Tompkins Financial(TMP) - 2020 Q4 - Annual Report

PART I Item 1A. Risk Factors 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][18][20] - 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] - 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][26][27] - 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] - 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] - 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][53] - 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][62][64] Item 1. Business 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] - 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][81] - The company operates in three business segments: banking, insurance, and wealth management[82] - 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] - 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][94] - 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] - 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] - 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][170][171] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report for the period - No unresolved staff comments were reported[175] Item 2. Properties 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] - The banking subsidiaries operate 64 branch offices, with 34 owned and 30 leased[177] - The insurance subsidiary has 5 stand-alone offices, 3 of which are owned and 2 are leased[177] - The wealth management and financial planning division has 2 leased offices and shares other locations with the Company's subsidiaries[177] Item 3. Legal Proceedings 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] - 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] - The Company assesses its liabilities and contingencies quarterly, acknowledging that ultimate losses could exceed accrued amounts and materially affect future operating results[178] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the Company[179] Information About Our Executive Officers 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] - Francis M. Fetsko has been CFO since December 2000 and assumed the additional role of COO in April 2012[184] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - The Company's ability to pay dividends is limited by prior year earnings, retained earnings, subsidiary dividends, and federal regulatory considerations[195][72] 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] 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 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 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 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] - 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] - The Company's common stock is traded on the NYSE American under the Symbol 'TMP'[207] Forward-Looking Statements 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] - 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] Critical Accounting Policies 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] - 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] - The Company adopted ASU 2016-13 (CECL model) effective January 1, 2020, which substantially changed the accounting for credit losses on financial assets[210] COVID-19 Pandemic and Recent Events 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] - 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][217] - 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] - 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] Results of Operations (Comparison of December 31, 2020 and 2019 results) 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][234] - 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][235] - 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][240][241] - 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][243] 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] Segment Reporting 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][223] - 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] - 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] - 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] Net Interest Income 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][230] - 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] - Average total deposits increased by $1.0 billion (20.1%) in 2020, with average noninterest bearing deposits up 24.9% and average interest bearing deposits up 18.2%[232] - The net interest margin for 2020 was 3.31%, a slight decrease from 3.39% in 2019, mainly due to a 47 basis point decrease in overall asset yields, influenced by lower market rates and PPP loans[230][231] Analysis of Changes in Net Interest Income (2020 vs. 2019) | (In thousands)(taxable equivalent) | Volume Change ($) | 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 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] - 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] - 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] Noninterest Income 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] - 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] - Card services income decreased by $1.3 million (12.0%), mainly due to pandemic-related travel and business restrictions reducing transaction volume[240] - 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] - 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] Noninterest Expense 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] - 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][243] - FDIC insurance expense increased by $1.6 million in 2020 due to the absence of small bank credits received in 2019[243] - 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] Noncontrolling Interests 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] - These interests relate to three real estate investment trusts substantially owned by the Company's New York banking subsidiaries[245] Income Tax Expense 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] - The effective tax rate for the Company was 20.4% in 2020, down from 20.5% in 2019[246] - 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] Results of Operations (Comparison of December 31, 2019 and 2018 results) 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] - 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][262] - 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][263][268] - 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][269] Financial Condition 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] - 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][302] - 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][341][346] - 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] - 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][337] - 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 $14.9 million increase in provision expense related to COVID-19 economic impacts[335] Allocation of the Allowance for Credit Losses by Loan Type (2020) | Loan Type | Allocation of the ACL ($ 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 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] - 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][349] - Cash and cash equivalents totaled $388.5 million at December 31, 2020, up from $138.0 million at December 31, 2019[352] - The unused borrowing capacity on established lines with the FHLB was $2.1 billion at December 31, 2020[355] Off-Balance Sheet Arrangements 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] - 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][643] - 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] Contractual Obligations 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] - The Company has a core banking application software contract through June 30, 2024, and other specialized software contracts through 2021[360] Non-GAAP Disclosure 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] - These non-GAAP measures aim to provide meaningful comparisons of underlying operational performance and facilitate assessments of business and performance trends[363] 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 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][367] - 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] - 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] - 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] - 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] - ASU 2020-03, 'Codification Improvements to Financial Instruments', was effective immediately in March 2020 and did not have a significant impact[373] Accounting Standards Pending Adoption 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] - 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] Fourth Quarter Summary 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] - 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][378] - 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][378] - Provision for credit losses was $6,000 in Q4 2020, compared to a negative $1.0 million in Q4 2019[380] - 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] Item 7A. Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - 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] 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 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 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] - Management establishes and monitors the Company's system of internal accounting controls to ensure reliable financial statements[398] - The Audit/Examining Committee, composed of outside directors, reviews financial reporting, internal controls, and audit results[399] Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 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] - 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] - KPMG LLP also audited the consolidated financial statements and issued an unqualified opinion on them[402] Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements 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] - 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] - 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][415] - 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] Consolidated Statements of Condition 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] - Cash and Cash Equivalents increased significantly from $137.98 million in 2019 to $388.46 million in 2020[421] - Total Deposits increased by $1.22 billion (23.5%) from $5.21 billion in 2019 to $6.44 billion in 2020[421] - Other borrowings decreased by $393.1 million (59.7%) from $658.1 million in 2019 to $265.0 million in 2020[421] Consolidated Statements of Income 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] - Net Interest Income increased by $14.71 million (6.98%) from $210.63 million in 2019 to $225.34 million in 2020[423] - Provision for Credit Loss Expense significantly increased from $1.37 million in 2019 to $16.15 million in 2020[423] - Total Noninterest Income decreased by $1.57 million (2.08%) from $75.43 million in 2019 to $73.86 million in 2020[423] - Total Noninterest Expenses increased by $3.55 million (1.95%) from $181.83 million in 2019 to $185.38 million in 2020[423] Consolidated Statements of Comprehensive Income 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] - Other comprehensive income (loss) was $11.49 million in 2020, a decrease from $19.60 million in 2019[425] - 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] - Net retirement plan loss was $7.03 million in 2020, compared to $7.64 million in 2019[425] Consolidated Statements of Cash Flows 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] - 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] - 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] - Cash and cash equivalents at the end of the year increased by $250.5 million to $388.5 million in 2020[428] Consolidated Statements of Changes in Shareholders' Equity 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] - 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] - Accumulated other comprehensive loss decreased by $11.49 million, primarily due to an increase in unrealized gains on available-for-sale securities[434] - The Company repurchased and retired 127,690 shares of common stock in 2020, with an aggregate purchase price of $9.41 million[434] - Cash dividends per share increased to $2.10 in 2020, up from $2.02 in 2019[434] Note 1 Summary of Significant Accounting Policies 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] - 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][444] - 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] - 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][467] - Loan modifications deemed COVID-119 related under the CARES Act are not considered troubled debt restructurings (TDRs)[477] - 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][483] - 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] Note 2 Securities 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] - 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][499] - 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][502] - 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][512] Note 3 Loans and Leases 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][513] - 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][534] - 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][556] - 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][517] Note 4 Allowance for Credit Losses 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] - The total allowance for credit losses increased to $51.7 million at December 31, 2020, from $39.9 million at December 31, 2019[544] - 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] - 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][540] - 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] 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 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][566] 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