TOMPKINS FINANCIAL CORP - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - TOMPKINS FINANCIAL CORP	tmp2017-06x30ex322.htm
EX-32.1 - EXHIBIT 32.1 - TOMPKINS FINANCIAL CORP	tmp2017-06x30ex321.htm
EX-31.2 - EXHIBIT 31.2 - TOMPKINS FINANCIAL CORP	tmp2017-06x30ex312.htm
EX-31.1 - EXHIBIT 31.1 - TOMPKINS FINANCIAL CORP	tmp2017-06x30ex311.htm

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ______

Commission File Number 1-12709

Tompkins Financial Corporation

(Exact name of registrant as specified in its charter)



New York		16-1482357
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

The Commons, P.O. Box 460, Ithaca, NY		14851
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (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 ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ 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 ☒	Accelerated Filer ☐
	Non-Accelerated Filer ☐ (Do not check if a smaller reporting company)	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 ☒.

Indicate the number of shares of the Registrant’s Common Stock outstanding as of the latest practicable date:



Class		Outstanding as of July 24, 2017
Common Stock, $0.10 par value		15,190,881 shares

TOMPKINS FINANCIAL CORPORATION

FORM 10-Q

INDEX



PART I -FINANCIAL INFORMATION
			PAGE
	Item 1 –	Condensed Financial Statements Consolidated Statements of Condition as of June 30, 2017 (Unaudited) and December 31, 2016 (Audited)	3

		Consolidated Statements of Income for the three and six months ended June 30, 2017 and 2016 (Unaudited)	4

		Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016 (Unaudited)	5

		Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (Unaudited)	6

		Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2017 and 2016 (Unaudited)	8

		Notes to Unaudited Consolidated Condensed Financial Statements	9

	Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50

	Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	69

	Item 4 -	Controls and Procedures	71

PART II - OTHER INFORMATION

	Item 1 –	Legal Proceedings	71

	Item 1A – Risk Factors		71

	Item 2 –	Unregistered Sales of Equity Securities and Use of Proceeds	71

	Item 3 -	Defaults Upon Senior Securities	72

	Item 4 -	Mine Safety Disclosures	72

	Item 5 -	Other Information	72

	Item 6 -	Exhibits	72

SIGNATURES			73

EXHIBIT INDEX			74

TOMPKINS FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION



(In thousands, except share and per share data)	As of			As of
ASSETS	6/30/2017			12/31/2016
	(unaudited)			(audited)
Cash and noninterest bearing balances due from banks	$	76,079		$	62,074
Interest bearing balances due from banks	2,096			1,880
Cash and Cash Equivalents	78,175			63,954

Available-for-sale securities, at fair value (amortized cost of $1,433,013 at June 30, 2017 and $1,442,724 at December 31, 2016)	1,424,871			1,429,538
Held-to-maturity securities, at amortized cost (fair value of $141,654 at June 30, 2017 and $142,832 at December 31, 2016)	139,994			142,119
Originated loans and leases, net of unearned income and deferred costs and fees	4,070,755			3,863,922
Acquired loans and leases	347,841			394,111
Less: Allowance for loan and lease losses	37,157			35,755
Net Loans and Leases	4,381,439			4,222,278

Federal Home Loan Bank and other stock	45,714			43,133
Bank premises and equipment, net	72,884			70,016
Corporate owned life insurance	79,093			77,905
Goodwill	92,291			92,623
Other intangible assets, net	10,251			11,349
Accrued interest and other assets	90,300			83,841
Total Assets	$	6,415,012		$	6,236,756
LIABILITIES
Deposits:
Interest bearing:
Checking, savings and money market	2,643,292			2,518,318
Time	826,933			870,788
Noninterest bearing	1,280,497			1,236,033
Total Deposits	4,750,722			4,625,139

Federal funds purchased and securities sold under agreements to repurchase	50,360			69,062
Other borrowings	952,035			884,815
Trust preferred debentures	16,605			37,681
Other liabilities	68,375			70,654
Total Liabilities	$	5,838,097		$	5,687,351
EQUITY
Tompkins Financial Corporation shareholders’ equity:
Common Stock - par value $.10 per share: Authorized 25,000,000 shares; Issued: 15,225,363 at June 30, 2017; and 15,171,816 at December 31, 2016	1,522			1,517
Additional paid-in capital	362,555			357,414
Retained earnings	249,179			230,182
Accumulated other comprehensive loss	(33,624		)	(37,109		)
Treasury stock, at cost – 117,302 shares at June 30, 2017, and 117,997 shares at December 31, 2016	(4,204		)	(4,051		)
Total Tompkins Financial Corporation Shareholders’ Equity	575,428			547,953

Noncontrolling interests	1,487			1,452
Total Equity	$	576,915		$	549,405
Total Liabilities and Equity	$	6,415,012		$	6,236,756

See notes to unaudited condensed consolidated financial statements.

TOMPKINS FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME



	Three Months Ended					Six Months Ended
(In thousands, except per share data) (Unaudited)	6/30/2017		6/30/2016			6/30/2017		6/30/2016
INTEREST AND DIVIDEND INCOME
Loans	$	47,357	$	41,834		$	92,308	$	82,321
Due from banks	4		1			6		3
Trading securities	0		77			0		158
Available-for-sale securities	7,647		7,284			14,969		14,815
Held-to-maturity securities	870		903			1,748		1,814
Federal Home Loan Bank and other stock	464		318			932		615
Total Interest and Dividend Income	56,342		50,417			109,963		99,726
INTEREST EXPENSE
Time certificates of deposits of $250,000 or more	466		422			907		812
Other deposits	2,482		2,264			4,829		4,473
Federal funds purchased and securities sold under agreements to repurchase	43		644			151		1,310
Trust preferred debentures	256		594			623		1,183
Other borrowings	2,794		1,586			5,118		3,003
Total Interest Expense	6,041		5,510			11,628		10,781
Net Interest Income	50,301		44,907			98,335		88,945
Less: Provision for loan and lease losses	976		978			1,745		1,833
Net Interest Income After Provision for Loan and Lease Losses	49,325		43,929			96,590		87,112
NONINTEREST INCOME
Insurance commissions and fees	7,092		7,517			14,210		15,079
Investment services income	3,891		3,834			7,682		7,620
Service charges on deposit accounts	2,045		2,092			4,212		4,356
Card services income	2,676		2,002			4,685		3,943
Mark-to-market loss on trading securities	0		(60		)	0		(106		)
Mark-to-market gain on liabilities held at fair value	0		92			0		149
Other income	1,746		1,367			3,901		3,074
Gain on sale of available-for-sale securities	0		240			0		472
Total Noninterest Income	17,450		17,084			34,690		34,587
NONINTEREST EXPENSES
Salaries and wages	20,424		19,333			39,937		38,322
Pension and other employee benefits	5,092		4,934			10,851		10,217
Net occupancy expense of premises	3,390		2,999			6,901		6,147
Furniture and fixture expense	1,637		1,577			3,234		3,266
FDIC insurance	617		783			1,155		1,605
Amortization of intangible assets	485		521			978		1,048
Other operating expense	9,923		9,241			19,880		18,289
Total Noninterest Expenses	41,568		39,388			82,936		78,894
Income Before Income Tax Expense	25,207		21,625			48,344		42,805
Income Tax Expense	8,248		6,760			15,637		13,656
Net Income attributable to Noncontrolling Interests and Tompkins Financial Corporation	16,959		14,865			32,707		29,149
Less: Net income attributable to noncontrolling interests	33		32			65		65
Net Income Attributable to Tompkins Financial Corporation	$	16,926	$	14,833		$	32,642	$	29,084
Basic Earnings Per Share	$	1.11	$	0.99		$	2.15	$	1.94
Diluted Earnings Per Share	$	1.11	$	0.98		$	2.13	$	1.92

See notes to unaudited condensed consolidated financial statements.

TOMPKINS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Three Months Ended
(In thousands) (Unaudited)	6/30/2017			6/30/2016
Net income attributable to noncontrolling interests and Tompkins Financial Corporation	$	16,959		$	14,865
Other comprehensive income, net of tax:

Available-for-sale securities:
Change in net unrealized gain/loss during the period	1,831			5,018
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income	0			(144		)

Employee benefit plans:
Amortization of net retirement plan actuarial gain	238			195
Amortization of net retirement plan prior service (credit) cost	(9		)	5

Other comprehensive income	2,060			5,074

Subtotal comprehensive income attributable to noncontrolling interests and Tompkins Financial Corporation	19,019			19,939
Less: Net income attributable to noncontrolling interests	(33		)	(32		)
Total comprehensive income attributable to Tompkins Financial Corporation	$	18,986		$	19,907

See notes to unaudited condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Six Months Ended
(In thousands) (Unaudited)	6/30/2017			6/30/2016
Net income attributable to noncontrolling interests and Tompkins Financial Corporation	$	32,707		$	29,149
Other comprehensive income, net of tax:

Available-for-sale securities:
Change in net unrealized gain during the period	3,028			17,593
Reclassification adjustment for net realized gain on sale of available-for-sale securities included in net income	0			(283		)

Employee benefit plans:
Amortization of net retirement plan actuarial gain	452			401
Amortization of net retirement plan prior service cost	5			23

Other comprehensive income	3,485			17,734

Subtotal comprehensive income attributable to noncontrolling interests and Tompkins Financial Corporation	36,192			46,883
Less: Net income attributable to noncontrolling interests	(65		)	(65		)
Total comprehensive income attributable to Tompkins Financial Corporation	$	36,127		$	46,818

See notes to unaudited condensed consolidated financial statements.

TOMPKINS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Six Months Ended
(In thousands) (Unaudited)	6/30/2017			6/30/2016
OPERATING ACTIVITIES
Net income attributable to Tompkins Financial Corporation	$	32,642		$	29,084
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	1,745			1,833
Depreciation and amortization of premises, equipment, and software	3,641			3,356
Amortization of intangible assets	978			1,048
Earnings from corporate owned life insurance	(1,188		)	(1,127		)
Net amortization on securities	5,233			5,301
Amortization/accretion related to purchase accounting	(1,606		)	(1,345		)
Mark-to-market loss on trading securities	0			106
Mark-to-market gain on liabilities held at fair value	0			(149		)
Net gain on securities transactions	0			(472		)
Net gain on sale of loans originated for sale	(23		)	(35		)
Proceeds from sale of loans originated for sale	478			1,493
Loans originated for sale	(455		)	(912		)
Net (gain) loss on sale of bank premises and equipment	(22		)	20
Net excess tax benefit from stock based compensation	299			333
Stock-based compensation expense	1,405			1,115
(Increase) decrease in accrued interest receivable	(985		)	81
Decrease in accrued interest payable	(35		)	(173		)
Proceeds from maturities and payments of trading securities	0			536
Other, net	(989		)	(440		)
Net Cash Provided by Operating Activities	41,118			39,653
INVESTING ACTIVITIES
Proceeds from maturities, calls and principal paydowns of available-for-sale securities	77,092			117,580
Proceeds from sales of available-for-sale securities	0			59,195
Proceeds from maturities, calls and principal paydowns of held-to-maturity securities	3,695			5,141
Purchases of available-for-sale securities	(72,419		)	(179,260		)
Purchases of held-to-maturity securities	(1,765		)	(4,240		)
Net increase in loans	(159,747		)	(206,383		)
Net increase in Federal Home Loan Bank stock	(2,581		)	(6,492		)
Proceeds from sale of bank premises and equipment	35			53
Purchases of bank premises, equipment and software	(15,135		)	(4,485		)
Net cash used in acquisition	0			(218		)
Other, net	487			0
Net Cash Used in Investing Activities	(170,338		)	(219,109		)
FINANCING ACTIVITIES
Net increase in demand, money market, and savings deposits	169,438			46,228
Net (decrease) increase in time deposits	(43,297		)	28,830
Net decrease in Federal funds purchased and securities sold under agreements to repurchase	(18,702		)	(39,491		)
Increase in other borrowings	398,750			400,301
Repayment of other borrowings	(331,530		)	(236,411		)
Redemption of trust preferred debentures	(21,161		)	0
Cash dividends	(13,645		)	(13,206		)
Repurchase of common stock	0			(1,166		)
Shares issued for dividend reinvestment plan	2,047			1,003
Shares issued for employee stock ownership plan	2,296			1,938
Net shares issued related to restricted stock awards	(435		)	(286		)
Net proceeds from exercise of stock options	(320		)	(156		)
Net Cash Provided by Financing Activities	143,441			187,584
Net Increase in Cash and Cash Equivalents	14,221			8,128
Cash and cash equivalents at beginning of period	63,954			58,257
Total Cash & Cash Equivalents at End of Period	$	78,175		$	66,385

See notes to unaudited condensed consolidated financial statements.

TOMPKINS FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Six Months Ended
(In thousands) (Unaudited)	6/30/2017		6/30/2016
Supplemental Information:
Cash paid during the year for - Interest	$	12,222	$	11,527
Cash paid during the year for - Taxes	13,801		12,315
Transfer of loans to other real estate owned	2,693		448

See notes to unaudited condensed consolidated financial statements.

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, 2016	$	1,502		$	350,823		$	197,445		$	(31,001	)	$	(3,755	)	$	1,452		$	516,466
Net income attributable to noncontrolling interests and Tompkins Financial Corporation							29,084									65			29,149
Other comprehensive income										17,734									17,734
Total Comprehensive Income																			46,883
Cash dividends ($0.88 per share)							(13,206		)										(13,206		)
Net exercise of stock options (12,168 shares)	1			(21		)													(20		)
Stock-based compensation expense				1,115															1,115
Common stock repurchased and returned to unissued status (22,356 shares)	(2		)	(1,164		)													(1,166		)
Shares issued for employee stock ownership plan (31,435 shares)	3			1,935															1,938
Directors deferred compensation plan ((2,016) shares)				19									(19		)				0
Common stock issued for purchase acquisition (32,553 shares)	3			1,705															1,708
Restricted stock activity ((13,631) shares)	(1		)	(285		)													(286		)
Shares issued for dividend reinvestment plan (15,516 shares)	1			1,002															1,003
Balances at June 30, 2016	$	1,507		$	355,129		$	213,323		$	(13,267	)	$	(3,774	)	$	1,517		$	554,435

Balances at January 1, 2017	$	1,517		$	357,414		$	230,182		$	(37,109	)	$	(4,051	)	$	1,452		$	549,405
Net income attributable to noncontrolling interests and Tompkins Financial Corporation							32,642									65			32,707
Other comprehensive income										3,485									3,485
Total Comprehensive Income																			36,192
Cash dividends ($0.90 per share)							(13,645		)										(13,645		)
Net exercise of stock options (10,035 shares)	1			(321		)													(320		)
Shares issued for dividend reinvestment plan (24,075 shares)	2			2,045															2,047
Stock-based compensation expense				1,405															1,405
Shares issued for employee stock ownership plan (27,412 shares)	3			2,293															2,296
Directors deferred compensation plan ((695) shares)				153									(153		)				0
Restricted stock activity ((7,975) shares)	(1		)	(434		)													(435		)
Partial repurchase of noncontrolling interest																(30		)	(30		)
Balances at June 30, 2017	$	1,522		$	362,555		$	249,179		$	(33,624	)	$	(4,204	)	$	1,487		$	576,915

See notes to unaudited condensed consolidated financial statements

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 June 30, 2017, 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 (formerly known as Mahopac National 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 The Commons, Ithaca, New York, 14851, and its telephone number is (888) 503-5753. The Company’s common stock is traded on the NYSE MKT LLC 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 MKT LLC 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, the expenses and liabilities associated with the Company’s pension and post-retirement benefits, and the review of its securities portfolio for other than temporary impairment.

In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year ended December 31, 2017. 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, 2016. There have been no significant changes to the Company’s accounting policies from those presented in the 2016 Annual Report on Form 10-K. Refer to Note 3- “Accounting Standards Updates” of this Report for a discussion of recently issued accounting guidelines.

Cash and cash equivalents in the consolidated statements of cash flow include cash and noninterest bearing balances due from banks, interest-bearing balances due from banks, 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. Information for the third quarter, second quarter, and first quarter of 2016 has been revised to reflect the impact of the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting", in the fourth quarter of 2016, retroactive to January 1, 2016. All significant intercompany balances and transactions are eliminated in consolidation.

3. Accounting Standards Updates

ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally going to be effective for us on January 1, 2017; however, the FASB recently issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date" which deferred the effective date of ASU 2014-09 by one year to January 1, 2018. Tompkins’ revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. With respect to noninterest income, the Company has identified revenue streams within the scope of the guidance, and is performing an evaluation of the underlying revenue contracts. Tompkins does not expect these changes to have a significant impact on the Company’s consolidated financial statements. The Company expects to adopt the standard in the first quarter of 2018 with a cumulative effect adjustment to opening retained earnings, if such adjustment is deemed to be significant.

ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-1, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-1 will be effective for us on January 1, 2018 and is not expected to have a significant impact on our consolidated financial statements.

ASU 2016-02,“Leases (Topic 842).” ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and 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. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-2 will be effective for Tompkins on January 1, 2019 and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company occupies certain banking offices and uses certain equipment under noncancelable operating lease agreements, which currently are not reflected in its consolidated statement of condition. Upon adoption of the guidance, the Company expects to report increased assets and increased liabilities as a result of recognizing right-of-use assets and lease liabilities on its consolidated statement of condition. Tompkins is currently evaluating the extent of the impact that the adoption of this ASU will have on our consolidated financial statements.

ASU 2016-05“Derivatives and Hedging (Topic 815) Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” ASU 2016-05 clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under ASC Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU 2016-05 became effective for Tompkins on January 1, 2017 and did not have a significant impact on our consolidated financial statements.

ASU 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. ASU 2016-07 simplifies the transition to the equity method of accounting by eliminating retroactive adjustment of the investment when an investment qualifies for use of the equity method, among other things. ASU 2016-07 became effective for Tompkins on January 1, 2017 and did not have a significant impact on our consolidated financial statements.

ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” ASU 2016-08 was issued to clarify certain principal versus agent considerations within the implementation guidance of ASC Topic 606, “Revenue from Contracts with Customers.” The effective date and transition of ASU 2016-08 is the same as the effective date and transition of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," as discussed above. Tompkins is currently evaluating the potential impact of ASU 2016-08 on our consolidated financial statements.

ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” ASU 2016-10 was issued to clarify ASC Topic 606, “Revenue from Contracts with Customers” related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. The effective date and transition of ASU 2016-10 is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” as discussed above. Tompkins is currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements.

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 to determine what modifications to our existing allowance methodology may be required. 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.

ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance related to certain cash flow issues in order to reduce the current and potential future diversity in practice. ASU 2016-15 will be effective for us on January 1, 2018. Tompkins is currently evaluating the potential impact of ASU 2016-15 but does not expect it to have a significant impact on our consolidated financial statements.

ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 will be effective for us on January 1, 2020, with early adoption permitted for interim or annual impairment tests beginning in 2017. Tompkins is currently evaluating the potential impact of ASU 2017-04 on our consolidated financial statements.

ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) - Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” ASU 2017-05 clarifies the scope of Subtopic 610-20 and adds guidance for partial sales of nonfinancial assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transfer of certain assets qualified for sale treatment. ASU 2017-05 reduces the number of potential accounting models that might apply and clarifies which model does apply

in various circumstances. ASU 2017-05 will be effective for us on January 1, 2018. Tompkins is currently evaluating the potential impact of ASU 2017-05 on our consolidated financial statements.

ASU 2017-07, “Compensation-Retirement Benefits (Topic 715 - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.”), which requires that the service cost component of the Company's net periodic pension cost and net periodic postretirement benefit cost be included in the same line item as other compensation costs arising from services rendered by employees, with the other components of net periodic benefit cost being classified outside of a subtotal of income from operations. Of the components of net periodic benefit cost, only the service cost component will be eligible for asset capitalization. ASU 2017-07 is effective for the Company beginning January 1, 2018 and is required to be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement. Tompkins is currently evaluating the potential impact of ASU 2017-07 on our 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 will be effective for us on January 1, 2019, with early adoption permitted. Tompkins is currently evaluating the potential impact of ASU 2017-08 on our consolidated financial statements.

ASU 2017-09, “Compensation-Stock Compensation (Topic 718)- Scope of Modification Accounting.” ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the award's fair value, (ii) the award's vesting conditions and (iii) the award's classification as an equity or liability instrument. ASU 2017-09 will be effective for us on January 1, 2018 and is not expected to have a significant impact on our consolidated financial statements.

4. Securities

Available-for-Sales Securities

The following table summarizes available-for-sale securities held by the Company at June 30, 2017:



	Available-for-Sale Securities
June 30, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(in thousands)
Obligations of U.S. Government sponsored entities	$	526,734	$	2,906	$	1,260	$	528,380
Obligations of U.S. states and political subdivisions	92,151		593		299		92,445
Mortgage-backed securities – residential, issued by
U.S. Government agencies	149,281		1,025		1,824		148,482
U.S. Government sponsored entities	661,251		1,613		10,477		652,387
Non-U.S. Government agencies or sponsored entities	96		0		0		96
U.S. corporate debt securities	2,500		0		338		2,162
Total debt securities	1,432,013		6,137		14,198		1,423,952
Equity securities	1,000		0		81		919
Total available-for-sale securities	$	1,433,013	$	6,137	$	14,279	$	1,424,871

The following table summarizes available-for-sale securities held by the Company at December 31, 2016:



	Available-for-Sale Securities
December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(in thousands)
Obligations of U.S. Government sponsored entities	$	527,057	$	2,873	$	2,303	$	527,627
Obligations of U.S. states and political subdivisions	89,910		286		1,140		89,056
Mortgage-backed securities – residential, issued by
U.S. Government agencies	159,417		1,081		2,272		158,226
U.S. Government sponsored entities	662,724		1,993		13,287		651,430
Non-U.S. Government agencies or sponsored entities	116		0		0		116
U.S. corporate debt securities	2,500		0		338		2,162
Total debt securities	1,441,724		6,233		19,340		1,428,617
Equity securities	1,000		0		79		921
Total available-for-sale securities	$	1,442,724	$	6,233	$	19,419	$	1,429,538

Held-to-Maturity Securities

The following table summarizes held-to-maturity securities held by the Company at June 30, 2017:



	Held-to-Maturity Securities
June 30, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(in thousands)
Obligations of U.S. Government sponsored entities	$	131,903	$	1,617	$	102	$	133,418
Obligations of U.S. states and political subdivisions	8,091		151		6		8,236
Total held-to-maturity debt securities	$	139,994	$	1,768	$	108	$	141,654

The following table summarizes held-to-maturity securities held by the Company at December 31, 2016:



	Held-to-Maturity Securities
December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(in thousands)
Obligations of U.S. Government sponsored entities	$	132,098	$	804	$	283	$	132,619
Obligations of U.S. states and political subdivisions	10,021		195		3		10,213
Total held-to-maturity debt securities	$	142,119	$	999	$	286	$	142,832

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 and six months ended June 30, 2017 and $239,000 and $472,000 for the same periods during 2016. Realized losses on available-for-sale securities were $0 for the three and six months ended June 30, 2017 and $0 for the same periods during 2016. The sales of available-for-sale investment securities were the result of general investment portfolio and interest rate risk management.

The following table summarizes available-for-sale securities that had unrealized losses at June 30, 2017:



	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	$	136,587	$	1,255	$	245	$	5	$	136,832	$	1,260
Obligations of U.S. states and political subdivisions	33,531		299		0		0		33,531		299

Mortgage-backed securities – residential, issued by
U.S. Government agencies	89,033		1,024		30,703		800		119,736		1,824
U.S. Government sponsored entities	464,443		6,214		127,008		4,263		591,451		10,477
U.S. corporate debt securities	0		0		2,163		338		2,163		338
Equity securities	0		0		919		81		919		81
Total available-for-sale securities	$	723,594	$	8,792	$	161,038	$	5,487	$	884,632	$	14,279

The following table summarizes available-for-sale securities that had unrealized losses at December 31, 2016:



	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	$	208,940	$	2,303	$	0	$	0	$	208,940	$	2,303
Obligations of U.S. states and political subdivisions	58,852		1,139		751		1		59,603		1,140

Mortgage-backed securities – residential, issued by
U.S. Government agencies	98,307		1,570		22,376		702		120,683		2,272
U.S. Government sponsored entities	463,009		8,933		123,915		4,354		586,924		13,287
U.S. corporate debt securities	0		0		2,162		338		2,162		338
Equity securities	0		0		921		79		921		79
Total available-for-sale securities	$	829,108	$	13,945	$	150,125	$	5,474	$	979,233	$	19,419

The following table summarizes held-to-maturity securities that had unrealized losses at June 30, 2017.



	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	$	10,006	$	102	$	0	$	0	$	10,006	$	102

Obligations of U.S. states and political subdivisions	3,623		6		0		0		3,623		6
Total held-to-maturity securities	$	13,629	$	108	$	0	$	0	$	13,629	$	108

The following table summarizes held-to-maturity securities that had unrealized losses at December 31, 2016.



	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	$	40,802	$	283	$	0	$	0	$	40,802	$	283

Obligations of U.S. states and political subdivisions	2,567		3		0		0		2,567		3
Total held-to-maturity securities	$	43,369	$	286	$	0	$	0	$	43,369	$	286

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 June 30, 2017, and December 31, 2016, 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 provided that the Company does not intend to sell the underlying debt security and it is more-likely-than not that the Company would not have to sell the debt security prior to recovery of the unrealized loss, which may be to maturity. If the Company intended to sell any securities with an unrealized loss or it is more-likely-than not that the Company would be required to sell the investment securities, before recovery of their amortized cost basis, then the entire unrealized loss would be recorded in earnings.

The Company considers the following factors in determining whether a credit loss exists.


•	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 June 30, 2017 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.



June 30, 2017
(in thousands)	Amortized Cost		Fair Value
Available-for-sale securities:
Due in one year or less	$	38,168	$	38,336
Due after one year through five years	403,122		405,059
Due after five years through ten years	162,335		162,211
Due after ten years	17,760		17,381
Total	621,385		622,987
Mortgage-backed securities	810,628		800,965
Total available-for-sale debt securities	$	1,432,013	$	1,423,952



December 31, 2016
(in thousands)	Amortized Cost		Fair Value
Available-for-sale securities:
Due in one year or less	$	17,878	$	18,034
Due after one year through five years	376,777		378,631
Due after five years through ten years	210,985		208,999
Due after ten years	13,827		13,181
Total	619,467		618,845
Mortgage-backed securities	822,257		809,772
Total available-for-sale debt securities	$	1,441,724	$	1,428,617



June 30, 2017
(in thousands)	Amortized Cost		Fair Value
Held-to-maturity securities:
Due in one year or less	$	6,351	$	6,363
Due after one year through five years	31,832		32,368
Due after five years through ten years	101,811		102,923
Total held-to-maturity debt securities	$	139,994	$	141,654



December 31, 2016
(in thousands)	Amortized Cost		Fair Value
Held-to-maturity securities:
Due in one year or less	$	7,452	$	7,469
Due after one year through five years	27,480		27,866
Due after five years through ten years	107,187		107,497
Due after ten years	0		0
Total held-to-maturity debt securities	$	142,119	$	142,832

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 $31.2 million, $14.4 million and $95,000 at June 30, 2017, 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 June 30, 2017, we have determined that no impairment write-downs are currently required.

5. Loans and Leases

Loans and Leases at June 30, 2017 and December 31, 2016 were as follows:



	6/30/2017								12/31/2016
(in thousands)	Originated			Acquired		Total Loans and Leases			Originated			Acquired		Total Loans and Leases
Commercial and industrial
Agriculture	$	89,017		$	0	$	89,017		$	118,247		$	0	$	118,247
Commercial and industrial other	977,891			61,134		1,039,025			847,055			79,317		926,372
Subtotal commercial and industrial	1,066,908			61,134		1,128,042			965,302			79,317		1,044,619
Commercial real estate
Construction	95,634			1,526		97,160			135,834			8,936		144,770
Agriculture	120,643			257		120,900			102,509			267		102,776
Commercial real estate other	1,503,385			226,772		1,730,157			1,431,690			241,605		1,673,295
Subtotal commercial real estate	1,719,662			228,555		1,948,217			1,670,033			250,808		1,920,841
Residential real estate
Home equity	211,179			33,530		244,709			209,277			37,737		247,014
Mortgages	1,001,630			23,726		1,025,356			947,378			25,423		972,801
Subtotal residential real estate	1,212,809			57,256		1,270,065			1,156,655			63,160		1,219,815
Consumer and other
Indirect	13,088			0		13,088			14,835			0		14,835
Consumer and other	46,274			896		47,170			44,393			826		45,219
Subtotal consumer and other	59,362			896		60,258			59,228			826		60,054
Leases	15,931			0		15,931			16,650			0		16,650
Total loans and leases	4,074,672			347,841		4,422,513			3,867,868			394,111		4,261,979
Less: unearned income and deferred costs and fees	(3,917		)	0		(3,917		)	(3,946		)	0		(3,946		)
Total loans and leases, net of unearned income and deferred costs and fees	$	4,070,755		$	347,841	$	4,418,596		$	3,863,922		$	394,111	$	4,258,033

The outstanding principal balance and the related carrying amount of the Company’s loans acquired in the VIST Bank acquisition are as follows at June 30, 2017 and December 31, 2016:



(in thousands)	6/30/2017		12/31/2016
Acquired Credit Impaired Loans
Outstanding principal balance	$	21,525	$	26,237
Carrying amount	16,597		22,517

Acquired Non-Credit Impaired Loans
Outstanding principal balance	333,608		375,471
Carrying amount	331,244		371,594

TOMPKINS FINANCIAL CORP - FORM 10-Q - August 9, 2017

Attached files