10-Q 1 tmp2019-03x3110q.htm 10-Q MARCH 31, 2019 Document


 
 
 
 
 

United States
Securities and Exchange Commission
Washington, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 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

 
 tmp-logoa28.jpg 

Tompkins Financial Corporation
(Exact name of registrant as specified in its charter)
New York
 
16-1482357
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
118 E. Seneca Street, P.O. Box 460, Ithaca, NY
14851
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (888) 503-5753
Former name, former address, and former fiscal year, if changed since last report: NA
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No ¨.
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x  No ¨.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer x
Accelerated Filer ¨
 
Non-Accelerated Filer ¨
Smaller Reporting Company ¨
 
 
Emerging Growth Company ¨
  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x.



Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.10 are value
TMP
NYSE American, LLC

Indicate the number of shares of the Registrant's Common Stock outstanding as of the latest practicable date: 15,314,056 shares as of April 24, 2019.

 







TOMPKINS FINANCIAL CORPORATION
 
FORM 10-Q
 
INDEX
 
 
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






TOMPKINS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except share and per share data)
As of
As of
ASSETS
3/31/2019
12/31/2018
 
(unaudited)
(audited)
Cash and noninterest bearing balances due from banks
$
68,531

$
78,524

Interest bearing balances due from banks
2,043

1,865

Cash and Cash Equivalents
70,574

80,389

 
 
 
Available-for-sale securities, at fair value (amortized cost of $1,359,102 at March 31, 2019 and $1,363,902 at December 31, 2018)
1,343,610

1,332,658

Held-to-maturity securities, at amortized cost (fair value of $140,422 at March 31, 2019 and $139,377 at December 31, 2018)
139,642

140,579

Equity securities, at fair value (amortized cost $1,000 at March 31, 2019 and $1,000 at December 31, 2018)
899

887

Originated loans and leases, net of unearned income and deferred costs and fees
4,532,803

4,568,741

Acquired loans
256,897

265,198

Less: Allowance for loan and lease losses
40,328

43,410

Net Loans and Leases
4,749,372

4,790,529

 
 
 
Federal Home Loan Bank and other stock
45,088

52,262

Bank premises and equipment, net
96,864

97,202

Corporate owned life insurance
82,571

81,928

Goodwill
92,283

92,283

Other intangible assets, net
7,266

7,628

Accrued interest and other assets
110,550

82,091

Total Assets
$
6,738,719

$
6,758,436

LIABILITIES
 
 
Deposits:
 
 
Interest bearing:
 
 
  Checking, savings and money market
2,977,593

2,853,190

  Time
661,712

637,295

Noninterest bearing
1,350,620

1,398,474

Total Deposits
4,989,925

4,888,959

 
 
 
Federal funds purchased and securities sold under agreements to repurchase
66,918

81,842

Other borrowings
923,427

1,076,075

Trust preferred debentures
16,906

16,863

Other liabilities
94,276

73,826

Total Liabilities
$
6,091,452

$
6,137,565

EQUITY
 
 
Tompkins Financial Corporation shareholders' equity:
 
 
Common Stock - par value $.10 per share: Authorized 25,000,000 shares; Issued: 15,349,988 at March 31, 2019; and 15,348,287 at December 31, 2018
1,535

1,535

Additional paid-in capital
367,245

366,595

Retained earnings
332,779

319,396

Accumulated other comprehensive loss
(50,950
)
(63,165
)
Treasury stock, at cost – 117,757 shares at March 31, 2019, and 122,227 shares at December 31, 2018
(4,786
)
(4,902
)
Total Tompkins Financial Corporation Shareholders’ Equity
645,823

619,459

 
 
 
Noncontrolling interests
1,444

1,412

Total Equity
$
647,267

$
620,871

Total Liabilities and Equity
$
6,738,719

$
6,758,436

 
See notes to unaudited condensed consolidated financial statements.

1



TOMPKINS FINANCIAL CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME 
 
Three Months Ended
(In thousands, except per share data) (Unaudited)
3/31/2019
3/31/2018
INTEREST AND DIVIDEND INCOME
 
 
Loans
$
55,324

$
50,894

Due from banks
10

7

Available-for-sale securities
7,858

7,644

Held-to-maturity securities
858

858

Federal Home Loan Bank and other stock
878

737

Total Interest and Dividend Income
64,928

60,140

INTEREST EXPENSE
 
 
Time certificates of deposits of $250,000 or more
586

(14
)
Other deposits
6,011

2,783

Federal funds purchased and securities sold under agreements to repurchase
44

46

Trust preferred debentures
329

279

Other borrowings
6,044

4,359

Total Interest Expense
13,014

7,453

Net Interest Income
51,914

52,687

Less: Provision for loan and lease losses
445

567

Net Interest Income After Provision for Loan and Lease Losses
51,469

52,120

NONINTEREST INCOME
 
 
Insurance commissions and fees
8,045

7,394

Investment services income
4,084

4,246

Service charges on deposit accounts
1,998

2,132

Card services income
2,790

2,146

Other income
2,478

1,788

Net gain on securities transactions
12

124

Total Noninterest Income
19,407

17,830

NONINTEREST EXPENSE
 
 
Salaries and wages
21,101

20,998

Other employee benefits
5,611

5,376

Net occupancy expense of premises
3,601

3,646

Furniture and fixture expense
1,979

1,975

FDIC insurance
582

667

Amortization of intangible assets
412

451

Other operating expense
10,923

10,608

Total Noninterest Expenses
44,209

43,721

Income Before Income Tax Expense
26,667

26,229

Income Tax Expense
5,595

5,761

Net Income Attributable to Noncontrolling Interests and Tompkins Financial Corporation
21,072

20,468

Less: Net Income Attributable to Noncontrolling Interests
32

32

Net Income Attributable to Tompkins Financial Corporation
$
21,040

$
20,436

Basic Earnings Per Share
$
1.37

$
1.34

Diluted Earnings Per Share
$
1.37

$
1.33

 
See notes to unaudited condensed consolidated financial statements.


2



TOMPKINS FINANCIAL CORPORATION
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
 
Three Months Ended
(In thousands) (Unaudited)
3/31/2019

3/31/2018
Net income attributable to noncontrolling interests and Tompkins Financial Corporation
$
21,072

 
$
20,468

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
Change in net unrealized gain/loss during the period
11,894

 
(14,610
)
Reclassification adjustment for net realized (gain)loss on sale of available-for-sale securities included in net income
0

 
(94
)
 
 
 
 
Employee benefit plans:
 
 
 
Amortization of net retirement plan actuarial loss
318

 
315

Amortization of net retirement plan prior service cost
3

 
3

 
 
 
 
Other comprehensive income (loss)
12,215

 
(14,386
)
 
 
 
 
Subtotal comprehensive income attributable to noncontrolling interests and Tompkins Financial Corporation
33,287

 
6,082

Less: Net income attributable to noncontrolling interests
(32
)
 
(32
)
Total comprehensive income attributable to Tompkins Financial Corporation
$
33,255

 
$
6,050


See notes to unaudited condensed consolidated financial statements.

3



TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Three Months Ended
(In thousands) (Unaudited)
3/31/2019
 
3/31/2018
OPERATING ACTIVITIES
 
 
 
Net income attributable to Tompkins Financial Corporation
$
21,040

 
$
20,436

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan and lease losses
445

 
567

Depreciation and amortization of premises, equipment, and software
2,480

 
2,473

Amortization of intangible assets
412

 
451

Earnings from corporate owned life insurance
(643
)
 
(517
)
Net amortization on securities
1,786

 
2,371

Amortization/accretion related to purchase accounting
(369
)
 
(972
)
Net gain on securities transactions
(12
)
 
124

Net gain on sale of loans originated for sale
(94
)
 
(21
)
Proceeds from sale of loans originated for sale
8,586

 
840

Loans originated for sale
(6,059
)
 
(824
)
Net loss (gain) on sale of bank premises and equipment
7

 
(6
)
Net excess tax benefit from stock based compensation
139

 
56

Stock-based compensation expense
985

 
855

Increase in accrued interest receivable
(3,068
)
 
(734
)
Increase in accrued interest payable
(274
)
 
(92
)
Other, net
(8,923
)
 
(5,862
)
Net Cash Provided by Operating Activities
16,438

 
19,145

INVESTING ACTIVITIES
 
 
 
Proceeds from maturities, calls and principal paydowns of available-for-sale securities
51,409

 
35,611

Proceeds from sales of available-for-sale securities
0

 
45,885

Proceeds from maturities, calls and principal paydowns of held-to-maturity securities
3,821

 
1,447

Purchases of available-for-sale securities
(48,293
)
 
(82,256
)
Purchases of held-to-maturity securities
(2,985
)
 
(1,461
)
Net decrease (increase) in loans
38,424

 
(35,579
)
Net increase in Federal Home Loan Bank stock
7,174

 
3,478

Proceeds from sale of bank premises and equipment
40

 
17

Purchases of bank premises, equipment and software
(1,641
)
 
(7,127
)
Net Cash Provided by (Used in) Investing Activities
47,949

 
(39,985
)
FINANCING ACTIVITIES
 
 
 
Net increase in demand, money market, and savings deposits
76,549

 
154,746

Net increase (decrease) in time deposits
24,697

 
(61,896
)
Net (decrease) in Federal funds purchased and securities sold under agreements to repurchase
(14,924
)
 
(6,046
)
Increase in other borrowings
13,752

 
118,332

Repayment of other borrowings
(166,400
)
 
(195,000
)
Cash dividends
(7,657
)
 
(7,328
)
Repurchase of common stock
0

 
(1,205
)
Shares issued for employee stock ownership plan
0

 
3,073

Net proceeds from exercise of stock options
(219
)
 
(37
)
Net Cash (Used in) Provided by Financing Activities
(74,202
)
 
4,639

Net Decrease in Cash and Cash Equivalents
(9,815
)
 
(16,201
)
Cash and cash equivalents at beginning of period
80,389

 
84,303

Total Cash and Cash Equivalents at End of Period
$
70,574

 
$
68,102

 
See notes to unaudited condensed consolidated financial statements.

4



TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Three Months Ended
(In thousands) (Unaudited)
3/31/2019
 
3/31/2018
Supplemental Information:
 
 
 
Cash paid during the year for  - Interest
$
13,568

 
$
8,300

Cash paid during the year for  - Taxes
54

 
62

 
See notes to unaudited condensed consolidated financial statements.
 

5



TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands except share and per share data)
Common
Stock
Additional Paid-in Capital
Retained
Earnings
Accumulated Other Comprehensive (Loss) Income
Treasury
Stock
Non-
controlling Interests
Total
Balances at January 1, 2018
$
1,530

$
364,031

$
265,007

$
(51,296
)
$
(4,492
)
$
1,422

$
576,202

Net income attributable to noncontrolling interests and Tompkins Financial Corporation
 
 
20,436

 
 
32

20,468

Other comprehensive (loss)
 
 
 
(14,386
)
 
 
(14,386
)
Total Comprehensive Income
 
 
 
 
 
 
6,082

Cash dividends ($0.48 per share)
 
 
(7,328
)
 
 
 
(7,328
)
Net exercise of stock options (1,670 shares)


(37
)
 
 
 
 
(37
)
Common stock repurchased and returned to unissued status (15,500 shares)
(1
)
(1,204
)
 
 
 
 
(1,205
)
Stock-based compensation expense
 
855

 
 
 
 
855

Shares issued for employee stock ownership plan (38,883 shares)
4

3,069

 
 
 
 
3,073

Directors deferred compensation plan ((4,218) shares)
 
(48
)
 
 
48

 
0

Restricted stock activity ((5,332) shares)
(1
)


 
 
 
 
(1
)
Adoption of Accounting Guidance ASU 2014-09
 
 
1,780

 
 
 
1,780

Adoption of Accounting Guidance ASU 2016-01
 
 
(65
)
65

 
 
0

Partial repurchase of noncontrolling interest
 
 
 
 
 
(10
)
(10
)
Balances at March 31, 2018
$
1,532

$
366,666

$
279,830

$
(65,617
)
$
(4,444
)
$
1,444

$
579,411

 
 
 
 
 
 
 
 
Balances at January 1, 2019
$
1,535

$
366,595

$
319,396

$
(63,165
)
$
(4,902
)
$
1,412

$
620,871

Net income attributable to noncontrolling interests and Tompkins Financial Corporation
 
 
21,040

 
 
32

21,072

Other comprehensive income
 
 
 
12,215

 
 
12,215

Total Comprehensive Income
 
 
 
 
 
 
33,287

Cash dividends ($0.50 per share)
 
 
(7,657
)
 
 
 
(7,657
)
Net exercise of stock options (4,996 shares)


(219
)
 
 
 
 
(219
)
Stock-based compensation expense
 
985

 
 
 
 
985

Directors deferred compensation plan ((4,770) shares)
 
(116
)
 
 
116

 
0

Balances at March 31, 2019
$
1,535

$
367,245

$
332,779

$
(50,950
)
$
(4,786
)
$
1,444

$
647,267

 
See notes to unaudited condensed consolidated financial statements.

6



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. Business
 
Tompkins Financial Corporation (“Tompkins” or the “Company”) is headquartered in Ithaca, New York and is registered as a Financial Holding Company with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. The Company is a locally oriented, community-based financial services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, and insurance services. At March 31, 2019, the Company’s subsidiaries included: four wholly-owned banking subsidiaries, Tompkins Trust Company (the “Trust Company”), The Bank of Castile (DBA Tompkins Bank of Castile), Mahopac Bank (DBA Tompkins Mahopac Bank), VIST Bank (DBA Tompkins VIST Bank); and a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. (“Tompkins Insurance”). The trust division of the Trust Company provides a full array of investment services, including investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. The Company’s principal offices are located at 118 E. Seneca Street, Ithaca, New York, 14850, and its telephone number is (888) 503-5753. The Company’s common stock is traded on the NYSE American under the Symbol “TMP.”

As a registered financial holding company, the Company is regulated under the Bank Holding Company Act of 1956 (“BHC Act”), as amended and is subject to examination and comprehensive regulation by the Federal Reserve Board (“FRB”). The Company is also subject to the jurisdiction of the Securities and Exchange Commission (“SEC”) and is subject to disclosure and regulatory requirements under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The Company is subject to the rules of the NYSE American for listed companies.

The Company’s banking subsidiaries are subject to examination and comprehensive regulation by various regulatory authorities, including the Federal Deposit Insurance Corporation (“FDIC”), the New York State Department of Financial Services (“NYSDFS”), and the Pennsylvania Department of Banking and Securities (“PDBS”). Each of these agencies issues regulations and requires the filing of reports describing the activities and financial condition of the entities under its jurisdiction. Likewise, such agencies conduct examinations on a recurring basis to evaluate the safety and soundness of the institutions, and to test compliance with various regulatory requirements, including: consumer protection, privacy, fair lending, the Community Reinvestment Act, the Bank Secrecy Act, sales of non-deposit investments, electronic data processing, and trust department activities.

The trust division of Tompkins Trust Company is subject to examination and comprehensive regulation by the FDIC and NYSDFS.

The Company’s insurance subsidiary is subject to examination and regulation by the NYSDFS and the Pennsylvania Insurance Department.
 
2. Basis of Presentation
 
The unaudited consolidated financial statements included in this quarterly report do not include all of the information and footnotes required by GAAP for a full year presentation and certain disclosures have been condensed or omitted in accordance with rules and regulations of the SEC. In the application of certain accounting policies, management is required to make assumptions regarding the effect of matters that are inherently uncertain. These estimates and assumptions affect the reported amounts of certain assets, liabilities, revenues, and expenses in the unaudited condensed consolidated financial statements. Different amounts could be reported under different conditions, or if different assumptions were used in the application of these accounting policies. The accounting policies that management considers critical in this respect are the determination of the allowance for loan and lease losses and the review of its securities portfolio for other than temporary impairment.
 
In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year ended December 31, 2019. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There have been no significant changes to the Company’s accounting policies from those presented in the 2018 Annual Report on Form 10-K. Refer to Note 3 - “Accounting Standards Updates” of this Report for a discussion of recently issued accounting guidelines.
 

7



Cash and cash equivalents in the consolidated statements of cash flow include cash and noninterest bearing balances due from banks, interest-bearing balances due from banks, and money market funds. Management regularly evaluates the credit risk associated with the counterparties to these transactions and believes that the Company is not exposed to any significant credit risk on cash and cash equivalents.
 
The Company has evaluated subsequent events for potential recognition and/or disclosure, and determined that no further disclosures were required.
 
The consolidated financial information included herein combines the results of operations, the assets, liabilities, and shareholders’ equity of the Company and its subsidiaries. Amounts in the prior periods’ unaudited condensed consolidated financial statements are reclassified when necessary to conform to the current periods’ presentation. All significant intercompany balances and transactions are eliminated in consolidation.

 
3. Accounting Standards Updates
 
Newly Adopted Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, “Leases.” Under the new guidance, lessees are required to recognize the following for all leases: 1) a lease liability, which is the present value of a lessee’s obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standardAll entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures are required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. As the Company elected the transition option provided in ASU No. 2018-11 (see below), the modified retrospective approach was applied on January 1, 2019 (as opposed to January 1, 2017). The Company also elected certain relief options offered in ASU 2016-02 including the package of practical expedients, however the Company has chosen to continue to separate lease and non-lease components instead of accounting for them as a single lease component. The Company did not elect the hindsight practical expedient, which allows entities to use hindsight when determining lease term and impairment of right-of-use assets. The Company has several lease agreements, such as leases for branch locations, which are considered operating leases, and therefore, were not previously recognized on the Company’s consolidated statements of condition. The new guidance requires these lease agreements to be recognized on the consolidated statements of condition as a right-of-use asset and a corresponding lease liability. The new guidance did not have a material impact on the consolidated statements of income or the consolidated statements of cash flows. See Note 15 - "Leases" for more information.

In July 2018, the FASB issued ASU No. 2018-11, “Leases - Targeted Improvements” to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU No. 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016-02 (January 1, 2019 for the Company). The Company adopted ASU 2018-11 on its required effective date of January 1, 2019 and elected both transition options mentioned above. ASU 2018-11 did not have a material impact on the Company’s Consolidated Financial Statements.

In December 2018, the FASB issued ASU No. 2018-20, “Narrow-Scope Improvements for Lessors.” This ASU (1) allows lessors to make an accounting policy election of presenting sales taxes and other similar taxes collected from lessees on a net basis, (2) requires a lessor to exclude lessor costs paid directly by a lessee to third parties on the lessor’s behalf and include lessor costs that are paid by the lessor and reimbursed by the lessee in the measurement of variable lease revenue and the associated expense, and (3) clarifies that when lessors allocate variable payments to lease and non-lease components they are required to follow the recognition guidance in the new leases standard for the lease component and other applicable guidance, such as the new revenue standard, for the non-lease component. The Company adopted ASU 2018-20 on its required effective date of January 1, 2019 and its adoption did not have a material impact on the Company’s Consolidated Financial Statements.


8



In March 2019, the FASB issued ASU No. 2019-01, “Leases: Codification Improvements.” This ASU (1) states that for lessors that are not manufacturers or dealers, the fair value of the underlying asset is its cost, less any volume or trade discounts, as long as there is not a significant amount of time between acquisition of the asset and lease commencement; (2) clarifies that lessors in the scope of ASC 942 (such as the Company) must classify principal payments received from sales-type and direct financing leases in investing activities in the statement of cash flows; and (3) clarifies the transition guidance related to certain interim disclosures provided in the year of adoption. To coincide with the adoption of ASU No. 2016-02, the Company elected to early adopt ASU 2019-01 on January 1, 2019. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

ASU 2017-08 “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium to require such premiums to be amortized to the earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. Under prior guidance, entities were generally required to amortize premiums on individual, non-pooled callable debt securities as a yield adjustment over the contractual life of the security. ASU 2017-08 does not change the accounting for callable debt securities held at a discount. ASU 2017-08 became effective for us on January 1, 2019 and did not have a significant impact on the Company's Consolidated Financial Statements.

Accounting Standards Pending Adoption

Information about certain recently issued accounting standards updates is presented below. Also refer to Note 1 - "Summary of Significant Accounting Policies" in our 2018 Form 10-K for additional information related to previously issued accounting standards updates.

ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective on January 1, 2020. Tompkins is currently evaluating the requirements of the new guidance. The Company expects that the new guidance will likely result in an increase in the allowance; however, Tompkins is unable to quantify the impact at this time since we are still reviewing the guidance. The extent of any impact to our allowance will depend, in part, upon the composition of our loan portfolio at the adoption date as well as economic conditions and loss forecasts at that date.




4. Securities

Available-for-Sales Securities
The following table summarizes available-for-sale securities held by the Company at March 31, 2019:
 
Available-for-Sale Securities
March 31, 2019
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
(in thousands)
 
 
 
 
 
 
 
U.S. Treasuries
$
280

 
$
0

 
$
0

 
$
280

Obligations of U.S. Government sponsored entities
478,819

 
360

 
3,434

 
475,745

Obligations of U.S. states and political subdivisions
87,459

 
488

 
169

 
87,778

Mortgage-backed securities – residential, issued by
 
 
 
 
 
 
 
U.S. Government agencies
147,971

 
684

 
2,645

 
146,010

U.S. Government sponsored entities
642,054

 
1,182

 
11,908

 
631,328

Non-U.S. Government agencies or sponsored entities
19

 
0

 
0

 
19

U.S. corporate debt securities
2,500

 
0

 
50

 
2,450

Total available-for-sale securities
$
1,359,102

 
$
2,714

 
$
18,206

 
$
1,343,610


9



 
 The following table summarizes available-for-sale securities held by the Company at December 31, 2018:  
 
Available-for-Sale Securities
December 31, 2018
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
(in thousands)
 
 
 
 
 
 
 
U.S. Treasuries
$
289

 
$
0

 
$
0

 
$
289

Obligations of U.S. Government sponsored entities
493,371

 
80

 
7,553

 
485,898

Obligations of U.S. states and political subdivisions
86,260

 
113

 
933

 
85,440

Mortgage-backed securities – residential, issued by
 
 
 
 
 
 
 
U.S. Government agencies
131,831

 
168

 
3,732

 
128,267

U.S. Government sponsored entities
649,620

 
537

 
19,599

 
630,558

Non-U.S. Government agencies or sponsored entities
31

 
0

 
0

 
31

U.S. corporate debt securities
2,500

 
0

 
325

 
2,175

Total available-for-sale securities
$
1,363,902

 
$
898

 
$
32,142

 
$
1,332,658

 
Held-to-Maturity Securities
The following table summarizes held-to-maturity securities held by the Company at March 31, 2019:  
 
Held-to-Maturity Securities
March 31, 2019
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
(in thousands)
 
 
 
 
 
 
 
Obligations of U.S. Government sponsored entities
$
131,205

 
$
929

 
$
149

 
$
131,985

Obligations of U.S. states and political subdivisions
8,437

 
19

 
19

 
8,437

Total held-to-maturity debt securities
$
139,642

 
$
948

 
$
168

 
$
140,422

 
The following table summarizes held-to-maturity securities held by the Company at December 31, 2018:  
 
Held-to-Maturity Securities
December 31, 2018
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
(in thousands)
 
 
 
 
 
 
 
Obligations of U.S. Government sponsored entities
$
131,306

 
$
0

 
$
1,198

 
$
130,108

Obligations of U.S. states and political subdivisions
9,273

 
20

 
24

 
9,269

Total held-to-maturity debt securities
$
140,579

 
$
20

 
$
1,222

 
$
139,377


The Company may from time to time sell investment securities from its available-for-sale portfolio. Realized gains on available-for-sale securities were $0 for the three months ended March 31, 2019 and $124,000 for the same period during 2018. Realized losses on available-for-sale securities were $0 for the three months ended March 31, 2019 and $0 for the same period during 2018. The sales of available-for-sale investment securities were the result of general investment portfolio and interest rate risk management. The Company also recognized gains of $12,000 for the three months ended March 31, 2019, on equity securities, reflecting the change in fair value.
 

10



The following table summarizes available-for-sale securities that had unrealized losses at March 31, 2019:  
 
Less than 12 Months
 
12 Months or Longer
 
Total
(in thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Obligations of U.S. Government sponsored entities
$
0

 
$
0

 
$
420,382

 
$
3,434

 
$
420,382

 
$
3,434

Obligations of U.S. states and political subdivisions
1,582

 
7

 
31,020

 
162

 
32,602

 
169

Mortgage-backed securities – residential, issued by
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies
0

 
0

 
93,706

 
2,645

 
93,706

 
2,645

U.S. Government sponsored entities
5,572

 
33

 
529,595

 
11,875

 
535,167

 
11,908

U.S. corporate debt securities
0

 
0

 
2,450

 
50

 
2,450

 
50

Total available-for-sale securities
$
7,154

 
$
40

 
$
1,077,153

 
$
18,166

 
$
1,084,307

 
$
18,206

   
The following table summarizes available-for-sale securities that had unrealized losses at December 31, 2018:  
 
Less than 12 Months
 
12 Months or Longer
 
Total
(in thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Obligations of U.S. Government sponsored entities
$
21,660

 
$
183

 
$
449,141

 
$
7,370

 
$
470,801

 
$
7,553

Obligations of U.S. states and political subdivisions
11,971

 
19

 
49,756

 
914

 
61,727

 
933

Mortgage-backed securities – residential, issued by
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agencies
16,854

 
22

 
96,247

 
3,710

 
113,101

 
3,732

U.S. Government sponsored entities
61,163

 
662

 
512,216

 
18,937

 
573,379

 
19,599

U.S. corporate debt securities
0

 
0

 
2,175

 
325

 
2,175

 
325

Total available-for-sale securities
$
111,648

 
$
886

 
$
1,109,535

 
$
31,256

 
$
1,221,183

 
$
32,142


Beginning January 1, 2018, upon adoption of ASU 2016-01, equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in the consolidated statement of income. For periods prior to adoption, equity securities were classified as available-for-sale and stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of tax.
                         

The following table summarizes held-to-maturity securities that had unrealized losses at March 31, 2019.
 
Less than 12 Months
 
12 Months or Longer
 
Total
(in thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Obligations of U.S. Government sponsored entities
$
0

 
$
0

 
$
35,130

 
$
149

 
$
35,130

 
$
149

 
 
 
 
 
 
 
 
 
 
 
 
Obligations of U.S. states and political subdivisions
4,885

 
19

 
0

 
0

 
4,885

 
19

Total held-to-maturity securities
$
4,885

 
$
19

 
$
35,130

 
$
149

 
$
40,015

 
$
168

 
The following table summarizes held-to-maturity securities that had unrealized losses at December 31, 2018.

11



 
Less than 12 Months
 
12 Months or Longer
 
Total
(in thousands)
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Obligations of U.S. Government sponsored entities
$
4,980

 
$
9

 
$
125,128

 
$
1,189

 
$
130,108

 
$
1,198

 
 
 
 
 
 
 
 
 
 
 
 
Obligations of U.S. states and political subdivisions
8,127

 
24

 
0

 
0

 
8,127

 
24

Total held-to-maturity securities
$
13,107

 
$
33

 
$
125,128

 
$
1,189

 
$
138,235

 
$
1,222

  
The gross unrealized losses reported for residential mortgage-backed securities relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and U.S. government agencies such as Government National Mortgage Association. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.
 
The Company does not intend to sell other-than-temporarily impaired investment securities that are in an unrealized loss position until recovery of unrealized losses (which may be until maturity), and it is not more-likely-than not that the Company will be required to sell the investment securities, before recovery of their amortized cost basis, which may be at maturity. Accordingly, as of March 31, 2019, and December 31, 2018, management has determined that the unrealized losses detailed in the tables above are not other-than-temporary.
 
Ongoing Assessment of Other-Than-Temporary Impairment
 
On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis (including any previous OTTI charges) at the reporting date. If impaired, the Company then assesses whether the unrealized loss is other-than-temporary. An unrealized loss on a debt security is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value, discounted at the security’s effective rate, of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining portion of the impairment loss is recognized, net of tax, in other comprehensive income (loss) provided that the Company does not intend to sell the underlying debt security and it is more-likely-than not that the Company would not have to sell the debt security prior to recovery of the unrealized loss, which may be to maturity. If the Company intended to sell any securities with an unrealized loss or it is more-likely-than not that the Company would be required to sell the investment securities, before recovery of their amortized cost basis, then the entire unrealized loss would be recorded in earnings.


12



The Company considers the following factors in determining whether a credit loss exists.
 
The length of time and the extent to which the fair value has been less than the amortized cost basis;
 
The level of credit enhancement provided by the structure which includes, but is not limited to, credit subordination positions, excess spreads, overcollateralization, protective triggers;

Changes in the near term prospects of the issuer or underlying collateral of a security, such as changes in default rates, loss severities given default and significant changes in prepayment assumptions;

The level of excess cash flow generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

Any adverse change to the credit conditions of the issuer or the security such as credit downgrades by the rating agencies.

As a result of the other-than-temporarily impairment review process, the Company does not consider any investment security held at March 31, 2019 to be other-than-temporarily impaired.
 
The amortized cost and estimated fair value of debt securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are shown separately since they are not due at a single maturity date.

March 31, 2019
 
 
 
(in thousands)
Amortized Cost
 
Fair Value
Available-for-sale securities:
 
 
 
Due in one year or less
$
117,858

 
$
117,495

Due after one year through five years
308,679

 
306,959

Due after five years through ten years
130,809

 
130,118

Due after ten years
11,712

 
11,681

Total
569,058

 
566,253

Mortgage-backed securities
790,044

 
777,357

Total available-for-sale debt securities
$
1,359,102

 
$
1,343,610


December 31, 2018
 
 
 
(in thousands)
Amortized Cost
 
Fair Value
Available-for-sale securities:
 
 
 
Due in one year or less
$
78,160

 
$
77,930

Due after one year through five years
355,499

 
350,470

Due after five years through ten years
139,560

 
136,734

Due after ten years
9,201

 
8,668

Total
582,420

 
573,802

Mortgage-backed securities
781,482

 
758,856

Total available-for-sale debt securities
$
1,363,902

 
$
1,332,658



13



March 31, 2019
 
 
 
(in thousands)
Amortized Cost
 
Fair Value
Held-to-maturity securities:
 
 
 
Due in one year or less
$
8,105

 
$
8,093

Due after one year through five years
86,335

 
86,381

Due after five years through ten years
45,202

 
45,948

Total held-to-maturity debt securities
$
139,642

 
$
140,422


December 31, 2018
 
 
 
(in thousands)
Amortized Cost
 
Fair Value
Held-to-maturity securities:
 
 
 
Due in one year or less
$
8,850

 
$
8,832

Due after one year through five years
86,520

 
85,645

Due after five years through ten years
45,209

 
44,900

Total held-to-maturity debt securities
$
140,579

 
$
139,377

 
The Company also holds non-marketable Federal Home Loan Bank New York (“FHLBNY”) stock, non-marketable Federal Home Loan Bank Pittsburgh (“FHLBPITT”) stock and non-marketable Atlantic Community Bankers Bank stock ("ACBB"), all of which are required to be held for regulatory purposes and for borrowing availability. The required investment in FHLB stock is tied to the Company’s borrowing levels with the FHLB. Holdings of FHLBNY stock, FHLBPITT stock, and ACBB stock totaled $31.6 million, $13.4 million and $95,000 at March 31, 2019, respectively. These securities are carried at par, which is also cost. The FHLBNY and FHLBPITT continue to pay dividends and repurchase stock. Quarterly, we evaluate our investment in the FHLB for impairment. We evaluate recent and long-term operating performance, liquidity, funding and capital positions, stock repurchase history, dividend history and impact of legislative and regulatory changes. Based on our most recent evaluation, as of March 31, 2019, we have determined that no impairment write-downs are currently required.


14



5. Loans and Leases
Loans and Leases at March 31, 2019 and December 31, 2018 were as follows:
 
3/31/2019
 
12/31/2018
(in thousands)
Originated
 
Acquired
 
Total Loans and Leases
 
Originated
 
Acquired
 
Total Loans and Leases
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
Agriculture
94,737

 
0

 
94,737

 
107,494

 
0

 
107,494

Commercial and industrial other
910,784

 
42,665

 
953,449

 
926,429

 
43,712

 
970,141

Subtotal commercial and industrial
1,005,521

 
42,665

 
1,048,186

 
1,033,923

 
43,712

 
1,077,635

Commercial real estate
 
 
 
 
 
 


 
 
 
 
Construction
167,181

 
1,361

 
168,542

 
164,285

 
1,384

 
165,669

Agriculture
170,528

 
219

 
170,747

 
170,005

 
224

 
170,229

Commercial real estate other
1,834,496

 
172,169

 
2,006,665

 
1,827,279

 
177,484

 
2,004,763

Subtotal commercial real estate
2,172,205

 
173,749

 
2,345,954

 
2,161,569

 
179,092

 
2,340,661

Residential real estate
 
 
 
 
 
 


 
 
 
 
Home equity
203,538

 
19,586

 
223,124

 
208,459

 
21,149

 
229,608

Mortgages
1,070,806

 
20,086

 
1,090,892

 
1,083,802

 
20,484

 
1,104,286

Subtotal residential real estate
1,274,344

 
39,672

 
1,314,016

 
1,292,261

 
41,633

 
1,333,894

Consumer and other
 
 
 
 
 
 


 
 
 
 
Indirect
13,430

 
0

 
13,430

 
12,663

 
0

 
12,663

Consumer and other
55,885

 
811

 
56,696

 
57,565

 
761

 
58,326

Subtotal consumer and other
69,315

 
811

 
70,126

 
70,228

 
761

 
70,989

Leases
15,164

 
0

 
15,164

 
14,556

 
0

 
14,556

Total loans and leases
4,536,549

 
256,897

 
4,793,446

 
4,572,537

 
265,198

 
4,837,735

Less: unearned income and deferred costs and fees
(3,746
)
 
0

 
(3,746
)
 
(3,796
)
 
0

 
(3,796
)
Total loans and leases, net of unearned income and deferred costs and fees
4,532,803

 
256,897

 
4,789,700

 
4,568,741

 
265,198

 
4,833,939


The outstanding principal balance and the related carrying amount of the Company’s loans acquired in the VIST Bank acquisition are as follows at March 31, 2019 and December 31, 2018:
(in thousands)
03/31/2019

 
12/31/2018
Acquired Credit Impaired Loans
 
 
 
Outstanding principal balance
$
12,564

 
$
12,822

Carrying amount
10,793

 
11,036

 
 
 
 
Acquired Non-Credit Impaired Loans
 
 
 
Outstanding principal balance
248,091

 
256,265

Carrying amount
246,104

 
254,162

 
 
 
 
Total Acquired Loans
 
 
 
Outstanding principal balance
260,655

 
269,087

Carrying amount
256,897

 
265,198

 

15



The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures. Management reviews these policies and procedures on a regular basis. The Company discussed its lending policies and underwriting guidelines for its various lending portfolios in Note 3 – “Loans and Leases” in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There have been no significant changes in these policies and guidelines since the date of that report. As such, these policies are reflective of new originations as well as those balances held at March 31, 2019. The Company’s Board of Directors approves the lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to monitor loan origination, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.
 
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments are due. Generally loans are placed on nonaccrual status if principal or interest payments become 90 days or more past due and/or management deems the collectability of the principal and/or interest to be in question as well as when required by regulatory agencies. When interest accrual is discontinued, all unpaid accrued interest is reversed. Payments received on loans on nonaccrual are generally applied to reduce the principal balance of the loan. Loans are generally returned to accrual status when all the principal and interest amounts contractually due are brought current, the borrower has established a payment history, and future payments are reasonably assured. When management determines that the collection of principal in full is not probable, management will charge-off a partial amount or full amount of the loan balance. Management considers specific facts and circumstances relative to each individual credit in making such a determination. For residential and consumer loans, management uses specific regulatory guidance and thresholds for determining charge-offs.
 
Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing after the date of acquisition, regardless of whether the customer is contractually delinquent, if we can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, we may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. To the extent we cannot reasonably estimate cash flows, interest income recognition is discontinued. The Company has determined that it can reasonably estimate future cash flows on our acquired loans that are past due 90 days or more and accruing interest and the Company expects to fully collect the carrying value of the loans.
 

16



The below table is an age analysis of past due loans, segregated by originated and acquired loan and lease portfolios, and by class of loans, as of March 31, 2019 and December 31, 2018.
 
March 31, 2019
 
 
 
(in thousands)
30-89 days
90 days or more
Current Loans
Total Loans
90 days and accruing1
Nonaccrual
Originated Loans and Leases
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
Agriculture
$
0

$
0

$
94,737

$
94,737

$
0

$
0

Commercial and industrial other
1,448

3,133

906,203

910,784

0

1,926

Subtotal commercial and industrial
1,448

3,133

1,000,940

1,005,521

0

1,926

Commercial real estate
 
 
 
 
 
 
Construction
0

0

167,181

167,181

0

0

Agriculture
71

0

170,457

170,528

0

0

Commercial real estate other
678

1,784

1,832,034

1,834,496

0

3,428

Subtotal commercial real estate
749

1,784

2,169,672

2,172,205

0

3,428

Residential real estate
 
 
 
 
 
 
Home equity
589

1,215

201,734

203,538

0

1,922

Mortgages
1,163

4,883

1,064,760

1,070,806

0

7,655

Subtotal residential real estate
1,752

6,098

1,266,494

1,274,344

0

9,577

Consumer and other
 
 
 
 
 
 
Indirect
161

52

13,217

13,430

0

140

Consumer and other
83

30

55,772

55,885

0

94

Subtotal consumer and other
244

82

68,989

69,315

0

234

Leases
0

0

15,164

15,164

0

0

Total loans and leases
4,193

11,097

4,521,259

4,536,549

0

15,165

Less: unearned income and deferred costs and fees
0

0

(3,746
)
(3,746
)
0

0

Total originated loans and leases, net of unearned income and deferred costs and fees
$
4,193

$
11,097

$
4,517,513

$
4,532,803

$
0

$
15,165

Acquired Loans and Leases
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
Commercial and industrial other
5

6

42,654

42,665

9

7

Subtotal commercial and industrial
5

6

42,654

42,665

9

7

Commercial real estate
 
 
 
 
 
 
Construction
0

0

1,361

1,361

0

0

Agriculture
0

0

219

219

0

0

Commercial real estate other
113

811

171,245

172,169

525

314

Subtotal commercial real estate
113

811

172,825

173,749

525

314

Residential real estate
 
 
 
 
 
 
Home equity
328

439

18,819

19,586

59

1,185

Mortgages
25

1,039

19,022

20,086

625

1,071

Subtotal residential real estate
353

1,478

37,841

39,672

684

2,256

Consumer and other
 
 
 
 
 
 
Consumer and other
3

2

806

811

0

2

Subtotal consumer and other
3

2

806

811

0

2

Total acquired loans and leases, net of unearned income and deferred costs and fees
$
474

$
2,297

$
254,126

$
256,897

$
1,218

$
2,579


17



 

December 31, 2018
(in thousands)
30-89 days
90 days or more
Current Loans
Total Loans
90 days and accruing1
Nonaccrual
Originated loans and leases
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
Agriculture
$
0

$
0

$
107,494

$
107,494

$
0

$
0

Commercial and industrial other
2,367

1,659

922,403

926,429

0

1,861

Subtotal commercial and industrial
2,367

1,659

1,029,897

1,033,923

0

1,861

Commercial real estate
 
 
 
 
 
 
Construction
0

0

164,285

164,285

0

0

Agriculture
71

0

169,934

170,005

0

0

Commercial real estate other
1,201

1,856

1,824,222

1,827,279

0

7,691

Subtotal commercial real estate
1,272

1,856

2,158,441

2,161,569

0

7,691

Residential real estate
 
 
 
 
 
 
Home equity
986

1,026

206,447

208,459

0

1,784

Mortgages
2,693

4,027

1,077,082

1,083,802

0

7,770

Subtotal residential real estate
3,679

5,053

1,283,529

1,292,261

0

9,554

Consumer and other
 
 
 
 
 
 
Indirect
333

59

12,271

12,663

0

155

Consumer and other
187

24

57,354

57,565

0

79

Subtotal consumer and other
520

83

69,625

70,228

0

234

Leases
0

0

14,556

14,556

0

0

Total loans and leases
7,838

8,651

4,556,048

4,572,537

0

19,340

Less: unearned income and deferred costs and fees
0

0

(3,796
)
(3,796
)
0

0

Total originated loans and leases, net of unearned income and deferred costs and fees
$
7,838

$
8,651

$
4,552,252

$
4,568,741

$
0

$
19,340

Acquired loans and leases
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
Commercial and industrial other
0

10

43,702

43,712

10

22

Subtotal commercial and industrial
0

10

43,702

43,712

10

22

Commercial real estate
 
 
 
 
 
 
Construction
0

0

1,384

1,384

0

0

Agriculture
0

0

224

224

0

0

Commercial real estate other
0

839

176,645

177,484

525

316

Subtotal commercial real estate
0

839

178,253

179,092

525

316

Residential real estate
 
 
 
 
 
 
Home equity
46

803

20,300

21,149

59

1,414

Mortgages
18

969

19,497

20,484

722

1,104

Subtotal residential real estate
64

1,772

39,797

41,633

781

2,518

Consumer and other
 
 
 
 
 
 
Consumer and other
3

0

758

761

0

0

Subtotal consumer and other
3

0

758

761

0

0

Total acquired loans and leases, net of unearned income and deferred costs and fees
$
67

$
2,621

$
262,510

$
265,198

$
1,316

$
2,856

1 Includes acquired loans that were recorded at fair value at the acquisition date.
 

18



6. Allowance for Loan and Lease Losses
 
Originated Loans and Leases
 
Management reviews the appropriateness of the allowance for loan and lease losses (“allowance”) on a regular basis. Management considers the accounting policy relating to the allowance to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that assumptions could have on the Company’s results of operations. The Company has developed a methodology to measure the amount of estimated loan loss exposure inherent in the loan portfolio to assure that an appropriate allowance is maintained. The Company’s methodology is based upon guidance provided in SEC Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues and ASC Topic 310, Receivables and ASC Topic 450, Contingencies.
 
The model is comprised of four major components that management has deemed appropriate in evaluating the appropriateness of the allowance for loan and lease losses. While none of these components, when used independently, is effective in arriving at a reserve level that appropriately measures the risk inherent in the portfolio, management believes that using them collectively, provides reasonable measurement of the loss exposure in the portfolio. The four components include: impaired loans; individually reviewed and graded loans; historical loss experience; and qualitative or subjective analysis.
 
Since the methodology is based upon historical experience and trends as well as management’s judgment, factors may arise that result in different estimates. Significant factors that could give rise to changes in these estimates may include, but are not limited to, changes in economic conditions in the local area, concentration of risk, changes in interest rates, and declines in local property values. While management’s evaluation of the allowance as of March 31, 2019, considers the allowance to be appropriate, under adversely different conditions or assumptions, the Company would need to increase or decrease the allowance.
 
Acquired Loans and Leases
 
Acquired loans accounted for under ASC 310-30
 
For our acquired loans, our allowance for loan losses is estimated based upon our expected cash flows for these loans. To the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.
 
Acquired loans accounted for under ASC 310-20
 
We establish our allowance for loan losses through a provision for credit losses based upon an evaluation process that is similar to our evaluation process used for originated loans. This evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers, among other matters, the estimated fair value of the underlying collateral, economic conditions, historical net loan loss experience, carrying value of the loans, which includes the remaining net purchase discount or premium, and other factors that warrant recognition in determining our allowance for loan losses.
 
The following tables detail activity in the allowance for loan and lease losses segregated by originated and acquired loan and lease portfolios and by portfolio segment for the three months ended March 31, 2019 and 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
 
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
(in thousands)
Commercial
and Industrial

 
Commercial
Real Estate

 
Residential
Real Estate

 
Consumer
and Other

 
Finance
Leases

 
Total

Allowance for originated loans and leases
Beginning balance
$
11,217

 
$
23,483

 
$
7,317

 
$
1,304

 
$
0

 
$
43,321

 
 
 
 
 
 
 
 
 
 
 
 
Charge-offs
(380
)
 
(3,343
)
 
(18
)
 
(180
)
 
0

 
(3,921
)
Recoveries
43

 
1

 
226

 
95

 
0

 
365

Provision (credit)
643

 
904

 
(1,121
)
 
54

 
0

 
480

Ending Balance
$
11,523

 
$
21,045

 
$
6,404

 
$
1,273

 
$
0

 
$
40,245

 

19



Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
(in thousands)
Commercial
and Industrial

 
Commercial
Real Estate

 
Residential
Real Estate

 
Consumer
and Other

 
Finance
Leases

 
Total

Allowance for acquired loans
 
 
 
 
 
 
 
 
 
 
Beginning balance
$