TOMPKINS FINANCIAL CORP - 10-Q filing on 2012-05-10

Securities

3 Months Ended

Mar. 31, 2012

4. Securities

Available-for-Sale Securities

The following table summarizes available-for-sale securities held by the Company at March 31, 2012:

	Available-for-Sale Securities
March 31, 2012	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(in thousands)
U.S. Treasury securities	$	2,014	$	35	$	0	$	2,049
Obligations of U.S. Government sponsored entities		550,885		13,646		1,945		562,586
Obligations of U.S. states and political subdivisions		58,876		2,333		76		61,133
Mortgage-backed securities – residential, issued by
U.S. Government agencies		115,233		6,476		0		121,709
U.S. Government sponsored entities		463,975		17,375		40		481,310
Non-U.S. Government agencies or sponsored entities		5,651		58		89		5,620
U.S. corporate debt securities		5,015		154		0		5,169
Total debt securities		1,201,649		40,077		2,150		1,239,576
Equity securities		1,022		0		0		1,022
Total available-for-sale securities	$	1,202,671	$	40,077	$	2,150	$	1,240,598

1 Net of other-than-temporary impairment losses recognized in earnings.

The following table summarizes available-for-sale securities held by the Company at December 31, 2011:

	Available-for-Sale Securities
December 31, 2011	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(in thousands)
U.S. Treasury securities	$	2,020	$	50	$	0	$	2,070
Obligations of U.S. Government sponsored entities		408,958		13,663		31		422,590
Obligations of U.S. states and political subdivisions		56,939		2,722		8		59,653
Mortgage-backed securities – residential, issued by
U.S. Government agencies		123,426		6,347		0		129,773
U.S. Government sponsored entities		501,136		16,300		58		517,378
Non-U.S. Government agencies or sponsored entities		6,334		0		458		5,876
U.S. corporate debt securities		5,017		166		0		5,183
Total debt securities		1,103,830		39,248		555		1,142,523
Equity securities		1,023		0		0		1,023
Total available-for-sale securities	$	1,104,853	$	39,248	$	555	$	1,143,546

1 Net of other-than-temporary impairment losses recognized in earnings.

Held-to-Maturity Securities

The following table summarizes held-to-maturity securities held by the Company at March 31, 2012:

March 31, 2012	Held-to-Maturity Securities
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Obligations of U.S. states and political subdivisions	$	26,321	$	528	$	0	$	26,849
Total held-to-maturity debt securities	$	26,321	$	528	$	0	$	26,849

The following table summarizes held-to-maturity securities held by the Company at December 31, 2011:

December 31, 2011	Held-to-Maturity Securities
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Obligations of U.S. states and political subdivisions	$	26,673	$	582	$	0	$	27,255
Total held-to-maturity debt securities	$	26,673	$	582	$	0	$	27,255

Realized gains on available-for-sale securities were $2,000 and $209,000 in the quarters ending March 31, 2012 and 2011, respectively. Realized losses on available-for-sale securities were $0 and $114,000 in the quarters ending March 31, 2012 and 2011, respectively.

The following table summarizes available-for-sale securities that had unrealized losses at March 31, 2012:

	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	$	190,057	$	1,945	$	0	$	0	$	190,057	$	1,945
Obligations of U.S. states and political subdivisions		4,330		76		0		0		4,330		76

Mortgage-backed securities – residential, issued by
U.S. Government sponsored entities		10,566		40		0		0		10,566		40
Non-U.S. Government agencies or sponsored entities		861		8		3,375		81		4,236		89
Total available-for-sale securities	$	205,814	$	2,069	$	3,375	$	81	$	209,189	$	2,150

There were no unrealized losses on held-to-maturity securities at March 31, 2012.

The following table summarizes available-for-sale securities that had unrealized losses at December 31, 2011:

	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	$	30,831	$	31	$	0	$	0	$	30,831	$	31
Obligations of U.S. states and political subdivisions		1,083		8		0		0		1,083		8

Mortgage-backed securities – residential, issued by
U.S. Government sponsored entities		28,307		58		0		0		28,307		58
Non-U.S. Government agencies or sponsored entities		1,944		172		3,932		286		5,876		458
Total available-for-sale securities	$	62,165	$	269	$	3,932	$	286	$	66,097	$	555

There were no unrealized losses on held-to-maturity securities at December 31, 2011.

The gross unrealized losses reported at March 31, 2012 and December 31, 2011 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 generally not due to the credit quality of the investment securities.

The Company does not intend to sell the securities that are in an unrealized loss position and it is not more-likely-than not that the Company will be required to sell these available-for-sale investment securities, before recovery of their amortized cost basis, which may be at maturity. Accordingly, as of March 31, 2012, and December 31, 2011, 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 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, and 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 March 31, 2012, the Company held five mortgage backed securities, with a fair value of $5.6 million, that were not issued by U.S. Government agencies or U.S. Government sponsored entities. In 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 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 in the condensed consolidated statements of condition and changes in shareholders’ equity. In 2010 and 2011, the Company recorded an additional credit loss component of other-than-temporary charge of $34,000 and $65,000, respectively. The Company’s review of these securities as of March 31, 2012 determined that no additional impairment charges were necessary. As of March 31, 2012, the carrying value of these securities exceeded their fair value by $447,000. 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
(in thousands)	03/31/2012		03/31/2011
Credit losses at beginning of the period	$	245	$	180
Credit losses related to securities for which an other-than-temporary impairment was previously recognized		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	$	245	$	180

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.

March 31, 2012

(in thousands)	Amortized Cost1		Fair Value
Available-for-sale securities:
Due in one year or less	$	13,483	$	13,695
Due after one year through five years		215,052		227,920
Due after five years through ten years		379,105		380,003
Due after ten years		9,150		9,319
Total		616,790		630,937
Mortgage-backed securities		584,859		608,639
Total available-for-sale debt securities	$	1,201,649	$	1,239,576
1 Net of other-than-temporary impairment losses recognized in earnings.

December 31, 2011

(in thousands)	Amortized Cost1		Fair Value
Available-for-sale securities:
Due in one year or less	$	8,611	$	8,722
Due after one year through five years		252,388		265,814
Due after five years through ten years		202,782		205,584
Due after ten years		9,153		9,376
Total		472,934		489,496
Mortgage-backed securities		630,896		653,027
Total available-for-sale debt securities	$	1,103,830	$	1,142,523
1 Net of other-than-temporary impairment losses recognized in earnings.

March 31, 2012
(in thousands)	Amortized Cost		Fair Value
Held-to-maturity securities:
Due in one year or less	$	11,840	$	11,855
Due after one year through five years		10,669		11,063
Due after five years through ten years		2,872		2,990
Due after ten years		940		941
Total held-to-maturity debt securities	$	26,321	$	26,849

December 31, 2011
(in thousands)	Amortized Cost		Fair Value
Held-to-maturity securities:
Due in one year or less	$	11,905	$	11,932
Due after one year through five years		10,808		11,234
Due after five years through ten years		3,004		3,133
Due after ten years		956		956
Total held-to-maturity debt securities	$	26,673	$	27,255

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 FHLBNY stock is tied to the Company’s borrowing levels with the FHLBNY. Holdings of FHBLNY stock and FRB stock totaled $14.4 million and $2.1 million at March 31, 2012, respectively, and $17.0 million and $2.1 million at December 31, 2011, respectively. 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.

Trading Securities

The following summarizes trading securities, at estimated fair value, as of:

(in thousands)	03/31/2012		12/31/2011

Obligations of U.S. Government sponsored entities	$	12,454	$	12,693
Mortgage-backed securities – residential, issued by
U.S. Government sponsored entities		6,312		6,905
Total	$	18,766	$	19,598

The net loss on trading account securities, which reflects mark-to-market adjustments, totaled $82,000 for the three months ended March 31, 2012, and $50,000 for the three months ended March 31, 2011.