreements to repurchase.
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5. Loans and Leases | |||||||||||||
Loans and Leases at September 30, 2016 and December 31, 2015 were as follows: |
09/30/2016 | 12/31/2015 | |||||||||||||||||||||||
(in thousands) | Originated | Acquired | Total Loans and Leases | Originated | Acquired | Total Loans and Leases | ||||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||
Agriculture | $ | 77,711 | $ | 0 | $ | 77,711 | $ | 88,299 | $ | 0 | $ | 88,299 | ||||||||||||
Commercial and industrial other | 846,657 | 84,671 | 931,328 | 768,024 | 84,810 | 852,834 | ||||||||||||||||||
Subtotal commercial and industrial | 924,368 | 84,671 | 1,009,039 | 856,323 | 84,810 | 941,133 | ||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||
Construction | 133,714 | 3,628 | 137,342 | 103,037 | 4,892 | 107,929 | ||||||||||||||||||
Agriculture | 104,067 | 4,761 | 108,828 | 86,935 | 2,095 | 89,030 | ||||||||||||||||||
Commercial real estate other | 1,314,333 | 253,395 | 1,567,728 | 1,167,250 | 284,952 | 1,452,202 | ||||||||||||||||||
Subtotal commercial real estate | 1,552,114 | 261,784 | 1,813,898 | 1,357,222 | 291,939 | 1,649,161 | ||||||||||||||||||
Residential real estate | ||||||||||||||||||||||||
Home equity | 208,329 | 39,630 | 247,959 | 202,578 | 42,092 | 244,670 | ||||||||||||||||||
Mortgages | 917,755 | 30,056 | 947,811 | 823,841 | 27,491 | 851,332 | ||||||||||||||||||
Subtotal residential real estate | 1,126,084 | 69,686 | 1,195,770 | 1,026,419 | 69,583 | 1,096,002 | ||||||||||||||||||
Consumer and other | ||||||||||||||||||||||||
Indirect | 15,893 | 0 | 15,893 | 17,829 | 0 | 17,829 | ||||||||||||||||||
Consumer and other | 41,615 | 867 | 42,482 | 40,904 | 911 | 41,815 | ||||||||||||||||||
Subtotal consumer and other | 57,508 | 867 | 58,375 | 58,733 | 911 | 59,644 | ||||||||||||||||||
Leases | 15,858 | 0 | 15,858 | 14,861 | 0 | 14,861 | ||||||||||||||||||
Covered loans | 0 | 0 | 0 | 0 | 14,031 | 14,031 | ||||||||||||||||||
Total loans and leases | 3,675,932 | 417,008 | 4,092,940 | 3,313,558 | 461,274 | 3,774,832 | ||||||||||||||||||
Less: unearned income and deferred costs and fees | (3,393 | ) | 0 | (3,393 | ) | (2,790 | ) | 0 | (2,790 | ) | ||||||||||||||
Total loans and leases, net of unearned income and deferred costs and fees | $ | 3,672,539 | $ | 417,008 | $ | 4,089,547 | $ | 3,310,768 | $ | 461,274 | $ | 3,772,042 |
The outstanding principal balance and the related carrying amount of the Company’s loans acquired in the VIST Bank acquisition are as follows at September 30, 2016 and December 31, 2015: |
(in thousands) | 09/30/2016 | 12/31/2015 | ||||||
Acquired Credit Impaired Loans | ||||||||
Outstanding principal balance | $ | 28,560 | $ | 32,752 | ||||
Carrying amount | 24,358 | 26,507 | ||||||
Acquired Non-Credit Impaired Loans | ||||||||
Outstanding principal balance | 396,314 | 439,389 | ||||||
Carrying amount | 392,650 | 434,767 | ||||||
Total Acquired Loans | ||||||||
Outstanding principal balance | 424,874 | 472,141 | ||||||
Carrying amount | 417,008 | 461,274 |
18 |
The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures. Management reviews these policies and procedures on a regular basis. The Company discussed its lending policies and underwriting guidelines for its various lending portfolios in Note 3 – “Loans and Leases” in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. There have been no significant changes in these policies and guidelines since the date of that report. As such, these policies are reflective of new originations as well as those balances held at September 30, 2016. The Company’s Board of Directors approves the lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to monitor loan origination, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments are due. Generally loans are placed on nonaccrual status if principal or interest payments become 90 days or more past due and/or management deems the collectability of the principal and/or interest to be in question as well as when required by regulatory agencies. When interest accrual is discontinued, all unpaid accrued interest is reversed. Payments received on loans on nonaccrual are generally applied to reduce the principal balance of the loan. Loans are generally returned to accrual status when all the principal and interest amounts contractually due are brought current, the borrower has established a payment history, and future payments are reasonably assured. When management determines that the collection of principal in full is not probable, management will charge-off a partial amount or full amount of the loan balance. Management considers specific facts and circumstances relative to each individual credit in making such a determination. For residential and consumer loans, management uses specific regulatory guidance and thresholds for determining charge-offs.
Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing after the date of acquisition, regardless of whether the customer is contractually delinquent, if we can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, we may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. To the extent we cannot reasonably estimate cash flows, interest income recognition is discontinued. The Company has determined that it can reasonably estimate future cash flows on our acquired loans that are past due 90 days or more and accruing interest and the Company expects to fully collect the carrying value of the loans.
19 |
The below table is an age analysis of past due loans, segregated by originated and acquired loan and lease portfolios, and by class of loans, as of September 30, 2016 and December 31, 2015.
September 30, 2016 | ||||||||||||||||||||||||
(in thousands) | 30-89 days | 90 days or more | Current Loans | Total Loans | 90 days and accruing 1 | Nonaccrual | ||||||||||||||||||
Originated Loans and Leases | ||||||||||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||
Agriculture | $ | 0 | $ | 0 | $ | 77,711 | $ | 77,711 | $ | 0 | $ | 0 | ||||||||||||
Commercial and industrial other | 378 | 293 | 845,986 | 846,657 | 0 | 293 | ||||||||||||||||||
Subtotal commercial and industrial | 378 | 293 | 923,697 | 924,368 | 0 | 293 | ||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||
Construction | 186 | 0 | 133,528 | 133,714 | 0 | 0 | ||||||||||||||||||
Agriculture | 19 | 0 | 104,048 | 104,067 | 0 | 0 | ||||||||||||||||||
Commercial real estate other | 674 | 2,639 | 1,311,020 | 1,314,333 | 0 | 4,336 | ||||||||||||||||||
Subtotal commercial real estate | 879 | 2,639 | 1,548,596 | 1,552,114 | 0 | 4,336 | ||||||||||||||||||
Residential real estate | ||||||||||||||||||||||||
Home equity | 984 | 1,189 | 206,156 | 208,329 | 1 | 1,544 | ||||||||||||||||||
Mortgages | 1,735 | 4,120 | 911,900 | 917,755 | 34 | 5,158 | ||||||||||||||||||
Subtotal residential real estate | 2,719 | 5,309 | 1,118,056 | 1,126,084 | 35 | 6,702 | ||||||||||||||||||
Consumer and other | ||||||||||||||||||||||||
Indirect | 405 | 211 | 15,277 | 15,893 | 0 | 213 | ||||||||||||||||||
Consumer and other | 170 | 6 | 41,439 | 41,615 | 0 | 10 | ||||||||||||||||||
Subtotal consumer and other | 575 | 217 | 56,716 | 57,508 | 0 | 223 | ||||||||||||||||||
Leases | 0 | 0 | 15,858 | 15,858 | 0 | 0 | ||||||||||||||||||
Total loans and leases | 4,551 | 8,558 | 3,662,923 | 3,675,932 | 35 | 11,554 | ||||||||||||||||||
Less: unearned income and deferred costs and fees | 0 | 0 | (3,393 | ) | (3,393 | ) | 0 | 0 | ||||||||||||||||
Total originated loans and leases, net of unearned income and deferred costs and fees | $ | 4,551 | $ | 8,458 | $ | 3,659,530 | $ | 3,672,539 | $ | 35 | $ | 11,554 | ||||||||||||
Acquired Loans and Leases | ||||||||||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||
Commercial and industrial other | 0 | 648 | 84,023 | 84,671 | 41 | 47 | ||||||||||||||||||
Subtotal commercial and industrial | 0 | 648 | 84,023 | 84,671 | 41 | 47 | ||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||
Construction | 0 | 0 | 3,628 | 3,628 | 0 | 0 | ||||||||||||||||||
Agriculture | 0 | 0 | 4,761 | 4,761 | 0 | 0 | ||||||||||||||||||
Commercial real estate other | 684 | 1,801 | 250,910 | 253,395 | 1,367 | 2,793 | ||||||||||||||||||
Subtotal commercial real estate | 684 | 1,801 | 259,299 | 261,784 | 1,367 | 2,793 | ||||||||||||||||||
Residential real estate | ||||||||||||||||||||||||
Home equity | 156 | 823 | 38,651 | 39,630 | 183 | 741 | ||||||||||||||||||
Mortgages | 228 | 3,746 | 26,082 | 30,056 | 964 | 978 | ||||||||||||||||||
Subtotal residential real estate | 384 | 4,569 | 64,733 | 69,686 | 1,147 | 1,719 | ||||||||||||||||||
Consumer and other | ||||||||||||||||||||||||
Consumer and other | 1 | 0 | 866 | 867 | 0 | 0 | ||||||||||||||||||
Subtotal consumer and other | 1 | 0 | 866 | 867 | 0 | 0 | ||||||||||||||||||
Total acquired loans and leases, net of unearned income and deferred costs and fees | $ | 1,069 | $ | 7,018 | $ | 408,921 | $ | 417,008 | $ | 2,555 | $ | 4,559 |
20 |
December 31, 2015 | ||||||||||||||||||||||||
(in thousands) | 30-89 days | 90 days or more | Current Loans | Total Loans | 90 days and accruing 1 | Nonaccrual | ||||||||||||||||||
Originated loans and leases | ||||||||||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||
Agriculture | $ | 0 | $ | 0 | $ | 88,299 | $ | 88,299 | $ | 0 | $ | 0 | ||||||||||||
Commercial and industrial other | 507 | 867 | 766,650 | 768,024 | 0 | 1,091 | ||||||||||||||||||
Subtotal commercial and industrial | 507 | 867 | 854,949 | 856,323 | 0 | 1,091 | ||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||
Construction | 0 | 0 | 103,037 | 103,037 | 0 | 0 | ||||||||||||||||||
Agriculture | 0 | 0 | 86,935 | 86,935 | 0 | 106 | ||||||||||||||||||
Commercial real estate other | 225 | 3,580 | 1,163,445 | 1,167,250 | 0 | 4,365 | ||||||||||||||||||
Subtotal commercial real estate | 225 | 3,580 | 1,353,417 | 1,357,222 | 0 | 4,471 | ||||||||||||||||||
Residential real estate | ||||||||||||||||||||||||
Home equity | 729 | 1,868 | 199,981 | 202,578 | 58 | 1,873 | ||||||||||||||||||
Mortgages | 1,161 | 5,140 | 817,540 | 823,841 | 0 | 5,889 | ||||||||||||||||||
Subtotal residential real estate | 1,890 | 7,008 | 1,017,521 | 1,026,419 | 58 | 7,762 | ||||||||||||||||||
Consumer and other | ||||||||||||||||||||||||
Indirect | 494 | 250 | 17,085 | 17,829 | 0 | 107 | ||||||||||||||||||
Consumer and other | 164 | 0 | 40,740 | 40,904 | 0 | 75 | ||||||||||||||||||
Subtotal consumer and other | 658 | 250 | 57,825 | 58,733 | 0 | 182 | ||||||||||||||||||
Leases | 0 | 0 | 14,861 | 14,861 | 0 | 0 | ||||||||||||||||||
Total loans and leases | 3,280 | 11,705 | 3,298,573 | 3,313,558 | 58 | 13,506 | ||||||||||||||||||
Less: unearned income and deferred costs and fees | 0 | 0 | (2,790 | ) | (2,790 | ) | 0 | 0 | ||||||||||||||||
Total originated loans and leases, net of unearned income and deferred costs and fees | $ | 3,280 | $ | 11,705 | $ | 3,295,783 | $ | 3,310,768 | $ | 58 | $ | 13,506 | ||||||||||||
Acquired loans and leases | ||||||||||||||||||||||||
Commercial and industrial | ||||||||||||||||||||||||
Commercial and industrial other | 20 | 936 | 83,854 | 84,810 | 338 | 647 | ||||||||||||||||||
Subtotal commercial and industrial | 20 | 936 | 83,854 | 84,810 | 338 | 647 | ||||||||||||||||||
Commercial real estate | ||||||||||||||||||||||||
Construction | 0 | 359 | 4,533 | 4,892 | 0 | 359 | ||||||||||||||||||
Agriculture | 0 | 0 | 2,095 | 2,095 | 0 | 0 | ||||||||||||||||||
Commercial real estate other | 150 | 1,671 | 283,131 | 284,952 | 550 | 1,224 | ||||||||||||||||||
Subtotal commercial real estate | 150 | 2,030 | 289,759 | 291,939 | 550 | 1,583 | ||||||||||||||||||
Residential real estate | ||||||||||||||||||||||||
Home equity | 426 | 364 | 41,302 | 42,092 | 0 | 712 | ||||||||||||||||||
Mortgages | 336 | 1,926 | 25,229 | 27,491 | 1,103 | 1,389 | ||||||||||||||||||
Subtotal residential real estate | 762 | 2,290 | 66,531 | 69,583 | 1,103 | 2,101 | ||||||||||||||||||
Consumer and other | ||||||||||||||||||||||||
Consumer and other | 1 | 0 | 910 | 911 | 0 | 0 | ||||||||||||||||||
Subtotal consumer and other | 1 | 0 | 910 | 911 | 0 | 0 | ||||||||||||||||||
Covered loans | 276 | 524 | 13,231 | 14,031 | 524 | 0 | ||||||||||||||||||
Total acquired loans and leases, net of unearned income and deferred costs and fees | $ | 1,209 | $ | 5,780 | $ | 454,285 | $ | 461,274 | $ | 2,515 | $ | 4,331 |
1 Includes acquired loans that were recorded at fair value at the acquisition date. |
21 |
6. Allowance for Loan and Lease Losses
Originated Loans and Leases
Management reviews the appropriateness of the allowance for loan and lease losses (“allowance”) on a regular basis. Management considers the accounting policy relating to the allowance to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that assumptions could have on the Company’s results of operations. The Company has developed a methodology to measure the amount of estimated loan loss exposure inherent in the loan portfolio to assure that an appropriate allowance is maintained. The Company’s methodology is based upon guidance provided in SEC Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues and ASC Topic 310, Receivables and ASC Topic 450, Contingencies .
The model is comprised of four major components that management has deemed appropriate in evaluating the appropriateness of the allowance for loan and lease losses. While none of these components, when used independently, is effective in arriving at a reserve level that appropriately measures the risk inherent in the portfolio, management believes that using them collectively, provides reasonable measurement of the loss exposure in the portfolio. The four components include: impaired loans; individually reviewed and graded loans; historical loss experience; and qualitative or subjective analysis.
Since the methodology is based upon historical experience and trends as well as management’s judgment, factors may arise that result in different estimates. Significant factors that could give rise to changes in these estimates may include, but are not limited to, changes in economic conditions in the local area, concentration of risk, changes in interest rates, and declines in local property values. While management’s evaluation of the allowance as of September 30, 2016, considers the allowance to be appropriate, under adversely different conditions or assumptions, the Company would need to increase or decrease the allowance.
Acquired Loans and Leases
Acquired loans accounted for under ASC 310-30
For our acquired loans, our allowance for loan losses is estimated based upon our expected cash flows for these loans. To the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.
Acquired loans accounted for under ASC 310-20
We establish our allowance for loan losses through a provision for credit losses based upon an evaluation process that is similar to our evaluation process used for originated loans. This evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers, among other matters, the estimated fair value of the underlying collateral, economic conditions, historical net loan loss experience, carrying value of the loans, which includes the remaining net purchase discount or premium, and other factors that warrant recognition in determining our allowance for loan losses.
The following tables detail activity in the allowance for loan and lease losses segregated by originated and acquired loan and lease portfolios and by portfolio segment for the three and nine months ended September 30, 2016 and 2015. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
22 |
23 |
At September 30, 2016 and December 31, 2015, the allocation of the allowance for loan and lease losses summarized on the basis of the Company’s impairment methodology was as follows: |
(in thousands) |
Commercial
and Industrial |
Commercial
Real Estate |
Residential
Real Estate |
Consumer
and Other |
Finance
Leases |
Total | ||||||||||||||||||||||
Allowance for originated loans and leases | ||||||||||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 62 | $ | 259 | $ | 0 | $ | 0 | $ | 0 | $ | 321 | ||||||||||||||||
Collectively evaluated for impairment | 9,192 | 18,517 | 4,707 | 1,219 | 0 | 33,635 | ||||||||||||||||||||||
Ending balance | $ | 9,254 | $ | 18,776 | $ | 4,707 | $ | 1,219 | $ | 0 | $ | 33,956 |
24 |
(in thousands) |
Commercial
and Industrial |
Commercial Real Estate | Residential Real Estate |
Consumer
and Other |
Covered Loans | Total | ||||||||||||||||||
Allowance for acquired loans | ||||||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 0 | $ | 77 | $ | 0 | $ | 0 | $ | 0 | $ | 77 | ||||||||||||
Collectively evaluated for impairment | 0 | 0 | 57 | 22 | 0 | 79 | ||||||||||||||||||
Ending balance | $ | 0 | $ | 77 | $ | 57 | $ | 22 | $ | 0 | $ | 156 |
(in thousands) | Commercial and Industrial | Commercial Real Estate | Residential Real Estate |
Consumer
and Other |
Finance Leases | Total | ||||||||||||||||||
Allowance for originated loans and leases | ||||||||||||||||||||||||
December 31, 2015 | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 0 | $ | 288 | $ | 0 | $ | 0 | $ | 0 | $ | 288 | ||||||||||||
Collectively evaluated for impairment | 10,495 | 15,191 | 4,070 | 1,268 | 0 | 31,024 | ||||||||||||||||||
Ending balance | $ | 10,495 | $ | 15,479 | $ | 4,070 | $ | 1,268 | $ | 0 | $ | 31,312 |
(in thousands) | Commercial and Industrial | Commercial Real Estate | Residential Real Estate |
Consumer
and Other |
Covered Loans | Total | ||||||||||||||||||
Allowance for acquired loans | ||||||||||||||||||||||||
December 31, 2015 | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 433 | $ | 0 | $ | 128 | $ | 0 | $ | 0 | $ | 561 | ||||||||||||
Collectively evaluated for impairment | 0 | 61 | 70 | 0 | 0 | 131 | ||||||||||||||||||
Ending balance | $ | 433 | $ | 61 | $ | 198 | $ | 0 | $ | 0 | $ | 692 |
The recorded investment in loans and leases summarized on the basis of the Company’s impairment methodology as of September 30, 2016 and December 31, 2015 was as follows:
(in thousands) | Commercial and Industrial | Commercial Real Estate | Residential Real Estate |
Consumer
and Other |
Finance Leases | Total | ||||||||||||||||||
Originated loans and leases | ||||||||||||||||||||||||
September 30, 2016 | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 241 | $ | 8,084 | $ | 3,416 | $ | 0 | $ | 0 | $ | 11,741 | ||||||||||||
Collectively evaluated for impairment | 924,127 | 1,544,030 | 1,122,668 | 57,508 | 15,858 | 3,664,191 | ||||||||||||||||||
Total | $ | 924,368 | $ | 1,552,114 | $ | 1,126,084 | $ | 57,508 | $ | 15,858 | $ | 3,675,932 |
25 |
(in thousands) | Commercial and Industrial | Commercial Real Estate | Residential Real Estate |
Consumer
and Other |
Covered Loans | Total | |||||||||||||
Acquired loans | |||||||||||||||||||
September 30, 2016 | |||||||||||||||||||
Individually evaluated for impairment | $ | 9 | $ | 4,006 | $ | 1,372 | $ | 0 | $ | 0 | $ | 5,387 | |||||||
Loans acquired with deteriorated credit quality | 327 | 15,421 | 8,610 | 0 | 0 | 24,358 | |||||||||||||
Collectively evaluated for impairment | 84,335 | 242,357 | 59,704 | 867 | 0 | 387,263 | |||||||||||||
Total | $ | 84,671 | $ | 261,784 | $ | 69,686 | $ | 867 | $ | 0 | $ | 417,008 |
(in thousands) | Commercial and Industrial | Commercial Real Estate | Residential Real Estate |
Consumer
and Other |
Finance Leases | Total | |||||||||||||
Originated loans and leases | |||||||||||||||||||
December 31, 2015 | |||||||||||||||||||
Individually evaluated for impairment | $ | 1,206 | $ | 5,655 | $ | 2,270 | $ | 0 | $ | 0 | $ | 9,131 | |||||||
Collectively evaluated for impairment | 855,117 | 1,351,567 | 1,024,149 | 58,733 | 14,861 | 3,304,427 | |||||||||||||
Total | $ | 856,323 | $ | 1,357,222 | $ | 1,026,419 | $ | 58,733 | $ | 14,861 | $ | 3,313,558 |
(in thousands) | Commercial and Industrial | Commercial Real Estate | Residential Real Estate |
Consumer
and Other |
Covered Loans | Total | |||||||||||||
Acquired loans | |||||||||||||||||||
December 31, 2015 | |||||||||||||||||||
Individually evaluated for impairment | $ | 647 | $ | 5,226 | $ | 1,177 | $ | 0 | $ | 0 | $ | 7,050 | |||||||
Loans acquired with deteriorated credit quality | 567 | 9,335 | 3,801 | 0 | 12,804 | 26,507 | |||||||||||||
Collectively evaluated for impairment | 83,596 | 277,378 | 64,605 | 911 | 1,227 | 427,717 | |||||||||||||
Total | $ | 84,810 | $ | 291,939 | $ | 69,583 | $ | 911 | $ | 14,031 | $ | 461,274 |
26 |
A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans consist of our non-homogenous nonaccrual loans, and all loans restructured in a troubled debt restructuring (TDR). Specific reserves on individually identified impaired loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and such impaired amounts are generally charged off. The majority of impaired loans are collateral dependent impaired loans that have limited exposure or require limited specific reserves because of the amount of collateral support with respect to these loans, and previous charge-offs. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash basis. Impaired loans are as follows:
09/30/2016 | 12/31/2015 | ||||||||||||||||||
(in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||||||
Originated loans and leases with no related allowance | |||||||||||||||||||
Commercial and industrial | |||||||||||||||||||
Commercial and industrial other | $ | 165 | $ | 170 | $ | 0 | $ | 1,206 | $ | 1,211 | $ | 0 | |||||||
Commercial real estate | |||||||||||||||||||
Commercial real estate other | 7,436 | 7,929 | 0 | 5,049 | 5,249 | 0 | |||||||||||||
Residential real estate | |||||||||||||||||||
Home equity | 3,416 | 3,445 | 0 | 2,270 | 2,270 | 0 | |||||||||||||
Subtotal | $ | 11,017 | $ | 11,544 | $ | 0 | $ | 8,525 | $ | 8,730 | $ | 0 | |||||||
Originated loans and leases with related allowance | |||||||||||||||||||
Commercial and industrial | |||||||||||||||||||
Commercial and industrial other | 76 | 76 | 62 | 0 | 0 | 0 | |||||||||||||
Commercial real estate | |||||||||||||||||||
Commercial real estate other | 648 | 648 | 259 | 606 | 606 | 288 | |||||||||||||
Subtotal | $ | 724 | $ | 724 | $ | 321 | $ | 606 | $ | 606 | $ | 288 | |||||||
Total | $ | 11,741 | $ | 12,268 | $ | 321 | $ | 9,131 | $ | 9,336 | $ | 288 |
09/30/2016 | 12/31/2015 | ||||||||||||||||||
(in thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||||||
Acquired loans and leases with no related allowance | |||||||||||||||||||
Commercial and industrial | |||||||||||||||||||
Commercial and industrial other | $ | 9 | $ | 9 | $ | 0 | $ | 128 | $ | 128 | $ | 0 | |||||||
Commercial real estate | |||||||||||||||||||
Construction | 79 | 79 | 0 | 359 | 359 | 0 | |||||||||||||
Commercial real estate other | 3,849 | 4,233 | 0 | 4,739 | 5,077 | 0 | |||||||||||||
Residential real estate | |||||||||||||||||||
Home equity | 1,372 | 1,372 | 0 | 1,177 | 1,177 | 0 | |||||||||||||
Subtotal | $ | 5,309 | $ | 5,693 | $ | 0 | $ | 6,403 | $ | 6,741 | $ | 0 | |||||||
Acquired loans and leases with related allowance | |||||||||||||||||||
Commercial and industrial | |||||||||||||||||||
Commercial and industrial other | 0 | 0 | 0 | 519 | 519 | 433 | |||||||||||||
Commercial real estate | |||||||||||||||||||
Commercial real estate other | 78 | 78 | 77 | 128 | 128 | 128 | |||||||||||||
Subtotal | $ | 78 | $ | 78 | $ | 77 | $ | 647 | $ | 647 | $ | 561 | |||||||
Total | $ | 5,387 | $ | 5,771 | $ | 77 | $ | 7,050 | $ | 7,388 | $ | 561 |
27 |
The average recorded investment and interest income recognized on impaired loans for the three months ended September 30, 2016 and 2015 was as follows:
Three Months Ended
09/30/2016 |
Three Months Ended
09/30/2015 |
||||||||||||
(in thousands) | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||
Originated loans and leases with no related allowance | |||||||||||||
Commercial and industrial | |||||||||||||
Commercial and industrial other | 146 | 0 | 755 | 0 | |||||||||
Commercial real estate | |||||||||||||
Commercial real estate other | 7,422 | 0 | 7,972 | 0 | |||||||||
Residential real estate | |||||||||||||
Home equity | 3,097 | 0 | 1,137 | 0 | |||||||||
Subtotal | $ | 10,665 | $ | 0 | $ | 9,864 | $ | 0 | |||||
Originated loans and leases with related allowance | |||||||||||||
Commercial and industrial | |||||||||||||
Commercial and industrial other | 77 | 0 | 0 | 0 | |||||||||
Commercial real estate | |||||||||||||
Commercial real estate other | 636 | 0 | 1,110 | 0 | |||||||||
Subtotal | $ | 713 | $ | 0 | $ | 1,110 | $ | 0 | |||||
Total | $ | 11,378 | $ | 0 | $ | 10,974 | $ | 0 |
Three Months Ended
09/30/2016 |
Three Months Ended
09/30/2015 |
||||||||||||
(in thousands) | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||
Acquired loans and leases with no related allowance | |||||||||||||
Commercial and industrial | |||||||||||||
Commercial and industrial other | 6 | 0 | 558 | 0 | |||||||||
Commercial real estate | |||||||||||||
Construction | 126 | 0 | 366 | 0 | |||||||||
Commercial real estate other | 4,201 | 0 | 4,582 | 0 | |||||||||
Residential real estate | |||||||||||||
Home equity | 1,319 | 0 | 1,065 | 0 | |||||||||
Subtotal | $ | 5,652 | $ | 0 | $ | 6,571 | $ | 0 | |||||
Acquired loans and leases with related allowance | |||||||||||||
Commercial and industrial | |||||||||||||
Commercial and industrial other | 0 | 0 | 805 | 0 | |||||||||
Commercial real estate | |||||||||||||
Commercial real estate other | 78 | 0 | 0 | 0 | |||||||||
Subtotal | $ | 78 | $ | 0 | $ | 805 | $ | 0 | |||||
Total | $ | 5,730 | $ | 0 | $ | 7,376 | $ | 0 |
28 |
The average recorded investment and interest income recognized on impaired loans for the nine months ended September 30, 2016 and 2015 was as follows:
Nine Months Ended
09/30/2016 |
Nine Months Ended
09/30/2015 |
||||||||||||
(in thousands) | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||
Originated loans and leases with no related allowance | |||||||||||||
Commercial and industrial | |||||||||||||
Commercial and industrial other | 476 | 0 | 567 | 0 | |||||||||
Commercial real estate | |||||||||||||
Commercial real estate other | 6,351 | 0 | 8,123 | 0 | |||||||||
Residential real estate | |||||||||||||
Home equity | 2,694 | 0 | 1,104 | 0 | |||||||||
Subtotal | $ | 9,521 | $ | 0 | $ | 9,794 | $ | 0 | |||||
Originated loans and leases with related allowance | |||||||||||||
Commercial and industrial | |||||||||||||
Commercial and industrial other | 48 | 0 | 0 | 0 | |||||||||
Commercial real estate | |||||||||||||
Commercial real estate other | 641 | 0 | 949 | 0 | |||||||||
Subtotal | $ | 689 | $ | 0 | $ | 949 | $ | 0 | |||||
Total | $ | 10,210 | $ | 0 | $ | 10,743 | $ | 0 |
Nine Months Ended
09/30/2016 |
Nine Months Ended
09/30/2015 |
||||||||||||
(in thousands) | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||
Acquired loans and leases with no related allowance | |||||||||||||
Commercial and industrial | |||||||||||||
Commercial and industrial other | 303 | 0 | 565 | 0 | |||||||||
Commercial real estate | |||||||||||||
Construction | 242 | 0 | 369 | 0 | |||||||||
Commercial real estate other | 4,320 | 0 | 3,820 | 0 | |||||||||
Residential real estate | |||||||||||||
Home equity | 1,267 | 0 | 1,064 | 0 | |||||||||
Subtotal | $ | 6,132 | $ | 0 | $ | 5,818 | $ | 0 | |||||
Acquired loans and leases with related allowance | |||||||||||||
Commercial and industrial | |||||||||||||
Commercial and industrial other | 0 | 0 | 809 | 0 | |||||||||
Commercial real estate | |||||||||||||
Commercial real estate other | 54 | 0 | 0 | 0 | |||||||||
Subtotal | $ | 54 | $ | 0 | $ | 809 | $ | 0 | |||||
Total | $ | 6,186 | $ | 0 | $ | 6,627 | $ | 0 |
Loans are considered modified in a TDR when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider. These modifications may include, among others, an extension for the term of the loan, and granting a period when interest-only payments can be made with the principal payments made over the remaining term of the loan or at maturity.
29 |
The following tables present information on loans modified in troubled debt restructuring during the periods indicated.
September 30, 2016 | Three Months Ended | |||||||||||||
Defaulted TDRs 3 | ||||||||||||||
(in thousands) | Number of Loans | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | Number of Loans | Post-Modification Outstanding Recorded Investment | |||||||||
Commercial real estate | ||||||||||||||
Commercial real estate other 1 | 1 | 50 | 50 | 1 | 1,800 | |||||||||
Residential real estate | ||||||||||||||
Home equity 2 | 5 | 382 | 382 | 0 | 0 | |||||||||
Total | 6 | $ | 432 | $ | 432 | 1 | $ | 1,800 |
1 Represents the following concessions: extension of term and reduction of rate.
2 Represents the following concessions: extension of term and reduction of rate.
3 TDRs that defaulted during the three months ended September 30, 2016 that were restructured in the prior twelve months.
September 30, 2015 | Three Months Ended | |||||||||||||
Defaulted TDRs 4 | ||||||||||||||
(in thousands) | Number of Loans | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | Number of Loans | Post-Modification Outstanding Recorded Investment | |||||||||
Commercial and industrial | ||||||||||||||
Commercial and industrial other 1 | 1 | $ | 52 | $ | 52 | 2 | $ | 311 | ||||||
Commercial real estate other 2 | 1 | 1,938 | 1,938 | 0 | 0 | |||||||||
Residential real estate | ||||||||||||||
Home equity 3 | 2 | 76 | 76 | 1 | 43 | |||||||||
Total | 4 | $ | 2,066 | $ | 2,066 | 3 | $ | 354 |
1 Represents the following concessions: extension of term and reduction of rate.
2 Represents the following concessions: reduction of rate.
3 Represents the following concessions: extension of term and reduction of rate.
4 TDRs that defaulted in the quarter ended September 30, 2015 that had been restructured in the prior twelve months.
30 |
September 30, 2016 | Nine Months Ended | |||||||||||||||||||
Defaulted TDRs 4 | ||||||||||||||||||||
(in thousands) |
Number of
Loans |
Pre-
Modification Outstanding Recorded Investment |
Post-
Modification Outstanding Recorded Investment |
Number of
Loans |
Post-
Modification Outstanding Recorded Investment |
|||||||||||||||
Commercial and industrial | ||||||||||||||||||||
Commercial and industrial other 1 | 2 | $ | 1,115 | $ | 1,115 | 0 | $ | 0 | ||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial real estate other 2 | 1 | $ | 50 | $ | 50 | 1 | $ | 1,800 | ||||||||||||
Residential real estate | ||||||||||||||||||||
Home equity 3 | 10 | 1,164 | 1,164 | 0 | 0 | |||||||||||||||
Total | 13 | $ | 2,329 | $ | 2,329 | 1 | $ | 1,800 |
1 Represents the following concessions: extension of term and reduction of rate. |
2 Represents the following concessions: extension of term and reduction of rate. |
3 Represents the following concessions: extension of term and reduction of rate. |
4 TDRs that defaulted during the nine months ended September 30, 2016 that had been restructured in the prior twelve months. |
September 30, 2015 |
Nine Months Ended | |||||||||||||||||||
Defaulted TDRs 4 | ||||||||||||||||||||
(in thousands) |
Number of
Loans |
Pre-
Modification Outstanding Recorded Investment |
Post-
Modification Outstanding Recorded Investment |
Number of
Loans |
Post-
Recorded
|
|||||||||||||||
Commercial and industrial | ||||||||||||||||||||
Commercial and industrial other 1 | 5 | $ | 433 | $ | 433 | 2 | $ | 311 | ||||||||||||
Commercial real estate | ||||||||||||||||||||
Commercial real estate other 2 | 3 | 2,552 | 2,552 | 0 | 0 | |||||||||||||||
Residential real estate | ||||||||||||||||||||
Home equity 3 | 14 | 1,558 | 1,558 | 4 | 279 | |||||||||||||||
Total | 22 | $ | 4,543 | $ | 4,543 | 6 | $ | 590 |
1 Represents the following concessions: extension of term (2 loans $319,000) and reduction of rate (3 loans $114,000). |
2 Represents the following concessions: extension of term (1 loan $28,000) and extension of term (2 loans $2.5 million). |
3 Represents the following concessions: extension of term (9 loans $1.2 million) and reduction of rate (5 loans $928,000). |
4 TDRs that defaulted during the nine months ended September 30, 2015 that were restructured in the prior twelve months. |
31 |
The following tables present credit quality indicators (internal risk grade) by class of commercial and industrial loans and commercial real estate loans as of September 30, 2016 and December 31, 2015.
September 30, 2016 | ||||||||||||||||||||||||
Commercial | Commercial | Commercial | Commercial | Commercial | ||||||||||||||||||||
and Industrial | and Industrial | Real Estate | Real Estate | Real Estate | ||||||||||||||||||||
(in thousands) | Other | Agriculture | Other | Agriculture | Construction | Total | ||||||||||||||||||
Originated Loans and Leases | ||||||||||||||||||||||||
Internal risk grade: | ||||||||||||||||||||||||
Pass | $ | 834,483 | $ | 76,651 | $ | 1,283,101 | $ | 103,197 | $ | 133,714 | $ | 2,431,146 | ||||||||||||
Special Mention | 9,028 | 703 | 16,904 | 580 | 0 | 27,215 | ||||||||||||||||||
Substandard | 3,146 | 357 | 14,328 | 290 | 0 | 18,121 | ||||||||||||||||||
Total | $ | 846,657 | $ | 77,711 | $ | 1,314,333 | $ | 104,067 | $ | 133,714 | $ | 2,476,482 |
September 30, 2016 | ||||||||||||||||||||||||
Commercial | Commercial | Commercial | Commercial | Commercial | ||||||||||||||||||||
and Industrial | and Industrial | Real Estate | Real Estate | Real Estate | ||||||||||||||||||||
(in thousands) | Other | Agriculture | Other | Agriculture | Construction | Total | ||||||||||||||||||
Acquired Loans and Leases | ||||||||||||||||||||||||
Internal risk grade: | ||||||||||||||||||||||||
Pass | $ | 82,956 | $ | 0 | $ | 240,570 | $ | 4,761 | $ | 3,628 | $ | 331,915 | ||||||||||||
Special Mention | 0 | 0 | 540 | 0 | 0 | 540 | ||||||||||||||||||
Substandard | 1,715 | 0 | 12,285 | 0 | 0 | 14,000 | ||||||||||||||||||
Total | $ | 84,671 | $ | 0 | $ | 253,395 | $ | 4,761 | $ | 3,628 | $ | 346,455 |
December 31, 2015 | ||||||||||||||||||||||||
Commercial | Commercial | Commercial | Commercial | Commercial | ||||||||||||||||||||
and Industrial | and Industrial | Real Estate | Real Estate | Real Estate | ||||||||||||||||||||
(in thousands) | Other | Agriculture | Other | Agriculture | Construction | Total | ||||||||||||||||||
Originated Loans and Leases | ||||||||||||||||||||||||
Internal risk grade: | ||||||||||||||||||||||||
Pass | $ | 759,023 | $ | 87,488 | $ | 1,143,238 | $ | 86,445 | $ | 99,508 | $ | 2,175,702 | ||||||||||||
Special Mention | 3,531 | 78 | 12,378 | 141 | 3,529 | 19,657 | ||||||||||||||||||
Substandard | 5,470 | 733 | 11,634 | 349 | 0 | 18,186 | ||||||||||||||||||
Total | $ | 768,024 | $ | 88,299 | $ | 1,167,250 | $ | 86,935 | $ | 103,037 | $ | 2,213,545 |
December 31, 2015 | ||||||||||||||||||||||||
Commercial | Commercial | Commercial | Commercial | Commercial | ||||||||||||||||||||
and Industrial | and Industrial | Real Estate | Real Estate | Real Estate | ||||||||||||||||||||
(in thousands) | Other | Agriculture | Other | Agriculture | Construction | Total | ||||||||||||||||||
Acquired Loans and Leases | ||||||||||||||||||||||||
Internal risk grade: | ||||||||||||||||||||||||
Pass | $ | 82,662 | $ | 0 | $ | 271,584 | $ | 423 | $ | 4,533 | $ | 359,202 | ||||||||||||
Special Mention | 0 | 0 | 540 | 0 | 0 | 540 | ||||||||||||||||||
Substandard | 2,148 | 0 | 12,828 | 1,672 | 359 | 17,007 | ||||||||||||||||||
Total | $ | 84,810 | $ | 0 | $ | 284,952 | $ | 2,095 | $ | 4,892 | $ | 376,749 |
32 |
The following tables present credit quality indicators by class of residential real estate loans and by class of consumer loans. Nonperforming loans include nonaccrual, impaired, and loans 90 days past due and accruing interest. All other loans are considered performing as of September 30, 2016 and December 31, 2015. For purposes of this footnote, acquired loans that were recorded at fair value at the acquisition date and are 90 days or greater past due are considered performing.
September 30, 2016 | ||||||||||||||||||||
(in thousands) |
Residential
Home Equity |
Residential
Mortgages |
Consumer
Indirect |
Consumer
Other |
Total | |||||||||||||||
Originated Loans and Leases | ||||||||||||||||||||
Performing | $ | 206,784 | $ | 912,563 | $ | 15,680 | $ | 41,605 | $ | 1,176,632 | ||||||||||
Nonperforming | 1,545 | 5,192 | 213 | 10 | 6,960 | |||||||||||||||
Total | $ | 208,329 | $ | 917,755 | $ | 15,893 | $ | 41,615 | $ | 1,183,592 |
September 30, 2016 | ||||||||||||||||||||
(in thousands) |
Residential
Home Equity |
Residential
Mortgages |
Consumer
Indirect |
Consumer
Other |
Total | |||||||||||||||
Acquired Loans and Leases | ||||||||||||||||||||
Performing | $ | 38,706 | $ | 28,869 | $ | 0 | $ | 867 | $ | 68,442 | ||||||||||
Nonperforming | 924 | 1,187 | 0 | 0 | 2,111 | |||||||||||||||
Total | $ | 39,630 | $ | 30,056 | $ | 0 | $ | 867 | $ | 70,553 |
December 31, 2015 | ||||||||||||||||||||
(in thousands) |
Residential
Home Equity |
Residential
Mortgages |
Consumer
Indirect |
Consumer
Other |
Total | |||||||||||||||
Originated Loans and Leases | ||||||||||||||||||||
Performing | $ | 200,647 | $ | 817,952 | $ | 17,722 | $ | 40,829 | $ | 1,077,150 | ||||||||||
Nonperforming | 1,931 | 5,889 | 107 | 75 | 8,002 | |||||||||||||||
Total | $ | 202,578 | $ | 823,841 | $ | 17,829 | $ | 40,904 | $ | 1,085,152 |
December 31, 2015 |
||||||||||||||||||||
(in thousands) |
Residential
Home Equity |
Residential
Mortgages |
Consumer
Indirect |
Consumer
Other |
Total | |||||||||||||||
Acquired Loans and Leases | ||||||||||||||||||||
Performing | $ | 41,380 | $ | 26,102 | $ | 0 | $ | 911 | $ | 68,393 | ||||||||||
Nonperforming | 712 | 1,389 | 0 | 0 | 2,101 | |||||||||||||||
Total | $ | 42,092 | $ | 27,491 | $ | 0 | $ | 911 | $ | 70,494 |
33 |
7. FDIC Indemnification Asset Related to Covered Loans
Prior to the third quarter of 2016, the Company had certain loans acquired in the VIST Financial acquisition which were covered loans with loss share agreements with the FDIC. Under the terms of loss sharing agreements, the FDIC would reimburse the Company for 70 percent of net losses on covered single family assets up to $4.0 million, and 70 percent of net losses incurred on covered commercial assets up to $12.0 million. The FDIC would also increase its reimbursement of net losses to 80 percent if net losses exceed the $4.0 million and $12 million thresholds, respectively. The term for loss sharing on residential real estate loans was ten years, while the term for loss sharing on non-residential real estate loans was five years in respect to losses and eight years in respect to loss recoveries. The loss share period for the residential real estate loans was set to expire on December 31, 2020. The loss share period for the nonresidential real estate loans expired on December 31, 2015.
The receivable arising from the loss sharing agreements is measured separately from covered loans because the agreements are not contractually part of the covered loans and are not transferable should the Company choose to dispose of the covered loans. As of the acquisition date with VIST Financial, the Company recorded an aggregate FDIC indemnification asset of $4.4 million, consisting of the present value of the expected future cash flows the Company expected to receive from the FDIC under loss sharing agreements. The FDIC indemnification asset is reduced as loss sharing payments are received from the FDIC for losses realized on covered loans. Actual or expected losses in excess of the acquisition date estimates and accretion of the acquisition date present value discount will result in an increase in the FDIC indemnification asset and the immediate recognition of non-interest income in our financial statements.
Based on an analysis of remaining loans covered under a loss share agreement with the FDIC, management decided to early terminate the loss share agreement with the FDIC during the third quarter of 2016. The Company recorded pre-tax expense of $313,000 to terminate the agreement and write-off the remaining book value of the FDIC indemnification asset, which included $174,000 in expense for early termination and $139,000 to write off the remaining asset. The remaining balances of the loans previously reported as Covered Loans are included in the current period in acquired loan balances by loan type.
8. Earnings Per Share
Earnings per share in the table below, for the three and nine month periods ended September 30, 2016 and 2015 are calculated under the two-class method as required by ASC Topic 260, Earnings Per Share. ASC 260 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company has issued restricted stock awards that contain such rights and are therefore considered participating securities. Basic earnings per common share are calculated by dividing net income allocable to common stock by the weighted average number of common shares, excluding participating securities, during the period. Diluted earnings per common share include the dilutive effect of participating securities.
34 |
35 |
Three Months Ended September 30, 2015 | ||||||||||||
(in thousands) |
Before-Tax
Amount |
Tax (Expense)
Benefit |
Net of Tax | |||||||||
Available-for-sale securities: | ||||||||||||
Change in net unrealized gain/loss during the period | $ | 9,193 | $ | (3,678 | ) | $ | 5,515 | |||||
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income | (92 | ) | 37 | (55 | ) | |||||||
Net unrealized gains | 9,101 | (3,641 | ) | 5,460 | ||||||||
Employee benefit plans: | ||||||||||||
Amortization of net retirement plan actuarial gain | 201 | (79 | ) | 122 | ||||||||
Amortization of net retirement plan prior service cost | 20 | (9 | ) | 11 | ||||||||
Employee benefit plans | 221 | (88 | ) | 133 | ||||||||
Other comprehensive income | $ | 9,322 | $ | (3,729 | ) | $ | 5,593 |
36 |
Nine Months Ended September 30, 2016 | ||||||||||||
(in thousands) |
Before-Tax
Amount |
Tax (Expense)
Benefit |
Net of Tax | |||||||||
Available-for-sale securities: | ||||||||||||
Change in net unrealized gain/loss during the period | $ | 23,763 | $ | (9,503 | ) | $ | 14,260 | |||||
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income | (926 | ) | 370 | (556 | ) | |||||||
Net unrealized gains | 22,837 | (9,133 | ) | 13,704 | ||||||||
Employee benefit plans: | ||||||||||||
Amortization of net retirement plan actuarial loss | 1,004 | (402 | ) | 602 | ||||||||
Amortization of net retirement plan prior service cost | 58 | (23 | ) | 35 | ||||||||
Employee benefit plans | 1,062 | (425 | ) | 637 | ||||||||
Other comprehensive income | $ | 23,899 | $ | (9,558 | ) | $ | 14,341 |
Nine Months Ended September 30, 2015 | ||||||||||||
(in thousands) |
Before-Tax
Amount |
Tax (Expense)
Benefit |
Net of Tax | |||||||||
Available-for-sale securities: | ||||||||||||
Change in net unrealized gain/loss during the period | $ | 6,472 | $ | (2,589 | ) | $ | 3,883 | |||||
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income | (1,105 | ) | 442 | (663 | ) | |||||||
Net unrealized gains | 5,367 | (2,147 | ) | 3,220 | ||||||||
Employee benefit plans: | ||||||||||||
Recognized actuarial gain due to curtailment | (5,326 | ) | 2,130 | (3,196 | ) | |||||||
Net retirement plan gain | 1,950 | (780 | ) | 1,170 | ||||||||
Amortization of net retirement plan actuarial gain | 1,663 | (664 | ) | 999 | ||||||||
Amortization of net retirement plan prior service credit | (351 | ) | 141 | (210 | ) | |||||||
Employee benefit plans | (2,064 | ) | 827 | (1,237 | ) | |||||||
Other comprehensive income | $ | 3,303 | $ | (1,320 | ) | $ | 1,983 |
37 |
The following table presents the activity in our accumulated other comprehensive income (loss) for the periods indicated: |
(in thousands) |
Available-for-
Sale Securities |
Employee
Benefit Plans |
Accumulated
Other Comprehensive (Loss) Income |
|||||||||
Balance at July 1, 2016 | $ | 14,566 | $ | (27,833 | ) | $ | (13,267 | ) | ||||
Other comprehensive income before reclassifications | (3,333 | ) | 0 | (3,333 | ) | |||||||
Amounts reclassified from accumulated other comprehensive (loss) income | (273 | ) | 213 | (60 | ) | |||||||
Net current-period other comprehensive income | (3,606 | ) | 213 | (3,393 | ) | |||||||
Balance at September 30, 2016 | $ | 10,960 | $ | (27,620 | ) | $ | (16,660 | ) | ||||
Balance at January 1, 2016 | $ | (2,744 | ) | $ | (28,257 | ) | $ | (31,001 | ) | |||
Other comprehensive income before reclassifications | 14,260 | 0 | 14,260 | |||||||||
Amounts reclassified from accumulated other comprehensive (loss) income | (556 | ) | 637 | 81 | ||||||||
Net current-period other comprehensive income | 13,704 | 637 | 14,341 | |||||||||
Balance at September 30, 2016 | $ | 10,960 | $ | (27,620 | ) | $ | (16,660 | ) |
(in thousands) |
Available-for-
Sale Securities |
Employee
Benefit Plans |
Accumulated
Other Comprehensive (Loss) Income |
|||||||||
Balance at July 1, 2015 | $ | 627 | $ | (28,248 | ) | $ | (27,621 | ) | ||||
Other comprehensive loss before reclassifications | 5,515 | 0 | 5,515 | |||||||||
Amounts reclassified from accumulated other comprehensive loss | (55 | ) | 133 | 78 | ||||||||
Net current-period other comprehensive loss | 5,460 | 133 | 5,593 | |||||||||
Balance at September 30, 2015 | $ | 6,087 | $ | (28,115 | ) | $ | (22,028 | ) | ||||
Balance at January 1, 2015 | $ | 2,867 | $ | (26,878 | ) | $ | (24,011 | ) | ||||
Other comprehensive loss before reclassifications | 3,883 | 0 | 3,883 | |||||||||
Amounts reclassified from accumulated other comprehensive loss | (663 | ) | (1,237 | ) | (1,900 | ) | ||||||
Net current-period other comprehensive loss | 3,220 | (1,237 | ) | 1,983 | ||||||||
Balance at September 30, 2015 | $ | 6,087 | $ | (28,115 | ) | $ | (22,028 | ) |
The following tables present the amounts reclassified out of each component of accumulated other comprehensive (loss) income for the three and nine months ended September 30, 2016 and 2015. |
Three months ended September 30, 2016 | ||||||
Details about Accumulated other Comprehensive Income
Components (in thousands) |
Amount
Reclassified from Accumulated Other Comprehensive (Loss) Income 1 |
Affected Line Item in the
Statement Where Net Income is Presented |
||||
Available-for-sale securities: | ||||||
Unrealized gains and losses on available-for-sale securities | $ | 455 | Net gain on securities transactions | |||
(182 | ) | Tax expense | ||||
273 | Net of tax | |||||
Employee benefit plans: | ||||||
Amortization of the following 2 | ||||||
Net retirement plan actuarial gain | (335 | ) | Pension and other employee benefits | |||
Net retirement plan prior service cost | (20 | ) | Pension and other employee benefits | |||
(355 | ) | Total before tax | ||||
142 | Tax benefit | |||||
(213 | ) | Net of tax |
38 |
Nine months ended September 30, 2016
Amount
Reclassified from Accumulated Other Comprehensive (Loss) Income 1 |
Affected Line Item in the
Statement Where Net Income is Presented |
||||
Details about Accumulated other Comprehensive Income Components (in thousands) | |||||
Available-for-sale securities: | |||||
Unrealized gains and losses on available-for-sale securities | $ | 926 | Net gain on securities transactions | ||
(370) | Tax expense | ||||
556 | Net of tax | ||||
Employee benefit plans: | |||||
Amortization of the following 2 | |||||
Net retirement plan actuarial gain | (1,004) | Pension and other employee benefits | |||
Net retirement plan prior service credit | (58) | Pension and other employee benefits | |||
(1,062) | Total before tax | ||||
425 | Tax benefit | ||||
(637) | Net of tax |
Three months ended September 30, 2015
Amount
Reclassified from Accumulated Other Comprehensive Income 1 |
Affected Line Item in the
Statement Where Net Income is Presented |
||||
Details about Accumulated other Comprehensive Income Components (in thousands) | |||||
Available-for-sale securities: | |||||
Unrealized gains and losses on available-for-sale securities | $ | 92 | Net gain on securities transactions | ||
(37) | Tax expense | ||||
55 | Net of tax | ||||
Employee benefit plans: | |||||
Amortization of the following 2 | |||||
Net retirement plan actuarial loss | (201) | Pension and other employee benefits | |||
Net retirement plan prior service credit | (20) | Pension and other employee benefits | |||
(221) | Total before tax | ||||
88 | Tax benefit | ||||
(133) | Net of tax |
39 |
Nine months ended September 30, 2015
Amount
Reclassified from Accumulated Other Comprehensive (Loss) Income 1 |
Affected Line Item in the
Statement Where Net Income is Presented |
||||
Details about Accumulated other Comprehensive Income Components (in thousands) | |||||
Available-for-sale securities: | |||||
Unrealized gains and losses on available-for-sale securities | $ | 1,105 | Net gain on securities transactions | ||
(442) | Tax expense | ||||
663 | Net of tax | ||||
Employee benefit plans: | |||||
Amortization of the following 2 | |||||
Net retirement plan actuarial loss | (1,663) | Pension and other employee benefits | |||
Net retirement plan prior service cost | 351 | Pension and other employee benefits | |||
(1,312) | Total before tax | ||||
523 | Tax benefit | ||||
(789) | Net of tax |
1 Amounts in parentheses indicated debits in income statement.
2 The accumulated other comprehensive (loss) income components are included in the computation of net periodic benefit cost (See Note 10 - “Employee Benefit Plan”).
10 . Employee Benefit Plan
The following table sets forth the amount of the net periodic benefit cost recognized by the Company for the Company’s pension plan, post-retirement plan (Life and Health), and supplemental employee retirement plans (“SERP”) including the following components: service cost, interest cost, expected return on plan assets for the period, 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 Periodic Benefit (Income) Cost
Pension Benefits | Life and Health | SERP Benefits | ||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||
(in thousands) | 09/30/2016 | 09/30/2015 | 09/30/2016 | 09/30/2015 | 09/30/2016 | 09/30/2015 | ||||||||||||||||||
Service cost | $ | 0 | $ | 22 | $ | 64 | $ | 59 | $ | 43 | $ | 50 | ||||||||||||
Interest cost | 618 | 145 | 71 | 81 | 208 | 232 | ||||||||||||||||||
Expected return on plan assets | (1,211 | ) | (240 | ) | 0 | 0 | 0 | 0 | ||||||||||||||||
Amortization of net retirement plan actuarial loss | 244 | 41 | 1 | 5 | 90 | 156 | ||||||||||||||||||
Amortization of net retirement plan prior service (credit) cost | (4 | ) | (3 | ) | 4 | 4 | 19 | 18 | ||||||||||||||||
Net periodic benefit (income) cost | $ | (353 | ) | $ | (35 | ) | $ | 140 | $ | 149 | $ | 360 | $ | 456 |
40 |
Components of Net Period Benefit (Income) Cost
Pension Benefits | Life and Health | SERP Benefits | ||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||
(in thousands) | 09/30/2016 | 09/30/2015 | 09/30/2016 | 09/30/2015 | 09/30/2016 | 09/30/2015 | ||||||||||||||||||
Service cost | $ | 0 | $ | 1,394 | $ | 193 | $ | 177 | $ | 128 | $ | 150 | ||||||||||||
Interest cost | 1,855 | 1,610 | 212 | 242 | 624 | 696 | ||||||||||||||||||
Expected return on plan assets | (3,633 | ) | (2,748 | ) | 0 | 0 | 0 | 0 | ||||||||||||||||
Amortization of net retirement plan actuarial loss | 731 | 1,180 | 4 | 14 | 269 | 469 | ||||||||||||||||||
Amortization of net retirement plan prior service cost (credit) | (11 | ) | (417 | ) | 12 | 12 | 56 | 54 | ||||||||||||||||
Recognized actuarial gain due to curtailments | 0 | (6,003 | ) | 0 | 0 | 0 | 0 | |||||||||||||||||
Net periodic benefit (income) cost | $ | (1,058 | ) | $ | (4,984 | ) | $ | 421 | $ | 445 | $ | 1,077 | $ | 1,369 |
The net periodic benefit cost for the Company’s benefit plans are recorded as a component of salaries and benefits in the consolidated statements of income.
The Company realized approximately $637,000 and $1.2 million, net of tax, as amortization of amounts previously recognized in accumulated other comprehensive income, for the nine months ended September 30, 2016 and 2015, respectively.
The Company is not required to contribute to the pension plan in 2016, but it may make voluntary contributions. The Company contributed $1.3 million to the pension plan in the nine months ended September 30, 2016. For the nine months ended September 30, 2015, the Company did not contribute to the pension plan.
Effective July 31, 2015, the Retirement Plan (Accruing Pension Plan) was frozen (participants no longer accrue benefits after July 31, 2015). The Plan freeze was reflected on June 30, 2015, and in accordance with ASC 715 Compensation – Retirement Benefits, a Curtailment was triggered. Under a Curtailment due to a plan freeze, any unrecognized Prior Service Cost bases must be fully recognized in benefit cost at the time of the Curtailment. The sum of unrecognized Prior Service Cost bases as of June 30, 2015 was $6.0 million.
11. Other Income and Operating Expense
Other income and operating expense totals are presented in the table below. Components of these totals exceeding 1% of the aggregate of total noninterest income and total noninterest expenses for any of the years presented below are stated separately.
Three Months Ended | Nine Months Ended | |||||||||||||||
(in thousands) | 09/30/2016 | 09/30/2015 | 09/30/2016 | 09/30/2015 | ||||||||||||
Noninterest Income | ||||||||||||||||
Other service charges | $ | 619 | $ | 710 | $ | 1,986 | $ | 2,208 | ||||||||
Increase in cash surrender value of corporate owned life insurance | 489 | 474 | 1,615 | 1,643 | ||||||||||||
Other income | 637 | 485 | 1,218 | 2,539 | ||||||||||||
Total other income | $ | 1,745 | $ | 1,669 | $ | 4,819 | $ | 6,390 | ||||||||
Noninterest Expenses | ||||||||||||||||
Marketing expense | $ | 1,248 | $ | 919 | $ | 3,566 | $ | 3,373 | ||||||||
Professional fees | 1,389 | 1,334 | 4,083 | 4,248 | ||||||||||||
Legal fees | 313 | 377 | 992 | 1,130 | ||||||||||||
Software licensing and maintenance | 1,322 | 1,186 | 3,938 | 3,407 | ||||||||||||
Cardholder expense | 548 | 684 | 1,973 | 1,951 | ||||||||||||
Other expenses | 4,425 | 4,009 | 12,982 | 13,732 | ||||||||||||
Total other operating expense | $ | 9,245 | $ | 8,509 | $ | 27,534 | $ | 27,841 |
41 |
12. Financial Guarantees
The Company currently does not issue any guarantees that would require liability recognition or disclosure, 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 September 30, 2016 , the Company’s maximum potential obligation under standby letters of credit was $58.0 million compared to $58.6 million at December 31, 2015. 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, and has determined that the fair value of standby letters of credit is not significant.
13. Segment and Related Information
The Company manages its operations through three reportable business segments in accordance with the standards set forth in FASB ASC 280, “Segment Reporting”: (i) banking (“Banking”), (ii) insurance (“Tompkins Insurance”) and (iii) wealth management (“Tompkins Financial Advisors”). The Company’s insurance services and wealth management services, other than trust services, are managed separately from the Banking segment.
Banking
The Banking segment is primarily comprised of the Company’s four banking subsidiaries: Tompkins Trust Company, a commercial bank with thirteen banking offices located in Ithaca, NY and surrounding communities; The Bank of Castile (DBA Tompkins Bank of Castile), a commercial bank with sixteen banking offices located in the Genesee Valley region of New York State as well as Monroe County; Mahopac Bank (DBA Tompkins Mahopac Bank), a commercial bank with fourteen full-service banking offices located in the counties north of New York City; and VIST Bank (DBA Tompkins VIST Bank), a banking organization with twenty banking offices headquartered and operating in the areas surrounding southeastern Pennsylvania.
Insurance
The Company provides property and casualty insurance services and employee benefits consulting through Tompkins Insurance Agencies, Inc., a 100% wholly-owned subsidiary of the Company, headquartered in Batavia, New York. Tompkins Insurance is an independent insurance agency, representing many major insurance carriers and provides employee benefit consulting to employers in Western and Central New York and Southeastern Pennsylvania, assisting them with their medical, group life insurance and group disability insurance.
Wealth Management
The Wealth Management segment is generally organized under the Tompkins Financial Advisors brand. Tompkins Financial Advisors offers a comprehensive suite of financial services to customers, including trust and estate services, investment management and financial and insurance planning for individuals, corporate executives, small business owners and high net worth individuals. Tompkins Financial Advisors has offices in each of the Company’s four subsidiary banks.
42 |
Summarized financial information concerning the Company’s reportable segments and the reconciliation to the Company’s consolidated results is shown in the following table. Investment in subsidiaries is netted out of the presentations below. The “Intercompany” column identifies the intercompany activities of revenues, expenses and other assets between the banking, insurance and wealth management services segments. 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 in the 2015 Annual Report on Form 10-K.
As of and for the three months ended September 30, 2016 | ||||||||||||||||||||
(in thousands) | Banking | Insurance | Wealth Management | Intercompany | Consolidated | |||||||||||||||
Interest income | $ | 51,077 | $ | 0 | $ | 0 | $ | 0 | $ | 51,077 | ||||||||||
Interest expense | 5,760 | 0 | 0 | 0 | 5,760 | |||||||||||||||
Net interest income | 45,317 | 0 | 0 | 0 | 45,317 | |||||||||||||||
Provision for loan and lease losses | 782 | 0 | 0 | 0 | 782 | |||||||||||||||
Noninterest income | 6,335 | 7,862 | 4,004 | (296 | ) | 17,905 | ||||||||||||||
Noninterest expense | 31,337 | 6,281 | 3,002 | (296 | ) | 40,324 | ||||||||||||||
Income before income tax expense | 19,533 | 1,581 | 1,002 | 0 | 22,116 | |||||||||||||||
Income tax expense | 6,238 | 642 | 339 | 0 | 7,219 | |||||||||||||||
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation | 13,295 | 939 | 663 | 0 | 14,897 | |||||||||||||||
Less: Net income attributable to noncontrolling interests | 33 | 0 | 0 | 0 | 33 | |||||||||||||||
Net Income attributable to Tompkins Financial Corporation | $ | 13,262 | $ | 939 | $ | 663 | $ | 0 | $ | 14,864 | ||||||||||
Depreciation and amortization | $ | 1,587 | $ | 87 | $ | 19 | $ | 0 | $ | 1,693 | ||||||||||
Assets | 6,056,855 | 39,618 | 14,366 | (8,624 | ) | 6,102,215 | ||||||||||||||
Goodwill | 64,370 | 20,042 | 8,211 | 0 | 92,623 | |||||||||||||||
Other intangibles, net | 6,778 | 4,748 | 376 | 0 | 11,902 | |||||||||||||||
Net loans and leases | 4,055,435 | 0 | 0 | 0 | 4,055,435 | |||||||||||||||
Deposits | 4,698,847 | 0 | 0 | (8,547 | ) | 4,690,300 | ||||||||||||||
Total Equity | 518,707 | 30,780 | 11,703 | 0 | 561,190 | |||||||||||||||
As of and for the three months ended September 30, 2015 | ||||||||||||||||||||
(in thousands) | Banking | Insurance |
Wealth
Management |
Intercompany | Consolidated | |||||||||||||||
Interest income | $ | 47,490 | $ | 0 | $ | 40 | $ | 0 | $ | 47,530 | ||||||||||
Interest expense | 5,144 | 0 | 0 | 0 | 5,144 | |||||||||||||||
Net interest income | 42,346 | 0 | 40 | 0 | 42,386 | |||||||||||||||
Provision for loan and lease losses | 281 | 0 | 0 | 0 | 281 | |||||||||||||||
Noninterest income | 6,293 | 7,621 | 3,788 | (280 | ) | 17,422 | ||||||||||||||
Noninterest expense | 29,247 | 6,069 | 2,846 | (280 | ) | 37,882 | ||||||||||||||
Income before income tax expense | 19,111 | 1,552 | 982 | 0 | 21,645 | |||||||||||||||
Income tax expense | 6,156 | 634 | 325 | 0 | 7,115 | |||||||||||||||
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation | 12,955 | 918 | 657 | 0 | 14,530 | |||||||||||||||
Less: Net income attributable to noncontrolling interests | 33 | 0 | 0 | 0 | 33 | |||||||||||||||
Net Income attributable to Tompkins Financial Corporation | $ | 12,922 | $ | 918 | $ | 657 | $ | 0 | $ | 14,497 | ||||||||||
Depreciation and amortization | $ | 1,503 | $ | 93 | $ | 30 | $ | 0 | $ | 1,626 | ||||||||||
Assets | 5,551,880 | 36,825 | 13,782 | (7,769 | ) | 5,594,718 | ||||||||||||||
Goodwill | 64,500 | 19,662 | 8,081 | 0 | 92,243 | |||||||||||||||
Other intangibles, net | 8,173 | 4,388 | 467 | 0 | 13,028 | |||||||||||||||
Net loans and leases | 3,603,348 | 0 | 0 | 0 | 3,603,348 | |||||||||||||||
Deposits | 4,444,332 | 0 | 0 | (7,259 | ) | 4,437,073 | ||||||||||||||
Total Equity | 478,567 | 27,776 | 11,616 | 0 | 517,959 |
43 |
For the nine months ended September 30, 2016 | ||||||||||||||||||||
(in thousands) | Banking | Insurance |
Wealth
Management |
Intercompany | Consolidated | |||||||||||||||
Interest income | $ | 150,803 | $ | 1 | $ | 0 | $ | (1 | ) | $ | 150,803 | |||||||||
Interest expense | 16,541 | 1 | 0 | (1 | ) | 16,541 | ||||||||||||||
Net interest income | 134,262 | 0 | 0 | 0 | 134,262 | |||||||||||||||
Provision for loan and lease losses | 2,615 | 0 | 0 | 0 | 2,615 | |||||||||||||||
Noninterest income | 18,468 | 23,017 | 11,870 | (863 | ) | 52,492 | ||||||||||||||
Noninterest expense | 92,357 | 18,780 | 8,944 | (863 | ) | 119,218 | ||||||||||||||
Income before income tax expense | 57,758 | 4,237 | 2,926 | 0 | 64,921 | |||||||||||||||
Income tax expense | 18,513 | 1,719 | 976 | 0 | 21,208 | |||||||||||||||
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation | 39,245 | 2,518 | 1,950 | 0 | 43,713 | |||||||||||||||
Less: Net income attributable to noncontrolling interests | 98 | 0 | 0 | 0 | 98 | |||||||||||||||
Net Income attributable to Tompkins Financial Corporation | $ | 39,147 | $ | 2,518 | $ | 1,950 | $ | 0 | $ | 43,615 | ||||||||||
Depreciation and amortization | $ | 4,724 | $ | 269 | $ | 56 | $ | 0 | $ | 5,049 | ||||||||||
For the nine months ended September 30, 2015 | ||||||||||||||||||||
(in thousands) | Banking | Insurance |
Wealth
Management |
Intercompany | Consolidated | |||||||||||||||
Interest income | $ | 140,066 | $ | 2 | $ | 114 | $ | (1 | ) | $ | 140,181 | |||||||||
Interest expense | 15,238 | 0 | 0 | (1 | ) | 15,237 | ||||||||||||||
Net interest income | 124,828 | 2 | 114 | 0 | 124,944 | |||||||||||||||
Provision for loan and lease losses | 1,412 | 0 | 0 | 0 | 1,412 | |||||||||||||||
Noninterest income | 20,346 | 22,508 | 11,919 | (743 | ) | 54,030 | ||||||||||||||
Noninterest expense | 85,092 | 17,653 | 8,490 | (743 | ) | 110,492 | ||||||||||||||
Income before income tax expense | 58,670 | 4,857 | 3,543 | 0 | 67,070 | |||||||||||||||
Income tax expense | 19,260 | 1,951 | 1,194 | 0 | 22,405 | |||||||||||||||
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation | 39,410 | 2,906 | 2,349 | 0 | 44,665 | |||||||||||||||
Less: Net income attributable to noncontrolling interests | 98 | 0 | 0 | 0 | 98 | |||||||||||||||
Net Income attributable to Tompkins Financial Corporation | $ | 39,312 | $ | 2,906 | $ | 2,349 | $ | 0 | $ | 44,567 | ||||||||||
Depreciation and amortization | $ | 4,465 | $ | 276 | $ | 93 | $ | 0 | $ | 4,834 | ||||||||||
14. Fair Value
FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FASB ASC Topic 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Transfers between levels, when determined to be appropriate, are recognized at the end of each reporting period.
The three levels of the fair value hierarchy under FASB ASC Topic 820 are:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
44 |
Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015, segregated by the level of valuation inputs within the fair value hierarchy used to measure fair value.
Recurring Fair Value Measurements | ||||||||
September 30, 2016 | ||||||||
(in thousands) | Total | (Level 1) | (Level 2) | (Level 3) | ||||
Available-for-sale securities | ||||||||
Obligations of U.S. Government sponsored entities | 526,696 | 0 | 526,696 | 0 | ||||
Obligations of U.S. states and political subdivisions | 84,681 | 0 | 84,681 | 0 | ||||
Mortgage-backed securities – residential, issued by: | ||||||||
U.S. Government agencies | 161,749 | 0 | 161,749 | 0 | ||||
U.S. Government sponsored entities | 594,753 | 0 | 594,753 | 0 | ||||
Non-U.S. Government agencies or sponsored entities | 126 | 0 | 126 | 0 | ||||
U.S. corporate debt securities | 2,162 | 0 | 2,162 | 0 | ||||
Equity securities | 944 | 0 | 0 | 944 | ||||
The change in the fair value of available-for-sale equity securities valued using significant unobservable inputs (level 3), between January 1, 2016 and September 30, 2016 was immaterial.
45 |
Recurring Fair Value Measurements | ||||||||||||||||
December 31, 2015 | ||||||||||||||||
(in thousands) | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Trading securities | ||||||||||||||||
Obligations of U.S. Government sponsored entities | $ | 6,601 | $ | 0 | $ | 6,601 | $ | 0 | ||||||||
Mortgage-backed securities – residential U.S. Government sponsored entities | 767 | 0 | 767 | 0 | ||||||||||||
Available-for-sale securities | ||||||||||||||||
Obligations of U.S. Government sponsored entities | 552,893 | 0 | 552,893 | 0 | ||||||||||||
Obligations of U.S. states and political subdivisions | 84,726 | 0 | 84,726 | 0 | ||||||||||||
Mortgage-backed securities – residential, issued by: | ||||||||||||||||
U.S. Government agencies | 94,678 | 0 | 94,678 | 0 | ||||||||||||
U.S. Government sponsored entities | 650,097 | 0 | 650,097 | 0 | ||||||||||||
Non-U.S. Government agencies or sponsored entities | 194 | 0 | 194 | 0 | ||||||||||||
U.S. corporate debt securities | 2,162 | 0 | 2,162 | 0 | ||||||||||||
Equity securities | 934 | 0 | 0 | 934 | ||||||||||||
Borrowings | ||||||||||||||||
Other borrowings | 10,576 | 0 | 10,576 | 0 |
The change in the fair value of available-for-sale equity securities valued using significant unobservable inputs (level 3), between January 1, 2015 and December 31, 2015 was mainly due to the reclassification of $475,000 of securities from available-for-sale securities to other assets to reflect the nonmarketable nature of these securities.
There were no transfers between Levels 1, 2 and 3 for the nine months ended September 30, 2016.
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 Company has reviewed the pricing sources, including methodologies used, and finds them to be fairly stated. In September 2016, the Company sold the remaining balance of its trading securities.
Fair values of borrowings are estimated using Level 2 inputs based upon observable market data. The Company determines fair value for its borrowings using a discounted cash flow technique based upon expected cash flows and current spreads on FHLB advances with the same structure and terms. The Company also receives pricing information from third parties, including the FHLB. The pricing obtained is considered representative of the transfer price if the liabilities were assumed by a third party. The Company’s potential credit risk did not have a material impact on the quoted settlement prices used in measuring the fair value of the FHLB borrowings. In September 2016, the Company prepaid its FHLB borrowing measured at fair value.
Certain assets are measured at fair value on a nonrecurring basis. For the Company, these include loans held for sale, collateral dependent impaired loans, and other real estate owned (“OREO”). During the third quarter of 2016, certain collateral dependent impaired loans were remeasured and reported at fair value through a specific valuation allowance and/or partial charge-offs for loan and lease losses based upon the fair value of the underlying collateral. Collateral values are estimated using Level 2 inputs based upon observable market data. In addition to collateral dependent impaired loans, certain other real estate owned were remeasured and reported at fair value based upon the fair value of the underlying collateral. The fair values of other real estate owned are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. In general, the fair values of other real estate owned are based upon appraisals, with discounts made to reflect estimated costs to sell the real estate. Upon initial recognition, fair value write-downs on other real estate owned are taken through a charge-off to the allowance for loan and lease losses. Subsequent fair value write-downs on other real estate owned are reported in other noninterest expense.
46 |
Three months ended September 30, 2016
Fair value measurements at reporting
|
Gain (losses)
|
|||||||||||||||||||
Assets: |
As of
09/30/2016 |
Quoted prices in
active markets for identical assets (Level 1) |
Significant other
observable inputs (Level 2) |
Significant
unobservable inputs (Level 3) |
Three months
ended 09/30/2016 |
|||||||||||||||
Impaired Loans | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | (65 | ) | |||||||||
Other real estate owned | 731 | 0 | 731 | 0 | 28 |
Three months ended September 30, 2015
Fair value measurements at reporting
|
Gain (losses)
|
|||||||||||||||||||
Assets: |
As of
09/30/2015 |
Quoted prices in
active markets for identical assets (Level 1) |
Significant other
observable inputs (Level 2) |
Significant
unobservable inputs (Level 3) |
Three months
ended 09/30/2015 |
|||||||||||||||
Impaired Loans | $ | 1,362 | $ | 0 | $ | 1,362 | $ | 0 | $ | 0 | ||||||||||
Other real estate owned | 1,049 | 0 | 1,049 | 0 | (30 | ) |
Nine months ended September 30, 2016
Fair value measurements at reporting
|
Gain (losses)
|
|||||||||||||||||||
Assets: |
As of
09/30/2016 |
Quoted prices in
active markets for identical assets (Level 1) |
Significant other
observable inputs (Level 2) |
Significant
unobservable inputs (Level 3) |
Nine months
ended 09/30/2016 |
|||||||||||||||
Impaired Loans | $ | 2,747 | $ | 0 | $ | 2,747 | $ | 0 | $ | (234 | ) | |||||||||
Other real estate owned | 1,008 | 0 | 1,008 | 0 | 24 |
Nine months ended September 30, 2015
Fair value measurements at reporting
|
Gain (losses)
|
|||||||||||||||||||
Assets: |
As of
09/30/2015 |
Quoted prices in
active markets for identical assets (Level 1) |
Significant other
observable inputs (Level 2) |
Significant
unobservable inputs (Level 3) |
Nine months
ended 09/30/2015 |
|||||||||||||||
Impaired Loans | $ | 4,307 | $ | 0 | $ | 4,307 | $ | 0 | $ | (80 | ) | |||||||||
Other real estate owned | 2,629 | 0 | 2,629 | 0 | 786 |
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at September 30, 2016 and December 31, 2015. The carrying amounts shown in the table are included in the Consolidated Statements of Condition under the indicated captions.
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The fair value estimates, methods and assumptions set forth below for the Company’s financial instruments, including those financial instruments carried at cost, are made solely to comply with disclosures required by generally accepted accounting principles in the United States and do not always incorporate the exit-price concept of fair value prescribed by ASC Topic 820-10 and should be read in conjunction with the financial statements and notes included in this Report.
1 Lease receivables, although excluded from the scope of ASC Topic 825, are included in the estimated fair value amounts at their carrying value.
The following methods and assumptions were used in estimating fair value disclosures for financial instruments.
Cash and Cash Equivalents: The carrying amounts reported in the Consolidated Statements of Condition for cash, noninterest-bearing deposits, money market funds, and Federal funds sold approximate the fair value of those assets.
Securities : Fair values for U.S. Treasury securities are based on quoted market prices. Fair values for obligations of U.S. government sponsored entities, mortgage-backed securities-residential, obligations of U.S. states and political subdivisions, and U.S. corporate debt securities are based on quoted market prices, where available, as provided by third party pricing vendors. If quoted market prices were not available, fair values are based on quoted market prices of comparable instruments in active markets and/or based upon matrix pricing methodology, which uses comprehensive interest rate tables to determine market price, movement and yield relationships. These securities are reviewed periodically to determine if there are any events or changes in circumstances that would adversely affect their value.
48 |
Loans and Leases: The fair values of residential loans are estimated using discounted cash flow analyses, based upon available market benchmarks for rates and prepayment assumptions. The fair values of commercial and consumer loans are estimated using discounted cash flow analyses, based upon interest rates currently offered for loans and leases with similar terms and credit quality. The fair value of loans held for sale are determined based upon contractual prices for loans with similar characteristics.
FHLB STOCK: The carrying amount of FHLB stock approximates fair value. If the stock is redeemed, the Company will receive an amount equal to the par value of the stock. For miscellaneous equity securities, carrying value is cost.
ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE: The carrying amount of these short term instruments approximate fair value.
Deposits: The fair values disclosed for noninterest bearing accounts and accounts with no stated maturities are equal to the amount payable on demand at the reporting date. The fair value of time deposits is based upon discounted cash flow analyses using rates offered for FHLB advances, which is the Company’s primary alternative source of funds.
Securities Sold Under Agreements to Repurchase: The carrying amounts of repurchase agreements and other short-term borrowings approximate their fair values. Fair values of long-term borrowings are estimated using a discounted cash flow approach, based on current market rates for similar borrowings. For securities sold under agreements to repurchase where the Company has elected the fair value option, the Company also receives pricing information from third parties, including the FHLB.
Other Borrowings: The fair values of other borrowings are estimated using discounted cash flow analysis, discounted at the Company’s current incremental borrowing rate for similar borrowing arrangements. For other borrowings where the Company has elected the fair value option, the Company also receives pricing information from third parties, including the FHLB.
TRUST PREFERRED DEBENTURES: The fair value of the trust preferred debentures has been estimated using a discounted cash flow analysis which uses a discount factor of a market spread over current interest rates for similar instruments.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS |
Corporate Overview and Strategic Initiatives
Tompkins Financial Corporation (“Tompkins” or the “Company”) is headquartered in Ithaca, New York and is registered as a Financial Holding Company with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. The Company is a locally oriented, community-based financial services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, and insurance services. At September 30, 2016, the Company’s subsidiaries included: four wholly-owned banking subsidiaries, Tompkins Trust Company (the “Trust Company”), The Bank of Castile (DBA Tompkins Bank of Castile), Mahopac Bank (formerly known as Mahopac National Bank, DBA Tompkins Mahopac Bank), VIST Bank (DBA Tompkins VIST Bank); and a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. (“Tompkins Insurance”). The trust division of the Trust Company provides a full array of investment services, including investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. The Company’s principal offices are located at The Commons, Ithaca, New York, 14851, and its telephone number is (888) 503-5753. The Company’s common stock is traded on the NYSE MKT LLC under the Symbol “TMP.”
The Company’s strategic initiatives include diversification within its markets, growth of its fee-based businesses, and growth internally and through acquisitions of financial institutions, branches, and financial services businesses. As such, the Company from time to time considers acquiring banks, thrift institutions, branch offices of banks or thrift institutions, or other businesses within markets currently served by the Company or in other locations that would complement the Company’s business or its geographic reach. The Company generally targets merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale and expanded services. The Company has pursued acquisition opportunities in the past, and continues to review new opportunities.
49 |
Business Segments
Banking services consist primarily of attracting deposits from the areas served by the Company’s four banking subsidiaries’ 66 banking offices (46 offices in New York and 20 offices in Pennsylvania) 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 Company’s lending function is managed within the guidelines of a comprehensive Board-approved lending policy. Reporting systems are in place to provide management with ongoing information related to loan production, loan quality, concentrations of credit, loan delinquencies, and nonperforming and potential problem loans. Banking services also include a full suite of products such as debit cards, credit cards, remote deposit, electronic banking, mobile banking, cash management, and safe deposit services.
Wealth management services consist of investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. Wealth management services are under the trade name Tompkins Financial Advisors. Tompkins Financial Advisors has office locations at all four of the Company’s subsidiary banks.
Insurance services include property and casualty insurance, employee benefit consulting, and life, long-term care and disability insurance. Tompkins Insurance is headquartered in Batavia, New York. Over the past fourteen years, Tompkins Insurance has acquired smaller insurance agencies in the market areas serviced by the Company’s banking subsidiaries and successfully consolidated them into Tompkins Insurance. Tompkins Insurance offers services to customers of the Company’s banking subsidiaries by sharing offices with The Bank of Castile, Trust Company, and VIST Bank. In addition to these shared offices, Tompkins Insurance has five stand-alone offices in Western New York, two stand-alone offices in Tompkins County, New York and one stand-alone office in Montgomery County, Pennsylvania.
Effective January 1, 2016, Tompkins Insurance acquired all the outstanding shares of Shepard, Maxwell & Hale Insurance, a property and casualty insurance agency located in western New York. The acquisition-date fair value of the merger consideration was $2.2 million and included $0.2 million of cash and 32,553 shares of Tompkins’ common stock ($2.0 million). Including the present value of expected contingent payments, the Company recorded the following intangible assets as a result of the acquisition: goodwill ($1.1 million), customer related intangible ($0.8 million) and a covenant-not-to-compete ($0.3 million). The values of the customer related intangible and covenant-not-to-compete are being amortized over 15 years and 5 years, respectively. The goodwill is not being amortized but will be evaluated at least annually for impairment. The goodwill is not deductible for taxes.
The Company’s principal expenses are interest on deposits, interest on borrowings, and operating and general administrative expenses, as well as provisions for loan and lease losses. Funding sources, other than deposits, include borrowings, securities sold under agreements to repurchase, and cash flow from lending and investing activities.
Competition
Competition for commercial banking and other financial services is strong in the Company’s market areas. In one or more aspects of its businesses, the Company’s subsidiaries compete with other commercial banks, savings and loan associations, credit unions, finance companies, Internet-based financial services companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Some of these competitors have substantially greater resources and lending capabilities and may offer service that the Company does not currently provide. In addition, many of the Company’s non-bank competitors are not subject to the same extensive Federal regulations that govern financial holding companies and Federally-insured banks.
Management believes that a community based financial organization is better positioned to establish personalized financial relationships with both commercial customers and individual households. The Company’s community commitment and involvement in its primary market areas, as well as its commitment to quality and personalized financial services, are factors that contribute to the Company’s competitiveness. Management believes that each of the Company’s subsidiary banks can compete successfully in its primary market areas by making prudent lending decisions quickly and more efficiently than its competitors, without compromising asset quality or profitability, although no assurances can be given that such factors will assure success.
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Regulation
Banking, insurance services and wealth management are highly regulated. As a financial holding company with four community banks, a registered investment advisor, and an insurance agency subsidiary, the Company and its subsidiaries are subject to examination and regulation by the Federal Reserve Board (“FRB”), Securities and Exchange Commission (“SEC”), the Federal Deposit Insurance Corporation (“FDIC”), the New York State Department of Financial Services, Pennsylvania Department of Banking and Securities, Financial Industry Regulatory Authority, and the Pennsylvania Insurance Department.
OTHER IMPORTANT INFORMATION
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 nine months ended September 30, 2016. It should be read in conjunction with the Company’s Audited Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, and the Unaudited Consolidated Financial Statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.
In this Report, there are comparisons of the Company’s performance to that of a peer group. Unless otherwise stated, this peer group is comprised of the group of 145 domestic bank holding companies with $3 billion to $10 billion in total assets as defined in the Federal Reserve’s “Bank Holding Company Performance Report” for June 30, 2016 (the most recent report available).
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 management’s expectations and beliefs concerning future events impacting the Company and are subject to certain uncertainties and factors relating to the Company’s operations and economic environment, all of which are difficult to predict and many of which are beyond the control of the Company. These uncertainties and factors 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 Company’s interest rate spread, other income or cash flow anticipated from the Company’s operations, investment and/or lending activities; changes in laws and regulations affecting banks, insurance companies, bank holding companies and/or financial holding companies, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act and Basel III; 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; the expenses and reputational damage if there were ever a material cybersecurity breach; financial resources in the amounts, at the times and on the terms required to support the Company’s future businesses; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q and in other reports we file with the SEC, in particular the “Risk Factors” discussed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. In addition, such forward-looking statements could be affected by general industry and market conditions and growth rates, general economic and political conditions (including changes in economic conditions in the Company’s primary market areas), including interest rate and currency exchange rate fluctuations, and other factors.
Critical Accounting Policies
The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. In the course of normal business activity, management must select and apply many accounting policies and methodologies and make estimates and assumptions that lead to the financial results presented in the Company’s consolidated financial statements and accompanying notes. There are uncertainties inherent in making these estimates and assumptions, which could materially affect the Company’s results of operations and financial position.
Management considers accounting estimates to be critical to reported financial results if (i) the accounting estimates require management to make assumptions about matters that are highly uncertain, and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Company’s financial statements. Management considers the accounting policies relating to the allowance for loan and lease losses (“allowance”), pension and postretirement benefits, the review of the securities portfolio for other-than-temporary impairment, and acquired loans to be critical accounting policies because of the uncertainty and subjectivity involved in these policies and the material effect that estimates related to these areas can have on the Company’s results of operations.
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For additional information on critical accounting policies and to gain a greater understanding of how the Company’s financial performance is reported, refer to Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, and the section captioned “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. There have been no significant changes in the Company’s application of critical accounting policies since December 31, 2015. Refer to Note 3 – “Accounting Standards Updates” in the Notes to Unaudited Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q for a discussion of recent accounting updates.
OVERVIEW
Net income for the third quarter was $14.9 million or $0.97 diluted earnings per share, compared to $14.5 million or $0.96 diluted earnings per share for the same period in 2015. Net income for the first nine months of 2016 was $43.6 million or $2.87 diluted earnings per share, compared to $44.6 million or $2.96 diluted earnings per share in the first nine months of 2015. Prior year results for the year to date periods were positively impacted by a one-time curtailment gain of $3.6 million, after-tax, related to the freezing of the Company’s defined benefit pension plan effective July 31, 2015. Exclusive of this one-time gain, net income and diluted earnings per share for year-to-date 2015 would have been $41.0 million and $2.72, respectively.
Return on average assets (“ROA”) for the quarter ended September 30, 2016 was 1.00%, compared to 1.05% for the quarter ended September 30, 2015. Return on average shareholders’ equity (“ROE”) for the third quarter of 2016 was 10.61%, compared to 11.29%, for the same period in 2015. For the year-to-date period ended September 30, 2016, ROA and ROE totaled 1.00% and 10.73%, respectively, compared to 1.10% and 11.78% for the same periods in 2015. Tompkins’ year-to-date ROA and ROE compared to the most recent peer average ratios of 0.97% and 8.75%, respectively, ranking Tompkins’ ROA in the 50 th percentile and ROE in the 71 st percentile of the peer group.
Segment Reporting
The Company operates in the following three business segments, banking, insurance, and wealth management. Insurance is comprised of property and casualty insurance services and employee benefit consulting operated under the Tompkins Insurance Agencies, Inc. subsidiary. Wealth management activities include the results of the Company’s trust, financial planning, and wealth management services, organized under the Tompkins Financial Advisors brand. All other activities are considered banking.
Banking Segment
The banking segment reported net income of $13.3 million for the third quarter of 2016, up $342,000 or 2.6% from net income of $12.9 million for the same period in 2015. For the nine months ended September 30, 2016, the banking segment reported net income of $39.1 million, flat compared to the same period in 2015, which included a one-time gain related to the freezing of the Company’s defined benefit pension plan as noted above.
Net interest income of $45.3 million for the third quarter of 2016 was up $3.0 million or 7.0% over the same period in 2015. For the nine months ended September 30, 2016, net interest income of $134.3 million was up $9.4 million or 7.6% compared to the prior year period. The Company’s growth in average earning assets and stable funding costs exceeded the effect of lower asset yields and contributed to favorable year-over-year comparisons in net interest income. Net interest margin for the nine months ended September 30, 2016 was 3.34% compared to 3.39% for the same period prior year, reflecting a lower interest rate environment in 2016.
The provision for loan and lease losses was $782,000 for the three months ended September 30, 2016; up $501,000 from the same period in 2015. Provision expense also increased for the nine months ended September 30, 2016 to $2.6 million from $1.4 million in the first nine months of the previous year. The increase in provision expense for both periods was largely attributable to growth in total loans.
Noninterest income of $6.3 million for the three months ended September 30, 2016 was flat compared to the same period in 2015. For the nine months ended September 30, 2016, noninterest income was down $1.9 million or 9.2% to $18.5 million compared to $20.3 million for the nine months ended September 30, 2015. The decrease in the nine month results include: gain on the sale of other real estate owned (“OREO”) properties (down $838,000), service charges on deposits (down $253,000), and net realized gains on securities transactions (down $178,000). Partially offsetting these items was an increase in card services fees during the nine months ended September 30, 2016 (up $136,000).
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Noninterest expense of $31.3 million for the third quarter and $92.4 million for the nine months ended September 30, 2016 were up $2.1 million or 7.1% and up $7.3 million or 8.5%, respectively, from the same periods in 2015. The quarterly increase was attributed to an increase in salary and wages reflecting normal annual merit and incentive adjustments. The year to date increase is primarily attributed to the curtailment of the Company’s defined benefit pension plan in 2015, which resulted in a one-time $6.0 million (pretax) credit to noninterest expense for the Company in the second quarter of 2015. Of this amount, the Banking segment recorded $5.4 million credit to noninterest expense.
Insurance Segment
The insurance segment reported net income of $939,000 for the three months ended September 30, 2016; up $21,000 or 2.3% from the third quarter of 2015. For the nine month period ended September 30, 2016, net income declined $388,000 or 13.4% compared to 2015, which included a one-time gain related to the freezing of the Company’s defined benefit pension plan. Noninterest income was up $241,000 or 3.2% in the third quarter of 2016, compared to the same period in 2015 and up $509,000 or 2.3% to $23.0 million for the nine months ended September 30, 2016 compared to the same period in 2015. The increase was mainly in commercial and personal business lines and reflects internal growth as well as the impact of an acquisition in first quarter of 2016. Noninterest expenses for the three months ended September 30, 2016 were up $212,000 or 3.5% compared to the third quarter of 2015 and up $1.1 million or 6.4% for the first nine months of 2016 compared to the same period in 2015. The increase in noninterest expense for the third quarter is the result of increases in salaries and wages, reflecting normal annual merit adjustments and sales commissions. The nine month period increase is the result of the aforementioned one-time gain related to the freezing of the Company's defined benefit pension plan curtailment amount made in the second quarter of 2015, which resulted in a credit to noninterest expense of $462,000, as well as the aforementioned increases in salaries and wages.
Wealth Management Segment
The wealth management segment reported net income of $663,000 for the three months ended September 30, 2016, flat compared to the third quarter of 2015. Net income for the nine months ended September 30, 2016 decreased $399,000 to $2.0 million, down 17.0% compared to the same period in 2015. Noninterest income for the third quarter of 2016 compared to the third quarter of 2015 increased by $216,000 or 5.7%, and was flat for the first nine months of 2016 compared to the same period prior year. Noninterest expenses for the three months ended September 30, 2016, were up $156,000 or 5.5% and for the nine months ended September 30, 2016 were up $454,000 or 5.3% compared to the same period of 2015. The year-to-date increase in 2016 over 2015 reflects the impact of the Company’s curtailment of its defined benefit pension plan mentioned above, which resulted in a credit to noninterest expenses of $131,000 in the second quarter of 2015, and increases in salaries and wages, reflecting annual merit increases and sales commissions.
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Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited) | ||||||||||||||||||
Quarter Ended | Quarter Ended | |||||||||||||||||
September 30, 2016 | September 30, 2015 | |||||||||||||||||
Average | Average | |||||||||||||||||
Balance | Average | Balance | Average | |||||||||||||||
(Dollar amounts in thousands) | (QTD) | Interest | Yield/Rate | (QTD) | Interest | Yield/Rate | ||||||||||||
ASSETS | ||||||||||||||||||
Interest-earning assets | ||||||||||||||||||
Interest-bearing balances due from banks | $ | 1,874 | $ | 2 | 0.42% | $ | 1,957 | $ | 1 | 0.20% | ||||||||
Securities (1) | ||||||||||||||||||
U.S. Government securities | 1,419,808 | 7,058 | 1.98% | 1,438,436 | 7,439 | 2.05% | ||||||||||||
Trading securities | 5,452 | 62 | 4.52% | 8,008 | 86 | 4.26% | ||||||||||||
State and municipal (2) | 96,607 | 809 | 3.33% | 85,554 | 783 | 3.63% | ||||||||||||
Other securities (2) | 3,632 | 30 | 3.29% | 3,705 | 31 | 3.32% | ||||||||||||
Total securities | 1,525,499 | 7,959 | 2.08% | 1,535,703 | 8,339 | 2.15% | ||||||||||||
FHLBNY and FRB stock | 35,841 | 375 | 4.16% | 26,556 | 262 | 3.93% | ||||||||||||
Total loans and leases, net of unearned income (2)(3) | 4,014,671 | 43,772 | 4.34% | 3,574,449 | 39,913 | 4.43% | ||||||||||||
Total interest-earning assets | 5,577,885 | 52,108 | 3.72% | 5,138,665 | 48,517 | 3.75% | ||||||||||||
Other assets | 364,375 | 347,980 | ||||||||||||||||
Total assets | 5,942,260 | 5,486,645 | ||||||||||||||||
LIABILITIES & EQUITY | ||||||||||||||||||
Deposits | ||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||
Interest bearing checking, savings, & money market | 2,478,292 | 1,021 | 0.16% | 2,322,974 | 949 | 0.16% | ||||||||||||
Time deposits | 871,937 | 1,672 | 0.76% | 890,933 | 1,704 | 0.76% | ||||||||||||
Total interest-bearing deposits | 3,350,229 | 2,693 | 0.32% | 3,213,907 | 2,653 | 0.33% | ||||||||||||
Federal funds purchased & securities sold under agreements to repurchase | 99,387 | 630 | 2.52% | 134,620 | 685 | 2.02% | ||||||||||||
Other borrowings | 681,654 | 1,837 | 1.07% | 470,060 | 1,223 | 1.03% | ||||||||||||
Trust preferred debentures | 37,609 | 600 | 6.35% | 37,438 | 583 | 6.18% | ||||||||||||
Total interest-bearing liabilities | 4,168,879 | 5,760 | 0.55% | 3,856,025 | 5,144 | 0.53% | ||||||||||||
Noninterest bearing deposits | 1,148,081 | 1,052,669 | ||||||||||||||||
Accrued expenses and other liabilities | 68,019 | 68,433 | ||||||||||||||||
Total liabilities | 5,384,979 | 4,977,127 | ||||||||||||||||
Tompkins Financial Corporation Shareholders’ equity | 555,747 | 507,984 | ||||||||||||||||
Noncontrolling interest | 1,534 | 1,534 | ||||||||||||||||
Total equity | 557,281 | 509,518 | ||||||||||||||||
Total liabilities and equity | $ | 5,942,260 | $ | 5,486,645 | ||||||||||||||
Interest rate spread | 3.17% | 3.22% | ||||||||||||||||
Net interest income/margin on earning assets | 46,348 | 3.31% | 43,373 | 3.35% | ||||||||||||||
Tax Equivalent Adjustment | (1,031) | (987) | ||||||||||||||||
Net interest income per consolidated financial statements | $ | 45,317 | $ | 42,386 |
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Year to Date Period Ended | Year to Date Period Ended | |||||||||||||||||
September 30, 2016 | September 30, 2015 | |||||||||||||||||
Average | Average | |||||||||||||||||
Balance | Average | Balance | Average | |||||||||||||||
(Dollar amounts in thousands) | (YTD) | Interest | Yield/Rate | (YTD) | Interest | Yield/Rate | ||||||||||||
ASSETS | ||||||||||||||||||
Interest-earning assets | ||||||||||||||||||
Interest-bearing balances due from banks | $ | 1,968 | $ | 5 | 0.34% | $ | 1,725 | $ | 3 | 0.23% | ||||||||
Securities (1) | ||||||||||||||||||
U.S. Government securities | 1,447,450 | 22,608 | 2.09% | 1,441,360 | 22,807 | 2.12% | ||||||||||||
Trading securities | 6,536 | 220 | 4.50% | 8,437 | 270 | 4.28% | ||||||||||||
State and municipal (2) | 97,906 | 2,488 | 3.39% | 86,846 | 2,486 | 3.83% | ||||||||||||
Other securities (2) | 3,653 | 91 | 3.33% | 3,740 | 91 | 3.25% | ||||||||||||
Total securities | 1,555,545 | 25,407 | 2.18% | 1,540,383 | 25,654 | 2.23% | ||||||||||||
FHLBNY and FRB stock | 31,767 | 990 | 4.16% | 23,771 | 834 | 4.69% | ||||||||||||
Total loans and leases, net of unearned income (2)(3) | 3,897,461 | 127,484 | 4.37% | 3,479,528 | 116,547 | 4.48% | ||||||||||||
Total interest-earning assets | 5,486,741 | 153,886 | 3.75% | 5,045,407 | 143,038 | 3.79% | ||||||||||||
Other assets | 351,944 | 352,808 | ||||||||||||||||
Total assets | 5,838,685 | 5,398,215 | ||||||||||||||||
LIABILITIES & EQUITY | ||||||||||||||||||
Deposits | ||||||||||||||||||
Interest-bearing deposits | ||||||||||||||||||
Interest bearing checking, savings, & money market | 2,514,159 | 2,958 | 0.16% | 2,332,674 | 2,863 | 0.16% | ||||||||||||
Time deposits | 876,947 | 5,020 | 0.76% | 904,911 | 5,032 | 0.74% | ||||||||||||
Total interest-bearing deposits | 3,391,106 | 7,978 | 0.31% | 3,237,585 | 7,895 | 0.33% | ||||||||||||
Federal funds purchased & securities sold under agreements to repurchase | 108,189 | 1,940 | 2.40% | 136,073 | 2,020 | 1.98% | ||||||||||||
Other borrowings | 589,726 | 4,840 | 1.10% | 413,819 | 3,596 | 1.16% | ||||||||||||
Trust preferred debentures | 37,567 | 1,783 | 6.34% | 37,395 | 1,726 | 6.17% | ||||||||||||
Total interest-bearing liabilities | 4,126,588 | 16,541 | 0.54% | 3,824,872 | 15,237 | 0.53% | ||||||||||||
Noninterest bearing deposits | 1,103,108 | 1,003,318 | ||||||||||||||||
Accrued expenses and other liabilities | 65,978 | 65,902 | ||||||||||||||||
Total liabilities | 5,295,674 | 4,894,092 | ||||||||||||||||
Tompkins Financial Corporation Shareholders’ equity | 541,510 | 502,622 | ||||||||||||||||
Noncontrolling interest | 1,501 | 1,501 | ||||||||||||||||
Total equity | 543,011 | 504,123 | ||||||||||||||||
Total liabilities and equity | $ | 5,838,685 | $ | 5,398,215 | ||||||||||||||
Interest rate spread | 3.21% | 3.26% | ||||||||||||||||
Net interest income/margin on earning assets | 137,345 | 3.34% | 127,801 | 3.39% | ||||||||||||||
Tax Equivalent Adjustment | (3,083) | (2,857) | ||||||||||||||||
Net interest income per consolidated financial statements | $ | 134,262 | $ | 124,944 |
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. Payment received on nonaccrual loans have been recognized as disclosed in Note 1 of the Company’s consolidated financial statements included in Part 1 of the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2015.
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Net Interest Income
Net interest income is the Company’s largest source of revenue, representing 71.7% and 71.9%, respectively, of total revenues for the three and nine month periods ended September 30, 2016, compared to 70.9% and 69.8% for the same periods in 2015. Net interest income is dependent on the volume and composition of interest earning assets and interest-bearing liabilities and the level of market interest rates. The above 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 three and nine months ended September 30, 2016 was up 6.9% and 7.5%, respectively, over the same periods in 2015, as growth in average earning assets offset a decrease in net interest margin for the third quarter and year-to-date periods in 2016 compared to the same periods in 2015. The decrease in net interest margin reflects lower yields on average earning assets as a result of the low interest rate environment. Net interest income also benefitted from a slight shift in the composition of average earning assets, with loans comprising an increased percentage of average earning assets. For the three and nine months ended September 30, 2016, average loans represented 72.0% and 71.0%, respectively, of average earning assets compared to 69.6% and 69.0%, respectively, for the same periods in 2015.
Taxable-equivalent interest income for the three and nine month periods ended September 30, 2016 was $52.1 million and $153.9 million, respectively, up 7.4% and 7.6% compared to the same periods of 2015. The increase in taxable-equivalent interest income was mainly the result of an increase in average loans, which was partially offset by a decrease in the yield on average loans. Average loan balances for the three and nine months ended September 30, 2016 were up $440.2 million or 12.3%, and $417.9 million or 12.0%, respectively, while the average yield decreased 9 basis points and 11 basis points, respectively, from the same periods in 2015. Average securities balances for the three and nine months ended September 30, 2016 were down by $10.2 million or 0.7% and up by $15.2 million or 1.0%, respectively, while the average yield for the three and nine month periods were down 7 basis points and 5 basis points, respectively, compared to the same periods in 2015.
Interest expense for the three and nine months ended September 30, 2016 increased by $616,000 or 12.0%, and $1.3 million or 8.6%, respectively, compared to the same periods in 2015, driven mainly by an increase in the average volume of borrowings and deposits. The average rate paid on interest bearing deposits during the three and nine months ended September 30, 2016 was 0.32% and 0.31%, respectively, compared to 0.33% and 0.33% for the same periods of 2015. Average interest bearing deposits for the third quarter of 2016 were up $136.3 million or 4.2% compared to the same period in 2015, while year-to-date average interest bearing deposits were up $153.5 million or 4.7% compared to the same period in 2015. Average noninterest bearing deposits for the three and nine month periods ended September 30, 2016 were up $95.4 million or 9.1% and $99.8 million or 9.9%, respectively, compared to the same periods in 2015. Average other borrowings for the three and nine months ended September 30, 2016 were up $211.6 million or 45.0% and $175.9 million or 42.5% compared to the same periods in 2015. The increase was mainly in overnight borrowings with the FHLB.
Provision for Loan and Lease Losses
The provision for loan and lease losses represents management’s estimate of the amount necessary to maintain the allowance for loan and lease losses at an adequate level. The provision for loan and lease losses was $782,000 for the third quarter of 2016 and $2.6 million for the nine months ended September 30, 2016, compared to $281,000 and $1.4 million for the same periods in 2015. The increase in provision for loan and lease losses in 2016 over the three and nine month comparative periods in 2015 is mainly a result loan growth in 2016. The section captioned “Financial Condition – Allowance for Loan and Lease Losses and Nonperforming Assets” below has further details on the allowance for loan and lease losses and asset quality metrics.
Noninterest Income
Noninterest income was $17.9 million for the third quarter of 2016 and $52.5 million for the first nine months of 2016. This represents an increase of 2.8% for the quarter and a decrease of 2.8% for the year-to-date period compared to the same periods in 2015. Noninterest income represented 28.3% of total revenue for the third quarter of 2016 and 28.1% for the year-to-date period, compared to 29.1% and 30.2% for the same periods in 2015.
Insurance commissions and fees, the largest component of noninterest income, were $7.7 million for the third quarter of 2016, an increase of 2.2% over the same period prior year. For the first nine months of 2016, insurance commissions and fees were up $467,000 or 2.1% over the first nine months of 2015. Increases in commissions from commercial lines and personal insurance lines in 2016 primarily drove the increases over the same periods in 2015. Contributing to the increase in revenues in both the quarter and year to date periods was the acquisition in the first quarter of 2016.
Investment services income was $3.7 million in third quarter of 2016, an increase of 1.7% compared to the third quarter of 2015. For the first nine months of 2016, investment services income was down $163,000 or 1.4% from the first nine months of 2015. Investment services income includes trust services, financial planning, wealth management services, and brokerage related services. With fees largely based on the market value and the mix of assets managed, the general direction of the stock market can have a considerable impact on fee income. The fair value of assets managed by, or in custody of, Tompkins was $3.9 billion at September 30, 2016, up 2.2% from $3.8 billion at September 30, 2015. These figures include $1.1 billion of Company-owned securities where Tompkins Trust Company is custodian.
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Service charges on deposit accounts were down $207,000 or 8.6% for the third quarter of 2016 compared to the third quarter of 2015, and down $253,000 or 3.7% for the nine months ended September 30, 2016 compared to the same period in 2015. Net overdraft fees, the largest component of service charges on deposit accounts, were down 15.4% and 13.1% for the three and nine months ended September 30, 2016 compared to the same periods in 2015. The decline in fees was primarily attributable to customer behavior and regulatory changes. The decrease in net overdraft fees was partially offset by increases in personal and business cycle fees, as a result of new deposit products introduced in 2015.
Card services income for the three and nine months ended September 30, 2016 was up $36,000 or 1.8%, and up $136,000 or 2.3%, respectively, compared to the same periods in 2015.
The Company recognized gains on the sales/calls of available-for-sale securities of $455,000 and $926,000 for the three and nine months ended September 30, 2016, compared to gains of $92,000 and $1.1 million for the same periods in 2015. Sales of available-for-sale securities are generally the result of general portfolio maintenance and interest rate risk management.
Other income of $1.7 million in the third quarter of 2016 was up 4.6% compared to the third quarter of 2015. For the first nine months of 2016, other income of $4.8 million was down 24.6% versus the same period in 2015. A main contributor of the year over year decrease was a significant gain on the sale of other real estate owned property in the second quarter of 2015. Gains on sales of other real estate owned totaled $86,000 for the nine months ended September 30, 2016 compared to a gain of $924,000 for the nine months ended September 30, 2015.
Noninterest Expense
Noninterest expense was $40.3 million for the third quarter of 2016, up 6.4% compared to the third quarter of 2015 and $119.2 million for the nine months ended September 30, 2016, up 7.9% from the same period in 2015. Year-to-date 2015 noninterest expense benefitted from the curtailment of the Company’s defined benefit pension plan, which resulted in a $6.0 million (pretax) credit to pension and other employee benefits expense in the second quarter of 2015 in accordance with accounting guidance.
Salaries and wages expense for the three and nine months ended September 30, 2016 increased by $1.4 million or 7.9%, and $3.8 million or 7.0%, respectively, over the same periods in 2015. The increase is mainly a result of normal merit and market adjustments, increases in incentive compensation as well as an increase in the number of employees. Pension and other employee related benefits were down $150,000 and up $4.6 million over the three and nine month periods in 2015, mainly as a result of the pension curtailment discussed above.
Other operating expense for the third quarter of 2016 and for the first nine months of 2016 was up $736,000 or 8.6% and down $307,000 or 1.1% compared to the same periods in 2015. The current quarter and year to date include $313,000 in other operating expense related to the early termination of an FDIC loss share agreement. In addition the Company is currently in the process of a conversion of our core banking system. During the first nine months of 2016 the Company incurred approximately $295,000 in non-capitalized operating expenses related to the conversion which is scheduled to take place in May of 2017.
Income Tax Expense
The provision for income taxes was $7.2 million for an effective rate of 32.6% for the third quarter of 2016, compared to tax expense of $7.1 million and an effective rate of 32.9% for the same quarter in 2015. For the first nine months of 2016, the tax provision was $21.2 million for an effective rate of 32.7% compared to a tax provision of $22.4 million and an effective rate of 33.4% for the same period in 2015. The effective rates differ from the U.S. statutory rate of 35.0% primarily due to the effect of tax-exempt income from loans, securities and life insurance assets. The higher effective rate in 2015 was mainly a result of the accounting for the $6.0 million curtailment gain related to the freezing of the Company’s defined benefit pension plan.
FINANCIAL CONDITION
Total assets were $6.1 billion at September 30, 2016, up $412.2 million or 7.2% over December 31, 2015. The growth over year-end was primarily attributable to growth in originated loans, which were up $361.8 million or 10.9%. This growth was partially offset by expected run-off in acquired loans, which were down $44.3 million or 9.6%. Total deposits increased $295.0 million or 6.7% compared to December 31, 2015. Other borrowings increased $134.7 million or 25.1% from December 31, 2015, as a result of loan growth outpacing deposit growth.
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Securities
As of September 30, 2016, the Company’s securities portfolio was $1.5 billion or 24.8% of total assets, compared to $1.5 billion or 27.1% of total assets at year-end 2015. The following table details the composition of available-for-sale and held-to-maturity securities.
Available-for-Sale Securities | |||||||||||||
09/30/2016 | 12/31/2015 | ||||||||||||
(in thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||
Obligations of U.S. Government sponsored entities | $ | 513,251 | $ | 526,696 | $ | 551,176 | $ | 552,893 | |||||
Obligations of U.S. states and political subdivisions | 83,596 | 84,681 | 83,981 | 84,726 | |||||||||
Mortgage-backed securities
U.S. Government agencies |
160,464 | 161,749 | 94,459 | 94,678 | |||||||||
U.S. Government sponsored entities | 591,908 | 594,753 | 656,947 | 650,097 | |||||||||
Non-U.S. Government agencies or sponsored entities | 126 | 126 | 192 | 194 | |||||||||
U.S. corporate debt securities | 2,500 | 2,162 | 2,500 | 2,162 | |||||||||
Total debt securities | 1,351,845 | 1,370,167 | 1,389,255 | 1,384,750 | |||||||||
Equity securities | 1,000 | 944 | 1,000 | 934 | |||||||||
Total available-for-sale securities | $ | 1,352,845 | $ | 1,371,111 | $ | 1,390,255 | $ | 1,385,684 |
Held-to-Maturity Securities | |||||||||||||
09/30/2016 | 12/31/2015 | ||||||||||||
(in thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||
Obligations of U.S. Government sponsored entities | $ | 132,195 | $ | 138,787 | $ | 132,482 | $ | 132,687 | |||||
Obligations of U.S. states and political subdivisions | $ | 12,455 | $ | 12,839 | $ | 13,589 | $ | 13,999 | |||||
Total held-to-maturity debt securities | $ | 144,650 | $ | 151,626 | $ | 146,071 | $ | 146,686 |
The increase in unrealized gains, which reflects the amount that fair value exceeds amortized cost, related to the available-for-sale portfolio was due primarily to changes in market interest rates during the first nine months of 2016. Decreases in interest rates during 2016 resulted in an increase in unrealized gains in the available-for-sale portfolio . Management’s policy is to purchase investment grade securities that on average have relatively short duration, which helps mitigate interest rate risk and provides sources of liquidity without significant risk to capital.
The Company has no investments in preferred stock of U.S. government sponsored entities and no investments in pools of Trust Preferred securities. Quarterly, the Company evaluates all investment securities with a fair value less than amortized cost to identify any other-than-temporary impairment as defined under generally accepted accounting principles.
As a result of the other-than-temporary impairment review process, the Company does not consider any investment security held at September 30, 2016 to be other-than-temporarily impaired. Future changes in interest rates or the credit quality and credit support of the underlying issuers may reduce the market value of these and other securities. If such decline is determined to be other than temporary, the Company will record the necessary charge to earnings and/or accumulated other comprehensive income to reduce the securities to their then current fair value.
In September 2016, the Company sold the remaining $1.5 million of securities designated as trading securities. The trading portfolio carried a fair value of $7.4 million at December 31, 2015. For the three and nine months ended September 30, 2016, net mark-to-market losses related to the securities trading portfolio were $76,000 and $182,000, respectively, compared to net mark-to-market losses for the three and nine months ended September 30, 2015 of $69,000 and $206,000, respectively.
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Loans and Leases | |||||||||||||
Loans and leases at September 30, 2016 and December 31, 2015 were as follows: | |||||||||||||
09/30/2016 | 12/31/2015 | ||||||||||||
(in thousands) | Originated | Acquired |
Total
Loans and Leases |
Originated | Acquired |
Total Loans
and Leases |
|||||||
Commercial and industrial | |||||||||||||
Agriculture | $ | 77,711 | $ | 0 | $ | 77,711 | $ | 88,299 | $ | 0 | $ | 88,299 | |
Commercial and industrial other | 846,657 | 84,671 | 931,328 | 768,024 | 84,810 | 852,834 | |||||||
Subtotal commercial and industrial | 924,368 | 84,671 | 1,009,039 | 856,323 | 84,810 | 941,133 | |||||||
Commercial real estate | |||||||||||||
Construction | 133,714 | 3,628 | 137,342 | 103,037 | 4,892 | 107,929 | |||||||
Agriculture | 104,067 | 4,761 | 108,828 | 86,935 | 2,095 | 89,030 | |||||||
Commercial real estate other | 1,314,333 | 253,395 | 1,567,728 | 1,167,250 | 284,952 | 1,452,202 | |||||||
Subtotal commercial real estate | 1,552,114 | 261,784 | 1,813,898 | 1,357,222 | 291,939 | 1,649,161 | |||||||
Residential real estate | |||||||||||||
Home equity | 208,329 | 39,630 | 247,959 | 202,578 | 42,092 | 244,670 | |||||||
Mortgages | 917,755 | 30,056 | 947,811 | 823,841 | 27,491 | 851,332 | |||||||
Subtotal residential real estate | 1,126,084 | 69,686 | 1,195,770 | 1,026,419 | 69,583 | 1,096,002 | |||||||
Consumer and other | |||||||||||||
Indirect | 15,893 | 0 | 15,893 | 17,829 | 0 | 17,829 | |||||||
Consumer and other | 41,615 | 867 | 42,482 | 40,904 | 911 | 41,815 | |||||||
Subtotal consumer and other | 57,508 | 867 | 58,375 | 58,733 | 911 | 59,644 | |||||||
Leases | 15,858 | 0 | 15,858 | 14,861 | 0 | 14,861 | |||||||
Covered loans | 0 | 0 | 0 | 0 | 14,031 | 14,031 | |||||||
Total loans and leases | 3,675,932 | 417,008 | 4,092,940 | 3,313,558 | 461,274 | 3,774,832 | |||||||
Less: unearned income and deferred costs and fees | (3,393) | 0 | (3,393) | (2,790) | 0 | (2,790) | |||||||
Total loans and leases, net of unearned income and deferred
costs and fees |
$ | 3,672,539 | $ | 417,008 | $ | 4,089,547 | $ | 3,310,768 | $ | 461,274 | $ | 3,772,042 |
Residential real estate loans, including home equity loans were $1.2 billion at September 30, 2016, up $99.8 million or 9.1% compared to December 31, 2015, and comprised 29.2% of total loans and leases. Growth in residential loan balances is impacted by the Company’s decision to retain these loans or sell them in the secondary market due to interest rate considerations. The Company’s Asset/Liability Committee meets regularly and establishes standards for selling and retaining residential real estate mortgage originations.
The Company may sell residential real estate loans in the secondary market based on interest rate considerations. These residential real estate loans are generally sold to Federal Home Loan Mortgage Corporation (“FHLMC”) or State of New York Mortgage Agency (“SONYMA”) without recourse in accordance with standard secondary market loan sale agreements. These residential real estate loans also are subject to customary representations and warranties made by the Company, including representations and warranties related to gross incompetence and fraud. The Company has not had to repurchase any loans as a result of these representations and warranties. The Company has never had to repurchase a loan sold with recourse.
During the first nine months of 2016 and 2015, the Company sold residential mortgage loans totaling $2.1 million and $1.4 million, respectively, and realized gains on these sales of $57,000 and $21,000, respectively. These residential real estate loans were sold without recourse in accordance with standard secondary market loan sale agreements. When residential mortgage loans are sold, the Company typically retains all servicing rights, which provides the Company with a source of fee income. Mortgage servicing rights, at amortized basis, totaled $0.8 million at September 30, 2016 and $0.9 million at December 31, 2015.
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The Company underwrites residential real estate loans in accordance with secondary market standards in effect at the time of origination, including loan-to-value (“LTV”) and documentation requirements. The Company does not underwrite low or reduced documentation loans other than those that meet secondary market standards for low or reduced documentation loans.
Commercial and industrial loans and commercial real estate loans totaled $1.0 billion and $1.8 billion, and represented 24.7% and 44.3%, respectively of total loans as of September 30, 2016. The commercial real estate portfolio was up 10.0% over year-end 2015, while commercial and industrial loans were up 7.2%. As of September 30, 2016, agriculturally-related loans totaled $186.5 million or 4.6% of total loans and leases, compared to $177.3 million or 4.7% of total loans and leases at December 31, 2015. Agriculturally-related loans include loans to dairy farms and cash and vegetable crop farms. Agriculturally-related loans are primarily made based on identified cash flows of the borrower with consideration given to underlying collateral, personal guarantees, and government related guarantees. Agriculturally-related loans are generally secured by the assets or property being financed or other business assets such as accounts receivable, livestock, equipment or commodities/crops.
The acquired loans in the above table reflect loans acquired in the acquisition of VIST Financial Corp. during the third quarter of 2012. The acquired loans were recorded at fair value pursuant to the purchase accounting guidelines in FASB ASC 805 – “Fair Value Measurements and Disclosures” (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses). Upon acquisition, the Company evaluated whether each acquired loan (regardless of size) was within the scope of ASC 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality”. The carrying value of the acquired loans reflects management’s best estimate of the amount to be realized from the acquired loan and lease portfolios. However, the amounts the Company actually realizes on these loans could differ materially from the carrying value reflected in these financial statements, based upon the timing of collections on the acquired loans in future periods, underlying collateral values and the ability of borrowers to continue to make payments.
The carrying value of acquired loans accounted for in accordance with ASC Subtopic 310-30, “Receivables Loans and Debt Securities Acquired with Deteriorated Credit Quality,” was $24.4 million at September 30, 2016 as compared to $26.5 million at December 31, 2015. Under ASC Subtopic 310-30, loans may be aggregated and accounted for as pools of loans if the loans being aggregated have common risk characteristics. The Company elected to account for the loans with evidence of credit deterioration individually rather than aggregate them into pools. The difference between the undiscounted cash flows expected at acquisition and the investment in the acquired loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment, as a loss accrual or as a valuation allowance.
Increases in expected cash flows subsequent to the acquisition are recognized prospectively through an adjustment of the yield on the loans over the remaining life. Subsequent decreases to the expected cash flows require us to evaluate the need for an addition to the allowance for loan losses. Valuation allowances (recognized in the allowance for loan losses) on these impaired loans reflect only losses incurred after the acquisition (representing all cash flows that were expected at acquisition but currently are not expected to be received).
The carrying value of loans not exhibiting evidence of credit impairment at the time of the acquisition (i.e. loans outside of the scope of ASC 310-30) was $392.7 million at September 30, 2016. At acquisition, these loans were recorded at fair value, including a credit discount. Credit losses on acquired performing loans are estimated based on analysis of the performing portfolio. The purchased performing portfolio also included a general interest rate mark (premium). Both the credit discount and interest rate mark are accreted/amortized as a yield adjustment over the estimated lives of the loans. Interest is accrued daily on the outstanding principal balance of purchased performing loans.
The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures. Management reviews these policies and procedures on a regular basis. The Company discussed its lending policies and underwriting guidelines for its various lending portfolios in Note 3 – “Loans and Leases” in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. There have been no significant changes in these policies and guidelines since the date of that report. As such, these policies are reflective of new originations as well as those balances held at September 30, 2016. T he Company’s Board of Directors approves the lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.
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The Company’s loan and lease customers are located primarily in the New York and Pennsylvania communities served by its four subsidiary banks. Although operating in numerous communities in New York State and Pennsylvania, the Company is still dependent on the general economic conditions of these states and the local economic conditions of the communities within those states in which the Company does business. Other than geographic and general economic risks, management is not aware of any material concentrations of credit risk to any industry or individual borrower.
The Allowance for Loan and Lease Losses
The tables below provide, as of the dates indicated, an allocation of the allowance for probable and inherent loan losses by type. The allocation is neither indicative of the specific amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of future loss trends. The allocation of the allowance to each category does not restrict the use of the allowance to absorb losses in any category.
(in thousands) | ||||||
09/30/2016 | 12/31/2015 | 09/30/2015 | ||||
Allowance for originated loans and leases | ||||||
Commercial and industrial | $ | 9,254 | $ | 10,495 | $ | 8,472 |
Commercial real estate | 18,776 | 15,479 | 14,215 | |||
Residential real estate | 4,707 | 4,070 | 5,447 | |||
Consumer and other | 1,219 | 1,268 | 2,316 | |||
Total | $ | 33,956 | $ | 31,312 | $ | 30,450 |
(in thousands) | ||||||
09/30/2016 | 12/31/2015 | 09/30/2015 | ||||
Allowance for acquired loans | ||||||
Commercial and industrial | $ | 0 | $ | 433 | $ | 366 |
Commercial real estate | 77 | 61 | 63 | |||
Residential real estate | 57 | 198 | 86 | |||
Consumer and other | 22 | 0 | 0 | |||
Total | $ | 156 | $ | 692 | $ | 515 |
As of September 30, 2016, the total allowance for loan and lease losses was $34.1 million, which increased by $2.1 million or 6.6% over year-end 2015. The increase in the allowance compared to year-end was mainly due to growth in the originated loan portfolio. Loans internally-classified Special Mention, Substandard and Doubtful were up from prior year end by $4.5 million or 8.1%, while nonperforming loans and leases were down 16.1% from year-end 2015. The allowance for loan and lease losses covered 186.45% of nonperforming loans and leases as of September 30, 2016, compared to 146.74% at December 31, 2015, and 133.18% at September 30, 2015. The ratio of nonperforming loans and leases to total loans and leases was 0.45% at September 30, 2016 compared to 0.58% at December 31, 2015 and 0.64% at September 30 2015.
The Company’s allowance for originated loan and lease losses totaled $34.0 million at September 30, 2016, which represented 0.92% of total originated loans, compared to 0.95% at December 31, 2015, and 0.97% at September 30, 2015. Originated loans internally-classified as Special Mention, Substandard and Doubtful totaled $45.3 million at September 30, 2016, up from $37.8 million at year-end 2015 and $45.1 million at September 30, 2015. Nonaccrual originated loans were $11.6 million as of September 30, 2016 compared to $13.5 million at year-end 2015, and $14.8 million at September 30, 2015.
The allowance for acquired loans at September 30, 2016 was $156,000, down $536,000 compared to year-end 2015 and down $359,000 compared to September 30, 2015. The amount of acquired loans internally-classified as Special Mention, Substandard and Doubtful totaled $14.5 million at September 30, 2016, down from $17.5 million at year-end 2015 and $25.1 million at September 30, 2015. Loan pay downs coupled with charge offs contributed to the decrease from the same quarter prior year and year-end 2015. Nonaccrual acquired loans were $4.6 million as of September 30, 2016 compared to $4.3 million at year-end 2015, and $4.9 million at September 30, 2015.
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Activity in the Company’s allowance for loan and lease losses during the first nine months of 2016 and 2015 is illustrated in the table below.
Analysis of the Allowance for Originated Loan and Lease Losses | ||||||||
(in thousands) | 09/30/2016 | 09/30/2015 | ||||||
Average originated loans outstanding during period | $ | 3,457,688 | $ | 2,960,045 | ||||
Balance of originated allowance at beginning of year | $ | 31,312 | $ | 28,156 | ||||
ORIGINATED LOANS CHARGED-OFF: | ||||||||
Commercial and industrial | 584 | 169 | ||||||
Commercial real estate | 12 | 14 | ||||||
Residential real estate | 220 | 408 | ||||||
Consumer and other | 455 | 751 | ||||||
Total loans charged-off | $ | 1,271 | $ | 1,342 | ||||
RECOVERIES OF ORIGINATED LOANS PREVIOUSLY CHARGED-OFF: | ||||||||
Commercial and industrial | 217 | 792 | ||||||
Commercial real estate | 636 | 1,064 | ||||||
Residential real estate | 49 | 107 | ||||||
Consumer and other | 295 | 391 | ||||||
Total loans recoveries | $ | 1,197 | $ | 2,354 | ||||
Net loans charged-off (recovered) | 74 | (1,012 | ) | |||||
Additions to originated allowance charged to operations | 2,718 | 1,282 | ||||||
Balance of originated allowance at end of period | $ | 33,956 | $ | 30,450 | ||||
Allowance for originated loans and leases as a percentage of originated loans and leases | 0.92 | % | 0.97 | % | ||||
Annualized net charge-offs (recoveries) on originated loans to average total originated loans and leases during the period | 0.00 | % | (0.05 | %) |
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Analysis of the Allowance for Acquired Loan Losses | ||||||||
(in thousands) | 09/30/2016 | 09/30/2015 | ||||||
Average acquired loans outstanding during period | $ | 439,773 | $ | 519,483 | ||||
Balance of acquired allowance at beginning of year | 692 | 841 | ||||||
ACQUIRED LOANS CHARGED-OFF: | ||||||||
Commercial and industrial | 399 | 53 | ||||||
Commercial real estate | 182 | 216 | ||||||
Residential real estate | 35 | 320 | ||||||
Consumer and other | 93 | 5 | ||||||
Total loans charged-off | $ | 709 | $ | 594 | ||||
Commercial and industrial | 20 | 7 | ||||||
Commercial real estate | 256 | 129 | ||||||
Residential real estate | 0 | 2 | ||||||
Total loans recovered | $ | 276 | $ | 138 | ||||
Net loans charged-off | 433 | 456 | ||||||
Additions to acquired allowance charged to operations | (103 | ) | 130 | |||||
Balance of acquired allowance at end of period | $ | 156 | $ | 515 | ||||
Allowance for acquired loans as a percentage of acquired loans outstanding acquired loans and leases | 0.04 | % | 0.10 | % | ||||
Annualized net charge-offs on acquired loans as a percentage of average acquired loans and leases outstanding during the period | 0.13 | % | 0.12 | % | ||||
Annualized total net charge-offs as a percentage of average loans and leases outstanding during the period | 0.02 | % | (0.02 | %) |
Net loan and lease recoveries totaled $205,000 for the three months ended September 30, 2016, compared to $593,000 for the same period in 2015. Net charge offs for the nine month period ended September 30, 2016 were $507,000 or 0.02% (annualized) of average total loans and leases, compared to net recoveries of $556,000 or (0.02%) (annualized) of average total loans for the same period in 2015. The most recent peer percentage is 0.11%.
The provision for loan and lease losses was $782,000 and $2.6 million for the three and nine months ended September 30, 2016, compared to $281,000 and $1.4 million for the same periods in 2015. The increase in provision for loan and lease losses in 2016 compared to 2015 was mainly a result of growth in total loans, as well as higher net loan recoveries in the prior period,
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Analysis of Past Due and Nonperforming Loans | ||||||||||
(in thousands) | 09/30/2016 1 | 12/31/2015 1 | 09/30/2015 1 | |||||||
Loans 90 days past due and accruing Residential real estate | $ | 35 | $ | 58 | $ | 57 | ||||
Total loans 90 days past due and accruing | 35 | 58 | 57 | |||||||
Nonaccrual loans | ||||||||||
Commercial and industrial | 340 | 1,738 | 2,194 | |||||||
Commercial real estate | 7,129 | 6,054 | 7,722 | |||||||
Residential real estate | 8,421 | 9,863 | 9,545 | |||||||
Consumer and other | 223 | 182 | 268 | |||||||
Total nonaccrual loans | 16,113 | 17,837 | 19,729 | |||||||
Troubled debt restructurings not included above | 2,148 | 3,915 | 3,465 | |||||||
Total nonperforming loans and leases | 18,296 | 21,810 | 23,251 | |||||||
Other real estate owned | 1,008 | 2,692 | 3,188 | |||||||
Total nonperforming assets | $ | 19,304 | $ | 24,502 | $ | 26,439 | ||||
Allowance as a percentage of nonperforming loans and leases | 186.45 | % | 146.74 | % | 133.18 | % | ||||
Total nonperforming loans and leases as percentage of total loans and leases | 0.45 | % | 0.58 | % | 0.64 | % | ||||
Total nonperforming assets as percentage of total assets | 0.32 | % | 0.43 | % | 0.47 | % |
1 The September 30, 2016, December 31, 2015, and September 30, 2015 columns in the above table exclude $2.6 million, $2.5 million, and $2.6 million, respectively, of acquired loans that are 90 days past due and accruing interest. These loans were originally recorded at fair value on the acquisition date of August 1, 2012. These loans are considered to be accruing as we can reasonably estimate future cash flows on these acquired loans and we expect to fully collect the carrying value of these loans. Therefore, we are accreting the difference between the carrying value of these loans and their expected cash flows into interest income.
Nonperforming assets include nonaccrual loans, troubled debt restructurings (“TDR”), and foreclosed real estate/other real estate owned. Nonperforming assets represented 0.32% of total assets at September 30, 2016, compared to 0.43% at December 31, 2015, and 0.47% at September 30, 2015. The Company’s ratio of nonperforming assets to total assets continues to compare favorably to our peer group’s most recent ratio of 0.83% at June 30, 2016. Total nonperforming assets of $19.3 million at September 30, 2016 were down $5.2 million compared to December 31, 2015, and down $7.1 million compared to September 30, 2015. The decrease reflects lower levels of nonaccrual loans, TDRs and other real estate owned at September 30, 2016 compared to prior year periods.
Total nonperforming loans and leases of $18.3 million were down $3.5 million or 16.1% from year end 2015, and down $5.0 million or 21.3% from September 30, 2015. A breakdown of nonperforming loans by portfolio segment is shown above. The decrease in nonperforming commercial and industrial loans and residential real estate loans since prior year is mainly due to several loans returning to accrual status as a result of improved financial performance and payment history. The decrease in the line captioned, ‘Troubled debt restructurings not included above’, from year-end 2015 was a result of several loans performing in accordance with their modified terms for an extended period and therefore no longer required to be reported on this line item.
Loans are considered modified in a TDR when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider and the borrower could not obtain elsewhere. These modifications may include, among others, an extension of the term of the loan, and granting a period when interest-only payments can be made, with the principal payments made over the remaining term of the loan or at maturity. TDRs are included in the above table within the following categories: “loans 90 days past due and accruing”, “nonaccrual loans”, or “troubled debt restructurings not included above”. Loans in the latter category include loans that meet the definition of a TDR but are performing in accordance with the modified terms and therefore classified as accruing loans. At September 30, 2016 the Company had $10.8 million in TDRs, and of that total $8.7 million were reported as nonaccrual and $2.1 million were considered performing and included in the table above.
In general, the Company places a loan on nonaccrual status if principal or interest payments become 90 days or more past due and/or management deems the collectability of the principal and/or interest to be in question, as well as when required by applicable regulations. Although in nonaccrual status, the Company may continue to receive payments on these loans. These payments are generally recorded as a reduction to principal, and interest income is recorded only after principal recovery is reasonably assured.
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The Company’s recorded investment in loans and leases that are considered impaired totaled $17.1 million at September 30, 2016, compared to $16.2 million at December 31, 2015 and $20.7 million at September 30, 2015. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans consist of our non-homogenous nonaccrual loans, and all TDRs. Specific reserves on individually identified impaired loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and such impaired amounts are generally charged off.
The year-to-date average recorded investment in impaired loans and leases was $16.4 million at September 30, 2016, compared to $17.4 million at September 30, 2015. At September 30, 2016, there was a specific reserve of $399,000 on impaired loans compared to $849,000 of specific reserves at December 31, 2015. The specific reserve of $399,000 at September 30, 2016 includes a specific reserves of $321,000 for the originated portfolio, and specific reserves of $78,000 for the acquired portfolio. The majority of impaired loans are collateral dependent impaired loans that have limited exposure or require limited specific reserve because of the amount of collateral support with respect to these loans and previous charge-offs. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash basis.
The ratio of the allowance to nonperforming loans (loans past due 90 days and accruing, nonaccrual loans and restructured troubled debt) was 186.45% at September 30, 2016, improved from 146.74% in December 31, 2015, and 133.18% at September 30, 2015. The improvement in the ratio reflects the decrease in nonperforming loans over the year as well as an increase in the total allowance. The Company’s nonperforming loans are mostly made up of collateral dependent impaired loans with limited exposure or require limited specific reserve due to the level of collateral available with respect to these loans and/or previous charge-offs.
Management reviews the loan portfolio continuously for evidence of potential problem loans and leases. Potential problem loans and leases are loans and leases that are currently performing in accordance with contractual terms, but where known information about possible credit problems of the related borrowers causes management to have doubt as to the ability of such borrowers to comply with the present loan payment terms and may result in such loans and leases becoming nonperforming at some time in the future. Management considers loans and leases classified as Substandard, which continue to accrue interest, to be potential problem loans and leases. The Company, through its internal loan review function, identified 34 commercial relationships from the originated portfolio and 20 commercial relationships from the acquired portfolio totaling $10.5 million and $9.5 million, respectively at September 30, 2016 that were potential problem loans. At December 31, 2015, the Company had identified 29 relationships totaling $12.2 million in the originated portfolio and 23 relationships totaling $3.1 million in the acquired portfolio that were potential problem loans. Of the 34 commercial relationships in the originated portfolio at September 30, 2016 that were Substandard, there were 3 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $5.7 million, the largest of which was $3.2 million. Of the 20 commercial relationships from the acquired loan portfolio at September 30, 2016 that were Substandard, there were 2 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $3.4 million, the largest of which is $2.0 million. The Company continues to monitor these potential problem relationships; however, management cannot predict the extent to which continued weak economic conditions or other factors may further impact borrowers. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and personal or government guarantees. These factors, when considered in the aggregate, give management reason to believe that the current risk exposure on these loans does not warrant accounting for these loans as nonperforming. However, these loans do exhibit certain risk factors, which have the potential to cause them to become nonperforming. Accordingly, management’s attention is focused on these credits, which are reviewed on at least a quarterly basis.
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Capital
Total equity was $561.2 million at September 30, 2016, an increase of $44.7 million or 8.7% from December 31, 2015. The increase reflects growth in retained earnings, additional paid-in capital and a decrease in accumulated other comprehensive losses.
Additional paid-in capital increased by $6.6 million, from $350.8 million at December 31, 2015, to $357.5 million at September 30, 2016. The increase is primarily attributable to the following: $2.2 million related to shares issued in connection with the dividend reinvestment plan, $1.9 million related to shares issued under the employee stock ownership plan, $1.7 million related to shares issued for an acquisition, $1.7 million related to stock based compensation, and $262,000 related to shares issued for the exercise of stock options. These increases were partially offset by a $1.2 million reduction attributed to the repurchase of common stock. Retained earnings increased by $23.8 million from $197.4 million at December 31, 2015, to $221.2 million at September 30, 2016, reflecting net income of $43.6 million less dividends paid of $19.8 million. Accumulated other comprehensive loss decreased from a net loss of $31.0 million at December 31, 2015 to a net loss of $16.7 million at September 30, 2016, reflecting a $13.7 million increase in unrealized gains on available-for-sale securities due to changes in market rates, and a $637,000 increase related to postretirement benefit plans. Under regulatory requirements, amounts reported as accumulated other comprehensive income/loss related to net unrealized gain or loss on available-for-sale securities and the funded status of the Company’s defined benefit post-retirement benefit plans do not increase or reduce regulatory capital and are not included in the calculation of risk-based capital and leverage ratios.
Cash dividends paid in the first nine months of 2016 totaled approximately $19.8 million, representing 45.5% of year to date 2016 earnings. Cash dividends of $1.32 per common share paid in the first nine months of 2016 were up 4.8% over cash dividends of $1.26 per common share paid in the first nine months of 2015.
On July 21, 2016, the Company’s Board of Directors authorized a new stock repurchase plan for the Company to repurchase up to 400,000 shares of the Company’s common stock (the "2016 Repurchase Plan"). Purchases may be made over the 24 months following adoption of the plan. The repurchase program may be suspended, modified or terminated by the Board of Directors at any time for any reason. No shares have been repurchased under this plan. This plan replaced the Company’s existing 400,000 share repurchase plan announced on July 25, 2014 (the “2014 Repurchase Plan”).
The Company repurchased 22,356 shares under the 2014 Repurchase Plan during the first quarter of 2016, at an average price of $52.18. and did not repurchase any shares under the 2014 Repurchase Plan in the second or third quarters of 2016. As of September 30, 2016, the Company had repurchased an aggregate of 191,303 shares under the 2014 Repurchase Plan at an average price of $48.51 and had not yet purchased any shares under the 2016 Repurchase Plan.
The Company and its banking subsidiaries are subject to various regulatory capital requirements administered by Federal banking agencies. In July 2013, the FRB approved and published the final Basel III Capital Rules establishing a comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s December 2010 framework known as “Basel III” for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions, including Tompkins Financial, compared to the current U.S. risk-based capital rules. The Basel III Capital Rules define the components of capital, and address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios. It also replaces the existing risk-weighting approach, with a more risk-sensitive approach based, in part, on the standardized approach in the Basel Committee’s 2004 “Basel II” capital accords and implements the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings utilized in the federal banking agencies’ rules. The Basel III Capital Rules were effective for Tompkins on January 1, 2015 (subject to a phase-in period).
As required under Dodd-Frank, a new capital ratio, “common equity tier 1 capital ratio” (CET1) was established. This ratio allows only common equity to qualify as tier 1 capital. The new CET1 ratio also will include most elements of accumulated other comprehensive income, including unrealized securities gains and losses, as part of both total regulatory capital (numerator) and total assets (denominator). Community banks, however, were given the opportunity to make a one-time irrevocable election to include or not to include in the numerator certain elements of other comprehensive income, most notably unrealized securities gains or losses. Tompkins has made this election.
In addition to setting higher minimum capital ratios, the new rules introduced a capital conservation buffer, which must be added to each of the minimum capital ratios and is designed to absorb losses during periods of economic stress. The capital conservation buffer is being phased-in over five years beginning on January 1, 2016 and will range from 0.625% in 2016 to 2.5% when fully phased-in. As of September 30, 2016, all of the Company’s subsidiary banks were in compliance with the required capital conservation buffer of 0.625%. If a banking organization fails to hold capital above minimum capital ratios, including the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary bonus payments.
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The final rules eliminated the proposed phase-out over 10 years of Trust Preferred Services, or “TRUPs” as tier 1 capital for banks, such as Tompkins Financial, that have less than $15 billion in total assets. Under the final rule, grandfathered TRUPs, such as Tompkins Financial’s outstanding TRUPs, would continue to qualify as tier 1 capital until they mature or are redeemed, up to a limit of 25% of tier 1 capital (for grandfathered TRUPs and other grandfathered tier 1 capital components).
The following table provides a summary of the Company’s capital ratios as of September 30, 2016.
REGULATORY CAPITAL ANALYSIS | |||||||||||||||||
September 30, 2016 | Actual | Well Capitalized Requirement | |||||||||||||||
(dollar amounts in thousands) | Amount | Ratio | Amount | Ratio | |||||||||||||
Total Capital (to risk weighted assets) | $ | 550,648 | 12.97 | % | $ | 424,537 | 10.00 | % | |||||||||
Tier 1 Capital (to risk weighted assets) | $ | 514,594 | 12.12 | % | $ | 339,629 | 8.00 | % | |||||||||
Tier 1 Common Equity (to risk weighted assets) | $ | 476,957 | 11.23 | % | $ | 275,949 | 6.50 | % | |||||||||
Tier 1 Capital (to average assets) | $ | 514,594 | 8.83 | % | $ | 291,504 | 5.00 | % |
As illustrated above, the Company’s capital ratios on September 30, 2016 remained above the minimum requirements for well capitalized institutions. Total capital as a percent of risk weighted assets was relatively flat when compared with 13.0% as of December 31, 2015. Tier 1 capital as a percent of risk weighted assets decreased slightly from 12.2% at the end of 2015 to 12.1% as of September 30, 2016. Tier 1 capital as a percent of average assets was 8.8% at September 30, 2016 which is unchanged from December 31, 2015. Common equity tier 1 capital was 11.2% at the end of the third quarter of 2016, down slightly from 11.3% at the end of 2015.
As of September 30, 2016, the capital ratios for the Company’s subsidiary banks also exceeded the minimum levels required to be considered well capitalized.
Deposits and Other Liabilities
Total deposits of $4.7 billion at September 30, 2016 increased $295.0 million or 6.71% from December 31, 2015. The increase from year-end 2015 was comprised mainly of increases in money market, savings and interest bearing checking deposits (up $216.9 million), time deposit accounts (up $22.3 million), and noninterest bearing deposits (up $55.8 million). The growth in deposits reflects increases in both personal and business balances as well as municipal balances over year end.
The most significant source of funding for the Company is core deposits. The Company defines core deposits as total deposits less time deposits of $250,000 or more, brokered deposits and municipal money market deposits. Core deposits grew by $330.8 million or 9.4% to $3.9 billion at September 30, 2016 from $3.5 billion at year-end 2015. Core deposits represented 82.1% of total deposits at September 30, 2016, compared to 80.1% of total deposits at December 31, 2015.
Municipal money market savings and interest checking accounts totaled $905.4 million at September 30, 2016 which was an increase of 16.4% compared to year-end 2015. In general, there is a seasonal pattern to municipal deposits starting with a low point during July and August. Account balances tend to increase throughout the fall and into the winter months from tax deposits and an additional inflow at the end of March from the electronic deposit of state funds.
The Company uses both retail and wholesale repurchase agreements. Retail repurchase agreements are arrangements with local customers of the Company, in which the Company agrees to sell securities to the customer with an agreement to repurchase those securities at a specified later date. Retail repurchase agreements totaled $42.2 million at September 30, 2016, and $66.3 million at December 31, 2015. Management generally views local repurchase agreements as an alternative to large time deposits. The Company’s wholesale repurchase agreements totaled $35.0 million at September 30, 2016 and $70.2 million at December 31, 2015. At September 30, 2016, wholesale repurchase agreements included $35.0 million with the FHLB.
The Company’s other borrowings totaled $671.0 million at September 30, 2016, up $134.7 million or 25.1% from $536.3 million at December 31, 2015. Borrowings at September 30, 2016 included $290.0 million in FHLB overnight advances, $365.0 million of FHLB term advances, and a $16.0 million advance from a bank. Borrowings at year-end 2015 included $272.2 million in overnight advances from FHLB, $250.0 million of FHLB term advances, and a $13.5 million advances from a bank. Of the $365.0 million in FHLB term advances at September 30, 2016, $155.0 million is due in over one year. In 2007, the Company elected the fair value option under FASB ASC Topic 825 for a $10.0 million advance with the FHLB. The fair value of this advance decreased by $227,000 (net mark-to-market gain of $227,000) over the nine months ended September 30, 2016. In the third quarter of 2016, the Company paid off this borrowing in full.
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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 Company’s large, stable core deposit base and strong capital position are the foundation for the Company’s liquidity position. The Company uses a variety of resources to meet its liquidity needs, which include deposits, cash and cash equivalents, short-term investments, cash flow from lending and investing activities, repurchase agreements, and borrowings. The Company’s Asset/Liability Management Committee monitors asset and liability positions of the Company’s subsidiary banks individually and on a combined basis. The Committee reviews periodic reports on liquidity and interest rate sensitivity positions. Comparisons with industry and peer groups are also monitored. The Company’s 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 Company’s liquidity that are reasonably likely to occur.
Core deposits, discussed above under “Deposits and Other Liabilities”, are a primary and low cost funding source obtained primarily through the Company’s branch network. In addition to core deposits, the Company uses non-core funding sources to support asset growth. These non-core funding sources include time deposits of $250,000 or more, brokered time deposits, national deposit listing services, municipal money market deposits, bank borrowings, securities sold under agreements to repurchase and overnight and term advances from the FHLB. Rates and terms are the primary determinants of the mix of these funding sources. Non-core funding sources of $1.6 billion at September 30, 2016 increased $39.6 million or 2.6% as compared to year end 2015. The increase in non-core funding sources reflects an increase mainly in term borrowings from the FHLB used to support asset growth. Non-core funding sources, as a percentage of total liabilities, were 28.7% at September 30, 2016, compared to 29.9% at December 31, 2015.
Non-core funding sources may require securities to be pledged against the underlying liability. Securities carried at $1.3 billion at September 30, 2016 and December 31, 2015, were either pledged or sold under agreements to repurchase. Pledged securities represented 88.5% of total securities at September 30, 2016, compared to 81.2% of total securities at December 31, 2015. The increase is attributable to the growth of deposits from municipal customers and the shift of investment balances into higher yielding loans.
Cash and cash equivalents totaled $179.6 million as of September 30, 2016 which increased from $58.3 million at December 31, 2015. Short-term investments, consisting of securities due in one year or less, decreased from $64.0 million at December 31, 2015, to $41.1 million on September 30, 2016. In September 2016, the Company sold the remaining $1.5 million of trading securities, after maturities and principal repayments.
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 $756.6 million at September 30, 2016 compared with $745.0 million at December 31, 2015. Outstanding principal balances of residential mortgage loans, consumer loans, and leases totaled approximately $1.3 billion at September 30, 2016 compared with $1.2 billion at year end 2015. Aggregate amortization from monthly payments on these assets provides significant additional cash flow to the Company.
The Company's 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 September 30, 2016, the unused borrowing capacity on established lines with the FHLB was $1.1 billion. As members of the FHLB, the Company’s subsidiary banks can use certain unencumbered mortgage-related assets and securities to secure additional borrowings from the FHLB. At September 30, 2016, total unencumbered residential mortgage loans and securities were $523.2 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.
The Company continues to evaluate the potential impact on liquidity management of regulatory proposals, including Basel III and those required under the Dodd-Frank Act.
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I tem 3. Quantitative and Qualitative Disclosure About Market Risk
Interest rate risk is the primary market risk category associated with the Company’s operations. Interest rate risk refers to the volatility of earnings caused by changes in interest rates. The Company manages interest rate risk using income simulation to measure interest rate risk inherent in its on-balance sheet and off-balance sheet financial instruments at a given point in time. The simulation models are used to estimate the potential effect of interest rate shifts on net interest income for future periods. Each quarter, the Company’s Asset/Liability Management Committee reviews the simulation results to determine whether the exposure of net interest income to changes in interest rates remains within levels approved by the Company’s Board of Directors. The Committee also considers strategies to manage this exposure and incorporates these strategies into the investment and funding decisions of the Company. The Company does not currently use derivatives, such as interest rate swaps, to manage its interest rate risk exposure, but may consider such instruments in the future.
The Company’s Board of Directors has set a policy that interest rate risk exposure will remain within a range whereby net interest income will not decline by more than 10% in one year as a result of a 100 basis point parallel change in rates. Based upon the simulation analysis performed as of August 30, 2016, a 200 basis point parallel upward change in interest rates over a one-year time frame would result in a one-year decrease in net interest income from the base case of approximately 1.8%, while a 100 basis point parallel decline in interest rates over a one-year period would result in an decrease in one-year net interest income from the base case of 1.5%. The simulation assumes no balance sheet growth and no management action to address balance sheet mismatches.
If rates rise in a parallel fashion (+200 basis points over 12 months, or +400 basis points over 24 months), net interest income is expected to trend slightly below the base assumption, as upward adjustments to rate sensitive deposits and short-term funding outpace increases to asset yields which are concentrated in intermediate to longer-term products. Once market rates stabilize, increases to funding costs dissipate while asset yields continue to cycle higher. As a result, net interest income improves for the remainder of the projection period.
Although the simulation model is useful in identifying potential exposure to interest rate movements, actual results may differ from those modeled as the repricing, maturity, and prepayment characteristics of financial instruments may change to a different degree than modeled. In addition, the model does not reflect actions that management may employ to manage the Company’s interest rate risk exposure. T he Company’s current liquidity profile, capital position, and growth prospects , offer a level of flexibility for management to take actions that could offset some of the negative effects of unfavorable movements in interest rates. Management believes the current exposure to changes in interest rates is not significant in relation to the earnings and capital strength of the Company.
In addition to the simulation analysis, management uses an interest rate gap measure. The table below is a Condensed Static Gap Report, which illustrates the anticipated repricing intervals of assets and liabilities as of September 30, 2016. The Company’s one-year net interest rate gap was a negative $380.6 million or 6.24% of total assets at September 30, 2016, compared with a negative $432.8 million or 7.45% of total assets at December 31, 2015. A negative gap position exists when the amount of interest-bearing liabilities maturing or repricing exceeds the amount of interest-earning assets maturing or repricing within a particular time period. This analysis suggests that the Company’s net interest income is moderately more vulnerable to an increasing rate environment than it is to a prolonged declining interest rate environment. An interest rate gap measure could be significantly affected by external factors such as a rise or decline in interest rates, loan or securities prepayments, and deposit withdrawals.
Condensed Static Gap – September 30, 2016 | Repricing Interval | |||||||||||||||||||
(in thousands) | Total | 0-3 months | 3-6 months | 6-12 months | Cumulative 12 months | |||||||||||||||
Interest-earning assets 1 | $ | 5,623,533 | $ | 1,148,059 | $ | 264,502 | $ | 497,541 | $ | 1,910,102 | ||||||||||
Interest-bearing liabilities | 4,281,748 | 1,706,758 | 254,858 | 329,061 | 2,290,677 | |||||||||||||||
Net gap position | (558,699 | ) | 9,644 | 168,480 | (380,575 | ) | ||||||||||||||
Net gap position as a percentage of total assets | (9.16 | %) | 0.16 | % | 2.76 | % | (6.24 | %) |
1 Balances of available securities are shown at amortized cost |
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2016. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Report on Form 10-Q, the Company’s disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2016, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 1. | Legal Proceedings |
Due to the nature of the Company’s business, the Company is party to a certain amount of litigation arising out of the ordinary course of the Company’s business. In the opinion of management, there are no pending claims which, if determined adversely, would have a material effect on the Company’s results of operations or financial condition.
Item 1A. | Risk Factors |
There have been no material changes in the risk factors previously disclosed under Item 1A. of the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2015.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
Total Number of Shares Purchased (a) | Average Price Paid Per Share (b) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (c) | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (d) | |||||||||||||
July 1, 2016 through July 31, 2016 | 1,602 | $ | 64.07 | 0 | 400,000 | |||||||||||
August 1, 2016 through August 31, 2016 | 1,999 | 71.36 | 0 | 400,000 | ||||||||||||
September 1, 2016 through September 30, 2016 | 350 | 72.97 | 0 | 400,000 | ||||||||||||
Total | 3,951 | $ | 68.54 | 0 | 400,000 |
Included in the table above are 1,602 shares purchased on the open market in July 2016, at an average cost of $64.07, and 491 shares purchased in August 2016, at an average cost of $71.52, by the trustee of the rabbi trust established by the Company under the Company’s Stock Retainer Plan For Eligible Directors of Tompkins Financial Corporation and Participating Subsidiaries, which were part of the director deferred compensation under that plan. In addition, the table includes 1,508 shares delivered to the Company in August 2016 at an average cost of $71.31 and 350 shares in September 2016 to satisfy mandatory tax withholding requirements upon the vesting of restricted stock under the Company’s 2009 Equity Plan.
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On July 21, 2016, the Company’s Board of Directors authorized a stock repurchase plan for the Company to repurchase up to 400,000 shares of the Company’s common stock. Purchases may be made over the 24 months following adoption of the plan. The repurchase program may be suspended, modified or terminated by the Board of Directors at any time for any reason. This plan replaced the Company’s existing 400,000 share repurchase plan announced on July 25, 2014, which expired in July 2016. As of the date of this report, the Company had repurchased 191,303 shares under the now expired program, at an average price of $48.51. No shares were repurchased under the new plan during the quarter ending September 30, 2016.
Recent Sales of Unregistered Securities
None
Item 3. | Defaults Upon Senior Securities |
None
Item 4. | Mine Safety Disclosures |
Not applicable
Item 5. | Other Information |
Background
On November 9, 2016, the Company entered into Amended and Restated Supplemental Executive Retirement Plans (the “Amended SERPs”) with Stephen S. Romaine, the Company’s President & Chief Executive Officer; Francis M. Fetsko, the Company’s Executive Vice President, Chief Financial Officer, and Chief Operating Officer; David S. Boyce, Executive Vice President of the Company and President & Chief Executive Officer of Tompkins Insurance Agencies, Inc.; Scott Gruber, Executive Vice President of the Company and President & Chief Executive Officer of Tompkins VIST Bank; and Gregory Hartz, Executive Vice President of the Company and President & Chief Executive Officer of Tompkins Trust Company. Messrs. Romaine, Boyce, Fetsko, Gruber and Hartz (referred to collectively as the “Executives”) were all Named Executive Officers in the Company’s Proxy Statement, as filed with the SEC on April 1, 2016 (the “2016 Proxy Statement”).
The original Supplemental Executive Retirement Plans (the “Original SERPs”) entered into with Messrs. Romaine, Boyce, Fetsko and Hartz provided an annual retirement benefit equal to 75% of their final average earnings, less their benefit under the Company’s defined benefit pension plan (the “Pension Plan”), less their social security benefit. In 2015, the Company froze its Pension Plan, as described in Note 12 – “Employee Benefit Plans” to the Company’s audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2015 (the “Pension Freeze”), and replaced it with a qualified defined contribution plan (the “DC Plan”). Due to the Pension Freeze, Messrs. Romaine, Fetsko, Boyce, and Hartz ceased receiving accruals under the Pension Plan and the Pension Plan offset formula no longer worked as the parties originally intended. The Amended SERPs, together with the other agreements described below, were executed primarily to address the impact on the Original SERPs of the Pension Freeze, and to update and clarify certain provisions of the Original SERPs to confirm the parties’ original intent. Mr. Gruber was not a participant in the Pension Plan, and therefore his Original SERP was not impacted by the Pension Plan Freeze.
Amended and Restated SERPs
Amendment and Replacement of Original SERPs. The Amended SERPs replace the Original SERPs in their entirety, and the Original SERPs are of no further force or effect. The terms of the Original SERPs are described in the 2016 Proxy Statement, and the following description reflects only those provisions of the Original SERPs that have been modified.
Disability Benefits. The Original SERP provided for full acceleration of vesting and years of service upon the Executive’s total and permanent disability. The Amended SERP replaces this “acceleration” feature with a two-tiered disability structure. If the Executive is unable to engage in any substantial gainful activity and this is expected to last for a continuous period of at least 12 months, the Executive will separate from service with the Company; his years-of-service will be frozen as of the date of the disability, and he will begin receiving his retirement benefit under the Amended SERP at his social security normal retirement age. If the Executive is unable to perform the duties of his job and this is expected to last for a continuous period of at least six months, and the Executive separates from service with the Company, his years-of-service will be frozen as of the date of the disability, and he will begin receiving his retirement benefit under the Amended SERP at the later to occur of his attaining age 55 or termination of employment.
Change in Control and Severance Benefits. The Amended SERP updates the definition of “change in control” to more closely align with the safe harbor established by Treasury Regulations §1.409A-3(i)(5). Under the Amended SERP, a change in control generally includes: (i) an acquisition of more than 50% of the Company’s stock ; (ii) the replacement of a majority of the Company’s Board of Directors during any 12-month; or (iii) the acquisition of more than 70% of the Company’s assets.
Both the Original SERP and the Amended SERP provide that, in the event of a change in control, the Executive will generally be deemed to have completed 20 years of service and will be 100% vested in the benefit payable under the Amended SERP agreement. However, the Amended SERP permits the Compensation Committee of the Company’s Board of Directors to avoid such acceleration by freezing the Amended SERP (a “Retirement Benefit Freeze”), as long as the Retirement Benefit Freeze does not become effective during the two years preceding a change in control.
The Amended SERP continues to provide for “double-trigger” severance benefits in connection with a change in control. The Executive will be entitled to benefits if a change in control occurs, and (a) the Executive’s employment is thereafter involuntarily terminated without cause, or (b) the Executive voluntarily terminates employment for good reason (i) within two years after a change in control, or (ii) in anticipation of a change in control which then occurs within two years after such termination. The amount, form, and calculation method of the severance benefit remains unchanged from the Original SERPs for Messrs. Romaine, Boyce, Fetsko and Hartz; however, for all Executives the window during which the occurrence of the “second trigger” (i.e., the termination of employment) will entitle the Executive to a severance benefit was shortened from three to two years. In the case of Mr. Gruber, the period of salary continuation following a qualifying termination was increased from two years to three years to be consistent with the benefits payable to the other Executives.
The Amended SERP further provides that if the Executive’s employment is involuntarily terminated (other than for cause) at any time, or, for all Executives other than Mr. Gruber, the Executive voluntarily resigns after reaching age 55 and completing 10 years of service, but prior to his designated retirement age in his Amended SERP, he will be entitled to payment of his retirement benefits on his designated retirement date, or, in the event of his death, his spouse will be entitled to payment of the death benefits described in the Amended SERP.
Good Reason and Involuntary Termination . The Amended SERP replaces the definition of “good reason”, for purposes of severance and retirement benefits, to clarify what constitutes a “significant reduction” in the Executive’s role or compensation. An Executive will have good reason to resign – and it will be treated as an involuntary termination – in the event of (i) a material diminution in base compensation, authority, duties or responsibilities; (ii) a material change in job location; or (iii) a material breach by the Company or its successor of the Amended SERP or any other agreement between the Company and the Executive.
Retirement Benefit Freeze & Plan Amendments . The Amended SERPs preserve the Compensation Committee’s ability to declare a Retirement Benefit Freeze and to amend, suspend or terminate the Amended SERPs at any time, so long as such action does not reduce a previously-accrued benefit. However, the Amended SERP clarifies, consistent with the parties’ intent in the Original SERP, that (a) a Retirement Benefit Freeze occurring before an Executive is vested does not affect his ability to retain any benefit he had accrued through the date of the freeze, and (b) severance and change in control benefits are deemed accrued upon signing, and are not subject to amendment, suspension or termination without the Executive’s consent, except as described above in connection with a Retirement Benefit Freeze.
Covenants. The Amended SERP requires that the Executive sign a release in favor of the Company to avoid forfeiture of benefits and contain a mutual non-disparagement commitment between the Company and the Executive. The Amended SERP confirms that the Executive will forfeit all benefits thereunder if he is discharged for cause, or if he competes with the Company or solicits the Company’s customers or employees, but in order to better align these covenants with applicable case law, the Amended SERP shortens the noncompetition/nonsolicitation covenant period in the event of involuntary termination (including resignation with good reason) to two years following termination.
New DB SERP
On November 9, 2016, Messrs. Romaine, Boyce and Fetsko elected to permanently and irrevocably opt-out of the DC Plan, and instead entered into an additional Supplemental Executive Retirement Agreement (the “New DB SERP”) with the Company. The New DB SERP is a defined benefit plan that, together with the Amended SERP and the single year of DC Plan participation in 2015, is designed to address the impact of the Pension Plan Freeze. Because the New DB SERP is intended to replace the Pension Plan accruals that were lost when the Pension Plan was frozen, the New DB SERP provisions mirror those in the Pension Plan, which are described in the 2016 Proxy Statement under “Executive Compensation – Retirement Plans.”
New DC SERP
On November 9, 2016, the Company entered into a new Defined Contribution Supplemental Executive Retirement Agreement (the “New DC SERP”) with Messrs. Gruber and Hartz, who are continuing their participation in the DC Plan. The New DC SERP is intended to provide a non-qualified deferred compensation plan to receive Company contributions that cannot be made to the DC Plan due to applicable federal income tax rules which limit the total contributions which can be deferred in a qualified plan in a given plan year. Such contributions will be accumulated in an unfunded, interest-bearing deferred compensation account (the “DC SERP Account”). Messrs. Gruber and Hartz may elect to receive the New DC SERP balance at retirement in one payment or in five or 10 annual payments. Upon the Executive’s death, the balance of the DC SERP Account will be payable as a lump sum to his beneficiary.
The foregoing description of each of the Amended SERPs, the New DB Plan, and the New DC Plan, is qualified in its entirety by reference to the full text of the Amended SERPs, and the forms of the New DB Plan and the New DC Plan, which are filed as Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 10.9 and 10.10 to this quarterly report on Form 10-Q, and incorporated herein by this reference.
Item 6. | Exhibits |
The information called for by this item is incorporated by reference to the Exhibit Index included in this Quarterly Report on Form 10-Q, immediately following the signature page.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: | November 09, 2016 |
TOMPKINS FINANCIAL CORPORATION
By: | /S/ Stephen S. Romaine | |
Stephen S. Romaine | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) |
By: | /S/ Francis M. Fetsko | |
Francis M. Fetsko | ||
Executive Vice President, Chief Financial Officer, and Chief Operating Officer | ||
(Principal Financial Officer) | ||
(Principal Accounting Officer) |
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*Indicates a management contract or compensatory plan or arrangement | |||
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Tompkins Financial Corporation 10-Q
Exhibit 10.1
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Supplemental Executive Retirement Agreement (the “ Agreement ”) is entered into effective November 9, 2016 by Tompkins Financial Corporation, with offices at 110 The Commons, Ithaca, New York 14851, and ___________________________, residing at ___________________________________ (the “ Executive ”).
PREAMBLE
The principal objective of this Agreement is to provide a supplemental retirement benefit due to the freezing of the Tompkins Financial Corporation Retirement Plan (“ Retirement Plan ”) for those executives who affirmatively waive participation in the 2015 Tompkins Financial Corporation 2015 Defined Contribution Plan (the “ Defined Contribution Plan ”). The Executive expressly acknowledges that his execution of this Agreement constitutes good and valuable consideration for waiving participation under the Defined Contribution Plan.
SECTION 1.
DEFINITIONS
1.1 “ Board of Directors ” means the Board of Directors of Tompkins Financial Corporation.
1.2 “ Committee ” means the Compensation Committee of the Board of Directors, which has been given authority by the Board of Directors to administer this Agreement.
1.3 “ Company ” means Tompkins Financial Corporation.
1.4 “ Determination Date ” means the first payment date of the benefit under this Agreement.
1.5 “ Retirement Benefit Freeze ” has the meaning set forth in Section 2.1.
1.6 “ Separation from Service ” means the Executive’s termination of active employment, whether voluntary or involuntary, other than by death or leave of absence with the Company or affiliate(s), within the meaning of Section 409A(a)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (“ Code ”), and the treasury regulations thereto, as they may be amended from time to time.
1.7 “ Surviving Spouse ” means the spouse of the Executive, if any, named at or prior to his Separation from Service on his ‘Form of Benefit and Beneficiary Designation Form’, surviving on the date of death of the Executive; provided, however, that if the Executive, as of the date of Executive’s death, is no longer married to the person so designated, then such person is not a Surviving Spouse for purposes of this Agreement.
The masculine gender, where appearing in this Agreement, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. For purposes of complying with Section 409A of the Code, it is acknowledged that no benefit payments may be made under this Agreement prior to the Executive’s termination of employment with the Company, that the payment of benefits pursuant to this Agreement may not be accelerated by the Company or the Executive, and that there are no elections provided under the Agreement to defer compensation or to delay a payment of benefits.
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SECTION 2.
ELIGIBILITY FOR BENEFITS
2.1 Eligibility . The Board of Directors may determine, in its sole discretion, that the Executive should cease to continue accruing retirement benefits under this Agreement (a “ Retirement Benefit Freeze ”) and in such event the Board of Directors shall notify the Executive in writing of such determination. Such determination shall not reduce the then accrued retirement benefit of the Executive under this Agreement, as follows.
SECTION 3.
AMOUNT AND FORM OF RETIREMENT BENEFIT
3.1 Retirement Benefit . The monthly retirement benefit amount payable by the Company under this Agreement shall equal (a) the hypothetical monthly benefit, in the form of benefit elected under this Agreement, payable on the Determination Date under the Retirement Plan as if it had not been frozen effective July 31, 2015, less (b) the monthly Retirement Plan benefit, in the form of benefit elected under this Agreement, payable as of the Determination Date and less (c) the monthly annuity derived from the 2015 plan year contribution to the Defined Contribution Plan payable on the Determination Date, using generally accepted actuarial principles based on the elected form of benefit under this Agreement, and assuming no investment return on the 2015 contribution.
The monthly benefit payable hereunder shall be paid, pursuant to the Executive’s election, from among the forms of benefit available under the Retirement Plan upon the later of age 55 and a Separation from Service. The Executive’s election shall be made in writing upon execution of this Plan document. In the event that the Executive has elected a joint and survivor form of benefit under this Agreement and there is no spouse on the Determination Date, the elected form of benefit shall be payable in a single life annuity. If the form of benefit payable provides for a monthly annuity payment, such monthly benefit shall be payable by the Company on the first day of each calendar month beginning with the first day of the calendar month following the Executive’s Separation from Service through and including the month of the Executive’s death. Any lump sum payment shall be payable within ninety (90) days following the Executive’s Separation from Service. In the event the Executive is determined to be a “specified employee” as such term is defined in Treasury Regulations §1.409A-1(i), then any monthly benefit otherwise payable on or before the date which is six (6) months after the Executive’s termination of employment date shall be delayed until the earlier of the Executive’s date of death or the date which is six (6) months after the Executive’s termination of employment date; provided, however, that such delay is only required for benefits constituting nonqualified deferred compensation under Code Section 409A, and the delay will apply only to those benefits that are not exempt from Code Section 409A. Any such delayed payments shall be accumulated and paid in a lump sum and payments thereafter will be made as scheduled in accordance with this Section 3.1.
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3.2 Death Benefit .
(a) Upon the death of the Executive prior to a Separation from Service, the Executive’s Surviving Spouse, if any, shall be entitled to a monthly death benefit amount payable by the Company under this Agreement equal to (a) the hypothetical monthly death benefit payable to the Surviving Spouse on the Determination Date under the Retirement Plan as if it had not been frozen effective July 31, 2015, less (b) the monthly death benefit payable to the Surviving Spouse as of the Determination Date and less (c) the monthly life annuity, based on the life of the Surviving Spouse, derived from the 2015 plan year contribution to the Defined Contribution Plan payable on the Determination Date, using generally accepted actuarial principles and assuming no investment return on the 2015 contribution.
(b) Upon the death of an Executive on or after Separation from Service the benefit payable to the beneficiary shall be based on the form of elected benefit under this Agreement.
SECTION 4.
MISCELLANEOUS
4.1 Termination and Amendment . The Committee may, in its sole discretion suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, however, that no suspension or amendment of this Agreement will, without the written consent of the Executive or the Surviving Spouse (if the Executive is not then living), reduce the Executive’s right or the right of the Surviving Spouse to receive or continue receiving a benefit accrued at the time of the suspension or amendment in accordance with this Agreement. The Parties agree that a Retirement Benefit Freeze, as described in Section 2.1, shall not be deemed a reduction of rights requiring consent hereunder. A suspension of this Agreement shall not result in the acceleration of any benefit provided pursuant to this Agreement except as permitted in connection with a plan termination satisfying the conditions set forth in Treasury Regulations §1.409A-3(j)(ix), where the Committee decides to accelerate such benefit in accordance with the requirements of such regulation.
4.2 No Employment Agreement . Nothing contained herein will confer upon the Executive the right to be retained in the service of the Company or its subsidiaries, nor will it interfere with the right of the Company or its subsidiaries to discharge or otherwise deal with the Executive without regard to the existence of this Agreement.
4.3 Unfunded Arrangement . The benefits under this Agreement are unfunded, and the Company will make benefit payments solely on a current disbursement basis from the Company’s general assets. Notwithstanding anything herein to the contrary, the Executive, and the Executive’s Surviving Spouse, if any, shall have the status of general unsecured creditors of the Company.
4.4 Assignment . To the maximum extent permitted by law, no benefit under this Agreement shall be assignable or made subject by Executive in any manner to alienation, sale, transfer, claims of Executor’s creditors, pledge, attachment or encumbrances of any kind.
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4.5 Rules . The Committee may adopt rules and regulations to assist it in the administration of this Agreement. This Agreement shall be administered and construed entirely in the discretion of the Committee and the Board of Directors, as applicable.
4.6 Information . The Executive shall receive a copy of this Agreement and the Committee will make available for inspection by the Executive a copy of any rules and regulations used by the Committee in administering this Agreement.
4.7 Controlling Law . This Agreement is established under and will be construed according to the laws of the State of New York, without regard for principles of conflicts of law. Notwithstanding the foregoing, this Agreement shall be construed consistent with the requirements of Code §409A, the regulations promulgated thereunder and other official guidance relating thereto such that the operation or terms of this Agreement do not result in the inclusion in income of any amount under such Code provision. For purposes of this Agreement, any term hereunder relating to the Executive’s termination of employment, the Executive terminating employment, the Executive being terminated or similar expression shall be deemed to refer to a separation from service, as defined in Treasury Regulations §1.409A-1(h). If an amount is to be paid under this Agreement in two or more installments, each installment shall be treated as a separate payment for purposes of Code Section 409A.
4.8 Legal Expenses . The Company shall pay, upon request and documentation thereof (and not later than ninety (90) days after receipt of such request and documentation), all reasonable legal fees and expenses which the Executive/Surviving Spouse may incur as a result of the Company contesting the validity or enforceability of any provision of this Agreement or any claim by the Executive/Surviving Spouse under this Agreement; provided, however, that such request is made and supporting documentation provided to the Company by the Executive/Surviving Spouse within ninety (90) days after incurring the expense, and provided further, the Company shall be entitled to be reimbursed by the Executive for such amount previously paid to such Executive if it is finally judicially determined that such Executive’s claims under this Agreement are frivolous.
4.9 Waiver of DC Plan Participation . The undersigned executive affirmatively and irrevocably waives all future participation in the Defined Contribution Plan (as the same may be amended, supplemented, restated or replaced from time to time, and including any successor plan(s) thereto), including without limitation participation during all of fiscal 2016. Executive expressly acknowledges and agrees that his execution of this Agreement constitutes good and valuable consideration for waiving participation under the Defined Contribution Plan as set forth above, and that his receipt of this Agreement is expressly conditioned upon such waiver.
[Signature Page Immediately Follows.]
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IN WITNESS WHEREOF, this Agreement has been executed this 9 th day of November, 2016.
TOMPKINS FINANCIAL CORPORATION |
ATTEST: | By: | ||||
Name: | |||||
Title: | |||||
ATTEST: | |||||
(Executive) | |||||
Name: |
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SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
Form of Benefit and Beneficiary Designation Form
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby elect the following form of benefit payment for retirement benefits due pursuant to this Agreement. (Please initial your selection.)
_____ | Single Life Annuity (100% benefit payable for my lifetime). |
_____ | 50% Joint & Survivor Benefit (Actuarially reduced benefit, payable for the lifetime of the Executive and a benefit equal to 50% of that benefit to a Surviving Spouse for her lifetime). |
_____ | 75% Joint & Survivor Benefit (Actuarially reduced benefit, payable for the lifetime of the Executive and a benefit equal to 75% of that benefit to a Surviving Spouse for her lifetime). |
_____ | 100% Joint & Survivor Benefit (Actuarially reduced benefit, payable for the lifetime of the Executive and a benefit equal to 100% of that benefit to a Surviving Spouse for her lifetime). |
_____ | Single Life Annuity with the first five years of payment guaranteed. |
_____ | Lump Sum. |
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby designate the following beneficiary to receive my death benefits due under the Agreement. [If you have elected any of the Joint & Survivor Benefits above, the below-named beneficiary may only be your spouse.] I understand that my spouse must sign this form if I choose the Single Life Annuity, Single Life Annuity with the first five years of payment guaranteed or Lump Sum. If I have elected Single Life Annuity with the first five years of payment guaranteed or Lump Sum, then in the event that the following beneficiary predeceases me, I hereby designate the person(s) listed as my contingent beneficiary(ies) under the Company’s Investment & Stock Ownership Plan to receive my death benefits due under the Agreement.
Beneficiary Name: _________________________________________________________________________________
Relationship to Executive: ___________________________________________________________________________
Social Security Number: _____________________________________________________________________________
Date of Birth: _____________________________________________________________________________________
Home Address: ___________________________________________________________________________________
Executive’s Signature: ______________________________________________________________________________
Witness’ Signature:________________________________________________________________________________
Spouse’s Signature (if waiving right to benefits):__________________________________________________________
Date: ___________________________________________________________________________________________
Witness’ Signature:________________________________________________________________________________
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Tompkins Financial Corporation 10-Q
Exhibit 10.2
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Supplemental Executive Retirement Agreement (the “ Agreement ”) is entered into effective November 9, 2016, by Tompkins Financial Corporation, with offices at 110 The Commons, Ithaca, New York 14851, and ___________________________, residing at ___________________________________ (the “ Executive ”).
PREAMBLE
The principal objective of this Agreement is to provide a supplemental retirement benefit due to the freezing of the Tompkins Financial Corporation Retirement Plan (“Retirement Plan”) for those executives who elect to participate in the 2015 Tompkins Financial Corporation Defined Contribution Plan (the “Defined Contribution Plan”).
SECTION 1.
DEFINITIONS
1.1 “ Board of Directors ” means the Board of Directors of Tompkins Financial Corporation.
1.2 “ Committee ” means the Compensation Committee of the Board of Directors, which has been given authority by the Board of Directors to administer this Agreement.
1.3 “ Company ” means Tompkins Financial Corporation.
1.4 “ Deferred Compensation Account ” or the “ Account ” means an account maintained under this Agreement on and after January 1, 2016.
1.5 “ Retirement Benefit Freeze ” has the meaning set forth in Section 2.1.
1.6 “ Separation from Service ” means the Executive’s termination of active employment, whether voluntary or involuntary, other than by death or leave of absence with the Company or affiliate(s), within the meaning of Section 409A(a)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (“ Code ”), and the treasury regulations thereto, as they may be amended from time to time.
1.7 “ Surviving Spouse ” means the spouse of the Executive, if any, named at or prior to his Separation from Service on his ‘Form of Benefit and Beneficiary Designation Form’, surviving on the date of death of the Executive; provided, however, that if the Executive, as of the date of Executive’s death, is no longer married to the person so designated, then such person is not a Surviving Spouse for purposes of this Agreement.
The masculine gender, where appearing in this Agreement, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. For purposes of complying with Section 409A of the Code, it is acknowledged that no benefit payments may be made under this Agreement prior to the Executive’s termination of employment with the Company, that the payment of benefits pursuant to this Agreement may not be accelerated by the Company or the Executive, and that there are no elections provided under the Agreement to defer compensation or to delay a payment of benefits.
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SECTION 2.
ELIGIBILITY FOR BENEFITS
2.1 Eligibility . The following Executives are eligible to participate in this Agreement: Alyssa H. Fontaine, Scott Gruber, Gregory Hartz, Gerald Klein, Jr., and John M. McKenna. The Board of Directors may determine, in its sole discretion, that the Executive should cease to continue accruing retirement benefits under this Agreement (a “ Retirement Benefit Freeze ”) and in such event the Board of Directors shall notify the Executive in writing of such determination. Such determination shall not reduce the then accrued retirement benefit of the Executive under this Agreement, as follows. The Executive will remain entitled to receive, in accordance with Section 3.1, the balance of his Deferred Compensation Account , determined as of the date of the Retirement Benefit Freeze, which shall continue to be credited with the addition of interest until the date the balance of his Deferred Compensation Account has been completely distributed.
SECTION 3.
AMOUNT AND FORM OF RETIREMENT BENEFIT
3.1 Retirement Benefit . The annual contribution under this Agreement equals the amount of any contributions otherwise allocable to the Defined Contribution Plan which would exceed the limitation under Code section 415(c)(1)(A) for any plan year and shall be allocated to the Deferred Compensation Account.
The Deferred Compensation Account will be credited with the addition of interest, to be accrued during each quarter and to be credited to such Deferred Compensation Account on the first business day following the end of such quarter on the basis of the day weighted average balance in such Account during each quarter, at a rate equal to the higher of either (a) the highest yield on any U.S. Government Treasury Constant Maturity on the first business day of the calendar year in which the interest is accrued, as reported in the Federal Reserve Statistical Release, or if such source is not available, such other comparable source as is available (the “Guaranteed Rate”), or, (b) the Prime Rate as published in The Wall Street Journal on the first business day of the calendar year in which the interest is accrued.
The balance of the Deferred Compensation Account shall be the aggregate fair market value of the assets allocated to and held in the Account. Upon the Separation from Service of Executive for any reason, Company will pay to Executive, in the form hereinafter provided, his Deferred Compensation Account. The Deferred Compensation Account shall be paid, pursuant to the Executive’s election, in a lump sum or in annual installments over a period of five (5) or ten (10) years. The Executive’s election shall be made in writing upon execution of this Plan document. In the absence of an election by the Executive at the time of execution of this Plan document, payment of the Deferred Compensation Account shall be in a lump sum. Payment of the Deferred Compensation Account will commence within ninety (90) days following the Executive’s Separation from Service. During the period that installment payments are made (if any), the Executive’s Deferred Compensation account shall be credited with interest. Installment payments (if applicable) made after the first payment shall be paid on or about the applicable modal anniversary of the first payment date until all required installments have been paid. The amount of each payment shall be determined by dividing the value of the Deferred Compensation Account immediately prior to such payment by the number of payments remaining to be paid. The final installment payment shall be equal to the balance of the Deferred Compensation Account, calculated as of the applicable modal anniversary. Notwithstanding the above, in the event the Executive is determined to be a specified employee” as such term is defined in Treasury Regulations §1.409A-1(i), then any monthly benefit otherwise payable on or before the date which is six (6) months after the Executive’s termination of employment date shall be delayed until the earlier of the Executive’s date of death or the date which is six (6) months after the Executive’s termination of employment date; provided, however, that such delay is only required for benefits constituting nonqualified deferred compensation under Code Section 409A, and the delay will apply only to those benefits that are not exempt from Code Section 409A. Any such delayed payments shall be accumulated and paid in a lump sum and payments thereafter will be made as scheduled in accordance with this Section 3.1.
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3.2 Death Benefit . Upon the death of the Executive , the Executive’s beneficiary shall be paid the remaining value of the Deferred Compensation Account in one single lump sum, even if the Executive had previously elected a different to receive payment in the form of annual installments.
SECTION 4.
MISCELLANEOUS
4.1 Termination and Amendment . The Committee may, in its sole discretion suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, however, that no suspension or amendment of this Agreement will, without the written consent of the Executive or the Surviving Spouse (if the Executive is not then living), reduce the Executive’s right or the right of the Surviving Spouse to receive or continue receiving a benefit accrued at the time of the suspension or amendment in accordance with this Agreement. The Parties agree that a Retirement Benefit Freeze, as described in Section 2.1, shall not be deemed a reduction of rights requiring consent hereunder. A suspension of this Agreement shall not result in the acceleration of any benefit provided pursuant to this Agreement except as permitted in connection with a plan termination satisfying the conditions set forth in Treasury Regulations §1.409A-3(j)(ix), where the Committee decides to accelerate such benefit in accordance with the requirements of such regulation.
4.2 No Employment Agreement . Nothing contained herein will confer upon the Executive the right to be retained in the service of the Company or its subsidiaries, nor will it interfere with the right of the Company or its subsidiaries to discharge or otherwise deal with the Executive without regard to the existence of this Agreement.
4.3 Unfunded Arrangement . The benefits under this Agreement are unfunded, and the Company will make benefit payments solely on a current disbursement basis from the Company’s general assets. Notwithstanding anything herein to the contrary, the Executive, and the Executive’s Surviving Spouse, if any, shall have the status of general unsecured creditors of the Company.
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4.4 Assignment . To the maximum extent permitted by law, no benefit under this Agreement shall be assignable or made subject by Executive in any manner to alienation, sale, transfer, claims of Executor’s creditors, pledge, attachment or encumbrances of any kind.
4.5 Rules . The Committee may adopt rules and regulations to assist it in the administration of this Agreement. This Agreement shall be administered and construed entirely in the discretion of the Committee and the Board of Directors, as applicable.
4.6 Information . The Executive shall receive a copy of this Agreement and the Committee will make available for inspection by the Executive a copy of any rules and regulations used by the Committee in administering this Agreement.
4.7 Controlling Law . This Agreement is established under and will be construed according to the laws of the State of New York, without regard for principles of conflicts of law. Notwithstanding the foregoing, this Agreement shall be construed consistent with the requirements of Code §409A, the regulations promulgated thereunder and other official guidance relating thereto such that the operation or terms of this Agreement do not result in the inclusion in income of any amount under such Code provision. For purposes of this Agreement, any term hereunder relating to the Executive’s termination of employment, the Executive terminating employment, the Executive being terminated or similar expression shall be deemed to refer to a separation from service, as defined in Treasury Regulations §1.409A-1(h). If an amount is to be paid under this Agreement in two or more installments, each installment shall be treated as a separate payment for purposes of Code Section 409A.
4.8 Legal Expenses . The Company shall pay, upon request and documentation thereof (and not later than ninety (90) days after receipt of such request and documentation), all reasonable legal fees and expenses which the Executive/Surviving Spouse may incur as a result of the Company contesting the validity or enforceability of any provision of this Agreement or any claim by the Executive/Surviving Spouse under this Agreement; provided, however, that such request is made and supporting documentation provided to the Company by the Executive/Surviving Spouse within ninety (90) days after incurring the expense, and provided further, the Company shall be entitled to be reimbursed by the Executive for such amount previously paid to such Executive if it is finally judicially determined that such Executive’s claims under this Agreement are frivolous.
IN WITNESS WHEREOF, this Agreement has been executed this 9 th day of November, 2016.
TOMPKINS FINANCIAL CORPORATION |
ATTEST: | By: | |||
Name: Stephen S. Romaine | ||||
Title: President & Chief Executive Officer | ||||
ATTEST: | ||||
(Executive) | ||||
Name: |
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SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
Form of Benefit and Beneficiary Designation Form
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby elect the following form of benefit payment for retirement benefits due pursuant to this Agreement. (Please initial your selection.)
_____ | Annual Installments over a 5 year period |
_____ | Annual Installments over a 10 year period |
_____ | Lump Sum |
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby designate the following beneficiary to receive my death benefits due under the Agreement. In the event that the following beneficiary predeceases me, I hereby designate the person(s) listed as my contingent beneficiary(ies) under the Company’s Investment & Stock Ownership Plan to receive my death benefits due under the Agreement.
Beneficiary Name:______________________________________________________________________________________
Relationship to Executive:________________________________________________________________________________
Social Security Number:__________________________________________________________________________________
Date of Birth:__________________________________________________________________________________________
Home Address:________________________________________________________________________________________
Executive’s Signature:___________________________________________________________________________________
Witness’ Signature:_____________________________________________________________________________________
Spouse’s Signature (if waiving right to benefits under this Agreement):______________________________________________
Date: ________________________________________________________________________________________________
Witness’ Signature: _____________________________________________________________________________________
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Tompkins Financial Corporation 10-Q
Exhibit 10.3
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Amended and Restated Supplemental Executive Retirement Agreement (the “Agreement”) is entered into effective November 9, 2016 by Tompkins Financial Corporation, with offices at 110 The Commons, Ithaca, New York 14851, and Stephen S. Romaine, residing at _________________________ (the “Executive”).
PREAMBLE
The Executive and Tompkins Financial Corporation previously entered into a Supplemental Executive Retirement Agreement, dated on or about January 1, 2004 (the “ Original Agreement ”), and Section 8.1 hereof sets forth the only provision of the Original Agreement which is incorporated into this Agreement. For good and valuable consideration, including without limitation (i) continued active participation and other benefits under this Agreement, (ii) an additional Supplemental Executive Retirement Agreement, also dated on or about the date hereof, and (iii) the grant of an equity award on or about the date hereof, which equity award is expressly conditioned upon Executive’s execution and delivery of this Agreement, the receipt and sufficiency of which is acknowledged, the parties now desire to clarify, amend and restate the Original Agreement as set forth herein. The principal objective of this Agreement and the Original Agreement is and was to ensure the payment of competitive levels of retirement income to the Executive, who has been determined to be a key executive of Tompkins Financial Corporation and its subsidiaries, in order to retain and motivate such Executive.
SECTION I. DEFINITIONS
1.1. | “ Board of Directors ” means the Board of Directors of Tompkins Financial Corporation. |
1.2. | “ Cause ” has the meaning set forth in Section 2.3. |
1.3. | “ Code ” means the Internal Revenue Code of 1986, as amended. |
1.4. | “ Competition with the Company ” has the meaning set forth in Section 2.3. |
1.5. | “ Committee ” means the Compensation Committee of the Board of Directors, which has been given authority by the Board of Directors to administer this Agreement. |
1.6. | “ Company ” means Tompkins Financial Corporation. |
1.7. | “ Compensation ” has the meaning set forth in Section 7.1(b). |
1.8. | “ Disabled ” means that by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, the Executive is unable to engage in any substantial gainful activity. |
1.9. | “ Early Retirement Reduction ” has the meaning set forth in Section 3.1. |
1.10. | “ Earnings ” means the average of the Executive’s five (5) highest calendar years (or such lesser number if the Executive has not completed five (5) years of service for the purpose of determining Earnings) of base pay, which shall mean the Executive’s base salary excluding bonuses, profit sharing, and the like, and which may include base pay in years prior to the Executive’s commencement of participation under this Agreement if so determined by the Board of Directors. |
1.11. | “ Excise Tax ” has the meaning set forth in Section 7.1(c). |
1.12. | “ Good Reason ” exists in the event of (i) a material diminution in the Executive’s base compensation, authority, duties or responsibilities; (ii) a material change in the geographic location at which the Executive is required to perform the duties of the Executive’s position; or (iii) a material breach of this Agreement by the Company or its successor, or of any other agreement pursuant to which the Executive provides services for the Company or its successor, provided the Executive gives written notice to the Company or its successor, as applicable, within ninety (90) days of the initial existence of the condition described in (i), (ii) or (iii), above, and the Company or its successor fails to remedy such condition within thirty (30) days after receipt of such notice. |
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1.13. | “ Release ” has the meaning set forth in Section 8.11. |
1.14. | “ Release Date ” has the meaning set forth in Section 8.11. |
1.15. | “ Retirement Age ” has the meaning set forth in Section 2.2. |
1.16. | “ Retirement Benefit Freeze ” has the meaning set forth in Section 2.1. |
1.17. | “ Retirement Date ” has the meaning set forth in Section 2.2. |
1.18. | “ Surviving Spouse ” means the spouse of the Executive, if any, designated at or prior to his Retirement Date on his ‘Beneficiary Designation Form’, surviving on the date of death of the Executive; provided, however, that if the Executive, as of the date of Executive’s death, is no longer married to the person so designated, then such person is not a Surviving Spouse for purposes of this Agreement. |
1.19. | “ Vested ” means having completed at least (ten) 10 years of service beginning on the date set forth in Section 3.3. |
1.20. | “ Years of Service Reduction ” has the meaning set forth in Section 3.1. |
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SECTION II. ELIGIBILITY FOR BENEFITS
2.1 Eligibility . The Executive is eligible to participate in this Agreement by designation of the Board of Directors, in its sole discretion. The Board of Directors may determine, in its sole discretion, that the Executive should cease to continue accruing retirement benefits under this Agreement (a “ Retirement Benefit Freeze ”) and in such event the Board of Directors shall notify the Executive in writing of such determination. Such determination shall not reduce the then accrued retirement benefit of the Executive under this Agreement, as follows. The Executive will remain entitled to receive his retirement benefit in accordance with Section 3.1 (and Executive will be deemed Vested), except that the Years of Service Reduction shall be calculated utilizing the years of service completed by Executive as of the Retirement Benefit Freeze date, and Earnings shall be calculated as of the Retirement Benefit Freeze date. A Retirement Benefit Freeze will not impair Executive’s rights under Section 7 (Change in Control) and Section 9 (Severance), except as expressly set forth herein.
2.2 Retirement Date . The Executive is eligible to retire under this Agreement and receive a benefit under Section 3.1 beginning on his “Retirement Date” which is the later of: (a) the first day of the month following the month in which the Executive becomes Vested and reaches age fifty-five (55) (which age is referred to as the “ Retirement Age ” herein), or (b) the first day of the month following the month in which the Executive terminates employment with the Company, so long as he is Vested on such date.
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2.3 Termination; Competition . Anything herein to the contrary notwithstanding, if within two (2) years after involuntary termination (including resignation with Good Reason), the Executive engages in Competition with the Company (without prior authorization given by the Committee in writing), or, if the Executive is discharged by the Company or its subsidiaries for Cause, payments otherwise payable under this Agreement to the Executive or the Executive’s Surviving Spouse will, in the sole discretion of the Committee, be forfeited and the Company will have no further obligation under this Agreement to the Executive or the Executive’s Surviving Spouse. Anything herein to the contrary notwithstanding, no benefits are payable under this Agreement if the Executive engages in Competition with the Company at any time before, during or after his voluntary resignation (except in the case of Competition with the Company that begins more than two (2) years after a resignation with Good Reason). For purposes of this Agreement, the term “Cause” shall mean (a) the conviction of the Executive by a court of competent jurisdiction of a crime which constitutes a felony under any state or federal law, (b) an act by the Executive which in the reasonable opinion of the Board of Directors constitutes an intentional theft of property of the Company or its subsidiaries, (c) the willful and continued failure or refusal of the Executive to perform his duties, or (d) gross negligence or willful misconduct on the part of the Executive that is materially and demonstrably detrimental to the Company or its subsidiaries (as determined by the Board of Directors in its reasonable discretion). For purposes of this Section 2.3, “Competition with the Company” shall occur if the Executive, directly or indirectly, (a) comes to own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any other manner with, any business (but which shall exclude executive’s ownership of less than 1% of any class of equity or debt security of a publicly-traded competing business) which, in the judgment of the Board of Directors, is in substantial competition with the Company (unless the Executive has first obtained the Board’s prior written consent) and which is located within, or is actively directing marketing efforts within, ten (10) miles of any location of the Company or any of its subsidiaries, (b) solicits customers of the Company or any of its subsidiaries to reduce or stop doing business with the Company or any of its subsidiaries, or initiates any customer contact, for any reason, except for social contact with customers with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of business or business opportunities, or (c) solicits employees of the Company or any of its subsidiaries to leave such employment, or offers employment to employees of the Company or any of its subsidiaries, or initiates any employee contact, for any reason, except for social contact with employees with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of such employee’s services.
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SECTION III. AMOUNT AND FORM OF RETIREMENT BENEFIT
3.1 Retirement Benefit . The annual retirement benefit amount payable by the Company under this Agreement shall equal seventy-five percent (75%) of the Executive’s Earnings less (a) the hypothetical value of the annual amount of a single life annuity for the life of the Executive determined as if the accrual of benefits under the Tompkins Financial Corporation Retirement Plan had not been frozen, based upon the Executive’s relevant age, service, and compensation as in effect at the time such determination of value is made, and using the benefit formula in the Tompkins Financial Corporation Retirement Plan as of the date the accrual of further benefits under the Tompkins Financial Corporation Retirement Plan was frozen, and (b) the annual amount of the Executive’s Social Security benefits (with the amounts in subsections (a) and (b) based upon the Committee’s good faith estimate of the amounts of such benefits); provided, however, that the annual retirement benefit shall be reduced by five percent (5%) for each year that the Executive’s years of service under this Agreement are less than twenty (20) years (the “ Years of Service Reduction ”). The monthly retirement benefit payable by the Company to the Executive shall equal one-twelfth (1/12) of such annual retirement benefit. In the event the Executive’s Retirement Date under Section 2.2 occurs prior to the Executive attaining the age of sixty-five (65), the annual retirement benefit otherwise determined hereunder shall be further reduced by five percent (5%) for each year of age by which the Executive’s attained age at his Retirement Date is less than sixty-five (65) years (the “ Early Retirement Reduction ”). For clarity, when this Agreement states that an Executive is “deemed Vested,” such does not alter the Years of Service Reduction or the Early Retirement Reduction, and is only intended to confirm that the Executive is eligible for the benefit hereunder. |
The monthly benefit payable as a single life annuity shall be payable by the Company on the first day of each calendar month beginning with the Executive’s Retirement Date through and including the month of the Executive’s death. In the event the Executive is determined to be a “specified employee”, as such term is defined in Treasury Regulations §1.409A-1(i), then any monthly benefit otherwise payable on or before the date which is six (6) months after the Executive’s termination of employment date shall be delayed until the earlier of the Executive’s date of death or the date which is six (6) months after the Executive’s termination of employment date; provided, however, that such delay is only required for benefits constituting nonqualified deferred compensation under Code Section 409A, and the delay will apply only to those benefits that are not exempt from Code Section 409A. Any such delayed payments shall be accumulated and paid in a lump sum and payments thereafter will be made as scheduled in accordance with this Section 3.1.
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3.2 Death Benefit .
(a) Upon the death of the Executive after the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to an annual retirement benefit payable by the Company under this Agreement equal to fifty percent (50%) of the annual retirement benefit which the Executive had been receiving. The monthly retirement benefit payable by the Company to the Surviving Spouse shall be one-twelfth (1/12) of such annual retirement benefit and shall be payable on the first day of each month beginning with the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death.
(b) Upon the death of the Executive prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to an annual retirement benefit payable by the Company under this Agreement equal to fifty percent (50%) of the annual retirement benefit, determined under Section 3.1, provided that all of the following conditions are satisfied: (A) the annual retirement benefit shall be payable only if the Executive is Vested at the time of his death, as defined in Section I; and, (B) the Surviving Spouse survives until the date upon which the Executive would have attained his Retirement Age if the Executive’s death occurs prior to his Retirement Date. The monthly retirement benefit payable by the Company, if any, under this subsection to the Surviving Spouse shall equal one-twelfth (1/12) of said annual retirement benefit for the Surviving Spouse and shall be payable on the first day of each month commencing on the later of the Executive’s Retirement Age or the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death. The date utilized for the Years of Service Reduction shall be the date of the Executive’s death (or the date of the Executive’s termination of employment, if earlier), and the age utilized for the Early Retirement Reduction shall be the greater of (1) the Executive’s actual age at the time of his death (or the date of the Executive’s termination of employment, if earlier), and (2) the Retirement Age.
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(c) Upon the death of the Executive with no Surviving Spouse, or, if in the event of the Executive’s death prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse shall not survive the Executive until the date upon which the Executive would have attained the Retirement Age, there shall be no benefit payment under Section 3 to the Executive, the Executive’s Surviving Spouse, the estate of either the Executive or the Surviving Spouse, or otherwise.
3.3 Service . For purposes of this Agreement, the Executive’s service shall be defined as commencing on March 7, 1994 and ending on the date the Executive’s employment with Company or its subsidiaries is terminated, or such earlier date as shall be determined by the Board of Directors if the Board of Directors shall determine pursuant to Section 2.1 hereof that the Executive should cease to benefit under this Agreement (provided, however, that no such determination shall reduce the then-accrued benefit of the Executive under this Agreement). Years of service shall be determined in years and months of service with credit provided for a full month of service for the calendar month in which the Executive’s service commences as set forth above and the calendar month in which the Executive’s service hereunder ceases.
SECTION IV. PAYMENT OF RETIREMENT BENEFITS
4.1 Limitation on Payments . Sections 2.3, 3.2, 4.2, 8.11 and 8.13 set forth the circumstances under which all further benefits payable under this Agreement (even if Vested) are forfeited.
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4.2 Termination . Notwithstanding any contrary provision herein, if the Executive terminates employment voluntarily (which shall not include resignation with Good Reason) before attaining age fifty-five (55) and becoming Vested, the Company shall have no obligation to pay, and the Executive shall have no right to receive, any retirement benefit under this Agreement whatsoever. In the event of the Executive’s involuntary termination of employment (other than for Cause) or resignation with Good Reason at any time, the benefit payable to the Executive shall be determined as set forth in Section 3.1, and payments shall commence on the Executive’s Retirement Date (and the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction). For purposes of this provision, the date utilized for the Years of Service Reduction shall be the date of the Executive’s termination, and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date. In the event of the Executive’s death prior to the commencement of benefit payments under this provision, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
4.3 Health-Related Leave of Absence . Provided there is a reasonable expectation that the Executive will return to perform services for the Company (an “ Expected Return ”), the Committee may determine that the Executive has not separated from service for purposes of this Agreement during a leave of absence of up to twenty-nine (29) months, if such leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, and such impairment causes the Executive to be unable to perform the duties of his position or any substantially similar position (a “ Qualified Impairment ”). For clarity, even if a Qualified Impairment and Expected Return exist, the Committee is not obligated to defer the Employee’s separation from service during this period, and (subject to applicable federal and state law pertaining to medical leaves of absence) the Committee may instead elect to involuntarily terminate the Executive’s employment (other than for Cause) under Section 4.2 during this period. The determination as to the existence or absence of such Qualified Impairment and such Expected Return will be made by an independent physician identified by the Company. If, due to a Qualified Impairment, the Executive cannot return to perform the duties of his position or a substantially similar position for the Company by the end of such period, the Executive will be deemed to have incurred an involuntary termination of employment (other than for Cause) under Section 4.2 as of the first date following the end of such period.
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SECTION V. DEATH BENEFITS PAYABLE
5.1 Death Benefit . Other than the death benefit for the Surviving Spouse under Section 3.2, Section 4.2, or Section 6.2, as applicable, no death benefits are payable under this Agreement.
SECTION VI. DISABILITY BENEFITS PAYABLE
6.1 Disability Benefit . In the event that the Executive becomes Disabled, as determined by an independent physician identified by the Company (other than at a time when facts and circumstances exist under which the Company could, and does, terminate the Executive’s employment for Cause), the Executive shall be entitled to the benefits under Section 3.1 commencing the first day of the month following the month in which the Executive attains Social Security normal retirement age. For purposes of calculating the amount payable under Section 3.1 and pursuant to this Section 6.1, the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction; the date utilized for the Years of Service Reduction shall be the date the Executive is determined to be Disabled; and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date.
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6.2 Death after Disability . In the event of the death of the Executive after Executive qualifies for a retirement benefit pursuant to Section 6.1, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
SECTION VII. CHANGE IN CONTROL
7.1 Change in Control .
(a) In the event of a Change in Control, as defined in Section 7.2, of the Company, the Executive shall be deemed to have completed twenty (20) years of service and is Vested in all benefits under this Agreement (though the Early Retirement Reduction shall still apply), and the retirement benefit described in Section 3.1 shall commence at the Executive’s Retirement Date. The executive shall not be entitled to the accelerated service completion set forth in this subsection following a Retirement Benefit Freeze, unless the effective date of such Retirement Benefit Freeze occurs within the two-year period immediately prior to announcement of the Change in Control and, in such event, the executive shall remain so entitled.
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(b) In the event of a Change in Control of the Company, if the employment of the Executive is thereafter involuntarily terminated without Cause, or if the Executive voluntarily terminates employment for Good Reason (i) within two (2) years after a Change in Control, or (ii) in anticipation of a Change in Control which then occurs within two (2) years, then the Executive shall receive a benefit, in addition to any benefit under Section 3 of this Agreement, under this Section 7.1(b). The benefit under this Section 7.1(b) shall be the continuation of the Executive’s Compensation, as defined below, for a period of three (3) years (payable in accordance with the Company’s or its successor’s regular payroll procedures for executive employees, but in any event not less frequently than monthly), plus continuation of all employee welfare benefits that the Executive was participating in (health insurance, disability insurance, life insurance and the like) immediately prior to the Change in Control (or cash in an amount equal to the value of the Company’s or its successor’s contributions for such welfare benefits to the extent that the Executive is no longer eligible to participate in such programs); provided, however, that, for purposes of this Section 7.1(b), the amount of the Executive’s Compensation taken into account shall be reduced by (20%) if the Executive has attained age sixty-one (61), by 40% if the Executive has attained age sixty-two (62), by 60% if the Executive has attained age sixty-three (63), by 80% if the Executive has attained age sixty-four (64), and by 100% if the Executive has attained age sixty-five (65), with all such age determinations made as of the date of the Executive’s termination of employment. The continuation of the Executive’s employee welfare benefits under this Section 7.1(b) shall be on the same terms and conditions (subject to the aforementioned substitution of cash in lieu of benefit plan participation to the extent the Executive is ineligible therefor) as such employee welfare benefits are offered to other executive employees of the Company or of its successor, as applicable, and such continuation shall be for a three-year period even if there is no continuation payment of the Executive’s Compensation because of the 100% reduction under the preceding sentence. For purposes of this Section VII only, the term “Compensation” shall mean the Executive’s base pay (at the rate in effect immediately prior to the Change in Control) plus the Executive’s bonus and profit sharing compensation (which for this purpose shall be the average of the Executive’s bonus and profit sharing compensation earned for the two (2) most recently completed fiscal years of the Company immediately preceding the Change in Control).
(c) In the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) would be subject to the excise tax imposed by Section 4999 of the Code, including any successor to such statute of like import (the “Excise Tax”), then the amount of the benefit otherwise payable under Section 7.1(b), if any, shall be reduced, but not below zero, to the maximum amount upon which no such Excise Tax is imposed.
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(d) For purposes of this Section 7.1, the proper amounts, if any, of the Excise Tax and the adjustment under Section 7.1(c) to eliminate the Excise Tax shall be determined in the first instance by the Company. Within forty-five (45) days of being provided with written notice of any such determination, the Executive may provide written notice to the Committee of any disagreement, in which event the amounts, if any, of the Excise Tax and any adjustment under Section 7.1(c) shall be determined by independent tax counsel selected by the Company’s independent auditors. The determination of the Company (or, in the event of disagreement, the tax counsel selected) shall be final.
7.2 For purposes of this Section VII, a Change in Control shall be deemed to have occurred upon the earliest of the following: (i) the date of acquisition by any one person, or more than one person acting as a group (as defined in Treasury Regulations §1.409A-3(i)(5)(v)(B)), of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; provided, however, that if any one person, or more than one person acting as a group, is considered to own more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons shall not be deemed to result in a Change in Control; (ii) the date a majority of members of the Company’s Board of Directors is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the date of the appointment or election; or (iii) the date that any one person, or more than one person acting as a group, acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value of more than seventy percent (70%) of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions; provided, however, that transfers of assets of the Company of any value to a related person or entity as described in Treasury Regulations §1.409A-3(i)(5)(vii)(B) shall not be deemed to result in a Change in Control.
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SECTION VIII. MISCELLANEOUS
8.1 Termination, Amendment and Subsequent Deferrals . The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, however, that no termination, suspension or amendment of this Agreement will, without the written consent of the Executive or the Surviving Spouse (if the Executive is not then living), reduce the Executive’s right or the right of the Surviving Spouse to receive or continue receiving a benefit accrued at the time of the termination, suspension or amendment in accordance with this Agreement. By way of clarification it is the intent of the Parties that the benefit under Section IX shall accrue as of the date of the Original Agreement, and the right to receive change in control benefits under Section VII shall also accrue as of the date of the Original Agreement, subject to the limitations set forth in Section 7.1(a). The Parties agree that a Retirement Benefit Freeze, as described in Section 2.1, shall not be deemed a reduction of rights requiring consent hereunder. A termination or suspension of this Agreement shall not result in the acceleration of any benefit provided pursuant to this Agreement except as permitted in connection with a plan termination satisfying the conditions set forth in Treasury Regulations §1.409A-3(j)(ix), where the Committee decides to accelerate such benefit in accordance with the requirements of such regulation. The provisions of this Section 8.1 shall be subordinate to the provisions of Sections 2.3, 3.2, 4.1, 4.2, 8.11 and 8.13 concerning the forfeiture of benefits. The definition of “Retirement Date” in Section 2.2 provides for the designated time of the retirement benefit hereunder, and the Executive may only make a subsequent deferral if the change complies with Treasury Regulations § 1.409A-2(b)(1) (the “Subsequent Deferral Rules”). In the event that an Executive wishes to elect to defer payment commencement beyond his Retirement Date, he must provide written notice thereof to the Company (the “Deferral Notice”) at least one (1) year prior to his Retirement Date, or such longer notice period as may then be required under the Subsequent Deferral Rules. The Deferral Notice shall specify the date on which the Executive wishes to begin receiving his retirement benefit hereunder, and such deferred payment date must be at least five (5) years later than the date the payment otherwise would have been made, or such other period as may then be required under the Subsequent Deferral Rules. Partial deferrals will not be permitted and the Company may refuse to honor the Deferral Notice if, in the reasonable opinion of the Company’s external legal counsel, the Deferral Notice does not comply with the Subsequent Deferral Rules, or is otherwise reasonably likely to adversely affect the Company under the Subsequent Deferral Rules.
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8.2 No Employment Agreement; Entire Agreement . Nothing contained herein will confer upon the Executive the right to be retained in the service of the Company or its subsidiaries, nor will it interfere with the right of the Company or its subsidiaries to discharge or otherwise deal with the Executive without regard to the existence of this Agreement. This Agreement (which expressly includes the Preamble), together with those certain agreements expressly referred to herein, constitute the sole and entire agreement of the Parties with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to the subject matter.
8.3 Unfunded Arrangement . The benefits under this Agreement are unfunded, and the Company will make benefit payments solely on a current disbursement basis from the Company’s general assets. Notwithstanding anything herein to the contrary, the Executive and the Executive’s Surviving Spouse, if any, shall have the status of general unsecured creditors of the Company.
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8.4 Assignment . To the maximum extent permitted by law, no benefit under this Agreement shall be assignable or made subject by Executive in any manner to alienation, sale, transfer, claims of Executive’s creditors, pledge, attachment or encumbrances of any kind.
8.5 Rules . The Committee may adopt rules and regulations to assist it in the administration of this Agreement. This Agreement shall be administered and construed entirely in the discretion of the Committee and the Board of Directors, as applicable.
8.6 Information . The Executive shall receive a copy of this Agreement and the Committee will make available for inspection by the Executive a copy of any rules and regulations used by the Committee in administering this Agreement.
8.7. Construction . The masculine gender, where appearing in this Agreement, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. For purposes of complying with Code Section 409A, or any successor to such statute of like import, it is acknowledged that no benefit payments may be made under this Agreement prior to the Executive’s termination of employment with the Company, that the payment of benefits pursuant to this Agreement may not be accelerated by the Company or the Executive, and that there are no elections provided under the Agreement to defer compensation or to delay a payment of benefits other than in the case of an election made pursuant to the Subsequent Deferral Rules, as described in Section 8.1.
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8.8 Controlling Law . This Agreement is established under and will be construed according to the laws of the State of New York, without regard for principles of conflicts of law. Notwithstanding the foregoing, this Agreement shall be construed consistent with the requirements of Code Section 409A, the regulations promulgated thereunder and other official guidance relating thereto such that the operation or terms of this Agreement do not result in the inclusion in income of any amount under such Code provision. For purposes of this Agreement, any term hereunder relating to the Executive’s termination of employment, the Executive terminating employment, the Executive being terminated or similar expression shall be deemed to refer to a separation from service, as defined in Treasury Regulations §1.409A-1(h). If an amount is to be paid under this Agreement in two or more installments, each installment shall be treated as a separate payment for purposes of Code Section 409A.
8.9 Legal Expenses . The Company shall pay, upon request and documentation thereof (and not later than ninety (90) days after receipt of such request and documentation), all reasonable legal fees and expenses which the Executive/Surviving Spouse may incur as a result of the Company contesting the validity or enforceability of any provision of this Agreement or any claim by the Executive/Surviving Spouse under this Agreement; provided , however , that such request is made and supporting documentation provided to the Company by the Executive/Surviving Spouse within ninety (90) days after incurring the expense, and provided further, the Company shall be entitled to be reimbursed by the Executive/Surviving Spouse for such amount previously paid to such Executive/Surviving Spouse if it is finally judicially determined that such Executive’s/Surviving Spouse’s claims under this Agreement are frivolous.
8.10 Disputes & Severability . In the event of any dispute after the occurrence of a Change in Control (as defined in Section 7.2) between the Company and the Executive with respect to the Executive’s rights to any payment under this Agreement, the Company shall pay all disputed amounts to the Executive in the time and manner otherwise specified by this Agreement, and, if it is finally judicially determined that the Executive was not entitled to all or a portion of such disputed amounts, the Executive shall repay to the Company the amount to which the Executive was not entitled, together with interest thereon at the judgment rate of interest then applicable in New York State. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or provision is invalid, illegal or unenforceable, the court may modify this Agreement to effect the original intent of the parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
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8.11 Release . In connection with Executive’s receipt of the retirement benefit described in Section 3.1 and the severance benefit described in Section IX, the Executive shall execute (and not revoke) a standard, customary form of release agreement (the “Release”), including without limitation the following terms. If Executive is continuously incapacitated through the Release Date, this requirement is waived. The Release must be given no more than ninety (90) days following the Executive’s employment termination, with sufficient time to allow applicable revocation period(s) to expire before the end of such ninety- (90-) day period (the final day of such 90-day period to be the “Release Date”). Pursuant to the Release, the Executive, on behalf of himself and his heirs, shall agree to waive any and all claims he or they have, had, or may have had, in each case as of the date the Executive signs the Release, in connection with his employment by the Company or its affiliates, as against the Company, its affiliates, and its and their directors and employees, other than claims arising out of the Company’s breach of its obligations under this Agreement. The Release will not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. Should the Executive fail to return to the Company the executed Release on or before the Release Date, the Executive will forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.12 Post-Employment Consulting . Following the Executive’s termination, if the Company requests, and Executive agrees, that Executive provide occasional services not exceeding 20% of the amount of services provided by Executive prior to his termination, the provision of such limited services shall not extend the date of the Executive’s termination for purposes of this Agreement.
8.13 Non-Disparagement . The Executive agrees and covenants that he will not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company or its businesses, or any of its employees or directors. This section does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency. This section does not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. The Company agrees and covenants that it shall cause its officers and directors to refrain from making any defamatory or disparaging remarks, comments, or statements concerning the Executive to any third parties. In the event of the Executive’s violation, at any time, of his commitment under this Section 8.13, the Executive will, in the discretion of the Committee, forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.14 Original Agreement . This Agreement amends, supersedes and replaces the Original Agreement in its entirety, and the Original Agreement shall no longer be of any force or effect, except (i) where expressly referenced herein, and (ii) that years of service credit shall accrue as of the date originally established therefor under the Original Agreement.
SECTION IX. SEVERANCE BENEFIT
9.1 Severance Benefit . So long as Executive has completed at least one (1) year of service following the date of this Agreement (or, if this is an amended/restated agreement, following the date of the Original Agreement), then in addition to any benefit provided under Sections III, V and VI hereof, in the event of the Executive’s involuntary termination of employment without Cause or resignation with Good Reason (in each case, in a termination not governed by the provisions of Section 7.1 concerning a Change in Control), the Executive shall receive a severance benefit payable by the Company in accordance with the Company’s payroll practices applicable to its executive employees, for a period of twelve (12) months, commencing on the Company’s first payroll date after the Executive’s termination of employment. Upon the Executive’s death after such payments have begun but before such payments are completed, the balance of such payments shall continue to be made to the Executive’s Surviving Spouse or, if no Surviving Spouse survives the Executive, to the Executive’s estate. For purposes of this Section 9.1, the severance benefits shall equal the Executive’s base salary as in effect immediately prior to the Executive’s termination of employment date, excluding bonuses, profit sharing, and the like. In addition to the severance benefit, the Executive shall be entitled, but not required, during the period in which a severance benefit is being paid pursuant to this Section 9.1, to participate in the Company’s welfare benefit programs available to the Company’s executive employees, upon the same terms and conditions as the Company may from time to time establish generally for such executive employees; provided, however, that if such continued participation is not permitted by law or by the applicable benefit plan, the Company shall instead provide a cash payment equal to what it would have cost the Company to continue the Executive’s participation, had such participation been permitted.
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IN WITNESS WHEREOF, this Agreement has been executed this 9 th day of November, 2016.
TOMPKINS FINANCIAL CORPORATION | |||
By: | /s/ Thomas R. Rochon | ||
Name: Thomas R. Rochon | |||
ATTEST: /s/ Janet Hewitt | Title: Chairman, Board of Directors | ||
By: | /s/ Stephen S. Romaine | ||
Stephen S. Romaine, Individually | |||
ATTEST: /s/ Janet Hewitt |
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SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
Beneficiary Designation Form
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby designate my spouse to receive any death benefits that may become payable under the Agreement. I understand and acknowledge no death benefit will be paid under the Agreement (a) if the below-designated Spouse is not a “Surviving Spouse” as defined in the Agreement, or (b) if I do not return this Spousal Benefit Designation Form, completed and executed, to the Committee on or before my Retirement Date, as defined in the Agreement.
Spouse’s Name:___________________________________
Social Security Number:_____________________________
Date of Birth:______________________________
Home Address:____________________________________________________________
Executive’s Signature:______________________________
Witness’ Signature:______________________________
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Tompkins Financial Corporation 10-Q
Exhibit 10.4
AMENDED
AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Amended and Restated Supplemental Executive Retirement Agreement (the “Agreement”) is entered into effective November 9, 2016 by Tompkins Financial Corporation, with offices at 110 The Commons, Ithaca, New York 14851, and David S. Boyce , residing at _____________________ (the “Executive”).
PREAMBLE
The Executive and Tompkins Financial Corporation previously entered into a Supplemental Executive Retirement Agreement, dated on or about January 1, 2004 (the “ Original Agreement ”), and Section 8.1 hereof sets forth the only provision of the Original Agreement which is incorporated into this Agreement. For good and valuable consideration, including without limitation (i) continued active participation and other benefits under this Agreement, (ii) an additional Supplemental Executive Retirement Agreement, also dated on or about the date hereof, and (iii) the grant of an equity award on or about the date hereof, which equity award is expressly conditioned upon Executive’s execution and delivery of this Agreement, the receipt and sufficiency of which is acknowledged, the parties now desire to clarify, amend and restate the Original Agreement as set forth herein. The principal objective of this Agreement and the Original Agreement is and was to ensure the payment of competitive levels of retirement income to the Executive, who has been determined to be a key executive of Tompkins Financial Corporation and its subsidiaries, in order to retain and motivate such Executive.
SECTION I. DEFINITIONS
1.1. | “ Board of Directors ” means the Board of Directors of Tompkins Financial Corporation. |
1.2. | “ Cause ” has the meaning set forth in Section 2.3. |
1.3. | “ Code ” means the Internal Revenue Code of 1986, as amended. |
1.4. | “ Competition with the Company ” has the meaning set forth in Section 2.3. |
1.5. | “ Committee ” means the Compensation Committee of the Board of Directors, which has been given authority by the Board of Directors to administer this Agreement. |
1.6. | “ Company ” means Tompkins Financial Corporation. |
1.7. | “ Compensation ” has the meaning set forth in Section 7.1(b). |
1.8. | “ Disabled ” means that by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, the Executive is unable to engage in any substantial gainful activity. |
1.9. | “ Early Retirement Reduction ” has the meaning set forth in Section 3.1. |
1.10. | “ Earnings ” means the average of the Executive’s five (5) highest calendar years (or such lesser number if the Executive has not completed five (5) years of service for the purpose of determining Earnings) of base pay, which shall mean the Executive’s base salary excluding bonuses, profit sharing, and the like, and which may include base pay in years prior to the Executive’s commencement of participation under this Agreement if so determined by the Board of Directors. |
1.11. | “ Excise Tax ” has the meaning set forth in Section 7.1(c). |
1.12. | “ Good Reason ” exists in the event of (i) a material diminution in the Executive’s base compensation, authority, duties or responsibilities; (ii) a material change in the geographic location at which the Executive is required to perform the duties of the Executive’s position; or (iii) a material breach of this Agreement by the Company or its successor, or of any other agreement pursuant to which the Executive provides services for the Company or its successor, provided the Executive gives written notice to the Company or its successor, as applicable, within ninety (90) days of the initial existence of the condition described in (i), (ii) or (iii), above, and the Company or its successor fails to remedy such condition within thirty (30) days after receipt of such notice. |
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1.13. | “ Release ” has the meaning set forth in Section 8.11. |
1.14. | “ Release Date ” has the meaning set forth in Section 8.11. |
1.15. | “ Retirement Age ” has the meaning set forth in Section 2.2. |
1.16. | “ Retirement Benefit Freeze ” has the meaning set forth in Section 2.1. |
1.17. | “ Retirement Date ” has the meaning set forth in Section 2.2. |
1.18. | “ Surviving Spouse ” means the spouse of the Executive, if any, designated at or prior to his Retirement Date on his ‘Beneficiary Designation Form’, surviving on the date of death of the Executive; provided, however, that if the Executive, as of the date of Executive’s death, is no longer married to the person so designated, then such person is not a Surviving Spouse for purposes of this Agreement. |
1.19. | “ Vested ” means having completed at least (ten) 10 years of service beginning on the date set forth in Section 3.3. |
1.20. | “ Years of Service Reduction ” has the meaning set forth in Section 3.1. |
SECTION II. ELIGIBILITY FOR BENEFITS
2.1 Eligibility . The Executive is eligible to participate in this Agreement by designation of the Board of Directors, in its sole discretion. The Board of Directors may determine, in its sole discretion, that the Executive should cease to continue accruing retirement benefits under this Agreement (a “ Retirement Benefit Freeze ”) and in such event the Board of Directors shall notify the Executive in writing of such determination. Such determination shall not reduce the then accrued retirement benefit of the Executive under this Agreement, as follows. The Executive will remain entitled to receive his retirement benefit in accordance with Section 3.1 (and Executive will be deemed Vested), except that the Years of Service Reduction shall be calculated utilizing the years of service completed by Executive as of the Retirement Benefit Freeze date, and Earnings shall be calculated as of the Retirement Benefit Freeze date. A Retirement Benefit Freeze will not impair Executive’s rights under Section 7 (Change in Control), except as expressly set forth herein.
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2.2 Retirement Date . The Executive is eligible to retire under this Agreement and receive a benefit under Section 3.1 beginning on his “Retirement Date” which is the later of: (a) the first day of the month following the month in which the Executive reaches age fifty-five (55) (which age is referred to as the “ Retirement Age ” herein), or (b) the first day of the month following the month in which the Executive terminates employment with the Company.
2.3 Termination; Competition . Anything herein to the contrary notwithstanding, if within two (2) years after involuntary termination (including resignation with Good Reason), the Executive engages in Competition with the Company (without prior authorization given by the Committee in writing), or, if the Executive is discharged by the Company or its subsidiaries for Cause, payments otherwise payable under this Agreement to the Executive or the Executive’s Surviving Spouse will, in the sole discretion of the Committee, be forfeited and the Company will have no further obligation under this Agreement to the Executive or the Executive’s Surviving Spouse. Anything herein to the contrary notwithstanding, no benefits are payable under this Agreement if the Executive engages in Competition with the Company at any time before, during or after his voluntary resignation (except in the case of Competition with the Company that begins more than two (2) years after a resignation with Good Reason). For purposes of this Agreement, the term “Cause” shall mean (a) the conviction of the Executive by a court of competent jurisdiction of a crime which constitutes a felony under any state or federal law, (b) an act by the Executive which in the reasonable opinion of the Board of Directors constitutes an intentional theft of property of the Company or its subsidiaries, (c) the willful and continued failure or refusal of the Executive to perform his duties, or (d) gross negligence or willful misconduct on the part of the Executive that is materially and demonstrably detrimental to the Company or its subsidiaries (as determined by the Board of Directors in its reasonable discretion). For purposes of this Section 2.3, “Competition with the Company” shall occur if the Executive, directly or indirectly, (a) comes to own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any other manner with, any business (but which shall exclude executive’s ownership of less than 1% of any class of equity or debt security of a publicly-traded competing business) which, in the judgment of the Board of Directors, is in substantial competition with the Company (unless the Executive has first obtained the Board’s prior written consent) and which is located within, or is actively directing marketing efforts within, ten (10) miles of any location of the Company or any of its subsidiaries, (b) solicits customers of the Company or any of its subsidiaries to reduce or stop doing business with the Company or any of its subsidiaries, or initiates any customer contact, for any reason, except for social contact with customers with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of business or business opportunities, or (c) solicits employees of the Company or any of its subsidiaries to leave such employment, or offers employment to employees of the Company or any of its subsidiaries, or initiates any employee contact, for any reason, except for social contact with employees with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of such employee’s services.
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SECTION III. AMOUNT AND FORM OF RETIREMENT BENEFIT
3.1 Retirement Benefit . The annual retirement benefit amount payable by the Company under this Agreement shall equal seventy-five percent (75%) of the Executive’s Earnings less (a) the hypothetical value of the annual amount of a single life annuity for the life of the Executive determined as if the accrual of benefits under the Tompkins Financial Corporation Retirement Plan had not been frozen, based upon the Executive’s relevant age, service, and compensation as in effect at the time such determination of value is made, and using the benefit formula in the Tompkins Financial Corporation Retirement Plan as of the date the accrual of further benefits under the Tompkins Financial Corporation Retirement Plan was frozen, and (b) the annual amount of the Executive’s Social Security benefits (with the amounts in subsections (a) and (b) based upon the Committee’s good faith estimate of the amounts of such benefits); provided, however, that the annual retirement benefit shall be reduced by five percent (5%) for each year that the Executive’s years of service under this Agreement are less than twenty (20) years (the “ Years of Service Reduction ”). The monthly retirement benefit payable by the Company to the Executive shall equal one-twelfth (1/12) of such annual retirement benefit. In the event the Executive’s Retirement Date under Section 2.2 occurs prior to the Executive attaining the age of sixty-five (65), the annual retirement benefit otherwise determined hereunder shall be further reduced by five percent (5%) for each year of age by which the Executive’s attained age at his Retirement Date is less than sixty-five (65) years (the “ Early Retirement Reduction ”). For clarity, when this Agreement states that an Executive is “deemed Vested,” such does not alter the Years of Service Reduction or the Early Retirement Reduction, and is only intended to confirm that the Executive is eligible for the benefit hereunder.
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The monthly benefit payable as a single life annuity shall be payable by the Company on the first day of each calendar month beginning with the Executive’s Retirement Date through and including the month of the Executive’s death. In the event the Executive is determined to be a “specified employee”, as such term is defined in Treasury Regulations §1.409A-1(i), then any monthly benefit otherwise payable on or before the date which is six (6) months after the Executive’s termination of employment date shall be delayed until the earlier of the Executive’s date of death or the date which is six (6) months after the Executive’s termination of employment date; provided, however, that such delay is only required for benefits constituting nonqualified deferred compensation under Code Section 409A, and the delay will apply only to those benefits that are not exempt from Code Section 409A. Any such delayed payments shall be accumulated and paid in a lump sum and payments thereafter will be made as scheduled in accordance with this Section 3.1.
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3.2 Death Benefit .
(a) Upon the death of the Executive after the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to an annual retirement benefit payable by the Company under this Agreement equal to fifty percent (50%) of the annual retirement benefit which the Executive had been receiving. The monthly retirement benefit payable by the Company to the Surviving Spouse shall be one-twelfth (1/12) of such annual retirement benefit and shall be payable on the first day of each month beginning with the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death.
(b) Upon the death of the Executive prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to an annual retirement benefit payable by the Company under this Agreement equal to fifty percent (50%) of the annual retirement benefit, determined under Section 3.1, provided that all of the following conditions are satisfied: (A) the annual retirement benefit shall be payable only if the Executive is Vested at the time of his death, as defined in Section I; and, (B) the Surviving Spouse survives until the date upon which the Executive would have attained his Retirement Age if the Executive’s death occurs prior to his Retirement Date. The monthly retirement benefit payable by the Company, if any, under this subsection to the Surviving Spouse shall equal one-twelfth (1/12) of said annual retirement benefit for the Surviving Spouse and shall be payable on the first day of each month commencing on the later of the Executive’s Retirement Age or the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death. The date utilized for the Years of Service Reduction shall be the date of the Executive’s death (or the date of the Executive’s termination of employment, if earlier), and the age utilized for the Early Retirement Reduction shall be the greater of (1) the Executive’s actual age at the time of his death (or the date of the Executive’s termination of employment, if earlier), and (2) the Retirement Age.
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(c) Upon the death of the Executive with no Surviving Spouse, or, if in the event of the Executive’s death prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse shall not survive the Executive until the date upon which the Executive would have attained the Retirement Age, there shall be no benefit payment under Section 3 to the Executive, the Executive’s Surviving Spouse, the estate of either the Executive or the Surviving Spouse, or otherwise.
3.3 Service . For purposes of this Agreement, the Executive’s service shall be defined as commencing on January 1, 1989 and ending on the date the Executive’s employment with Company or its subsidiaries is terminated, or such earlier date as shall be determined by the Board of Directors if the Board of Directors shall determine pursuant to Section 2.1 hereof that the Executive should cease to benefit under this Agreement (provided, however, that no such determination shall reduce the then-accrued benefit of the Executive under this Agreement). Years of service shall be determined in years and months of service with credit provided for a full month of service for the calendar month in which the Executive’s service commences as set forth above and the calendar month in which the Executive’s service hereunder ceases.
SECTION IV. PAYMENT OF RETIREMENT BENEFITS
4.1 Limitation on Payments . Sections 2.3, 3.2, 4.2, 8.11 and 8.13 set forth the circumstances under which all further benefits payable under this Agreement (even if Vested) are forfeited.
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4.2 Termination . Notwithstanding any contrary provision herein, if the Executive terminates employment voluntarily (which shall not include resignation with Good Reason) before attaining age fifty-five (55) and becoming Vested, the Company shall have no obligation to pay, and the Executive shall have no right to receive, any retirement benefit under this Agreement whatsoever. In the event of the Executive’s involuntary termination of employment (other than for Cause) or resignation with Good Reason at any time, the benefit payable to the Executive shall be determined as set forth in Section 3.1, and payments shall commence on the Executive’s Retirement Date (and the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction). For purposes of this provision, the date utilized for the Years of Service Reduction shall be the date of the Executive’s termination, and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date. In the event of the Executive’s death prior to the commencement of benefit payments under this provision, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
4.3 Health-Related Leave of Absence . Provided there is a reasonable expectation that the Executive will return to perform services for the Company (an “ Expected Return ”), the Committee may determine that the Executive has not separated from service for purposes of this Agreement during a leave of absence of up to twenty-nine (29) months, if such leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, and such impairment causes the Executive to be unable to perform the duties of his position or any substantially similar position (a “ Qualified Impairment ”). For clarity, even if a Qualified Impairment and Expected Return exist, the Committee is not obligated to defer the Employee’s separation from service during this period, and (subject to applicable federal and state law pertaining to medical leaves of absence) the Committee may instead elect to involuntarily terminate the Executive’s employment (other than for Cause) under Section 4.2 during this period. The determination as to the existence or absence of such Qualified Impairment and such Expected Return will be made by an independent physician identified by the Company. If, due to a Qualified Impairment, the Executive cannot return to perform the duties of his position or a substantially similar position for the Company by the end of such period, the Executive will be deemed to have incurred an involuntary termination of employment (other than for Cause) under Section 4.2 as of the first date following the end of such period.
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SECTION V. DEATH BENEFITS PAYABLE
5.1 Death Benefit . Other than the death benefit for the Surviving Spouse under Section 3.2, Section 4.2, or Section 6.2, as applicable, no death benefits are payable under this Agreement.
SECTION VI. DISABILITY BENEFITS PAYABLE
6.1 Disability Benefit . In the event that the Executive becomes Disabled, as determined by an independent physician identified by the Company (other than at a time when facts and circumstances exist under which the Company could, and does, terminate the Executive’s employment for Cause), the Executive shall be entitled to the benefits under Section 3.1 commencing the first day of the month following the month in which the Executive attains Social Security normal retirement age. For purposes of calculating the amount payable under Section 3.1 and pursuant to this Section6.1, the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction; the date utilized for the Years of Service Reduction shall be the date the Executive is determined to be Disabled; and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date.
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6.2 Death after Disability . In the event of the death of the Executive after Executive qualifies for a retirement benefit pursuant to Section 6.1, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
SECTION VII. CHANGE IN CONTROL
7.1 Change in Control .
(a) In the event of a Change in Control, as defined in Section 7.2, of the Company, the Executive shall be deemed to have completed twenty (20) years of service and is Vested in all benefits under this Agreement (though the Early Retirement Reduction shall still apply), and the retirement benefit described in Section 3.1 shall commence at the Executive’s Retirement Date. The executive shall not be entitled to the accelerated service completion set forth in this subsection following a Retirement Benefit Freeze, unless the effective date of such Retirement Benefit Freeze occurs within the two-year period immediately prior to announcement of the Change in Control and, in such event, the executive shall remain so entitled.
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(b) In the event of a Change in Control of the Company, if the employment of the Executive is thereafter involuntarily terminated without Cause, or if the Executive voluntarily terminates employment for Good Reason (i) within two (2) years after a Change in Control, or (ii) in anticipation of a Change in Control which then occurs within two (2) years, then the Executive shall receive a benefit, in addition to any benefit under Section 3 of this Agreement, under this Section 7.1(b). The benefit under this Section 7.1(b) shall be the continuation of the Executive’s Compensation, as defined below, for a period of three (3) years (payable in accordance with the Company’s or its successor’s regular payroll procedures for executive employees, but in any event not less frequently than monthly), plus continuation of all employee welfare benefits that the Executive was participating in (health insurance, disability insurance, life insurance and the like) immediately prior to the Change in Control (or cash in an amount equal to the value of the Company’s or its successor’s contributions for such welfare benefits to the extent that the Executive is no longer eligible to participate in such programs); provided, however, that, for purposes of this Section 7.1(b), the amount of the Executive’s Compensation taken into account shall be reduced by (20%) if the Executive has attained age sixty-one (61), by 40% if the Executive has attained age sixty-two (62), by 60% if the Executive has attained age sixty-three (63), by 80% if the Executive has attained age sixty-four (64), and by 100% if the Executive has attained age sixty-five (65), with all such age determinations made as of the date of the Executive’s termination of employment. The continuation of the Executive’s employee welfare benefits under this Section 7.1(b) shall be on the same terms and conditions (subject to the aforementioned substitution of cash in lieu of benefit plan participation to the extent the Executive is ineligible therefor) as such employee welfare benefits are offered to other executive employees of the Company or of its successor, as applicable, and such continuation shall be for a three-year period even if there is no continuation payment of the Executive’s Compensation because of the 100% reduction under the preceding sentence. For purposes of this Section VII only, the term “Compensation” shall mean the Executive’s base pay (at the rate in effect immediately prior to the Change in Control) plus the Executive’s bonus and profit sharing compensation (which for this purpose shall be the average of the Executive’s bonus and profit sharing compensation earned for the two (2) most recently completed fiscal years of the Company immediately preceding the Change in Control).
(c) In the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) would be subject to the excise tax imposed by Section 4999 of the Code, including any successor to such statute of like import (the “Excise Tax”), then the amount of the benefit otherwise payable under Section 7.1(b), if any, shall be reduced, but not below zero, to the maximum amount upon which no such Excise Tax is imposed.
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(d) For purposes of this Section 7.1, the proper amounts, if any, of the Excise Tax and the adjustment under Section 7.1(c) to eliminate the Excise Tax shall be determined in the first instance by the Company. Within forty-five (45) days of being provided with written notice of any such determination, the Executive may provide written notice to the Committee of any disagreement, in which event the amounts, if any, of the Excise Tax and any adjustment under Section 7.1(c) shall be determined by independent tax counsel selected by the Company’s independent auditors. The determination of the Company (or, in the event of disagreement, the tax counsel selected) shall be final.
7.2 For purposes of this Section VII, a Change in Control shall be deemed to have occurred upon the earliest of the following: (i) the date of acquisition by any one person, or more than one person acting as a group (as defined in Treasury Regulations §1.409A-3(i)(5)(v)(B)), of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; provided, however, that if any one person, or more than one person acting as a group, is considered to own more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons shall not be deemed to result in a Change in Control; (ii) the date a majority of members of the Company’s Board of Directors is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the date of the appointment or election; or (iii) the date that any one person, or more than one person acting as a group, acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value of more than seventy percent (70%) of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions; provided, however, that transfers of assets of the Company of any value to a related person or entity as described in Treasury Regulations §1.409A-3(i)(5)(vii)(B) shall not be deemed to result in a Change in Control.
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SECTION VIII. MISCELLANEOUS
8.1 Termination, Amendment and Subsequent Deferrals . The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, however, that no terminations, suspension or amendment of this Agreement will, without the written consent of the Executive or the Surviving Spouse (if the Executive is not then living), reduce the Executive’s right or the right of the Surviving Spouse to receive or continue receiving a benefit accrued at the time of the termination, suspension or amendment in accordance with this Agreement. By way of clarification it is the intent of the Parties that the right to receive change in control benefits under Section VII shall accrue as of the date of the Original Agreement, subject to the limitations set forth in Section 7.1(a). The Parties agree that a Retirement Benefit Freeze, as described in Section 2.1, shall not be deemed a reduction of rights requiring consent hereunder. A termination or suspension of this Agreement shall not result in the acceleration of any benefit provided pursuant to this Agreement except as permitted in connection with a plan termination satisfying the conditions set forth in Treasury Regulations §1.409A-3(j)(ix), where the Committee decides to accelerate such benefit in accordance with the requirements of such regulation. The provisions of this Section 8.1 shall be subordinate to the provisions of Sections 2.3, 3.2, 4.1, 4.2, 8.11 and 8.13 concerning the forfeiture of benefits. The definition of “Retirement Date” in Section 2.2 provides for the designated time of the retirement benefit hereunder, and the Executive may only make a subsequent deferral if the change complies with Treasury Regulations § 1.409A-2(b)(1) (the “Subsequent Deferral Rules”). In the event that an Executive wishes to elect to defer payment commencement beyond his Retirement Date, he must provide written notice thereof to the Company (the “Deferral Notice”) at least one (1) year prior to his Retirement Date, or such longer notice period as may then be required under the Subsequent Deferral Rules. The Deferral Notice shall specify the date on which the Executive wishes to begin receiving his retirement benefit hereunder, and such deferred payment date must be at least five (5) years later than the date the payment otherwise would have been made, or such other period as may then be required under the Subsequent Deferral Rules. Partial deferrals will not be permitted and the Company may refuse to honor the Deferral Notice if, in the reasonable opinion of the Company’s external legal counsel, the Deferral Notice does not comply with the Subsequent Deferral Rules, or is otherwise reasonably likely to adversely affect the Company under the Subsequent Deferral Rules.
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8.2 No Employment Agreement; Entire Agreement . Nothing contained herein will confer upon the Executive the right to be retained in the service of the Company or its subsidiaries, nor will it interfere with the right of the Company or its subsidiaries to discharge or otherwise deal with the Executive without regard to the existence of this Agreement. This Agreement (which expressly includes the Preamble), together with those certain agreements expressly referred to herein, constitute the sole and entire agreement of the Parties with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to the subject matter.
8.3 Unfunded Arrangement . The benefits under this Agreement are unfunded, and the Company will make benefit payments solely on a current disbursement basis from the Company’s general assets. Notwithstanding anything herein to the contrary, the Executive and the Executive’s Surviving Spouse, if any, shall have the status of general unsecured creditors of the Company.
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8.4 Assignment . To the maximum extent permitted by law, no benefit under this Agreement shall be assignable or made subject by Executive in any manner to alienation, sale, transfer, claims of Executive’s creditors, pledge, attachment or encumbrances of any kind.
8.5 Rules . The Committee may adopt rules and regulations to assist it in the administration of this Agreement. This Agreement shall be administered and construed entirely in the discretion of the Committee and the Board of Directors, as applicable.
8.6 Information . The Executive shall receive a copy of this Agreement and the Committee will make available for inspection by the Executive a copy of any rules and regulations used by the Committee in administering this Agreement.
8.7. Construction . The masculine gender, where appearing in this Agreement, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. For purposes of complying with Code Section 409A, or any successor to such statute of like import, it is acknowledged that no benefit payments may be made under this Agreement prior to the Executive’s termination of employment with the Company, that the payment of benefits pursuant to this Agreement may not be accelerated by the Company or the Executive, and that there are no elections provided under the Agreement to defer compensation or to delay a payment of benefits other than in the case of an election made pursuant to the Subsequent Deferral Rules, as described in Section 8.1.
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8.8 Controlling Law . This Agreement is established under and will be construed according to the laws of the State of New York, without regard for principles of conflicts of law. Notwithstanding the foregoing, this Agreement shall be construed consistent with the requirements of Code Section 409A, the regulations promulgated thereunder and other official guidance relating thereto such that the operation or terms of this Agreement do not result in the inclusion in income of any amount under such Code provision. For purposes of this Agreement, any term hereunder relating to the Executive’s termination of employment, the Executive terminating employment, the Executive being terminated or similar expression shall be deemed to refer to a separation from service, as defined in Treasury Regulations §1.409A-1(h). If an amount is to be paid under this Agreement in two or more installments, each installment shall be treated as a separate payment for purposes of Code Section 409A.
8.9 Legal Expenses . The Company shall pay, upon request and documentation thereof (and not later than ninety (90) days after receipt of such request and documentation), all reasonable legal fees and expenses which the Executive/Surviving Spouse may incur as a result of the Company contesting the validity or enforceability of any provision of this Agreement or any claim by the Executive/Surviving Spouse under this Agreement; provided , however , that such request is made and supporting documentation provided to the Company by the Executive/Surviving Spouse within ninety (90) days after incurring the expense, and provided further, the Company shall be entitled to be reimbursed by the Executive/Surviving Spouse for such amount previously paid to such Executive/Surviving Spouse if it is finally judicially determined that such Executive’s/Surviving Spouse’s claims under this Agreement are frivolous.
8.10 Disputes & Severability . In the event of any dispute after the occurrence of a Change in Control (as defined in Section 7.2) between the Company and the Executive with respect to the Executive’s rights to any payment under this Agreement, the Company shall pay all disputed amounts to the Executive in the time and manner otherwise specified by this Agreement, and, if it is finally judicially determined that the Executive was not entitled to all or a portion of such disputed amounts, the Executive shall repay to the Company the amount to which the Executive was not entitled, together with interest thereon at the judgment rate of interest then applicable in New York State. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or provision is invalid, illegal or unenforceable, the court may modify this Agreement to effect the original intent of the parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
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8.11 Release . In connection with Executive’s receipt of the retirement benefit described in Section 3.1, the Executive shall execute (and not revoke) a standard, customary form of release agreement (the “Release”), including without limitation the following terms. If Executive is continuously incapacitated through the Release Date, this requirement is waived. The Release must be given no more than ninety (90) days following the Executive’s employment termination, with sufficient time to allow applicable revocation period(s) to expire before the end of such ninety- (90-) day period (the final day of such 90-day period to be the “Release Date”). Pursuant to the Release, the Executive, on behalf of himself and his heirs, shall agree to waive any and all claims he or they have, had, or may have had, in each case as of the date the Executive signs the Release, in connection with his employment by the Company or its affiliates, as against the Company, its affiliates, and its and their directors and employees, other than claims arising out of the Company’s breach of its obligations under this Agreement. The Release will not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. Should the Executive fail to return to the Company the executed Release on or before the Release Date, the Executive will forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.12 Post-Employment Consulting . Following the Executive’s termination, if the Company requests, and Executive agrees, that Executive provide occasional services not exceeding 20% of the amount of services provided by Executive prior to his termination, the provision of such limited services shall not extend the date of the Executive’s termination for purposes of this Agreement.
8.13 Non-Disparagement . The Executive agrees and covenants that he will not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company or its businesses, or any of its employees or directors. This section does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency. This section does not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. The Company agrees and covenants that it shall cause its officers and directors to refrain from making any defamatory or disparaging remarks, comments, or statements concerning the Executive to any third parties. In the event of the Executive’s violation, at any time, of his commitment under this Section 8.13, the Executive will, in the discretion of the Committee, forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.14 Original Agreement . This Agreement amends, supersedes and replaces the Original Agreement in its entirety, and the Original Agreement shall no longer be of any force or effect, except (i) where expressly referenced herein, and (ii) that years of service credit shall accrue as of the date originally established therefor under the Original Agreement.
IN WITNESS WHEREOF, this Agreement has been executed this 9 th day of November, 2016.
TOMPKINS FINANCIAL CORPORATION | |||||
By: | /s/ Stephen S. Romaine | ||||
Name: Stephen S. Romaine | |||||
ATTEST: /s/ Janet Hewitt | Title: President & Chief Executive Officer | ||||
By: | /s/ David S. Boyce | ||||
ATTEST: /s/ Suzanne Winkelman | Name: David S. Boyce, Individually |
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SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
Beneficiary Designation Form
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby designate my spouse to receive any death benefits that may become payable under the Agreement. I understand and acknowledge no death benefit will be paid under the Agreement (a) if the below-designated Spouse is not a “Surviving Spouse” as defined in the Agreement, or (b) if I do not return this Spousal Benefit Designation Form, completed and executed, to the Committee on or before my Retirement Date, as defined in the Agreement.
Spouse’s Name: ___________________________________
Social Security Number: _____________________________
Date of Birth: ______________________________
Home Address: ____________________________________________________________
Executive’s Signature: ______________________________
Witness’ Signature: ______________________________
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Tompkins Financial Corporation 10-Q
Exhibit 10.5
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Amended and Restated Supplemental Executive Retirement Agreement (the “Agreement”) is entered into effective November 9, 2016 by Tompkins Financial Corporation, with offices at 110 The Commons, Ithaca, New York 14851, and Francis M. Fetsko, residing at ___________________________ (the “Executive”).
PREAMBLE
The Executive and Tompkins Financial Corporation previously entered into a Supplemental Executive Retirement Agreement, dated on or about January 1, 2004 (the “ Original Agreement ”), and Section 8.1 hereof sets forth the only provision of the Original Agreement which is incorporated into this Agreement. For good and valuable consideration, including without limitation (i) continued active participation and other benefits under this Agreement, (ii) an additional Supplemental Executive Retirement Agreement, also dated on or about the date hereof, and (iii) the grant of an equity award on or about the date hereof, which equity award is expressly conditioned upon Executive’s execution and delivery of this Agreement, the receipt and sufficiency of which is acknowledged, the parties now desire to clarify, amend and restate the Original Agreement as set forth herein. The principal objective of this Agreement and the Original Agreement is and was to ensure the payment of competitive levels of retirement income to the Executive, who has been determined to be a key executive of Tompkins Financial Corporation and its subsidiaries, in order to retain and motivate such Executive.
SECTION I. DEFINITIONS
1.1. | “ Board of Directors ” means the Board of Directors of Tompkins Financial Corporation. |
1.2. | “ Cause ” has the meaning set forth in Section 2.3. |
1.3. | “ Code ” means the Internal Revenue Code of 1986, as amended. |
1.4. | “ Competition with the Company ” has the meaning set forth in Section 2.3. |
1.5. | “ Committee ” means the Compensation Committee of the Board of Directors, which has been given authority by the Board of Directors to administer this Agreement. |
1.6. | “ Company ” means Tompkins Financial Corporation. |
1.7. | “ Compensation ” has the meaning set forth in Section 7.1(b). |
1.8. | “ Disabled ” means that by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, the Executive is unable to engage in any substantial gainful activity. |
1.9. | “ Early Retirement Reduction ” has the meaning set forth in Section 3.1. |
1.10. | “ Earnings ” means the average of the Executive’s five (5) highest calendar years (or such lesser number if the Executive has not completed five (5) years of service for the purpose of determining Earnings) of base pay, which shall mean the Executive’s base salary excluding bonuses, profit sharing, and the like, and which may include base pay in years prior to the Executive’s commencement of participation under this Agreement if so determined by the Board of Directors. |
1.11. | “ Excise Tax ” has the meaning set forth in Section 7.1(c). |
1.12. | “ Good Reason ” exists in the event of (i) a material diminution in the Executive’s base compensation, authority, duties or responsibilities; (ii) a material change in the geographic location at which the Executive is required to perform the duties of the Executive’s position; or (iii) a material breach of this Agreement by the Company or its successor, or of any other agreement pursuant to which the Executive provides services for the Company or its successor, provided the Executive gives written notice to the Company or its successor, as applicable, within ninety (90) days of the initial existence of the condition described in (i), (ii) or (iii), above, and the Company or its successor fails to remedy such condition within thirty (30) days after receipt of such notice. |
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1.13. | “ Release ” has the meaning set forth in Section 8.11. |
1.14. | “ Release Date ” has the meaning set forth in Section 8.11. |
1.15. | “ Retirement Age ” has the meaning set forth in Section 2.2. |
1.16. | “ Retirement Benefit Freeze ” has the meaning set forth in Section 2.1. |
1.17. | “ Retirement Date ” has the meaning set forth in Section 2.2. |
1.18. | “ Surviving Spouse ” means the spouse of the Executive, if any, designated at or prior to his Retirement Date on his ‘Beneficiary Designation Form’, surviving on the date of death of the Executive; provided, however, that if the Executive, as of the date of Executive’s death, is no longer married to the person so designated, then such person is not a Surviving Spouse for purposes of this Agreement. |
1.19. | “ Vested ” means having completed at least (ten) 10 years of service beginning with the date set forth in Section 3.3. |
1.20. | “ Years of Service Reduction ” has the meaning set forth in Section 3.1. |
SECTION II. ELIGIBILITY FOR BENEFITS
2.1 Eligibility . The Executive is eligible to participate in this Agreement by designation of the Board of Directors, in its sole discretion. The Board of Directors may determine, in its sole discretion, that the Executive should cease to continue accruing retirement benefits under this Agreement (a “ Retirement Benefit Freeze ”) and in such event the Board of Directors shall notify the Executive in writing of such determination. Such determination shall not reduce the then accrued retirement benefit of the Executive under this Agreement, as follows. The Executive will remain entitled to receive his retirement benefit in accordance with Section 3.1 (and Executive will be deemed Vested), except that the Years of Service Reduction shall be calculated utilizing the years of service completed by Executive as of the Retirement Benefit Freeze date, and Earnings shall be calculated as of the Retirement Benefit Freeze date. A Retirement Benefit Freeze will not impair Executive’s rights under Section 7 (Change in Control), except as expressly set forth herein.
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2.2 Retirement Date . The Executive is eligible to retire under this Agreement and receive a benefit under Section 3.1 beginning on his “Retirement Date” which is the later of: (a) the first day of the month following the month in which the Executive reaches age fifty-five (55) (which age is referred to as the “ Retirement Age ” herein), or (b) the first day of the month following the month in which the Executive terminates employment with the Company.
2.3 Termination; Competition . Anything herein to the contrary notwithstanding, if within two (2) years after involuntary termination (including resignation with Good Reason), the Executive engages in Competition with the Company (without prior authorization given by the Committee in writing), or, if the Executive is discharged by the Company or its subsidiaries for Cause, payments otherwise payable under this Agreement to the Executive or the Executive’s Surviving Spouse will, in the sole discretion of the Committee, be forfeited and the Company will have no further obligation under this Agreement to the Executive or the Executive’s Surviving Spouse. Anything herein to the contrary notwithstanding, no benefits are payable under this Agreement if the Executive engages in Competition with the Company at any time before, during or after his voluntary resignation (except in the case of Competition with the Company that begins more than two (2) years after a resignation with Good Reason). For purposes of this Agreement, the term “Cause” shall mean (a) the conviction of the Executive by a court of competent jurisdiction of a crime which constitutes a felony under any state or federal law, (b) an act by the Executive which in the reasonable opinion of the Board of Directors constitutes an intentional theft of property of the Company or its subsidiaries, (c) the willful and continued failure or refusal of the Executive to perform his duties, or (d) gross negligence or willful misconduct on the part of the Executive that is materially and demonstrably detrimental to the Company or its subsidiaries (as determined by the Board of Directors in its reasonable discretion). For purposes of this Section 2.3, “Competition with the Company” shall occur if the Executive, directly or indirectly, (a) comes to own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any other manner with, any business (but which shall exclude executive’s ownership of less than 1% of any class of equity or debt security of a publicly-traded competing business) which, in the judgment of the Board of Directors, is in substantial competition with the Company (unless the Executive has first obtained the Board’s prior written consent) and which is located within, or is actively directing marketing efforts within, ten (10) miles of any location of the Company or any of its subsidiaries, (b) solicits customers of the Company or any of its subsidiaries to reduce or stop doing business with the Company or any of its subsidiaries, or initiates any customer contact, for any reason, except for social contact with customers with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of business or business opportunities, or (c) solicits employees of the Company or any of its subsidiaries to leave such employment, or offers employment to employees of the Company or any of its subsidiaries, or initiates any employee contact, for any reason, except for social contact with employees with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of such employee’s services.
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SECTION III. AMOUNT AND FORM OF RETIREMENT BENEFIT
3.1 Retirement Benefit . The annual retirement benefit amount payable by the Company under this Agreement shall equal seventy-five percent (75%) of the Executive’s Earnings less (a) the hypothetical value of the annual amount of a single life annuity for the life of the Executive determined as if the accrual of benefits under the Tompkins Financial Corporation Retirement Plan had not been frozen, based upon the Executive’s relevant age, service, and compensation as in effect at the time such determination of value is made, and using the benefit formula in the Tompkins Financial Corporation Retirement Plan as of the date the accrual of further benefits under the Tompkins Financial Corporation Retirement Plan was frozen, and (b) the annual amount of the Executive’s Social Security benefits (with the amounts in subsections (a) and (b) based upon the Committee’s good faith estimate of the amounts of such benefits); provided, however, that the annual retirement benefit shall be reduced by five percent (5%) for each year that the Executive’s years of service under this Agreement are less than twenty (20) years (the “ Years of Service Reduction ”). The monthly retirement benefit payable by the Company to the Executive shall equal one-twelfth (1/12) of such annual retirement benefit. In the event the Executive’s Retirement Date under Section 2.2 occurs prior to the Executive attaining the age of sixty-five (65), the annual retirement benefit otherwise determined hereunder shall be further reduced by five percent (5%) for each year of age by which the Executive’s attained age at his Retirement Date is less than sixty-five (65) years (the “ Early Retirement Reduction ”). For clarity, when this Agreement states that an Executive is “deemed Vested,” such does not alter the Years of Service Reduction or the Early Retirement Reduction, and is only intended to confirm that the Executive is eligible for the benefit hereunder.
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The monthly benefit payable as a single life annuity shall be payable by the Company on the first day of each calendar month beginning with the Executive’s Retirement Date through and including the month of the Executive’s death. In the event the Executive is determined to be a “specified employee”, as such term is defined in Treasury Regulations §1.409A-1(i), then any monthly benefit otherwise payable on or before the date which is six (6) months after the Executive’s termination of employment date shall be delayed until the earlier of the Executive’s date of death or the date which is six (6) months after the Executive’s termination of employment date; provided, however, that such delay is only required for benefits constituting nonqualified deferred compensation under Code Section 409A, and the delay will apply only to those benefits that are not exempt from Code Section 409A. Any such delayed payments shall be accumulated and paid in a lump sum and payments thereafter will be made as scheduled in accordance with this Section 3.1.
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3.2 Death Benefit .
(a) Upon the death of the Executive after the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to an annual retirement benefit payable by the Company under this Agreement equal to fifty percent (50%) of the annual retirement benefit which the Executive had been receiving. The monthly retirement benefit payable by the Company to the Surviving Spouse shall be one-twelfth (1/12) of such annual retirement benefit and shall be payable on the first day of each month beginning with the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death.
(b) Upon the death of the Executive prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to an annual retirement benefit payable by the Company under this Agreement equal to fifty percent (50%) of the annual retirement benefit, determined under Section 3.1, provided that all of the following conditions are satisfied: (A) the annual retirement benefit shall be payable only if the Executive is Vested at the time of his death, as defined in Section I; and, (B) the Surviving Spouse survives until the date upon which the Executive would have attained his Retirement Age if the Executive’s death occurs prior to his Retirement Date. The monthly retirement benefit payable by the Company, if any, under this subsection to the Surviving Spouse shall equal one-twelfth (1/12) of said annual retirement benefit for the Surviving Spouse and shall be payable on the first day of each month commencing on the later of the Executive’s Retirement Age or the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death. The date utilized for the Years of Service Reduction shall be the date of the Executive’s death (or the date of the Executive’s termination of employment, if earlier), and the age utilized for the Early Retirement Reduction shall be the greater of (1) the Executive’s actual age at the time of his death (or the date of the Executive’s termination of employment, if earlier), and (2) the Retirement Age.
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(c) Upon the death of the Executive with no Surviving Spouse, or, if in the event of the Executive’s death prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse shall not survive the Executive until the date upon which the Executive would have attained the Retirement Age, there shall be no benefit payment under Section 3 to the Executive, the Executive’s Surviving Spouse, the estate of either the Executive or the Surviving Spouse, or otherwise.
3.3 Service . For purposes of this Agreement, the Executive’s service shall be defined as commencing on October 7, 1996 and ending on the date the Executive’s employment with Company or its subsidiaries is terminated, or such earlier date as shall be determined by the Board of Directors if the Board of Directors shall determine pursuant to Section 2.1 hereof that the Executive should cease to benefit under this Agreement (provided, however, that no such determination shall reduce the then-accrued benefit of the Executive under this Agreement). Years of service shall be determined in years and months of service with credit provided for a full month of service for the calendar month in which the Executive’s service commences as set forth above and the calendar month in which the Executive’s service hereunder ceases.
SECTION IV. PAYMENT OF RETIREMENT BENEFITS
4.1 Limitation on Payments . Sections 2.3, 3.2, 4.2, 8.11 and 8.13 set forth the circumstances under which all further benefits payable under this Agreement (even if Vested) are forfeited.
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4.2 Termination . Notwithstanding any contrary provision herein, if the Executive terminates employment voluntarily (which shall not include resignation with Good Reason) before attaining age fifty-five (55) and becoming Vested, the Company shall have no obligation to pay, and the Executive shall have no right to receive, any retirement benefit under this Agreement whatsoever. In the event of the Executive’s involuntary termination of employment (other than for Cause) or resignation with Good Reason at any time, the benefit payable to the Executive shall be determined as set forth in Section 3.1, and payments shall commence on the Executive’s Retirement Date (and the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction). For purposes of this provision, the date utilized for the Years of Service Reduction shall be the date of the Executive’s termination, and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date. In the event of the Executive’s death prior to the commencement of benefit payments under this provision, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
4.3 Health-Related Leave of Absence . Provided there is a reasonable expectation that the Executive will return to perform services for the Company (an “ Expected Return ”), the Committee may determine that the Executive has not separated from service for purposes of this Agreement during a leave of absence of up to twenty-nine (29) months, if such leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, and such impairment causes the Executive to be unable to perform the duties of his position or any substantially similar position (a “ Qualified Impairment ”). For clarity, even if a Qualified Impairment and Expected Return exist, the Committee is not obligated to defer the Employee’s separation from service during this period, and (subject to applicable federal and state law pertaining to medical leaves of absence) the Committee may instead elect to involuntarily terminate the Executive’s employment (other than for Cause) under Section 4.2 during this period. The determination as to the existence or absence of such Qualified Impairment and such Expected Return will be made by an independent physician identified by the Company. If, due to a Qualified Impairment, the Executive cannot return to perform the duties of his position or a substantially similar position for the Company by the end of such period, the Executive will be deemed to have incurred an involuntary termination of employment (other than for Cause) under Section 4.2 as of the first date following the end of such period.
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SECTION V. DEATH BENEFITS PAYABLE
5.1 Death Benefit . Other than the death benefit for the Surviving Spouse under Section 3.2, Section 4.2, or Section 6.2, as applicable, no death benefits are payable under this Agreement.
SECTION VI. DISABILITY BENEFITS PAYABLE
6.1 Disability Benefit . In the event that the Executive becomes Disabled, as determined by an independent physician identified by the Company (other than at a time when facts and circumstances exist under which the Company could, and does, terminate the Executive’s employment for Cause), the Executive shall be entitled to the benefits under Section 3.1 commencing the first day of the month following the month in which the Executive attains Social Security normal retirement age. For purposes of calculating the amount payable under Section 3.1 and pursuant to this Section6.1, the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction; the date utilized for the Years of Service Reduction shall be the date the Executive is determined to be Disabled; and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date.
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6.2 Death after Disability . In the event of the death of the Executive after Executive qualifies for a retirement benefit pursuant to Section 6.1, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
SECTION VII. CHANGE IN CONTROL
7.1 Change in Control .
(a) In the event of a Change in Control, as defined in Section 7.2, of the Company, the Executive shall be deemed to have completed twenty (20) years of service and is Vested in all benefits under this Agreement (though the Early Retirement Reduction shall still apply), and the retirement benefit described in Section 3.1 shall commence at the Executive’s Retirement Date. The executive shall not be entitled to the accelerated service completion set forth in this subsection following a Retirement Benefit Freeze, unless the effective date of such Retirement Benefit Freeze occurs within the two-year period immediately prior to announcement of the Change in Control and, in such event, the executive shall remain so entitled.
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(b) In the event of a Change in Control of the Company, if the employment of the Executive is thereafter involuntarily terminated without Cause, or if the Executive voluntarily terminates employment for Good Reason (i) within two (2) years after a Change in Control, or (ii) in anticipation of a Change in Control which then occurs within two (2) years, then the Executive shall receive a benefit, in addition to any benefit under Section 3 of this Agreement, under this Section 7.1(b). The benefit under this Section 7.1(b) shall be the continuation of the Executive’s Compensation, as defined below, for a period of three (3) years (payable in accordance with the Company’s or its successor’s regular payroll procedures for executive employees, but in any event not less frequently than monthly), plus continuation of all employee welfare benefits that the Executive was participating in (health insurance, disability insurance, life insurance and the like) immediately prior to the Change in Control (or cash in an amount equal to the value of the Company’s or its successor’s contributions for such welfare benefits to the extent that the Executive is no longer eligible to participate in such programs); provided, however, that, for purposes of this Section 7.1(b), the amount of the Executive’s Compensation taken into account shall be reduced by (20%) if the Executive has attained age sixty-one (61), by 40% if the Executive has attained age sixty-two (62), by 60% if the Executive has attained age sixty-three (63), by 80% if the Executive has attained age sixty-four (64), and by 100% if the Executive has attained age sixty-five (65), with all such age determinations made as of the date of the Executive’s termination of employment. The continuation of the Executive’s employee welfare benefits under this Section 7.1(b) shall be on the same terms and conditions (subject to the aforementioned substitution of cash in lieu of benefit plan participation to the extent the Executive is ineligible therefor) as such employee welfare benefits are offered to other executive employees of the Company or of its successor, as applicable, and such continuation shall be for a three-year period even if there is no continuation payment of the Executive’s Compensation because of the 100% reduction under the preceding sentence. For purposes of this Section VII only, the term “Compensation” shall mean the Executive’s base pay (at the rate in effect immediately prior to the Change in Control) plus the Executive’s bonus and profit sharing compensation (which for this purpose shall be the average of the Executive’s bonus and profit sharing compensation earned for the two (2) most recently completed fiscal years of the Company immediately preceding the Change in Control).
(c) In the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) would be subject to the excise tax imposed by Section 4999 of the Code, including any successor to such statute of like import (the “Excise Tax”), then the amount of the benefit otherwise payable under Section 7.1(b), if any, shall be reduced, but not below zero, to the maximum amount upon which no such Excise Tax is imposed.
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(d) For purposes of this Section 7.1, the proper amounts, if any, of the Excise Tax and the adjustment under Section 7.1(c) to eliminate the Excise Tax shall be determined in the first instance by the Company. Within forty-five (45) days of being provided with written notice of any such determination, the Executive may provide written notice to the Committee of any disagreement, in which event the amounts, if any, of the Excise Tax and any adjustment under Section 7.1(c) shall be determined by independent tax counsel selected by the Company’s independent auditors. The determination of the Company (or, in the event of disagreement, the tax counsel selected) shall be final.
7.2 For purposes of this Section VII, a Change in Control shall be deemed to have occurred upon the earliest of the following: (i) the date of acquisition by any one person, or more than one person acting as a group (as defined in Treasury Regulations §1.409A-3(i)(5)(v)(B)), of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; provided, however, that if any one person, or more than one person acting as a group, is considered to own more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons shall not be deemed to result in a Change in Control; (ii) the date a majority of members of the Company’s Board of Directors is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the date of the appointment or election; or (iii) the date that any one person, or more than one person acting as a group, acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value of more than seventy percent (70%) of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions; provided, however, that transfers of assets of the Company of any value to a related person or entity as described in Treasury Regulations §1.409A-3(i)(5)(vii)(B) shall not be deemed to result in a Change in Control.
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SECTION VIII. MISCELLANEOUS
8.1 Termination, Amendment and Subsequent Deferrals . The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, however, that no termination, suspension or amendment of this Agreement will, without the written consent of the Executive or the Surviving Spouse (if the Executive is not then living), reduce the Executive’s right or the right of the Surviving Spouse to receive or continue receiving a benefit accrued at the time of the termination, suspension or amendment in accordance with this Agreement. By way of clarification it is the intent of the Parties that the right to receive change in control benefits under Section VII shall accrue as of the date of the Original Agreement, subject to the limitations set forth in Section 7.1(a). The Parties agree that a Retirement Benefit Freeze, as described in Section 2.1, shall not be deemed a reduction of rights requiring consent hereunder. A termination or suspension of this Agreement shall not result in the acceleration of any benefit provided pursuant to this Agreement except as permitted in connection with a plan termination satisfying the conditions set forth in Treasury Regulations §1.409A-3(j)(ix), where the Committee decides to accelerate such benefit in accordance with the requirements of such regulation. The provisions of this Section 8.1 shall be subordinate to the provisions of Sections 2.3, 3.2, 4.1, 4.2, 8.11 and 8.13 concerning the forfeiture of benefits. The definition of “Retirement Date” in Section 2.2 provides for the designated time of the retirement benefit hereunder, and the Executive may only make a subsequent deferral if the change complies with Treasury Regulations § 1.409A-2(b)(1) (the “Subsequent Deferral Rules”). In the event that an Executive wishes to elect to defer payment commencement beyond his Retirement Date, he must provide written notice thereof to the Company (the “Deferral Notice”) at least one (1) year prior to his Retirement Date, or such longer notice period as may then be required under the Subsequent Deferral Rules. The Deferral Notice shall specify the date on which the Executive wishes to begin receiving his retirement benefit hereunder, and such deferred payment date must be at least five (5) years later than the date the payment otherwise would have been made, or such other period as may then be required under the Subsequent Deferral Rules. Partial deferrals will not be permitted and the Company may refuse to honor the Deferral Notice if, in the reasonable opinion of the Company’s external legal counsel, the Deferral Notice does not comply with the Subsequent Deferral Rules, or is otherwise reasonably likely to adversely affect the Company under the Subsequent Deferral Rules.
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8.2 No Employment Agreement; Entire Agreement . Nothing contained herein will confer upon the Executive the right to be retained in the service of the Company or its subsidiaries, nor will it interfere with the right of the Company or its subsidiaries to discharge or otherwise deal with the Executive without regard to the existence of this Agreement. This Agreement (which expressly includes the Preamble), together with those certain agreements expressly referred to herein, constitute the sole and entire agreement of the Parties with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to the subject matter.
8.3 Unfunded Arrangement . The benefits under this Agreement are unfunded, and the Company will make benefit payments solely on a current disbursement basis from the Company’s general assets. Notwithstanding anything herein to the contrary, the Executive and the Executive’s Surviving Spouse, if any, shall have the status of general unsecured creditors of the Company.
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8.4 Assignment . To the maximum extent permitted by law, no benefit under this Agreement shall be assignable or made subject by Executive in any manner to alienation, sale, transfer, claims of Executive’s creditors, pledge, attachment or encumbrances of any kind.
8.5 Rules . The Committee may adopt rules and regulations to assist it in the administration of this Agreement. This Agreement shall be administered and construed entirely in the discretion of the Committee and the Board of Directors, as applicable.
8.6 Information . The Executive shall receive a copy of this Agreement and the Committee will make available for inspection by the Executive a copy of any rules and regulations used by the Committee in administering this Agreement.
8.7. Construction . The masculine gender, where appearing in this Agreement, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. For purposes of complying with Code Section 409A, or any successor to such statute of like import, it is acknowledged that no benefit payments may be made under this Agreement prior to the Executive’s termination of employment with the Company, that the payment of benefits pursuant to this Agreement may not be accelerated by the Company or the Executive, and that there are no elections provided under the Agreement to defer compensation or to delay a payment of benefits other than in the case of an election made pursuant to the Subsequent Deferral Rules, as described in Section 8.1.
8.8 Controlling Law . This Agreement is established under and will be construed according to the laws of the State of New York, without regard for principles of conflicts of law. Notwithstanding the foregoing, this Agreement shall be construed consistent with the requirements of Code Section 409A, the regulations promulgated thereunder and other official guidance relating thereto such that the operation or terms of this Agreement do not result in the inclusion in income of any amount under such Code provision. For purposes of this Agreement, any term hereunder relating to the Executive’s termination of employment, the Executive terminating employment, the Executive being terminated or similar expression shall be deemed to refer to a separation from service, as defined in Treasury Regulations §1.409A-1(h). If an amount is to be paid under this Agreement in two or more installments, each installment shall be treated as a separate payment for purposes of Code Section 409A.
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8.9 Legal Expenses . The Company shall pay, upon request and documentation thereof (and not later than ninety (90) days after receipt of such request and documentation), all reasonable legal fees and expenses which the Executive/Surviving Spouse may incur as a result of the Company contesting the validity or enforceability of any provision of this Agreement or any claim by the Executive/Surviving Spouse under this Agreement; provided , however , that such request is made and supporting documentation provided to the Company by the Executive/Surviving Spouse within ninety (90) days after incurring the expense, and provided further, the Company shall be entitled to be reimbursed by the Executive/Surviving Spouse for such amount previously paid to such Executive/Surviving Spouse if it is finally judicially determined that such Executive’s/Surviving Spouse’s claims under this Agreement are frivolous.
8.10 Disputes & Severability . In the event of any dispute after the occurrence of a Change in Control (as defined in Section 7.2) between the Company and the Executive with respect to the Executive’s rights to any payment under this Agreement, the Company shall pay all disputed amounts to the Executive in the time and manner otherwise specified by this Agreement, and, if it is finally judicially determined that the Executive was not entitled to all or a portion of such disputed amounts, the Executive shall repay to the Company the amount to which the Executive was not entitled, together with interest thereon at the judgment rate of interest then applicable in New York State. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or provision is invalid, illegal or unenforceable, the court may modify this Agreement to effect the original intent of the parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
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8.11 Release . In connection with Executive’s receipt of the retirement benefit described in Section 3.1, the Executive shall execute (and not revoke) a standard, customary form of release agreement (the “Release”), including without limitation the following terms. If Executive is continuously incapacitated through the Release Date, this requirement is waived. The Release must be given no more than ninety (90) days following the Executive’s employment termination, with sufficient time to allow applicable revocation period(s) to expire before the end of such ninety- (90-) day period (the final day of such 90-day period to be the “Release Date”). Pursuant to the Release, the Executive, on behalf of himself and his heirs, shall agree to waive any and all claims he or they have, had, or may have had, in each case as of the date the Executive signs the Release, in connection with his employment by the Company or its affiliates, as against the Company, its affiliates, and its and their directors and employees, other than claims arising out of the Company’s breach of its obligations under this Agreement. The Release will not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. Should the Executive fail to return to the Company the executed Release on or before the Release Date, the Executive will forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.12 Post-Employment Consulting . Following the Executive’s termination, if the Company requests, and Executive agrees, that Executive provide occasional services not exceeding 20% of the amount of services provided by Executive prior to his termination, the provision of such limited services shall not extend the date of the Executive’s termination for purposes of this Agreement.
8.13 Non-Disparagement . The Executive agrees and covenants that he will not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company or its businesses, or any of its employees or directors. This section does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency. This section does not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. The Company agrees and covenants that it shall cause its officers and directors to refrain from making any defamatory or disparaging remarks, comments, or statements concerning the Executive to any third parties. In the event of the Executive’s violation, at any time, of his commitment under this Section 8.13, the Executive will, in the discretion of the Committee, forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.14 Original Agreement . This Agreement amends, supersedes and replaces the Original Agreement in its entirety, and the Original Agreement shall no longer be of any force or effect, except (i) where expressly referenced herein, and (ii) that years of service credit shall accrue as of the date originally established therefor under the Original Agreement.
IN WITNESS WHEREOF, this Agreement has been executed this 9 th day of November, 2016.
TOMPKINS FINANCIAL CORPORATION | |||
By: | /s/ Stephen S. Romaine | ||
ATTEST: /s/ Janet Hewitt |
Name: Stephen S. Romaine
Title: President & Chief Executive Officer |
||
By: | /s/ Francis M. Fetsko | ||
Name: Francis M. Fetsko, Individually | |||
ATTEST: /s/ Janet Hewitt |
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SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
Beneficiary Designation Form
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby designate my spouse to receive any death benefits that may become payable under the Agreement. I understand and acknowledge no death benefit will be paid under the Agreement (a) if the below-designated Spouse is not a “Surviving Spouse” as defined in the Agreement, or (b) if I do not return this Spousal Benefit Designation Form, completed and executed, to the Committee on or before my Retirement Date, as defined in the Agreement.
Spouse’s Name: ___________________________________
Social Security Number: _____________________________
Date of Birth: ______________________________
Home Address: ____________________________________________________________
Executive’s Signature: ______________________________
Witness’ Signature: ______________________________
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Tompkins Financial Corporation 10-Q
Exhibit 10.6
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Amended and Restated Supplemental Executive Retirement Agreement (the “Agreement”) is entered into effective November 9, 2016 by Tompkins Financial Corporation, with offices at 110 The Commons, Ithaca, New York 14851, and Gregory J. Hartz , residing at _____________________ (the “Executive”).
PREAMBLE
The Executive and Tompkins Financial Corporation previously entered into a Supplemental Executive Retirement Agreement, dated on or about May 12, 2011 (the “ Original Agreement ”), and Section 8.1 hereof sets forth the only provision of the Original Agreement which is incorporated into this Agreement. For good and valuable consideration, including without limitation (i) continued active participation and other benefits under this Agreement, (ii) an additional Supplemental Executive Retirement Agreement, also dated on or about the date hereof, and (iii) the grant of an equity award on or about the date hereof, which equity award is expressly conditioned upon Executive’s execution and delivery of this Agreement, the receipt and sufficiency of which is acknowledged, the parties now desire to clarify, amend and restate the Original Agreement as set forth herein. The principal objective of this Agreement and the Original Agreement is and was to ensure the payment of competitive levels of retirement income to the Executive, who has been determined to be a key executive of Tompkins Financial Corporation and its subsidiaries, in order to retain and motivate such Executive.
SECTION I. DEFINITIONS
1.1. | “ Board of Directors ” means the Board of Directors of Tompkins Financial Corporation. |
1.2. | “ Cause ” has the meaning set forth in Section 2.3. |
1.3. | “ Code ” means the Internal Revenue Code of 1986, as amended. |
1.4. | “ Competition with the Company ” has the meaning set forth in Section 2.3. |
1.5. | “ Committee ” means the Compensation Committee of the Board of Directors, which has been given authority by the Board of Directors to administer this Agreement. |
1.6. | “ Company ” means Tompkins Financial Corporation. |
1.7. | “ Compensation ” has the meaning set forth in Section 7.1(b). |
1.8. | “ Disabled ” means that by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, the Executive is unable to engage in any substantial gainful activity. |
1.9. | “ Early Retirement Reduction ” has the meaning set forth in Section 3.1. |
1.10. | “ Earnings ” means the average of the Executive’s five (5) highest calendar years (or such lesser number if the Executive has not completed five (5) years of service for the purpose of determining Earnings) of base pay, which shall mean the Executive’s base salary excluding bonuses, profit sharing, and the like, and which may include base pay in years prior to the Executive’s commencement of participation under this Agreement if so determined by the Board of Directors. |
1.11. | “ Excise Tax ” has the meaning set forth in Section 7.1(c). |
1.12. | “ Good Reason ” exists in the event of (i) a material diminution in the Executive’s base compensation, authority, duties or responsibilities; (ii) a material change in the geographic location at which the Executive is required to perform the duties of the Executive’s position; or (iii) a material breach of this Agreement by the Company or its successor, or of any other agreement pursuant to which the Executive provides services for the Company or its successor, provided the Executive gives written notice to the Company or its successor, as applicable, within ninety (90) days of the initial existence of the condition described in (i), (ii) or (iii), above, and the Company or its successor fails to remedy such condition within thirty (30) days after receipt of such notice. |
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1.13. | “ Release ” has the meaning set forth in Section 8.11. |
1.14. | “ Release Date ” has the meaning set forth in Section 8.11. |
1.15. | “ Retirement Age ” has the meaning set forth in Section 2.2. |
1.16. | “ Retirement Benefit Freeze ” has the meaning set forth in Section 2.1. |
1.17. | “ Retirement Date ” has the meaning set forth in Section 2.2. |
1.18. | “ Surviving Spouse ” means the spouse of the Executive, if any, designated at or prior to his Retirement Date on his ‘Beneficiary Designation Form’, surviving on the date of death of the Executive; provided, however, that if the Executive, as of the date of Executive’s death, is no longer married to the person so designated, then such person is not a Surviving Spouse for purposes of this Agreement. |
1.19. | “ Vested ” means having completed at least (ten) 10 years of service beginning with the date set forth in Section 3.3. |
1.20. | “ Years of Service Reduction ” has the meaning set forth in Section 3.1. |
SECTION II. ELIGIBILITY FOR BENEFITS
2.1 Eligibility . The Executive is eligible to participate in this Agreement by designation of the Board of Directors, in its sole discretion. The Board of Directors may determine, in its sole discretion, that the Executive should cease to continue accruing retirement benefits under this Agreement (a “ Retirement Benefit Freeze ”) and in such event the Board of Directors shall notify the Executive in writing of such determination. Such determination shall not reduce the then accrued retirement benefit of the Executive under this Agreement, as follows. The Executive will remain entitled to receive his retirement benefit in accordance with Section 3.1 (and Executive will be deemed Vested), except that the Years of Service Reduction shall be calculated utilizing the years of service completed by Executive as of the Retirement Benefit Freeze date, and Earnings shall be calculated as of the Retirement Benefit Freeze date. A Retirement Benefit Freeze will not impair Executive’s rights under Section 7 (Change in Control), except as expressly set forth herein.
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2.2 Retirement Date . The Executive is eligible to retire under this Agreement and receive a benefit under Section 3.1 beginning on his “Retirement Date” which is the later of: (a) the first day of the month following the month in which the Executive reaches age fifty-five (55) (which age is referred to as the “ Retirement Age ” herein), or (b) the first day of the month following the month in which the Executive terminates employment with the Company.
2.3 Termination; Competition . Anything herein to the contrary notwithstanding, if within two (2) years after involuntary termination (including resignation with Good Reason), the Executive engages in Competition with the Company (without prior authorization given by the Committee in writing), or, if the Executive is discharged by the Company or its subsidiaries for Cause, payments otherwise payable under this Agreement to the Executive or the Executive’s Surviving Spouse will, in the sole discretion of the Committee, be forfeited and the Company will have no further obligation under this Agreement to the Executive or the Executive’s Surviving Spouse. Anything herein to the contrary notwithstanding, no benefits are payable under this Agreement if the Executive engages in Competition with the Company at any time before, during or after his voluntary resignation (except in the case of Competition with the Company that begins more than two (2) years after a resignation with Good Reason). For purposes of this Agreement, the term “Cause” shall mean (a) the conviction of the Executive by a court of competent jurisdiction of a crime which constitutes a felony under any state or federal law, (b) an act by the Executive which in the reasonable opinion of the Board of Directors constitutes an intentional theft of property of the Company or its subsidiaries, (c) the willful and continued failure or refusal of the Executive to perform his duties, or (d) gross negligence or willful misconduct on the part of the Executive that is materially and demonstrably detrimental to the Company or its subsidiaries (as determined by the Board of Directors in its reasonable discretion). For purposes of this Section 2.3, “Competition with the Company” shall occur if the Executive, directly or indirectly, (a) comes to own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any other manner with, any business (but which shall exclude executive’s ownership of less than 1% of any class of equity or debt security of a publicly-traded competing business) which, in the judgment of the Board of Directors, is in substantial competition with the Company (unless the Executive has first obtained the Board’s prior written consent) and which is located within, or is actively directing marketing efforts within, ten (10) miles of any location of the Company or any of its subsidiaries, (b) solicits customers of the Company or any of its subsidiaries to reduce or stop doing business with the Company or any of its subsidiaries, or initiates any customer contact, for any reason, except for social contact with customers with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of business or business opportunities, or (c) solicits employees of the Company or any of its subsidiaries to leave such employment, or offers employment to employees of the Company or any of its subsidiaries, or initiates any employee contact, for any reason, except for social contact with employees with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of such employee’s services.
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SECTION III. AMOUNT AND FORM OF RETIREMENT BENEFIT
3.1 Retirement Benefit . The annual retirement benefit amount payable by the Company under this Agreement shall equal seventy-five percent (75%) of the Executive’s Earnings less (a) the hypothetical value of the annual amount of a single life annuity for the life of the Executive determined as if the accrual of benefits under the Tompkins Financial Corporation Retirement Plan had not been frozen, based upon the Executive’s relevant age, service, and compensation as in effect at the time such determination of value is made, and using the benefit formula in the Tompkins Financial Corporation Retirement Plan as of the date the accrual of further benefits under the Tompkins Financial Corporation Retirement Plan was frozen, and (b) the annual amount of the Executive’s Social Security benefits (with the amounts in subsections (a) and (b) based upon the Committee’s good faith estimate of the amounts of such benefits); provided, however, that the annual retirement benefit shall be reduced by five percent (5%) for each year that the Executive’s years of service under this Agreement are less than twenty (20) years (the “ Years of Service Reduction ”). The monthly retirement benefit payable by the Company to the Executive shall equal one-twelfth (1/12) of such annual retirement benefit. In the event the Executive’s Retirement Date under Section 2.2 occurs prior to the Executive attaining the age of sixty-five (65), the annual retirement benefit otherwise determined hereunder shall be further reduced by five percent (5%) for each year of age by which the Executive’s attained age at his Retirement Date is less than sixty-five (65) years (the “ Early Retirement Reduction ”). For clarity, when this Agreement states that an Executive is “deemed Vested,” such does not alter the Years of Service Reduction or the Early Retirement Reduction, and is only intended to confirm that the Executive is eligible for the benefit hereunder.
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The monthly benefit payable as a single life annuity shall be payable by the Company on the first day of each calendar month beginning with the Executive’s Retirement Date through and including the month of the Executive’s death. In the event the Executive is determined to be a “specified employee”, as such term is defined in Treasury Regulations §1.409A-1(i), then any monthly benefit otherwise payable on or before the date which is six (6) months after the Executive’s termination of employment date shall be delayed until the earlier of the Executive’s date of death or the date which is six (6) months after the Executive’s termination of employment date; provided, however, that such delay is only required for benefits constituting nonqualified deferred compensation under Code Section 409A, and the delay will apply only to those benefits that are not exempt from Code Section 409A. Any such delayed payments shall be accumulated and paid in a lump sum and payments thereafter will be made as scheduled in accordance with this Section 3.1.
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3.2 Death Benefit .
(a) Upon the death of the Executive after the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to an annual retirement benefit payable by the Company under this Agreement equal to fifty percent (50%) of the annual retirement benefit which the Executive had been receiving. The monthly retirement benefit payable by the Company to the Surviving Spouse shall be one-twelfth (1/12) of such annual retirement benefit and shall be payable on the first day of each month beginning with the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death.
(b) Upon the death of the Executive prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to an annual retirement benefit payable by the Company under this Agreement equal to fifty percent (50%) of the annual retirement benefit, determined under Section 3.1, provided that all of the following conditions are satisfied: (A) the annual retirement benefit shall be payable only if the Executive is Vested at the time of his death, as defined in Section I; and, (B) the Surviving Spouse survives until the date upon which the Executive would have attained his Retirement Age if the Executive’s death occurs prior to his Retirement Date. The monthly retirement benefit payable by the Company, if any, under this subsection to the Surviving Spouse shall equal one-twelfth (1/12) of said annual retirement benefit for the Surviving Spouse and shall be payable on the first day of each month commencing on the later of the Executive’s Retirement Age or the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death. The date utilized for the Years of Service Reduction shall be the date of the Executive’s death (or the date of the Executive’s termination of employment, if earlier), and the age utilized for the Early Retirement Reduction shall be the greater of (1) the Executive’s actual age at the time of his death (or the date of the Executive’s termination of employment, if earlier), and (2) the Retirement Age.
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(c) Upon the death of the Executive with no Surviving Spouse, or, if in the event of the Executive’s death prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse shall not survive the Executive until the date upon which the Executive would have attained the Retirement Age, there shall be no benefit payment under Section 3 to the Executive, the Executive’s Surviving Spouse, the estate of either the Executive or the Surviving Spouse, or otherwise.
3.3 Service . For purposes of this Agreement, the Executive’s service shall be defined as commencing on August 27, 2002 and ending on the date the Executive’s employment with Company or its subsidiaries is terminated, or such earlier date as shall be determined by the Board of Directors if the Board of Directors shall determine pursuant to Section 2.1 hereof that the Executive should cease to benefit under this Agreement (provided, however, that no such determination shall reduce the then-accrued benefit of the Executive under this Agreement). Years of service shall be determined in years and months of service with credit provided for a full month of service for the calendar month in which the Executive’s service commences as set forth above and the calendar month in which the Executive’s service hereunder ceases.
SECTION IV. PAYMENT OF RETIREMENT BENEFITS
4.1 Limitation on Payments . Sections 2.3, 3.2, 4.2, 8.11 and 8.13 set forth the circumstances under which all further benefits payable under this Agreement (even if Vested) are forfeited.
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4.2 Termination . Notwithstanding any contrary provision herein, if the Executive terminates employment voluntarily (which shall not include resignation with Good Reason) before attaining age fifty-five (55) and becoming Vested, the Company shall have no obligation to pay, and the Executive shall have no right to receive, any retirement benefit under this Agreement whatsoever. In the event of the Executive’s involuntary termination of employment (other than for Cause) or resignation with Good Reason at any time, the benefit payable to the Executive shall be determined as set forth in Section 3.1, and payments shall commence on the Executive’s Retirement Date (and the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction). For purposes of this provision, the date utilized for the Years of Service Reduction shall be the date of the Executive’s termination, and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date. In the event of the Executive’s death prior to the commencement of benefit payments under this provision, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
4.3 Health-Related Leave of Absence . Provided there is a reasonable expectation that the Executive will return to perform services for the Company (an “ Expected Return ”), the Committee may determine that the Executive has not separated from service for purposes of this Agreement during a leave of absence of up to twenty-nine (29) months, if such leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, and such impairment causes the Executive to be unable to perform the duties of his position or any substantially similar position (a “ Qualified Impairment ”). For clarity, even if a Qualified Impairment and Expected Return exist, the Committee is not obligated to defer the Employee’s separation from service during this period, and (subject to applicable federal and state law pertaining to medical leaves of absence) the Committee may instead elect to involuntarily terminate the Executive’s employment (other than for Cause) under Section 4.2 during this period. The determination as to the existence or absence of such Qualified Impairment and such Expected Return will be made by an independent physician identified by the Company. If, due to a Qualified Impairment, the Executive cannot return to perform the duties of his position or a substantially similar position for the Company by the end of such period, the Executive will be deemed to have incurred an involuntary termination of employment (other than for Cause) under Section 4.2 as of the first date following the end of such period.
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SECTION V. DEATH BENEFITS PAYABLE
5.1 Death Benefit . Other than the death benefit for the Surviving Spouse under Section 3.2, Section 4.2, or Section 6.2, as applicable, no death benefits are payable under this Agreement.
SECTION VI. DISABILITY BENEFITS PAYABLE
6.1 Disability Benefit . In the event that the Executive becomes Disabled, as determined by an independent physician identified by the Company (other than at a time when facts and circumstances exist under which the Company could, and does, terminate the Executive’s employment for Cause), the Executive shall be entitled to the benefits under Section 3.1 commencing the first day of the month following the month in which the Executive attains Social Security normal retirement age. For purposes of calculating the amount payable under Section 3.1 and pursuant to this Section6.1, the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction; the date utilized for the Years of Service Reduction shall be the date the Executive is determined to be Disabled; and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date.
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6.2 Death after Disability . In the event of the death of the Executive after Executive qualifies for a retirement benefit pursuant to Section 6.1, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
SECTION VII. CHANGE IN CONTROL
7.1 Change in Control .
(a) In the event of a Change in Control, as defined in Section 7.2, of the Company, the Executive shall be deemed to have completed twenty (20) years of service and is Vested in all benefits under this Agreement (though the Early Retirement Reduction shall still apply), and the retirement benefit described in Section 3.1 shall commence at the Executive’s Retirement Date. The executive shall not be entitled to the accelerated service completion set forth in this subsection following a Retirement Benefit Freeze, unless the effective date of such Retirement Benefit Freeze occurs within the two-year period immediately prior to announcement of the Change in Control and, in such event, the executive shall remain so entitled.
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(b) In the event of a Change in Control of the Company, if the employment of the Executive is thereafter involuntarily terminated without Cause, or if the Executive voluntarily terminates employment for Good Reason (i) within two (2) years after a Change in Control, or (ii) in anticipation of a Change in Control which then occurs within two (2) years, then the Executive shall receive a benefit, in addition to any benefit under Section 3 of this Agreement, under this Section 7.1(b). The benefit under this Section 7.1(b) shall be the continuation of the Executive’s Compensation, as defined below, for a period of three (3) years (payable in accordance with the Company’s or its successor’s regular payroll procedures for executive employees, but in any event not less frequently than monthly), plus continuation of all employee welfare benefits that the Executive was participating in (health insurance, disability insurance, life insurance and the like) immediately prior to the Change in Control (or cash in an amount equal to the value of the Company’s or its successor’s contributions for such welfare benefits to the extent that the Executive is no longer eligible to participate in such programs); provided, however, that, for purposes of this Section 7.1(b), the amount of the Executive’s Compensation taken into account shall be reduced by (20%) if the Executive has attained age sixty-one (61), by 40% if the Executive has attained age sixty-two (62), by 60% if the Executive has attained age sixty-three (63), by 80% if the Executive has attained age sixty-four (64), and by 100% if the Executive has attained age sixty-five (65), with all such age determinations made as of the date of the Executive’s termination of employment. The continuation of the Executive’s employee welfare benefits under this Section 7.1(b) shall be on the same terms and conditions (subject to the aforementioned substitution of cash in lieu of benefit plan participation to the extent the Executive is ineligible therefor) as such employee welfare benefits are offered to other executive employees of the Company or of its successor, as applicable, and such continuation shall be for a three-year period even if there is no continuation payment of the Executive’s Compensation because of the 100% reduction under the preceding sentence. For purposes of this Section VII only, the term “Compensation” shall mean the Executive’s base pay (at the rate in effect immediately prior to the Change in Control) plus the Executive’s bonus and profit sharing compensation (which for this purpose shall be the average of the Executive’s bonus and profit sharing compensation earned for the two (2) most recently completed fiscal years of the Company immediately preceding the Change in Control).
(c) In the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) would be subject to the excise tax imposed by Section 4999 of the Code, including any successor to such statute of like import (the “Excise Tax”), then the amount of the benefit otherwise payable under Section 7.1(b), if any, shall be reduced, but not below zero, to the maximum amount upon which no such Excise Tax is imposed.
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(d) For purposes of this Section 7.1, the proper amounts, if any, of the Excise Tax and the adjustment under Section 7.1(c) to eliminate the Excise Tax shall be determined in the first instance by the Company. Within forty-five (45) days of being provided with written notice of any such determination, the Executive may provide written notice to the Committee of any disagreement, in which event the amounts, if any, of the Excise Tax and any adjustment under Section 7.1(c) shall be determined by independent tax counsel selected by the Company’s independent auditors. The determination of the Company (or, in the event of disagreement, the tax counsel selected) shall be final.
7.2 For purposes of this Section VII, a Change in Control shall be deemed to have occurred upon the earliest of the following: (i) the date of acquisition by any one person, or more than one person acting as a group (as defined in Treasury Regulations §1.409A-3(i)(5)(v)(B)), of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; provided, however, that if any one person, or more than one person acting as a group, is considered to own more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons shall not be deemed to result in a Change in Control; (ii) the date a majority of members of the Company’s Board of Directors is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the date of the appointment or election; or (iii) the date that any one person, or more than one person acting as a group, acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value of more than seventy percent (70%) of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions; provided, however, that transfers of assets of the Company of any value to a related person or entity as described in Treasury Regulations §1.409A-3(i)(5)(vii)(B) shall not be deemed to result in a Change in Control.
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SECTION VIII. MISCELLANEOUS
8.1 Termination, Amendment and Subsequent Deferrals . The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, however, that no termination, suspension or amendment of this Agreement will, without the written consent of the Executive or the Surviving Spouse (if the Executive is not then living), reduce the Executive’s right or the right of the Surviving Spouse to receive or continue receiving a benefit accrued at the time of the termination, suspension or amendment in accordance with this Agreement. By way of clarification it is the intent of the Parties that the right to receive change in control benefits under Section VII shall accrue as of the date of the Original Agreement, subject to the limitations set forth in Section 7.1(a). The Parties agree that a Retirement Benefit Freeze, as described in Section 2.1, shall not be deemed a reduction of rights requiring consent hereunder. A termination or suspension of this Agreement shall not result in the acceleration of any benefit provided pursuant to this Agreement except as permitted in connection with a plan termination satisfying the conditions set forth in Treasury Regulations §1.409A-3(j)(ix), where the Committee decides to accelerate such benefit in accordance with the requirements of such regulation. The provisions of this Section 8.1 shall be subordinate to the provisions of Sections 2.3, 3.2, 4.1, 4.2, 8.11 and 8.13 concerning the forfeiture of benefits. The definition of “Retirement Date” in Section 2.2 provides for the designated time of the retirement benefit hereunder, and the Executive may only make a subsequent deferral if the change complies with Treasury Regulations § 1.409A-2(b)(1) (the “Subsequent Deferral Rules”). In the event that an Executive wishes to elect to defer payment commencement beyond his Retirement Date, he must provide written notice thereof to the Company (the “Deferral Notice”) at least one (1) year prior to his Retirement Date, or such longer notice period as may then be required under the Subsequent Deferral Rules. The Deferral Notice shall specify the date on which the Executive wishes to begin receiving his retirement benefit hereunder, and such deferred payment date must be at least five (5) years later than the date the payment otherwise would have been made, or such other period as may then be required under the Subsequent Deferral Rules. Partial deferrals will not be permitted and the Company may refuse to honor the Deferral Notice if, in the reasonable opinion of the Company’s external legal counsel, the Deferral Notice does not comply with the Subsequent Deferral Rules, or is otherwise reasonably likely to adversely affect the Company under the Subsequent Deferral Rules.
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8.2 No Employment Agreement; Entire Agreement . Nothing contained herein will confer upon the Executive the right to be retained in the service of the Company or its subsidiaries, nor will it interfere with the right of the Company or its subsidiaries to discharge or otherwise deal with the Executive without regard to the existence of this Agreement. This Agreement (which expressly includes the Preamble), together with those certain agreements expressly referred to herein, constitute the sole and entire agreement of the Parties with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to the subject matter.
8.3 Unfunded Arrangement . The benefits under this Agreement are unfunded, and the Company will make benefit payments solely on a current disbursement basis from the Company’s general assets. Notwithstanding anything herein to the contrary, the Executive and the Executive’s Surviving Spouse, if any, shall have the status of general unsecured creditors of the Company.
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8.4 Assignment . To the maximum extent permitted by law, no benefit under this Agreement shall be assignable or made subject by Executive in any manner to alienation, sale, transfer, claims of Executive’s creditors, pledge, attachment or encumbrances of any kind.
8.5 Rules . The Committee may adopt rules and regulations to assist it in the administration of this Agreement. This Agreement shall be administered and construed entirely in the discretion of the Committee and the Board of Directors, as applicable.
8.6 Information . The Executive shall receive a copy of this Agreement and the Committee will make available for inspection by the Executive a copy of any rules and regulations used by the Committee in administering this Agreement.
8.7. Construction . The masculine gender, where appearing in this Agreement, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. For purposes of complying with Code Section 409A, or any successor to such statute of like import, it is acknowledged that no benefit payments may be made under this Agreement prior to the Executive’s termination of employment with the Company, that the payment of benefits pursuant to this Agreement may not be accelerated by the Company or the Executive, and that there are no elections provided under the Agreement to defer compensation or to delay a payment of benefits other than in the case of an election made pursuant to the Subsequent Deferral Rules, as described in Section 8.1.
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8.8 Controlling Law . This Agreement is established under and will be construed according to the laws of the State of New York, without regard for principles of conflicts of law. Notwithstanding the foregoing, this Agreement shall be construed consistent with the requirements of Code Section 409A, the regulations promulgated thereunder and other official guidance relating thereto such that the operation or terms of this Agreement do not result in the inclusion in income of any amount under such Code provision. For purposes of this Agreement, any term hereunder relating to the Executive’s termination of employment, the Executive terminating employment, the Executive being terminated or similar expression shall be deemed to refer to a separation from service, as defined in Treasury Regulations §1.409A-1(h). If an amount is to be paid under this Agreement in two or more installments, each installment shall be treated as a separate payment for purposes of Code Section 409A.
8.9 Legal Expenses . The Company shall pay, upon request and documentation thereof (and not later than ninety (90) days after receipt of such request and documentation), all reasonable legal fees and expenses which the Executive/Surviving Spouse may incur as a result of the Company contesting the validity or enforceability of any provision of this Agreement or any claim by the Executive/Surviving Spouse under this Agreement; provided , however , that such request is made and supporting documentation provided to the Company by the Executive/Surviving Spouse within ninety (90) days after incurring the expense, and provided further, the Company shall be entitled to be reimbursed by the Executive/Surviving Spouse for such amount previously paid to such Executive/Surviving Spouse if it is finally judicially determined that such Executive’s/Surviving Spouse’s claims under this Agreement are frivolous.
8.10 Disputes & Severability . In the event of any dispute after the occurrence of a Change in Control (as defined in Section 7.2) between the Company and the Executive with respect to the Executive’s rights to any payment under this Agreement, the Company shall pay all disputed amounts to the Executive in the time and manner otherwise specified by this Agreement, and, if it is finally judicially determined that the Executive was not entitled to all or a portion of such disputed amounts, the Executive shall repay to the Company the amount to which the Executive was not entitled, together with interest thereon at the judgment rate of interest then applicable in New York State. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or provision is invalid, illegal or unenforceable, the court may modify this Agreement to effect the original intent of the parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
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8.11 Release . In connection with Executive’s receipt of the retirement benefit described in Section 3.1, the Executive shall execute (and not revoke) a standard, customary form of release agreement (the “Release”), including without limitation the following terms. If Executive is continuously incapacitated through the Release Date, this requirement is waived. The Release must be given no more than ninety (90) days following the Executive’s employment termination, with sufficient time to allow applicable revocation period(s) to expire before the end of such ninety- (90-) day period (the final day of such 90-day period to be the “Release Date”). Pursuant to the Release, the Executive, on behalf of himself and his heirs, shall agree to waive any and all claims he or they have, had, or may have had, in each case as of the date the Executive signs the Release, in connection with his employment by the Company or its affiliates, as against the Company, its affiliates, and its and their directors and employees, other than claims arising out of the Company’s breach of its obligations under this Agreement. The Release will not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. Should the Executive fail to return to the Company the executed Release on or before the Release Date, the Executive will forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.12 Post-Employment Consulting . Following the Executive’s termination, if the Company requests, and Executive agrees, that Executive provide occasional services not exceeding 20% of the amount of services provided by Executive prior to his termination, the provision of such limited services shall not extend the date of the Executive’s termination for purposes of this Agreement.
8.13 Non-Disparagement . The Executive agrees and covenants that he will not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company or its businesses, or any of its employees or directors. This section does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency. This section does not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. The Company agrees and covenants that it shall cause its officers and directors to refrain from making any defamatory or disparaging remarks, comments, or statements concerning the Executive to any third parties. In the event of the Executive’s violation, at any time, of his commitment under this Section 8.13, the Executive will, in the discretion of the Committee, forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.14 Original Agreement . This Agreement amends, supersedes and replaces the Original Agreement in its entirety, and the Original Agreement shall no longer be of any force or effect, except (i) where expressly referenced herein, and (ii) that years of service credit shall accrue as of the date originally established therefor under the Original Agreement.
IN WITNESS WHEREOF, this Agreement has been executed this 9 th day of November, 2016.
TOMPKINS FINANCIAL CORPORATION | ||
By: | /s/ Stephen S. Romaine | |
Name: | Stephen S. Romaine | |
ATTEST: /s/ Janet Hewitt | Title: | President & Chief Executive Officer |
By: | /s/ Gregory J. Hartz | |
Name: | Gregory J. Hartz, Individually | |
ATTEST: /s/ Kathleen A. Manley |
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SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
Beneficiary Designation Form
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby designate my spouse to receive any death benefits that may become payable under the Agreement. I understand and acknowledge no death benefit will be paid under the Agreement (a) if the below-designated Spouse is not a “Surviving Spouse” as defined in the Agreement, or (b) if I do not return this Spousal Benefit Designation Form, completed and executed, to the Committee on or before my Retirement Date, as defined in the Agreement.
Spouse’s Name: ___________________________________
Social Security Number: _____________________________
Date of Birth: ______________________________
Home Address: ____________________________________________________________
Executive’s Signature: ______________________________
Witness’ Signature: ______________________________
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Tompkins Financial Corporation 10-Q
Exhibit 10.7
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Amended and Restated Supplemental Executive Retirement Agreement (the “Agreement”) is entered into effective November 9, 2016, by Tompkins Financial Corporation, with offices at 110 The Commons, Ithaca, New York 14851, and Gerald J. Klein, Jr. , residing at _____________________ (the “Executive”).
PREAMBLE
The Executive and Tompkins Financial Corporation previously entered into a Supplemental Executive Retirement Agreement, dated on or about January 1, 2004 (the “ Original Agreement ”), and Section 8.1 hereof sets forth the only provision of the Original Agreement which is incorporated into this Agreement. For good and valuable consideration, including without limitation (i) continued active participation and other benefits under this Agreement, (ii) an additional Supplemental Executive Retirement Agreement, also dated on or about the date hereof, and (iii) the grant of an equity award on or about the date hereof, which equity award is expressly conditioned upon Executive’s execution and delivery of this Agreement, the receipt and sufficiency of which is acknowledged, the parties now desire to clarify, amend and restate the Original Agreement as set forth herein. The principal objective of this Agreement and the Original Agreement is and was to ensure the payment of competitive levels of retirement income to the Executive, who has been determined to be a key executive of Tompkins Financial Corporation and its subsidiaries, in order to retain and motivate such Executive.
SECTION I. DEFINITIONS
1.1. | “ Board of Directors ” means the Board of Directors of Tompkins Financial Corporation. |
1.2. | “ Cause ” has the meaning set forth in Section 2.3. |
1.3. | “ Code ” means the Internal Revenue Code of 1986, as amended. |
1.4. | “ Competition with the Company ” has the meaning set forth in Section 2.3. |
1.5. | “ Committee ” means the Compensation Committee of the Board of Directors, which has been given authority by the Board of Directors to administer this Agreement. |
1.6. | “ Company ” means Tompkins Financial Corporation. |
1.7. | “ Compensation ” has the meaning set forth in Section 7.1(b). |
1.8. | “ Disabled ” means that by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, the Executive is unable to engage in any substantial gainful activity. |
1.9. | “ Early Retirement Reduction ” has the meaning set forth in Section 3.1. |
1.10. | “ Earnings ” means the average of the Executive’s five (5) highest calendar years (or such lesser number if the Executive has not completed five (5) years of service for the purpose of determining Earnings) of base pay, which shall mean the Executive’s base salary excluding bonuses, profit sharing, and the like, and which may include base pay in years prior to the Executive’s commencement of participation under this Agreement if so determined by the Board of Directors. |
1.11. | “ Excise Tax ” has the meaning set forth in Section 7.1(c). |
1.12. | “ Good Reason ” exists in the event of (i) a material diminution in the Executive’s base compensation, authority, duties or responsibilities; (ii) a material change in the geographic location at which the Executive is required to perform the duties of the Executive’s position; or (iii) a material breach of this Agreement by the Company or its successor, or of any other agreement pursuant to which the Executive provides services for the Company or its successor, provided the Executive gives written notice to the Company or its successor, as applicable, within ninety (90) days of the initial existence of the condition described in (i), (ii) or (iii), above, and the Company or its successor fails to remedy such condition within thirty (30) days after receipt of such notice. |
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1.13. | “ Release ” has the meaning set forth in Section 8.11. |
1.14. | “ Release Date ” has the meaning set forth in Section 8.11. |
1.15. | “ Retirement Age ” has the meaning set forth in Section 2.2. |
1.16. | “ Retirement Benefit Freeze ” has the meaning set forth in Section 2.1. |
1.17. | “ Retirement Date ” has the meaning set forth in Section 2.2. |
1.18. | “ Surviving Spouse ” means the spouse of the Executive, if any, designated at or prior to his Retirement Date on his ‘Beneficiary Designation Form’, surviving on the date of death of the Executive; provided, however, that if the Executive, as of the date of Executive’s death, is no longer married to the person so designated, then such person is not a Surviving Spouse for purposes of this Agreement. |
1.19. | “ Vested ” means having completed at least (ten) 10 years of service beginning on the date set forth in Section 3.3. |
1.20. | “ Years of Service Reduction ” has the meaning set forth in Section 3.1. |
SECTION II. ELIGIBILITY FOR BENEFITS
2.1 Eligibility . The Executive is eligible to participate in this Agreement by designation of the Board of Directors, in its sole discretion. The Board of Directors may determine, in its sole discretion, that the Executive should cease to continue accruing retirement benefits under this Agreement (a “ Retirement Benefit Freeze ”) and in such event the Board of Directors shall notify the Executive in writing of such determination. Such determination shall not reduce the then accrued retirement benefit of the Executive under this Agreement, as follows. The Executive will remain entitled to receive his retirement benefit in accordance with Section 3.1 (and Executive will be deemed Vested), except that the Years of Service Reduction shall be calculated utilizing the years of service completed by Executive as of the Retirement Benefit Freeze date, and Earnings shall be calculated as of the Retirement Benefit Freeze date. A Retirement Benefit Freeze will not impair Executive’s rights under Section 7 (Change in Control) and Section 9 (Severance), except as expressly set forth herein.
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2.2 Retirement Date . The Executive is eligible to retire under this Agreement and receive a benefit under Section 3.1 beginning on his “Retirement Date” which is the later of: (a) the first day of the month following the month in which the Executive reaches age fifty-five (55) (which age is referred to as the “ Retirement Age ” herein), or (b) the first day of the month following the month in which the Executive terminates employment with the Company.
2.3 Termination; Competition . Anything herein to the contrary notwithstanding, if within two (2) years after involuntary termination (including resignation with Good Reason), the Executive engages in Competition with the Company (without prior authorization given by the Committee in writing), or, if the Executive is discharged by the Company or its subsidiaries for Cause, payments otherwise payable under this Agreement to the Executive or the Executive’s Surviving Spouse will, in the sole discretion of the Committee, be forfeited and the Company will have no further obligation under this Agreement to the Executive or the Executive’s Surviving Spouse. Anything herein to the contrary notwithstanding, no benefits are payable under this Agreement if the Executive engages in Competition with the Company at any time before, during or after his voluntary resignation (except in the case of Competition with the Company that begins more than two (2) years after a resignation with Good Reason). For purposes of this Agreement, the term “Cause” shall mean (a) the conviction of the Executive by a court of competent jurisdiction of a crime which constitutes a felony under any state or federal law, (b) an act by the Executive which in the reasonable opinion of the Board of Directors constitutes an intentional theft of property of the Company or its subsidiaries, (c) the willful and continued failure or refusal of the Executive to perform his duties, or (d) gross negligence or willful misconduct on the part of the Executive that is materially and demonstrably detrimental to the Company or its subsidiaries (as determined by the Board of Directors in its reasonable discretion). For purposes of this Section 2.3, “Competition with the Company” shall occur if the Executive, directly or indirectly, (a) comes to own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any other manner with, any business (but which shall exclude executive’s ownership of less than 1% of any class of equity or debt security of a publicly-traded competing business) which, in the judgment of the Board of Directors, is in substantial competition with the Company (unless the Executive has first obtained the Board’s prior written consent) and which is located within, or is actively directing marketing efforts within, ten (10) miles of any location of the Company or any of its subsidiaries, (b) solicits customers of the Company or any of its subsidiaries to reduce or stop doing business with the Company or any of its subsidiaries, or initiates any customer contact, for any reason, except for social contact with customers with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of business or business opportunities, or (c) solicits employees of the Company or any of its subsidiaries to leave such employment, or offers employment to employees of the Company or any of its subsidiaries, or initiates any employee contact, for any reason, except for social contact with employees with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of such employee’s services.
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SECTION III. AMOUNT AND FORM OF RETIREMENT BENEFIT
3.1 Retirement Benefit . The annual retirement benefit amount payable by the Company under this Agreement shall equal seventy-five percent (75%) of the Executive’s Earnings less (a) the hypothetical value of the annual amount of a single life annuity for the life of the Executive determined as if the accrual of benefits under the Tompkins Financial Corporation Retirement Plan had not been frozen, based upon the Executive’s relevant age, service, and compensation as in effect at the time such determination of value is made, and using the benefit formula in the Tompkins Financial Corporation Retirement Plan as of the date the accrual of further benefits under the Tompkins Financial Corporation Retirement Plan was frozen, and (b) the annual amount of the Executive’s Social Security benefits (with the amounts in subsections (a) and (b) based upon the Committee’s good faith estimate of the amounts of such benefits); provided, however, that the annual retirement benefit shall be reduced by five percent (5%) for each year that the Executive’s years of service under this Agreement are less than twenty (20) years (the “ Years of Service Reduction ”). The monthly retirement benefit payable by the Company to the Executive shall equal one-twelfth (1/12) of such annual retirement benefit. In the event the Executive’s Retirement Date under Section 2.2 occurs prior to the Executive attaining the age of sixty-five (65), the annual retirement benefit otherwise determined hereunder shall be further reduced by five percent (5%) for each year of age by which the Executive’s attained age at his Retirement Date is less than sixty-five (65) years (the “ Early Retirement Reduction ”). For clarity, when this Agreement states that an Executive is “deemed Vested,” such does not alter the Years of Service Reduction or the Early Retirement Reduction, and is only intended to confirm that the Executive is eligible for the benefit hereunder.
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The monthly benefit payable as a single life annuity shall be payable by the Company on the first day of each calendar month beginning with the Executive’s Retirement Date through and including the month of the Executive’s death. In the event the Executive is determined to be a “specified employee”, as such term is defined in Treasury Regulations §1.409A-1(i), then any monthly benefit otherwise payable on or before the date which is six (6) months after the Executive’s termination of employment date shall be delayed until the earlier of the Executive’s date of death or the date which is six (6) months after the Executive’s termination of employment date; provided, however, that such delay is only required for benefits constituting nonqualified deferred compensation under Code Section 409A, and the delay will apply only to those benefits that are not exempt from Code Section 409A. Any such delayed payments shall be accumulated and paid in a lump sum and payments thereafter will be made as scheduled in accordance with this Section 3.1.
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3.2 Death Benefit .
(a) Upon the death of the Executive after the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to an annual retirement benefit payable by the Company under this Agreement equal to fifty percent (50%) of the annual retirement benefit which the Executive had been receiving. The monthly retirement benefit payable by the Company to the Surviving Spouse shall be one-twelfth (1/12) of such annual retirement benefit and shall be payable on the first day of each month beginning with the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death.
(b) Upon the death of the Executive prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to an annual retirement benefit payable by the Company under this Agreement equal to fifty percent (50%) of the annual retirement benefit, determined under Section 3.1, provided that all of the following conditions are satisfied: (A) the annual retirement benefit shall be payable only if the Executive is Vested at the time of his death, as defined in Section I; and, (B) the Surviving Spouse survives until the date upon which the Executive would have attained his Retirement Age if the Executive’s death occurs prior to his Retirement Date. The monthly retirement benefit payable by the Company, if any, under this subsection to the Surviving Spouse shall equal one-twelfth (1/12) of said annual retirement benefit for the Surviving Spouse and shall be payable on the first day of each month commencing on the later of the Executive’s Retirement Age or the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death. The date utilized for the Years of Service Reduction shall be the date of the Executive’s death (or the date of the Executive’s termination of employment, if earlier), and the age utilized for the Early Retirement Reduction shall be the greater of (1) the Executive’s actual age at the time of his death (or the date of the Executive’s termination of employment, if earlier), and (2) the Retirement Age.
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(c) Upon the death of the Executive with no Surviving Spouse, or, if in the event of the Executive’s death prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse shall not survive the Executive until the date upon which the Executive would have attained the Retirement Age, there shall be no benefit payment under Section 3 to the Executive, the Executive’s Surviving Spouse, the estate of either the Executive or the Surviving Spouse, or otherwise.
3.3 Service . For purposes of this Agreement, the Executive’s service shall be defined as commencing on April 10, 1995 and ending on the date the Executive’s employment with Company or its subsidiaries is terminated, or such earlier date as shall be determined by the Board of Directors if the Board of Directors shall determine pursuant to Section 2.1 hereof that the Executive should cease to benefit under this Agreement (provided, however, that no such determination shall reduce the then-accrued benefit of the Executive under this Agreement). Years of service shall be determined in years and months of service with credit provided for a full month of service for the calendar month in which the Executive’s service commences as set forth above and the calendar month in which the Executive’s service hereunder ceases.
SECTION IV. PAYMENT OF RETIREMENT BENEFITS
4.1 Limitation on Payments . Sections 2.3, 3.2, 4.2, 8.11 and 8.13 set forth the circumstances under which all further benefits payable under this Agreement (even if Vested) are forfeited.
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4.2 Termination . Notwithstanding any contrary provision herein, if the Executive terminates employment voluntarily (which shall not include resignation with Good Reason) before attaining age fifty-five (55) and becoming Vested, the Company shall have no obligation to pay, and the Executive shall have no right to receive, any retirement benefit under this Agreement whatsoever. In the event of the Executive’s involuntary termination of employment (other than for Cause) or resignation with Good Reason at any time, the benefit payable to the Executive shall be determined as set forth in Section 3.1, and payments shall commence on the Executive’s Retirement Date (and the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction). For purposes of this provision, the date utilized for the Years of Service Reduction shall be the date of the Executive’s termination, and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date. In the event of the Executive’s death prior to the commencement of benefit payments under this provision, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
4.3 Health-Related Leave of Absence . Provided there is a reasonable expectation that the Executive will return to perform services for the Company (an “ Expected Return ”), the Committee may determine that the Executive has not separated from service for purposes of this Agreement during a leave of absence of up to twenty-nine (29) months, if such leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, and such impairment causes the Executive to be unable to perform the duties of his position or any substantially similar position (a “ Qualified Impairment ”). For clarity, even if a Qualified Impairment and Expected Return exist, the Committee is not obligated to defer the Employee’s separation from service during this period, and (subject to applicable federal and state law pertaining to medical leaves of absence) the Committee may instead elect to involuntarily terminate the Executive’s employment (other than for Cause) under Section 4.2 during this period. The determination as to the existence or absence of such Qualified Impairment and such Expected Return will be made by an independent physician identified by the Company. If, due to a Qualified Impairment, the Executive cannot return to perform the duties of his position or a substantially similar position for the Company by the end of such period, the Executive will be deemed to have incurred an involuntary termination of employment (other than for Cause) under Section 4.2 as of the first date following the end of such period.
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SECTION V. DEATH BENEFITS PAYABLE
5.1 Death Benefit . Other than the death benefit for the Surviving Spouse under Section 3.2, Section 4.2, or Section 6.2, as applicable, no death benefits are payable under this Agreement.
SECTION VI. DISABILITY BENEFITS PAYABLE
6.1 Disability Benefit . In the event that the Executive becomes Disabled, as determined by an independent physician identified by the Company (other than at a time when facts and circumstances exist under which the Company could, and does, terminate the Executive’s employment for Cause), the Executive shall be entitled to the benefits under Section 3.1 commencing the first day of the month following the month in which the Executive attains Social Security normal retirement age. For purposes of calculating the amount payable under Section 3.1 and pursuant to this Section6.1, the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction; the date utilized for the Years of Service Reduction shall be the date the Executive is determined to be Disabled; and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date.
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6.2 Death after Disability . In the event of the death of the Executive after Executive qualifies for a retirement benefit pursuant to Section 6.1, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
SECTION VII. CHANGE IN CONTROL
7.1 Change in Control .
(a) In the event of a Change in Control, as defined in Section 7.2, of the Company, the Executive shall be deemed to have completed twenty (20) years of service and is Vested in all benefits under this Agreement (though the Early Retirement Reduction shall still apply), and the retirement benefit described in Section 3.1 shall commence at the Executive’s Retirement Date. The executive shall not be entitled to the accelerated service completion set forth in this subsection following a Retirement Benefit Freeze, unless the effective date of such Retirement Benefit Freeze occurs within the two-year period immediately prior to announcement of the Change in Control and, in such event, the executive shall remain so entitled.
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(b) In the event of a Change in Control of the Company, if the employment of the Executive is thereafter involuntarily terminated without Cause, or if the Executive voluntarily terminates employment for Good Reason (i) within two (2) years after a Change in Control, or (ii) in anticipation of a Change in Control which then occurs within two (2) years, then the Executive shall receive a benefit, in addition to any benefit under Section 3 of this Agreement, under this Section 7.1(b). The benefit under this Section 7.1(b) shall be the continuation of the Executive’s Compensation, as defined below, for a period of three (3) years (payable in accordance with the Company’s or its successor’s regular payroll procedures for executive employees, but in any event not less frequently than monthly), plus continuation of all employee welfare benefits that the Executive was participating in (health insurance, disability insurance, life insurance and the like) immediately prior to the Change in Control (or cash in an amount equal to the value of the Company’s or its successor’s contributions for such welfare benefits to the extent that the Executive is no longer eligible to participate in such programs); provided, however, that, for purposes of this Section 7.1(b), the amount of the Executive’s Compensation taken into account shall be reduced by (20%) if the Executive has attained age sixty-one (61), by 40% if the Executive has attained age sixty-two (62), by 60% if the Executive has attained age sixty-three (63), by 80% if the Executive has attained age sixty-four (64), and by 100% if the Executive has attained age sixty-five (65), with all such age determinations made as of the date of the Executive’s termination of employment. The continuation of the Executive’s employee welfare benefits under this Section 7.1(b) shall be on the same terms and conditions (subject to the aforementioned substitution of cash in lieu of benefit plan participation to the extent the Executive is ineligible therefor) as such employee welfare benefits are offered to other executive employees of the Company or of its successor, as applicable, and such continuation shall be for a three-year period even if there is no continuation payment of the Executive’s Compensation because of the 100% reduction under the preceding sentence. For purposes of this Section VII only, the term “Compensation” shall mean the Executive’s base pay (at the rate in effect immediately prior to the Change in Control) plus the Executive’s bonus and profit sharing compensation (which for this purpose shall be the average of the Executive’s bonus and profit sharing compensation earned for the two (2) most recently completed fiscal years of the Company immediately preceding the Change in Control).
(c) In the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) would be subject to the excise tax imposed by Section 4999 of the Code, including any successor to such statute of like import (the “Excise Tax”), then the amount of the benefit otherwise payable under Section 7.1(b), if any, shall be reduced, but not below zero, to the maximum amount upon which no such Excise Tax is imposed.
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(d) For purposes of this Section 7.1, the proper amounts, if any, of the Excise Tax and the adjustment under Section 7.1(c) to eliminate the Excise Tax shall be determined in the first instance by the Company. Within forty-five (45) days of being provided with written notice of any such determination, the Executive may provide written notice to the Committee of any disagreement, in which event the amounts, if any, of the Excise Tax and any adjustment under Section 7.1(c) shall be determined by independent tax counsel selected by the Company’s independent auditors. The determination of the Company (or, in the event of disagreement, the tax counsel selected) shall be final.
7.2 For purposes of this Section VII, a Change in Control shall be deemed to have occurred upon the earliest of the following: (i) the date of acquisition by any one person, or more than one person acting as a group (as defined in Treasury Regulations §1.409A-3(i)(5)(v)(B)), of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; provided, however, that if any one person, or more than one person acting as a group, is considered to own more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons shall not be deemed to result in a Change in Control; (ii) the date a majority of members of the Company’s Board of Directors is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the date of the appointment or election; or (iii) the date that any one person, or more than one person acting as a group, acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value of more than seventy percent (70%) of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions; provided, however, that transfers of assets of the Company of any value to a related person or entity as described in Treasury Regulations §1.409A-3(i)(5)(vii)(B) shall not be deemed to result in a Change in Control.
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SECTION VIII. MISCELLANEOUS
8.1 Termination, Amendment and Subsequent Deferrals . The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, however, that no termination, suspension or amendment of this Agreement will, without the written consent of the Executive or the Surviving Spouse (if the Executive is not then living), reduce the Executive’s right or the right of the Surviving Spouse to receive or continue receiving a benefit accrued at the time of the termination, suspension or amendment in accordance with this Agreement. By way of clarification it is the intent of the Parties that the benefit under Section IX shall accrue as of the date of the Original Agreement, and the right to receive change in control benefits under Section VII shall also accrue as of the date of the Original Agreement, subject to the limitations set forth in Section 7.1(a). The Parties agree that a Retirement Benefit Freeze, as described in Section 2.1, shall not be deemed a reduction of rights requiring consent hereunder. A termination or suspension of this Agreement shall not result in the acceleration of any benefit provided pursuant to this Agreement except as permitted in connection with a plan termination satisfying the conditions set forth in Treasury Regulations §1.409A-3(j)(ix), where the Committee decides to accelerate such benefit in accordance with the requirements of such regulation. The provisions of this Section 8.1 shall be subordinate to the provisions of Sections 2.3, 3.2, 4.1, 4.2, 8.11 and 8.13 concerning the forfeiture of benefits. The definition of “Retirement Date” in Section 2.2 provides for the designated time of the retirement benefit hereunder, and the Executive may only make a subsequent deferral if the change complies with Treasury Regulations § 1.409A-2(b)(1) (the “Subsequent Deferral Rules”). In the event that an Executive wishes to elect to defer payment commencement beyond his Retirement Date, he must provide written notice thereof to the Company (the “Deferral Notice”) at least one (1) year prior to his Retirement Date, or such longer notice period as may then be required under the Subsequent Deferral Rules. The Deferral Notice shall specify the date on which the Executive wishes to begin receiving his retirement benefit hereunder, and such deferred payment date must be at least five (5) years later than the date the payment otherwise would have been made, or such other period as may then be required under the Subsequent Deferral Rules. Partial deferrals will not be permitted and the Company may refuse to honor the Deferral Notice if, in the reasonable opinion of the Company’s external legal counsel, the Deferral Notice does not comply with the Subsequent Deferral Rules, or is otherwise reasonably likely to adversely affect the Company under the Subsequent Deferral Rules.
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8.2 No Employment Agreement; Entire Agreement . Nothing contained herein will confer upon the Executive the right to be retained in the service of the Company or its subsidiaries, nor will it interfere with the right of the Company or its subsidiaries to discharge or otherwise deal with the Executive without regard to the existence of this Agreement. This Agreement (which expressly includes the Preamble), together with those certain agreements expressly referred to herein, constitute the sole and entire agreement of the Parties with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to the subject matter.
8.3 Unfunded Arrangement . The benefits under this Agreement are unfunded, and the Company will make benefit payments solely on a current disbursement basis from the Company’s general assets. Notwithstanding anything herein to the contrary, the Executive and the Executive’s Surviving Spouse, if any, shall have the status of general unsecured creditors of the Company.
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8.4 Assignment . To the maximum extent permitted by law, no benefit under this Agreement shall be assignable or made subject by Executive in any manner to alienation, sale, transfer, claims of Executive’s creditors, pledge, attachment or encumbrances of any kind.
8.5 Rules . The Committee may adopt rules and regulations to assist it in the administration of this Agreement. This Agreement shall be administered and construed entirely in the discretion of the Committee and the Board of Directors, as applicable.
8.6 Information . The Executive shall receive a copy of this Agreement and the Committee will make available for inspection by the Executive a copy of any rules and regulations used by the Committee in administering this Agreement.
8.7. Construction . The masculine gender, where appearing in this Agreement, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. For purposes of complying with Code Section 409A, or any successor to such statute of like import, it is acknowledged that no benefit payments may be made under this Agreement prior to the Executive’s termination of employment with the Company, that the payment of benefits pursuant to this Agreement may not be accelerated by the Company or the Executive, and that there are no elections provided under the Agreement to defer compensation or to delay a payment of benefits other than in the case of an election made pursuant to the Subsequent Deferral Rules, as described in Section 8.1.
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8.8 Controlling Law . This Agreement is established under and will be construed according to the laws of the State of New York, without regard for principles of conflicts of law. Notwithstanding the foregoing, this Agreement shall be construed consistent with the requirements of Code Section 409A, the regulations promulgated thereunder and other official guidance relating thereto such that the operation or terms of this Agreement do not result in the inclusion in income of any amount under such Code provision. For purposes of this Agreement, any term hereunder relating to the Executive’s termination of employment, the Executive terminating employment, the Executive being terminated or similar expression shall be deemed to refer to a separation from service, as defined in Treasury Regulations §1.409A-1(h). If an amount is to be paid under this Agreement in two or more installments, each installment shall be treated as a separate payment for purposes of Code Section 409A.
8.9 Legal Expenses . The Company shall pay, upon request and documentation thereof (and not later than ninety (90) days after receipt of such request and documentation), all reasonable legal fees and expenses which the Executive/Surviving Spouse may incur as a result of the Company contesting the validity or enforceability of any provision of this Agreement or any claim by the Executive/Surviving Spouse under this Agreement; provided , however , that such request is made and supporting documentation provided to the Company by the Executive/Surviving Spouse within ninety (90) days after incurring the expense, and provided further, the Company shall be entitled to be reimbursed by the Executive/Surviving Spouse for such amount previously paid to such Executive/Surviving Spouse if it is finally judicially determined that such Executive’s/Surviving Spouse’s claims under this Agreement are frivolous.
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8.10 Disputes & Severability . In the event of any dispute after the occurrence of a Change in Control (as defined in Section 7.2) between the Company and the Executive with respect to the Executive’s rights to any payment under this Agreement, the Company shall pay all disputed amounts to the Executive in the time and manner otherwise specified by this Agreement, and, if it is finally judicially determined that the Executive was not entitled to all or a portion of such disputed amounts, the Executive shall repay to the Company the amount to which the Executive was not entitled, together with interest thereon at the judgment rate of interest then applicable in New York State. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or provision is invalid, illegal or unenforceable, the court may modify this Agreement to effect the original intent of the parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
8.11 Release . In connection with Executive’s receipt of the retirement benefit described in Section 3.1 and the severance benefit described in Section IX, the Executive shall execute (and not revoke) a standard, customary form of release agreement (the “Release”), including without limitation the following terms. If Executive is continuously incapacitated through the Release Date, this requirement is waived. The Release must be given no more than ninety (90) days following the Executive’s employment termination, with sufficient time to allow applicable revocation period(s) to expire before the end of such ninety- (90-) day period (the final day of such 90-day period to be the “Release Date”). Pursuant to the Release, the Executive, on behalf of himself and his heirs, shall agree to waive any and all claims he or they have, had, or may have had, in each case as of the date the Executive signs the Release, in connection with his employment by the Company or its affiliates, as against the Company, its affiliates, and its and their directors and employees, other than claims arising out of the Company’s breach of its obligations under this Agreement. The Release will not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. Should the Executive fail to return to the Company the executed Release on or before the Release Date, the Executive will forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.12 Post-Employment Consulting . Following the Executive’s termination, if the Company requests, and Executive agrees, that Executive provide occasional services not exceeding 20% of the amount of services provided by Executive prior to his termination, the provision of such limited services shall not extend the date of the Executive’s termination for purposes of this Agreement.
8.13 Non-Disparagement . The Executive agrees and covenants that he will not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company or its businesses, or any of its employees or directors. This section does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency. This section does not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. The Company agrees and covenants that it shall cause its officers and directors to refrain from making any defamatory or disparaging remarks, comments, or statements concerning the Executive to any third parties. In the event of the Executive’s violation, at any time, of his commitment under this Section 8.13, the Executive will, in the discretion of the Committee, forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.14 Original Agreement . This Agreement amends, supersedes and replaces the Original Agreement in its entirety, and the Original Agreement shall no longer be of any force or effect, except (i) where expressly referenced herein, and (ii) that years of service credit shall accrue as of the date originally established therefor under the Original Agreement.
SECTION IX. SEVERANCE BENEFIT
9.1 Severance Benefit . So long as Executive has completed at least one (1) year of service following the date of this Agreement (or, if this is an amended/restated agreement, following the date of the Original Agreement), then in addition to any benefit provided under Sections III, V and VI hereof, in the event of the Executive’s involuntary termination of employment without Cause or resignation with Good Reason (in each case, in a termination not governed by the provisions of Section 7.1 concerning a Change in Control), the Executive shall receive a severance benefit payable by the Company in accordance with the Company’s payroll practices applicable to its executive employees, for a period of twelve (12) months, commencing on the Company’s first payroll date after the Executive’s termination of employment. Upon the Executive’s death after such payments have begun but before such payments are completed, the balance of such payments shall continue to be made to the Executive’s Surviving Spouse or, if no Surviving Spouse survives the Executive, to the Executive’s estate. For purposes of this Section 9.1, the severance benefits shall equal the Executive’s base salary as in effect immediately prior to the Executive’s termination of employment date, excluding bonuses, profit sharing, and the like. In addition to the severance benefit, the Executive shall be entitled, but not required, during the period in which a severance benefit is being paid pursuant to this Section 9.1, to participate in the Company’s welfare benefit programs available to the Company’s executive employees, upon the same terms and conditions as the Company may from time to time establish generally for such executive employees; provided, however, that if such continued participation is not permitted by law or by the applicable benefit plan, the Company shall instead provide a cash payment equal to what it would have cost the Company to continue the Executive’s participation, had such participation been permitted.
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IN WITNESS WHEREOF, this Agreement has been executed this 9 th day of November, 2016.
TOMPKINS FINANCIAL CORPORATION | |||||
By: | /s/ Stephen S. Romaine | ||||
Name: Stephen S. Romaine | |||||
ATTEST: | /s/ Janet Hewitt | Title: President & Chief Executive Officer | |||
By: | /s/ Gerald J. Klein, Jr. | ||||
Gerald J. Klein, Jr., Individually | |||||
ATTEST: | /s/ Phyllis Salatino |
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SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
Beneficiary Designation Form
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby designate my spouse to receive any death benefits that may become payable under the Agreement. I understand and acknowledge no death benefit will be paid under the Agreement (a) if the below-designated Spouse is not a “Surviving Spouse” as defined in the Agreement, or (b) if I do not return this Spousal Benefit Designation Form, completed and executed, to the Committee on or before my Retirement Date, as defined in the Agreement.
Spouse’s Name: ___________________________________
Social Security Number: _____________________________
Date of Birth: ______________________________
Home Address: ____________________________________________________________
Executive’s Signature: ______________________________
Witness’ Signature: ______________________________
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Tompkins Financial Corporation 10-Q
Exhibit 10.8
AMENDED
AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Amended and Restated Supplemental Executive Retirement Agreement (the “Agreement”) is entered into effective November 9, 2016 by Tompkins Financial Corporation, with offices at 110 The Commons, Ithaca, New York 14851, and Alyssa Hochberg Fontaine, residing at ___________________________, New York (the “Executive”).
PREAMBLE
The Executive and Tompkins Financial Corporation previously entered into a Supplemental Executive Retirement Agreement, dated on or about January 1, 2016 (the “ Original Agreement ”), and Section 8.1 hereof sets forth the only provision of the Original Agreement which is incorporated into this Agreement. For good and valuable consideration, including without limitation (i) continued active participation and other benefits under this Agreement, (ii) an additional Supplemental Executive Retirement Agreement, also dated on or about the date hereof, and (iii) the grant of an equity award on or about the date hereof, which equity award is expressly conditioned upon Executive’s execution and delivery of this Agreement, the receipt and sufficiency of which is acknowledged, the parties now desire to clarify, amend and restate the Original Agreement as set forth herein. The principal objective of this Agreement and the Original Agreement is and was to ensure the payment of competitive levels of retirement income to the Executive, who has been determined to be a key executive of Tompkins Financial Corporation and its subsidiaries, in order to retain and motivate such Executive.
SECTION I. DEFINITIONS
1.1. | “ Board of Directors ” means the Board of Directors of Tompkins Financial Corporation. |
1.2. | “ Cause ” has the meaning set forth in Section 2.3. |
1.3. | “ Code ” means the Internal Revenue Code of 1986, as amended. |
1.4. | “ Competition with the Company ” has the meaning set forth in Section 2.3. |
1.5. | “ Committee ” means the Compensation Committee of the Board of Directors, which has been given authority by the Board of Directors to administer this Agreement. |
1.6. | “ Company ” means Tompkins Financial Corporation. |
1.7. | “ Compensation ” has the meaning set forth in Section 7.1(b). |
1.8. | “ Disabled ” means that by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, the Executive is unable to engage in any substantial gainful activity. |
1.9. | “ Early Retirement Reduction ” has the meaning set forth in Section 3.1. |
1.10. | “ Earnings ” means the average of the Executive’s five (5) highest calendar years (or such lesser number if the Executive has not completed five (5) years of service for the purpose of determining Earnings) of base pay, which shall mean the Executive’s base salary excluding bonuses, profit sharing, and the like, and which may include base pay in years prior to the Executive’s commencement of participation under this Agreement if so determined by the Board of Directors. |
1.11. | “ Excise Tax ” has the meaning set forth in Section 7.1(c). |
1.12. | “ Good Reason ” exists in the event of (i) a material diminution in the Executive’s base compensation, authority, duties or responsibilities; (ii) a material change in the geographic location at which the Executive is required to perform the duties of the Executive’s position; or (iii) a material breach of this Agreement by the Company or its successor, or of any other agreement pursuant to which the Executive provides services for the Company or its successor, provided the Executive gives written notice to the Company or its successor, as applicable, within ninety (90) days of the initial existence of the condition described in (i), (ii) or (iii), above, and the Company or its successor fails to remedy such condition within thirty (30) days after receipt of such notice. |
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1.13. | “ Release ” has the meaning set forth in Section 8.11. |
1.14. | “ Release Date ” has the meaning set forth in Section 8.11. |
1.15. | “ Retirement Age ” has the meaning set forth in Section 2.2. |
1.16. | “ Retirement Benefit Freeze ” has the meaning set forth in Section 2.1. |
1.17. | “ Retirement Date ” has the meaning set forth in Section 2.2. |
1.18. | “ Surviving Spouse ” means the spouse of the Executive, if any, designated at or prior to his Retirement Date on his ‘Election Benefit Form’, surviving on the date of death of the Executive; provided, however, that if the Executive, as of the date of Executive’s death, is no longer married to the person so designated, then such person is not a Surviving Spouse for purposes of this Agreement. |
1.19. | “ Vested ” means having completed at least ten (10) years of service beginning with the Executive’s commencement of participation under the Original Agreement. |
1.20. | “ Years of Service Reduction ” has the meaning set forth in Section 3.1. |
SECTION II. ELIGIBILITY FOR BENEFITS
2.1 Eligibility . The Executive is eligible to participate in this Agreement by designation of the Board of Directors, in its sole discretion. The Board of Directors may determine, in its sole discretion, that the Executive should cease to continue accruing retirement benefits under this Agreement (a “ Retirement Benefit Freeze ”) and in such event the Board of Directors shall notify the Executive in writing of such determination. Such determination shall not reduce the then accrued retirement benefit of the Executive under this Agreement, as follows. The Executive will remain entitled to receive his retirement benefit in accordance with Section 3.1 (and Executive will be deemed Vested), except that the Years of Service Reduction shall be calculated utilizing the years of service completed by Executive as of the Retirement Benefit Freeze date, and Earnings shall be calculated as of the Retirement Benefit Freeze date. A Retirement Benefit Freeze will not impair Executive’s rights under Section 7 (Change in Control) and Section 9 (Severance), except as expressly set forth herein.
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2.2 Retirement Date . The Executive is eligible to retire under this Agreement and receive a benefit under Section 3.1 beginning on his “Retirement Date” which is the later of: (a) the first day of the month following the month in which the Executive becomes Vested and reaches age fifty-five (55) (which age is referred to as the “ Retirement Age ” herein), or (b) the first day of the month following the month in which the Executive terminates employment with the Company, so long as he is Vested on such date; for clarity, failure to satisfy the Vesting requirement means that no “Retirement Date” shall have occurred hereunder and Executive shall not be entitled to a retirement benefit hereunder, unless otherwise expressly stated herein.
2.3 Termination; Competition . Anything herein to the contrary notwithstanding, if within two (2) years after involuntary termination (including resignation with Good Reason), the Executive engages in Competition with the Company (without prior authorization given by the Committee in writing), or, if the Executive is discharged by the Company or its subsidiaries for Cause, payments otherwise payable under this Agreement to the Executive or the Executive’s Surviving Spouse will, in the sole discretion of the Committee, be forfeited and the Company will have no further obligation under this Agreement to the Executive or the Executive’s Surviving Spouse. Anything herein to the contrary notwithstanding, no benefits are payable under this Agreement if the Executive engages in Competition with the Company at any time before, during or after his voluntary resignation (except in the case of Competition with the Company that begins more than two (2) years after a resignation with Good Reason). For purposes of this Agreement, the term “Cause” shall mean (a) the conviction of the Executive by a court of competent jurisdiction of a crime which constitutes a felony under any state or federal law, (b) an act by the Executive which in the reasonable opinion of the Board of Directors constitutes an intentional theft of property of the Company or its subsidiaries, (c) the willful and continued failure or refusal of the Executive to perform his duties, or (d) gross negligence or willful misconduct on the part of the Executive that is materially and demonstrably detrimental to the Company or its subsidiaries (as determined by the Board of Directors in its reasonable discretion). For purposes of this Section 2.3, “Competition with the Company” shall occur if the Executive, directly or indirectly (a) comes to own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any other manner with, any business (but which shall exclude executive’s ownership of less than 1% of any class of equity or debt security of a publicly-traded competing business) which, in the judgment of the Board of Directors, is in substantial competition with the Company (unless the Executive has first obtained the Board’s prior written consent) and which is located within, or is actively directing marketing efforts within, ten (10) miles of any location of the Company or any of its subsidiaries, (b) solicits customers of the Company or any of its subsidiaries to reduce or stop doing business with the Company or any of its subsidiaries, or initiates any customer contact, for any reason, except for social contact with customers with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of business or business opportunities or (c) solicits employees of the Company or any of its subsidiaries to leave such employment, or offers employment to employees of the Company or any of its subsidiaries, or initiates any employee contact, for any reason, except for social contact with employees with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of such employee’s services.
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SECTION III. AMOUNT AND FORM OF RETIREMENT BENEFIT
3.1 Retirement Benefit . The annual retirement benefit amount payable by the Company under this Agreement as a single life annuity shall equal ten percent (10%) of the Executive’s Earnings; provided, however, that the annual retirement benefit shall be reduced by five percent (5%) for each year that the Executive’s years of service under this Agreement are less than twenty (20) years (the “ Years of Service Reduction ”). In the event the Executive’s Retirement Date under Section 2.2 occurs prior to the Executive attaining the age of sixty-five (65), the annual retirement benefit otherwise determined hereunder shall be further reduced by five percent (5%) for each year of age by which the Executive’s attained age at his Retirement Date is less than sixty-five (65) years (the “ Early Retirement Reduction ”). For clarity, when this Agreement states that an Executive is “deemed Vested,” such does not alter the Years of Service Reduction or the Early Retirement Reduction, and is only intended to confirm that the Executive is eligible for the benefit hereunder.
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The Executive may elect to take her benefit in the form of a fifty percent (50%) joint and survivor annuity, whereby he and the Surviving Spouse would receive an actuarial equivalent benefit over their joint lifetimes, provided the Executive completes and submits to the Committee an Election Benefit Form on or before his Retirement Date choosing this form of benefit. Absent such a timely made election, the Executive’s benefit will be paid in the form of a single life annuity. Actuarial equivalence will be determined using reasonable actuarial methods and assumptions chosen by the Company. The monthly retirement benefit payable by the Company to the Executive shall equal one-twelfth (1/12) of such annual retirement benefit. The monthly benefit payable as a single life annuity shall be payable by the Company on the first day of each calendar month beginning with the Executive’s Retirement Date through and including the month of the Executive’s death. In the event that the Executive elects to take her benefit in the form of a joint and survivor annuity, the benefit shall be payable by the Company on the first day of each calendar month beginning with the Executive’s Retirement Date through and including the later of the month of the Executive’s or his Surviving Spouse’s death in accordance with that election. In the event the Executive is determined to be a “specified employee”, as such term is defined in Treasury Regulations §1.409A-1(i), then any monthly benefit otherwise payable on or before the date which is six (6) months after the Executive’s termination of employment date shall be delayed until the earlier of the Executive’s date of death or the date which is six (6) months after the Executive’s termination of employment date; provided, however, that such delay is only required for benefits constituting nonqualified deferred compensation under Code Section 409A, and the delay will apply only to those benefits that are not exempt from Code Section 409A. Any such delayed payments shall be accumulated and paid in a lump sum and payments thereafter will be made as scheduled in accordance with this Section 3.1.
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3.2 Death Benefit .
(a) Upon the death of the Executive after the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse shall be entitled to fifty percent (50%) of the annuity benefit the Executive was receiving at the time of his death, but only if the Executive elected the fifty percent (50%) joint and survivor annuity form pursuant to Section 3.1. The monthly retirement benefit payable by the Company, if any, to the Surviving Spouse shall be one-twelfth (1/12) of such annual retirement benefit and shall be payable on the first day of each month beginning with the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death.
(b) Upon the death of the Executive prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to fifty percent (50%) of the annuity benefit payable by the Company to the Executive under this Agreement, determined under Section 3.1, provided that all of the following conditions are satisfied: (A) the Executive is Vested at the time of his death, as defined in Section I; (B) the Executive elected the fifty percent (50%) joint and survivor annuity form pursuant to Section 3.1; and, (C) the Surviving Spouse survives until the date upon which the Executive would have attained his Retirement Age if the Executive’s death occurs prior to his Retirement Date. The monthly retirement benefit payable by the Company, if any, under this subsection to the Surviving Spouse shall equal one-twelfth (1/12) of said annual retirement benefit for the Surviving Spouse and shall be payable on the first day of each month commencing on the later of the Executive’s Retirement Age or the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death. The date utilized for the Years of Service Reduction shall be the date of the Executive’s death (or the date of the Executive’s termination of employment, if earlier), and the age utilized for the Early Retirement Reduction shall be the greater of (1) the Executive’s actual age at the time of his death (or the date of the Executive’s termination of employment, if earlier) , and (2) the Retirement Age.
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(c) Upon the death of the Executive with no Surviving Spouse, or, if in the event of the Executive’s death prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse shall not survive the Executive until the date upon which the Executive would have attained the Retirement Age, there shall be no benefit payment under Section 3 to the Executive, the Executive’s Surviving Spouse, the estate of either the Executive or the Surviving Spouse, or otherwise.
3.3 Service . For purposes of this Agreement, the Executive’s service shall be defined as commencing on January 1, 2016 and ending on the date the Executive’s employment with Company or its subsidiaries is terminated, or such earlier date as shall be determined by the Board of Directors if the Board of Directors shall determine pursuant to Section 2.1 hereof that the Executive should cease to benefit under this Agreement (provided, however, that no such determination shall reduce the then-accrued benefit of the Executive under this Agreement). Years of service shall be determined in years and months of service with credit provided for a full month of service for the calendar month in which the Executive’s service commences as set forth above and the calendar month in which the Executive’s service hereunder ceases.
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SECTION IV. PAYMENT OF RETIREMENT BENEFITS
4.1 Limitation on Payments . Sections 2.3, 3.2, 4.2, 8.11 and 8.13 set forth the circumstances under which all further benefits payable under this Agreement (even if Vested) are forfeited.
4.2 Termination . Notwithstanding any contrary provision herein, if the Executive terminates employment voluntarily (which shall not include resignation with Good Reason) before attaining age fifty-five (55) and becoming Vested, the Company shall have no obligation to pay, and the Executive shall have no right to receive, any retirement benefit under this Agreement whatsoever. In the event of the Executive’s involuntary termination of employment (other than for Cause) or resignation with Good Reason at any time, the benefit payable to the Executive shall be determined as set forth in Section 3.1, and payments shall commence on the Executive’s Retirement Date (and the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction). For purposes of this provision, the date utilized for the Years of Service Reduction shall be the date of the Executive’s termination, and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date. In the event of the Executive’s death prior to the commencement of benefit payments under this provision, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
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4.3 Health-Related Leave of Absence . Provided there is a reasonable expectation that the Executive will return to perform services for the Company (an “ Expected Return ”), the Committee may determine that the Executive has not separated from service for purposes of this Agreement during a leave of absence of up to twenty-nine (29) months, if such leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, and such impairment causes the Executive to be unable to perform the duties of his position or any substantially similar position (a “ Qualified Impairment ”). For clarity, even if a Qualified Impairment and Expected Return exist, the Committee is not obligated to defer the Employee’s separation from service during this period, and (subject to applicable federal and state law pertaining to medical leaves of absence) the Committee may instead elect to involuntarily terminate the Executive’s employment (other than for Cause) under Section 4.2 during this period. The determination as to the existence or absence of such Qualified Impairment and such Expected Return will be made by an independent physician identified by the Company. If, due to a Qualified Impairment, the Executive cannot return to perform the duties of his position or a substantially similar position for the Company by the end of such period, the Executive will be deemed to have incurred an involuntary termination of employment (other than for Cause) under Section 4.2 as of the first date following the end of such period.
SECTION V. DEATH BENEFITS PAYABLE
5.1 Death Benefit . Other than the death benefit for the Surviving Spouse under Section 3.2, Section 4.2, or Section 6.2, as applicable, no death benefits are payable under this Agreement.
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SECTION VI. DISABILITY BENEFITS PAYABLE
6.1 Disability Benefit . In the event that the Executive becomes Disabled, as determined by an independent physician identified by the Company (other than at a time when facts and circumstances exist under which the Company could, and does, terminate the Executive’s employment for Cause), the Executive shall be entitled to the benefits under Section 3.1 commencing the first day of the month following the month in which the Executive attains Social Security normal retirement age. For purposes of calculating the amount payable under Section 3.1 and pursuant to this Section 6.1, the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction; the date utilized for the Years of Service Reduction shall be the date the Executive is determined to be Disabled; and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date.
6.2 Death after Disability . In the event of the death of the Executive after Executive qualifies for a retirement benefit pursuant to Section 6.1, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
SECTION VII. CHANGE IN CONTROL
7.1 Change in Control .
(a) In the event of a Change in Control, as defined in Section 7.2, of the Company, the Executive shall be deemed to have completed twenty (20) years of service and is Vested in all benefits under this Agreement (though the Early Retirement Reduction shall still apply), and the retirement benefit described in Section 3.1 shall commence at the Executive’s Retirement Date. The executive shall not be entitled to the accelerated service completion set forth in this subsection following a Retirement Benefit Freeze, unless the effective date of such Retirement Benefit Freeze occurs within the two-year period immediately prior to announcement of the Change in Control and, in such event, the executive shall remain so entitled.
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(b) In the event of a Change in Control of the Company, if the employment of the Executive is thereafter involuntarily terminated without Cause, or if the Executive voluntarily terminates employment for Good Reason (i) within two (2) years after a Change in Control, or (ii) in anticipation of a Change in Control which then occurs within two (2) years, then the Executive shall receive a benefit, in addition to any benefit under Section 3 of this Agreement, under this Section 7.1(b). The benefit under this Section 7.1(b) shall be the continuation of the Executive’s Compensation, as defined below, for a period of three (3) years (payable in accordance with the Company’s or its successor’s regular payroll procedures for executive employees, but in any event not less frequently than monthly), plus continuation of all employee welfare benefits that the Executive was participating in (health insurance, disability insurance, life insurance and the like) immediately prior to the Change in Control (or cash in an amount equal to the value of the Company’s or its successor’s contributions for such welfare benefits to the extent that the Executive is no longer eligible to participate in such programs); provided, however, that, for purposes of this Section 7.1(b), the amount of the Executive’s Compensation taken into account shall be reduced by (20%) if the Executive has attained age sixty-one (61), by 40% if the Executive has attained age sixty-two (62), by 60% if the Executive has attained age sixty-three (63), by 80% if the Executive has attained age sixty-four (64), and by 100% if the Executive has attained age sixty-five (65), with all such age determinations made as of the date of the Executive’s termination of employment. The continuation of the Executive’s employee welfare benefits under this Section 7.1(b) shall be on the same terms and conditions (subject to the aforementioned substitution of cash in lieu of benefit plan participation to the extent the Executive is ineligible therefor) as such employee welfare benefits are offered to other executive employees of the Company or of its successor, as applicable, and such continuation shall be for a three-year period even if there is no continuation payment of the Executive’s Compensation because of the 100% reduction under the preceding sentence. For purposes of this Section VII only, the term “Compensation” shall mean the Executive’s base pay (at the rate in effect immediately prior to the Change in Control) plus the Executive’s bonus and profit sharing compensation (which for this purpose shall be the average of the Executive’s bonus and profit sharing compensation earned for the two (2) most recently completed fiscal years of the Company immediately preceding the Change in Control).
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(c) In the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) would be subject to the excise tax imposed by Section 4999 of the Code, including any successor to such statute of like import (the “Excise Tax”), then the amount of the benefit otherwise payable under Section 7.1(b), if any, shall be reduced, but not below zero, to the maximum amount upon which no such Excise Tax is imposed.
(d) For purposes of this Section 7.1, the proper amounts, if any, of the Excise Tax and the adjustment under Section 7.1(c) to eliminate the Excise Tax shall be determined in the first instance by the Company. Within forty-five (45) days of being provided with written notice of any such determination, the Executive may provide written notice to the Committee of any disagreement, in which event the amounts, if any, of the Excise Tax and any adjustment under Section 7.1(c) shall be determined by independent tax counsel selected by the Company’s independent auditors. The determination of the Company (or, in the event of disagreement, the tax counsel selected) shall be final.
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7.2 For purposes of this Section VII, a Change in Control shall be deemed to have occurred upon the earliest of the following: (i) the date of acquisition by any one person, or more than one person acting as a group (as defined in Treasury Regulations §1.409A-3(i)(5)(v)(B)), of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; provided, however, that if any one person, or more than one person acting as a group, is considered to own more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons shall not be deemed to result in a Change in Control; (ii) the date a majority of members of the Company’s Board of Directors is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the date of the appointment or election; or (iii) the date that any one person, or more than one person acting as a group, acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value of more than seventy percent (70%) of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions; provided, however, that transfers of assets of the Company of any value to a related person or entity as described in Treasury Regulations §1.409A-3(i)(5)(vii)(B) shall not be deemed to result in a Change in Control.
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SECTION VIII. MISCELLANEOUS
8.1 Termination, Amendment and Subsequent Deferrals . The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, however, that no termination, suspension or amendment of this Agreement will, without the written consent of the Executive or the Surviving Spouse (if the Executive is not then living), reduce the Executive’s right or the right of the Surviving Spouse to receive or continue receiving a benefit accrued at the time of the termination, suspension or amendment in accordance with this Agreement. By way of clarification it is the intent of the Parties that the benefit under Section IX shall accrue as of the date of the Original Agreement, and the right to receive change in control benefits under Section VII shall also accrue as of the date of the Original Agreement, subject to the limitations set forth in Section 7.1(a). The Parties agree that a Retirement Benefit Freeze, as described in Section 2.1, shall not be deemed a reduction of rights requiring consent hereunder. A termination or suspension of this Agreement shall not result in the acceleration of any benefit provided pursuant to this Agreement except as permitted in connection with a plan termination satisfying the conditions set forth in Treasury Regulations §1.409A-3(j)(ix), where the Committee decides to accelerate such benefit in accordance with the requirements of such regulation. The provisions of this Section 8.1 shall be subordinate to the provisions of Sections 2.3, 3.2, 4.1, 4.2, 8.11 and 8.13 concerning the forfeiture of benefits. The definition of “Retirement Date” in Section 2.2 provides for the designated time of the retirement benefit hereunder, and the Executive may only make a subsequent deferral if the change complies with Treasury Regulations § 1.409A-2(b)(1) (the “ Subsequent Deferral Rules ”). In the event that an Executive wishes to elect to defer payment commencement beyond his Retirement Date, he must provide written notice thereof to the Company (the “ Deferral Notice ”) at least one (1) year prior to his Retirement Date, or such longer notice period as may then be required under the Subsequent Deferral Rules. The Deferral Notice shall specify the date on which the Executive wishes to begin receiving his retirement benefit hereunder, and such deferred payment date must be at least five (5) years later than the date the payment otherwise would have been made, or such other period as may then be required under the Subsequent Deferral Rules. Partial deferrals will not be permitted and the Company may refuse to honor the Deferral Notice if, in the reasonable opinion of the Company’s external legal counsel, the Deferral Notice does not comply with the Subsequent Deferral Rules, or is otherwise reasonably likely to adversely affect the Company under the Subsequent Deferral Rules.
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8.2 No Employment Agreement; Entire Agreement . Nothing contained herein will confer upon the Executive the right to be retained in the service of the Company or its subsidiaries, nor will it interfere with the right of the Company or its subsidiaries to discharge or otherwise deal with the Executive without regard to the existence of this Agreement. This Agreement (which expressly includes the Preamble), together with those certain agreements expressly referred to herein, constitute the sole and entire agreement of the Parties with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to the subject matter.
8.3 Unfunded Arrangement . The benefits under this Agreement are unfunded, and the Company will make benefit payments solely on a current disbursement basis from the Company’s general assets. Notwithstanding anything herein to the contrary, the Executive and the Executive’s Surviving Spouse, if any, shall have the status of general unsecured creditors of the Company.
8.4 Assignment . To the maximum extent permitted by law, no benefit under this Agreement shall be assignable or made subject by Executive in any manner to alienation, sale, transfer, claims of Executive’s creditors, pledge, attachment or encumbrances of any kind.
8.5 Rules . The Committee may adopt rules and regulations to assist it in the administration of this Agreement. This Agreement shall be administered and construed entirely in the discretion of the Committee and the Board of Directors, as applicable.
8.6 Information . The Executive shall receive a copy of this Agreement and the Committee will make available for inspection by the Executive a copy of any rules and regulations used by the Committee in administering this Agreement.
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8.7 Construction . The masculine gender, where appearing in this Agreement, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. For purposes of complying with Code Section 409A, or any successor to such statute of like import, it is acknowledged that no benefit payments may be made under this Agreement prior to the Executive’s termination of employment with the Company, that the payment of benefits pursuant to this Agreement may not be accelerated by the Company or the Executive, and that there are no elections provided under the Agreement to defer compensation or to delay a payment of benefits other than in the case of an election made pursuant to the Subsequent Deferral Rules, as described in Section 8.1.
8.8 Controlling Law . This Agreement is established under and will be construed according to the laws of the State of New York, without regard for principles of conflicts of law. Notwithstanding the foregoing, this Agreement shall be construed consistent with the requirements of Code Section 409A, the regulations promulgated thereunder and other official guidance relating thereto such that the operation or terms of this Agreement do not result in the inclusion in income of any amount under such Code provision. For purposes of this Agreement, any term hereunder relating to the Executive’s termination of employment, the Executive terminating employment, the Executive being terminated or similar expression shall be deemed to refer to a separation from service, as defined in Treasury Regulations §1.409A-1(h). If an amount is to be paid under this Agreement in two or more installments, each installment shall be treated as a separate payment for purposes of Code Section 409A.
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8.9 Legal Expenses . The Company shall pay, upon request and documentation thereof (and not later than ninety (90) days after receipt of such request and documentation), all reasonable legal fees and expenses which the Executive/Surviving Spouse may incur as a result of the Company contesting the validity or enforceability of any provision of this Agreement or any claim by the Executive/Surviving Spouse under this Agreement; provided , however , that such request is made and supporting documentation provided to the Company by the Executive/Surviving Spouse within ninety (90) days after incurring the expense, and provided further, the Company shall be entitled to be reimbursed by the Executive/Surviving Spouse for such amount previously paid to such Executive/Surviving Spouse if it is finally judicially determined that such Executive’s/Surviving Spouse’s claims under this Agreement are frivolous.
8.10 Disputes & Severability . In the event of any dispute after the occurrence of a Change in Control (as defined in Section 7.2) between the Company and the Executive with respect to the Executive’s rights to any payment under this Agreement, the Company shall pay all disputed amounts to the Executive in the time and manner otherwise specified by this Agreement, and, if it is finally judicially determined that the Executive was not entitled to all or a portion of such disputed amounts, the Executive shall repay to the Company the amount to which the Executive was not entitled, together with interest thereon at the judgment rate of interest then applicable in New York State. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or provision is invalid, illegal or unenforceable, the court may modify this Agreement to effect the original intent of the parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
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8.11 Release . In connection with Executive’s receipt of the retirement benefit described in Section 3.1 and the severance benefit described in Section IX, the Executive shall execute (and not revoke) a standard, customary form of release agreement (the “ Release ”), including without limitation the following terms. If Executive is continuously incapacitated through the Release Date, this requirement is waived. The Release must be given no more than ninety (90) days following the Executive’s employment termination, with sufficient time to allow applicable revocation period(s) to expire before the end of such ninety- (90-) day period (the final day of such 90-day period to be the “ Release Date ”). Pursuant to the Release, the Executive, on behalf of himself and his heirs, shall agree to waive any and all claims he or they have, had, or may have had, in each case as of the date the Executive signs the Release, in connection with his employment by the Company or its affiliates, as against the Company, its affiliates, and its and their directors and employees, other than claims arising out of the Company’s breach of its obligations under this Agreement. The Release will not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. Should the Executive fail to return to the Company the executed Release on or before the Release Date, the Executive will forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
8.12 Post-Employment Consulting . Following the Executive’s termination, if the Company requests, and Executive agrees, that Executive provide occasional services not exceeding 20% of the amount of services provided by Executive prior to his termination, the provision of such limited services shall not extend the date of the Executive’s termination for purposes of this Agreement.
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8.13 Non-Disparagement . The Executive agrees and covenants that he will not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company or its businesses, or any of its employees or directors. This section does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency. This section does not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. The Company agrees and covenants that it shall cause its officers and directors to refrain from making any defamatory or disparaging remarks, comments, or statements concerning the Executive to any third parties. In the event of the Executive’s violation, at any time, of his commitment under this Section 8.13, the Executive will, in the discretion of the Committee, forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
8.14 Original Agreement . This Agreement amends, supersedes and replaces the Original Agreement in its entirety, and the Original Agreement shall no longer be of any force or effect, except (i) where expressly referenced herein, and (ii) that years of service credit shall accrue as of the date originally established therefor under the Original Agreement.
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SECTION IX. SEVERANCE BENEFIT
9.1 Severance Benefit . So long as Executive has completed at least one (1) year of service following the date of this Agreement (or, if this is an amended/restated agreement, following the date of the Original Agreement), then in addition to any benefit provided under Sections III, V and VI hereof, in the event of the Executive’s involuntary termination of employment without Cause or resignation with Good Reason (in each case, in a termination not governed by the provisions of Section 7.1 concerning a Change in Control), the Executive shall receive a severance benefit payable by the Company in accordance with the Company’s payroll practices applicable to its executive employees, for a period of twelve (12) months, commencing on the Company’s first payroll date after the Executive’s termination of employment. Upon the Executive’s death after such payments have begun but before such payments are completed, the balance of such payments shall continue to be made to the Executive’s Surviving Spouse or, if no Surviving Spouse survives the Executive, to the Executive’s estate. For purposes of this Section 9.1, the severance benefits shall equal the Executive’s base salary as in effect immediately prior to the Executive’s termination of employment date, excluding bonuses, profit sharing, and the like. In addition to the severance benefit, the Executive shall be entitled, but not required, during the period in which a severance benefit is being paid pursuant to this Section 9.1, to participate in the Company’s welfare benefit programs available to the Company’s executive employees, upon the same terms and conditions as the Company may from time to time establish generally for such executive employees; provided, however, that if such continued participation is not permitted by law or by the applicable benefit plan, the Company shall instead provide a cash payment equal to what it would have cost the Company to continue the Executive’s participation, had such participation been permitted.
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IN WITNESS WHEREOF, this Agreement has been executed this 9 th day of November, 2016.
TOMPKINS FINANCIAL CORPORATION | ||||
By: | /s/ Stephen S. Romaine | |||
Name: | Stephen S. Romaine | |||
ATTEST: | /s/ Janet Hewitt | Title: | President & Chief Executive Officer | |
By: | /s/ Alyssa Hochberg Fontaine | |||
Name: | Alyssa Hochberg Fontaine, Individually | |||
ATTEST: | /s/ Debra A. Hartz |
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SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
Form of Benefit and Beneficiary Designation Form
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby elect the following form of benefit payment for retirement benefits due pursuant to this Agreement. (Please initial your selection.)
_____ | Single Life Annuity (100% benefit payable for my lifetime). |
_____ | 50% Joint & Survivor Annuity (Actuarially reduced benefit, payable for the lifetime of the Executive and a benefit equal to 50% of that benefit to a Surviving Spouse for her lifetime). |
I understand and acknowledge that unless I elect the 50% joint and survivor annuity benefit by both initializing such election above and identifying my spouse, below, and returning this Election Benefit Form to the Committee on or before my Retirement Date, as defined in the Agreement, that my benefit, if any, will be payable in the form of a single life annuity. Further, I understand and acknowledge no death benefit will be paid under the Agreement (a) if the below-designated Spouse is not a “Surviving Spouse” as defined in the Agreement, or (b) if I do not return this Spousal Benefit Designation Form, completed and executed, to the Committee on or before my Retirement Date, as defined in the Agreement.
Spouse’s Name: ___________________________________
Social Security Number: _____________________________
Date of Birth: ______________________________
Home Address: ____________________________________________________________
Executive’s Signature: ______________________________
Witness’ Signature: ______________________________
Spouse’s Signature (if waiving right to benefits under this Agreement because Executive has elected a Single Life Annuity):
______________________________
___________________
Date
Witness’ Signature: ______________________________
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Tompkins Financial Corporation 10-Q
Exhibit 10.9
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Amended and Restated Supplemental Executive Retirement Agreement (the “Agreement”) is entered into effective November 9, 2016 by Tompkins Financial Corporation, with offices at 110 The Commons, Ithaca, New York 14851, and Scott L. Gruber , residing at _____________________ (the “Executive”).
PREAMBLE
The Executive and Tompkins Financial Corporation previously entered into a Supplemental Executive Retirement Agreement, dated on or about April 30, 2013 (the “ Original Agreement ”), and Section 8.1 hereof sets forth the only provision of the Original Agreement which is incorporated into this Agreement. For good and valuable consideration, including without limitation (i) continued active participation and other benefits under this Agreement, (ii) an additional Supplemental Executive Retirement Agreement, also dated on or about the date hereof, and (iii) the grant of an equity award on or about the date hereof, which equity award is expressly conditioned upon Executive’s execution and delivery of this Agreement, the receipt and sufficiency of which is acknowledged, the parties now desire to clarify, amend and restate the Original Agreement as set forth herein. The principal objective of this Agreement and the Original Agreement is and was to ensure the payment of competitive levels of retirement income to the Executive, who has been determined to be a key executive of Tompkins Financial Corporation and its subsidiaries, in order to retain and motivate such Executive.
SECTION I. DEFINITIONS
1.1. | “ Board of Directors ” means the Board of Directors of Tompkins Financial Corporation. |
1.2. | “ Cause ” has the meaning set forth in Section 2.3. |
1.3. | “ Code ” means the Internal Revenue Code of 1986, as amended. |
1.4. | “ Competition with the Company ” has the meaning set forth in Section 2.3. |
1.5. | “ Committee ” means the Compensation Committee of the Board of Directors, which has been given authority by the Board of Directors to administer this Agreement. |
1.6. | “ Company ” means Tompkins Financial Corporation. |
1.7. | “ Compensation ” has the meaning set forth in Section 7.1(b). |
1.8. | “ Disabled ” means that by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, the Executive is unable to engage in any substantial gainful activity. |
1.9. | [Intentionally Omitted.] |
1.10. | “ Earnings ” means the average of the Executive’s five (5) highest calendar years (or such lesser number if the Executive has not completed five (5) years of service for the purpose of determining Earnings) of base pay, which shall mean the Executive’s base salary excluding bonuses, profit sharing, and the like, and which may include base pay in years prior to the Executive’s commencement of participation under this Agreement if so determined by the Board of Directors. |
1.11. | “ Excise Tax ” has the meaning set forth in Section 7.1(c). |
1.12. | “ Good Reason ” exists in the event of (i) a material diminution in the Executive’s base compensation, authority, duties or responsibilities; (ii) a material change in the geographic location at which the Executive is required to perform the duties of the Executive’s position; or (iii) a material breach of this Agreement by the Company or its successor, or of any other agreement pursuant to which the Executive provides services for the Company or its successor, provided the Executive gives written notice to the Company or its successor, as applicable, within ninety (90) days of the initial existence of the condition described in (i), (ii) or (iii), above, and the Company or its successor fails to remedy such condition within thirty (30) days after receipt of such notice. |
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1.13. | “ Release ” has the meaning set forth in Section 8.11. |
1.14. | “ Release Date ” has the meaning set forth in Section 8.11. |
1.15. | “ Retirement Age ” has the meaning set forth in Section 2.2. |
1.16. | “ Retirement Benefit Freeze ” has the meaning set forth in Section 2.1. |
1.17. | “ Retirement Date ” has the meaning set forth in Section 2.2. |
1.18. | “ Surviving Spouse ” means the spouse of the Executive, if any, designated at or prior to his Retirement Date on his ‘Election Benefit Form’, surviving on the date of death of the Executive; provided, however, that if the Executive, as of the date of Executive’s death, is no longer married to the person so designated, then such person is not a Surviving Spouse for purposes of this Agreement. |
1.19. | “ Vested ” means the Executive is eligible to receive a retirement benefit hereunder because he has attained age 65 while still under the employment of the Company. |
1.20. | “ Years of Service Reduction ” has the meaning set forth in Section 3.1. |
SECTION II. ELIGIBILITY FOR BENEFITS
2.1 Eligibility . The Executive is eligible to participate in this Agreement by designation of the Board of Directors, in its sole discretion. The Board of Directors may determine, in its sole discretion, that the Executive should cease to continue accruing retirement benefits under this Agreement (a “ Retirement Benefit Freeze ”) and in such event the Board of Directors shall notify the Executive in writing of such determination. Such determination shall not reduce the then accrued retirement benefit of the Executive under this Agreement, as follows. The Executive will remain entitled to receive his retirement benefit in accordance with Section 3.1 (so long as he has attained age 65 while still under the employment of the Company), except that the Years of Service Reduction shall be calculated utilizing the years of service completed by Executive as of the Retirement Benefit Freeze date, and Earnings shall be calculated as of the Retirement Benefit Freeze date. A Retirement Benefit Freeze will not impair Executive’s rights under Section 7 (Change in Control) except as expressly set forth herein.
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2.2 Retirement Date . The Executive is eligible to retire under this Agreement and receive a benefit under Section 3.1 beginning on his “Retirement Date” which is the later of: (a) the first day of the month following the month in which the Executive becomes Vested and reaches age sixty-five (65) (which age is referred to as the “ Retirement Age ” herein), or (b) the first day of the month following the month in which the Executive terminates employment with the Company, so long as he is Vested on such date; for clarity, failure to satisfy the Vesting requirement means that no “Retirement Date” shall have occurred hereunder and Executive shall not be entitled to a retirement benefit hereunder, unless otherwise expressly stated herein.
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2.3 Termination; Competition . Anything herein to the contrary notwithstanding, if within two (2) years after involuntary termination (including resignation with Good Reason), the Executive engages in Competition with the Company (without prior authorization given by the Committee in writing), or, if the Executive is discharged by the Company or its subsidiaries for Cause, payments otherwise payable under this Agreement to the Executive or the Executive’s Surviving Spouse will, in the sole discretion of the Committee, be forfeited and the Company will have no further obligation under this Agreement to the Executive or the Executive’s Surviving Spouse. Anything herein to the contrary notwithstanding, no benefits are payable under this Agreement if the Executive engages in Competition with the Company at any time before, during or after his voluntary resignation (except in the case of Competition with the Company that begins more than two (2) years after a resignation with Good Reason). For purposes of this Agreement, the term “Cause” shall mean (a) the conviction of the Executive by a court of competent jurisdiction of a crime which constitutes a felony under any state or federal law, (b) an act by the Executive which in the reasonable opinion of the Board of Directors constitutes an intentional theft of property of the Company or its subsidiaries, (c) the willful and continued failure or refusal of the Executive to perform his duties, or (d) gross negligence or willful misconduct on the part of the Executive that is materially and demonstrably detrimental to the Company or its subsidiaries (as determined by the Board of Directors in its reasonable discretion). For purposes of this Section 2.3, “Competition with the Company” shall occur if the Executive, directly or indirectly (a) comes to own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any other manner with, any business (but which shall exclude executive’s ownership of less than 1% of any class of equity or debt security of a publicly-traded competing business) which, in the judgment of the Board of Directors, is in substantial competition with the Company (unless the Executive has first obtained the Board’s prior written consent) and which is located within, or is actively directing marketing efforts within, ten (10) miles of any location of the Company or any of its subsidiaries, (b) solicits customers of the Company or any of its subsidiaries to reduce or stop doing business with the Company or any of its subsidiaries, or initiates any customer contact, for any reason, except for social contact with customers with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of business or business opportunities, or (c) solicits employees of the Company or any of its subsidiaries to leave such employment, or offers employment to employees of the Company or any of its subsidiaries, or initiates any employee contact, for any reason, except for social contact with employees with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of such employee’s services.
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SECTION III. AMOUNT AND FORM OF RETIREMENT BENEFIT
3.1 Retirement Benefit . The annual retirement benefit amount payable by the Company under this Agreement as a single life annuity shall equal twenty-five percent (25%) of the Executive’s Earnings. In those circumstances where this Agreement expressly provides a retirement benefit to Executive before Executive has Vested, then the annual retirement benefit shall be reduced by eleven and 11/100 percent (11.11%) for each year that the Executive’s years of service under this Agreement are less than nine (9) years (the “ Years of Service Reduction ”). For clarity, when this Agreement states that an Executive is “deemed Vested,” such does not alter the Years of Service Reduction, and is only intended to confirm that the Executive is eligible for the benefit hereunder.
The Executive may elect to take his benefit in the form of a fifty percent (50%) joint and survivor annuity, whereby he and the Surviving Spouse would receive an actuarial equivalent benefit over their joint lifetimes, provided the Executive completes and submits to the Committee an Election Benefit Form on or before his Retirement Date choosing this form of benefit. Absent such a timely made election, the Executive’s benefit will be paid in the form of a single life annuity. Actuarial equivalence will be determined using reasonable actuarial methods and assumptions chosen by the Company. The monthly retirement benefit payable by the Company to the Executive shall equal one-twelfth (1/12) of such annual retirement benefit. The monthly benefit payable as a single life annuity shall be payable by the Company on the first day of each calendar month beginning with the Executive’s Retirement Date through and including the month of the Executive’s death. In the event that the Executive elects to take his benefit in the form of a joint and survivor annuity, the benefit shall be payable by the Company on the first day of each calendar month beginning with the Executive’s Retirement Date through and including the later of the month of the Executive’s or his Surviving Spouse’s death in accordance with that election. In the event the Executive is determined to be a “specified employee”, as such term is defined in Treasury Regulations §1.409A-1(i), then any monthly benefit otherwise payable on or before the date which is six (6) months after the Executive’s termination of employment date shall be delayed until the earlier of the Executive’s date of death or the date which is six (6) months after the Executive’s termination of employment date; provided, however, that such delay is only required for benefits constituting nonqualified deferred compensation under Code Section 409A, and the delay will apply only to those benefits that are not exempt from Code Section 409A. Any such delayed payments shall be accumulated and paid in a lump sum and payments thereafter will be made as scheduled in accordance with this Section 3.1.
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3.2 Death Benefit .
(a) Upon the death of the Executive after the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse shall be entitled to fifty percent (50%) of the annuity benefit the Executive was receiving at the time of his death, but only if the Executive elected the fifty percent (50%) joint and survivor annuity form pursuant to Section 3.1. The monthly retirement benefit payable by the Company, if any, to the Surviving Spouse shall be one-twelfth (1/12) of such annual retirement benefit and shall be payable on the first day of each month beginning with the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death.
(b) Upon the death of the Executive prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to fifty percent (50%) of the annuity benefit payable by the Company to the Executive under this Agreement, determined under Section 3.1, provided that all of the following conditions are satisfied: (A) the Executive is Vested at the time of his death, as defined in Section I; (B) the Executive elected the fifty percent (50%) joint and survivor annuity form pursuant to Section 3.1; and, (C) the Surviving Spouse survives until the date upon which the Executive would have attained his Retirement Age if the Executive’s death occurs prior to his Retirement Date. The monthly retirement benefit payable by the Company, if any, under this subsection to the Surviving Spouse shall equal one-twelfth (1/12) of said annual retirement benefit for the Surviving Spouse and shall be payable on the first day of each month commencing on the later of the Executive’s Retirement Age or the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death.
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(c) Upon the death of the Executive with no Surviving Spouse, or, if in the event of the Executive’s death prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse shall not survive the Executive until the date upon which the Executive would have attained the Retirement Age, there shall be no benefit payment under Section 3 to the Executive, the Executive’s Surviving Spouse, the estate of either the Executive or the Surviving Spouse, or otherwise.
3.3 Service . For purposes of this Agreement, the Executive’s service shall be defined as commencing on April 30, 2013 and ending on the date the Executive’s employment with Company or its subsidiaries is terminated, or such earlier date as shall be determined by the Board of Directors if the Board of Directors shall determine pursuant to Section 2.1 hereof that the Executive should cease to benefit under this Agreement (provided, however, that no such determination shall reduce the then-accrued benefit of the Executive under this Agreement). Years of service shall be determined in years and months of service with credit provided for a full month of service for the calendar month in which the Executive’s service commences as set forth above and the calendar month in which the Executive’s service hereunder ceases.
SECTION IV. PAYMENT OF RETIREMENT BENEFITS
4.1 Limitation on Payments . Sections 2.3, 3.2, 4.2, 8.11 and 8.13 set forth the circumstances under which all further benefits payable under this Agreement (even if Vested) are forfeited.
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4.2 Termination . Notwithstanding any contrary provision herein, if the Executive terminates employment voluntarily (which shall not include resignation with Good Reason) before attaining age sixty-five (65) and becoming Vested, the Company shall have no obligation to pay, and the Executive shall have no right to receive, any retirement benefit under this Agreement whatsoever. In the event of the Executive’s involuntary termination of employment (other than for Cause) or resignation with Good Reason at any time, the benefit payable to the Executive shall be determined as set forth in Section 3.1, and payments shall commence on the Executive’s Retirement Date (and the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction). For purposes of this provision, the date utilized for the Years of Service Reduction shall be the date of the Executive’s termination. In the event of the Executive’s death prior to the commencement of benefit payments under this provision, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
4.3 Health-Related Leave of Absence . Provided there is a reasonable expectation that the Executive will return to perform services for the Company (an “ Expected Return ”), the Committee may determine that the Executive has not separated from service for purposes of this Agreement during a leave of absence of up to twenty-nine (29) months, if such leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, and such impairment causes the Executive to be unable to perform the duties of his position or any substantially similar position (a “ Qualified Impairment ”). For clarity, even if a Qualified Impairment and Expected Return exist, the Committee is not obligated to defer the Employee’s separation from service during this period, and (subject to applicable federal and state law pertaining to medical leaves of absence) the Committee may instead elect to involuntarily terminate the Executive’s employment (other than for Cause) under Section 4.2 during this period. The determination as to the existence or absence of such Qualified Impairment and such Expected Return will be made by an independent physician identified by the Company. If, due to a Qualified Impairment, the Executive cannot return to perform the duties of his position or a substantially similar position for the Company by the end of such period, the Executive will be deemed to have incurred an involuntary termination of employment (other than for Cause) under Section 4.2 as of the first date following the end of such period.
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SECTION V. DEATH BENEFITS PAYABLE
5.1 Death Benefit . Other than the death benefit for the Surviving Spouse under Section 3.2, Section 4.2, or Section 6.2, as applicable, no death benefits are payable under this Agreement.
SECTION VI. DISABILITY BENEFITS PAYABLE
6.1 Disability Benefit . In the event that the Executive becomes Disabled, as determined by an independent physician identified by the Company (other than at a time when facts and circumstances exist under which the Company could, and does, terminate the Executive’s employment for Cause), the Executive shall be entitled to the benefits under Section 3.1 commencing the first day of the month following the month in which the Executive attains Social Security normal retirement age. For purposes of calculating the amount payable under Section 3.1 and pursuant to this Section 6.1, the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction; the date utilized for the Years of Service Reduction shall be the date the Executive is determined to be Disabled.
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6.2 Death after Disability . In the event of the death of the Executive after Executive qualifies for a retirement benefit pursuant to Section 6.1, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
SECTION VII. CHANGE IN CONTROL
7.1 Change in Control .
(a) In the event of a Change in Control, as defined in Section 7.2, of the Company, the Executive shall be deemed to have completed service to age 65 and shall be 100 percent Vested in the benefit under this Agreement, and the retirement benefit described in Section 3.1 shall commence at the Executive’s Retirement Date. The executive shall not be entitled to the accelerated service completion set forth in this subsection following a Retirement Benefit Freeze, unless the effective date of such Retirement Benefit Freeze occurs within the two-year period immediately prior to announcement of the Change in Control and, in such event, the executive shall remain so entitled.
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(b) In the event of a Change in Control of the Company, if the employment of the Executive is thereafter involuntarily terminated without Cause, or if the Executive voluntarily terminates employment for Good Reason (i) within two (2) years after a Change in Control, or (ii) in anticipation of a Change in Control which then occurs within two (2) years, then the Executive shall receive a benefit, in addition to any benefit under Section 3 of this Agreement, under this Section 7.1(b). The benefit under this Section 7.1(b) shall be the continuation of the Executive’s Compensation, as defined below, for a period of three (3) years (payable in accordance with the Company’s or its successor’s regular payroll procedures for executive employees, but in any event not less frequently than monthly), plus continuation of all employee welfare benefits that the Executive was participating in (health insurance, disability insurance, life insurance and the like) immediately prior to the Change in Control (or cash in an amount equal to the value of the Company’s or its successor’s contributions for such welfare benefits to the extent that the Executive is no longer eligible to participate in such programs); provided, however, that, for purposes of this Section 7.1(b), the amount of the Executive’s Compensation taken into account shall be reduced by (20%) if the Executive has attained age sixty-one (61), by 40% if the Executive has attained age sixty-two (62), by 60% if the Executive has attained age sixty-three (63), by 80% if the Executive has attained age sixty-four (64), and by 100% if the Executive has attained age sixty-five (65), with all such age determinations made as of the date of the Executive’s termination of employment. The continuation of the Executive’s employee welfare benefits under this Section 7.1(b) shall be on the same terms and conditions (subject to the aforementioned substitution of cash in lieu of benefit plan participation to the extent the Executive is ineligible therefor) as such employee welfare benefits are offered to other executive employees of the Company or of its successor, as applicable, and such continuation shall be for a three-year period even if there is no continuation payment of the Executive’s Compensation because of the 100% reduction under the preceding sentence. For purposes of this Section VII only, the term “Compensation” shall mean the Executive’s base pay (at the rate in effect immediately prior to the Change in Control) plus the Executive’s bonus and profit sharing compensation (which for this purpose shall be the average of the Executive’s bonus and profit sharing compensation earned for the two (2) most recently completed fiscal years of the Company immediately preceding the Change in Control).
(c) In the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) would be subject to the excise tax imposed by Section 4999 of the Code, including any successor to such statute of like import (the “Excise Tax”), then the amount of the benefit otherwise payable under Section 7.1(b), if any, shall be reduced, but not below zero, to the maximum amount upon which no such Excise Tax is imposed.
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(d) For purposes of this Section 7.1, the proper amounts, if any, of the Excise Tax and the adjustment under Section 7.1(c) to eliminate the Excise Tax shall be determined in the first instance by the Company. Within forty-five (45) days of being provided with written notice of any such determination, the Executive may provide written notice to the Committee of any disagreement, in which event the amounts, if any, of the Excise Tax and any adjustment under Section 7.1(c) shall be determined by independent tax counsel selected by the Company’s independent auditors. The determination of the Company (or, in the event of disagreement, the tax counsel selected) shall be final.
7.2 For purposes of this Section VII, a Change in Control shall be deemed to have occurred upon the earliest of the following: (i) the date of acquisition by any one person, or more than one person acting as a group (as defined in Treasury Regulations §1.409A-3(i)(5)(v)(B)), of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; provided, however, that if any one person, or more than one person acting as a group, is considered to own more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons shall not be deemed to result in a Change in Control; (ii) the date a majority of members of the Company’s Board of Directors is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the date of the appointment or election; or (iii) the date that any one person, or more than one person acting as a group, acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value of more than seventy percent (70%) of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions; provided, however, that transfers of assets of the Company of any value to a related person or entity as described in Treasury Regulations §1.409A-3(i)(5)(vii)(B) shall not be deemed to result in a Change in Control.
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SECTION VIII. MISCELLANEOUS
8.1 Termination, Amendment and Subsequent Deferrals . The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, however, that no termination, suspension or amendment of this Agreement will, without the written consent of the Executive or the Surviving Spouse (if the Executive is not then living), reduce the Executive’s right or the right of the Surviving Spouse to receive or continue receiving a benefit accrued at the time of the termination, suspension or amendment in accordance with this Agreement. By way of clarification it is the intent of the Parties that the right to receive change in control benefits under Section VII shall also accrue as of the date of the Original Agreement, subject to the limitations set forth in Section 7.1(a). The Parties agree that a Retirement Benefit Freeze, as described in Section 2.1, shall not be deemed a reduction of rights requiring consent hereunder. A termination or suspension of this Agreement shall not result in the acceleration of any benefit provided pursuant to this Agreement except as permitted in connection with a plan termination satisfying the conditions set forth in Treasury Regulations §1.409A-3(j)(ix), where the Committee decides to accelerate such benefit in accordance with the requirements of such regulation. The provisions of this Section 8.1 shall be subordinate to the provisions of Sections 2.3, 3.2, 4.1, 4.2, 8.11and 8.13 concerning the forfeiture of benefits. The definition of “Retirement Date” in Section 2.2 provides for the designated time of the retirement benefit hereunder, and the Executive may only make a subsequent deferral if the change complies with Treasury Regulations § 1.409A-2(b)(1) (the “ Subsequent Deferral Rules ”). In the event that an Executive wishes to elect to defer payment commencement beyond his Retirement Date, he must provide written notice thereof to the Company (the “ Deferral Notice ”) at least one (1) year prior to his Retirement Date, or such longer notice period as may then be required under the Subsequent Deferral Rules. The Deferral Notice shall specify the date on which the Executive wishes to begin receiving his retirement benefit hereunder, and such deferred payment date must be at least five (5) years later than the date the payment otherwise would have been made, or such other period as may then be required under the Subsequent Deferral Rules. Partial deferrals will not be permitted and the Company may refuse to honor the Deferral Notice if, in the reasonable opinion of the Company’s external legal counsel, the Deferral Notice does not comply with the Subsequent Deferral Rules, or is otherwise reasonably likely to adversely affect the Company under the Subsequent Deferral Rules.
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8.2 No Employment Agreement; Entire Agreement . Nothing contained herein will confer upon the Executive the right to be retained in the service of the Company or its subsidiaries, nor will it interfere with the right of the Company or its subsidiaries to discharge or otherwise deal with the Executive without regard to the existence of this Agreement. This Agreement (which expressly includes the Preamble), together with those certain agreements expressly referred to herein, constitute the sole and entire agreement of the Parties with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to the subject matter.
8.3 Unfunded Arrangement . The benefits under this Agreement are unfunded, and the Company will make benefit payments solely on a current disbursement basis from the Company’s general assets. Notwithstanding anything herein to the contrary, the Executive and the Executive’s Surviving Spouse, if any, shall have the status of general unsecured creditors of the Company.
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8.4 Assignment . To the maximum extent permitted by law, no benefit under this Agreement shall be assignable or made subject by Executive in any manner to alienation, sale, transfer, claims of Executive’s creditors, pledge, attachment or encumbrances of any kind.
8.5 Rules . The Committee may adopt rules and regulations to assist it in the administration of this Agreement. This Agreement shall be administered and construed entirely in the discretion of the Committee and the Board of Directors, as applicable.
8.6 Information . The Executive shall receive a copy of this Agreement and the Committee will make available for inspection by the Executive a copy of any rules and regulations used by the Committee in administering this Agreement.
8.7 Construction . The masculine gender, where appearing in this Agreement, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. For purposes of complying with Code Section 409A, or any successor to such statute of like import, it is acknowledged that no benefit payments may be made under this Agreement prior to the Executive’s termination of employment with the Company, that the payment of benefits pursuant to this Agreement may not be accelerated by the Company or the Executive, and that there are no elections provided under the Agreement to defer compensation or to delay a payment of benefits other than in the case of an election made pursuant to the Subsequent Deferral Rules, as described in Section 8.1.
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8.8 Controlling Law . This Agreement is established under and will be construed according to the laws of the State of New York, without regard for principles of conflicts of law. Notwithstanding the foregoing, this Agreement shall be construed consistent with the requirements of Code Section 409A, the regulations promulgated thereunder and other official guidance relating thereto such that the operation or terms of this Agreement do not result in the inclusion in income of any amount under such Code provision. For purposes of this Agreement, any term hereunder relating to the Executive’s termination of employment, the Executive terminating employment, the Executive being terminated or similar expression shall be deemed to refer to a separation from service, as defined in Treasury Regulations §1.409A-1(h). If an amount is to be paid under this Agreement in two or more installments, each installment shall be treated as a separate payment for purposes of Code Section 409A.
8.9 Legal Expenses . The Company shall pay, upon request and documentation thereof (and not later than ninety (90) days after receipt of such request and documentation), all reasonable legal fees and expenses which the Executive/Surviving Spouse may incur as a result of the Company contesting the validity or enforceability of any provision of this Agreement or any claim by the Executive/Surviving Spouse under this Agreement; provided , however , that such request is made and supporting documentation provided to the Company by the Executive/Surviving Spouse within ninety (90) days after incurring the expense, and provided further, the Company shall be entitled to be reimbursed by the Executive/Surviving Spouse for such amount previously paid to such Executive/Surviving Spouse if it is finally judicially determined that such Executive’s/Surviving Spouse’s claims under this Agreement are frivolous.
8.10 Disputes & Severability . In the event of any dispute after the occurrence of a Change in Control (as defined in Section 7.2) between the Company and the Executive with respect to the Executive’s rights to any payment under this Agreement, the Company shall pay all disputed amounts to the Executive in the time and manner otherwise specified by this Agreement, and, if it is finally judicially determined that the Executive was not entitled to all or a portion of such disputed amounts, the Executive shall repay to the Company the amount to which the Executive was not entitled, together with interest thereon at the judgment rate of interest then applicable in New York State. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or provision is invalid, illegal or unenforceable, the court may modify this Agreement to effect the original intent of the parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
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8.11 Release . In connection with Executive’s receipt of the retirement benefit described in Section 3.1, the Executive shall execute (and not revoke) a standard, customary form of release agreement (the “ Release ”), including without limitation the following terms. If Executive is continuously incapacitated through the Release Date, this requirement is waived. The Release must be given no more than ninety (90) days following the Executive’s employment termination, with sufficient time to allow applicable revocation period(s) to expire before the end of such ninety- (90-) day period (the final day of such 90-day period to be the “ Release Date ”). Pursuant to the Release, the Executive, on behalf of himself and his heirs, shall agree to waive any and all claims he or they have, had, or may have had, in each case as of the date the Executive signs the Release, in connection with his employment by the Company or its affiliates, as against the Company, its affiliates, and its and their directors and employees, other than claims arising out of the Company’s breach of its obligations under this Agreement. The Release will not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. Should the Executive fail to return to the Company the executed Release on or before the Release Date, the Executive will forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.12 Post-Employment Consulting . Following the Executive’s termination, if the Company requests, and Executive agrees, that Executive provide occasional services not exceeding 20% of the amount of services provided by Executive prior to his termination, the provision of such limited services shall not extend the date of the Executive’s termination for purposes of this Agreement.
8.13 Non-Disparagement . The Executive agrees and covenants that he will not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company or its businesses, or any of its employees or directors. This section does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency. This section does not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. The Company agrees and covenants that it shall cause its officers and directors to refrain from making any defamatory or disparaging remarks, comments, or statements concerning the Executive to any third parties. In the event of the Executive’s violation, at any time, of his commitment under this Section 8.13, the Executive will, in the discretion of the Committee, forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
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8.14 Original Agreement . This Agreement amends, supersedes and replaces the Original Agreement in its entirety, and the Original Agreement shall no longer be of any force or effect, except (i) where expressly referenced herein, and (ii) that years of service credit shall accrue as of the date originally established therefor under the Original Agreement.
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IN WITNESS WHEREOF, this Agreement has been executed this 9 th day of November, 2016.
TOMPKINS FINANCIAL CORPORATION | |||||
By: | /s/ Stephen S. Romaine | ||||
Name: Stephen S. Romaine | |||||
ATTEST: /s/ Janet Hewitt | Title: President & Chief Executive Officer | ||||
By: | /s/ Scott L. Gruber | ||||
ATTEST: /s/ Josephine Gruber | Name: Scott L. Gruber, Individually |
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SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
Form of Benefit and Beneficiary Designation Form
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby elect the following form of benefit payment for retirement benefits due pursuant to this Agreement. (Please initial your selection.)
_____ | Single Life Annuity (100% benefit payable for my lifetime). |
_____ | 50% Joint & Survivor Annuity (Actuarially reduced benefit, payable for the lifetime of the Executive and a benefit equal to 50% of that benefit to a Surviving Spouse for her lifetime). |
I understand and acknowledge that unless I elect the 50% joint and survivor annuity benefit by both initializing such election above and identifying my spouse, below, and returning this Election Benefit Form to the Committee on or before my Retirement Date, as defined in the Agreement, that my benefit, if any, will be payable in the form of a single life annuity. Further, I understand and acknowledge no death benefit will be paid under the Agreement (a) if the below-designated Spouse is not a “Surviving Spouse” as defined in the Agreement, or (b) if I do not return this Spousal Benefit Designation Form, completed and executed, to the Committee on or before my Retirement Date, as defined in the Agreement.
Spouse’s Name: ___________________________________
Social Security Number: _____________________________
Date of Birth: ______________________________
Home Address: ____________________________________________________________
Executive’s Signature: ______________________________
Witness’ Signature: ______________________________
Spouse’s Signature (if waiving right to benefits under this Agreement because Executive has elected a Single Life Annuity):
______________________________
___________________
Date
Witness’ Signature: ______________________________
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Tompkins Financial Corporation 10-Q
Exhibit 10.10
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Amended and Restated Supplemental Executive Retirement Agreement (the “Agreement”) is entered into effective November 9, 2016 by Tompkins Financial Corporation, with offices at 110 The Commons, Ithaca, New York 14851, and John McKenna , residing at _____________________ (the “Executive”).
PREAMBLE
The Executive and Tompkins Financial Corporation previously entered into a Supplemental Executive Retirement Agreement, dated on or about January 1, 2016 (the “ Original Agreement ”), and Section 8.1 hereof sets forth the only provision of the Original Agreement which is incorporated into this Agreement. For good and valuable consideration, including without limitation (i) continued active participation and other benefits under this Agreement, (ii) an additional Supplemental Executive Retirement Agreement, also dated on or about the date hereof, and (iii) the grant of an equity award on or about the date hereof, which equity award is expressly conditioned upon Executive’s execution and delivery of this Agreement, the receipt and sufficiency of which is acknowledged, the parties now desire to clarify, amend and restate the Original Agreement as set forth herein. The principal objective of this Agreement and the Original Agreement is and was to ensure the payment of competitive levels of retirement income to the Executive, who has been determined to be a key executive of Tompkins Financial Corporation and its subsidiaries, in order to retain and motivate such Executive.
SECTION I. DEFINITIONS
1.1. | “ Board of Directors ” means the Board of Directors of Tompkins Financial Corporation. |
1.2. | “ Cause ” has the meaning set forth in Section 2.3. |
1.3. | “ Code ” means the Internal Revenue Code of 1986, as amended. |
1.4. | “ Competition with the Company ” has the meaning set forth in Section 2.3. |
1.5. | “ Committee ” means the Compensation Committee of the Board of Directors, which has been given authority by the Board of Directors to administer this Agreement. |
1.6. | “ Company ” means Tompkins Financial Corporation. |
1.7. | “ Compensation ” has the meaning set forth in Section 7.1(b). |
1.8. | “ Disabled ” means that by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, the Executive is unable to engage in any substantial gainful activity. |
1.9. | “ Early Retirement Reduction ” has the meaning set forth in Section 3.1. |
1.10. | “ Earnings ” means the average of the Executive’s five (5) highest calendar years (or such lesser number if the Executive has not completed five (5) years of service for the purpose of determining Earnings) of base pay, which shall mean the Executive’s base salary excluding bonuses, profit sharing, and the like, and which may include base pay in years prior to the Executive’s commencement of participation under this Agreement if so determined by the Board of Directors. |
1.11. | “ Excise Tax ” has the meaning set forth in Section 7.1(c). |
1.12. | “ Good Reason ” exists in the event of (i) a material diminution in the Executive’s base compensation, authority, duties or responsibilities; (ii) a material change in the geographic location at which the Executive is required to perform the duties of the Executive’s position; or (iii) a material breach of this Agreement by the Company or its successor, or of any other agreement pursuant to which the Executive provides services for the Company or its successor, provided the Executive gives written notice to the Company or its successor, as applicable, within ninety (90) days of the initial existence of the condition described in (i), (ii) or (iii), above, and the Company or its successor fails to remedy such condition within thirty (30) days after receipt of such notice. |
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1.13. | “ Release ” has the meaning set forth in Section 8.11. |
1.14. | “ Release Date ” has the meaning set forth in Section 8.11. |
1.15. | “ Retirement Age ” has the meaning set forth in Section 2.2. |
1.16. | “ Retirement Benefit Freeze ” has the meaning set forth in Section 2.1. |
1.17. | “ Retirement Date ” has the meaning set forth in Section 2.2. |
1.18. | “ Surviving Spouse ” means the spouse of the Executive, if any, designated at or prior to his Retirement Date on his ‘Election Benefit Form’, surviving on the date of death of the Executive; provided, however, that if the Executive, as of the date of Executive’s death, is no longer married to the person so designated, then such person is not a Surviving Spouse for purposes of this Agreement. |
1.19. | “ Vested ” means having completed at least ten (10) years of service beginning with the date set forth in Section 3.3. |
1.20. | “ Years of Service Reduction ” has the meaning set forth in Section 3.1. |
SECTION II. ELIGIBILITY FOR BENEFITS
2.1 Eligibility . The Executive is eligible to participate in this Agreement by designation of the Board of Directors, in its sole discretion. The Board of Directors may determine, in its sole discretion, that the Executive should cease to continue accruing retirement benefits under this Agreement (a “ Retirement Benefit Freeze ”) and in such event the Board of Directors shall notify the Executive in writing of such determination. Such determination shall not reduce the then accrued retirement benefit of the Executive under this Agreement, as follows. The Executive will remain entitled to receive his retirement benefit in accordance with Section 3.1 (and Executive will be deemed Vested), except that the Years of Service Reduction shall be calculated utilizing the years of service completed by Executive as of the Retirement Benefit Freeze date, and Earnings shall be calculated as of the Retirement Benefit Freeze date. A Retirement Benefit Freeze will not impair Executive’s rights under Section 7 (Change in Control) except as expressly set forth herein.
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2.2 Retirement Date . The Executive is eligible to retire under this Agreement and receive a benefit under Section 3.1 beginning on his “Retirement Date” which is the later of: (a) the first day of the month following the month in which the Executive becomes Vested and reaches age fifty-five (55) (which age is referred to as the “ Retirement Age ” herein), or (b) the first day of the month following the month in which the Executive terminates employment with the Company, so long as he is Vested on such date; for clarity, failure to satisfy the Vesting requirement means that no “Retirement Date” shall have occurred hereunder and Executive shall not be entitled to a retirement benefit hereunder, unless otherwise expressly stated herein.
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2.3 Termination; Competition . Anything herein to the contrary notwithstanding, if within two (2) years after involuntary termination (including resignation with Good Reason), the Executive engages in Competition with the Company (without prior authorization given by the Committee in writing), or, if the Executive is discharged by the Company or its subsidiaries for Cause, payments otherwise payable under this Agreement to the Executive or the Executive’s Surviving Spouse will, in the sole discretion of the Committee, be forfeited and the Company will have no further obligation under this Agreement to the Executive or the Executive’s Surviving Spouse. Anything herein to the contrary notwithstanding, no benefits are payable under this Agreement if the Executive engages in Competition with the Company at any time before, during or after his voluntary resignation (except in the case of Competition with the Company that begins more than two (2) years after a resignation with Good Reason). For purposes of this Agreement, the term “Cause” shall mean (a) the conviction of the Executive by a court of competent jurisdiction of a crime which constitutes a felony under any state or federal law, (b) an act by the Executive which in the reasonable opinion of the Board of Directors constitutes an intentional theft of property of the Company or its subsidiaries, (c) the willful and continued failure or refusal of the Executive to perform his duties, or (d) gross negligence or willful misconduct on the part of the Executive that is materially and demonstrably detrimental to the Company or its subsidiaries (as determined by the Board of Directors in its reasonable discretion). For purposes of this Section 2.3, “Competition with the Company” shall occur if the Executive, directly or indirectly (a) comes to own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any other manner with, any business (but which shall exclude executive’s ownership of less than 1% of any class of equity or debt security of a publicly-traded competing business) which, in the judgment of the Board of Directors, is in substantial competition with the Company (unless the Executive has first obtained the Board’s prior written consent) and which is located within, or is actively directing marketing efforts within, ten (10) miles of any location of the Company or any of its subsidiaries, (b) solicits customers of the Company or any of its subsidiaries to reduce or stop doing business with the Company or any of its subsidiaries, or initiates any customer contact, for any reason, except for social contact with customers with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of business or business opportunities or (c) solicits employees of the Company or any of its subsidiaries to leave such employment, or offers employment to employees of the Company or any of its subsidiaries, or initiates any employee contact, for any reason, except for social contact with employees with whom Executive has a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of such employee’s services.
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SECTION III. AMOUNT AND FORM OF RETIREMENT BENEFIT
3.1 Retirement Benefit . The annual retirement benefit amount payable by the Company under this Agreement as a single life annuity shall equal eighteen percent (18%) of the Executive’s Earnings; provided, however, that the annual retirement benefit shall be reduced by six and one-quarter percent (6.25%) for each year that the Executive’s years of service under this Agreement are less than sixteen (16) years (the “ Years of Service Reduction ”). In the event the Executive’s Retirement Date under Section 2.2 occurs prior to the Executive attaining the age of sixty-five (65), the annual retirement benefit otherwise determined hereunder shall be further reduced by five percent (5%) for each year of age by which the Executive’s attained age at his Retirement Date is less than sixty-five (65) years (the “ Early Retirement Reduction ”). For clarity, when this Agreement states that an Executive is “deemed Vested,” such does not alter the Years of Service Reduction or the Early Retirement Reduction, and is only intended to confirm that the Executive is eligible for the benefit hereunder.
The Executive may elect to take his benefit in the form of a fifty percent (50%) joint and survivor annuity, whereby he and the Surviving Spouse would receive an actuarial equivalent benefit over their joint lifetimes, provided the Executive completes and submits to the Committee an Election Benefit Form on or before his Retirement Date choosing this form of benefit. Absent such a timely made election, the Executive’s benefit will be paid in the form of a single life annuity. Actuarial equivalence will be determined using reasonable actuarial methods and assumptions chosen by the Company. The monthly retirement benefit payable by the Company to the Executive shall equal one-twelfth (1/12) of such annual retirement benefit. The monthly benefit payable as a single life annuity shall be payable by the Company on the first day of each calendar month beginning with the Executive’s Retirement Date through and including the month of the Executive’s death. In the event that the Executive elects to take his benefit in the form of a joint and survivor annuity, the benefit shall be payable by the Company on the first day of each calendar month beginning with the Executive’s Retirement Date through and including the later of the month of the Executive’s or his Surviving Spouse’s death in accordance with that election. In the event the Executive is determined to be a “specified employee”, as such term is defined in Treasury Regulations §1.409A-1(i), then any monthly benefit otherwise payable on or before the date which is six (6) months after the Executive’s termination of employment date shall be delayed until the earlier of the Executive’s date of death or the date which is six (6) months after the Executive’s termination of employment date; provided, however, that such delay is only required for benefits constituting nonqualified deferred compensation under Code Section 409A, and the delay will apply only to those benefits that are not exempt from Code Section 409A. Any such delayed payments shall be accumulated and paid in a lump sum and payments thereafter will be made as scheduled in accordance with this Section 3.1.
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3.2 Death Benefit .
(a) Upon the death of the Executive after the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse shall be entitled to fifty percent (50%) of the annuity benefit the Executive was receiving at the time of his death, but only if the Executive elected the fifty percent (50%) joint and survivor annuity form pursuant to Section 3.1. The monthly retirement benefit payable by the Company, if any, to the Surviving Spouse shall be one-twelfth (1/12) of such annual retirement benefit and shall be payable on the first day of each month beginning with the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death.
(b) Upon the death of the Executive prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse, if any, shall be entitled to fifty percent (50%) of the annuity benefit payable by the Company to the Executive under this Agreement, determined under Section 3.1, provided that all of the following conditions are satisfied: (A) the Executive is Vested at the time of his death, as defined in Section I; (B) the Executive elected the fifty percent (50%) joint and survivor annuity form pursuant to Section 3.1; and, (C) the Surviving Spouse survives until the date upon which the Executive would have attained his Retirement Age if the Executive’s death occurs prior to his Retirement Date. The monthly retirement benefit payable by the Company, if any, under this subsection to the Surviving Spouse shall equal one-twelfth (1/12) of said annual retirement benefit for the Surviving Spouse and shall be payable on the first day of each month commencing on the later of the Executive’s Retirement Age or the month after the month of the Executive’s death through and including the month of the Surviving Spouse’s death. The date utilized for the Years of Service Reduction shall be the date of the Executive’s death (or the date of the Executive’s termination of employment, if earlier), and the age utilized for the Early Retirement Reduction shall be the greater of (1) the Executive’s actual age at the time of his death (or the date of the Executive’s termination of employment, if earlier), and (2) the Retirement Age.
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(c) Upon the death of the Executive with no Surviving Spouse, or, if in the event of the Executive’s death prior to the commencement of the Executive’s retirement benefit under Section 3.1, the Executive’s Surviving Spouse shall not survive the Executive until the date upon which the Executive would have attained the Retirement Age, there shall be no benefit payment under Section 3 to the Executive, the Executive’s Surviving Spouse, the estate of either the Executive or the Surviving Spouse, or otherwise.
3.3 Service . For purposes of this Agreement, the Executive’s service shall be defined as commencing on January 1, 2015 and ending on the date the Executive’s employment with Company or its subsidiaries is terminated, or such earlier date as shall be determined by the Board of Directors if the Board of Directors shall determine pursuant to Section 2.1 hereof that the Executive should cease to benefit under this Agreement (provided, however, that no such determination shall reduce the then-accrued benefit of the Executive under this Agreement). Years of service shall be determined in years and months of service with credit provided for a full month of service for the calendar month in which the Executive’s service commences as set forth above and the calendar month in which the Executive’s service hereunder ceases.
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SECTION IV. PAYMENT OF RETIREMENT BENEFITS
4.1 Limitation on Payments . Sections 2.3, 3.2, 4.2, 8.11 and 8.13 set forth the circumstances under which all further benefits payable under this Agreement (even if Vested) are forfeited.
4.2
Termination
.
Notwithstanding any contrary provision herein, if the Executive terminates employment voluntarily (which shall not include resignation
with Good Reason) before attaining age fifty-nine (59) and becoming Vested, the Company shall have no obligation to pay, and the
Executive shall have no right to receive, any retirement benefit under this Agreement whatsoever. In the event of the Executive’s
involuntary termination of employment (other than for Cause) or resignation with Good Reason at any time, the benefit payable to
the Executive shall be determined as set forth in Section 3.1, and payments shall commence at age fifty-nine (59) (and the Executive
shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction). For purposes of this provision,
the date utilized for the Years of Service Reduction shall be the date of the Executive’s termination, and the age utilized
for the Early Retirement Reduction shall be Executive’s Retirement Date. In the event of the Executive’s death prior
to the commencement of benefit payments under this provision, the Executive’s Surviving Spouse shall be entitled to receive
benefit payments in accordance with the provisions and limitations of Section 3.2.
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4.3 Health-Related Leave of Absence . Provided there is a reasonable expectation that the Executive will return to perform services for the Company (an “ Expected Return ”), the Committee may determine that the Executive has not separated from service for purposes of this Agreement during a leave of absence of up to twenty-nine (29) months, if such leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, and such impairment causes the Executive to be unable to perform the duties of his position or any substantially similar position (a “ Qualified Impairment ”). For clarity, even if a Qualified Impairment and Expected Return exist, the Committee is not obligated to defer the Employee’s separation from service during this period, and (subject to applicable federal and state law pertaining to medical leaves of absence) the Committee may instead elect to involuntarily terminate the Executive’s employment (other than for Cause) under Section 4.2 during this period. The determination as to the existence or absence of such Qualified Impairment and such Expected Return will be made by an independent physician identified by the Company. If, due to a Qualified Impairment, the Executive cannot return to perform the duties of his position or a substantially similar position for the Company by the end of such period, the Executive will be deemed to have incurred an involuntary termination of employment (other than for Cause) under Section 4.2 as of the first date following the end of such period.
SECTION V. DEATH BENEFITS PAYABLE
5.1 Death Benefit . Other than the death benefit for the Surviving Spouse under Section 3.2, Section 4.2, or Section 6.2, as applicable, no death benefits are payable under this Agreement.
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SECTION VI. DISABILITY BENEFITS PAYABLE
6.1 Disability Benefit . In the event that the Executive becomes Disabled, as determined by an independent physician identified by the Company (other than at a time when facts and circumstances exist under which the Company could, and does, terminate the Executive’s employment for Cause), the Executive shall be entitled to the benefits under Section 3.1 commencing the first day of the month following the month in which the Executive attains Social Security normal retirement age. For purposes of calculating the amount payable under Section 3.1 and pursuant to this Section 6.1, the Executive shall be deemed Vested, though payments shall remain subject to the Years of Service Reduction; the date utilized for the Years of Service Reduction shall be the date the Executive is determined to be Disabled; and the age utilized for the Early Retirement Reduction shall be Executive’s Retirement Date.
6.2 Death after Disability . In the event of the death of the Executive after Executive qualifies for a retirement benefit pursuant to Section 6.1, the Executive’s Surviving Spouse shall be entitled to receive benefit payments in accordance with the provisions and limitations of Section 3.2.
SECTION VII. CHANGE IN CONTROL
7.1 Change in Control .
(a) In the event of a Change in Control, as defined in Section 7.2, of the Company, the Executive shall be deemed to have completed sixteen (16) years of service and is Vested in all benefits under this Agreement (though the Early Retirement Reduction shall still apply), and the retirement benefit described in Section 3.1 shall commence at the Executive’s Retirement Date. The executive shall not be entitled to the accelerated service completion set forth in this subsection following a Retirement Benefit Freeze, unless the effective date of such Retirement Benefit Freeze occurs within the two-year period immediately prior to announcement of the Change in Control and, in such event, the executive shall remain so entitled.
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(b) In the event of a Change in Control of the Company, if the employment of the Executive is thereafter involuntarily terminated without Cause, or if the Executive voluntarily terminates employment for Good Reason (i) within two (2) years after a Change in Control, or (ii) in anticipation of a Change in Control which then occurs within two (2) years, then the Executive shall receive a benefit, in addition to any benefit under Section 3 of this Agreement, under this Section 7.1(b). The benefit under this Section 7.1(b) shall be the continuation of the Executive’s Compensation, as defined below, for a period of three (3) years (payable in accordance with the Company’s or its successor’s regular payroll procedures for executive employees, but in any event not less frequently than monthly), plus continuation of all employee welfare benefits that the Executive was participating in (health insurance, disability insurance, life insurance and the like) immediately prior to the Change in Control (or cash in an amount equal to the value of the Company’s or its successor’s contributions for such welfare benefits to the extent that the Executive is no longer eligible to participate in such programs); provided, however, that, for purposes of this Section 7.1(b), the amount of the Executive’s Compensation taken into account shall be reduced by (20%) if the Executive has attained age sixty-one (61), by 40% if the Executive has attained age sixty-two (62), by 60% if the Executive has attained age sixty-three (63), by 80% if the Executive has attained age sixty-four (64), and by 100% if the Executive has attained age sixty-five (65), with all such age determinations made as of the date of the Executive’s termination of employment. The continuation of the Executive’s employee welfare benefits under this Section 7.1(b) shall be on the same terms and conditions (subject to the aforementioned substitution of cash in lieu of benefit plan participation to the extent the Executive is ineligible therefor) as such employee welfare benefits are offered to other executive employees of the Company or of its successor, as applicable, and such continuation shall be for a three-year period even if there is no continuation payment of the Executive’s Compensation because of the 100% reduction under the preceding sentence. For purposes of this Section VII only, the term “Compensation” shall mean the Executive’s base pay (at the rate in effect immediately prior to the Change in Control) plus the Executive’s bonus and profit sharing compensation (which for this purpose shall be the average of the Executive’s bonus and profit sharing compensation earned for the two (2) most recently completed fiscal years of the Company immediately preceding the Change in Control).
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(c) In the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) would be subject to the excise tax imposed by Section 4999 of the Code, including any successor to such statute of like import (the “Excise Tax”), then the amount of the benefit otherwise payable under Section 7.1(b), if any, shall be reduced, but not below zero, to the maximum amount upon which no such Excise Tax is imposed.
(d) For purposes of this Section 7.1, the proper amounts, if any, of the Excise Tax and the adjustment under Section 7.1(c) to eliminate the Excise Tax shall be determined in the first instance by the Company. Within forty-five (45) days of being provided with written notice of any such determination, the Executive may provide written notice to the Committee of any disagreement, in which event the amounts, if any, of the Excise Tax and any adjustment under Section 7.1(c) shall be determined by independent tax counsel selected by the Company’s independent auditors. The determination of the Company (or, in the event of disagreement, the tax counsel selected) shall be final.
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7.2 For purposes of this Section VII, a Change in Control shall be deemed to have occurred upon the earliest of the following: (i) the date of acquisition by any one person, or more than one person acting as a group (as defined in Treasury Regulations §1.409A-3(i)(5)(v)(B)), of stock of the Company that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; provided, however, that if any one person, or more than one person acting as a group, is considered to own more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons shall not be deemed to result in a Change in Control; (ii) the date a majority of members of the Company’s Board of Directors is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the date of the appointment or election; or (iii) the date that any one person, or more than one person acting as a group, acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value of more than seventy percent (70%) of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions; provided, however, that transfers of assets of the Company of any value to a related person or entity as described in Treasury Regulations §1.409A-3(i)(5)(vii)(B) shall not be deemed to result in a Change in Control.
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SECTION VIII. MISCELLANEOUS
8.1 Termination, Amendment and Subsequent Deferrals . The Committee may, in its sole discretion, terminate, suspend or amend this Agreement at any time or from time to time, in whole or in part; provided, however, that no termination, suspension or amendment of this Agreement will, without the written consent of the Executive or the Surviving Spouse (if the Executive is not then living), reduce the Executive’s right or the right of the Surviving Spouse to receive or continue receiving a benefit accrued at the time of the termination, suspension or amendment in accordance with this Agreement. By way of clarification it is the intent of the Parties that the right to receive change in control benefits under Section VII shall accrue as of the date of the Original Agreement, subject to the limitations set forth in Section 7.1(a). The Parties agree that a Retirement Benefit Freeze, as described in Section 2.1, shall not be deemed a reduction of rights requiring consent hereunder. A termination or suspension of this Agreement shall not result in the acceleration of any benefit provided pursuant to this Agreement except as permitted in connection with a plan termination satisfying the conditions set forth in Treasury Regulations §1.409A-3(j)(ix), where the Committee decides to accelerate such benefit in accordance with the requirements of such regulation. The provisions of this Section 8.1 shall be subordinate to the provisions of Sections 2.3, 3.2, 4.1, 4.2, 8.11and 8.13 concerning the forfeiture of benefits. The definition of “Retirement Date” in Section 2.2 provides for the designated time of the retirement benefit hereunder, and the Executive may only make a subsequent deferral if the change complies with Treasury Regulations § 1.409A-2(b)(1) (the “ Subsequent Deferral Rules ”). In the event that an Executive wishes to elect to defer payment commencement beyond his Retirement Date, he must provide written notice thereof to the Company (the “ Deferral Notice ”) at least one (1) year prior to his Retirement Date, or such longer notice period as may then be required under the Subsequent Deferral Rules. The Deferral Notice shall specify the date on which the Executive wishes to begin receiving his retirement benefit hereunder, and such deferred payment date must be at least five (5) years later than the date the payment otherwise would have been made, or such other period as may then be required under the Subsequent Deferral Rules. Partial deferrals will not be permitted and the Company may refuse to honor the Deferral Notice if, in the reasonable opinion of the Company’s external legal counsel, the Deferral Notice does not comply with the Subsequent Deferral Rules, or is otherwise reasonably likely to adversely affect the Company under the Subsequent Deferral Rules.
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8.2 No Employment Agreement; Entire Agreement . Nothing contained herein will confer upon the Executive the right to be retained in the service of the Company or its subsidiaries, nor will it interfere with the right of the Company or its subsidiaries to discharge or otherwise deal with the Executive without regard to the existence of this Agreement. This Agreement (which expressly includes the Preamble), together with those certain agreements expressly referred to herein, constitute the sole and entire agreement of the Parties with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to the subject matter.
8.3 Unfunded Arrangement . The benefits under this Agreement are unfunded, and the Company will make benefit payments solely on a current disbursement basis from the Company’s general assets. Notwithstanding anything herein to the contrary, the Executive and the Executive’s Surviving Spouse, if any, shall have the status of general unsecured creditors of the Company.
8.4 Assignment . To the maximum extent permitted by law, no benefit under this Agreement shall be assignable or made subject by Executive in any manner to alienation, sale, transfer, claims of Executive’s creditors, pledge, attachment or encumbrances of any kind.
8.5 Rules . The Committee may adopt rules and regulations to assist it in the administration of this Agreement. This Agreement shall be administered and construed entirely in the discretion of the Committee and the Board of Directors, as applicable.
8.6 Information . The Executive shall receive a copy of this Agreement and the Committee will make available for inspection by the Executive a copy of any rules and regulations used by the Committee in administering this Agreement.
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8.7 Construction . The masculine gender, where appearing in this Agreement, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. For purposes of complying with Code Section 409A, or any successor to such statute of like import, it is acknowledged that no benefit payments may be made under this Agreement prior to the Executive’s termination of employment with the Company, that the payment of benefits pursuant to this Agreement may not be accelerated by the Company or the Executive, and that there are no elections provided under the Agreement to defer compensation or to delay a payment of benefits other than in the case of an election made pursuant to the Subsequent Deferral Rules, as described in Section 8.1.
8.8 Controlling Law . This Agreement is established under and will be construed according to the laws of the State of New York, without regard for principles of conflicts of law. Notwithstanding the foregoing, this Agreement shall be construed consistent with the requirements of Code Section 409A, the regulations promulgated thereunder and other official guidance relating thereto such that the operation or terms of this Agreement do not result in the inclusion in income of any amount under such Code provision. For purposes of this Agreement, any term hereunder relating to the Executive’s termination of employment, the Executive terminating employment, the Executive being terminated or similar expression shall be deemed to refer to a separation from service, as defined in Treasury Regulations §1.409A-1(h). If an amount is to be paid under this Agreement in two or more installments, each installment shall be treated as a separate payment for purposes of Code Section 409A.
8.9 Legal Expenses . The Company shall pay, upon request and documentation thereof (and not later than ninety (90) days after receipt of such request and documentation), all reasonable legal fees and expenses which the Executive/Surviving Spouse may incur as a result of the Company contesting the validity or enforceability of any provision of this Agreement or any claim by the Executive/Surviving Spouse under this Agreement; provided , however , that such request is made and supporting documentation provided to the Company by the Executive/Surviving Spouse within ninety (90) days after incurring the expense, and provided further, the Company shall be entitled to be reimbursed by the Executive/Surviving Spouse for such amount previously paid to such Executive/Surviving Spouse if it is finally judicially determined that such Executive’s/Surviving Spouse’s claims under this Agreement are frivolous.
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8.10 Disputes & Severability . In the event of any dispute after the occurrence of a Change in Control (as defined in Section 7.2) between the Company and the Executive with respect to the Executive’s rights to any payment under this Agreement, the Company shall pay all disputed amounts to the Executive in the time and manner otherwise specified by this Agreement, and, if it is finally judicially determined that the Executive was not entitled to all or a portion of such disputed amounts, the Executive shall repay to the Company the amount to which the Executive was not entitled, together with interest thereon at the judgment rate of interest then applicable in New York State. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or provision is invalid, illegal or unenforceable, the court may modify this Agreement to effect the original intent of the parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
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8.11 Release . In connection with Executive’s receipt of the retirement benefit described in Section 3.1, the Executive shall execute (and not revoke) a standard, customary form of release agreement (the “ Release ”), including without limitation the following terms. If Executive is continuously incapacitated through the Release Date, this requirement is waived. The Release must be given no more than ninety (90) days following the Executive’s employment termination, with sufficient time to allow applicable revocation period(s) to expire before the end of such ninety- (90-) day period (the final day of such 90-day period to be the “ Release Date ”). Pursuant to the Release, the Executive, on behalf of himself and his heirs, shall agree to waive any and all claims he or they have, had, or may have had, in each case as of the date the Executive signs the Release, in connection with his employment by the Company or its affiliates, as against the Company, its affiliates, and its and their directors and employees, other than claims arising out of the Company’s breach of its obligations under this Agreement. The Release will not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. Should the Executive fail to return to the Company the executed Release on or before the Release Date, the Executive will forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
8.12 Post-Employment Consulting . Following the Executive’s termination, if the Company requests, and Executive agrees, that Executive provide occasional services not exceeding 20% of the amount of services provided by Executive prior to his termination, the provision of such limited services shall not extend the date of the Executive’s termination for purposes of this Agreement.
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8.13 Non-Disparagement . The Executive agrees and covenants that he will not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company or its businesses, or any of its employees or directors. This section does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency. This section does not prohibit or restrict the Executive (or Executive’s attorney) from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or any state or federal regulatory authority regarding the Company or the facts or circumstances of Executive’s employment with the Company. The Company agrees and covenants that it shall cause its officers and directors to refrain from making any defamatory or disparaging remarks, comments, or statements concerning the Executive to any third parties. In the event of the Executive’s violation, at any time, of his commitment under this Section 8.13, the Executive will, in the discretion of the Committee, forfeit all benefits then unpaid that otherwise would have been payable to the Executive pursuant to this Agreement.
8.14 Original Agreement . This Agreement amends, supersedes and replaces the Original Agreement in its entirety, and the Original Agreement shall no longer be of any force or effect, except (i) where expressly referenced herein, and (ii) that years of service credit shall accrue as of the date originally established therefor under the Original Agreement.
IN WITNESS WHEREOF, this Agreement has been executed this 9 th day of November, 2016.
TOMPKINS FINANCIAL CORPORATION | ||||
By: | /s/ Stephen S. Romaine | |||
Name: Stephen S. Romaine | ||||
ATTEST: | /s/ Janet Hewitt | Title: President & Chief Executive Officer | ||
By: | /s/ John M. McKenna | |||
Name: John M. McKenna, individually | ||||
ATTEST: | /s/ Cheryl Cappon |
20
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
Form of Benefit and Beneficiary Designation Form
As an Executive participating in a Supplemental Executive Retirement Agreement with Tompkins Financial Corporation, I hereby elect the following form of benefit payment for retirement benefits due pursuant to this Agreement. (Please initial your selection.)
_____ | Single Life Annuity (100% benefit payable for my lifetime) |
_____ | 50% Joint & Survivor Annuity (Actuarially reduced benefit, payable for the lifetime of the Executive and a benefit equal to 50% of that benefit to a Surviving Spouse for her lifetime). |
I understand and acknowledge that unless I elect the 50% joint and survivor annuity benefit by both initializing such election above and identifying my spouse, below, and returning this Election Benefit Form to the Committee on or before my Retirement Date, as defined in the Agreement, that my benefit, if any, will be payable in the form of a single life annuity. Further, I understand and acknowledge no death benefit will be paid under the Agreement (a) if the below-designated Spouse is not a “Surviving Spouse” as defined in the Agreement, or (b) if I do not return this Spousal Benefit Designation Form, completed and executed, to the Committee on or before my Retirement Date, as defined in the Agreement.
Spouse’s Name: __________________________________________________________
Social Security Number: ____________________________________________________
Date of Birth: ___________________________________________________
Home Address: ______________________________________________________________________________________________________________
Executive’s Signature: ___________________________________________________
Witness’ Signature: ___________________________________________
Spouse’s Signature (if waiving right to benefits under this Agreement because Executive has elected a Single Life Annuity):
______________________________
___________________
Date
Witness’ Signature:______________________________
21
Tompkins Financial Corporation 10-Q
Exhibit 10.11
AWARD AGREEMENT
TOMPKINS FINANCIAL CORPORATION
2009 EQUITY PLAN
[Date]
Name
Address 1
Address 2
Dear Name,
1. | Tompkins Financial Corporation (the “Company”) hereby grants to Name the award(s) summarized below (the “Grant”), pursuant to the terms and conditions of the Company’s 2009 Equity Plan, as it may be amended from time to time (the “Plan”). The terms, conditions and restrictions of your award are set forth in this Award Agreement, which is governed by the terms of the Plan. Awards shall be exercised in the manner set forth in the Plan. Without limiting the foregoing, you may elect to have stock withheld to pay any purchase price or cost associated with the exercise. For the award to be effective, you must sign below and return this Award Agreement to the Company, acknowledging that you have received and read the Prospectus dated July 22, 2016 and any applicable prospectus supplements (together, the “Prospectus”), and agree to the terms of this Award Agreement and the Plan. |
2. | Award Summary: |
Restricted Stock Award Summary | |
Award Date: | |
Number of Shares: | |
Vesting Schedule: | 5 Year |
Percentage | Date |
0% | |
25% | |
25% | |
25% | |
25% |
By my signature below, I hereby acknowledge receipt of this Grant on the date shown above on the terms stated herein, which has been issued to me under the terms and conditions of the Plan. I further acknowledge receipt of a copy of the Plan and the Prospectus and agree to be bound by all of the terms and conditions of the Plan as if they were set out in full in this Award Agreement. I agree to accept as binding, conclusive and final all decisions or interpretations of the Committee or the Board, as the case may be, upon any questions relating to the Plan or this Grant.
I understand that in the event the Committee determines, in its sole discretion, that I engaged in any activity contrary or harmful to the interests of the Company or its customers, including without limitation, any violation of Company policy or procedures, any unvested awards I hold shall immediately be forfeited and any rights thereunder shall terminate.
Signature: | |||||
Date | |||||
Christopher Chinici | Date | ||||
Vice President, Internal Actuary | |||||
Tompkins Financial Corporation |
Note: If there are any discrepancies in the name or address shown above,
please make the appropriate corrections on this form.
Tompkins Financial Corporation 10-Q
Exhibit 10.12
AWARD AGREEMENT
TOMPKINS FINANCIAL CORPORATION
2009 EQUITY PLAN
Name
Address 1
Address 2
Dear Name:
1. | Tompkins Financial Corporation (the “Company”) hereby grants to Name the award(s) summarized below (the “Grant”), pursuant to the terms and conditions of the Company’s 2009 Equity Plan, as it may be amended from time to time (the “Plan”). The terms, conditions and restrictions of your award are set forth in this Award Agreement, which is governed by the terms of the Plan. Awards shall be exercised in the manner set forth in the Plan. Without limiting the foregoing, you may elect to have stock withheld to pay any purchase price or cost associated with the exercise. For the award to be effective, you must sign below and return this Award Agreement to the Company, acknowledging that you have received and read the Prospectus dated July 22, 2016 and any applicable prospectus supplements (together, the “Prospectus”), and agree to the terms of this Award Agreement and the Plan. |
2. | Award Summary: |
By my signature below, I hereby acknowledge receipt of this Grant on the date shown above on the terms stated herein, which has been issued to me under the terms and conditions of the Plan. I further acknowledge receipt of a copy of the Plan and the Prospectus and agree to be bound by all of the terms and conditions of the Plan as if they were set out in full in this Award Agreement. I agree to accept as binding, conclusive and final all decisions or interpretations of the Committee or the Board, as the case may be, upon any questions relating to the Plan or this Grant.
I understand that the event the Committee determines, in its sole discretion, that I engaged in any activity contrary or harmful to the interests of the Company or its customers, including without limitation, any violation of Company policy or procedures, any unvested awards I hold shall immediately be forfeited and any rights thereunder shall terminate.
Signature: | ||||
Date | ||||
Christopher Chinici | Date | |||
Vice President, Internal Actuary | ||||
Tompkins Financial Corporation |
Note: If there are any discrepancies in the name or address shown above,
please make the appropriate corrections on this form.
Tompkins Financial Corporation 10-Q
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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.
Date: November 09, 2016 |
|
/S/Stephen S. Romaine | |
Stephen S. Romaine | |
President and Chief Executive Officer |
|
(Principal Executive Officer) |
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Tompkins Financial Corporation 10-Q
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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.
Date: November 09, 2016 | |
/S/ Francis M. Fetsko | |
Francis M. Fetsko | |
Executive Vice President, Chief Financial Officer, and Chief Operating Officer | |
(Principal Financial Officer) | |
(Principal Accounting Officer) |
75
Tompkins Financial Corporation 10-Q
Exhibit 32.1
CERTIFICATION
In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016 (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.
Assigned original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
November 09, 2016 | ||
/S/ Stephen S. Romaine | ||
Stephen S. Romaine | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) |
76
Tompkins Financial Corporation 10-Q
Exhibit 32.2
CERTIFICATION
In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016 (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.
Assigned original of this written statement required by Section 906 has ben provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
November 09, 2016 | ||
/S/ Francis M. Fetsko | ||
Francis M. Fetsko | ||
Executive Vice President, | ||
Chief Financial Officer, and Chief Operating Officer | ||
(Principal Financial Officer) | ||
(Principal Accounting Officer) |
77