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EX-31.1 - EXHIBIT 31.1 - TOMPKINS FINANCIAL CORPex31_1.htm
EX-32.2 - EXHIBIT 32.2 - TOMPKINS FINANCIAL CORPex32_2.htm
EX-32.1 - EXHIBIT 32.1 - TOMPKINS FINANCIAL CORPex32_1.htm
EX-31.2 - EXHIBIT 31.2 - TOMPKINS FINANCIAL CORPex31_2.htm
United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
   
OR
   
o
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 logo)
 
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: (607) 273-3210
Former name, former address, 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 x No o.
 
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*
Yes o No o.
*The registrant has not yet been phased into the interactive data requirements.
 
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 o
 
Accelerated Filer x
 
Non-Accelerated Filer o (Do not check if a smaller reporting company)
 
Smaller Reporting Company o
       
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
 Yes o No x.

Indicate the number of shares of the Registrant’s Common Stock outstanding as of the latest practicable date:
 
Class
 
Outstanding as of July 28, 2010
Common Stock, $0.10 par value
 
10,831,415 shares
 
 
 

 
 
TOMPKINS FINANCIAL CORPORATION

FORM 10-Q

INDEX

       
PAGE
   
     
     
         
     
3
         
     
4
         
     
5
         
     
6
         
     
7-25
         
   
25-40
         
   
40-41
         
   
41
         
   
     
   
41
         
   
42
         
   
42
         
   
42
         
   
42
         
   
42
         
   
43
         
 
43
     
 
44
 
 
2

 
 
 
 
TOMPKINS FINANCIAL CORPORATION

(In thousands, except share and per share data) (Unaudited)
 
As of
   
As of
 
 
 
06/30/2010
   
12/31/2009
 
ASSETS
 
 
   
 
 
Cash and noninterest bearing balances due from banks
  $ 47,839     $ 43,686  
Interest bearing balances due from banks
    1,615       1,676  
Federal funds sold
    15,000       0  
Money market funds
    100       100  
Cash and Cash Equivalents
    64,554       45,462  
 
               
Trading securities, at fair value
    26,895       31,718  
Available-for-sale securities, at fair value
    955,090       928,770  
Held-to-maturity securities, fair value of $42,567 at June 30, 2010, and $46,340 at December 31, 2009
    41,235       44,825  
Loans and leases, net of unearned income and deferred costs and fees
    1,900,303       1,914,818  
Less: Allowance for loan and lease losses
    26,530       24,350  
Net Loans and Leases
    1,873,773       1,890,468  
 
               
FHLB and FRB stock
    19,330       20,041  
Bank premises and equipment, net
    46,818       46,650  
Corporate owned life insurance
    36,680       35,953  
Goodwill
    41,589       41,589  
Other intangible assets, net
    4,486       4,864  
Accrued interest and other assets
    51,198       62,920  
Total Assets
  $ 3,161,648     $ 3,153,260  
 
               
LIABILITIES
               
Deposits:
               
Interest bearing:
               
Checking, savings and money market
    1,198,065       1,183,145  
Time
    787,923       794,738  
Noninterest bearing
    474,235       461,981  
Total Deposits
    2,460,223       2,439,864  
 
               
Federal funds purchased and securities sold under agreements to repurchase, including certain amounts at fair value of $5,628 at June 30, 2010, and $5,500 at December 31, 2009
    175,336       192,784  
Other borrowings, including certain amounts at fair value of $11,825 at June 30, 2010, and $11,335 at December 31, 2009
    189,561       208,965  
Trust preferred debentures
    25,058       25,056  
Other liabilities
    42,787       41,583  
Total Liabilities
  $ 2,892,965     $ 2,908,252  
 
               
EQUITY
               
Tompkins Financial Corporation shareholders’ equity:
               
Common Stock - par value $.10 per share: Authorized 25,000,000 shares; Issued and outstanding: 10,865,911 at June 30, 2010; and 9,785,265 at December 31, 2009
    1,087       978  
Additional paid-in capital
    195,025       155,589  
Retained earnings
    67,456       92,402  
Accumulated other comprehensive income (loss)
    5,965       (3,087 )
Treasury stock, at cost – 88,784 shares at June 30, 2010, and 81,723 shares at December 31, 2009
    (2,367 )     (2,326 )
 
               
Total Tompkins Financial Corporation Shareholders’ Equity
    267,166       243,556  
Noncontrolling interests
    1,517       1,452  
Total Equity
  $ 268,683     $ 245,008  
Total Liabilities and Equity
  $ 3,161,648     $ 3,153,260  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
3

 
 
TOMPKINS FINANCIAL CORPORATION

 
 
Three Months Ended
   
Six Months Ended
 
(In thousands, except per share data) (Unaudited)
 
06/30/2010
   
06/30/2009
   
06/30/2010
   
06/30/2009
 
INTEREST AND DIVIDEND INCOME
 
 
   
 
   
 
   
 
 
Loans
  $ 26,750     $ 26,499     $ 53,369     $ 53,176  
Due from banks
    10       4       22       12  
Federal funds sold
    6       4       9       8  
Money market funds
    0       10       0       28  
Trading securities
    278       345       588       707  
Available-for-sale securities
    8,794       9,185       17,793       17,570  
Held-to-maturity securities
    394       483       802       986  
FHLB and FRB stock
    218       29       501       322  
Total Interest and Dividend Income
    36,450       36,559       73,084       72,809  
INTEREST EXPENSE
                               
Time certificates of deposits of $100,000 or more
    1,146       1,314       2,324       2,805  
Other deposits
    3,502       4,827       7,329       9,960  
Federal funds purchased and repurchase agreements
    1,308       1,564       2,733       3,129  
Trust preferred securities
    436       325       803       378  
Other borrowings
    1,952       2,020       3,845       4,178  
Total Interest Expense
    8,344       10,050       17,034       20,450  
Net Interest Income
    28,106       26,509       56,050       52,359  
Less: Provision for loan/lease losses
    1,408       2,367       3,591       4,403  
Net Interest Income After Provision for Loan/Lease Losses
    26,698       24,142       52,459       47,956  
NONINTEREST INCOME
                               
Investment services income
    3,604       3,337       7,341       6,539  
Insurance commissions and fees
    3,191       3,120       6,357       6,239  
Service charges on deposit accounts
    2,430       2,271       4,487       4,491  
Card services income
    1,067       933       2,041       1,723  
Mark-to-market gain on trading securities
    291       40       381       98  
Mark-to-market (loss) gain on liabilities held at fair value
    (490 )     432       (618 )     688  
Other income
    1,180       1,386       2,486       2,667  
Gain on security transactions
    58       19       176       26  
Total Noninterest Income
    11,331       11,538       22,651       22,471  
NONINTEREST EXPENSES
                               
Salaries and wages
    10,669       10,069       21,008       19,597  
Pension and other employee benefits
    3,442       3,360       7,354       6,746  
Net occupancy expense of premises
    1,725       1,774       3,606       3,788  
Furniture and fixture expense
    1,143       1,128       2,326       2,244  
FDIC insurance
    857       2,164       1,769       2,518  
Amortization of intangible assets
    199       235       401       484  
Other operating expense
    6,481       5,944       12,547       12,586  
Total Noninterest Expenses
    24,516       24,674       49,011       47,963  
Income Before Income Tax Expense
    13,513       11,006       26,099       22,464  
Income Tax Expense
    4,447       3,526       8,585       7,242  
Net Income attributable to Noncontrolling Interests and Tompkins Financial Corporation
    9,066       7,480       17,514       15,222  
Less: Net income attributable to noncontrolling interests
    33       33       65       65  
Net Income Attributable to Tompkins Financial Corporation
  $ 9,033     $ 7,447     $ 17,449     $ 15,157  
Basic Earnings Per Share
  $ 0.84     $ 0.70     $ 1.62     $ 1.42  
Diluted Earnings Per Share
  $ 0.83     $ 0.69     $ 1.61     $ 1.41  
 
Per share data has been retroactively adjusted to reflect 10% stock dividend paid on February 15, 2010
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
4

 
 
(In thousands) (Unaudited)
 
   
06/30/2010
   
06/30/2009
 
OPERATING ACTIVITIES
 
 
   
 
 
Net income attributable to Tompkins Financial Corporation
  $ 17,449     $ 15,157  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan and lease losses
    3,591       4,403  
Depreciation and amortization of premises, equipment, and software
    2,353       2,271  
Amortization of intangible assets
    401       484  
Earnings from corporate owned life insurance
    (711 )     (426 )
Net amortization on securities
    1,669       859  
Mark-to-market gain on trading securities
    (381 )     (98 )
Mark-to-market loss (gain) on liabilities held at fair value
    618       (688 )
Net gain on securities transactions
    (176 )     (26 )
Net gain on sale of loans
    (339 )     (967 )
Proceeds from sale of loans
    18,598       68,425  
Loans originated for sale
    (17,859 )     (69,248 )
Net (gain) loss on sale of bank premises and equipment
    (37 )     1  
Stock-based compensation expense
    569       435  
Decrease in accrued interest receivable
    1,084       392  
Decrease in accrued interest payable
    (440 )     (250 )
Payments/maturities from trading securities
    5,097       3,448  
Other, net
    8,741       8,136  
Net Cash Provided by Operating Activities
    40,227       32,308  
 
               
INVESTING ACTIVITIES
               
Proceeds from maturities of available-for-sale securities
    192,315       169,350  
Proceeds from sales of available-for-sale securities
    13,755       9,401  
Proceeds from maturities of held-to-maturity securities
    13,608       17,685  
Purchases of available-for-sale securities
    (219,690 )     (238,025 )
Purchases of held-to-maturity securities
    (10,037 )     (6,514 )
Net decrease (increase) in loans
    12,703       (23,633 )
Net decrease in FHLB and FRB stock
    711       2,675  
Proceeds from sale of bank premises and equipment
    43       20  
Purchases of bank premises and equipment
    (2,233 )     (1,878 )
Other, net
    (1,739 )     (1,131 )
Net Cash Used in Investing Activities
    (564 )     (72,050 )
 
               
FINANCING ACTIVITIES
               
Net increase in demand, money market, and savings deposits
    27,174       90,631  
Net (decrease) increase in time deposits
    (6,815 )     64,171  
Net decrease in securities sold under agreements to repurchase and Federal funds purchased
    (17,576 )     (6,183 )
Proceeds received from other borrowings
    0       5,000  
Repayment of other borrowings
    (19,894 )     (84,477 )
Proceeds from issuance of trust preferred debentures, net of issuance costs
    0       19,031  
Cash dividends
    (6,989 )     (6,597 )
Cash paid in lieu of fractional shares - 10% stock dividend
    (7 )     0  
Shares issued for dividend reinvestment plan
    1,294       0  
Shares issued for employee stock ownership plan
    1,278       0  
Common stock repurchased and returned to unissued status
    0       (178 )
Net proceeds from exercise of stock options
    853       835  
Tax benefit from stock option exercises
    111       145  
Net Cash (Used in) Provided by Financing Activities
    (20,571 )     82,378  
Net Increase in Cash and Cash Equivalents
    19,092       42,636  
Cash and cash equivalents at beginning of period
    45,462       52,349  
Total Cash & Cash Equivalents at End of Period
    64,554       94,985  
Supplemental Information:
               
Cash paid during the year for - Interest
  $ 17,474     $ 20,701  
Cash paid during the year for - Taxes
    8,405       13,144  
Transfer of loans to other real estate owned
    1,639       68  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
5

 
 
(In thousands, except share data) (Unaudited)
 
 
                   
Accumulated
                   
         
Additional
         
Other
         
Non-
       
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
   
controlling
       
   
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Stock
   
Interests
   
Total
 
Balances at January 1, 2009
  $ 973     $ 152,842     $ 73,779     $ (7,602 )   $ (2,083 )   $ 1,452     $ 219,361  
Comprehensive Income:
                                                       
Net income attributable to noncontrolling interests and Tompkins Financial Corporation
                    15,157                       65       15,222  
Other comprehensive income
                            85                       85  
 Total Comprehensive Income
                                                    15,307  
                                                         
Cash dividends ($0.62 per share)
                    (6,597 )                             (6,597 )
Exercise of stock options and related tax benefit (30,668 shares, net)
    3       977                                       980  
Common stock repurchased and returned to unissued status (5,000 shares)
    (1 )     (177 )                                     (178 )
Directors deferred compensation plan (1,120 shares, net)
            81                       (81 )              
Stock-based compensation expense
            435                                       435  
Balances at June 30, 2009
  $ 975     $ 154,158     $ 82,339     $ (7,517 )   $ (2,164 )   $ 1,517     $ 229,308  
                                                         
Balances at January 1, 2010
  $ 978     $ 155,589     $ 92,402     $ (3,087 )   $ (2,326 )   $ 1,452     $ 245,008  
Comprehensive Income:
                                                       
Net income attributable to noncontrolling interests and Tompkins Financial Corporation
                    17,449                       65       17,514  
Other comprehensive income
                            9,052                       9,052  
 Total Comprehensive Income
                                                    26,566  
                                                         
Cash dividends ($0.65 per share)
                    (6,989 )                             (6,989 )
Effect of 10% stock dividend (988,664 shares)1
    98       35,301       (35,399 )                             0  
Cash paid in lieu of fractional shares
                    (7 )                             (7 )
Exercise of stock options and related tax benefit (34,733 shares, net)
    5       959                                       964  
Directors deferred compensation plan ((823) shares, net)
            41                       (41 )             0  
Shares issued for dividend reinvestment plan (31,027 shares)
    3       1,291                                       1,294  
Shares issued for employee stock ownership plan (34,436 shares)
    3       1,275                                       1,278  
Forfeiture of restricted stock ((330) shares)
                                                       
Stock-based compensation expense
            569                                       569  
Balances at June 30, 2010
  $ 1,087     $ 195,025     $ 67,456     $ 5,965     $ (2,367 )   $ 1,517     $ 268,683  
 
Cash dividends per share have been retroactively adjusted to reflect 10% stock dividend paid on February 15, 2010.
 
1 Included in the shares issued for the 10% stock dividend in 2010 were treasury shares of 3,264, and director deferred compensation plan shares of 4,620.

See accompanying notes to unaudited condensed consolidated financial statements.
 
 
6

 
 

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 conducts its business through its (i) three wholly-owned banking subsidiaries, Tompkins Trust Company, The Bank of Castile and The Mahopac National Bank, (ii) wholly-owned insurance subsidiary, Tompkins Insurance Agencies, Inc., and (iii) wholly-owned investment services subsidiary, AM&M Financial Services, Inc. (“AM&M”). AM&M has three operating companies: (1) AM&M Planners, Inc., which provides fee based financial planning and wealth management services for corporate executives, small business owners, and high net worth individuals; (2) Ensemble Financial Services, Inc., an independent broker-dealer and outsourcing company for financial planners and investment advisors; and (3) Ensemble Risk Solutions, Inc., which creates customized risk management plans using life, disability and long-term care insurance products. Unless the context otherwise requires, the term “Company” refers to Tompkins Financial Corporation and its subsidiaries. The Company’s principal offices are located at The Commons, Ithaca, New York 14851, and its telephone number is (607) 273-3210. The Company’s common stock is traded on the NYSE-Amex under the symbol “TMP.”
 
2. Basis of Presentation
 
The unaudited condensed consolidated financial statements included in this quarterly report have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. In the application of certain accounting policies management is required to make assumptions regarding the effect of matters that are inherently uncertain. These estimates and assumptions affect the reported amounts of certain assets, liabilities, revenues, and expenses in the unaudited condensed consolidated financial statements. Different amounts could be reported under different conditions, or if different assumptions were used in the application of these accounting policies. The accounting policies that management considers critical in this respect are the determination of the allowance for loan and lease losses, 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, 2010. 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 fiscal year ended December 31, 2009. There have been no significant changes to the Company’s accounting policies from those presented in the 2009 Annual Report on Form 10-K. Refer to Note 3- “Accounting Standards Updates” of this Report for a discussion of recently issued accounting guidelines.

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, Federal funds sold 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
 
Accounting Standards Update (ASU) No. 2009-16, “Transfers and Servicing (Topic 860) - Accounting for Transfers of Financial Assets.” ASU 2009-16 amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. ASU 2009-16 eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. ASU 2009-16 also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The provisions of ASU 2009-16 became effective on January 1, 2010 and did not have a significant impact on the Company’s financial statements.
 
 
7

 
 
ASU No. 2009-17, “Consolidations (Topic 810) - Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU 2009-17 amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. ASU 2009-17 requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. As further discussed below, ASU No. 2010-10, “Consolidations (Topic 810),” deferred the effective date of ASU 2009-17 for a reporting entity’s interests in investment companies. The provisions of ASU 2009-17 became effective on January 1, 2010 and did not have a significant impact on the Company’s financial statements.
 
ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures About Fair Value Measurements.” ASU 2010-06 requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy will be required for the Company beginning January 1, 2011. The remaining disclosure requirements and clarifications made by ASU 2010-06 became effective for the Company on January 1, 2010. See Note 11 – Fair Value.
 
ASU No. 2010-10, “Consolidations (Topic 810) - Amendments for Certain Investment Funds.” ASU 2010-10 defers the effective date of the amendments to the consolidation requirements made by ASU 2009-17 to a company’s interest in an entity (i) that has all of the attributes of an investment company, as specified under ASC Topic 946, “Financial Services - Investment Companies,” or (ii) for which it is industry practice to apply measurement principles of financial reporting that are consistent with those in ASC Topic 946. As a result of the deferral, a company will not be required to apply the ASU 2009-17 amendments to the Subtopic 810-10 consolidation requirements to its interest in an entity that meets the criteria to qualify for the deferral. ASU 2010-10 also clarifies that any interest held by a related party should be treated as though it is an entity’s own interest when evaluating the criteria for determining whether such interest represents a variable interest. In addition, ASU 2010-10 also clarifies that a quantitative calculation should not be the sole basis for evaluating whether a decision maker’s or service provider’s fee is a variable interest. The provisions of ASU 2010-10 became effective for the Company as of January 1, 2010 and did not have a significant impact on the Company’s financial statements.
 
ASU No. 2010-11, “Derivatives and Hedging (Topic 815) - Scope Exception Related to Embedded Credit Derivatives.” ASU 2010-11 clarifies that the only form of an embedded credit derivative that is exempt from embedded derivative bifurcation requirements are those that relate to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The provisions of ASU 2010-11 will be effective for the Company on July 1, 2010 and are not expected to have a significant impact on the Company’s financial statements.
 
ASU No. 2010-20, “Receivables (Topic 310) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio segment. The required disclosures include, among other things, a rollforward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 will be effective for the Company’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period will be required for the Company’s financial statements that include periods beginning on or after January 1, 2011.
 
 
8

 
 
4. Securities

Available-for-Sale Securities
The following summarizes available-for-sale securities held by the Company at June 30, 2010:

 
 
Available-for-Sale Securities
 
June 30, 2010
(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
U.S. Treasury securities
  $ 1,978     $ 103     $ 0     $ 2,081  
Obligations of U.S. Government sponsored entities
    369,598       9,283       0       378,881  
Obligations of U.S. states and political subdivisions
    63,570       2,700       10       66,260  
Mortgage-backed securities – residential, issued by:
                               
U.S. Government agencies
    134,885       4,309       32       139,162  
U.S. Government sponsored entities
    333,658       18,690       32       352,316  
Non-U.S. Government agencies or sponsored entities
    11,248       0       1,222       10,026  
U.S. corporate debt securities
    5,028       172       0       5,200  
Total debt securities
    919,965       35,257       1,296       953,926  
Equity securities
    1,164       0       0       1,164  
Total available-for-sale securities
  $ 921,129     $ 35,257     $ 1,296     $ 955,090  
 
The following summarizes available-for-sale securities held by the Company at December 31, 2009:

 
 
Available-for-Sale Securities
 
December 31, 2009
(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
U.S. Treasury securities
  $ 1,991     $ 88     $ 0     $ 2,079  
Obligations of U.S. Government sponsored entities
    377,920       3,369       2,274       379,015  
Obligations of U.S. states and political subdivisions
    61,176       2,537       18       63,695  
Mortgage-backed securities – residential, issued by:
                               
U.S. Government agencies
    75,714       2,380       39       78,055  
U.S. Government sponsored entities
    373,307       15,831       278       388,860  
Non-U.S. Government agencies or sponsored entities
    12,656       0       1,890       10,766  
U.S. corporate debt securities
    5,032       104       0       5,136  
Total debt securities
    907,796       24,309       4,499       927,606  
Equity securities
    1,164       0       0       1,164  
Total available-for-sale securities
  $ 908,960     $ 24,309     $ 4,499     $ 928,770  
 
Held-to-Maturity Securities
The following summarizes held-to-maturity securities held by the Company at June 30, 2010:
 
 
 
Held-to-Maturity Securities
 
June 30, 2010
(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
Obligations of U.S. states and political subdivisions
  $ 41,235     $ 1,349     $ 17     $ 42,567  
Total held-to-maturity debt securities
  $ 41,235     $ 1,349     $ 17     $ 42,567  
 
 
9

 
 
The following summarizes held-to-maturity securities held by the Company at December 31, 2009:
 
 
 
Held-to-Maturity Securities
 
December 31, 2009
(in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
Obligations of U.S. states and political subdivisions
  $ 44,825     $ 1,570     $ 55     $ 46,340  
Total held-to-maturity debt securities
  $ 44,825     $ 1,570     $ 55     $ 46,340  
 
Realized gains on available-for-sale securities were $58,000 for the three months ended June 30, 2010, and $19,000 for the three months ended June 30, 2009; realized losses on available-for-sale securities were $0 in the second quarter of 2010 and 2009.
 
Realized gains on available-for-sale securities were $176,000 in the first six months of 2010, and $26,000 in the first six months of 2009; realized losses on available-for-sale securities were $0 in the first six months of 2010 and 2009.
 
The following table summarizes available-for-sale securities that had unrealized losses at June 30, 2010:

 
 
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 states and political subdivisions
    2,075       10       0       0       2,075       10  
                                                 
Mortgage-backed securities – residential, issued by:
                                               
U.S. Government agencies
    10,673       32       0       0       10,673       32  
U.S. Government sponsored entities
    770       9       3,392       23       4,162       32  
Non-U.S. Government agencies or sponsored entities
    1,397       3       8,629       1,219       10,026       1,222  
Total available-for-sale securities
  $ 14,915     $ 54     $ 12,021     $ 1,242     $ 26,936     $ 1,296  
 
The following table summarizes held-to-maturity securities that had unrealized losses at June 30, 2010:
 
 
 
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. states and political subdivisions
  $ 375     $ 10     $ 249     $ 7     $ 624     $ 17  
                                                 
Total held-to-maturity securities
  $ 375     $ 10     $ 249     $ 7     $ 624     $ 17  
 
 
10

 
 
The following table summarizes available-for-sale securities that had unrealized losses at December 31, 2009:
 
 
 
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
  $ 188,529     $ 2,274     $ 0     $ 0     $ 188,529     $ 2,274  
Obligations of U.S. states and political subdivisions
    1,679       18       0       0       1,679       18  
 
                                               
Mortgage-backed securities – residential, issued by:
                                               
U.S. Government agencies
    11,696       39       0       0       11,696       39  
U.S. Government sponsored entities
    21,593       235       8,126       43       29,719       278  
Non-U.S. Government agencies or sponsored entities
    2,690       338       8,076       1,552       10,766       1,890  
Total available-for-sale securities
  $ 226,187     $ 2,904     $ 16,202     $ 1,595     $ 242,389     $ 4,499  
 
The following table summarizes held-to-maturity securities that had unrealized losses at December 31, 2009:
 
 
 
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. states and political subdivisions
  $ 1,099     $ 45     $ 320     $ 10     $ 1,419     $ 55  
 
                                               
Total held-to-maturity securities
  $ 1,099     $ 45     $ 320     $ 10     $ 1,419     $ 55  
 
The gross unrealized losses reported for mortgage-backed securities-residential relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, and U.S. government agencies such as Government National Mortgage Association, and non-U.S. Government agencies or sponsored entities. Total gross unrealized losses were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.
 
The Company does not intend to sell the investment securities that are in an unrealized loss position 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 June 30, 2010, and December 31, 2009, management believes 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. A debt security is considered impaired if the fair value is less than its amortized cost basis 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
 
 
11

 
 
required to sell the investment securities, before recovery of their amortized cost basis, then the entire unrealized loss would be recorded in earnings.

The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover.

 
-
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 of June 30, 2010, the Company held five non-U.S. Government agencies or sponsored entities mortgage backed securities with a fair value of $10.0 million. During the third quarter of 2009, the Company determined that three of these non-U.S. Government mortgage backed securities were other-than-temporarily impaired based on an analysis of the above factors for these three securities. As a result, the Company recorded other-than-temporary impairment charges of $2.0 million in the third quarter of 2009 on these investments. The credit loss component of $146,000 was recorded as other-than-temporary impairment losses in the consolidated statement of income, while the remaining non-credit portion of the impairment loss was recognized in other comprehensive income (loss) in the consolidated statements of condition and changes in shareholders’ equity. The Company reviewed these five securities in the second quarter of 2010 and determined that no additional other-than-temporary charges to the Company’s consolidated statement of income were necessary. As of June 30, 2010, the amount by which the carrying value of the securities exceeded their fair value was $1.4 million. A continuation or worsening of current economic conditions may result in additional credit loss component of other-than-temporary impairment losses related to these investments.

The following table summarizes the roll-forward of credit losses on debt securities held by the Company for which a portion of an other-than-temporary impairment is recognized in other comprehensive income:

 
 
Three Months Ended
   
Six Months Ended
 
(in thousands)
 
June 30, 2010
   
June 30, 2009
   
June 30, 2010
   
June 30, 2009
 
Credit losses at beginning of the period
  $ 146     $ 0       146     $ 0  
Credit losses related to securities for which an other-than-temporary impairment was not previously recognized
    0       0       0       0  
Ending balance of credit losses on debt securities held for which a portion of an other-than-temporary impairment was recognized in other comprehensive income
  $ 146     $ 0       146     $ 0  
 
 
12

 
 
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.

June 30, 2010
 
 
   
 
 
(in thousands)
 
Amortized Cost
   
Fair Value
 
Available-for-sale securities:
 
 
   
 
 
Due in one year or less
  $ 7,568     $ 7,692  
Due after one year through five years
    141,704       145,926  
Due after five years through ten years
    281,138       288,675  
Due after ten years
    9,764       10,129  
Total
    440,174       452,422  
Mortgage-backed securities
    479,791       501,504  
Total available-for-sale debt securities
  $ 919,965     $ 953,926  

December 31, 2009
 
 
   
 
 
(in thousands)
 
Amortized Cost
   
Fair Value
 
Available-for-sale securities:
 
 
   
 
 
Due in one year or less
  $ 11,084     $ 11,231  
Due after one year through five years
    128,493       130,008  
Due after five years through ten years
    296,734       298,694  
Due after ten years
    9,808       9,992  
Total
    446,119       449,925  
Mortgage-backed securities
    461,677       477,681  
Total available-for-sale debt securities
  $ 907,796     $ 927,606  

June 30, 2010
 
 
   
 
 
(in thousands)
 
Amortized Cost
   
Fair Value
 
Held-to-maturity securities:
 
 
   
 
 
Due in one year or less
  $ 19,331     $ 19,472  
Due after one year through five years
    15,837       16,709  
Due after five years through ten years
    4,806       5,109  
Due after ten years
    1,261       1,277  
Total held-to-maturity debt securities
  $ 41,235     $ 42,567  

December 31, 2009
 
 
   
 
 
(in thousands)
 
Amortized Cost
   
Fair Value
 
Held-to-maturity securities:
 
 
   
 
 
Due in one year or less
  $ 17,017     $ 17,153  
Due after one year through five years
    19,200       20,185  
Due after five years through ten years
    7,131       7,511  
Due after ten years
    1,477       1,491  
Total held-to-maturity debt securities
  $ 44,825     $ 46,340  
 
 
13

 
 
Trading Securities
The following summarizes trading securities, at estimated fair value, as of:
 
(in thousands)
 
June 30, 2010
   
December 31, 2009
 
Obligations of U.S. Government sponsored entities
  $ 15,103     $ 17,986  
Mortgage-backed securities – residential U.S. Government sponsored entities
    11,792       13,732  
Total
  $ 26,895     $ 31,718  
 
The net gain (loss) on trading account securities, which reflects mark-to-market adjustments, totaled $291,000 and $381,000 during the three and six months ended June 30, 2010, and $40,000 and $98,000 during the three and six months ended June 30, 2009.
 
The Company also holds non-marketable Federal Home Loan Bank New York (“FHLBNY”) stock and non-marketable Federal Reserve Bank (“FRB”) stock, both 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 FHBLNY stock and FRB stock totaled $17.2 million and $2.1 million at June 30, 2010, respectively, and $18.1 million and $1.9 million at December 31, 2009, respectively. These securities are carried at par, which is also cost. While some Federal Home Loan Banks have stopped paying dividends and repurchasing stock upon reductions in debt levels, the FHLBNY continues to pay dividends and repurchase its stock. As such, the Company has not recognized any impairment on its holdings of FHLBNY stock.
 
5. Earnings Per Share
 
The Company follows the provisions of FASB ASC Topic 260, Earnings Per Share (“EPS”). A computation of Basic EPS and Diluted EPS for the three and six months ending June 30, 2010, and 2009 is presented in the table below.
 
Three months ended June 30, 2010
(in thousands except share and per share data)
 
Net Income (Numerator)
   
Weighted Average Shares (Denominator)
   
Per Share Amount
 
Basic EPS:
 
 
   
 
   
 
 
                   
Net income attributable to Tompkins Financial Corporation
  $ 9,033       10,818,218     $ 0.84  
 
                       
Effect of potentially dilutive common shares:
            58,203          
 
                       
Diluted EPS:
                       
 
                       
Net income attributable to Tompkins Financial Corporation plus assumed conversions
  $ 9,033       10,876,421     $ 0.83  

The effect of dilutive securities calculation for the three-month period ended June 30, 2010, excludes stock options, stock appreciation rights and restricted stock awards covering an aggregate of 690,895 shares of common stock because they are anti-dilutive.
 
 
14

 

Three months ended June 30, 2009
(in thousands except share and per share data)
 
Net Income (Numerator)
   
Weighted Average Shares (Denominator)
   
Per Share Amount
 
Basic EPS:
 
 
   
 
   
 
 
                   
Net income attributable to Tompkins Financial Corporation
  $ 7,447       10,679,719     $ 0.70  
 
                       
Effect of potentially dilutive common shares:
            84,075          
 
                       
Diluted EPS:
                       
 
                       
Net income attributable to Tompkins Financial Corporation plus assumed conversions
  $ 7,447       10,763,794     $ 0.69  
 
The effect of dilutive securities calculation for the three-month period ended June 30, 2009, excludes stock options, stock appreciation rights and restricted stock awards covering an aggregate of 508,177 shares of common stock because they are anti-dilutive.
 
Six months ended June 30, 2010
(in thousands except share and per share data)
 
Net Income (Numerator)
   
Weighted Average Shares (Denominator)
   
Per Share Amount
 
Basic EPS:
 
 
   
 
   
 
 
                   
Net income attributable to Tompkins Financial Corporation
  $ 17,449       10,764,576     $ 1.62  
 
                       
Effect of potentially dilutive common shares:
            55,320          
 
                       
Diluted EPS:
                       
 
                       
Net income attributable to Tompkins Financial Corporation plus assumed conversions
  $ 17,449       10,819,896     $ 1.61  
 
The effect of dilutive securities calculation for the six-month period ended June 30, 2010, excludes stock options, stock appreciation rights and restricted stock awards covering an aggregate of 714,530 shares of common stock because they are anti-dilutive.
 
Six months ended June 30, 2009
(in thousands except share and per share data)
 
Net Income (Numerator)
   
Weighted Average Shares (Denominator)
   
Per Share Amount
 
Basic EPS:
 
 
   
 
   
 
 
                   
Net income attributable to Tompkins Financial Corporation
  $ 15,157       10,675,728     $ 1.42  
 
                       
Effect of potentially dilutive common shares:
            84,643          
 
                       
Diluted EPS:
                       
 
                       
Net income attributable to Tompkins Financial Corporation plus assumed conversions
  $ 15,157       10,760,371     $ 1.41  
 
The effect of dilutive securities calculation for the six-month period ended June 30, 2009, excludes stock options, stock appreciation rights and restricted stock awards covering an aggregate of 508,485 shares of common stock because they are anti-dilutive.
 
 
15

 

6. Comprehensive Income

 
 
Three Months Ended
   
Six Months Ended
 
(in thousands)
 
06/30/2010
   
06/30/2009
   
06/30/2010
   
06/30/2009
 
Net income attributable to noncontrolling interests and Tompkins Financial Corporation
  $ 9,066     $ 7,480     $ 17,514     $ 15,222  
 
                               
Other comprehensive income (loss), net of tax:
                               
 
                               
Unrealized gain (loss) on available-for-sale securities:
                               
Net unrealized holding gain (loss) on available-for-sale securities arising during the period.
    7,056       (3,256 )     8,598       (400 )
 Memo: Pre-tax net unrealized holding gain (loss)
    11,759       (5,427 )     14,328       (667 )
 
                               
Reclassification adjustment for net realized gain on sale of available-for-sale securities
    (35 )     (12 )     (106 )     (16 )
 Memo: Pre-tax net realized gain
    (58 )     (19 )     (177 )     (26 )
 
                               
Employee benefit plans:
                               
Amortization of actuarial losses, prior service cost, and transition obligation
    295       263       560       501  
 Memo: Pre-tax amounts
    494       440