Financial Performance - Net income attributable to Tompkins Financial Corporation was $21,342 thousand for the three months ended September 30, 2021, compared to $24,230 thousand for the same period in 2020, a decrease of 7.8%[14]. - Basic earnings per share decreased to $1.46 for the three months ended September 30, 2021, down from $1.63 in the prior year, a decline of 10.4%[14]. - Net income for Q3 2021 was $21.3 million or $1.45 diluted earnings per share, down 11.9% from $24.2 million or $1.63 per share in Q3 2020[173]. - For the first nine months of 2021, net income increased by 30.1% to $69.8 million or $4.72 diluted earnings per share compared to $53.6 million or $3.59 per share in the same period of 2020[174]. - Net income attributable to Tompkins Financial Corporation was $53,610,000, compared to $69,799,000, a decrease of 23.2%[126]. Assets and Liabilities - Total assets increased to $8,113,110 thousand as of September 30, 2021, up from $7,622,171 thousand as of December 31, 2020, representing a growth of 6.4%[11]. - Total deposits rose to $7,090,898 thousand, an increase of 10.2% from $6,437,752 thousand[11]. - The company's total shareholders' equity as of September 30, 2021, was $722,357,000, a decrease from $713,611,000 as of September 30, 2020[24]. - The total assets of the Company included securities held-to-maturity valued at $269,268, with a fair value of $268,283[145]. - The fair value of time deposits as of September 30, 2021, was $679,335, compared to a carrying amount of $675,499[145]. Income and Expenses - Net interest income after provision for credit loss expense was $57,330 thousand for the three months ended September 30, 2021, compared to $58,471 thousand for the same period in 2020, a decrease of 2.0%[14]. - Noninterest income increased to $20,854 thousand for the three months ended September 30, 2021, up from $18,887 thousand, a growth of 10.4%[14]. - Noninterest expenses for Q3 2021 were $40.6 million, up $3.2 million or 8.5% from Q3 2020, including penalties of $2.9 million related to the prepayment of $135.0 million in FHLB fixed rate advances[181]. - Noninterest income for Q3 2021 was $6.4 million, an increase of $440,000 or 7.4% compared to Q3 2020, driven by card services income and service charges on deposit accounts[180]. - Noninterest expense for the third quarter of 2021 was $50.2 million, up 7.3% compared to the same period in 2020[204]. Loans and Credit Quality - Net loans and leases decreased to $5,050,519 thousand, down from $5,208,658 thousand, a decline of 3.0%[11]. - The total past due loans as of September 30, 2021, were $30,140, compared to $17,312 on December 31, 2020, indicating an increase of 74.1%[53][54]. - The allowance for credit losses (ACL) decreased to $46,259,000 by September 30, 2021, down from $52,293,000 at the same time in 2020, reflecting a reduction of approximately 11.5%[66]. - The provision for credit losses was a credit of $1.2 million for Q3 2021, compared to a credit of $218,000 in Q3 2020[198]. - Loans rated Substandard totaled $70.2 million as of September 30, 2021, an increase from $68.6 million at December 31, 2020[172]. Comprehensive Income - Total comprehensive income attributable to Tompkins Financial Corporation for the three months ended September 30, 2021, was $14,130 thousand, compared to $21,414 thousand, a decrease of 34.2%[16]. - The total other comprehensive loss for the nine months ended September 30, 2021, was $30,490 thousand, while for the same period in 2020, it was a comprehensive income of $26,098 thousand[90]. - Other comprehensive loss for the three months ended September 30, 2021, was $9,552,000, compared to a loss of $3,728,000 in the same period of 2020, indicating a significant increase in loss[88]. Strategic Initiatives - The company plans to merge its banking subsidiaries into one entity, Tompkins Community Bank, which has received all necessary regulatory approvals[25]. - The Company plans to rebrand and combine its four wholly-owned banking subsidiaries into one entity, Tompkins Community Bank, effective January 2022[151]. - The Company is focused on responsible and sustainable growth, including potential acquisitions of financial institutions and branches to enhance its market presence[151]. - The Company’s strategy emphasizes organic growth and acquisitions, targeting culturally similar partners with potential for improved profitability[151]. Regulatory Compliance - The total assets of Tompkins Financial Corporation are subject to examination and regulation by various authorities, ensuring compliance with financial regulations[26]. - The company’s insurance subsidiary is regulated by the New York State Department of Financial Services and the Pennsylvania Insurance Department, ensuring adherence to industry standards[27].

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 June 30, 2021 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 j ...

Financial Performance - Net income attributable to Tompkins Financial Corporation for the three months ended March 31, 2021, was $25,626 thousand, a significant increase of 222.5% compared to $7,949 thousand for the same period in 2020[12]. - Basic earnings per share for Q1 2021 was $1.73, compared to $0.53 for Q1 2020, marking an increase of 226.4%[12]. - The total comprehensive income for the three months ended March 31, 2021, was $783,000, significantly lower than the previous year's $30,279,000[21]. - Net income available to common shareholders for the three months ended March 31, 2021, was $25,626,000, compared to $7,949,000 for the same period in 2020, representing an increase of 223%[73]. - Net income for Q1 2021 was $25.6 million, or $1.72 diluted earnings per share, compared to $7.9 million, or $0.53 diluted earnings per share in Q1 2020[148]. Asset and Liability Management - Total assets increased to $8,095,342 thousand as of March 31, 2021, up from $7,622,171 thousand as of December 31, 2020, representing an increase of 6.2%[10]. - Total liabilities increased to $7,385,406 thousand as of March 31, 2021, compared to $6,904,482 thousand as of December 31, 2020, an increase of 6.9%[10]. - The company's total shareholders' equity as of March 31, 2021, was $709,936,000, down from $717,689,000 at the beginning of the year[21]. - Total equity decreased by $7.8 million or 1.1% to $709.9 million at March 31, 2021, primarily due to an increase in accumulated other comprehensive loss[205]. Deposits and Loans - Total deposits increased to $6,946,541 thousand as of March 31, 2021, up 7.9% from $6,437,752 thousand as of December 31, 2020[10]. - The company reported a total of $5,306,446,000 in loans and leases as of March 31, 2021, an increase from $5,267,910,000 at December 31, 2020[42]. - Total loans and leases were $5.3 billion at March 31, 2021, up $32.5 million or 0.6% from December 31, 2020[182]. - Commercial and industrial loans increased by 3.0% to $1.2 billion, with PPP loans rising by 27.0% to $370.0 million[186]. Credit Quality and Provisions - The allowance for credit losses decreased to $49,339 thousand as of March 31, 2021, down from $51,669 thousand as of December 31, 2020, indicating improved credit quality[10]. - The provision for credit loss expense for Q1 2021 was $(2,510,000), indicating a credit to the allowance[59]. - The provision for credit losses for Q1 2021 was a credit of $2.5 million, compared to an expense of $16.3 million in Q1 2020, reflecting improved economic forecasts[165]. - Nonperforming loans represented 0.90% of total loans at March 31, 2021, compared to 0.87% at December 31, 2020[200]. Noninterest Income and Expenses - Noninterest income for the three months ended March 31, 2021, was $19,983 thousand, an increase of 5.4% from $18,960 thousand in the same period last year[12]. - Noninterest expense for the three months ended March 31, 2021, was $45,191,000, slightly down from $45,740,000 in the same period of 2020[104][105]. - Total other operating expenses for the three months ended March 31, 2021, were $11,305,000, down from $11,875,000 in the same period of 2020, indicating a reduction of 4.8%[85]. Strategic Initiatives - The company plans to rebrand and combine its four wholly-owned banking subsidiaries into one entity, Tompkins Community Bank, expected to take effect later in 2021, subject to regulatory approval[22]. - The Company has a strategic focus on responsible and sustainable growth, including potential acquisitions of financial institutions and services[126]. - The Company continues to utilize provisions under the CARES Act to avoid reporting eligible loan modifications as TDRs[62]. Regulatory Compliance - The company’s banking subsidiaries are subject to comprehensive regulation by various authorities, including the FDIC and NYSDFS, ensuring compliance with safety and soundness standards[23]. - The Company and its subsidiary banks are subject to various regulatory capital requirements administered by Federal bank regulatory agencies[208]. - Management believes that the Company and its subsidiary banks meet all capital adequacy requirements[208].

PART I [Item 1A. Risk Factors](index=5&type=section&id=Item%201A.%20Risk%20Factors) The company faces material risks from the COVID-19 pandemic, loan concentrations, interest rate changes, regulatory compliance, and cybersecurity threats - The COVID-19 pandemic has had, and is expected to continue to have, a **material adverse effect** on the company's business, financial condition, liquidity, and results of operations, with impacts on unemployment, market values, interest rates, and loan delinquencies[17](index=17&type=chunk)[18](index=18&type=chunk)[20](index=20&type=chunk) - The company faces increased business risk due to a significant concentration of commercial real estate and commercial business loans, which constituted **71.2% of total loans** as of December 31, 2020[24](index=24&type=chunk) - Agricultural loans, representing **5.6% of the total loan portfolio ($296.4 million)** as of December 31, 2020, are susceptible to adverse weather, disease, market price declines, and changes in government trade policies[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) - Changes in market interest rates significantly impact the company's net interest income and profitability, affecting the difference between interest earned on assets and interest paid on liabilities[42](index=42&type=chunk) - The transition from LIBOR as a reference rate could create costs and additional risks, including potential disputes with customers and creditors over substitute indices[48](index=48&type=chunk) - The company operates in a highly regulated environment, with extensive state and federal laws and regulations, including the Dodd-Frank Act and Basel III, which increase compliance costs and may restrict business activities[52](index=52&type=chunk)[53](index=53&type=chunk) - Cybersecurity and fraud risks are increasing due to new technologies, increased internet and mobile service use, and sophisticated attacks, potentially leading to financial losses, reputational harm, and regulatory scrutiny[61](index=61&type=chunk)[62](index=62&type=chunk)[64](index=64&type=chunk) [Item 1. Business](index=19&type=section&id=Item%201.%20Business) Tompkins Financial Corporation is a community-based financial services organization offering banking, insurance, and wealth management through its subsidiaries - Tompkins Financial Corporation is a Financial Holding Company headquartered in Ithaca, New York, offering a full array of financial services through its four banking subsidiaries (Tompkins Trust Company, The Bank of Castile, Mahopac Bank, VIST Bank) and one insurance agency subsidiary (Tompkins Insurance Agencies, Inc.)[79](index=79&type=chunk) - The company's strategic initiatives include responsible and sustainable organic growth, potential acquisitions of financial institutions, and digital delivery of services while maintaining personal service[80](index=80&type=chunk)[81](index=81&type=chunk) - The company operates in **three business segments**: banking, insurance, and wealth management[82](index=82&type=chunk) - Banking services primarily involve attracting deposits and originating various commercial, agricultural, consumer, and real estate loans and leases through **64 banking offices** (44 in New York, 20 in Pennsylvania)[83](index=83&type=chunk) - Tompkins Insurance Agencies, Inc. provides property and casualty insurance, employee benefit consulting, and life, long-term care, and disability insurance, operating from Batavia, New York, and shared offices with banking subsidiaries[86](index=86&type=chunk)[94](index=94&type=chunk) - Wealth management services, under the Tompkins Financial Advisors brand, include investment management, trust and estate, financial and tax planning, and various insurance services, available across all four subsidiary banks[87](index=87&type=chunk) - As of December 31, 2020, the company had **1,084 total employees** (978 full-time, 106 part-time/temporary), with 855 in banking, 61 in wealth management, and 168 in insurance[166](index=166&type=chunk) - The company's human capital strategy focuses on attracting, developing, and retaining qualified employees through a robust Profit Sharing plan (**74% participation in 2020**), incentive/equity compensation (**56% participation**), and various training and leadership development programs[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk) [Item 1B. Unresolved Staff Comments](index=32&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report for the period - No unresolved staff comments were reported[175](index=175&type=chunk) [Item 2. Properties](index=32&type=section&id=Item%202.%20Properties) The company's executive offices are in Ithaca, New York, with 64 banking offices and 5 stand-alone insurance offices - The Company's executive offices are located at 118 East Seneca Street in Ithaca, New York[177](index=177&type=chunk) - The banking subsidiaries operate **64 branch offices**, with 34 owned and 30 leased[177](index=177&type=chunk) - The insurance subsidiary has **5 stand-alone offices**, 3 of which are owned and 2 are leased[177](index=177&type=chunk) - The wealth management and financial planning division has 2 leased offices and shares other locations with the Company's subsidiaries[177](index=177&type=chunk) [Item 3. Legal Proceedings](index=33&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings, but does not anticipate material aggregate ultimate liability to its financial position - The Company is subject to various claims and legal actions arising in the ordinary course of business[178](index=178&type=chunk) - As of December 31, 2020, management does not anticipate that the aggregate ultimate liability from pending or threatened litigation will be material to the Company's consolidated financial position[178](index=178&type=chunk) - The Company assesses its liabilities and contingencies quarterly, acknowledging that ultimate losses could exceed accrued amounts and materially affect future operating results[178](index=178&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable to the Company[179](index=179&type=chunk) [Information About Our Executive Officers](index=33&type=section&id=Information%20About%20Our%20Executive%20Officers) This section lists the company's executive officers as of March 1, 2021, including their age, title, and year joined Executive Officers as of March 1, 2021 | Name | Age | Title | Year Joined Company | | :------------------- | :-- | :------------------------------------- | :------------------ | | Stephen S. Romaine | 56 | President and CEO | January 2000 | | David S. Boyce | 54 | Executive Vice President | January 2001 | | Francis M. Fetsko | 56 | Executive Vice President, COO, CFO and Treasurer | October 1996 | | Alyssa H. Fontaine | 40 | Executive Vice President & General Counsel | January 2016 | | Scott L. Gruber | 64 | Executive Vice President | April 2013 | | Gregory J. Hartz | 60 | Executive Vice President | August 2002 | | Brian A. Howard | 56 | Executive Vice President | July 2016 | | Gerald J. Klein, Jr. | 62 | Executive Vice President | January 2000 | | John M. McKenna | 54 | Executive Vice President | April 2009 | | Susan M. Valenti | 66 | Executive Vice President of Corporate Marketing | March 2012 | | Steven W. Cribbs | 44 | Senior Vice President, Chief Risk Officer | June 2018 | | Bonita N. Lindberg | 64 | Senior Vice President, Director of Human Resources | December 2015 | - Stephen S. Romaine has served as President and CEO since January 1, 2007, and is on the board of the Federal Home Loan Bank of New York and the New York Bankers Association[182](index=182&type=chunk) - Francis M. Fetsko has been CFO since December 2000 and assumed the additional role of COO in April 2012[184](index=184&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=35&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock is traded on the NYSE American under 'TMP', with dividend payments subject to limits and share repurchases executed - The Company's common stock is traded on the NYSE American under the symbol '**TMP**'[194](index=194&type=chunk) - The Company's ability to pay dividends is limited by prior year earnings, retained earnings, subsidiary dividends, and federal regulatory considerations[195](index=195&type=chunk)[72](index=72&type=chunk) Issuer Purchases of Equity Securities (Q4 2020) | Period | 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 (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (d) | | :------------------------- | :----------------------------------- | :------------------------------- | :--------------------------------------------------------------------------------- | :----------------------------------------------------------------------------------------------------------------- | | October 1, 2020 through October 31, 2020 | 2,232 | $58.72 | 0 | 328,712 | | November 1, 2020 through November 30, 2020 | 36,854 | $62.94 | 14,000 | 314,712 | | December 1, 2020 through December 31, 2020 | 42,402 | $68.66 | 42,402 | 272,310 | | **Total** | **81,488** | **$65.80** | **56,402** | **272,310** | - Under the 2020 Repurchase Plan, the Company repurchased **127,690 shares** through December 31, 2020, at an average cost of **$73.72**[199](index=199&type=chunk) Cumulative Total Stockholder Return (2015-2020) | Index | 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | | :------------------------- | :------- | :------- | :------- | :------- | :------- | :------- | | Tompkins Financial Corporation | 100.00 | 172.99 | 152.11 | 143.69 | 179.65 | 143.03 | | NASDAQ Composite | 100.00 | 108.87 | 141.13 | 137.12 | 187.44 | 271.64 | | SNL Bank | 100.00 | 126.35 | 149.21 | 124.00 | 167.93 | 145.49 | [Item 6. Selected Financial Data](index=37&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year summary of the company's consolidated selected financial data, including financial highlights and per share information Selected Financial Data (2016-2020) | (In thousands, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | | :------------------------------------ | :---------- | :---------- | :---------- | :---------- | :---------- | | **FINANCIAL STATEMENT HIGHLIGHTS** | | | | | | | Assets | $7,622,171 | $6,725,623 | $6,758,436 | $6,648,290 | $6,236,756 | | Total loans | 5,260,327 | 4,917,550 | 4,833,939 | 4,669,120 | 4,258,033 | | Deposits | 6,437,752 | 5,212,921 | 4,888,959 | 4,837,807 | 4,625,139 | | Other borrowings | 265,000 | 658,100 | 1,076,075 | 1,071,742 | 884,815 | | Total equity | 717,689 | 663,054 | 620,871 | 576,202 | 549,405 | | Interest and dividend income | 254,330 | 261,378 | 251,592 | 226,764 | 202,739 | | Interest expense | 28,991 | 50,750 | 39,792 | 25,460 | 22,103 | | Net interest income | 225,339 | 210,628 | 211,800 | 201,304 | 180,636 | | Provision for credit loss expense | 16,151 | 1,366 | 3,942 | 4,161 | 4,321 | | Net gains (losses) on securities transactions | 443 | 645 | (466) | (407) | 926 | | Net income attributable to Tompkins Financial Corporation | 77,588 | 81,718 | 82,308 | 52,494 | 59,340 | | **PER SHARE INFORMATION** | | | | | | | Basic earnings per share | 5.22 | 5.39 | 5.39 | 3.46 | 3.94 | | Diluted earnings per share | 5.20 | 5.37 | 5.35 | 3.43 | 3.91 | | Cash dividends per share | 2.10 | 2.02 | 1.94 | 1.82 | 1.77 | | Common equity per share | 47.98 | 44.17 | 40.45 | 37.65 | 36.20 | | **SELECTED RATIOS** | | | | | | | Return on average assets | 1.05 % | 1.22 % | 1.23 % | 0.82 % | 1.01 % | | Return on average equity | 11.09 % | 12.55 % | 13.93 % | 9.09 % | 10.85 % | | Average shareholders' equity to average assets | 9.51 % | 9.75 % | 8.83 % | 9.04 % | 9.28 % | | Dividend payout ratio | 40.23 % | 37.48 % | 35.99 % | 52.60 % | 44.92 % | | **OTHER SELECTED DATA** | | | | | | | Employees (average full-time equivalent) | 1,057 | 1,047 | 1,035 | 1,041 | 1,019 | | Banking offices | 64 | 64 | 66 | 65 | 66 | | Bank access centers (ATMs) | 85 | 87 | 83 | 84 | 85 | | Trust and investment services assets under management, or custody | $4,447,019 | $4,062,325 | $3,806,274 | $4,017,363 | $3,941,484 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Tompkins Financial Corporation's financial condition and results for 2020, 2019, and 2018, covering COVID-19 impacts, segment performance, and liquidity [Overview](index=38&type=section&id=Overview) Tompkins Financial Corporation is a New York-based Financial Holding Company offering financial services through its subsidiaries, with common stock traded on the NYSE American under 'TMP' - Tompkins Financial Corporation is a Financial Holding Company headquartered in Ithaca, New York, offering commercial and consumer banking, leasing, trust and investment management, financial planning, wealth management, and insurance services[207](index=207&type=chunk) - The Company operates through four wholly-owned banking subsidiaries (Tompkins Trust Company, The Bank of Castile, Mahopac Bank, VIST Bank) and a wholly-owned insurance agency subsidiary (Tompkins Insurance Agencies, Inc.)[207](index=207&type=chunk) - The Company's common stock is traded on the NYSE American under the Symbol '**TMP**'[207](index=207&type=chunk) [Forward-Looking Statements](index=38&type=section&id=Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements, which involve risks and uncertainties that could cause actual results to differ - The report contains forward-looking statements identified by words such as 'may', 'will', 'estimate', 'intend', 'continue', 'believe', 'expect', 'plan', or 'anticipate'[208](index=208&type=chunk) - Actual results may differ materially from forward-looking statements due to factors like changes in economic, market, and regulatory conditions, the severity and duration of the COVID-19 outbreak, interest rate environment, and technological developments[208](index=208&type=chunk) [Critical Accounting Policies](index=39&type=section&id=Critical%20Accounting%20Policies) The company's financial statements adhere to U.S. GAAP, with critical accounting policies including the allowance for credit losses (ACL) and securities impairment - The Company's financial statements conform to U.S. GAAP, requiring management to make estimates and assumptions that can materially affect financial results[209](index=209&type=chunk) - Critical accounting policies include the allowance for credit losses (ACL) and the review of the securities portfolio for other-than-temporary impairment, due to inherent uncertainty and subjectivity[210](index=210&type=chunk) - The Company adopted ASU 2016-13 (CECL model) effective January 1, 2020, which substantially changed the accounting for credit losses on financial assets[210](index=210&type=chunk) [COVID-19 Pandemic and Recent Events](index=39&type=section&id=COVID-19%20Pandemic%20and%20Recent%20Events) Tompkins implemented COVID-19 risk mitigation, offered payment deferrals, participated in PPP, and saw nonperforming assets increase to **0.60% of total assets** - The Company implemented a payment deferral program for consumer and business borrowers affected by COVID-19, with weekly deferral requests down **98.5%** from peak levels by December 2020[214](index=214&type=chunk) - As of December 31, 2020, total loans in deferral status due to COVID-19 amounted to approximately **$212.2 million**, representing **4.0% of total loans**, with hotels and motels comprising **53.0%** of these deferrals[214](index=214&type=chunk)[217](index=217&type=chunk) - The Company participated in the SBA's Paycheck Protection Program (PPP), funding **2,998 loans** totaling approximately **$465.6 million** in Q2 2020, and recognized **$9.2 million** in net loan fees in 2020. **$291.3 million** in PPP loans remained outstanding at year-end 2020[217](index=217&type=chunk) - Nonperforming assets increased to **0.60% of total assets** at December 31, 2020, up from **0.47%** at December 31, 2019, primarily due to credit downgrades in the hospitality industry[218](index=218&type=chunk) [Results of Operations (Comparison of December 31, 2020 and 2019 results)](index=40&type=section&id=Results%20of%20Operations%20(Comparison%20of%20December%2031%2C%202020%20and%202019%20results)) In 2020, diluted EPS and net income decreased, while net interest income increased and provision for credit losses significantly rose due to COVID-19 impacts Key Financial Performance (2020 vs. 2019) | Metric | 2020 | 2019 | Change (%) | | :---------------------------------------- | :---------- | :---------- | :--------- | | Diluted Earnings Per Share | $5.20 | $5.37 | -3.17 % | | Net Income Attributable to Tompkins Financial Corporation | $77.6 million | $81.7 million | -5.02 % | | Return on Average Shareholders' Equity (ROE) | 11.09 % | 12.55 % | -11.63 % | | Return on Average Assets (ROA) | 1.05 % | 1.22 % | -13.85 % | - Net interest income increased by **$15.2 million (7.1%)** in 2020, primarily driven by a **$21.8 million decrease in interest expense** due to lower market interest rates and deposit growth, partially offset by a **$6.6 million decrease in interest income** from lower asset yields[230](index=230&type=chunk)[234](index=234&type=chunk) - The provision for credit loss expense significantly increased to **$16.2 million** in 2020 from **$1.4 million** in 2019, mainly due to the economic impact of COVID-19 on forecasts and model assumptions[223](index=223&type=chunk)[235](index=235&type=chunk) - Noninterest income decreased by **$1.6 million (2.1%)** in 2020, primarily due to lower card services and deposit fees, partially offset by increased gains on residential loan sales[236](index=236&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk) - Noninterest expense increased by **$3.5 million (1.9%)** in 2020, mainly due to higher salaries, wages, and employee benefits, and increased FDIC insurance expense[242](index=242&type=chunk)[243](index=243&type=chunk) [General](index=40&type=section&id=General) In 2020, diluted EPS and net income decreased, though key performance indicators remained favorable against peer averages Key Financial Performance (2020 vs. 2019) | Metric | 2020 | 2019 | Change (%) | | :---------------------------------------- | :---------- | :---------- | :--------- | | Diluted Earnings Per Share | $5.20 | $5.37 | -3.17 % | | Net Income Attributable to Tompkins Financial Corporation | $77.6 million | $81.7 million | -5.02 % | | Return on Average Shareholders' Equity (ROE) | 11.09 % | 12.55 % | -11.63 % | | Return on Average Assets (ROA) | 1.05 % | 1.22 % | -13.85 % | - Tompkins' 2020 ROE (**11.09%**) and ROA (**1.05%**) compared favorably with peer ratios of **8.40%** for ROE and **0.88%** for ROA as of September 30, 2020[220](index=220&type=chunk) [Segment Reporting](index=41&type=section&id=Segment%20Reporting) The company's banking segment net income decreased, while insurance and wealth management segments reported increased net income in 2020 - The banking segment reported a net income of **$69.3 million** in 2020, a **7.0% decrease** from 2019, primarily due to a significant increase in provision for credit loss expense[222](index=222&type=chunk)[223](index=223&type=chunk) - The insurance segment's net income increased by **4.7% to $4.4 million** in 2020, driven by a **1.4% increase** in noninterest revenue, including organic growth in property and casualty commissions[226](index=226&type=chunk) - The wealth management segment's net income rose by **29.0% to $4.0 million** in 2020, mainly due to a **6.6% increase** in noninterest income from higher estate and terminating trust fees and growth in assets under management[228](index=228&type=chunk) - Assets under management or in custody for the wealth management segment totaled **$4.4 billion** at December 31, 2020, a **9.5% increase** from year-end 2019[228](index=228&type=chunk) [Net Interest Income](index=42&type=section&id=Net%20Interest%20Income) Net interest income increased by **7.1% to $225.3 million** in 2020, driven by lower interest expense, despite a slight decline in net interest margin - Net interest income increased by **$15.2 million (7.1%)** in 2020, reaching **$225.3 million**, primarily due to lower interest expense[229](index=229&type=chunk)[230](index=230&type=chunk) - Interest expense decreased by **$21.8 million (42.9%)** in 2020, driven by lower rates on deposits and borrowings, and a shift to a higher proportion of deposits in the funding mix[232](index=232&type=chunk) - Average total deposits increased by **$1.0 billion (20.1%)** in 2020, with average noninterest bearing deposits up **24.9%** and average interest bearing deposits up **18.2%**[232](index=232&type=chunk) - The net interest margin for 2020 was **3.31%**, a slight decrease from **3.39%** in 2019, mainly due to a **47 basis point decrease** in overall asset yields, influenced by lower market rates and PPP loans[230](index=230&type=chunk)[231](index=231&type=chunk) Analysis of Changes in Net Interest Income (2020 vs. 2019) | (In thousands)(taxable equivalent) | Volume Change ($) | Yield/Rate Change ($) | Total Change ($) | | :--------------------------------- | :---------------- | :-------------------- | :--------------- | | **INTEREST INCOME:** | | | | | Interest-bearing balances due from banks | 229 | (76) | 153 | | Investments (Taxable) | 139 | (6,685) | (6,546) | | Investments (Tax-exempt) | 566 | (65) | 501 | | FHLB and FRB stock | (1,212) | (418) | (1,630) | | Loans, net | 18,122 | (17,185) | 937 | | **Total interest income** | **17,844** | **(24,429)** | **(6,585)** | | **INTEREST EXPENSE:** | | | | | Interest checking, savings and money market | 3,638 | (14,307) | (10,669) | | Time | 440 | (711) | (271) | | Federal funds purchased and securities sold under agreements to repurchase | (8) | (40) | (48) | | Other borrowings | (8,642) | (2,129) | (10,771) | | **Total interest expense** | **(4,572)** | **(17,187)** | **(21,759)** | | **Net interest income** | **22,416** | **(7,242)** | **15,174** | [Provision for Credit Loss Expense](index=44&type=section&id=Provision%20for%20Credit%20Loss%20Expense) The provision for credit loss expense significantly increased to **$16.2 million** in 2020, driven by COVID-19 impacts on economic forecasts - The provision for credit loss expense was **$16.2 million** in 2020, a substantial increase from **$1.4 million** in 2019[235](index=235&type=chunk) - The increase was primarily driven by the impact of COVID-19 related economic restrictions and shutdowns on economic forecasts and other model assumptions used to determine the allowance for credit losses[235](index=235&type=chunk) - The ratio of total allowance to total loans and leases increased to **0.98%** at December 31, 2020, from **0.81%** at December 31, 2019[235](index=235&type=chunk) [Noninterest Income](index=45&type=section&id=Noninterest%20Income) Noninterest income decreased by **$1.6 million (2.1%)** to **$73.9 million** in 2020, mainly due to reduced service charges and card services income Noninterest Income (2020 vs. 2019 vs. 2018) | (In thousands) | 2020 | 2019 | 2018 | | :----------------------------- | :------ | :------ | :------ | | Insurance commissions and fees | $31,505 | $31,091 | $29,369 | | Investment services | 17,520 | 16,434 | 17,288 | | Service charges on deposit accounts | 6,312 | 8,321 | 8,435 | | Card services | 9,263 | 10,526 | 9,693 | | Other income | 8,817 | 8,416 | 13,130 | | Net gain (loss) on securities transactions | 443 | 645 | (466) | | **Total** | **$73,860** | **$75,433** | **$77,449** | - Noninterest income decreased by **$1.6 million (2.1%)** in 2020 compared to 2019, representing **24.7% of total revenues**[236](index=236&type=chunk) - Service charges on deposit accounts decreased by **$2.0 million (24.1%)**, primarily due to a **32.2% decrease** in overdraft/insufficient funds charges[239](index=239&type=chunk) - Card services income decreased by **$1.3 million (12.0%)**, mainly due to pandemic-related travel and business restrictions reducing transaction volume[240](index=240&type=chunk) - Investment services income increased by **$1.1 million (6.6%)** due to growth in assets under management and higher estate and terminating trust fees[238](index=238&type=chunk) - Other income increased by **$401,000 (4.8%)**, largely driven by a significant increase in gains on sales of residential mortgage loans (**$2.0 million in 2020 vs. $227,000 in 2019**)[241](index=241&type=chunk) [Noninterest Expense](index=45&type=section&id=Noninterest%20Expense) Noninterest expense increased by **$3.5 million (1.9%)** to **$185.4 million** in 2020, mainly due to higher salaries and FDIC insurance expense Noninterest Expenses (2020 vs. 2019 vs. 2018) | (In thousands) | 2020 | 2019 | 2018 | | :----------------------------- | :------ | :------ | :------ | | Salaries and wages | $92,519 | $89,399 | $85,625 | | Other employee benefits | 24,812 | 23,488 | 22,090 | | Net occupancy expense of premises | 12,930 | 13,210 | 13,309 | | Furniture and fixture expense | 7,846 | 7,815 | 7,351 | | FDIC insurance | 2,398 | 773 | 2,618 | | Amortization of intangible assets | 1,484 | 1,673 | 1,771 | | Other | 43,393 | 45,476 | 48,303 | | **Total** | **$185,382** | **$181,834** | **$181,067** | - Noninterest expense increased by **$3.5 million (1.9%)** in 2020, representing **62.0% of total revenue**[242](index=242&type=chunk) - Salaries and wages and other employee benefits increased by **$4.4 million (3.9%)**, primarily due to annual merit increases and higher health insurance costs[242](index=242&type=chunk)[243](index=243&type=chunk) - FDIC insurance expense increased by **$1.6 million** in 2020 due to the absence of small bank credits received in 2019[243](index=243&type=chunk) - Other operating expenses decreased by **$2.1 million (4.6%)**, mainly from reductions in professional fees and business travel/entertainment, partially offset by increased technology expenses and allowance for off-balance sheet exposures[244](index=244&type=chunk) [Noncontrolling Interests](index=46&type=section&id=Noncontrolling%20Interests) Net income attributable to noncontrolling interests increased to **$154,000** in 2020, primarily related to three real estate investment trusts - Net income attributable to noncontrolling interests was **$154,000** in 2020, an increase of **$27,000** from 2019[245](index=245&type=chunk) - These interests relate to three real estate investment trusts substantially owned by the Company's New York banking subsidiaries[245](index=245&type=chunk) [Income Tax Expense](index=46&type=section&id=Income%20Tax%20Expense) The provision for income taxes decreased by **$1.1 million (5.2%)** to **$19.9 million** in 2020, with the effective tax rate at **20.4%** - The provision for income taxes decreased by **$1.1 million (5.2%)** to **$19.9 million** in 2020[246](index=246&type=chunk) - The effective tax rate for the Company was **20.4%** in 2020, down from **20.5%** in 2019[246](index=246&type=chunk) - The effective rates differed from the U.S. statutory rate of **21.0%** due to tax-exempt income from loans, securities, life insurance assets, tax credit investments, and excess tax benefits of stock-based compensation[246](index=246&type=chunk) [Results of Operations (Comparison of December 31, 2019 and 2018 results)](index=46&type=section&id=Results%20of%20Operations%20(Comparison%20of%20December%2031%2C%202019%20and%202018%20results)) In 2019, diluted EPS slightly increased, while net income decreased, net interest income declined, and provision for loan losses significantly decreased Key Financial Performance (2019 vs. 2018) | Metric | 2019 | 2018 | Change (%) | | :---------------------------------------- | :---------- | :---------- | :--------- | | Diluted Earnings Per Share | $5.37 | $5.35 | 0.37 % | | Net Income Attributable to Tompkins Financial Corporation | $81.7 million | $82.3 million | -0.73 % | | Return on Average Shareholders' Equity (ROE) | 12.55 % | 13.93 % | -9.91 % | | Return on Average Assets (ROA) | 1.22 % | 1.23 % | -0.81 % | - Net interest income decreased by **$1.3 million (0.6%)** in 2019, mainly due to higher funding costs and a decline in average earning assets, despite improved asset yields[258](index=258&type=chunk) - The provision for loan and lease losses decreased to **$1.4 million** in 2019 from **$3.9 million** in 2018, primarily due to a specific reserve in 2018 and favorable trends in qualitative factors[250](index=250&type=chunk)[262](index=262&type=chunk) - Noninterest income decreased by **$2.0 million (2.6%)** in 2019, mainly due to a large gain on property sales and nonaccrual interest collection in 2018, partially offset by increased card services income and securities gains[251](index=251&type=chunk)[263](index=263&type=chunk)[268](index=268&type=chunk) - Noninterest expenses remained flat in 2019 compared to 2018, with increases in salaries and benefits offset by decreases in other operating expenses and FDIC insurance expense[253](index=253&type=chunk)[269](index=269&type=chunk) [Financial Condition](index=49&type=section&id=Financial%20Condition) Total assets increased by **13.3% to $7.6 billion** in 2020, driven by loan and deposit growth, while nonperforming assets rose to **0.60% of total assets** - Total assets increased by **$896.5 million (13.3%) to $7.6 billion** at December 31, 2020, primarily due to increases in loans, securities, and cash and cash equivalents[273](index=273&type=chunk) - Total loans and leases grew by **$342.8 million (7.0%) to $5.3 billion**, with PPP loans accounting for **$291.3 million** at year-end 2020[274](index=274&type=chunk)[302](index=302&type=chunk) - Total deposits increased by **$1.2 billion (23.5%) to $6.4 billion** at year-end 2020, with significant growth across all deposit categories, leading to a **$393.1 million decrease** in other borrowings[276](index=276&type=chunk)[341](index=341&type=chunk)[346](index=346&type=chunk) - Total shareholders' equity increased by **$54.6 million (8.2%) to $717.7 million** at December 31, 2020, reflecting net income and a decrease in accumulated other comprehensive loss[277](index=277&type=chunk) - Nonperforming assets as a percentage of total assets increased to **0.60%** at December 31, 2020, from **0.47%** at December 31, 2019, mainly due to downgrades in the hospitality industry[313](index=313&type=chunk)[337](index=337&type=chunk) - The allowance for credit losses (ACL) increased to **$51.7 million** at December 31, 2020, up **$11.8 million (29.5%)** from year-end 2019, driven by a **$14.9 million increase** in provision expense related to COVID-19 economic impacts[335](index=335&type=chunk) Allocation of the Allowance for Credit Losses by Loan Type (2020) | Loan Type | Allocation of the ACL ($ thousands) | Allocation of the ACL as a percentage of total allowance (%) | | :------------------------ | :---------------------------------- | :----------------------------------------------------------- | | Commercial and industrial | 9,239 | 18 % | | Commercial real estate | 30,546 | 59 % | | Residential real estate | 10,257 | 20 % | | Consumer and other | 1,562 | 3 % | | Leases | 65 | 0 % | | **Total** | **51,669** | **100 %** | [Liquidity Management](index=64&type=section&id=Liquidity%20Management) The company maintained strong liquidity in 2020, with no significant COVID-19 impact, utilizing diverse funding sources and substantial unused borrowing capacity - The Company experienced no significant impact on liquidity or funding capabilities from the COVID-19 pandemic as of December 31, 2020[347](index=347&type=chunk) - The Company's liquidity is supported by a large, stable core deposit base and strong capital position, supplemented by non-core funding sources like brokered deposits and FHLB advances[348](index=348&type=chunk)[349](index=349&type=chunk) - Cash and cash equivalents totaled **$388.5 million** at December 31, 2020, up from **$138.0 million** at December 31, 2019[352](index=352&type=chunk) - The unused borrowing capacity on established lines with the FHLB was **$2.1 billion** at December 31, 2020[355](index=355&type=chunk) [Off-Balance Sheet Arrangements](index=65&type=section&id=Off-Balance%20Sheet%20Arrangements) The company engages in off-balance sheet financial instruments, including loan commitments and standby letters of credit, with no anticipated material losses - The Company is party to off-balance sheet financial instruments such as loan commitments, standby letters of credit, and unused lines of credit[359](index=359&type=chunk) - These instruments involve credit and interest rate risk, but the Company applies the same credit policies and reviews as for on-balance sheet lending decisions[359](index=359&type=chunk)[643](index=643&type=chunk) - As of December 31, 2020, total maximum potential obligations for loan commitments were **$1.01 billion**, including **$144.6 million** in loan commitments, **$31.4 million** in standby letters of credit, and **$830.9 million** in undisbursed lines of credit[643](index=643&type=chunk) [Contractual Obligations](index=65&type=section&id=Contractual%20Obligations) The company's contractual obligations as of December 31, 2020, totaled **$346.9 million**, including long-term debt, leases, and software contracts, with most due after one year Contractual Obligations and Commitments (as of December 31, 2020) | Contractual cash obligations | Total ($ thousands) | 1 year ($ thousands) | 1-3 years ($ thousands) | 3-5 years ($ thousands) | After 5 years ($ thousands) | | :------------------------- | :------------------ | :------------------- | :---------------------- | :---------------------- | :-------------------------- | | Long-term debt | $276,330 | $35,175 | $170,658 | $70,497 | $0 | | Trust Preferred Debentures | 21,662 | 540 | 1,079 | 1,079 | 18,964 | | Operating leases | 43,446 | 4,528 | 8,196 | 7,120 | 23,602 | | Software contracts | 5,420 | 1,764 | 2,835 | 821 | 0 | | **Total** | **$346,858** | **$42,007** | **$182,768** | **$79,517** | **$42,566** | - The Company leases land, buildings, and equipment under operating lease arrangements extending to 2090, with most leases including renewal options[360](index=360&type=chunk) - The Company has a core banking application software contract through June 30, 2024, and other specialized software contracts through 2021[360](index=360&type=chunk) [Non-GAAP Disclosure](index=66&type=section&id=Non-GAAP%20Disclosure) This section reconciles GAAP to non-GAAP financial measures, excluding non-operating items to provide a clearer view of underlying operational performance - Non-GAAP financial measures are used to adjust GAAP measures by excluding non-operating items such as acquisition-related intangible amortization expense and significant nonrecurring income or expense[363](index=363&type=chunk) - These non-GAAP measures aim to provide meaningful comparisons of underlying operational performance and facilitate assessments of business and performance trends[363](index=363&type=chunk) Reconciliation of GAAP to Non-GAAP Financial Measures (2016-2020) | (In thousands, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | | :------------------------------------ | :----------- | :----------- | :----------- | :----------- | :----------- | | Net income available to common shareholders (GAAP) | $77,588 | $81,718 | $82,308 | $52,494 | $59,340 | | Diluted earnings per share (GAAP) | 5.20 | 5.37 | 5.35 | 3.43 | 3.91 | | Total adjustments, net of tax | 508 | 0 | (312) | 14,944 | 0 | | Net operating income available to common shareholders (Non-GAAP) | 77,239 | 80,412 | 80,681 | 66,620 | 58,428 | | Adjusted diluted earnings per share (Non-GAAP) | 5.24 | 5.37 | 5.33 | 4.42 | 3.91 | | Adjusted operating return on average shareholders' tangible common equity (Non-GAAP) | 12.95 % | 14.80 % | 16.76 % | 14.29 % | 13.52 % | [Newly Adopted Accounting Standards](index=67&type=section&id=Newly%20Adopted%20Accounting%20Standards) In 2020, Tompkins adopted several new accounting standards, including the CECL model, which resulted in a net increase to retained earnings of **$1.7 million** - The Company adopted ASU 2016-13, 'Financial Instruments - Credit Losses (Topic 326)', effective January 1, 2020, using the modified retrospective approach, resulting in a net increase to retained earnings of **$1.7 million**[366](index=366&type=chunk)[367](index=367&type=chunk) - ASU 2017-04, 'Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment', was adopted on January 1, 2020, and did not have a material impact[369](index=369&type=chunk) - ASU 2018-13, 'Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement', was effective January 1, 2020, and did not have a significant impact[370](index=370&type=chunk) - ASU 2018-14, 'Compensation - Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20)', became effective December 31, 2020, and did not have a significant impact, with disclosures updated[371](index=371&type=chunk) - ASU 2018-15, 'Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract', was effective January 1, 2020, and did not have a significant impact[372](index=372&type=chunk) - ASU 2020-03, 'Codification Improvements to Financial Instruments', was effective immediately in March 2020 and did not have a significant impact[373](index=373&type=chunk) [Accounting Standards Pending Adoption](index=68&type=section&id=Accounting%20Standards%20Pending%20Adoption) The company is evaluating the impact of two pending accounting standards: ASU 2019-12 for income tax and ASU 2020-04 for reference rate reform - ASU 2019-12, 'Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes', is effective for public entities for fiscal years beginning after December 15, 2020, and the Company is evaluating its potential impact[374](index=374&type=chunk) - ASU 2020-04, 'Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting', provides optional guidance effective from March 12, 2020, through December 31, 2022, and the Company is evaluating its potential impact[375](index=375&type=chunk) [Fourth Quarter Summary](index=69&type=section&id=Fourth%20Quarter%20Summary) For Q4 2020, net income increased to **$24.0 million**, with diluted EPS up **15.0% to $1.61**, driven by lower funding costs and earning asset growth - Net income for Q4 2020 was **$24.0 million**, up from **$21.1 million** in Q4 2019, with diluted earnings per share increasing **15.0% to $1.61**[376](index=376&type=chunk) - Net interest income for Q4 2020 was **$57.8 million**, up from **$53.2 million** in Q4 2019, driven by lower funding costs (**0.45% vs. 1.03%**) and a **19.7% increase** in average earning assets[377](index=377&type=chunk)[378](index=378&type=chunk) - The net interest margin for Q4 2020 was **3.12%**, down from **3.44%** in Q4 2019, primarily due to a decrease in the average yield on earning assets (**3.43% vs. 4.17%**)[377](index=377&type=chunk)[378](index=378&type=chunk) - Provision for credit losses was **$6,000** in Q4 2020, compared to a negative **$1.0 million** in Q4 2019[380](index=380&type=chunk) - Noninterest income increased by **4.8%** in Q4 2020, mainly from insurance commissions, investment services income, and gains on residential real estate loan sales[381](index=381&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=69&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, managed through income simulation, with a **200 basis point upward shift** decreasing net interest income by **2.0%** - Interest rate risk is the primary market risk, managed using income simulation to estimate the potential effect of interest rate shifts on net interest income[383](index=383&type=chunk) - As of November 30, 2020, a **200 basis point parallel upward shift** in interest rates would result in a **2.0% decrease** in one-year net interest income, while a **100 basis point parallel decline** would result in a **0.7% decrease**[386](index=386&type=chunk) - The company's one-year interest rate gap was a positive **$58.9 million (0.77% of total assets)** at December 31, 2020, indicating a slight liability-sensitive position in the short term[391](index=391&type=chunk) Condensed Static Gap - December 31, 2020 | (In thousands) | Total | 0-3 months | 3-6 months | 6-12 months | 12 months | | :------------- | :---------- | :---------- | :--------- | :---------- | :---------- | | Interest-earning assets | $7,244,820 | $1,715,224 | $589,020 | $861,581 | $3,165,825 | | Interest-bearing liabilities | 4,852,232 | 2,219,960 | 508,777 | 378,180 | 3,106,917 | | Net gap position | | (504,736) | 80,243 | 483,401 | 58,908 | | Net gap position as a percentage of total assets | | (6.62)% | 1.05 % | 6.34 % | 0.77 % | [Item 8. Financial Statements and Supplementary Data](index=74&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2020, 2019, and 2018, including key statements, detailed notes, and auditor reports [Management's Statement of Responsibility](index=75&type=section&id=Management%27s%20Statement%20of%20Responsibility) Management is responsible for preparing consolidated financial statements in conformity with U.S. GAAP and maintaining effective internal accounting controls - Management is responsible for the preparation of consolidated financial statements in conformity with U.S. GAAP[397](index=397&type=chunk) - Management establishes and monitors the Company's system of internal accounting controls to ensure reliable financial statements[398](index=398&type=chunk) - The Audit/Examining Committee, composed of outside directors, reviews financial reporting, internal controls, and audit results[399](index=399&type=chunk) [Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting](index=76&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20on%20Internal%20Control%20Over%20Financial%20Reporting) KPMG LLP issued an unqualified opinion that Tompkins Financial Corporation maintained effective internal control over financial reporting as of December 31, 2020 - KPMG LLP expressed an unqualified opinion that Tompkins Financial Corporation maintained effective internal control over financial reporting as of December 31, 2020[401](index=401&type=chunk) - The audit was based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)[401](index=401&type=chunk) - KPMG LLP also audited the consolidated financial statements and issued an unqualified opinion on them[402](index=402&type=chunk) [Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements](index=77&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20on%20Consolidated%20Financial%20Statements) KPMG LLP issued an unqualified opinion on Tompkins Financial Corporation's consolidated financial statements, identifying the assessment of the collective allowance for credit losses as a critical audit matter - KPMG LLP issued an unqualified opinion on the consolidated financial statements of Tompkins Financial Corporation for the three-year period ended December 31, 2020[407](index=407&type=chunk) - The Company changed its method of accounting for credit losses as of January 1, 2020, due to the adoption of ASC Topic 326, Financial Instruments – Credit Losses[409](index=409&type=chunk) - The assessment of the collective Allowance for Credit Losses (ACL) on loans was identified as a critical audit matter due to significant measurement uncertainty and complex auditor judgment[412](index=412&type=chunk)[415](index=415&type=chunk) - The critical audit matter involved evaluating the collective ACL methodology, including models for probability of default (PD) and loss given default (LGD), economic forecast scenarios, and qualitative adjustments[415](index=415&type=chunk) [Consolidated Statements of Condition](index=81&type=section&id=Consolidated%20Statements%20of%20Condition) The Consolidated Statements of Condition show total assets increased by **13.3% to $7.6 billion** in 2020, driven by growth in cash, securities, and net loans Consolidated Statements of Condition (as of December 31, 2020 and 2019) | (In thousands) | 12/31/2020 | 12/31/2019 | | :-------------------------------------------------------------------------- | :---------- | :---------- | | **ASSETS** | | | | Cash and Cash Equivalents | $388,462 | $137,982 | | Available-for-sale debt securities, at fair value | 1,627,193 | 1,298,587 | | Equity securities, at fair value | 929 | 915 | | Net Loans and Leases | 5,208,658 | 4,877,658 | | Federal Home Loan Bank and other stock | 16,382 | 33,695 | | Bank premises and equipment, net | 88,709 | 94,355 | | Corporate owned life insurance | 84,736 | 82,961 | | Goodwill | 92,447 | 92,447 | | Other intangible assets, net | 4,905 | 6,223 | | Accrued interest and other assets | 109,750 | 100,800 | | **Total Assets** | **$7,622,171** | **$6,725,623** | | **LIABILITIES** | | | | Total Deposits | 6,437,752 | 5,212,921 | | Federal funds purchased and securities sold under agreements to repurchase | 65,845 | 60,346 | | Other borrowings | 265,000 | 658,100 | | Trust preferred debentures | 13,220 | 17,035 | | Other liabilities | 122,665 | 114,167 | | **Total Liabilities** | **6,904,482** | **6,062,569** | | **EQUITY** | | | | Total Tompkins Financial Corporation Shareholders' Equity | 716,277 | 661,642 | | Noncontrolling interests | 1,412 | 1,412 | | **Total Equity** | **717,689** | **663,054** | | **Total Liabilities and Equity** | **$7,622,171** | **$6,725,623** | - Total assets increased by **$896.5 million (13.3%)** from **$6.73 billion** in 2019 to **$7.62 billion** in 2020[421](index=421&type=chunk) - Cash and Cash Equivalents increased significantly from **$137.98 million** in 2019 to **$388.46 million** in 2020[421](index=421&type=chunk) - Total Deposits increased by **$1.22 billion (23.5%)** from **$5.21 billion** in 2019 to **$6.44 billion** in 2020[421](index=421&type=chunk) - Other borrowings decreased by **$393.1 million (59.7%)** from **$658.1 million** in 2019 to **$265.0 million** in 2020[421](index=421&type=chunk) [Consolidated Statements of Income](index=82&type=section&id=Consolidated%20Statements%20of%20Income) The Consolidated Statements of Income show a decrease in net income to **$77.6 million** in 2020, primarily due to a significant increase in provision for credit loss expense Consolidated Statements of Income (Years ended December 31, 2020, 2019, and 2018) | (In thousands, except per share data) | 2020 | 2019 | 2018 | | :------------------------------------ | :------ | :------ | :------ | | **INTEREST AND DIVIDEND INCOME** | | | | | Total Interest and Dividend Income | $254,330 | $261,378 | $251,592 | | **INTEREST EXPENSE** | | | | | Total Interest Expense | 28,991 | 50,750 | 39,792 | | **Net Interest Income** | **225,339** | **210,628** | **211,800** | | Less: Provision for Credit Loss Expense | 16,151 | 1,366 | 3,942 | | **Net Interest Income After Provision for Credit Loss Expense** | **209,188** | **209,262** | **207,858** | | **NONINTEREST INCOME** | | | | | Total Noninterest Income | 73,860 | 75,433 | 77,449 | | **NONINTEREST EXPENSES** | | | | | Total Noninterest Expenses | 185,382 | 181,834 | 181,067 | | Income Before Income Tax Expense | 97,666 | 102,861 | 104,240 | | Income Tax Expense | 19,924 | 21,016 | 21,805 | | Net Income Attributable to Tompkins Financial Corporation | $77,588 | $81,718 | $82,308 | | Basic Earnings Per Share | $5.22 | $5.39 | $5.39 | | Diluted Earnings Per Share | $5.20 | $5.37 | $5.35 | - Net income attributable to Tompkins Financial Corporation decreased by **$4.13 million (5.05%)** from **$81.72 million** in 2019 to **$77.59 million** in 2020[423](index=423&type=chunk) - Net Interest Income increased by **$14.71 million (6.98%)** from **$210.63 million** in 2019 to **$225.34 million** in 2020[423](index=423&type=chunk) - Provision for Credit Loss Expense significantly increased from **$1.37 million** in 2019 to **$16.15 million** in 2020[423](index=423&type=chunk) - Total Noninterest Income decreased by **$1.57 million (2.08%)** from **$75.43 million** in 2019 to **$73.86 million** in 2020[423](index=423&type=chunk) - Total Noninterest Expenses increased by **$3.55 million (1.95%)** from **$181.83 million** in 2019 to **$185.38 million** in 2020[423](index=423&type=chunk) [Consolidated Statements of Comprehensive Income](index=83&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income decreased to **$89.1 million** in 2020, influenced by net unrealized gains on available-for-sale securities and net retirement plan losses Consolidated Statements of Comprehensive Income (Years ended December 31, 2020, 2019, and 2018) | (In thousands) | 2020 | 2019 | 2018 | | :-------------------------------------------------------------------------- | :------ | :------ | :------ | | Net income attributable to noncontrolling interests and Tompkins Financial Corporation | $77,742 | $81,845 | $82,435 | | Other comprehensive income (loss), net of tax: | | | | | Available-for-sale securities: | | | | | Change in net unrealized gain (loss) during the period | 16,894 | 25,241 | (10,981) | | Unrealized gains on HTM securities transferred to AFS securities | 0 | 2,852 | 0 | | Reclassification adjustment for net realized (gain) loss on sale included in available-for-sale securities | (324) | (465) | 332 | | Employee benefit plans: | | | | | Net retirement plan loss | (7,028) | (7,642) | (2,594) | | Net actuarial gain due to curtailment | 0 | (302) | 0 | | Net retirement plan prior service (credit) cost | 0 | (1,373) | 0 | | Amortization of net retirement plan actuarial gain | 1,786 | 1,266 | 1,298 | | Amortization of net retirement plan prior service cost | 162 | 24 | 11 | | Other comprehensive income (loss) | 11,490 | 19,601 | (11,934) | | Total comprehensive income attributable to Tompkins Financial Corporation | $89,078 | $101,319 | $70,374 | - Total comprehensive income attributable to Tompkins Financial Corporation decreased by **$12.24 million (12.08%)** from **$101.32 million** in 2019 to **$89.08 million** in 2020[425](index=425&type=chunk) - Other comprehensive income (loss) was **$11.49 million** in 2020, a decrease from **$19.60 million** in 2019[425](index=425&type=chunk) - The change in net unrealized gain on available-for-sale securities was **$16.89 million** in 2020, compared to **$25.24 million** in 2019[425](index=425&type=chunk) - Net retirement plan loss was **$7.03 million** in 2020, compared to **$7.64 million** in 2019[425](index=425&type=chunk) [Consolidated Statements of Cash Flows](index=86&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities was stable, while investing activities shifted to a **$643.7 million outflow**, offset by **$792.8 million** from financing activities Consolidated Statements of Cash Flows (Years ended December 31, 2020, 2019, and 2018) | (In thousands) | 2020 | 2019 | 2018 | | :-------------------------------------------------------------------------- | :-------- | :-------- | :-------- | | **OPERATING ACTIVITIES** | | | | | Net Cash Provided by Operating Activities | $101,387 | $101,615 | $107,265 | | **INVESTING ACTIVITIES** | | | | | Net Cash (Used in) Provided by Investing Activities | (643,719) | 133,986 | (143,600) | | **FINANCING ACTIVITIES** | | | | | Net Cash Provided by (Used in) Financing Activities | 792,812 | (178,008) | 32,421 | | Net Increase (Decrease) Cash and Cash Equivalents | 250,480 | 57,593 | (3,914) | | Cash and cash equivalents at beginning of year | 137,982 | 80,389 | 84,303 | | **Total Cash & Cash Equivalents at End of Year** | **$388,462** | **$137,982** | **$80,389** | - Net cash provided by operating activities remained stable at **$101.4 million** in 2020, compared to **$101.6 million** in 2019[428](index=428&type=chunk) - Net cash used in investing activities was **$643.7 million** in 2020, a significant change from **$134.0 million** provided in 2019, primarily due to increased purchases of available-for-sale securities and net increase in loans[428](index=428&type=chunk) - Net cash provided by financing activities was **$792.8 million** in 2020, a substantial increase from **$178.0 million** used in 2019, driven by a large increase in demand, money market, and savings deposits[428](index=428&type=chunk) - Cash and cash equivalents at the end of the year increased by **$250.5 million to $388.5 million** in 2020[428](index=428&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=87&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) Total equity increased by **$54.6 million to $717.7 million** at December 31, 2020, driven by net income and a decrease in accumulated other comprehensive loss - Total equity increased by **$54.6 million (8.2%)** from **$663.05 million** in 2019 to **$717.69 million** in 2020[434](index=434&type=chunk) - Retained earnings increased by **$47.9 million**, reflecting net income of **$77.59 million**, less cash dividends paid of **$31.36 million**, and a net cumulative effect adjustment of **$1.71 million** from ASU 2016-13 adoption[434](index=434&type=chunk) - Accumulated other comprehensive loss decreased by **$11.49 million**, primarily due to an increase in unrealized gains on available-for-sale securities[434](index=434&type=chunk) - The Company repurchased and retired **127,690 shares** of common stock in 2020, with an aggregate purchase price of **$9.41 million**[434](index=434&type=chunk) - Cash dividends per share increased to **$2.10** in 2020, up from **$2.02** in 2019[434](index=434&type=chunk) [Note 1 Summary of Significant Accounting Policies](index=89&type=section&id=Note%201%20Summary%20of%20Significant%20Accounting%20Policies) This note details the company's accounting policies, including basis of presentation, securities classification, and the allowance for credit losses (ACL) under the CECL model - The Company consolidates all entities in which it has a controlling financial interest, with all significant intercompany balances and transactions eliminated[437](index=437&type=chunk) - Securities are classified as held-to-maturity (amortized cost) or available-for-sale (fair value with unrealized gains/losses in OCI). Equity securities with readily determinable fair values are reported at fair value with changes in earnings[442](index=442&type=chunk)[444](index=444&type=chunk) - The Company adopted ASU 2016-13 (CECL model) on January 1, 2020, resulting in a net increase to retained earnings of **$1.7 million**. The ACL is now estimated based on expected credit losses over the lifetime of financial assets[459](index=459&type=chunk) - The CECL methodology uses a discounted cash flow (DCF) method for most loan segments, incorporating historical loss information, current conditions, and reasonable and supportable forecasts, with a **four-quarter forecast period** and an **eight-quarter reversion** to historical loss rates[465](index=465&type=chunk)[467](index=467&type=chunk) - Loan modifications deemed COVID-119 related under the CARES Act are not considered troubled debt restructurings (TDRs)[477](index=477&type=chunk) - Goodwill is tested for impairment annually or when events dictate, using a qualitative or quantitative assessment. Other intangible assets are amortized over their useful lives and periodically reviewed for impairment[482](index=482&type=chunk)[483](index=483&type=chunk) - The Company adopted ASC 606, Revenue from Contracts with Customers, on January 1, 2018, which did not significantly change the recognition of most noninterest revenue streams[496](index=496&type=chunk) [Note 2 Securities](index=99&type=section&id=Note%202%20Securities) This note details the company's securities portfolio, primarily available-for-sale debt securities, which totaled **$1.63 billion** at December 31, 2020 Available-for-Sale Securities (as of December 31, 2020 and 2019) | (In thousands) | 12/31/2020 Amortized Cost | 12/31/2020 Fair Value | 12/31/2019 Amortized Cost | 12/31/2019 Fair Value | | :-------------------------------------------- | :------------------------ | :-------------------- | :------------------------ | :-------------------- | | Obligations of U.S. Government sponsored entities | $599,652 | $607,480 | $367,551 | $372,488 | | Obligations of U.S. states and political subdivisions | 126,642 | 129,746 | 96,668 | 97,785 | | Mortgage-backed securities – residential, issued by U.S. Government agencies | 179,538 | 182,108 | 164,643 | 164,451 | | Mortgage-backed securities – residential, issued by U.S. Government sponsored entities | 691,562 | 705,480 | 660,037 | 659,590 | | U.S. corporate debt securities | 2,500 | 2,379 | 2,500 | 2,433 | | **Total available-for-sale securities** | **$1,599,894** | **$1,627,193** | **$1,293,239** | **$1,298,587** | - The total securities portfolio increased to **$1.63 billion** at December 31, 2020, from **$1.30 billion** at December 31, 2019, reflecting the reinvestment of excess liquidity[290](index=290&type=chunk) - The Company reclassified **$138.2 million** of held-to-maturity debt securities to available-for-sale on November 30, 2019, as part of ASU 2019-04 adoption[291](index=291&type=chunk)[499](index=499&type=chunk) - Gross unrealized losses on available-for-sale securities at December 31, 2020, totaled **$3.47 million**, primarily attributable to changes in interest rates and market liquidity, not credit quality[498](index=498&type=chunk)[502](index=502&type=chunk) - The Company holds non-marketable FHLBNY, FHLBPITT, and ACBB stock, carried at par value, totaling **$16.38 million** at December 31, 2020, with no recognized impairment[297](index=297&type=chunk)[512](index=512&type=chunk) [Note 3 Loans and Leases](index=102&type=section&id=Note%203%20Loans%20and%20Leases) This note details the company's loan and lease portfolio, which totaled **$5.26 billion** at December 31, 2020, an increase of **7.0%** largely driven by PPP loans Loans and Leases Composition (as of December 31, 2020 and 2019) | (In thousands) | 12/31/2020 | 12/31/2019 | | :------------------------------------------------------ | :---------- | :---------- | | Commercial and industrial | | | | Agriculture | $94,489 | $105,786 | | Commercial and industrial other | 792,987 | 902,275 | | PPP loans | 291,252 | 0 | | **Subtotal commercial and industrial** | **1,178,728** | **1,008,061** | | Commercial real estate | | | | Construction | 163,016 | 213,637 | | Agriculture | 201,866 | 184,898 | | Commercial real estate other | 2,204,310 | 2,045,030 | | **Subtotal commercial real estate** | **2,569,192** | **2,443,565** | | Residential real estate | | | | Home equity | 200,827 | 219,245 | | Mortgages | 1,235,160 | 1,158,592 | | **Subtotal residential real estate** | **1,435,987** | **1,377,837** | | Consumer and other | | | | Indirect | 8,401 | 12,964 | | Consumer and other | 61,399 | 61,446 | | **Subtotal consumer and other** | **69,800** | **74,410** | | Leases | 14,203 | 17,322 | | **Total loans and leases, net of unearned income and deferred costs and fees** | **$5,260,327** | **$4,917,550** | - Total loans and leases increased by **$342.8 million (7.0%) to $5.26 billion** at December 31, 2020, primarily due to **$291.3 million** in PPP loans[302](index=302&type=chunk)[513](index=513&type=chunk) - Nonaccrual loans and leases totaled **$38.98 million** at December 31, 2020, up from **$24.28 million** in 2019, with increases mainly in commercial real estate (**$23.63 million**) and residential real estate (**$13.15 million**)[531](index=531&type=chunk)[534](index=534&type=chunk) - Troubled Debt Restructurings (TDRs) decreased to **$345,000** at December 31, 2020, from **$2.36 million** in 2019. COVID-19 related loan modifications were not classified as TDRs under the CARES Act and interagency guidance[555](index=555&type=chunk)[556](index=556&type=chunk) - The Company sold **$51.7 million** in residential mortgage loans in 2020, realizing **$2.05 million** in net gains, and typically retains servicing rights[305](index=305&type=chunk)[517](index=517&type=chunk) [Note 4 Allowance for Credit Losses](index=107&type=section&id=Note%204%20Allowance%20for%20Credit%20Losses) This note details the company's methodology for estimating the Allowance for Credit Losses (ACL) under the CECL model, with the ACL increasing to **$51.7 million** due to COVID-19's economic impact - The Company adopted ASU 2016-13 (CECL model) on January 1, 2020, using a modified retrospective approach, resulting in a **$2.5 million reduction** in the ACL on loans at adoption[545](index=545&type=chunk) - The total allowance for credit losses increased to **$51.7 million** at December 31, 2020, from **$39.9 million** at December 31, 2019[544](index=544&type=chunk) - The provision for credit loss expense was **$16.15 million** in 2020, significantly higher than **$1.37 million** in 2019, primarily due to the economic impact of COVID-19[544](index=544&type=chunk) - The CECL methodology uses a discounted cash flow (DCF) method for commercial, commercial real estate, residential, home equity, and consumer loan pools, incorporating probability of default, loss given default, and prepayment speeds[536](index=536&type=chunk)[540](index=540&type=chunk) - Qualitative adjustments are made for factors not captured in the quantitative model, such as elevated risks in the hospitality industry due to COVID-19[469](index=469&type=chunk) Changes in Allowance for Credit Losses (2018-2020) | (In thousands) | 2020 | 2019 | 2018 | | :----------------------------------- | :------ | :------ | :------ | | Total allowance at beginning of year | $39,892 | $43,410 | $39,771 | | Impact of adopting ASU 2016-13 | (2,534) | 0 | 0 | | Provisions for credit loss expense | 16,151 | 1,366 | 3,942 | | Recoveries on loans and leases | 631 | 906 | 2,137 | | Charge-offs on loans and leases | (2,471) | (5,790) | (2,440) | | **Total allowance at end of year** | **$51,669** | **$39,892** | **$43,410** | [Note 5 Goodwill and Other Intangible Assets](index=116&type=section&id=Note%205%20Goodwill%20and%20Other%20Intangible%20Assets) Goodwill remained at **$92.4 million** at December 31, 2020, with no impairment, while other intangible assets had a net carrying amount of **$4.9 million** Goodwill by Segment (as of December 31, 2020 and 2019) | (In thousands) | Banking | Insurance | Wealth Management | Total | | :------------- | :-------- | :-------- | :---------------- | :-------- | | Balance at December 31, 2019 | $64,369 | $19,867 | $8,211 | $92,447 | | Acquisitions | 0 | 0 | 0 | 0 | | **Balance at December 31, 2020** | **$64,369** | **$19,867** | **$8,211** | **$92,447** | - Goodwill remained at **$92.4 million** at December 31, 2020, with no impairment recognized based on the annual review[565](index=565&type=chunk)[566](index=566&type=chunk) Other Intangible Assets (Net Carrying Amount, as of December 31, 2020 and 2019) | (In thousands) | 12/31/2020 Net Carrying Amount | 12/31/2019 Net Carrying Amount | | :------------------------ | :----------------------------- | :----------------------------- | | Core deposit intangible | $1,407

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, 2020 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 ot ...

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 June 30, 2020 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 j ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201%20%E2%80%93%20Condensed%20Consolidated%20Financial%20Statements) The unaudited statements reflect the adoption of the new CECL credit loss accounting standard [Condensed Consolidated Statements of Condition](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Condition) Condensed Consolidated Statements of Condition | (In thousands) | 3/31/2020 (unaudited) | 12/31/2019 (audited) | | :--- | :--- | :--- | | **Total Assets** | **$6,743,114** | **$6,725,623** | | Net Loans and Leases | $4,885,418 | $4,877,658 | | Total Deposits | $5,409,363 | $5,212,921 | | **Total Liabilities** | **$6,060,517** | **$6,062,569** | | **Total Equity** | **$682,597** | **$663,054** | [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Condensed Consolidated Statements of Income | (In thousands, except per share data) | Three Months Ended 3/31/2020 | Three Months Ended 3/31/2019 | | :--- | :--- | :--- | | Net Interest Income | $52,969 | $51,914 | | Provision for credit loss expense | $16,294 | $445 | | Noninterest Income | $18,960 | $19,407 | | Noninterest Expenses | $45,740 | $44,209 | | **Net Income Attributable to Tompkins** | **$7,949** | **$21,040** | | **Diluted Earnings Per Share** | **$0.53** | **$1.37** | - Net income decreased significantly year-over-year, primarily driven by a substantial increase in the provision for credit loss expense, which rose from **$445 thousand to $16.3 million**[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows | (In thousands) | Three Months Ended 3/31/2020 | Three Months Ended 3/31/2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $24,143 | $16,438 | | Net Cash (Used in) Provided by Investing Activities | ($38,438) | $47,949 | | Net Cash Used in Financing Activities | ($8,424) | ($74,202) | | **Net Decrease in Cash and Cash Equivalents** | **($22,719)** | **($9,815)** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) - Effective January 1, 2020, the Company adopted ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326)", also known as **CECL**, which significantly changed the accounting for credit losses[28](index=28&type=chunk) - The allowance for credit losses (ACL) on loans increased to **$52.4 million** at March 31, 2020, from $39.9 million at December 31, 2019, driven by a **$16.3 million provision for credit loss expense**[86](index=86&type=chunk)[84](index=84&type=chunk) - In response to the COVID-19 pandemic, the Company implemented a loan payment deferral program, with eligible modifications not designated as Troubled Debt Restructurings (TDRs) under the CARES Act[98](index=98&type=chunk)[53](index=53&type=chunk) - The Company operates through three reportable business segments: **Banking, Insurance, and Wealth Management**[140](index=140&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202%20-%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) COVID-19 impacts drove a significant increase in credit loss provisions, reducing net income [Impact of, and Response to, COVID-19 Pandemic](index=51&type=section&id=IMPACT%20OF%2C%20AND%20RESPONSE%20TO%2C%20COVID-19%20PANDEMIC) - The company established a Pandemic Planning Committee and implemented risk mitigation measures, including **remote work for over 85% of its workforce**[196](index=196&type=chunk) - A loan payment deferral program was initiated, with total deferrals reaching **$1.5 billion**, representing **29.9% of the total loan portfolio** as of April 20, 2020[198](index=198&type=chunk) - The company is an active participant in the SBA's Paycheck Protection Program (PPP), approving over **2,900 loans totaling approximately $500 million**[199](index=199&type=chunk) [Results of Operation](index=53&type=section&id=RESULTS%20OF%20OPERATION) Key Performance Metrics | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Income | $7.9 million | $21.0 million | | Diluted EPS | $0.53 | $1.37 | | ROA | 0.48% | 1.27% | | ROE | 4.71% | 13.53% | - The provision for credit losses increased by **$15.8 million to $16.3 million** in Q1 2020, driven by deteriorating economic forecasts related to COVID-19 and the adoption of CECL[204](index=204&type=chunk)[221](index=221&type=chunk) - Taxable-equivalent net interest income increased **2.0% YoY to $53.4 million**, and net interest margin expanded by **10 basis points to 3.44%**[218](index=218&type=chunk)[215](index=215&type=chunk) - Noninterest income decreased **2.3% to $19.0 million**, mainly due to lower card services income impacted by reduced transaction volume[222](index=222&type=chunk)[226](index=226&type=chunk) [Financial Condition](index=58&type=section&id=FINANCIAL%20CONDITION) - Total assets were stable at **$6.7 billion**, with total deposits growing by **$196.4 million (3.8%)** while other borrowings decreased by $200.1 million[233](index=233&type=chunk) - The allowance for credit losses to total loans increased to **1.06%** from 0.81% at year-end 2019, reflecting the impact of CECL adoption and COVID-19 forecasts[250](index=250&type=chunk) - Asset quality remained strong, with nonperforming assets at **0.46% of total assets**, comparing favorably to the peer average of 0.56%[257](index=257&type=chunk) - All capital ratios **exceeded well-capitalized requirements**, and the company elected to use the five-year transition period to phase in the regulatory capital effects of CECL[271](index=271&type=chunk)[274](index=274&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=69&type=section&id=Item%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity, managed within board-approved limits - The company's primary market risk is **interest rate risk**, managed by the Asset/Liability Management Committee[297](index=297&type=chunk) Interest Rate Sensitivity Analysis | Interest Rate Scenario (Parallel Shift) | Impact on Net Interest Income (1-Year) | | :--- | :--- | | +200 basis points | -3.6% | | -100 basis points | +1.6% | - The company's one-year cumulative interest rate gap was **negative $117.4 million**, or **-1.74% of total assets**, indicating a moderately liability-sensitive position[303](index=303&type=chunk) [Item 4. Controls and Procedures](index=71&type=section&id=Item%204%20-%20Controls%20and%20Procedures) Disclosure controls were deemed effective, with internal controls updated for the new CECL standard - The CEO and CFO concluded that the company's **disclosure controls and procedures were effective** as of March 31, 2020[306](index=306&type=chunk) - Changes were made to internal controls over financial reporting during the quarter to accommodate the adoption of the **new CECL accounting standard**[307](index=307&type=chunk) [PART II - OTHER INFORMATION](index=71&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=71&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings) Pending litigation from ordinary business activities is not expected to be materially significant - As of March 31, 2020, management does not expect any pending litigation to have a **material impact** on the Company's financial position[308](index=308&type=chunk) [Item 1A. Risk Factors](index=71&type=section&id=Item%201A%20%E2%80%93%20Risk%20Factors) The COVID-19 pandemic is identified as a new material risk factor affecting operations and financials - A new material risk factor was added regarding the economic impact of the **COVID-19 outbreak**, which is expected to have a material adverse effect on the business[309](index=309&type=chunk) - Specific risks highlighted include **increased loan delinquencies and credit losses**, declining collateral values, and pressure on net interest margin[313](index=313&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=73&type=section&id=Item%202%20%E2%80%93%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) A new share repurchase plan was authorized but subsequently suspended due to the COVID-19 pandemic - A new share repurchase plan for up to **400,000 shares** was authorized on January 30, 2020[317](index=317&type=chunk) Issuer Purchases of Equity Securities | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Q1 2020 (Jan-Mar) | 73,061 | $76.46 | - The company **suspended its share repurchase program** on March 19, 2020, in response to the COVID-19 pandemic[317](index=317&type=chunk) [Item 3. Defaults Upon Senior Securities](index=73&type=section&id=Item%203%20-%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported during the period - There were **no defaults upon senior securities** during the period[318](index=318&type=chunk) [Item 4. Mine Safety Disclosures](index=73&type=section&id=Item%204%20-%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - This item is **not applicable** to the company[318](index=318&type=chunk) [Item 5. Other Information](index=73&type=section&id=Item%205%20-%20Other%20Information) No other material information was reported for the period - There was **no other information** to report for the period[318](index=318&type=chunk) [Item 6. Exhibit Index](index=74&type=section&id=Item%206%20-%20Exhibit%20Index) This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 ☐ 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 ...

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, 2019 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 ot ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of Tompkins Financial Corporation's performance and condition [Item 1 – Condensed Financial Statements](index=5&type=section&id=Item%201%20%E2%80%93%20Condensed%20Financial%20Statements) Presents unaudited condensed consolidated financial statements and notes, showing slight decreases in net income and EPS due to higher funding costs [Consolidated Statements of Condition](index=5&type=section&id=Consolidated%20Statements%20of%20Condition) Total assets decreased by **$104.0 million**, while total equity increased by **$36.8 million**, reflecting changes in liabilities | Metric | June 30, 2019 (Unaudited) (in thousands) | December 31, 2018 (Audited) (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :----------------------------------- | :-------------------------- | :-------------------------- | :---------------- | :--------- | | Total Assets | $6,654,390 | $6,758,436 | $(104,046) | -1.54% | | Total Liabilities | $5,996,713 | $6,137,565 | $(140,852) | -2.29% | | Total Equity | $657,677 | $620,871 | $36,806 | 5.93% | - Net Loans and Leases increased by **$24.483 million** (**0.51%**) from **$4.791 billion** at December 31, 2018, to **$4.815 billion** at June 30, 2019[10](index=10&type=chunk) - Total Deposits increased by **$99.938 million** (**2.04%**) from **$4.889 billion** at December 31, 2018, to **$4.989 billion** at June 30, 2019[10](index=10&type=chunk) [Consolidated Statements of Income](index=7&type=section&id=Consolidated%20Statements%20of%20Income) Net income attributable to Tompkins Financial Corporation decreased for both the quarter and six months due to higher interest expenses | Metric | 3 Months Ended 6/30/2019 (in thousands) | 3 Months Ended 6/30/2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :----------------------------------- | :----------------------- | :----------------------- | :---------------- | :--------- | | Total Interest Income | $66,093 | $62,143 | $3,950 | 6.36% | | Total Interest Expense | $13,775 | $9,429 | $4,346 | 46.10% | | Net Interest Income | $52,318 | $52,714 | $(396) | -0.75% | | Provision for Loan and Lease Losses | $601 | $1,045 | $(444) | -42.49% | | Total Noninterest Income | $18,520 | $21,158 | $(2,638) | -12.47% | | Total Noninterest Expenses | $46,070 | $44,985 | $1,085 | 2.41% | | Net Income Attributable to Tompkins Financial Corporation | $19,392 | $22,059 | $(2,667) | -12.09% | | Basic Earnings Per Share | $1.27 | $1.44 | $(0.17) | -11.81% | | Diluted Earnings Per Share | $1.27 | $1.43 | $(0.16) | -11.19% | | Metric | 6 Months Ended 6/30/2019 (in thousands) | 6 Months Ended 6/30/2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :----------------------------------- | :----------------------- | :----------------------- | :---------------- | :--------- | | Total Interest Income | $131,021 | $122,283 | $8,738 | 7.15% | | Total Interest Expense | $26,789 | $16,882 | $9,907 | 58.68% | | Net Interest Income | $104,232 | $105,401 | $(1,169) | -1.11% | | Provision for Loan and Lease Losses | $1,046 | $1,612 | $(566) | -35.11% | | Total Noninterest Income | $37,927 | $38,988 | $(1,061) | -2.72% | | Total Noninterest Expenses | $90,279 | $88,706 | $1,573 | 1.77% | | Net Income Attributable to Tompkins Financial Corporation | $40,432 | $42,495 | $(2,063) | -4.85% | | Basic Earnings Per Share | $2.64 | $2.78 | $(0.14) | -5.04% | | Diluted Earnings Per Share | $2.63 | $2.76 | $(0.13) | -4.71% | [Consolidated Statements of Comprehensive Income](index=9&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income significantly increased for both periods, driven by a positive shift in other comprehensive income | Metric | 3 Months Ended 6/30/2019 (in thousands) | 3 Months Ended 6/30/2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :-------------------------------------------------------- | :----------------------- | :----------------------- | :---------------- | :--------- | | Net income attributable to noncontrolling interests and Tompkins Financial Corporation | $19,424 | $22,091 | $(2,667) | -12.07% | | Other comprehensive income (loss), net of tax | $10,776 | $(3,819) | $14,595 | -382.19% | | Total comprehensive income attributable to Tompkins Financial Corporation | $30,168 | $18,240 | $11,928 | 65.39% | | Metric | 6 Months Ended 6/30/2019 (in thousands) | 6 Months Ended 6/30/2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :-------------------------------------------------------- | :----------------------- | :----------------------- | :---------------- | :--------- | | Net income attributable to noncontrolling interests and Tompkins Financial Corporation | $40,496 | $42,559 | $(2,063) | -4.85% | | Other comprehensive income (loss), net of tax | $22,991 | $(18,205) | $41,196 | -226.29% | | Total comprehensive income attributable to Tompkins Financial Corporation | $63,423 | $24,290 | $39,133 | 161.11% | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities increased, while investing activities shifted from usage to provision, and financing activities reversed | Metric | 6 Months Ended 6/30/2019 (in thousands) | 6 Months Ended 6/30/2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :---------------------------------------- | :----------------------- | :----------------------- | :---------------- | :--------- | | Net Cash Provided by Operating Activities | $46,009 | $40,172 | $5,837 | 14.53% | | Net Cash Provided by (Used in) Investing Activities | $152,333 | $(118,859) | $271,192 | -228.16% | | Net Cash (Used in) Provided by Financing Activities | $(197,718) | $77,057 | $(274,775) | -356.59% | | Net Increase/Decrease in Cash and Cash Equivalents | $624 | $(1,630) | $2,254 | -138.28% | - Cash paid for interest increased by **$9.541 million** (**54.23%**) from **$17.594 million** in 2018 to **$27.135 million** in 2019 for the six months ended June 30[21](index=21&type=chunk) - Cash paid for taxes decreased by **$7.243 million** (**50.47%**) from **$14.351 million** in 2018 to **$7.108 million** in 2019 for the six months ended June 30[21](index=21&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=13&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Total equity increased by **$36.8 million**, primarily due to net income and a reduction in accumulated other comprehensive losses | Metric | 6 Months Ended 6/30/2019 (in thousands) | 6 Months Ended 6/30/2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :-------------------------------------------------------- | :----------------------- | :----------------------- | :---------------- | :--------- | | Total Equity (Beginning Balance) | $620,871 | $576,202 | $44,669 | 7.75% | | Net income attributable to noncontrolling interests and Tompkins Financial Corporation | $40,496 | $42,559 | $(2,063) | -4.85% | | Other comprehensive income (loss) | $22,991 | $(18,205) | $41,196 | -226.29% | | Cash dividends | $(15,315) | $(14,664) | $(651) | 4.44% | | Common stock repurchased and returned to unissued status | $(12,284) | $(1,205) | $(11,079) | 919.42% | | Total Equity (Ending Balance) | $657,677 | $590,649 | $67,028 | 11.35% | - Accumulated other comprehensive loss decreased from **$(63.165) million** at January 1, 2019, to **$(40.174) million** at June 30, 2019, primarily due to a **$22.991 million** increase in other comprehensive income[24](index=24&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=15&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the financial statements, covering business operations, accounting policies, and specific financial items [1. Business](index=15&type=section&id=1.%20Business) Tompkins Financial Corporation is a financial holding company providing diverse banking, wealth management, and insurance services through its subsidiaries - Tompkins Financial Corporation is headquartered in Ithaca, New York, and is registered as a Financial Holding Company with the Federal Reserve Board[25](index=25&type=chunk) - The Company 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[25](index=25&type=chunk) - Subsidiaries include four wholly-owned banking subsidiaries (Tompkins Trust Company, The Bank of Castile, Mahopac Bank, VIST Bank) and a wholly-owned insurance agency subsidiary (Tompkins Insurance Agencies, Inc.)[25](index=25&type=chunk) [2. Basis of Presentation](index=15&type=section&id=2.%20Basis%20of%20Presentation) Interim financial statements are prepared under GAAP, relying on critical management estimates for loan losses and securities impairment, with no significant policy changes - The unaudited consolidated financial statements do not include all information and footnotes required by GAAP for a full year presentation, with certain disclosures condensed or omitted per SEC rules[28](index=28&type=chunk) - Critical accounting policies include the determination of the allowance for loan and lease losses and the review of the securities portfolio for other than temporary impairment, due to inherent uncertainties in estimates[28](index=28&type=chunk) - No significant changes to the Company's accounting policies have occurred since the 2018 Annual Report on Form 10-K[29](index=29&type=chunk) [3. Accounting Standards Updates](index=16&type=section&id=3.%20Accounting%20Standards%20Updates) The Company adopted new lease accounting standards in 2019, recognizing ROU assets and liabilities without material income impact, and is evaluating future credit loss standards - ASU No. 2016-02, 'Leases,' was adopted on January 1, 2019, requiring lessees to recognize lease liabilities and right-of-use assets for all leases, which did not have a material impact on consolidated statements of income or cash flows[33](index=33&type=chunk) - The Company elected transition options under ASU No. 2018-11, 'Leases - Targeted Improvements,' not to recast comparative periods and to separate lease and non-lease components, with no material impact[34](index=34&type=chunk) - ASU No. 2016-13, 'Financial Instruments - Credit Losses,' effective January 1, 2020, requires measurement of all expected credit losses; the Company is evaluating its impact but does not expect a significant impact to capital[39](index=39&type=chunk) [4. Securities](index=18&type=section&id=4.%20Securities) The securities portfolio, including available-for-sale and held-to-maturity, totaled **$1.33 billion**, with unrealized losses primarily due to interest rate changes, not credit quality | Category | Amortized Cost (6/30/2019) (in thousands) | Fair Value (6/30/2019) (in thousands) | Gross Unrealized Gains (6/30/2019) (in thousands) | Gross Unrealized Losses (6/30/2019) (in thousands) | | :--------------------------------------- | :------------------------- | :----------------------- | :--------------------------------- | :---------------------------------- | | **Available-for-sale securities** | | | | | | U.S. Treasuries | $280 | $278 | $0 | $2 | | Obligations of U.S. Government sponsored entities | $348,360 | $349,662 | $1,562 | $260 | | Obligations of U.S. states and political subdivisions | $79,891 | $80,783 | $927 | $35 | | Mortgage-backed securities – residential, issued by U.S. Government agencies | $169,799 | $169,555 | $1,289 | $1,533 | | Mortgage-backed securities – residential, issued by U.S. Government sponsored entities | $590,032 | $586,529 | $2,371 | $5,874 | | Non-U.S. Government agencies or sponsored entities | $7 | $7 | $0 | $0 | | U.S. corporate debt securities | $2,500 | $2,432 | $0 | $68 | | **Total available-for-sale securities** | **$1,190,869** | **$1,189,246** | **$6,149** | **$7,772** | | **Held-to-maturity securities** | | | | | | Obligations of U.S. Government sponsored entities | $131,103 | $134,057 | $2,954 | $0 | | Obligations of U.S. states and political subdivisions | $9,458 | $9,491 | $34 | $1 | | **Total held-to-maturity debt securities** | **$140,561** | **$143,548** | **$2,988** | **$1** | - Realized gains on available-for-sale securities were **$0.866 million** for the three and six months ended June 30, 2019, compared to **$0.172 million** and **$0.297 million** for the same periods in 2018, respectively[43](index=43&type=chunk) - The Company determined that no investment security held at June 30, 2019, was other-than-temporarily impaired, as unrealized losses were primarily due to interest rate changes and not credit quality[53](index=53&type=chunk) [5. Loans and Leases](index=24&type=section&id=5.%20Loans%20and%20Leases) Total loans and leases increased slightly to **$4.86 billion**, with growth in originated loans offsetting a decrease in acquired loans | Loan Category | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :--------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Originated Loans and Leases | $4,612,198 | $4,572,537 | $39,661 | 0.87% | | Acquired Loans | $247,319 | $265,198 | $(17,879) | -6.74% | | Total Loans and Leases | $4,859,517 | $4,837,735 | $21,782 | 0.45% | | Commercial and industrial | $1,043,789 | $1,077,635 | $(33,846) | -3.14% | | Commercial real estate | $2,401,976 | $2,340,661 | $61,315 | 2.62% | | Residential real estate | $1,324,206 | $1,333,894 | $(9,688) | -0.73% | | Consumer and other | $73,689 | $70,989 | $2,700 | 3.80% | | Leases | $15,857 | $14,556 | $1,301 | 8.94% | - Originated loans 90 days or more past due and accruing interest totaled **$6.665 million** at June 30, 2019, down from **$8.651 million** at December 31, 2018[67](index=67&type=chunk)[68](index=68&type=chunk) - Acquired loans 90 days or more past due and accruing interest totaled **$2.131 million** at June 30, 2019, down from **$2.621 million** at December 31, 2018[67](index=67&type=chunk)[68](index=68&type=chunk) [6. Allowance for Loan and Lease Losses](index=30&type=section&id=6.%20Allowance%20for%20Loan%20and%20Lease%20Losses) The allowance for loan and lease losses decreased to **$40.7 million**, mainly due to a commercial real estate write-down, while impaired loans totaled **$15.2 million** | Metric | 6 Months Ended 6/30/2019 (in thousands) | 6 Months Ended 6/30/2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :------------------------------ | :----------------------- | :----------------------- | :---------------- | :--------- | | **Originated Loans and Leases** | | | | | | Beginning balance | $43,321 | $39,686 | $3,635 | 9.16% | | Charge-offs | $(4,277) | $(1,314) | $(2,963) | 225.49% | | Recoveries | $575 | $1,096 | $(521) | -47.54% | | Provision (credit) | $1,070 | $1,643 | $(573) | -34.87% | | Ending Balance | $40,689 | $41,111 | $(422) | -1.03% | | **Acquired Loans** | | | | | | Beginning balance | $89 | $85 | $4 | 4.71% | | Charge-offs | $(29) | $(104) | $75 | -72.12% | | Recoveries | $65 | $164 | $(99) | -60.37% | | Provision (credit) | $(24) | $(31) | $7 | -22.58% | | Ending Balance | $101 | $114 | $(13) | -11.40% | - The decrease in the originated allowance was mainly due to a **$3.1 million** write-down of a single commercial real estate relationship in Q1 2019[84](index=84&type=chunk)[265](index=265&type=chunk) | Impaired Loans | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :---------------------------- | :------------ | :---------------- | | Originated loans and leases | $11,678 | $14,167 | | Acquired loans | $3,504 | $3,438 | | Total Impaired Loans | $15,182 | $17,605 | [7. Earnings Per Share](index=46&type=section&id=7.%20Earnings%20Per%20Share) Basic and diluted EPS decreased for both the three and six months ended June 30, 2019, compared to the prior year | Metric | 3 Months Ended 6/30/2019 | 3 Months Ended 6/30/2018 | Change (Absolute) | Change (%) | | :----- | :----------------------- | :----------------------- | :---------------- | :--------- | | Basic EPS | $1.27 | $1.44 | $(0.17) | -11.81% | | Diluted EPS | $1.27 | $1.43 | $(0.16) | -11.19% | | Metric | 6 Months Ended 6/30/2019 | 6 Months Ended 6/30/2018 | Change (Absolute) | Change (%) | | :----- | :----------------------- | :----------------------- | :---------------- | :--------- | | Basic EPS | $2.64 | $2.78 | $(0.14) | -5.04% | | Diluted EPS | $2.63 | $2.76 | $(0.13) | -4.71% | - Stock-based compensation awards representing 18,355 and 19,668 common shares for the three months ended June 30, 2019 and 2018, respectively, were anti-dilutive and excluded from diluted EPS calculations[112](index=112&type=chunk) [8. Other Comprehensive Income (Loss)](index=48&type=section&id=8.%20Other%20Comprehensive%20Income%20(Loss)) Accumulated other comprehensive loss significantly decreased to **$(40.2) million**, primarily due to reduced unrealized losses on available-for-sale securities | Component | Balance at 1/1/2019 (in thousands) | Balance at 6/30/2019 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :---------------------------------------- | :------------------ | :------------------- | :---------------- | :--------- | | Available-for-Sale Securities | $(23,589) | $(1,223) | $22,366 | -94.82% | | Employee Benefit Plans | $(39,576) | $(38,951) | $625 | -1.58% | | Total Accumulated Other Comprehensive (Loss) Income | $(63,165) | $(40,174) | $22,991 | -36.40% | - The change in net unrealized gain/loss during the six months ended June 30, 2019, for available-for-sale securities was a gain of **$22.570 million**, net of tax, compared to a loss of **$(18.638) million** in the prior year[116](index=116&type=chunk) [9. Employee Benefit Plan](index=53&type=section&id=9.%20Employee%20Benefit%20Plan) The Company recognized net periodic benefit costs for its pension, post-retirement, and SERP plans, with the pension plan showing net benefit income | Component | Pension Benefits (6 Months Ended 6/30/2019) (in thousands) | Life and Health (6 Months Ended 6/30/2019) (in thousands) | SERP Benefits (6 Months Ended 6/30/2019) (in thousands) | | :------------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :--------------------------------------- | | Service cost | $0 | $80 | $77 | | Interest cost | $1,468 | $145 | $456 | | Expected return on plan assets | $(2,466) | $0 | $0 | | Amortization of net retirement plan actuarial loss | $667 | $0 | $154 | | Amortization of net retirement plan prior service (credit) cost | $(5) | $(31) | $44 | | Net periodic benefit (income) cost | $(336) | $194 | $731 | - The Company realized approximately **$0.625 million**, net of tax, as amortization of amounts previously recognized in accumulated other comprehensive (loss) income for the six months ended June 30, 2019[126](index=126&type=chunk) [10. Other Income and Operating Expense](index=54&type=section&id=10.%20Other%20Income%20and%20Operating%20Expense) Other noninterest income decreased significantly due to a non-recurring gain on asset sales in 2018, while operating expenses remained stable | Category | 3 Months Ended 6/30/2019 (in thousands) | 3 Months Ended 6/30/2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :------------------------------------------------ | :----------------------- | :----------------------- | :---------------- | :--------- | | **Noninterest Income** | | | | | | Other service charges | $703 | $722 | $(19) | -2.63% | | Increase in cash surrender value of corporate owned life insurance | $544 | $504 | $40 | 7.94% | | Net gain (loss) on sale of fixed assets | $0 | $2,959 | $(2,959) | -100.00% | | Other income | $559 | $713 | $(154) | -21.59% | | Total other income | $1,806 | $4,898 | $(3,092) | -63.13% | | **Noninterest Expenses** | | | | | | Marketing expense | $1,645 | $1,414 | $231 | 16.34% | | Professional fees | $2,827 | $1,712 | $1,115 | 65.13% | | Legal fees | $138 | $292 | $(154) | -52.74% | | Technology expense | $2,623 | $2,290 | $333 | 14.54% | | Cardholder expense | $604 | $810 | $(206) | -25.43% | | Other expenses | $4,289 | $5,917 | $(1,628) | -27.51% | | Total other operating expense | $12,126 | $12,435 | $(309) | -2.48% | [11. Revenue Recognition](index=55&type=section&id=11.%20Revenue%20Recognition) Adoption of ASC 606 increased retained earnings by **$1.8 million**, altering timing for insurance commission recognition and increasing contract liabilities to **$2.4 million** - Adoption of ASC 606 on January 1, 2018, resulted in a net increase to beginning retained earnings of **$1.8 million**, mainly due to the recognition of contingency income in the insurance business[130](index=130&type=chunk) - Under ASC 606, commission revenue on installment-billed policies is now recognized upon the policy effective date, earlier than previously, creating a current asset for unbilled revenue[134](index=134&type=chunk) - Contract liabilities, representing obligations for services for which payment has been received, increased to **$2.4 million** at June 30, 2019, from **$1.8 million** at December 31, 2018[149](index=149&type=chunk) [12. Financial Guarantees](index=59&type=section&id=12.%20Financial%20Guarantees) The Company's maximum potential obligation under standby letters of credit increased to **$27.7 million**, with no significant losses anticipated - The Company's maximum potential obligation under standby letters of credit was **$27.7 million** at June 30, 2019, an increase from **$21.7 million** at December 31, 2018[152](index=152&type=chunk) - Management uses the same credit policies for standby letters of credit as for on-balance sheet lending and may require collateral[152](index=152&type=chunk) - Management does not anticipate any significant losses from these transactions and has determined the fair value of standby letters of credit is not significant[152](index=152&type=chunk) [13. Segment and Related Information](index=59&type=section&id=13.%20Segment%20and%20Related%20Information) Tompkins Financial Corporation operates through Banking, Insurance, and Wealth Management segments, with intercompany activities accounted for at fair value - The Company operates through three reportable business segments: Banking, Insurance (Tompkins Insurance Agencies, Inc.), and Wealth Management (Tompkins Financial Advisors)[153](index=153&type=chunk) | Segment | Net Income (3 Months Ended 6/30/2019) (in thousands) | Net Income (3 Months Ended 6/30/2018) (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :--------------------- | :------------------------------------ | :------------------------------------ | :---------------- | :--------- | | Banking | $17,619 | $20,119 | $(2,500) | -12.42% | | Insurance | $1,122 | $933 | $189 | 20.26% | | Wealth Management | $651 | $1,007 | $(356) | -35.35% | | Consolidated | $19,392 | $22,059 | $(2,667) | -12.09% | | Segment | Net Income (6 Months Ended 6/30/2019) (in thousands) | Net Income (6 Months Ended 6/30/2018) (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :--------------------- | :------------------------------------ | :------------------------------------ | :---------------- | :--------- | | Banking | $36,462 | $38,731 | $(2,269) | -5.86% | | Insurance | $2,504 | $1,832 | $672 | 36.79% | | Wealth Management | $1,466 | $1,932 | $(466) | -24.12% | | Consolidated | $40,432 | $42,495 | $(2,063) | -4.85% | [14. Fair Value](index=62&type=section&id=14.%20Fair%20Value) Financial assets and liabilities are measured using a three-level fair value hierarchy, with available-for-sale securities primarily Level 2 and loans/leases largely Level 3 - The fair value hierarchy prioritizes inputs: Level 1 (unadjusted quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[164](index=164&type=chunk) | Asset/Liability | Total Fair Value (6/30/2019) (in thousands) | Level 1 (6/30/2019) (in thousands) | Level 2 (6/30/2019) (in thousands) | Level 3 (6/30/2019) (in thousands) | | :----------------------------- | :--------------------------- | :------------------ | :------------------ | :------------------ | | Available-for-sale securities | $1,189,246 | $0 | $1,189,246 | $0 | | Equity securities, at fair value | $912 | $0 | $0 | $912 | | Loans/leases, net | $4,743,186 | $0 | $3,485 | $4,739,701 | - For nonrecurring fair value measurements, impaired loans and other real estate owned are valued using Level 2 or Level 3 inputs, with collateral values estimated using observable market data or appraisals[171](index=171&type=chunk) [15. Leasing](index=67&type=section&id=15.%20Leasing) Adoption of ASU 2016-02 resulted in recognition of **$34.2 million** in ROU assets and **$36.4 million** in lease liabilities for operating leases - The Company adopted ASU 2016-02, 'Leases,' on January 1, 2019, using the modified retrospective method, with no adjustments to retained earnings on adoption[189](index=189&type=chunk) | Metric | June 30, 2019 (in thousands) | | :-------------------- | :------------ | | ROU assets | $34,212 | | Current lease liabilities | $3,402 | | Non-current lease liabilities | $33,046 | | Total lease liabilities | $36,448 | | Lease Costs | 6 Months Ended June 30, 2019 (in thousands) | | :------------------------- | :--------------------------- | | Operating lease cost | $2,315 | | Variable lease cost | $190 | | Short-term lease cost | $1 | | Sublease income | $(17) | | Total lease cost | $2,489 | [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=70&type=section&id=Item%202%20-%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews Tompkins Financial Corporation's business, strategy, and financial performance, noting decreased net income due to higher funding costs and non-recurring gains [BUSINESS](index=70&type=section&id=BUSINESS) This section outlines Tompkins Financial Corporation's corporate overview, strategic initiatives, business segments, competitive landscape, and regulatory environment [Corporate Overview and Strategic Initiatives](index=70&type=section&id=Corporate%20Overview%20and%20Strategic%20Initiatives) Tompkins Financial Corporation is a community-based financial services organization focused on high-quality products, operational effectiveness, and profitable growth - Tompkins Financial Corporation is a locally oriented, community-based financial services organization offering commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, and insurance services[198](index=198&type=chunk) - The Company's strategic initiatives focus on delivering high-quality products, improving operational effectiveness, investing in people, maintaining risk management, and delivering profitable growth across all business lines[198](index=198&type=chunk) - Growth strategy includes organic growth and potential acquisitions of financial institutions, branches, and financial services businesses that are culturally similar and have experienced management[198](index=198&type=chunk) [Business Segments](index=70&type=section&id=Business%20Segments) The Company operates Banking, Wealth Management, and Insurance segments, providing diverse financial services and expanding through strategic acquisitions - Banking services primarily involve attracting deposits and originating commercial, consumer, and real estate loans and leases across 66 banking offices in New York and Pennsylvania[199](index=199&type=chunk) - Wealth management services, provided by Tompkins Financial Advisors, include investment management, trust and estate, financial and tax planning, and various insurance services[200](index=200&type=chunk) - Insurance services, offered by Tompkins Insurance Agencies, Inc., include property and casualty insurance and employee benefit consulting; in Q2 2019, Tompkins Insurance acquired the Cali Agency, Inc., adding goodwill and other intangible assets[201](index=201&type=chunk) [Competition](index=71&type=section&id=Competition) The Company faces intense competition from diverse financial institutions, differentiating itself through a community-based approach and personalized services - Competition is strong from commercial banks, savings and loan associations, credit unions, finance companies, Internet-based financial services companies, mutual funds, insurance companies, and brokerage firms[203](index=203&type=chunk) - Many non-bank competitors are not subject to the same extensive federal regulations as financial holding companies and federally-insured banks[203](index=203&type=chunk) - The Company competes by establishing personalized financial relationships, community involvement, prudent lending decisions, and offering a strong suite of products and services[204](index=204&type=chunk) [Regulation](index=71&type=section&id=Regulation) Tompkins Financial Corporation and its subsidiaries are highly regulated, subject to extensive examination and oversight by multiple federal and state authorities - The Company and its subsidiaries are subject to examination and regulation by the Federal Reserve Board, SEC, FDIC, New York State Department of Financial Services, Pennsylvania Department of Banking and Securities, Financial Industry Regulatory Authority, and the Pennsylvania Insurance Department[205](index=205&type=chunk) [OTHER IMPORTANT INFORMATION](index=72&type=section&id=OTHER%20IMPORTANT%20INFORMATION) This section addresses forward-looking statements, highlighting inherent risks, and details the Company's critical accounting policies and their application [Forward-Looking Statements](index=72&type=section&id=Forward-Looking%20Statements) Forward-looking statements in this report are subject to risks and uncertainties from economic, market, and regulatory changes - Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied[209](index=209&type=chunk) - Key factors influencing actual results include changes in general economic, market, and regulatory conditions, interest rate environment, technological developments, and governmental and public policy changes[209](index=209&type=chunk) [Critical Accounting Policies](index=72&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies, including ALL and OTTI, involve significant management judgment and have not materially changed since 2018 - Critical accounting policies require management to make assumptions about highly uncertain matters, where different estimates could materially impact financial statements[211](index=211&type=chunk) - The allowance for loan and lease losses (ALL) and the review of the securities portfolio for other-than-temporary impairment (OTTI) are considered critical accounting policies[211](index=211&type=chunk) - There have been no significant changes in the Company's application of critical accounting policies since December 31, 2018[212](index=212&type=chunk) [RESULTS OF OPERATION](index=72&type=section&id=RESULTS%20OF%20OPERATION) This section analyzes the Company's financial performance, including net income, segment results, non-GAAP measures, net interest income, and expense trends [Performance Summary](index=72&type=section&id=Performance%20Summary) Net income and diluted EPS decreased for both Q2 and YTD 2019, though ROA and ROE remained favorable compared to peers | Metric | Q2 2019 | Q2 2018 | Change (Absolute) | Change (%) | | :----- | :------ | :------ | :---------------- | :--------- | | Net income (in millions) | $19.4 | $22.1 | $(2.7) | -12.22% | | Diluted EPS | $1.27 | $1.43 | $(0.16) | -11.19% | | ROA | 1.15% | 1.32% | -0.17% | -12.88% | | ROE | 11.96% | 15.13% | -3.17% | -20.95% | | Metric | YTD 2019 | YTD 2018 | Change (Absolute) | Change (%) | | :----- | :------- | :------- | :---------------- | :--------- | | Net income (in millions) | $40.4 | $42.5 | $(2.1) | -4.94% | | Diluted EPS | $2.63 | $2.76 | $(0.13) | -4.71% | | ROA | 1.21% | 1.28% | -0.07% | -5.47% | | ROE | 12.73% | 14.78% | -2.05% | -13.87% | - Tompkins' ROA (**1.15%**) and ROE (**11.96%**) for Q2 2019 compare favorably to the peer average ratios of 1.13% and 10.21%, ranking Tompkins in the **57th** and **81st percentile**, respectively[214](index=214&type=chunk) [Segment Reporting](index=73&type=section&id=Segment%20Reporting) Banking segment net income decreased due to higher funding costs, while Insurance net income increased, and Wealth Management net income declined | Segment | Q2 2019 Net Income (in millions) | Q2 2018 Net Income (in millions) | Change (Absolute) (in millions) | Change (%) | | :-------------------- | :----------------- | :----------------- | :---------------- | :--------- | | Banking | $17.6 | $20.2 | $(2.6) | -12.87% | | Insurance | $1.1 | $0.9 | $0.2 | 22.22% | | Wealth Management | $0.7 | $1.0 | $(0.3) | -30.00% | | Segment | YTD 2019 Net Income (in millions) | YTD 2018 Net Income (in millions) | Change (Absolute) (in millions) | Change (%) | | :-------------------- | :------------------ | :------------------ | :---------------- | :--------- | | Banking | $36.5 | $38.8 | $(2.3) | -5.93% | | Insurance | $2.5 | $1.8 | $0.7 | 38.89% | | Wealth Management | $1.5 | $1.9 | $(0.4) | -21.05% | - The decrease in Banking segment noninterest income was mainly due to a **$2.9 million** gain on the sale of two properties in 2018, partially offset by a **$0.5 million** one-time incentive payment in Q1 2019[219](index=219&type=chunk) [Non-GAAP Disclosure](index=74&type=section&id=Non-GAAP%20Disclosure) Non-GAAP measures are provided to enhance understanding of operational performance, with adjusted net operating income at **$40.4 million** and adjusted operating return at **15.08%** for YTD 2019 - Non-GAAP measures adjust GAAP measures to exclude acquisition-related intangible amortization expense, providing insights into underlying operational performance[224](index=224&type=chunk) | Metric | 6 Months Ended 6/30/2019 (in thousands, except %) | 6 Months Ended 6/30/2018 (in thousands, except %) | Change (Absolute) (in thousands) | Change (%) | | :-------------------------------------------------------- | :----------------------- | :----------------------- | :---------------- | :--------- | | Net operating income available to common shareholders | $39,777 | $41,789 | $(2,012) | -4.82% | | Amortization of intangibles, net of tax | $627 | $706 | $(79) | -11.19% | | Adjusted net operating income available to common shareholders (Non-GAAP) | $40,404 | $42,495 | $(2,091) | -4.92% | | Adjusted operating return on average shareholders' tangible common equity (Non-GAAP) | 15.08% | 17.95% | -2.87% | -15.99% | | Metric | 6 Months Ended 6/30/2019 (in thousands, except per share) | 6 Months Ended 6/30/2018 (in thousands, except per share) | Change (Absolute) (in thousands) | Change (%) | | :-------------------------------------- | :----------------------- | :----------------------- | :---------------- | :--------- | | Tangible common equity (Non-GAAP) | $557,503 | $489,190 | $68,313 | 13.96% | | Tangible common equity per share (Non-GAAP) | $36.77 | $32.34 | $4.43 | 13.70% | [Net Interest Income](index=74&type=section&id=Net%20Interest%20Income) Net interest income decreased due to rising funding costs, leading to a slight compression in net interest margin to **3.34%** for both Q2 and YTD 2019 - Net interest income represented **73.9%** and **73.3%** of total revenues for the three and six months ended June 30, 2019, respectively[232](index=232&type=chunk) - Taxable-equivalent net interest income decreased by **0.8%** for Q2 2019 and **1.2%** for YTD 2019, driven by higher funding costs exceeding asset yield increases[233](index=233&type=chunk) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :----- | :------ | :------ | :------- | :------- | | Net Interest Margin | 3.34% | 3.36% | 3.34% | 3.39% | | Average Loan Yield | 4.76% | 4.48% | 4.73% | 4.46% | | Average Cost of Interest-Bearing Deposits | 0.84% | 0.42% | 0.79% | 0.37% | [Provision for Loan and Lease Losses](index=79&type=section&id=Provision%20for%20Loan%20and%20Lease%20Losses) The provision for loan and lease losses decreased for both periods in 2019, reflecting slower loan growth and stable asset quality | Metric | 3 Months Ended 6/30/2019 (in thousands) | 3 Months Ended 6/30/2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :------------------------------------ | :----------------------- | :----------------------- | :---------------- | :--------- | | Provision for loan and lease losses | $601 | $1,045 | $(444) | -42.49% | | Metric | 6 Months Ended 6/30/2019 (in thousands) | 6 Months Ended 6/30/2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :------------------------------------ | :----------------------- | :----------------------- | :---------------- | :--------- | | Provision for loan and lease losses | $1,046 | $1,612 | $(566) | -35.11% | - The decrease in provision expense is mainly due to slower loan growth and stable asset quality[218](index=218&type=chunk)[270](index=270&type=chunk) [Noninterest Income](index=79&type=section&id=Noninterest%20Income) Noninterest income decreased due to a non-recurring gain on property sales in 2018, despite growth in insurance commissions and fees | Metric | Q2 2019 (in millions) | Q2 2018 (in millions) | Change (Absolute) (in millions) | Change (%) | | :------------------- | :------ | :------ | :---------------- | :--------- | | Total Noninterest Income | $18.5 | $21.2 | $(2.7) | -12.74% | | Insurance commissions and fees | $7.8 | $7.4 | $0.4 | 5.41% | | Investment services income | $3.9 | $4.0 | $(0.1) | -2.50% | | Other income | $1.8 | $4.9 | $(3.1) | -63.27% | | Metric | YTD 2019 (in millions) | YTD 2018 (in millions) | Change (Absolute) (in millions) | Change (%) | | :------------------- | :------- | :------- | :---------------- | :--------- | | Total Noninterest Income | $37.9 | $39.0 | $(1.1) | -2.82% | | Insurance commissions and fees | $15.8 | $14.8 | $1.0 | 6.76% | | Investment services income | $8.0 | $8.3 | $(0.3) | -3.61% | | Other income | $4.3 | $6.7 | $(2.4) | -35.82% | - The decrease in other income for both periods was mainly due to approximately **$2.9 million** of gains on the sale of two properties in 2018 related to the Company's new headquarters building[242](index=242&type=chunk) [Noninterest Expense](index=80&type=section&id=Noninterest%20Expense) Noninterest expense increased due to higher compensation and benefits, including salaries, wages, and healthcare expenses | Metric | Q2 2019 (in millions) | Q2 2018 (in millions) | Change (Absolute) (in millions) | Change (%) | | :------------------- | :------ | :------ | :---------------- | :--------- | | Total Noninterest Expense | $46.1 | $45.0 | $1.1 | 2.44% | | Salaries and wages | $22.1 | $21.4 | $0.7 | 3.27% | | Other employee benefits | $5.7 | $5.2 | $0.5 | 9.62% | | Metric | YTD 2019 (in millions) | YTD 2018 (in millions) | Change (Absolute) (in millions) | Change (%) | | :------------------- | :------- | :------- | :---------------- | :--------- | | Total Noninterest Expense | $90.3 | $88.7 | $1.6 | 1.80% | | Salaries and wages | $43.2 | $42.4 | $0.8 | 1.89% | | Other employee benefits | $11.3 | $10.6 | $0.7 | 6.60% | - Expenses for Q2 and YTD 2019 included increases in professional fees and technology-related expenses associated with strategic initiatives[245](index=245&type=chunk) [Income Tax Expense](index=80&type=section&id=Income%20Tax%20Expense) Income tax expense decreased for both periods in 2019, with effective tax rates of **19.6%** and **20.3%**, influenced by tax-exempt income | Metric | Q2 2019 (in millions) | Q2 2018 (in millions) | Change (Absolute) (in millions) | Change (%) | | :------------------- | :------ | :------ | :---------------- | :--------- | | Income Tax Expense | $4.7 | $5.8 | $(1.1) | -18.97% | | Effective Tax Rate | 19.6% | 20.7% | -1.1% | -5.31% | | Metric | YTD 2019 (in millions) | YTD 2018 (in millions) | Change (Absolute) (in millions) | Change (%) | | :------------------- | :------- | :------- | :---------------- | :--------- | | Income Tax Expense | $10.3 | $11.5 | $(1.2) | -10.43% | | Effective Tax Rate | 20.3% | 21.3% | -1.0% | -4.69% | - Effective tax rates differ from the U.S. statutory rate due to tax-exempt income from loans, securities, life insurance assets, and stock-based compensation effects[246](index=246&type=chunk) [FINANCIAL CONDITION](index=80&type=section&id=FINANCIAL%20CONDITION) This section details the Company's financial position, including total assets, securities, loans, allowance for loan losses, capital, deposits, and liquidity [Total Assets](index=80&type=section&id=Total%20Assets) Total assets decreased by **$104.0 million** to **$6.7 billion**, primarily due to a **$152.1 million** sale of securities to reduce borrowings - Total assets were **$6.7 billion** at June 30, 2019, down **$104.0 million** or **1.5%** from December 31, 2018[247](index=247&type=chunk) - The decrease was mainly due to the sale of about **$152.1 million** of low yielding and short average life securities in June 2019, with proceeds used to reduce overnight borrowings[247](index=247&type=chunk) - Total deposits were up **$99.9 million** or **2.0%** from December 31, 2018, while other borrowings decreased **$251.5 million** or **23.4%**[247](index=247&type=chunk) [Securities](index=81&type=section&id=Securities) The securities portfolio decreased to **$1.3 billion** due to a **$152.1 million** sale of available-for-sale securities, with unrealized losses attributed to interest rate changes - The securities portfolio decreased to **$1.3 billion** (**20.0%** of total assets) at June 30, 2019, from **$1.5 billion** (**21.8%** of total assets) at year-end 2018[248](index=248&type=chunk) - The decrease was mainly due to the sale of **$152.1 million** of available-for-sale securities in June 2019[248](index=248&type=chunk) - The decrease in unrealized losses on the available-for-sale portfolio was primarily due to changes in market interest rates, and no investment securities were considered other-than-temporarily impaired[250](index=250&type=chunk)[251](index=251&type=chunk) [Loans and Leases](index=82&type=section&id=Loans%20and%20Leases) Total loans and leases increased by **$21.9 million** to **$4.9 billion**, driven by originated loan growth, with commercial real estate as the largest segment | Loan Category | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :--------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Total loans and leases | $4,859,517 | $4,837,735 | $21,782 | 0.45% | | Originated loan balances | $4,612,198 | $4,572,537 | $39,661 | 0.87% | | Acquired loans | $247,319 | $265,198 | $(17,879) | -6.74% | | Commercial real estate loans | $2,401,976 | $2,340,661 | $61,315 | 2.62% | | Commercial and industrial loans | $1,043,789 | $1,077,635 | $(33,846) | -3.14% | - Residential real estate loans, including home equity, decreased by **$9.7 million** (**0.7%**) to **$1.3 billion** at June 30, 2019, comprising **27.3%** of total loans[254](index=254&type=chunk) - Agriculturally-related loans totaled **$274.1 million** (**5.6%** of total loans) at June 30, 2019, slightly down from **$277.7 million** at December 31, 2018[257](index=257&type=chunk) [The Allowance for Loan and Lease Losses](index=83&type=section&id=The%20Allowance%20for%20Loan%20and%20Lease%20Losses) The allowance for loan and lease losses decreased to **$40.8 million** due to a commercial real estate write-down, while nonperforming loans decreased to **$23.8 million** | Metric | 6/30/2019 (in thousands) | 12/31/2018 (in thousands) | Change (Absolute) (in thousands) | Change (%) | | :---------------------------------------- | :-------- | :--------- | :---------------- | :--------- | | Allowance for originated loans and leases | $40,689 | $43,321 | $(2,632) | -6.07% | | Allowance for acquired loans | $101 | $89 | $12 | 13.48% | | Total allowance for loan and lease losses | $40,790 | $43,410 | $(2,620) | -6.04% | | Asset Quality Metric | 6/30/2019 (in thousands, except %) | 12/31/2018 (in thousands, except %) | Change (Absolute) (in thousands, except %) | Change (%) | | :-------------------------------------------- | :-------- | :--------- | :---------------- | :--------- | | Total nonperforming loans and leases | $23,795 | $26,591 | $(2,796) | -10.51% | | Total nonperforming assets | $26,024 | $28,186 | $(2,162) | -7.67% | | Allowance as a percentage of nonperforming loans and leases | 171.42% | 163.25% | 8.17% | 5.00% | | Total nonperforming loans and leases as percentage of total loans and leases | 0.49% | 0.55% | -0.06% | -10.91% | | Annualized net charge-offs on originated loans to average total originated loans and leases during the period | 0.16% | 0.01% | 0.15% | 1500.00% | - Potential problem loans (Substandard, accruing interest) increased to **$38.9 million** at June 30, 2019, from **$34.9 million** at December 31, 2018, primarily due to six newly classified relationships totaling **$10.1 million**[279](index=279&type=chunk) [Capital](index=89&type=section&id=Capital) Total equity increased by **$36.8 million** to **$657.7 million**, exceeding all minimum regulatory capital ratios, with **155,093** shares repurchased - Total equity was **$657.7 million** at June 30, 2019, an increase of **$36.8 million** or **5.9%** from December 31, 2018[281](index=281&type=chunk) | Capital Ratio | 6/30/2019 Actual | Minimum Required - Basel III (Fully Phased-In) | Well Capitalized Requirement | | :------------ | :--------------- | :--------------------------------------------- | :--------------------------- | | Total Capital (to risk weighted assets) | 13.34% | 10.50% | 10.00% | | Tier 1 Capital (to risk weighted assets) | 12.48% | 8.50% | 8.00% | | Tier 1 Common Equity (to risk weighted assets) | 12.13% | 7.00% | 6.50% | | Tier 1 Capital (to average assets) | 9.25% | 4.00% | 5.00% | - During the first six months of 2019, the Company repurchased **155,093** shares of common stock at an average price of **$79.00** under the 2018 Repurchase Plan[289](index=289&type=chunk) [Deposits and Other Liabilities](index=90&type=section&id=Deposits%20and%20Other%20Liabilities) Total deposits increased by **$99.9 million** to **$5.0 billion**, while other borrowings significantly decreased by **$251.5 million** due to securities sales and deposit growth - Total deposits of **$5.0 billion** at June 30, 2019, were up **$99.9 million** or **2.0%** from December 31, 2018[291](index=291&type=chunk) - Core deposits grew by **$32.0 million** to **$4.1 billion** at June 30, 2019, representing **83.0%** of total deposits[292](index=292&type=chunk) - Other borrowings totaled **$824.6 million** at June 30, 2019, down **$251.5 million** or **23.4%** from December 31, 2018, due to proceeds from securities sales and deposit growth[294](index=294&type=chunk) [Liquidity](index=90&type=section&id=Liquidity) The Company maintains strong liquidity with a stable core deposit base, reduced non-core funding, and significant unused borrowing capacity - The Company's liquidity is supported by a large, stable core deposit base and strong capital position[295](index=295&type=chunk) - Non-core funding sources decreased by **$201.5 million** or **10.4%** to **$1.7 billion** at June 30, 2019, mainly due to a decrease in overnight borrowings with the FHLB[297](index=297&type=chunk) - At June 30, 2019, the unused borrowing capacity on established lines with the FHLB was **$1.2 billion**, and total unencumbered residential mortgage loans and securities were **$708.6 million**[301](index=301&type=chunk)[302](index=302&type=chunk) [Item 3 - Quantitative and Qualitative Disclosures About Market Risk](index=92&type=section&id=Item%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company's primary market risk is interest rate risk, managed via income simulation, with a negative one-year net interest rate gap of **$643.2 million** [Interest Rate Risk Management](index=92&type=section&id=Interest%20Rate%20Risk%20Management) Interest rate risk is the primary market risk, managed through income simulation to limit net interest income decline from rate changes - Interest rate risk is the primary market risk, managed using income simulation to estimate the effect of interest rate shifts on net interest income[305](index=305&type=chunk) - The Board of Directors' policy limits net interest income decline to no more than **10%** in one year from a **200 basis point** parallel change in rates[306](index=306&type=chunk) - As of May 31, 2019, a **200 bps** upward shift would decrease one-year net interest income by approximately **5.0%**, while a **200 bps** downward shift would result in a **1.2%** increase[306](index=306&type=chunk) [Condensed Static Gap Report](index=92&type=section&id=Condensed%20Static%20Gap%20Report) The Company's one-year net interest rate gap was a negative **$643.2 million**, indicating moderate vulnerability to rising interest rates - The Company's one-year net interest rate gap was a negative **$643.2 million** or **9.7%** of total assets at June 30, 2019, compared to a negative **$762.6 million** or **11.47%** at December 31, 2018[311](index=311&type=chunk) - A negative gap position indicates that interest-bearing liabilities maturing or repricing exceed interest-earning assets maturing or repricing within a particular time period, suggesting moderate vulnerability to an increasing rate environment[311](index=311&type=chunk) [Item 4 - Controls and Procedures](index=94&type=section&id=Item%204%20-%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=94&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2019 - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2019[314](index=314&type=chunk) [Changes in Internal Control Over Financial Reporting](index=94&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2019 - There were no changes in the Company's internal control over financial reporting during the quarter ended June 30, 2019, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[315](index=315&type=chunk) [PART II - OTHER INFORMATION](index=94&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=94&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in ordinary course litigation, but management does not anticipate a material adverse effect on financial results - The Company is party to litigation arising out of the ordinary course of business[316](index=316&type=chunk) - Management believes there are no pending claims which, if determined adversely, would have a material effect on the Company's results of operations or financial condition[316](index=316&type=chunk) [Item 1A. Risk Factors](index=94&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the Company's 2018 Annual Report on Form 10-K - No material changes in the risk factors previously disclosed under Item 1A. of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018[317](index=317&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=94&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company repurchased **161,706** common shares in Q2 2019 at an average price of **$79.30**, with **172,076** shares repurchased under the 2018 plan | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------------- | :----------------------------- | :--------------------------- | | April 1, 2019 through April 30, 2019 | 1,488 | $76.60 | | May 1, 2019 through May 31, 2019 | 112,867 | $79.09 | | June 1, 2019 through June 30, 2019 | 47,351 | $79.90 | | Total | 161,706 | $79.30 | - The 2018 Repurchase Plan authorized the Company to repurchase up to **400,000** shares of common stock over 24 months, with **155,093** shares purchased under this plan during the second quarter of 2019[318](index=318&type=chunk)[319](index=319&type=chunk) - As of June 30, 2019, a total of **172,076** shares had been repurchased under the 2018 Repurchase Plan at an average price of **$78.61**[320](index=320&type=chunk) [Item 3. Defaults Upon Senior Securities](index=95&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - No defaults upon senior securities[321](index=321&type=chunk) [Item 4. Mine Safety Disclosures](index=95&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the Company's operations - Mine Safety Disclosures are not applicable[321](index=321&type=chunk) [Item 5. Other Information](index=95&type=section&id=Item%205.%20Other%20Information) No other information was reported in this section - No other information[321](index=321&type=chunk) [Ite