株探米国株
英語
エドガーで原本を確認する
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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2023
 
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
 Tomp_TF logo Color.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.)
P.O. Box 460, Ithaca, NY
(Address of principal executive offices)
14851
(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 the number of shares of the Registrant’s Common Stock outstanding as of the latest practicable date:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.10 par value TMP NYSE American, LLC
 
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 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 ☒ 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 ☐ 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: 14,350,177 shares as of October 27, 2023.



TOMPKINS FINANCIAL CORPORATION
 
FORM 10-Q
 
INDEX
PART I -FINANCIAL INFORMATION
  
      PAGE
 
   
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 




Item 1. Financial Statements

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share and per share data) As of As of
ASSETS 9/30/2023 12/31/2022
  (unaudited) (audited)
Cash and noninterest bearing balances due from banks $ 75,370  $ 18,572 
Interest bearing balances due from banks 64,846  59,265 
Cash and Cash Equivalents 140,216  77,837 
Available-for-sale debt securities, at fair value (amortized cost of $1,583,075 at September 30, 2023 and $1,831,791 at December 31, 2022)
 1,388,510  1,594,967 
Held-to-maturity securities, at amortized cost (fair value of $252,978 at September 30, 2023 and $261,692 December 31, 2022)
 312,385  312,344 
Equity securities, at fair value (amortized cost $741 at September 30, 2023 and $777 at December 31, 2022)
 741  777 
Total loans and leases, net of unearned income and deferred costs and fees 5,434,860  5,268,911 
Less: Allowance for credit losses 49,336  45,934 
Net Loans and Leases 5,385,524  5,222,977 
Federal Home Loan Bank and other stock 19,985  17,720 
Bank premises and equipment, net 80,685  82,140 
Corporate owned life insurance 86,708  85,556 
Goodwill 92,602  92,602 
Other intangible assets, net 2,421  2,708 
Accrued interest and other assets 181,385  181,058 
Total Assets $ 7,691,162  $ 7,670,686 
LIABILITIES
Deposits:
Interest bearing:
Checking, savings and money market 3,779,991  3,820,739 
Time 880,412  631,411 
Noninterest bearing 1,963,033  2,150,145 
Total Deposits 6,623,436  6,602,295 
Federal funds purchased and securities sold under agreements to repurchase 56,120  56,278 
Other borrowings 296,800  291,300 
Other liabilities 102,450  103,423 
Total Liabilities $ 7,078,806  $ 7,053,296 
EQUITY
Tompkins Financial Corporation shareholders' equity:
Common Stock - par value $0.10 per share: Authorized 25,000,000 shares; Issued: 14,386,087 at September 30, 2023; and 14,555,741 at December 31, 2022
 1,439  1,456 
Additional paid-in capital 296,721  302,763 
Retained earnings 495,123  526,727 
Accumulated other comprehensive loss (176,029) (208,689)
Treasury stock, at cost – 128,096 shares at September 30, 2023, and 128,749 shares at December 31, 2022
 (6,403) (6,279)
Total Tompkins Financial Corporation Shareholders’ Equity 610,851  615,978 
Noncontrolling interests 1,505  1,412 
Total Equity $ 612,356  $ 617,390 
Total Liabilities and Equity $ 7,691,162  $ 7,670,686 
 
See notes to unaudited consolidated financial statements.


1

TOMPKINS FINANCIAL CORPORATION
 CONSOLIDATED STATEMENTS OF INCOME 
Three Months Ended Nine Months Ended
(In thousands, except per share data) (Unaudited) 9/30/2023 9/30/2022 9/30/2023 9/30/2022
INTEREST AND DIVIDEND INCOME
Loans $ 67,030  $ 55,041  $ 191,399  $ 158,677 
Due from banks 125  85  447  190 
Available-for-sale debt securities 6,599  7,157  19,960  20,990 
Held-to-maturity securities 1,221  1,221  3,654  3,551 
Federal Home Loan Bank and other stock 490  166  1,113  391 
Total Interest and Dividend Income 75,465  63,670  216,573  183,799 
INTEREST EXPENSE
Time certificates of deposits of $250,000 or more 3,158  563  7,472  1,389 
Other deposits 16,348  3,631  39,861  6,898 
Federal funds purchased and securities sold under agreements to repurchase 15  14  44  45 
Other borrowings 4,931  1,351  12,041  2,480 
Total Interest Expense 24,452  5,559  59,418  10,812 
Net Interest Income 51,013  58,111  157,155  172,987 
Less: Provision for credit loss expense 1,150  1,056  2,578  1,392 
Net Interest Income After Credit for Credit Loss Expense 49,863  57,055  154,577  171,595 
NONINTEREST INCOME
Insurance commissions and fees 11,397  10,825  29,578  28,571 
Wealth management fees 4,342  4,337  13,529  13,850 
Service charges on deposit accounts 1,754  1,917  5,140  5,452 
Card services income 2,860  2,731  8,629  8,233 
Other income 990  977  4,534  3,694 
Net loss on securities transactions (62,967) (95) (70,019) (179)
Total Noninterest Income (41,624) 20,692  (8,609) 59,621 
NONINTEREST EXPENSE
Salaries and wages 23,811  25,344  73,660  73,012 
Other employee benefits 7,319  6,489  20,707  18,627 
Net occupancy expense of premises 3,108  3,258  9,734  9,930 
Furniture and fixture expense 2,079  2,056  6,238  6,051 
Amortization of intangible assets 83  218  250  655 
Other operating expense 13,466  12,237  41,403  37,286 
Total Noninterest Expenses 49,866  49,602  151,992  145,561 
(Loss)/Income Before Income Tax (Benefit)/Expense (41,627) 28,145  (6,024) 85,655 
Income Tax (Benefit)/Expense (8,304) 6,774  (619) 20,079 
Net (Loss)/Income Attributable to Noncontrolling Interests and Tompkins Financial Corporation (33,323) 21,371  (5,405) 65,576 
Less: Net Income Attributable to Noncontrolling Interests 31  31  93  94 
Net (Loss)/Income Attributable to Tompkins Financial Corporation $ (33,354) $ 21,340  $ (5,498) $ 65,482 
Basic (Loss) Earnings Per Share $ (2.35) $ 1.49  $ (0.39) $ 4.55 
Diluted (Loss) Earnings Per Share $ (2.35) $ 1.48  $ (0.39) $ 4.53 
 
See notes to unaudited consolidated financial statements.



2

TOMPKINS FINANCIAL CORPORATION
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
Three Months Ended
(In thousands) (Unaudited) 9/30/2023 9/30/2022
Net (loss) income attributable to noncontrolling interests and Tompkins Financial Corporation $ (33,323) $ 21,371 
Other comprehensive (loss) income, net of tax:
Available-for-sale debt securities:
Change in net unrealized loss during the period (28,273) (64,873)
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income 47,513  37 
Employee benefit plans:
Amortization of net retirement plan actuarial loss 211  427 
Amortization of net retirement plan prior service cost 40  41 
Other comprehensive income (loss) 19,491  (64,368)
Subtotal comprehensive income (loss) attributable to noncontrolling interests and Tompkins Financial Corporation (13,832) (42,997)
Less: Net income (loss) attributable to noncontrolling interests (31) (31)
Total comprehensive income (loss) attributable to Tompkins Financial Corporation $ (13,863) $ (43,028)

Nine Months Ended
(In thousands) (Unaudited) 9/30/2023 9/30/2022
Net (loss) income attributable to noncontrolling interests and Tompkins Financial Corporation $ (5,405) $ 65,576 
Other comprehensive income, net of tax:
Available-for-sale debt securities:
Change in net unrealized loss during the period (20,932) (188,727)
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income 52,838  37 
Employee benefit plans:
Amortization of net retirement plan actuarial loss 632  1,280 
Amortization of net retirement plan prior service cost 122  123 
Other comprehensive income (loss) 32,660  (187,287)
Subtotal comprehensive income (loss) attributable to noncontrolling interests and Tompkins Financial Corporation 27,255  (121,711)
Less: Net income (loss) attributable to noncontrolling interests (93) (94)
Total comprehensive income (loss) attributable to Tompkins Financial Corporation $ 27,162  $ (121,805)

See notes to unaudited consolidated financial statements.



3

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
(In thousands) (Unaudited) 9/30/2023 9/30/2022
OPERATING ACTIVITIES
Net (loss) income attributable to Tompkins Financial Corporation $ (5,498) $ 65,482 
Provision for credit loss expense 2,578  1,392 
Depreciation and amortization of premises, equipment, and software 8,208  7,977 
Amortization of intangible assets 250  655 
Earnings from corporate owned life insurance (1,167) (357)
Net amortization on securities 2,692  4,512 
Amortization/accretion related to purchase accounting (508) (712)
Net loss on securities transactions 70,019  179 
Net gain on sale of loans originated for sale (86) (140)
Proceeds from sale of loans originated for sale 3,276  7,468 
Loans originated for sale (3,345) (7,123)
Net gain on sale of bank premises and equipment (79) (92)
Net excess tax benefit from stock based compensation (10) 42 
Stock-based compensation expense 2,945  3,062 
(Increase) decrease in accrued interest receivable (1,670) 514 
Increase (decrease) in accrued interest payable 972  (20)
Other, net (8,505) (516)
Net Cash Provided by Operating Activities 70,072  82,323 
INVESTING ACTIVITIES
Proceeds from maturities, calls and principal paydowns of available-for-sale debt securities 111,097  179,305 
Proceeds from sales of available-for-sale debt securities 440,488  24,621 
Purchases of available-for-sale debt securities (375,585) (154,798)
Purchases of held-to-maturity securities 0  (28,320)
Net increase in loans (168,400) (132,051)
Proceeds from sale/redemptions of Federal Home Loan Bank stock 90,702  57,152 
Purchases of Federal Home Loan Bank and other stock (92,967) (55,312)
Proceeds from sale of bank premises and equipment 123  188 
Purchases of bank premises, equipment and software (5,308) (6,188)
Redemption of corporate owned life insurance 20  0 
Other, net 463  (142)
Net Cash Provided by (Used in) Investing Activities 633  (115,545)
FINANCING ACTIVITIES
Net (decrease) increase in demand, money market, and savings deposits (227,860) 185,353 
Net increase (decrease) in time deposits 249,361  (39,691)
Net decrease in Federal funds purchased and securities sold under agreements to repurchase (158) (11,447)
Increase in other borrowings 145,100  235,600 
Repayment of other borrowings (139,600) (258,600)
Cash dividends (26,041) (24,874)
Repurchase of common stock (8,703) (15,430)
Shares issued for employee stock ownership plan 0  2,951 
Net shares issued related to restricted stock awards (307) (80)
Net proceeds from exercise of stock options (118) (55)
Net Cash (Used in) Provided by Financing Activities (8,326) 73,727 
Net Increase in Cash and Cash Equivalents 62,379  40,505 
Cash and cash equivalents at beginning of period 77,837  63,107 
Total Cash and Cash Equivalents at End of Period $ 140,216  $ 103,612 

See notes to unaudited consolidated financial statements.


4

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended
(In thousands) (Unaudited) 9/30/2023 9/30/2022
Supplemental Information:
Cash paid during the year for - Interest $ 58,806  $ 11,203 
Cash paid during the year for - Taxes 9,907  17,540 
Transfer of loans to other real estate owned 0  315 
Right-of-use assets obtained in exchange for new lease liabilities 428  2,488 
 
See notes to unaudited consolidated financial statements.
 


5

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands except share and per share data) (Unaudited) Common
Stock		 Additional Paid-in Capital Retained
Earnings		 Accumulated Other Comprehensive (Loss) Income Treasury
Stock		 Non-
controlling Interests		 Total
Balances at July 1, 2022 $ 1,454  $ 303,335  $ 502,770  $ (178,869) $ (5,847) $ 1,475  $ 624,318 
Net income attributable to noncontrolling interests and Tompkins Financial Corporation 21,340  31  21,371 
Other comprehensive loss (64,368) (64,368)
Total Comprehensive Loss (42,997)
Cash dividends ($0.57 per share)
 (8,240) (8,240)
Net exercise of stock options (257 shares)
   (13) (13)
Common stock repurchased and returned to unissued status (18,182 shares)
 (2) (1,300) (1,302)
Stock-based compensation expense 1,089  1,089 
Directors deferred compensation plan (2,914 shares)
 216  (216) 0 
Restricted stock activity (2,922 shares)
 (51) (51)
Adjustment to goodwill 155 155 
Balances at September 30, 2022 $ 1,452  $ 303,431  $ 515,870  $ (243,237) $ (6,063) $ 1,506  $ 572,959 
Balances at July 1, 2023 $ 1,444  $ 298,133  $ 537,095  $ (195,520) $ (6,185) $ 1,474  $ 636,441 
Net (loss) income attributable to noncontrolling interests and Tompkins Financial Corporation (33,354) 31  (33,323)
Other comprehensive income 19,491  19,491 
Total Comprehensive Loss (13,832)
Cash dividends ($0.60 per share)
 (8,618) (8,618)
Common stock repurchased and returned to unissued status (41,781 shares)
 (4) (2,321) (2,325)
Stock-based compensation expense 790  790 
Directors deferred compensation plan (3,831 shares)
 218  (218) 0 
Restricted stock activity (13,545 shares)
 (1) (99) (100)
Balances at September 30, 2023 $ 1,439  $ 296,721  $ 495,123  $ (176,029) $ (6,403) $ 1,505  $ 612,356 


6

(In thousands except share and per share data)(Unaudited) Common
Stock		 Additional Paid-in Capital Retained
Earnings		 Accumulated Other Comprehensive (Loss) Income Treasury
Stock		 Non-
controlling Interests		 Total
Balances at January 1, 2022 $ 1,470  $ 312,538  $ 475,262  $ (55,950) $ (5,791) $ 1,412  $ 728,941 
Net income attributable to noncontrolling interests and Tompkins Financial Corporation 65,482  94  65,576 
Other comprehensive loss (187,287) (187,287)
Total Comprehensive Loss (121,711)
Cash dividends ($1.71 per share)
 (24,874) (24,874)
Net exercise of stock options (887 shares)
 (55) (55)
Common stock repurchased and returned to unissued status (197,979 shares)
 (20) (15,410) (15,430)
Stock-based compensation expense 3,062  3,062 
Shares issued for employee stock ownership plan (37,454 shares)
 4  2,947  2,951 
Directors deferred compensation plan (1,235 shares)
 272  (272) 0 
Restricted stock activity (17,606 shares)
 (2) (78) (80)
Adjustment to goodwill 155 155 
Balances at September 30, 2022 $ 1,452  $ 303,431  $ 515,870  $ (243,237) $ (6,063) $ 1,506  $ 572,959 
Balances at January 1, 2023 $ 1,456  $ 302,763  $ 526,727  $ (208,689) $ (6,279) $ 1,412  $ 617,390 
Net (loss) income attributable to noncontrolling interests and Tompkins Financial Corporation (5,498) 93  (5,405)
Other comprehensive income 32,660  32,660 
Total Comprehensive Income 27,255 
Cash dividends ($1.80 per share)
 (26,041) (26,041)
Net exercise of stock options (1,824 shares)
   (118) (118)
Common stock repurchased and returned to unissued status (150,000 shares)
 (15) (8,688) (8,703)
Stock-based compensation expense 2,945  2,945 
Directors deferred compensation plan ((653) shares)
 124  (124) 0 
Restricted stock activity (21,478 shares)
 (2) (305) (307)
Adjustment due to the adoption of ASU 2022-02 (65) (65)
Balances at September 30, 2023 $ 1,439  $ 296,721  $ 495,123  $ (176,029) $ (6,403) $ 1,505  $ 612,356 
 
See notes to unaudited consolidated financial statements


7

NOTES TO UNAUDITED 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 September 30, 2023, the Company had one wholly-owned banking subsidiary, Tompkins Community Bank. Tompkins Community Bank provides a full array of trust and wealth management services under the Tompkins Financial Advisors brand, including investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. The Company also has a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. ("Tompkins Insurance"). 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.

Tompkins Community Bank is subject to examination and comprehensive regulation by various regulatory authorities, including the Federal Deposit Insurance Corporation ("FDIC") and the New York State Department of Financial Services ("NYSDFS"). 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. These agencies also examine and regulate the trust business of Tompkins Community Bank.

Tompkins Insurance 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 U.S. Generally Accepted Accounting Principles ("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 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 credit losses and the review of its securities portfolio for other than temporary impairment.
 
In management’s opinion, the unaudited 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, 2023. The unaudited 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, 2022.

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.



8

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 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. Securities

Available-for-Sale Debt Securities
The following tables summarize available-for-sale debt securities held by the Company at September 30, 2023 and December 31, 2022:
Available-for-Sale Debt Securities
September 30, 2023 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair Value
(In thousands)
U.S. Treasuries $ 114,220  $ 0  $ 6,926  $ 107,294 
Obligations of U.S. Government sponsored entities 491,968  10  32,037  459,941 
Obligations of U.S. states and political subdivisions 90,154  2  12,919  77,237 
Mortgage-backed securities – residential, issued by
 U.S. Government agencies 52,263  0  6,864  45,399 
 U.S. Government sponsored entities 831,970  0  135,661  696,309 
U.S. corporate debt securities 2,500  0  170  2,330 
Total available-for-sale debt securities $ 1,583,075  $ 12  $ 194,577  $ 1,388,510 
 
Available-for-Sale Debt Securities
December 31, 2022 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair Value
(In thousands)
U.S. Treasuries $ 190,170  $ 0  $ 22,919  $ 167,251 
Obligations of U.S. Government sponsored entities 681,192  0  80,025  601,167 
Obligations of U.S. states and political subdivisions 93,599  8  8,326  85,281 
Mortgage-backed securities – residential, issued by
U.S. Government agencies 58,727  12  6,071  52,668 
U.S. Government sponsored entities 805,603  0  119,381  686,222 
U.S. corporate debt securities 2,500  0  122  2,378 
Total available-for-sale debt securities $ 1,831,791  $ 20  $ 236,844  $ 1,594,967 

Held-to-Maturity Debt Securities
The following tables summarize held-to-maturity debt securities held by the Company at September 30, 2023 and December 31, 2022:
Held-to-Maturity Securities
September 30, 2023 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair Value
(In thousands)
U.S. Treasuries $ 86,318  $ 0  $ 14,767  $ 71,551 
Obligations of U.S. Government sponsored entities 226,067  0  44,640  181,427 
Total held-to-maturity debt securities $ 312,385  $ 0  $ 59,407  $ 252,978 


9


Held-to-Maturity Securities
December 31, 2022 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair Value
(In thousands)
U.S. Treasuries $ 86,478  $ 0  $ 12,937  $ 73,541 
Obligations of U.S. Government sponsored entities 225,866  0  37,715  188,151 
Total held-to-maturity debt securities $ 312,344  $ 0  $ 50,652  $ 261,692 

The Company may from time to time sell debt securities from its available-for-sale portfolio. Realized gains on sales of available-for-sale debt securities were $0 for both the three and nine months ended September 30, 2023 and September 30, 2022. Realized losses on sales of available-for-sale debt securities were $62.9 million and $70.0 million for the three and nine months ended September 30, 2023, respectively, and $49,000 for both the three and nine months ended September 30, 2022. During the three and nine months ended September 30, 2023, the Company sold $429.6 million and $510.5 million, respectively, of available-for-sale debt securities at a loss of $62.9 million and $70.0 million, respectively. Sales of available-for-sale debt securities were the result of general investment portfolio, interest rate risk and balance sheet management. The securities sold in the third quarter of 2023 had an average yield of 0.93% and were largely reinvested into securities with an estimated yield of approximately 5.12%. The weighted average life of the securities purchased and sold was approximately 4.3 years. Proceeds from the sale of available-for-sale debt securities were $366.7 million and $440.5 million for the three and nine months ended September 30, 2023, respectively, and $24.6 million for the three and nine months ended September 30, 2022. The Company's investment portfolio includes callable securities that may be called prior to maturity. There were no realized gains or losses on called available-for-sale debt securities for both the three and nine months ended September 30, 2023 and September 30, 2022. The Company also recognized net losses of $36,700 and $35,700 for the three and nine months ended September 30, 2023, compared to net losses of $46,900 and $130,600 for the three and nine months ended September 30, 2022, respectively, on equity securities, reflecting the change in fair value.

The following table summarizes available-for-sale debt securities that had unrealized losses at September 30, 2023, and December 31, 2022:

September 30, 2023 Less than 12 Months 12 Months or Longer Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U.S. Treasuries $ 43,560  $ 23  $ 63,734  $ 6,903  $ 107,294  $ 6,926 
Obligations of U.S. Government sponsored entities 197,508  1,492  232,541  30,545  430,049  32,037 
Obligations of U.S. states and political subdivisions 11,449  592  65,436  12,327  76,885  12,919 
Mortgage-backed securities – residential, issued by
U.S. Government agencies 1,436  48  43,963  6,816  45,399  6,864 
U.S. Government sponsored entities 97,751  1,671  598,559  133,990  696,310  135,661 
U.S. corporate debt securities 0  0  2,330  170  2,330  170 
Total available-for-sale debt securities $ 351,704  $ 3,826  $ 1,006,563  $ 190,751  $ 1,358,267  $ 194,577 


10


December 31, 2022 Less than 12 Months 12 Months or Longer Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U.S. Treasuries $ 28,602  $ 2,132  $ 138,649  $ 20,787  $ 167,251  $ 22,919 
Obligations of U.S. Government sponsored entities 143,794  7,508  457,373  72,517  601,167  80,025 
Obligations of U.S. states and political subdivisions 46,638  2,385  33,435  5,941  80,073  8,326 
Mortgage-backed securities – residential, issued by
U.S. Government agencies 22,945 1,258 29,356 4,813 52,301 6,071
U.S. Government sponsored entities 186,690 16,869 499,532 102,512 686,222 119,381
U.S. corporate debt securities 0  0  2,378  122  2,378  122 
Total available-for-sale debt securities $ 428,669  $ 30,152  $ 1,160,723  $ 206,692  $ 1,589,392  $ 236,844 

The following table summarizes held-to-maturity debt securities that had unrealized losses at September 30, 2023 and December 31, 2022:

September 30, 2023 Less than 12 Months 12 Months or Longer Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U.S. Treasuries $ 0  $ 0  $ 71,551  $ 14,767  $ 71,551  $ 14,767 
Obligations of U.S. Government sponsored entities 0  0  181,427  44,640  181,427  44,640 
Total held-to-maturity debt securities $ 0  $ 0  $ 252,978  $ 59,407  $ 252,978  $ 59,407 

December 31, 2022 Less than 12 Months 12 Months or Longer Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U.S. Treasuries $ 0  $ 0  $ 73,542  $ 12,937  $ 73,542  $ 12,937 
Obligations of U.S. Government sponsored entities 24,543  3,903  163,607  33,812  188,150  37,715 
Total held-to-maturity debt securities $ 24,543  $ 3,903  $ 237,149  $ 46,749  $ 261,692  $ 50,652 

The Company evaluates available-for-sale debt securities for expected credit losses ("ECL") in unrealized loss positions at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors.

Factors that may be indicative of ECL include, but are not limited to, the following:

•Extent to which the fair value is less than the amortized cost basis.
•Adverse conditions specifically related to the security, an industry, or geographic area (changes in technology, business practice).
•Payment structure of the debt security with respect to underlying issuer or obligor.
•Failure of the issuer to make scheduled payment of principal and/or interest.
•Changes to the rating of a security or issuer by a nationally recognized statistical rating organization.
•Changes in tax or regulatory guidelines that impact a security or underlying issuer.

For available-for-sale debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (technical impairment) is the result of changes in interest rates or reflects a fundamental change in the credit worthiness of the underlying issuer. Any impairment that is not credit related is recognized in other comprehensive income (loss), net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses ("ACL") on the Consolidated Statements of Condition, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings.


11

Both the ACL and the adjustment to net income may be reversed if conditions change.

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-related quality of the investment securities. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost.

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity debt securities from the estimate of credit losses. As of September 30, 2023, the held-to-maturity portfolio consisted of U.S. Treasury securities and securities issued by U.S. government-sponsored enterprises, including the Federal National Mortgage Agency, the Federal Home Loan Bank ("FHLB") and the Federal Farm Credit Banks Funding Corporation. U.S. Treasury securities are backed by the full faith and credit of and/or guaranteed by the U.S. government, and it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities. Securities issued by U.S. government agencies or U.S. government-sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as "risk-free," and have a long history of zero credit loss. As such, the Company did not record an allowance for credit losses for these securities as of September 30, 2023 or December 31, 2022.

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.

September 30, 2023
(In thousands) Amortized Cost Fair Value
Available-for-sale debt securities:
Due in one year or less $ 79,189  $ 78,511 
Due after one year through five years 334,059  316,627 
Due after five years through ten years 234,283  208,592 
Due after ten years 51,311  43,072 
Total 698,842  646,802 
Mortgage-backed securities 884,233  741,708 
Total available-for-sale debt securities $ 1,583,075  $ 1,388,510 

December 31, 2022
(In thousands) Amortized Cost Fair Value
Available-for-sale debt securities:
Due in one year or less $ 50,922  $ 50,269 
Due after one year through five years 508,880  459,721 
Due after five years through ten years 367,743  314,408 
Due after ten years 39,916  31,679 
Total 967,461  856,077 
Mortgage-backed securities 864,330  738,890 
Total available-for-sale debt securities $ 1,831,791  $ 1,594,967 



12

September 30, 2023
(In thousands) Amortized Cost Fair Value
Held-to-maturity debt securities:
Due after five years through ten years $ 312,385  $ 252,978 
Total held-to-maturity debt securities $ 312,385  $ 252,978 

December 31, 2022
(In thousands) Amortized Cost Fair Value
Held-to-maturity debt securities:
Due after five years through ten years $ 312,344  $ 261,692 
Total held-to-maturity debt securities $ 312,344  $ 261,692 

The Company also holds non-marketable Federal Home Loan Bank of New York ("FHLBNY") stock and non-marketable Atlantic Community Bankers Bank ("ACBB") stock, 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 and ACBB stock totaled $19.9 million and $95,000, respectively, at September 30, 2023. These securities are carried at par, which is also cost. The FHLBNY continues 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 September 30, 2023, we determined that no impairment write-downs were required.



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4. Loans and Leases
Loans and leases at September 30, 2023 and December 31, 2022 were as follows:
(In thousands) 9/30/2023 12/31/2022
Commercial and industrial
Agriculture $ 77,720  $ 85,073 
Commercial and industrial other 695,445  705,700 
PPP loans* 488  756 
Subtotal commercial and industrial 773,653  791,529 
Commercial real estate
Construction 270,961  201,116 
Agriculture 218,144  214,963 
Commercial real estate other 2,507,164  2,437,339 
Subtotal commercial real estate 2,996,269  2,853,418 
Residential real estate
Home equity 187,387  188,623 
Mortgages 1,368,292  1,346,318 
Subtotal residential real estate 1,555,679  1,534,941 
Consumer and other
Indirect 1,090  2,224 
Consumer and other 97,165  75,412 
Subtotal consumer and other 98,255  77,636 
Leases 15,818  16,134 
Total loans and leases 5,439,674  5,273,658 
Less: unearned income and deferred costs and fees (4,814) (4,747)
Total loans and leases, net of unearned income and deferred costs and fees $ 5,434,860  $ 5,268,911 
*SBA Paycheck Protection Program ("PPP")

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, 2022. 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 December 31, 2022. 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 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.
 




14

The below tables are an age analysis of past due loans, segregated by class of loans, as of September 30, 2023 and December 31, 2022:
 
September 30, 2023
(In thousands) 30-59 Days 60-89 Days 90 Days or More Total Past Due Current Loans Total Loans
Loans and Leases
Commercial and industrial
Agriculture $ 0  $ 0  $ 0  $ 0  $ 77,720  $ 77,720
Commercial and industrial other 3,316  170  3,014  6,500  688,945  695,445 
PPP loans* 0  0  0  0  488  488 
Subtotal commercial and industrial 3,316  170  3,014  6,500  767,153  773,653 
Commercial real estate
Construction 863  0  0  863  270,098  270,961
Agriculture 169  0  0  169  217,975  218,144
Commercial real estate other 18,781  15,300  8,610  42,691  2,464,473  2,507,164
Subtotal commercial real estate 19,813  15,300  8,610  43,723  2,952,546  2,996,269 
Residential real estate
Home equity 751  8  1,443  2,202  185,185  187,387
Mortgages 1,118  0  8,915  10,033  1,358,259  1,368,292
Subtotal residential real estate 1,869  8  10,358  12,235  1,543,444  1,555,679 
Consumer and other
Indirect 17  4  31  52  1,038  1,090
Consumer and other 261  136  239  636  96,529  97,165
Subtotal consumer and other 278  140  270  688  97,567  98,255 
Leases 0  0  0  0  15,818  15,818 
Total loans and leases 25,276  15,618  22,252  63,146  5,376,528  5,439,674 
Less: unearned income and deferred costs and fees 0  0  0  0  (4,814) (4,814)
Total loans and leases, net of unearned income and deferred costs and fees $ 25,276  $ 15,618  $ 22,252  $ 63,146  $ 5,371,714  $ 5,434,860 
*SBA Paycheck Protection Program


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December 31, 2022
(In thousands) 30-59 Days 60-89 Days 90 Days or More Total Past Due Current Loans Total Loans
Loans and Leases
Commercial and industrial
Agriculture $ 58  $ 0  $ 0  $ 58  $ 85,015  $ 85,073 
Commercial and industrial other 50  381  82  513  705,187  705,700 
PPP loans* 0  0  0  0  756  756 
Subtotal commercial and industrial 108  381  82  571  790,958  791,529 
Commercial real estate
Construction 0  0  0  0  201,116  201,116 
Agriculture 128  0  0  128  214,835  214,963 
Commercial real estate other 0  0  11,449  11,449  2,425,890  2,437,339 
Subtotal commercial real estate 128  0  11,449  11,577  2,841,841  2,853,418 
Residential real estate
Home equity 435  204  1,628  2,267  186,356  188,623 
Mortgages 1,748  0  6,802  8,550  1,337,768  1,346,318 
Subtotal residential real estate 2,183  204  8,430  10,817  1,524,124  1,534,941 
Consumer and other
Indirect 66  31  53  150  2,074  2,224 
Consumer and other 52  19  112  183  75,229  75,412 
Subtotal consumer and other 118  50  165  333  77,303  77,636 
Leases 0  0  0  0  16,134  16,134 
Total loans and leases 2,537  635  20,126  23,298  5,250,360  5,273,658 
Less: unearned income and deferred costs and fees 0  0  0  0  (4,747) (4,747)
Total loans and leases, net of unearned income and deferred costs and fees $ 2,537  $ 635  $ 20,126  $ 23,298  $ 5,245,613  $ 5,268,911 
*SBA Paycheck Protection Program



























16

The following tables present the amortized cost basis of loans on nonaccrual status and the amortized cost basis of loans on nonaccrual status for which there was no related allowance for credit losses. The below tables are an age analysis of nonaccrual loans segregated by class of loans, as of September 30, 2023 and December 31, 2022:

September 30, 2023
(In thousands) Nonaccrual Loans and Leases with no ACL Nonaccrual Loans and Leases Loans and Leases Past Due Over 89 Days and Accruing
Loans and Leases
Commercial and industrial
Commercial and industrial other $ 2,494  $ 3,163  $ 0 
Subtotal commercial and industrial 2,494  3,163  0 
Commercial real estate
Agriculture 0  174  0 
Commercial real estate other 7,033  10,760  0 
Subtotal commercial real estate 7,033  10,934  0 
Residential real estate
Home equity 0  3,112  0 
Mortgages 0  13,812  1 
Subtotal residential real estate 0  16,924  1 
Consumer and other
Indirect 0  67  0 
Consumer and other 0  293  51 
Subtotal consumer and other 0  360  51 
Total loans and leases $ 9,527  $ 31,381  $ 52 

December 31, 2022
(In thousands) Nonaccrual Loans and Leases with no ACL Nonaccrual Loans and Leases Loans and Leases Past Due Over 89 Days and Accruing
Loans and Leases
Commercial and industrial
Commercial and industrial other $ 411  $ 618  $ 25 
Subtotal commercial and industrial 411  618  25 
Commercial real estate
Agriculture 186  186  0 
Commercial real estate other 13,101  13,672  0 
Subtotal commercial real estate 13,287  13,858  0 
Residential real estate
Home equity 318  2,391  0 
Mortgages 1,177  11,153  0 
Subtotal residential real estate 1,495  13,544  0 
Consumer and other
Indirect 0  94  0 
Consumer and other 0  175  0 
Subtotal consumer and other 0  269  0 
Total loans and leases $ 15,193  $ 28,289  $ 25 



17

The Company recognized $0 of interest income on nonaccrual loans during the three and nine months ended September 30, 2023 and 2022.

5. Allowance for Credit Losses
 
Management reviews the appropriateness of the ACL 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 credit 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. 119, Measurement of Credit Losses on Financial Instruments ("CECL"), and Financial Instruments - Credit Losses and ASC Topic 326, Financial Instruments - Credit Losses.

The Company uses a Discounted Cash Flow ("DCF") method to estimate expected credit losses for all loan segments excluding the leasing segment. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, recovery lag, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on internal historical data.

The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loans utilizing the DCF method, management utilizes forecasts of national unemployment and a one year percentage change in national gross domestic product as loss drivers in the model.

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts, and scenario weightings, are also considered by management when developing the forecast metrics.

Due to the size and characteristics of the leasing portfolio, the Company uses the remaining life method, using the historical loss rate of the commercial and industrial segment, to determine the allowance for credit losses.

The combination of adjustments for credit expectations and timing expectations produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce a net present value of expected cash flows ("NPV"). An ACL is established for the difference between the NPV and amortized cost basis.

Since the methodology is based upon historical experience and trends, current conditions, and reasonable and supportable forecasts, as well as management’s judgment, factors may arise that result in different estimates. While management’s evaluation of the allowance as of September 30, 2023, considers the allowance to be appropriate, under certain conditions or assumptions, the Company would need to increase or decrease the allowance. In addition, various federal and State regulatory agencies, as part of their examination process, review the Company's allowance and may require the Company to recognize additions to the allowance based on their judgements and information available to them at the time of their examinations.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, and commercial letters of credit. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancellable, through a charge to credit loss expense for off-balance sheet credit exposures included in provision expense in the Company's consolidated statements of income.



18

The following table details activity in the allowance for credit losses on loans for the three and nine months ended September 30, 2023 and 2022. 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 September 30, 2023
(In thousands) Commercial
& Industrial		 Commercial
Real Estate		 Residential
Real Estate		 Consumer
and Other		 Finance
Leases		 Total
Allowance for credit losses:
Beginning balance $ 6,685  $ 28,968  $ 11,111  $ 1,680  $ 101  $ 48,545 
Charge-offs 0  0  0  (271) 0  (271)
Recoveries 8  1  4  81  0  94 
Provision (credit) for credit loss expense (241) 366  791  70  (18) 968 
Ending Balance $ 6,452  $ 29,335  $ 11,906  $ 1,560  $ 83  $ 49,336 

Three Months Ended September 30, 2022
(In thousands) Commercial
& Industrial		 Commercial
Real Estate		 Residential
Real Estate		 Consumer
and Other		 Finance
Leases		 Total
Allowance for credit losses:
Beginning balance $ 7,814  $ 23,227  $ 11,082  $ 1,591  $ 79  $ 43,793 
Charge-offs (343) 0  51  (132) 0  (424)
Recoveries 106  105  8  83  0  302 
Provision (credit) for credit loss expense (1,053) 3,207  (698) (362) 7  1,101 
Ending Balance $ 6,524  $ 26,539  $ 10,443  $ 1,180  $ 86  $ 44,772 

Nine Months Ended September 30, 2023
(In thousands) Commercial
& Industrial		 Commercial
Real Estate		 Residential
Real Estate		 Consumer
and Other		 Finance
Leases		 Total
Allowance for credit losses:
Beginning balance $ 6,039  $ 27,287  $ 11,154  $ 1,358  $ 96  $ 45,934 
Impact of adopting ASU 2016-13 2  16  46  0  0  64 
Charge-offs 0  0  (2) (546) 0  (548)
Recoveries 67  1,238  182  192  0  1,679 
Provision (credit) for credit loss expense 344  794  526  556  (13) 2,207 
Ending Balance $ 6,452  $ 29,335  $ 11,906  $ 1,560  $ 83  $ 49,336 

Nine Months Ended September 30, 2022
(In thousands) Commercial
& Industrial		 Commercial
Real Estate		 Residential
Real Estate		 Consumer
and Other		 Finance
Leases		 Total
Allowance for credit losses:
Beginning balance $ 6,335  $ 24,813  $ 10,139  $ 1,492  $ 64  $ 42,843 
Charge-offs (366) (50) 0  (410) 0  (826)
Recoveries 132  910  315  251  0  1,608 
Provision (credit) for credit loss expense 423  866  (11) (153) 22  1,147 
Ending Balance $ 6,524  $ 26,539  $ 10,443  $ 1,180  $ 86  $ 44,772 



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The following table details activity in the liabilities for off-balance sheet credit exposures for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30,
(In thousands) 2023 2022
Liabilities for off-balance sheet credit exposures at beginning of period $ 2,985  $ 2,796 
(Credit) provision for credit loss expense related to off-balance sheet credit exposures 182  (45)
Liabilities for off-balance sheet credit exposures at end of period $ 3,167  $ 2,751 

Nine Months Ended September 30,
(In thousands) 2023 2022
Liabilities for off-balance sheet credit exposures at beginning of period $ 2,796  $ 2,506 
Provision for credit loss expense related to off-balance sheet credit exposures 371  245 
Liabilities for off-balance sheet credit exposures at end of period $ 3,167  $ 2,751 

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses allocated to these loans:

(In thousands) Real Estate Business Assets Other Total ACL Allocation
September 30, 2023
Commercial and Industrial $ 2,494  $ 0  $ 0  $ 2,494  $ 0 
Commercial Real Estate 9,362  0  0  9,362  1,082 
Total $ 11,856  $ 0  $ 0  $ 11,856  $ 1,082 

(In thousands) Real Estate Business Assets Other Total ACL Allocation
December 31, 2022
Commercial and Industrial $ 642  $ 28  $ 0  $ 670  $ 0 
Commercial Real Estate 13,209  0  78  13,287  0 
Commercial Real Estate - Agriculture 1,515  0  0  1,515  0 
Residential Real Estate 188  0  0  188  3 
Total $ 15,554  $ 28  $ 78  $ 15,660  $ 3 

The Company adopted ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2022-02") effective January 1, 2023. ASU 2022-02 eliminates the guidance on troubled debt restructurings ("TDRs") and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases, which has been incorporated in the credit quality table below.

During the three and nine months ended September 30, 2023, loans that were modified to borrowers experiencing financial difficulty were immaterial. There were no new TDRs reported in the three and nine months ended September 30, 2022.











20

The following table presents credit quality indicators by total loans on an amortized cost basis by origination year as of September 30, 2023 and December 31, 2022:

September 30, 2023
(In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Loans
Commercial and Industrial - Other:
Internal risk grade:
Pass $ 83,753  $ 97,245  $ 70,435  $ 29,914  $ 36,570  $ 149,820  $ 212,932  $ 5,036  $ 685,705 
Special Mention 0  46  104  395  96  1,521  638  0  2,800 
Substandard 0  0  86  360  24  798  5,672  0  6,940 
Total Commercial and Industrial - Other $ 83,753  $ 97,291  $ 70,625  $ 30,669  $ 36,690  $ 152,139  $ 219,242  $ 5,036  $ 695,445 
Current-period gross writeoffs $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0 
Commercial and Industrial - PPP:
Pass $ 0  $ 0  $ 323  $ 165  $ 0  $ 0  $ 0  $ 0  $ 488 
Special Mention 0 0 0 0 0 0 0 0 0
Substandard 0 0 0 0 0 0 0 0 0
Total Commercial and Industrial - PPP $ 0  $ 0  $ 323  $ 165  $ 0  $ 0  $ 0  $ 0  $ 488 
Current-period gross writeoffs $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0 
Commercial and Industrial - Agriculture:
Pass $ 15,612  $ 12,772  $ 3,037  $ 3,569  $ 3,415  $ 8,501  $ 29,767  $ 657  $ 77,330 
Special Mention 0  0  268  0  0  0  49  0  317 
Substandard 0  0  0  60  0  10  3  0  73 
Total Commercial and Industrial - Agriculture $ 15,612  $ 12,772  $ 3,305  $ 3,629  $ 3,415  $ 8,511  $ 29,819  $ 657  $ 77,720 
Current-period gross writeoffs $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0 
Commercial Real Estate
Pass $ 134,025  $ 320,115  $ 369,981  $ 309,691  $ 276,956  $ 949,655  $ 17,618  $ 17,979  $ 2,396,020 
Special Mention 0  636  2,027  3,720  11,062  43,986  0  0  61,431 
Substandard 0  15,300  107  0  2,529  30,343  1,434  0  49,713 
Total Commercial Real Estate $ 134,025  $ 336,051  $ 372,115  313,411  290,547  1,023,984  $ 19,052  $ 17,979  $ 2,507,164 
Current-period gross writeoffs $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0 
Commercial Real Estate - Agriculture:
Pass $ 9,083  $ 38,097  $ 23,213  $ 21,453  $ 24,133  $ 95,410  $ 2,413  $ 2,676  $ 216,478 
Special Mention 0  0  0  0  384  1,061  0  0  1,445 
Substandard 0  0  0  0  174  47  0  0  221 
Total Commercial Real Estate - Agriculture $ 9,083  $ 38,097  $ 23,213  $ 21,453  $ 24,691  $ 96,518  $ 2,413  $ 2,676  $ 218,144 
Current-period gross writeoffs $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0 


21

(In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Loans
Commercial Real Estate - Construction
Pass $ 0  $ 2,821  $ 9,731  $ 2,524  $ 468  $ 1,129  $ 250,483  $ 3,805  $ 270,961 
Special Mention 0  0  0  0  0  0  0  0  0 
Substandard 0  0  0  0  0  0  0  0  0 
Total Commercial Real Estate - Construction $ 0  $ 2,821  $ 9,731  $ 2,524  $ 468  $ 1,129  $ 250,483  $ 3,805  $ 270,961 
Current-period gross writeoffs $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0 
Residential - Home Equity
Performing $ 1,729  $ 2,164  $ 939  $ 557  $ 864  $ 8,640  $ 163,758  $ 5,624  $ 184,275 
Nonperforming 0  0  0  0  0  331  2,781  0  3,112 
Total Residential - Home Equity $ 1,729  $ 2,164  $ 939  $ 557  $ 864  $ 8,971  $ 166,539  $ 5,624  $ 187,387 
Current-period gross writeoffs $ 0  $ 0  $ 0  $ 0  $ 0  $ 2  $ 0  $ 0  $ 2 
Residential - Mortgages
Performing $ 99,637  $ 188,901  $ 260,395  $ 225,960  $ 111,379  $ 468,208  $ 0  $ 0  $ 1,354,480 
Nonperforming 0  514  330  1,180  896  10,892  0  0  13,812 
Total Residential - Mortgages $ 99,637  $ 189,415  $ 260,725  $ 227,140  $ 112,275  $ 479,100  $ 0  $ 0  $ 1,368,292 
Current-period gross writeoffs $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0 
Consumer - Direct
Performing $ 47,087  $ 14,091  $ 12,163  $ 5,884  $ 4,382  $ 10,589  $ 2,676  $ 0  $ 96,872 
Nonperforming 10  9  11  4  115  133  11  0  293 
Total Consumer - Direct $ 47,097  $ 14,100  $ 12,174  $ 5,888  $ 4,497  $ 10,722  $ 2,687  $ 0  $ 97,165 
Current-period gross writeoffs $ 406  $ 8  $ 0  $ 17  $ 38  $ 14  $ 0  $ 0  $ 483 
Consumer - Indirect
Performing $ 0  $ 0  $ 112  $ 82  $ 522  $ 307  $ 0  $ 0  $ 1,023 
Nonperforming 0  0  0  0  55  12  0  0  67 
Total Consumer - Indirect $ 0  $ 0  $ 112  $ 82  $ 577  $ 319  $ 0  $ 0  $ 1,090 
Current-period gross writeoffs $ 0  $ 0  $ 0  $ 0  $ 49  $ 14  $ 0  $ 0  $ 63 


22

December 31, 2022
(In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Loans
Commercial and Industrial - Other:
Internal risk grade:
Pass $ 124,190  $ 79,861  $ 38,158  $ 41,391  $ 33,238  $ 156,038  $ 215,890  $ 6,466  $ 695,232 
Special Mention 0  127  421  285  271  1,380  501  0  2,985 
Substandard 0  111  442  35  733  503  5,659  0  7,483 
Total Commercial and Industrial - Other $ 124,190  $ 80,099  $ 39,021  $ 41,711  $ 34,242  $ 157,921  $ 222,050  $ 6,466  $ 705,700 
Commercial and Industrial - Agriculture:
Pass $ 16,694  $ 4,120  $ 4,944  $ 4,186  $ 7,734  $ 4,883  $ 42,097  $ 215  $ 84,873 
Special Mention 0 58 0 0 0 0 50  0 108 
Substandard 0 0 71 0 0 16  5  0 92 
Total Commercial and Industrial - Agriculture $ 16,694  $ 4,178  $ 5,015  $ 4,186  $ 7,734  $ 4,899  $ 42,152  $ 215  $ 85,073 
Commercial and Industrial - PPP:
Pass $ 0  $ 416  $ 340  $ 0  $ 0  $ 0  $ 0  $ 0  $ 756 
Special Mention 0  0  0  0  0  0  0  0  0 
Substandard 0  0  0  0  0  0  0  0  0 
Total Commercial and Industrial - PPP $ 0  $ 416  $ 340  $ 0  $ 0  $ 0  $ 0  $ 0  $ 756 
Commercial Real Estate
Pass $ 342,311  $ 367,104  $ 311,607  $ 279,587  $ 203,016  $ 812,563  $ 10,906  $ 24,503  $ 2,351,597 
Special Mention 643  3,406  1,688  11,462  2,555  25,361  0  0  45,115 
Substandard 78  110  0  3,394  1,692  35,221  132  0  40,627 
Total Commercial Real Estate $ 343,032  $ 370,620  $ 313,295  $ 294,443  $ 207,263  $ 873,145  $ 11,038  $ 24,503  $ 2,437,339 
Commercial Real Estate - Agriculture:
Pass $ 33,241  $ 24,125  $ 22,831  $ 25,576  $ 37,835  $ 65,112  $ 3,131  $ 1,235  $ 213,086 
Special Mention 0  0  0  401  0  1,142  0  0  1,543 
Substandard 0  0  0  186  38  110  0  0  334 
Total Commercial Real Estate - Agriculture $ 33,241  $ 24,125  $ 22,831  $ 26,163  $ 37,873  $ 66,364  $ 3,131  $ 1,235  $ 214,963 
Commercial Real Estate - Construction
Pass $ 23,105  $ 75,245  $ 27,584  $ 14,842  $ 9,083  $ 7,268  $ 42,701  $ 1,288  $ 201,116 
Special Mention 0  0  0  0  0  0  0  0  0 
Substandard 0  0  0  0  0  0  0  0  0 
Total Commercial Real Estate - Construction $ 23,105  $ 75,245  $ 27,584  $ 14,842  $ 9,083  $ 7,268  $ 42,701  $ 1,288  $ 201,116 







23

The following table presents credit quality indicators by total loans on an amortized cost basis by origination year as of December 31, 2022, continued:

December 31, 2022
(In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Loans
Residential - Home Equity
Performing $ 3,030  $ 1,062  $ 637  $ 992  $ 792  $ 3,183  $ 175,451  $ 1,085  $ 186,232 
Nonperforming 0  0  0  14  0  25  2,352  0  2,391 
Total Residential - Home Equity $ 3,030  $ 1,062  $ 637  $ 1,006  $ 792  $ 3,208  $ 177,803  $ 1,085  $ 188,623 
Residential - Mortgages
Performing $ 187,129  $ 272,235  $ 239,584  $ 117,391  $ 66,605  $ 452,221  $ 0  $ 0  $ 1,335,165 
Nonperforming 218  335  628  682  1,552  7,738  0  0  11,153 
Total Residential - Mortgages $ 187,347  $ 272,570  $ 240,212  $ 118,073  $ 68,157  $ 459,959  $ 0  $ 0  $ 1,346,318 
Consumer - Direct
Performing $ 31,243  $ 13,999  $ 7,372  $ 6,138  $ 4,386  $ 8,029  $ 4,070  $ 0  $ 75,237 
Nonperforming 0  0  3  93  76  0  3  0  175 
Total Consumer - Direct $ 31,243  $ 13,999  $ 7,375  $ 6,231  $ 4,462  $ 8,029  $ 4,073  $ 0  $ 75,412 
Consumer - Indirect
Performing $ 0  $ 156  $ 146  $ 1,092  $ 635  $ 101  $ 0  $ 0  $ 2,130 
Nonperforming 0  0  0  76  10  8  0  0  94 
Total Consumer - Indirect $ 0  $ 156  $ 146  $ 1,168  $ 645  $ 109  $ 0  $ 0  $ 2,224 

6. Earnings Per Share
 
Earnings per share in the table below, for the three and nine month periods ended September 30, 2023 and 2022 are calculated under the two-class method as required by ASC Topic 260, Earnings Per Share (ASC 260). ASC 260 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company has issued restricted stock awards that contain such rights and are therefore considered participating securities. Basic earnings per common share are calculated by dividing net income allocable to common stock by the weighted average number of common shares, excluding participating securities, during the period. Diluted earnings per common share include the dilutive effect of participating securities.
 


24

Three Months Ended
(In thousands, except share and per share data) 9/30/2023 9/30/2022
Basic
Net (loss) income available to common shareholders $ (33,354) $ 21,340 
Less: income attributable to unvested stock-based compensation awards (8) (66)
Net earnings allocated to common shareholders (33,362) 21,274 
Weighted average shares outstanding, including unvested stock-based compensation awards 14,364,909  14,489,970 
Less: average unvested stock-based compensation awards (179,146) (200,948)
Weighted average shares outstanding - Basic 14,185,763  14,289,022 
Diluted
Net earnings allocated to common shareholders (33,362) 21,274 
Weighted average shares outstanding - Basic 14,185,763  14,289,022 
Plus: incremental shares from assumed conversion of stock-based compensation awards 38,985  78,127 
Weighted average shares outstanding - Diluted 14,224,748  14,367,149 
Basic EPS $ (2.35) $ 1.49 
Diluted EPS $ (2.35) $ 1.48 

Stock-based compensation awards representing 53,490 and 369 of common shares during the three months ended September 30, 2023 and 2022, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been anti-dilutive.
Nine Months Ended
(In thousands, except share and per share data) 9/30/2023 9/30/2022
Basic
Net (loss) income available to common shareholders $ (5,498) $ 65,482 
Less: income attributable to unvested stock-based compensation awards (34) (209)
Net earnings allocated to common shareholders (5,532) 65,273 
Weighted average shares outstanding, including unvested stock-based compensation awards 14,461,819  14,541,772 
Less: unvested stock-based compensation awards (186,890) (206,738)
Weighted average shares outstanding - Basic 14,274,929  14,335,034 
Diluted
Net earnings allocated to common shareholders (5,532) 65,273 
Weighted average shares outstanding - Basic 14,274,929  14,335,034 
Plus: incremental shares from assumed conversion of stock-based compensation awards 44,906  75,498 
Weighted average shares outstanding - Diluted 14,319,835  14,410,532 
Basic EPS $ (0.39) $ 4.55 
Diluted EPS $ (0.39) $ 4.53 

Stock-based compensation awards representing approximately 39,266 and 4,719 of common shares during the nine months ended September 30, 2023 and 2022, respectively were not included in the computations of diluted earnings per common share because the effect on those periods would have been anti-dilutive.


25

7. Other Comprehensive Income (Loss)

The following tables present reclassifications out of accumulated other comprehensive income (loss) for the three and nine month periods ended September 30, 2023 and 2022:
Three Months Ended September 30, 2023
(In thousands) Before-Tax
Amount		 Tax (Expense)
Benefit		 Net of Tax
Available-for-sale debt securities:
Change in net unrealized gain (loss) during the period $ (37,449) $ 9,176  $ (28,273)
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income (loss) 62,932  (15,419) 47,513 
Net unrealized gains/losses 25,483  (6,243) 19,240 
Employee benefit plans:
Amortization of net retirement plan actuarial gain 279  (68) 211 
Amortization of net retirement plan prior service cost 53  (13) 40 
Employee benefit plans 332  (81) 251 
Other comprehensive (loss) income $ 25,815  $ (6,324) $ 19,491 
 
Three Months Ended September 30, 2022
(In thousands) Before-Tax
Amount		 Tax (Expense)
Benefit		 Net of Tax
Available-for-sale debt securities:
Change in net unrealized (loss) gain during the period $ (85,912) $ 21,039  $ (64,873)
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income 49  (12) 37 
Net unrealized gains/losses (85,863) 21,027  (64,836)
Employee benefit plans:
Amortization of net retirement plan actuarial gain 565  (138) 427 
Amortization of net retirement plan prior service cost 54  (13) 41 
Employee benefit plans 619  (151) 468 
Other comprehensive (loss) income $ (85,244) $ 20,876  $ (64,368)



26

Nine Months Ended September 30, 2023
(In thousands) Before-Tax
Amount		 Tax (Expense)
Benefit		 Net of Tax
Available-for-sale debt securities:
Change in net unrealized gain (loss) during the period $ (27,725) $ 6,793  $ (20,932)
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income (loss) 69,984  (17,146) 52,838 
Net unrealized gains/losses 42,259  (10,353) 31,906 
Employee benefit plans:
Amortization of net retirement plan actuarial loss 837  (205) 632 
Amortization of net retirement plan prior service cost 162  (40) 122 
Employee benefit plans 999  (245) 754 
Other comprehensive (loss) income $ 43,258  $ (10,598) $ 32,660 

Nine Months Ended September 30, 2022
(In thousands) Before-Tax
Amount		 Tax (Expense)
Benefit		 Net of Tax
Available-for-sale debt securities:
Change in net unrealized (loss) gain during the period $ (249,937) $ 61,210  $ (188,727)
Reclassification adjustment for net realized gain on sale of available-for-sale debt securities included in net income 49  (12) 37 
Net unrealized gains/losses (249,888) 61,198  (188,690)
Employee benefit plans:
Amortization of net retirement plan actuarial loss 1,695  (415) 1,280 
Amortization of net retirement plan prior service cost 162  (39) 123 
Employee benefit plans 1,857  (454) 1,403 
Other comprehensive (loss) income $ (248,031) $ 60,744  $ (187,287)



27

The following table presents the activity in our accumulated other comprehensive (loss) income for the periods indicated:
 
(In thousands) Available-for-
Sale Debt Securities		 Employee
Benefit Plans		 Accumulated
Other
Comprehensive
(Loss) Income
Balance at June 30, 2023 $ (166,137) $ (29,383) $ (195,520)
Other comprehensive loss before reclassifications (28,273) 0  (28,273)
Amounts reclassified from accumulated other comprehensive (loss) income 47,513  251  47,764 
Net current-period other comprehensive income (loss) 19,240  251  19,491 
Balance at September 30, 2023 $ (146,897) $ (29,132) $ (176,029)
Balance at January 1, 2023 $ (178,803) $ (29,886) $ (208,689)
Other comprehensive loss before reclassifications (20,932) 0  (20,932)
Amounts reclassified from accumulated other comprehensive (loss) income 52,838  754  53,592 
Net current-period other comprehensive (loss) income 31,906  754  32,660 
Balance at September 30, 2023 $ (146,897) $ (29,132) $ (176,029)

(In thousands) Available-for-
Sale Debit Securities		 Employee
Benefit Plans		 Accumulated
Other
Comprehensive
(Loss) Income
Balance at June 30, 2022 $ (138,414) $ (40,455) $ (178,869)
Other comprehensive loss before reclassifications (64,873) 0  (64,873)
Amounts reclassified from accumulated other comprehensive (loss) income 37  468  505 
Net current-period other comprehensive income (loss) (64,836) 468  (64,368)
Balance at September 30, 2022 $ (203,250) $ (39,987) $ (243,237)
Balance at January 1, 2022 $ (14,560) $ (41,390) $ (55,950)
Other comprehensive loss before reclassifications (188,727) 0  (188,727)
Amounts reclassified from accumulated other comprehensive (loss) income 37  1,403  1,440 
Net current-period other comprehensive (loss) income (188,690) 1,403  (187,287)
Balance at September 30, 2022 $ (203,250) $ (39,987) $ (243,237)

















28

The following tables present the amounts reclassified out of each component of accumulated other comprehensive (loss) income for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30, 2023
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount
Reclassified from
Accumulated
Other
Comprehensive
(Loss) Income1
 Affected Line Item in the
Statement Where Net Income is
Presented
Available-for-sale debt securities:
Unrealized gains and losses on available-for-sale debt securities $ (62,932) Net loss on securities transactions
15,419  Tax expense
(47,513) Net of tax
Employee benefit plans:
Amortization of the following 2
Net retirement plan actuarial loss (279) Other operating expense
Net retirement plan prior service cost (53) Other operating expense
(332) Total before tax
81  Tax benefit
$ (251) Net of tax
 
Three Months Ended September 30, 2022
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount
Reclassified from
Accumulated
Other
Comprehensive
(Loss) Income1
 Affected Line Item in the
Statement Where Net Income is
Presented
Available-for-sale debt securities:
Unrealized gains and losses on available-for-sale debt securities $ (49) Net loss on securities transactions
12  Tax expense
(37) Net of tax
Employee benefit plans:
Amortization of the following2
Net retirement plan actuarial loss (565) Other operating expense
Net retirement plan prior service cost (54) Other operating expense
(619) Total before tax
151  Tax benefit
$ (468) Net of tax


29

Nine Months Ended September 30, 2023
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount
Reclassified from
Accumulated
Other
Comprehensive
(Loss) Income1
 Affected Line Item in the
Statement Where Net Income is
Presented
Available-for-sale debt securities:
Unrealized gains and losses on available-for-sale debt securities $ (69,984) Net loss on securities transactions
17,146  Tax expense
(52,838) Net of tax
Employee benefit plans:
Amortization of the following2
Net retirement plan actuarial loss (837) Other operating expense
Net retirement plan prior service cost (162) Other operating expense
(999) Total before tax
245  Tax benefit
$ (754) Net of tax

Nine Months Ended September 30, 2022
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount
Reclassified from
Accumulated
Other
Comprehensive
(Loss) Income1
 Affected Line Item in the
Statement Where Net Income is
Presented
Available-for-sale debt securities:
Unrealized gains and losses on available-for-sale debt securities $ (49) Net loss on securities transactions
12  Tax expense
(37) Net of tax
Employee benefit plans:
Amortization of the following2
Net retirement plan actuarial loss (1,695) Other operating expense
Net retirement plan prior service cost (162) Other operating expense
(1,857) Total before tax
454  Tax benefit
$ (1,403) Net of tax
1 Amounts in parentheses indicated debits in income statement.
2 The accumulated other comprehensive (loss) income components are included in the computation of net periodic benefit cost (See Note 8 - "Employee Benefit Plan").
 



30

8. Employee Benefit Plans
 
The following tables set forth the amount of the net periodic benefit cost recognized by the Company for the Company’s pension plan, post-retirement plan (Life and Health), and supplemental employee retirement plans ("SERP") including the following components: service cost, interest cost, expected return on plan assets for the period, amortization of the unrecognized transitional obligation or transition asset, and the amounts of recognized gains and losses, prior service cost recognized, and gain or loss recognized due to settlement or curtailment.

Components of Net Periodic Benefit Cost
Pension Benefits Life and Health SERP Benefits
Three Months Ended Three Months Ended Three Months Ended
(In thousands) 9/30/2023 9/30/2022 9/30/2023 9/30/2022 9/30/2023 9/30/2022
Service cost $ 0  $ 0  $ 8  $ 43  $ 11  $ 19 
Interest cost 819  496  89  56  287  203 
Expected return on plan assets (1,198) (1,471) 0  0  0  0 
Amortization of net retirement plan actuarial loss 289  304  (10) 49  0  212 
Amortization of net retirement plan prior service (credit) cost 0  0  (16) (15) 69  69 
Net periodic benefit (income) cost $ (90) $ (671) $ 71  $ 133  $ 367  $ 503 

Pension Benefits Life and Health SERP Benefits
Nine Months Ended Nine Months Ended Nine Months Ended
(In thousands) 9/30/2023 9/30/2022 9/30/2023 9/30/2022 9/30/2023 9/30/2022
Service cost $ 0  $ 0  $ 24  $ 130  $ 32  $ 58 
Interest cost 2,456  1,489  266  167  861  610 
Expected return on plan assets (3,592) (4,414) 0  0  0  0 
Amortization of net retirement plan actuarial loss 867  913  (30) 147  0  635 
Amortization of net retirement plan prior service cost (credit) 0  0  (46) (46) 208  208 
Net periodic benefit (income) cost $ (269) $ (2,012) $ 214  $ 398  $ 1,101  $ 1,511 

The service component of net periodic benefit cost for the Company's benefit plans is recorded as a part of salaries and wages in the consolidated statements of income. All other components are recorded as part of other operating expenses in the consolidated statements of income.
 
The Company realized approximately $754,000 and $1.4 million, net of tax, as amortization of amounts previously recognized in accumulated other comprehensive (loss) income, for the nine months ended September 30, 2023 and 2022, respectively.
 
The Company is not required to contribute to the pension plan, but it may make voluntary contributions. The Company did not contribute to the pension plan in the first nine months of 2023 and 2022.



31

9. Other Income and Operating Expense
 
Other income and operating expense totals are presented in the table below. Components of these totals exceeding 1% of the aggregate of total noninterest income and total noninterest expenses for any of the periods presented below are stated separately.
 
Three Months Ended Nine Months Ended
(In thousands) 9/30/2023 9/30/2022 9/30/2023 9/30/2022
Noninterest Income
Other service charges $ 645  $ 721  $ 1,909  $ 2,017 
Earnings from corporate owned life insurance (2) (236) 1,167  357 
Net gains on the sale of loans originated for sale 21  83  86  140 
Other income 326  409  1,372  1,180 
Total other income $ 990  $ 977  $ 4,534  $ 3,694 
Noninterest Expenses
Marketing expense $ 782  $ 1,207  $ 3,575  $ 3,719 
Professional fees 1,761  1,665  5,689  4,990 
Legal fees 293  298  1,347  1,006 
Technology expense 3,928  3,890  11,590  11,253 
FDIC insurance 1,041  719  2,874  2,097 
Cardholder expense 1,059  1,129  3,192  3,551 
Other expenses 4,602  3,329  13,136  10,670 
Total other operating expense $ 13,466  $ 12,237  $ 41,403  $ 37,286 
 
10. Revenue Recognition

As stated in Note 1 - "Summary of Significant Accounting Policies," in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, the Company adopted adopted ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers on January 1, 2022. The update relates to the previous adoption of ASC 606, "Revenue from Contracts with Customers" and all subsequent ASUs that modified ASC 606, and will be applied to future acquisitions. As there were no acquisitions during the current year, the adoption of ASU No. 2021-08 had no effect on the financial statements for the current fiscal year.

Generally, this guidance strives to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity and inconsistency amongst entities in measuring contract assets and liabilities. The update requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contract. Changes in the acquiree’s balance of contract asset and contract liabilities identified as necessary to conform to the acquirer’s accounting policies would result in a reallocation of the purchase price.

ASC 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of ASC 606. ASC 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of ASC 606.

Insurance Commissions and Fees
Insurance commissions and fees from insurance product sales are typically earned upon the effective date of bound coverage, as no significant performance obligation remains after coverage is bound. Commission revenue on policies billed in installments is now accrued based upon the completion of the performance obligation creating a current asset for the unbilled revenue until such time as an invoice is generated, typically not to exceed twelve months. The impact of these changes was not significant, but it will result in slight variances from quarter to quarter. Contingent commissions are estimated based upon management’s expectations for the year with an appropriate constraint applied and accrued relative to the recognition of the corresponding core commissions.


32


Trust & Asset Management
Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.

Mutual Fund & Investment Income
Mutual fund and investment income consists of other recurring revenue streams such as commissions from sales of mutual funds and other investments, and investment advisory fees from the Company’s Strategic Asset Management Services (SAM) wealth management product. Commissions from the sale of mutual funds and other investments are recognized on the trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value, recorded over time, usually monthly or quarterly, as net asset value is determined. Investment advisor fees from the wealth management product is earned over time and based on an annual percentage rate of the net asset value. The investment advisor fees are charged to the customer’s account in advance on the first month of the quarter, and the revenue is recognized over the following three-month period. The Company does engage a third party, LPL Financial, LLC (LPL), to satisfy part of this performance obligation, and therefore this income is reported net of any corresponding expenses paid to LPL.

Service Charges on Deposit Accounts
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Card Services Income
Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as MasterCard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. The Company’s performance obligation for fees and exchange are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Other
Other service charges include revenue from processing wire and ACH transfers, lock box service and safe deposit box rental. Payment on these revenue streams is received primarily through a direct charge to the customer’s account, immediately or in the following month, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.



33

The following tables present noninterest income, segregated by revenue streams in-scope and out-of-scope of ASC 606, for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended
(In thousands) 09/30/2023 09/30/2022
Noninterest Income
In-scope of Topic 606:
Commissions and Fees $ 10,301  $ 9,827 
Installment Billing 138  126 
Refund of Commissions (60) (133)
Contract Liabilities/Deferred Revenue 0  1 
Contingent Commissions 1,018  1,004 
Subtotal Insurance Revenues 11,397  10,825 
Trust and Asset Management 3,423  3,209 
Mutual Fund & Investment Income 919  1,128 
Subtotal Investment Service Income 4,342  4,337 
Service Charges on Deposit Accounts 1,754  1,917 
Card Services Income 2,860  2,731 
Other 314  332 
Noninterest Income (in-scope of ASC 606) 20,667  20,142 
Noninterest Income (out-of-scope of ASC 606) (62,291) 550 
Total Noninterest Income $ (41,624) $ 20,692 

Nine Months Ended
(In thousands) 9/30/2023 9/30/2022
Noninterest Income
In-scope of Topic 606:
Commissions and Fees $ 26,796  $ 25,663 
Installment Billing 97  124 
Refund of Commissions 113  (151)
Contract Liabilities/Deferred Revenue (298) (266)
Contingent Commissions 2,870  3,201 
Subtotal Insurance Revenues 29,578  28,571 
Trust and Asset Management 10,494  9,834 
Mutual Fund & Investment Income 3,035  4,016 
Subtotal Investment Service Income 13,529  13,850 
Service Charges on Deposit Accounts 5,140  5,452 
Card Services Income 8,629  8,233 
Other 989  957 
Noninterest Income (in-scope of ASC 606) 57,865  57,063 
Noninterest Income (out-of-scope of ASC 606) (66,474) 2,558 
Total Noninterest Income $ (8,609) $ 59,621 

Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration or before payment is due, which would result in contract receivables or assets, respectively. A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment or for which payment is due from the customer. The Company’s noninterest revenue streams, excluding some insurance commissions and fees, are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Receivables primarily consist of amounts due for insurance and wealth management services performed for which the Company's performance obligations have been fully satisfied.


34

Receivables for the insurance and wealth management services segments amounted to $6.1 million and $2.7 million, respectively, at September 30, 2023, compared to $6.1 million and $2.5 million, respectively, at December 31, 2022. Included in those amounts are contract assets related to contingent income of $2.3 million and $2.9 million, respectively, at September 30, 2023 and December 31, 2022, and contract liabilities of $0.5 million and $1.6 million, respectively, at September 30, 2023 and December 31, 2022.

Contract Acquisition Costs
The Company is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less.

11. Financial Guarantees
 
The Company currently does not issue any guarantees that would require liability recognition or disclosure, other than standby letters of credit. The Company extends standby letters of credit to its customers in the normal course of business. The standby letters of credit are generally short-term. As of September 30, 2023, the Company’s maximum potential obligation under standby letters of credit was $35.6 million compared to $35.8 million at December 31, 2022. Management uses the same credit policies to extend standby letters of credit that it uses for on-balance sheet lending decisions and may require collateral to support standby letters of credit based upon its evaluation of the counterparty. Management does not anticipate any significant losses as a result of these transactions, and has determined that the fair value of standby letters of credit is not significant.
 
12. Segment and Related Information
 
The Company manages its operations through three reportable business segments in accordance with the standards set forth in FASB ASC 280, "Segment Reporting": (i) banking ("Banking"), (ii) insurance ("Tompkins Insurance") and (iii) wealth management ("Tompkins Financial Advisors"). The Company’s insurance services and wealth management services, other than trust services, are managed separately from the Banking segment.
 
Banking
Tompkins Community Bank has twelve banking offices located in Ithaca, NY and surrounding communities; fifteen banking offices located in the Genesee Valley region of New York State, which includes Monroe County; thirteen banking offices located in the counties north of New York City; and nineteen banking offices headquartered and operating in the areas surrounding southeastern Pennsylvania.
 
Insurance
The Company provides property and casualty insurance services and employee benefits consulting through Tompkins Insurance Agencies, Inc., a 100% wholly-owned subsidiary of the Company, headquartered in Batavia, New York. Tompkins Insurance is an independent insurance agency, representing many major insurance carriers and provides employee benefit consulting to employers in Western and Central New York and Southeastern Pennsylvania, assisting them with their medical, group life insurance and group disability insurance. Tompkins Insurance has five stand-alone offices in Western New York.
 
Wealth Management
The Wealth Management segment is generally organized under the Tompkins Financial Advisors brand. Tompkins Financial Advisors offers a comprehensive suite of financial services to customers, including trust and estate services, investment management and financial and insurance planning for individuals, corporate executives, small business owners and high net worth individuals. Tompkins Financial Advisors has offices in each of the Company’s regional markets.

Summarized financial information concerning the Company’s reportable segments and the reconciliation to the Company’s consolidated results is shown in the following table. Investment in subsidiaries is netted out of the presentations below. The “Intercompany” column identifies the intercompany activities of revenues, expenses and other assets between the banking, insurance and wealth management services segments. The Company accounts for intercompany fees and services at an estimated fair value according to regulatory requirements for the services provided. Intercompany items relate primarily to the use of human resources, information systems, accounting and marketing services provided by the bank and the holding company. All other accounting policies are the same as those described in the summary of significant accounting policies in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
 


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Three Months Ended September 30, 2023
(In thousands) Banking Insurance Wealth Management Intercompany Consolidated
Interest income $ 75,465  $ 1  $ 0  $ (1) $ 75,465 
Interest expense 24,453  0  0  (1) 24,452 
Net interest income 51,012  1  0  0  51,013 
Provision for credit loss expense 1,150  0  0  0  1,150 
Noninterest income (57,007) 11,529  4,414  (560) (41,624)
Noninterest expense 39,648  7,109  3,668  (559) 49,866 
(Loss) Income before income tax expense (46,793) 4,421  746  (1) (41,627)
Income tax (benefit) expense (9,701) 1,213  184  0  (8,304)
Net (Loss) Income attributable to noncontrolling interests and Tompkins Financial Corporation (37,092) 3,208  562  (1) (33,323)
Less: Net income attributable to noncontrolling interests 31  0  0  0  31 
Net (Loss) Income attributable to Tompkins Financial Corporation $ (37,123) $ 3,208  $ 562  $ (1) $ (33,354)
Depreciation and amortization $ 2,702  $ 44  $ 44  $ 0  $ 2,790 
Assets 7,632,733  46,222  28,730  (16,523) 7,691,162 
Goodwill 64,655  19,866  8,081  0  92,602 
Other intangibles, net 967  1,416  38  0  2,421 
Net loans and leases 5,385,524  0  0  0  5,385,524 
Deposits 6,645,587  0  0  (22,151) 6,623,436 
Total Equity 545,037  36,745  30,574  0  612,356 



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Three Months Ended September 30, 2022
(In thousands) Banking Insurance Wealth
Management		 Intercompany Consolidated
Interest income $ 63,670  $ 1  $ 0  $ (1) $ 63,670 
Interest expense 5,560  0  0  (1) 5,559 
Net interest income 58,110  1  0  0  58,111 
Provision for credit loss expense 1,056  0  0  0  1,056 
Noninterest income 5,973  10,953  4,342  (576) 20,692 
Noninterest expense 39,448  7,178  3,552  (576) 49,602 
Income before income tax expense 23,579  3,776  790  0  28,145 
Income tax expense 5,528  1,052  194  0  6,774 
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation 18,051  2,724  596  0  21,371 
Less: Net income attributable to noncontrolling interests 31  0  0  0  31 
Net Income attributable to Tompkins Financial Corporation $ 18,020  $ 2,724  $ 596  $ 0  $ 21,340 
Depreciation and amortization $ 2,652  $ 44  $ 36  $ 0  $ 2,732 
Assets 7,721,022  46,807  28,761  (16,649) 7,779,941 
Goodwill 64,655  19,866  8,081  0  92,602 
Other intangibles, net 1,137  1,742  53  0  2,932 
Net loans and leases 5,163,664  0  0  0  5,163,664 
Deposits 6,954,839  0  0  (18,113) 6,936,726 
Total Equity 511,298  35,625  26,036  0  572,959 

Nine Months Ended September 30, 2023
(In thousands) Banking Insurance Wealth
Management		 Intercompany Consolidated
Interest income $ 216,573  $ 3  $ 0  $ (3) $ 216,573 
Interest expense 59,421  0  0  (3) 59,418 
Net interest income 157,152  3  0  0  157,155 
Provision for credit loss expense 2,578  0  0  0  2,578 
Noninterest income (50,687) 29,963  13,771  (1,656) (8,609)
Noninterest expense 120,882  21,526  11,240  (1,656) 151,992 
(Loss) Income before income tax expense (16,995) 8,440  2,531  0  (6,024)
Income tax (benefit) expense (3,565) 2,323  623  0  (619)
Net (Loss) Income attributable to noncontrolling interests and Tompkins Financial Corporation (13,430) 6,117  1,908  0  (5,405)
Less: Net income attributable to noncontrolling interests 93  0  0  0  93 
Net (Loss) Income attributable to Tompkins Financial Corporation $ (13,523) $ 6,117  $ 1,908  $ 0  $ (5,498)
Depreciation and amortization $ 7,942  $ 133  $ 133  $ 0  $ 8,208 



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Nine Months Ended September 30, 2022
(In thousands) Banking Insurance Wealth
Management		 Intercompany Consolidated
Interest income $ 183,798  $ 4  $ 0  $ (3) $ 183,799 
Interest expense 10,815  0  0  (3) 10,812 
Net interest income 172,983  4  0  0  172,987 
Provision for credit loss expense 1,392  0  0  0  1,392 
Noninterest income 18,495  28,959  13,874  (1,707) 59,621 
Noninterest expense 116,031  20,492  10,745  (1,707) 145,561 
Income before income tax expense 74,055  8,471  3,129  0  85,655 
Income tax expense 16,948  2,361  770  0  20,079 
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation 57,107  6,110  2,359  0  65,576 
Less: Net income attributable to noncontrolling interests 94  0  0  0  94 
Net Income attributable to Tompkins Financial Corporation $ 57,013  $ 6,110  $ 2,359  $ 0  $ 65,482 
Depreciation and amortization $ 7,745  $ 132  $ 100  $ 0  $ 7,977 

13. Fair Value Measurements

FASB ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820), defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Transfers between levels, when determined to be appropriate, are recognized at the end of each reporting period.
 
The three levels of the fair value hierarchy under ASC 820 are:
 
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; 

Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
 
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
 


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The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, segregated by the level of valuation inputs within the fair value hierarchy used to measure fair value:
 
Recurring Fair Value Measurements
September 30, 2023
(In thousands) Total (Level 1) (Level 2) (Level 3)
Assets
Available-for-sale debt securities
U.S. Treasuries $ 107,294  $ 0  $ 107,294  $ 0 
Obligations of U.S. Government sponsored entities 459,941  0  459,941  0 
Obligations of U.S. states and political subdivisions 77,237  0  77,237  0 
Mortgage-backed securities – residential, issued by:
U.S. Government agencies 45,399  0  45,399  0 
U.S. Government sponsored entities 696,309  0  696,309  0 
U.S. corporate debt securities 2,330  0  2,330  0 
Total Available-for-sale debt securities $ 1,388,510  $ 0  $ 1,388,510  $ 0 
Equity securities, at fair value $ 741  $ 0  $ 0  $ 741 
Derivatives designated as hedging instruments 3,991  0  3,991  0 
Derivatives not designated as hedging instruments 47  0  47  0 
Liabilities
Derivatives not designated as hedging instruments $ 56  $ 0  $ 56  $ 0 

Recurring Fair Value Measurements
December 31, 2022
(In thousands) Total (Level 1) (Level 2) (Level 3)
Assets
Available-for-sale debt securities
U.S. Treasuries $ 167,251  $ 0  $ 167,251  $ 0 
Obligations of U.S. Government sponsored entities 601,167  0  601,167  0 
Obligations of U.S. states and political subdivisions 85,281  0  85,281  0 
Mortgage-backed securities – residential, issued by:
U.S. Government agencies 52,668  0  52,668  0 
U.S. Government sponsored entities 686,222  0  686,222  0 
U.S. corporate debt securities 2,378  0  2,378  0 
Total Available-for-sale debt securities $ 1,594,967  $ 0  $ 1,594,967  $ 0 
Equity securities, at fair value $ 777  $ 0  $ 0  $ 777 
Liabilities
Derivatives not designated as hedging instruments $ 21  $ 0  $ 21  $ 0 
 
Securities: Fair values for U.S. Treasury securities are based on quoted market prices. Fair values for obligations of U.S. government sponsored entities, mortgage-backed securities-residential, obligations of U.S. states and political subdivisions, and U.S. corporate debt securities are based on quoted market prices, where available, as provided by third party pricing vendors. If quoted market prices were not available, fair values are based on quoted market prices of comparable instruments in active markets and/or based upon a matrix pricing methodology, which uses comprehensive interest rate tables to determine market price, movement and yield relationships. These securities are reviewed periodically to determine if there are any events or changes in circumstances that would adversely affect their value.



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The change in the fair value of equity securities valued using significant unobservable inputs (level 3), for the periods ended September 30, 2023 and December 31, 2022, was immaterial.
 
There were no transfers between Levels 1, 2 and 3 for the nine months ended September 30, 2023.
 
The Company determines fair value for its available-for-sale debt securities using an independent bond pricing service for identical assets or very similar securities. The Company determines fair value for its equity securities based on the underlying equity fund’s pricing and valuation procedures which consider recent sales price, market quotations from a pricing service, or market quotes from an independent broker-dealer. The Company has reviewed the pricing sources, including methodologies used, and finds them to be fairly stated.

Derivatives: The Company has contracted with a third party vendor to provide periodic valuations for its interest rate derivatives to determine the fair value of its interest rate contracts. The vendor utilizes standard valuation methodologies applicable to interest rate derivatives such as discounted cash flow analysis. Such valuations are based upon readily observable market data and are therefore considered Level 2 valuations by the Company.

Certain assets are measured at fair value on a nonrecurring basis. For the Company, these include loans held for sale, individually evaluated loans, and other real estate owned ("OREO"). For the three and nine months ended September 30, 2023, certain individually evaluated loans were remeasured and reported at fair value through a specific valuation allowance and/or partial charge-offs for credit losses based upon the fair value of the underlying collateral. Collateral values are estimated using Level 3 inputs based upon customized discounting criteria. In addition to collateral dependent evaluated loans, certain other real estate owned were remeasured and reported at fair value based upon the fair value of the underlying collateral. The fair values of other real estate owned are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. In general, the fair values of other real estate owned are based upon appraisals, with discounts made to reflect estimated costs to sell the real estate. Upon initial recognition, fair value write-downs are taken through a charge-off to the allowance for credit losses. Subsequent fair value write-downs on other real estate owned are reported in other noninterest expense.

Three months ended September 30, 2023
(In thousands) Fair value measurements at reporting
date using:		 Gain (losses)
from fair
value changes
Assets: As of 09/30/2023 Quoted prices in
active markets for
identical assets
(Level 1)		 Significant other
observable inputs
(Level 2)		 Significant
unobservable inputs
(Level 3)		 Three months ended 9/30/2023
Other real estate owned $ 0  $ 0  $ 0  $ 0  $ 1 

Three months ended September 30, 2022
(In thousands) Fair value measurements at reporting
date using:		 Gain (losses)
from fair
value changes
Assets: As of 9/30/2022 Quoted prices in
active markets for
identical assets
(Level 1)		 Significant other
observable inputs
(Level 2)		 Significant
unobservable inputs
(Level 3)		 Three months ended 9/30/2022
Individually evaluated loans $ 8,099  $ 0  $ 0  $ 8,099  $ 0 
Other real estate owned 247  0  247  27 



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Nine months ended September 30, 2023
(In thousands) Fair value measurements at reporting
date using:		 Gain (losses)
from fair
value changes
Assets: As of 09/30/2023 Quoted prices in
active markets for
identical assets
(Level 1)		 Significant other
observable inputs
(Level 2)		 Significant
unobservable inputs
(Level 3)		 Nine months ended 9/30/2023
Individually evaluated loans $ 3,742  $ 0  $ 0  $ 3,742  $ 826 
Other real estate owned 0  0  0  0  23 

Nine months ended September 30, 2022
(In thousands) Fair value measurements at reporting
date using:		 Gain (losses)
from fair
value changes
Assets: As of 09/30/2022 Quoted prices in
active markets for
identical assets
(Level 1)		 Significant other
observable inputs
(Level 2)		 Significant
unobservable inputs
(Level 3)		 Nine months ended 9/30/2022
Individually evaluated loans $ 10,138  $ 0  $ 0  $ 10,138  $ 59 
Other real estate owned 247  0  247  49 

The fair value estimates, methods and assumptions set forth below for the Company's financial instruments, including those financial instruments carried at cost, are made solely to comply with disclosures required by GAAP and should be read in conjunction with the financial statements and notes included in this Report.

For loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. For real estate loans, fair value of the loan’s collateral is determined by third party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Company reviews the third party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 5% to 8% of the appraised value. For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business. 

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at September 30, 2023 and December 31, 2022. The carrying amounts shown in the table are included in the Consolidated Statements of Condition under the indicated captions.



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Estimated Fair Value of Financial Instruments
September 30, 2023
(In thousands) Carrying
Amount		 Fair Value (Level 1) (Level 2) (Level 3)
Financial Assets:
Cash and cash equivalents $ 140,216  $ 140,216  $ 140,216  $ 0  $ 0 
Securities - held-to-maturity 312,385  252,978  0  252,978  0 
FHLB and other stock 19,985  19,985  0  19,985  0 
Accrued interest receivable 26,535  26,535  0  26,535  0 
Loans/leases, net1
 5,385,524  4,994,285  0  0  4,994,285 
Financial Liabilities:
Time deposits $ 880,412  $ 869,728  $ 0  $ 869,728  $ 0 
Other deposits 5,743,024  5,743,024  0  5,743,024  0 
Fed funds purchased and securities sold
under agreements to repurchase 56,120  56,120  0  56,120  0 
Other borrowings 296,800  293,922  0  293,922  0 
Accrued interest payable 2,392  2,392  0  2,392  0 
 
Estimated Fair Value of Financial Instruments
December 31, 2022
(In thousands) Carrying
Amount		 Fair Value (Level 1) (Level 2) (Level 3)
Financial Assets:
Cash and cash equivalents $ 77,837  $ 77,837  $ 77,837  $ 0  $ 0 
Securities - held to maturity 312,344  261,692  0  261,692  0 
FHLB and other stock 17,720  17,720  0  17,720  0 
Accrued interest receivable 24,865  24,865  0  24,865  0 
Loans/leases, net1
 5,222,977  4,939,246  0  0  4,939,246 
Financial Liabilities:
Time deposits $ 631,411  $ 616,488  $ 0  $ 616,488  $ 0 
Other deposits 5,970,884  5,970,884  0  5,970,884  0 
Fed funds purchased and securities
sold under agreements to repurchase 56,278  56,278  0  56,278  0 
Other borrowings 291,300  289,234  0  289,234  0 
Accrued interest payable 1,420  1,420  0  1,420  0 
1 Lease receivables, although excluded from the scope of ASC Topic 825, are included in the estimated fair value amounts at their carrying value.
 
The following methods and assumptions were used in estimating fair value disclosures for financial instruments:
 
Cash and Cash Equivalents: The carrying amounts reported in the Consolidated Statements of Condition for cash, noninterest-bearing deposits, money market funds, and Federal funds sold approximate the fair value of those assets.



42

Securities - Held-to-Maturity: Fair values for U.S. Treasury securities are based on quoted market prices. Fair values for obligations of U.S. government sponsored entities, and mortgage-backed securities-residential are based on quoted market prices, where available, as provided by third party pricing vendors. If quoted market prices were not available, fair values are based on quoted market prices of comparable instruments in active markets and/or based upon a matrix pricing methodology, which uses comprehensive interest rate tables to determine market price, movement and yield relationships. These securities are reviewed periodically to determine if there are any events or changes in circumstances that would adversely affect their value.

FHLB Stock and Other Stock: The carrying amount of FHLB stock approximates fair value. If the stock is redeemed, the Company will receive an amount equal to the par value of the stock. For miscellaneous equity securities, carrying value is cost.
 
Loans and Leases: Fair value for loans are calculated using an exit price notion. The Company's valuation methodology takes into account factors such as estimated cash flows, including contractual cash flow and assumptions for prepayments; liquidity risk; and credit risk. The fair values of residential loans were estimated using discounted cash flow analyses, based upon available market benchmarks for rates and prepayment assumptions. The fair values of commercial and consumer loans were estimated using discounted cash flow analyses, based upon interest rates currently offered for loans and leases with similar terms and credit quality. The fair values of loans held for sale were determined based upon contractual prices for loans with similar characteristics.
 
Accrued Interest Receivable and Accrued Interest Payable: The carrying amount of these short term instruments approximate fair value.
 
Deposits: The fair values disclosed for noninterest bearing accounts and accounts with no stated maturities are equal to the amount payable on demand at the reporting date. The fair value of time deposits is based upon discounted cash flow analyses using rates offered for FHLB advances, which is the Company’s primary alternative source of funds.

Fed Funds Purchased and Securities Sold Under Agreements to Repurchase: The carrying amount of these instruments approximate fair value because the instruments have short-term maturities.

Other borrowings: The fair value of other borrowings is based upon discounted cash flow analyses using current rates offered
for FHLB advances, with similar terms.

14. Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s existing credit derivatives result from participations of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities.

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

As of September 30, 2023, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges. As of December 31, 2022, there no balances for Fixed Rate Loans.



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Line Item in the Statement of Financial Position in Which the Hedged Item is Included Carrying Amount of the Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
September 30, 2023 September 30, 2023
Fixed Rate Loans1
 $146,125 $(3,875)
Total $146,125 $(3,875)
1 These amounts include the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At September 30, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $775.0 million; the cumulative basis adjustments associated with these hedging relationships was $3.9 million; and the amounts of the designated hedged items were $150.0 million.

Non-designated Hedges

The Company’s existing credit derivatives result from participations in interest rate swaps provided by external lenders as part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain lenders which participate in loans.

Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Statements of Condition

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated statements of condition as of September 30, 2023 and December 31, 2022. The Company began entering into derivative transactions in the second quarter of 2022. Amounts below are presented on a net basis in accordance with applicable accounting guidance.

Derivative Assets
September 30, 2023
Notional Balance Sheet Fair
(In thousands) Amount Location Value*
Derivatives designated as hedging instruments
Interest Rate Products $ 150,000   Other Assets $ 3,991 
Total derivatives designated as hedging instruments $ 3,991 
Derivatives not designated as hedging instruments
Interest Rate Products $ 2,842  Other Assets $ 47 
Risk Participation Agreement 0  Other Assets 0 
Total derivatives not designated as hedging instruments $ 47 



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Derivative Assets
December 31, 2022
Notional Balance Sheet Fair
(In thousands) Amount Location Value
Derivatives designated as hedging instruments
Interest Rate Products $ 0  Other Assets $ 0 
Total derivatives not designated as hedging instruments $ 0 
Derivatives not designated as hedging instruments
Interest Rate Products $ 0   Other Assets $ 0 
Risk Participation Agreement 0   Other Assets 0 
Total derivatives not designated as hedging instruments $ 0 

 Derivative Liabilities
September 30, 2023
Notional Balance Sheet Fair
(In thousands) Amount Location Value
Derivatives not designated as hedging instruments
Interest Rate Products $ 2,842   Other Liabilities $ 49 
Risk Participation Agreement 7,499   Other Liabilities 7 
Total derivatives not designated as hedging instruments $ 56 

 Derivative Liabilities
December 31, 2022
Notional Balance Sheet Fair
(In thousands) Amount Location Value
Derivatives not designated as hedging instruments
Risk Participation Agreement $ 7,499   Other Liabilities $ 21 
Total derivatives not designated as hedging instruments $ 21 



45

Tabular Disclosure of the Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of income for the three and nine months ended September 30, 2023 and 2022:

The Effect of Fair Value and Cash Flow Hedge Accounting on the Statement of Financial Performance
Location of Gain or (Loss) Recognized in Income on Derivative
Three Months Ended September 30, 2023 Three Months Ended September 30, 2022
(In thousands) Interest Income
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded $ 647  $ 0 
The effects of fair value and cash flow hedging:
Gain or (loss) on fair value hedging relationships in Subtopic 815-20
Interest contracts
Hedged items (555) 0 
Derivatives designated as hedging instruments 1,202  0 

The Effect of Fair Value and Cash Flow Hedge Accounting on the Statement of Financial Performance
Location of Gain or (Loss) Recognized in Income on Derivative
Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022
(In thousands) Interest Income
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded $ 952  $ 0 
The effects of fair value and cash flow hedging:
Gain or (loss) on fair value hedging relationships in Subtopic 815-20
Interest contracts
Hedged items (3,875) 0 
Derivatives designated as hedging instruments 4,827  0 



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Tabular Disclosure of the Effect of Derivatives Not Designated as Hedging Instruments on the Income Statement

The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income for the three and nine months ended September 30, 2023 and 2022:

Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20 Location of Gain or (Loss) Recognized in Income on Derivative Amount of Gain or (Loss) Recognized in Income on Derivative Amount of Gain or (Loss) Recognized in Income on Derivative
Three Months Ended
(In thousands) September 30, 2023 September 30, 2022
Interest Rate Products Other income / (expense) $ (2) $ 0 
Risk Participation Agreement Other income / (expense) 12  15 
Total $ 10  $ 15 
Fee Income Other income / (expense) $ 70  $ 0 

Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20 Location of Gain or (Loss) Recognized in Income on Derivative Amount of Gain or (Loss) Recognized in Income on Derivative Amount of Gain or (Loss) Recognized in Income on Derivative
Nine Months Ended
(In thousands) September 30, 2023 September 30, 2022
Interest Rate Products Other income / (expense) $ (2) $ 0 
Risk Participation Agreement Other income / (expense) 14  56 
Total $ 12  $ 56 
Fee Income Other income / (expense) $ 70  $ 0 
Credit-risk-related Contingent Features

Applicable for OTC derivatives with dealers

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the company could also be declared in default on its derivative obligations.

As of September 30, 2023, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $0. As of September 30, 2023, the Company has not posted any collateral related to these agreements. The interest rate hedge counterparty has posted $4.2 million of collateral in proportion to potential losses in the derivative position.


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

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 September 30, 2023, the Company had one wholly-owned banking subsidiary, Tompkins Community Bank. Tompkins Community Bank provides a full array of wealth management services under the Tompkins Financial Advisors brand, including investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. The Company also has a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. ("Tompkins Insurance"). The Company’s principal offices are located at 118 E. Seneca Street, P.O. Box 460, Ithaca, NY, 14850, and its telephone number is (888) 503-5753. The Company’s common stock is traded on the NYSE American under the Symbol "TMP."

The Tompkins' strategy centers around our core values and a commitment to delivering long-term value to our clients, communities, and shareholders. A key strategic initiative for the Company is a focus on responsible and sustainable growth, including initiatives to grow organically through our current businesses, as well as through possible acquisitions of financial institutions, branches, and financial services businesses. As such, the Company has acquired, and from time to time considers acquiring, banks, thrift institutions, branch offices of banks or thrift institutions, or other businesses that would complement the Company’s business or its geographic reach. The Company generally targets merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale and expanded services.

Business Segments
Banking services consist primarily of attracting deposits from the areas served by Tompkins Community Bank, which has 59 banking offices (40 offices in New York and 19 offices in Pennsylvania) and using those deposits to originate a variety of commercial loans, agricultural loans, consumer loans, real estate loans, and leases. The Company’s lending function is managed within the guidelines of a comprehensive Board-approved lending policy. Reporting systems are in place to provide management with ongoing information related to loan production, loan quality, concentrations of credit, loan delinquencies, and nonperforming and potential problem loans. Banking services also include a full suite of products such as debit cards, credit cards, remote deposit, electronic banking, mobile banking, cash management, and safe deposit services.
 
Wealth management services consist of investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. Wealth management services are provided under the trade name Tompkins Financial Advisors. Tompkins Financial Advisors offers services to customers of Tompkins Community Bank and shares offices in each of the banking markets.
 
Insurance services include property and casualty insurance, employee benefit consulting, and life, long-term care and disability insurance. Tompkins Insurance is headquartered in Batavia, New York. Over the years, Tompkins Insurance has acquired smaller insurance agencies in the market areas serviced by the Company’s banking subsidiaries and successfully consolidated them into Tompkins Insurance. Tompkins Insurance offers services to customers of Tompkins Community Bank and shares offices in each of the banking markets. In addition to these shared offices, Tompkins Insurance has five stand-alone offices in Western New York, and one stand-alone office in Tompkins County, New York.
 
The Company’s principal expenses are interest on deposits, interest on borrowings, and operating and general administrative expenses, as well as provisions for credit losses. Funding sources, other than deposits, include borrowings, securities sold under agreements to repurchase, and cash flow from lending and investing activities.
 
Competition
Competition for commercial banking and other financial services is strong in the Company’s market areas. In one or more aspects of its business, the Company’s subsidiaries compete with other commercial banks, savings and loan associations, credit unions, finance companies, Internet-based financial services companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Some of these competitors have substantially greater resources and lending capabilities and may offer services that the Company does not currently provide. In addition, many of the Company’s non-bank competitors are not subject to the same extensive Federal regulations that govern financial holding companies and Federally-insured banks.
 


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Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges, the quality and scope of the services rendered, the convenience of facilities and services, and, in the case of loans to commercial borrowers, relative lending limits. Management believes that a community-based financial organization is better positioned to establish personalized financial relationships with both commercial customers and individual households. The Company’s community commitment and involvement in its primary market areas, as well as its commitment to quality and personalized financial services, are factors that contribute to the Company’s competitiveness. Management believes that the Company’s subsidiary bank can compete successfully in its primary market areas by making prudent lending decisions quickly and more efficiently than its competitors, without compromising asset quality or profitability. In addition, the Company focuses on providing unparalleled customer service, which includes offering a strong suite of products and services, including products that are accessible to our customers through digital means. Although management feels that this business model has caused the Company to grow its customer base in recent years and allows it to compete effectively in the markets it serves, we cannot assure you that such factors will result in future success.

Regulation
Banking, insurance services and wealth management are highly regulated. As a financial holding company including a community bank, a registered investment adviser, and an insurance agency subsidiary, the Company and its subsidiaries are subject to examination and regulation by the Federal Reserve Board ("FRB"), Securities and Exchange Commission ("SEC"), the Federal Deposit Insurance Corporation ("FDIC"), the New York State Department of Financial Services, the Financial Industry Regulatory Authority, and the Pennsylvania Insurance Department.

OTHER IMPORTANT INFORMATION
 
The following discussion is intended to provide an understanding of the consolidated financial condition and results of operations of the Company for the three and nine months ended September 30, 2023. It should be read in conjunction with the Company’s Audited Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and the Unaudited Consolidated Financial Statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.
 
This Report includes comparisons of the Company’s performance to that of a peer group, which is comprised of the group of 176 domestic bank holding companies with $3 billion to $10 billion in total assets as defined in the Federal Reserve’s "Bank Holding Company Performance Report" for June 30, 2023 (the most recent report available). Although the peer group data is presented based upon financial information that is one fiscal quarter behind the financial information included in this report, the Company believes that it is relevant to include certain peer group information for comparison to current quarter numbers.

Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The statements contained in this Report that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements may be identified by use of such words as "may", "will", "estimate", "intend", "continue", "believe", "expect", "plan", or "anticipate", and other similar words. Examples of forward-looking statements may include statements regarding the asset quality of the Company's loan portfolios; the level of the Company's allowance for credit losses; the sufficiency of liquidity sources; the Company's exposure to changes in interest rates, and to new, changed, or extended government/regulatory expectations; the need to sell securities before recovery of amortized cost; the expected increases in interest income attributable to recent sales of available-for-sale debt securities; the impact of changes in accounting standards; and trends, plans, prospects, growth and strategies. Forward-looking statements are made based on management’s expectations and beliefs concerning future events impacting the Company and are subject to certain uncertainties and factors relating to the Company’s operations and economic environment, all of which are difficult to predict and many of which are beyond the control of the Company, that could cause actual results of the Company to differ materially from those expressed and/or implied by forward-looking statements and historical performance. The following factors, in addition to those listed as Risk Factors in Item 1A of the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2023 and our Annual Report on Form 10-K for the year ended December 31, 2022, are among those that could cause actual results to differ materially from the forward-looking statements and historical performance: changes in general economic, market and regulatory conditions; our ability to attract and retain deposits and other sources of liquidity; gross domestic product growth and inflation trends; the impact of the interest rate and inflationary environment on the Company's business, financial condition and results of operations; other income or cash flow anticipated from the Company's operations, investment and/or lending activities; changes in laws and regulations affecting banks, bank holding companies and/or financial holding companies, including the Dodd-Frank Act, and state and local government mandates; the impact of any change in the FDIC insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount; technological developments and changes; cybersecurity incidents and threats; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; governmental and public policy changes, including environmental regulation; reliance on large customers; the ability to access financial resources in the amounts, at the times, and on the terms required to support the Company's future businesses; and the economic impact of national and global events, including the response to recent bank failures, the wars in Ukraine and Israel, widespread protests, civil unrest, political uncertainty, and pandemics or other public health crises.


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Critical Accounting Policies
The accounting and reporting policies followed by the Company conform, in all material respects, to U.S. generally accepted accounting principles ("GAAP") and to general practices within the financial services industry. In the course of normal business activity, management must select and apply many accounting policies and methodologies and make estimates and assumptions that lead to the financial results presented in the Company’s consolidated financial statements and accompanying notes. There are uncertainties inherent in making these estimates and assumptions, which could materially affect the Company’s results of operations and financial position.

Management considers accounting estimates to be critical to reported financial results if (i) the accounting estimates require management to make assumptions about matters that are highly uncertain, and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Company’s financial statements. Management considers the accounting policies relating to the allowance for credit losses ("allowance", or "ACL"), and the review of the securities portfolio for other-than-temporary impairment to be critical accounting policies because of the uncertainty and subjectivity involved in these policies and the material effect that estimates related to these areas can have on the Company’s results of operations.

The Company’s methodology for estimating the allowance considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. Refer to "Allowance for Credit Losses" below, Note 5 - "Allowance for Credit Losses", and Note 1 – "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

For information on the Company's significant accounting policies and to gain a greater understanding of how the Company’s financial performance is reported, refer to Note 1 – "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Refer to "Recently Issued Accounting Standards" in Management's Discussion and Analysis in this Quarterly Report on Form 10-Q for a discussion of recent accounting updates.

Critical Accounting Estimates

The Company's significant accounting policies conform with U.S. generally accepted accounting principles ("GAAP") and are described in Note 1 "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. In applying those accounting policies, management of the Company is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company's reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. The more significant area in which management of the Company applies critical assumptions and estimates includes the following:

•Accounting for credit losses - The Company accounts for the allowance for credit losses using the current expected credit loss model. Under this accounting guidance, the allowance for credit losses represents a valuation account that is deducted from the amortized cost basis of certain financial assets, including loans and leases, to present the net amount expected to be collected at the balance sheet date. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. For certain loan pools that share similar risk characteristics, the Company utilizes statistically developed models to estimate amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers' abilities to repay obligations. Such models consider historical correlations of credit losses with various macroeconomic assumptions including unemployment and gross domestic product. These forecasts may be adjusted for inherent limitations or biases of the models. Subsequent to the forecast period, the Company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. Changes in the circumstances considered when determining management's estimates and assumptions could result in changes in those estimates and assumptions, which could result in adjustment of the allowance for


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credit losses in future periods. A discussion of facts and circumstances considered by management in determining the allowance for credit losses is included herein in Note 5 - "Allowance for Credit Losses" in the Notes to the Unaudited Consolidated Financial Statements.

Recent Events

During the first half of 2023, the banking industry experienced significant volatility with high-profile bank failures, which resulted in industry wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. In response to these developments, the Company took a number of preemptive actions in the first quarter, which included proactive outreach to clients and actions to maximize its funding sources such as establishing the ability to borrow through the newly established Federal Reserve borrowing program called the Bank Term Funding Program. The Company maintains ready access liquidity of $1.6 billion through its membership with the Federal Home Loan Bank ("FHLB") and FRB. The Company’s total deposits of $6.6 billion at September 30, 2023 were up $168.8 million, or 2.6% from June 30, 2023 and flat compared to December 31, 2022. At September 30, 2023, the Company estimates total uninsured deposits of $3.1 billion. These uninsured deposit balances of $3.1 billion at September 30, 2023 include $1.3 billion of collateralized government deposits and $1.8 billion of uninsured deposits without liquid collateral pledged. Total insured deposits and collateralized government deposits represent 72.4% of the Company's total FDIC insurance eligible deposits at September 30, 2023. At September 30, 2023, Tier 1 leverage and Total Capital ratios were 9.01% and 13.46%, respectively, compared to 9.34% and 14.42% at December 31, 2022. The decrease for the year-to-date period was mainly due to the recognition of the $70.0 million pre-tax loss on sales of available-for-sale investment securities, including the $62.9 million pre-tax loss recognized in the third quarter of 2023 related to the balance sheet repositioning discussed below.

In September 2023, the Company completed a balance sheet repositioning for general balance sheet, portfolio and interest rate risk management, by selling approximately $429.6 million of available-for-sale debt securities, which resulted in a pre-tax loss on the sale of approximately $62.9 million. Though this sale resulted in an operating loss in the third quarter of 2023, the transaction is expected to favorably impact securities revenue in future periods as the securities sold had an average yield of 0.93%, while the proceeds of the sale were largely reinvested into securities with an estimated yield of approximately 5.12%. The weighted average life of the securities purchased and sold was approximately 4.3 years. In the second quarter of 2023, the Company sold $80.1 million in available-for-sale debt securities, which resulted in a pre-tax loss of $7.1 million. Approximately $65.0 million of the proceeds were used to pay down overnight borrowings with the FHLB, and the remaining proceeds were reinvested in available-for-sale debt securities.

RESULTS OF OPERATIONS
 
Performance Summary
Net income for the third quarter of 2023 was a loss of $33.4 million, or $(2.35) diluted (loss) earnings per share, compared to $21.3 million, or $1.48 diluted earnings per share for the same period in 2022. Net income for the first nine months of 2023 was a loss of $5.5 million, or $(0.39) diluted (loss) earnings per share compared to $65.5 million, or $4.53 diluted earnings per share for the first nine months of 2022. The decrease in net income and diluted earnings per share for both the three and nine month periods was primarily due to pre-tax losses on the sales of available-for-sale debt securities totaling $62.9 million (loss of $3.34 per diluted share) in the third quarter of 2023 and $70.0 million (loss of $3.69 per diluted share) year-to-date 2023. In addition to the losses on securities sales, lower net interest income and higher operating expenses also contributed to the decrease in net income in 2023 as compared to 2022. Net interest income for the three and nine months ended September 30, 2023, was down from prior year periods as the increase in interest rates paid on interest-bearing liabilities continues to outpace increases on interest earning asset yields.

Excluding the impact of the realized losses on the sales of investment securities, adjusted net income, a non-GAAP financial measure, was $14.2 million for the three months ended September 30, 2023, down $7.2 million, or 33.7%, when compared to the prior year quarter. Adjusted net income for the nine months ended September 30, 2023 was $47.4 million, down $18.3 million, or 27.8%, when compared to the nine months ended September 30, 2022. Earnings per diluted share adjusted to exclude the impact of realized losses on sales of investment securities (“adjusted diluted earnings per share”), a non-GAAP measure, of $1.00 for the third quarter decreased $0.49 compared to the third quarter of 2022. Adjusted diluted earnings per share of $3.31 for the first nine months of 2023 decreased $1.23 compared to the prior year period. Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in the "Non-GAAP Disclosure" on page 69.



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Return on average assets ("ROA") for the quarter ended September 30, 2023 was (1.73)%, compared to 1.08% for the quarter ended September 30, 2022. Return on average shareholders’ equity ("ROE") for the third quarter of 2023 was (20.84)%, compared to 13.33% for the same period in 2022. For the year-to-date period ended September 30, 2023, ROA and ROE totaled (0.10)% and (1.15)%, respectively, compared to 1.11% and 13.22%, for the same period in 2022. ROA and ROE, adjusted to exclude the impact of realized losses on sales of investment securities, ("adjusted ROA" and "adjusted ROE"), non-GAAP measures, were 0.74% and 8.86% for the three months ended September 30, 2023 and 0.83% and 9.91% for the nine months ended September 30, 2023. Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in "Non-GAAP Disclosure" on page 69.

Segment Reporting
The Company operates in the following three business segments, banking, insurance, and wealth management. Insurance is comprised of property and casualty insurance services and employee benefit consulting operated under the Tompkins Insurance Agencies, Inc. subsidiary. Wealth management activities include the results of the Company’s trust, financial planning, and wealth management services, organized under the Tompkins Financial Advisors brand. All other activities are considered banking.
 
Banking Segment
The banking segment reported a net loss of $37.1 million for the third quarter of 2023, a decrease of $55.1 million, or 306.0% from net income of $18.0 million for the same period in 2022. For the nine months ended September 30, 2023, the banking segment reported a net loss of $13.5 million, a decrease of $70.5 million, or 123.7% from the same period in 2022. The decrease in net income for the three month and nine month periods ended September 30, 2023 compared to the same periods in 2022 was due to lower noninterest income, lower net interest income and higher operating expenses. The decrease in noninterest income for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was mainly a result of losses on the sales of available-for-sale debt securities of $62.9 million and $70.0 million, respectively.
 
Net interest income of $51.0 million for the third quarter of 2023 was down $7.1 million, or 12.2% from the same period in 2022. For the nine months ended September 30, 2023, net interest income of $157.2 million was down $15.8 million, or 9.2% compared to the first nine months of 2022. The decrease in net interest income compared to prior year was due primarily to the increase in average interest rates on interest-bearing liabilities outpacing increases on interest earning asset yields due to the higher interest rate environment.

The provision for credit losses was $1.2 million for the three months ended September 30, 2023, compared to $1.1 million for the same period in 2022. For the nine month period ended September 30, 2023, the provision for credit losses was $2.6 million compared to $1.4 million for the same period in 2022. The increase in provision for credit losses for both the three and nine month periods is mainly driven by loan growth and a higher coverage ratio, reflecting economic forecasts, higher qualitative reserves and additional reserves for individually evaluated loans. For additional information, see the section titled "The Allowance for Credit Losses" below.

Noninterest income was a loss of $57.0 million for the three months ended September 30, 2023, compared to noninterest income of $6.0 million for the same period in 2022. For the nine months ended September 30, 2023, noninterest income was a loss of $50.7 million compared to noninterest income of $18.5 million for the nine months ended September 30, 2022. The decrease was mainly driven by the pre-tax loss on the sale of securities of $62.9 million and $70.0 million, respectively, for the three and nine months ended September 30, 2023, compared to pre-tax losses of $49,000 on the sale of available-for-sale debt securities for both the same periods in 2022. For the three and nine months ended September 30, 2023, card services income was up $129,000, or 4.7% and $396,000, or 4.8% over the same periods in 2022, while service charges on deposit accounts were down $163,000, or 8.5% and $312,000, or 5.7%, respectively, for the same time periods.

Noninterest expense of $39.6 million and $120.9 million for the three and nine months ended September 30, 2023, respectively, was up $0.2 million, or 0.5% and $4.9 million, or 4.2%, respectively, over the same periods in 2022. The increase in noninterest expense for the three and nine months ended September 30, 2023 over the same period in 2022 was mainly in other operating expenses which were up $1.0 million and $3.2 million, respectively, and higher personnel-related expenses, which were up $1.7 million for the nine month period. Contributing to the growth in other expenses for the nine months ended September 30, 2023, compared to the same period in 2022 were the following: expenses related to the Company’s retirement plans, up $1.0 million; professional fees, up $573,000 and FDIC insurance, up $776,000. The increase in personnel-related expenses was mainly in health insurance, which is up $1.2 million.



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Insurance Segment
The insurance segment reported net income of $3.2 million for the three months ended September 30, 2023, which was up $484,000, or 17.8% compared to the third quarter of 2022. Total noninterest revenue was up $576,000, or 5.3% for the third quarter of 2023 compared to the same quarter in the prior year, primarily due to growth in personal lines and commercial lines. The growth in property and casualty commission revenue is attributed to new business and premium increases related to change in general market conditions.

For the nine months ended September 30, 2023, net income was flat compared to the same period in the prior year. Total revenue for the year-to-date period ended September 30, 2023 was up $1.0 million, or 3.5% compared to the same period last year. The increase in revenues for the nine months ended September 30, 2023 compared to the prior year period is mainly due to growth in overall commission revenue of $1.2 million, or 4.5%, with increases in personal lines (up $662,000, or 9.0%), commercial lines (up $318,000, or 2.5%), and employee benefit (up $171,000, or 3.0%) and driven by new business along with rate increases related to current market conditions.

Noninterest expenses for the three months ended September 30, 2023 were down $69,000, or 1.0% compared to the three months ended September 30, 2022. Year-to-date noninterest expenses were up $1.0 million, or 5.0% compared to the nine months ended September 30, 2022. The increase in noninterest expenses for the nine months ended September 30, 2023 was mainly in salaries and wages, reflecting annual merit increases, increases in health insurance, partially offset by decreases in incentive accruals.

Wealth Management Segment
The wealth management segment reported net income of $562,000 for the three months ended September 30, 2023, which was down $34,000, or 5.7% compared to the third quarter of 2022. Revenue for the third quarter of 2023 was up $72,000, or 1.7% compared to the same period last year, primarily due to positive market performance experienced in 2023, which contributed to an increase in assets under management. Total expense for the third quarter of 2023 was up $116,000, or 3.3% compared to the third quarter of 2022, which was primarily attributable to an increase in salaries and wages and benefits as well as technology expenses.

For the nine months ended September 30, 2023, net income of $1.9 million was down $451,000, or 19.1% compared to the same period in the prior year. Total revenue for the year-to-date period ended September 30, 2023 was down $103,000, or 0.7% as compared to the prior year period. Noninterest expense for the nine months ended September 30, 2023 was up $495,000, or 4.6% as compared to the prior year period, with the increase mainly in other operating expenses and higher personnel-related expenses. Contributing to the growth in other expenses for the nine months ended September 30, 2023 compared to the same period in 2022 were the following: expenses related to the Company’s retirement plans, up $208,000 and professional fees, up $64,000. The increase in personnel-related expenses was mainly in salaries and wages, reflecting annual merit increases, and increases in health insurance, partially offset by decreases in incentive accruals.



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Net Interest Income

The following tables show average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with prior quarter of 2023 and for each of the three and nine month periods ended September 30, 2023 and 2022:

Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Quarter Ended Quarter Ended
September 30, 2023 June 30, 2023
Average Average
Balance Average Balance Average
(Dollar amounts in thousands) (QTD) Interest Yield/Rate (QTD) Interest Yield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks $ 11,585  $ 125  4.29  % $ 13,585  $ 183  5.40  %
Securities (1)
U.S. Government securities 1,890,659  7,294  1.53  % 1,972,719  7,304  1.49  %
State and municipal (2) 90,212  576  2.53  % 92,194  590  2.57  %
Other securities (2) 3,272  59  7.18  % 3,288  56  6.86  %
Total securities 1,984,143  7,929  1.59  % 2,068,201  7,950  1.54  %
FHLBNY and FRB stock 24,511  490  7.94  % 23,211  323  5.59  %
Total loans and leases, net of unearned income (2)(3) 5,385,195  67,199  4.95  % 5,304,717  63,709  4.82  %
Total interest-earning assets 7,405,434  75,743  4.06  % 7,409,714  72,165  3.91  %
Other assets 224,442  226,086 
Total assets $ 7,629,876  $ 7,635,800 
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market 3,615,395  12,674  1.39  % 3,701,229  10,590  1.15  %
Time deposits 826,082  6,832  3.28  % 745,970  5,055  2.72  %
Total interest-bearing deposits 4,441,477  19,506  1.74  % 4,447,199  15,645  1.41  %
Federal funds purchased & securities sold under agreements to repurchase 57,624  15  0.10  % 56,083  15  0.11  %
Other borrowings 403,829  4,931  4.84  % 379,744  4,315  4.56  %
Total interest-bearing liabilities 4,902,930  24,452  1.98  % 4,883,026  19,975  1.64  %
Noninterest bearing deposits 1,990,320  2,004,560 
Accrued expenses and other liabilities 101,646  97,660 
Total liabilities 6,994,896  6,985,246 
Tompkins Financial Corporation Shareholders’ equity 633,494  649,097 
Noncontrolling interest 1,487  1,457 
Total equity 634,980  650,554 
Total liabilities and equity $ 7,629,876  $ 7,635,800 
Interest rate spread 2.08  % 2.27  %
Net interest income/margin on earning assets 51,291  2.75  % 52,191  2.83  %
Tax Equivalent Adjustment (278) (294)
Net interest income per consolidated financial statements $ 51,013  $ 51,896 



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Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Quarter Ended Quarter Ended
September 30, 2023 September 30, 2022
Average Average
Balance Average Balance Average
(Dollar amounts in thousands) (QTD) Interest Yield/Rate (QTD) Interest Yield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks $ 11,585  $ 125  4.29  % $ 63,516  $ 85  0.53  %
Securities (1)
U.S. Government securities 1,890,659  7,294  1.53  % 2,276,380  7,853  1.37  %
State and municipal (2) 90,212  576  2.53  % 95,627  614  2.55  %
Other securities (2) 3,272  59  7.18  % 3,323  37  4.44  %
Total securities 1,984,143  7,929  1.59  % 2,375,330  8,504  1.42  %
FHLBNY and FRB stock 24,511  490  7.94  % 15,058  166  4.38  %
Total loans and leases, net of unearned income (2)(3) 5,385,195  67,199  4.95  % 5,185,219  55,265  4.23  %
Total interest-earning assets 7,405,434  75,743  4.06  % 7,639,123  64,020  3.32  %
Other assets 224,442  214,724 
Total assets $ 7,629,876  $ 7,853,847 
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market 3,615,395  12,674  1.39  % 3,979,590  2,863  0.29  %
Time deposits 826,082  6,832  3.28  % 596,299  1,331  0.89  %
Total interest-bearing deposits 4,441,477  19,506  1.74  % 4,575,889  4,194  0.36  %
Federal funds purchased & securities sold under agreements to repurchase 57,624  15  0.10  % 53,810  14  0.10  %
Other borrowings 403,829  4,931  4.84  % 232,158  1,351  2.31  %
Total interest-bearing liabilities 4,902,930  24,452  1.98  % 4,861,857  5,559  0.45  %
Noninterest bearing deposits 1,990,320  2,250,263 
Accrued expenses and other liabilities 101,646  106,403 
Total liabilities 6,994,896  7,218,523 
Tompkins Financial Corporation Shareholders’ equity 633,494  633,837 
Noncontrolling interest 1,487  1,487 
Total equity 634,980  635,324 
Total liabilities and equity $ 7,629,876  $ 7,853,847 
Interest rate spread 2.08  % 2.87  %
Net interest income/margin on earning assets 51,291  2.75  % 58,461  3.04  %
Tax Equivalent Adjustment (278) (350)
Net interest income per consolidated financial statements $ 51,013  $ 58,111 




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Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Year to Date Period Ended Year to Date Period Ended
September 30, 2023 September 30, 2022
Average Average
Balance Average Balance Average
(Dollar amounts in thousands) (YTD) Interest Yield/Rate (YTD) Interest Yield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks $ 12,630  $ 447  4.73  % $ 94,988  $ 190  0.27  %
Securities (1)
U.S. Government securities 1,965,039  22,022  1.50  % 2,291,635  22,960  1.34  %
State and municipal (2) 91,858  1,764  2.57  % 98,262  1,882  2.56  %
Other securities (2) 3,281  169  6.87  % 3,349  88  3.52  %
Total securities 2,060,178  23,955  1.55  % 2,393,247  24,930  1.39  %
FHLBNY and FRB stock 21,519  1,113  6.93  % 12,481  391  4.19  %
Total loans and leases, net of unearned income (2)(3) 5,314,221  191,946  4.83  % 5,119,309  159,353  4.16  %
Total interest-earning assets 7,408,548  217,461  3.92  % 7,620,025  184,864  3.24  %
Other assets 224,594  244,615 
Total assets $ 7,633,142  $ 7,864,640 
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market 3,715,931  31,905  1.15  % 4,070,607  4,502  0.15  %
Time deposits 749,198  15,428  2.75  % 610,432  3,785  0.83  %
Total interest-bearing deposits 4,465,129  47,333  1.42  % 4,681,039  8,287  0.24  %
Federal funds purchased & securities sold under agreements to repurchase 57,077  44  0.10  % 57,606  45  0.10  %
Other borrowings 351,600  12,041  4.58  % 176,007  2,480  1.88  %
Total interest-bearing liabilities 4,873,806  59,418  1.63  % 4,914,652  10,812  0.29  %
Noninterest bearing deposits 2,019,917  2,183,258 
Accrued expenses and other liabilities 100,491  104,445 
Total liabilities 6,994,214  7,202,356 
Tompkins Financial Corporation Shareholders’ equity 637,472  660,826 
Noncontrolling interest 1,456  1,458 
Total equity 638,928  662,284 
Total liabilities and equity $ 7,633,142  $ 7,864,640 
Interest rate spread 2.29  % 2.95  %
Net interest income/margin on earning assets 158,043  2.85  % 174,052  3.05  %
Tax Equivalent Adjustment (888) (1,065)
Net interest income per consolidated financial statements $ 157,155  $ 172,987 
1 Average balances and yields on available-for-sale debt securities are based on historical amortized cost.
2 Interest income includes the tax effects of taxable-equivalent adjustments using an effective income tax rate of 21% in 2023 and 2022 to increase tax exempt interest income to taxable-equivalent basis.
3 Nonaccrual loans are included in the average asset totals presented above. Payments received on nonaccrual loans have been recognized as disclosed in Note 1 of the Company’s consolidated financial statements included in Part 1 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Net Interest Income 
Net interest income is the Company’s largest source of revenue, and is dependent on the volume and composition of interest earning assets and interest-bearing liabilities and the level of market interest rates. The above table shows average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each.
 


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Net interest income for the three months and nine months ended September 30, 2023, was down $7.1 million, or 12.2%, and $15.8 million, or 9.2%, respectively, from the same periods in 2022. The decrease was primarily due to higher funding costs and a decrease in average earning assets, partially offset by an increase in the average yield on interest-earning assets and a decrease in average interest-bearing liabilities in 2023 compared to 2022.

Net interest margin for the three months ended September 30, 2023 was 2.75% compared to 3.04% for the same period in 2022. Net interest margin for the nine months ended September 30, 2023 was 2.85% compared to 3.05% for the same period in 2022. The decrease in net interest margin for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was due to increases in interest rates on interest-bearing liabilities outpacing increases on interest earning asset yields due to the higher interest rate environment, as well as increases in higher rate borrowings due to lower deposit balances.

The quarterly net interest margin for the third quarter of 2023 was 2.75%, down from a net interest margin of 2.83% for the second quarter of 2023. The decrease in net interest margin was driven mainly by higher funding costs during the third quarter as a result of higher average rates paid on interest-bearing deposits and borrowings exceeding the growth in average earning asset yields. The average cost of interest-bearing liabilities for the third quarter of 2023 was 1.98% compared to 1.64% for the second quarter of 2023, while the average yield on interest-earning assets was 4.06% and 3.91% for the same two periods.

Interest income for the three and nine months ended September 30, 2023 was $75.5 million and $216.6 million, up 18.5% and 17.8%, respectively, compared to the same periods in 2022. The growth in the three and nine month periods was mainly driven by higher interest earning asset yields due to the higher interest rate environment, and partially offset by decreases in the volume of average interest-earning assets. For the three and nine months ended September 30, 2023 average yield on interest-earning assets increased 74 and 68 basis points, respectively, over the same periods in 2022. Average interest-earning assets for the three and nine months ended September 30, 2023, decreased $233.7 million, or 3.1% and $211.5 million, or 2.8%, respectively, compared to the same periods in 2022.

Interest income on loans for the three and nine months ended September 30, 2023, was up $12.0 million, or 21.8% and $32.7 million, or 20.6% compared to the same periods in 2022, driven by higher average yields and higher average balances. The average yields on loans for the three and nine months ended September 30, 2023, of 4.95% and 4.83% respectively, were up 72 and 67 basis points from the same periods in 2022. The increase in loan yields was a result of market-related increases in interest rates on new loans, a significant increase in variable and adjustable rate loan yields driven by rising market interest rates, including the prime rate, and new loan originations. The three and nine months ended September 30, 2023 average loan balances were up $200.0 million, or 3.9% and $194.9 million, or 3.8% over the same periods of 2022.

Interest income on securities for the three and nine months ended September 30, 2023, was down $234,000, or 2.7% and $205,000, or 0.8% as compared to the same periods in 2022, as higher average yields were more than offset by lower average balances. The average yield on total securities for the three and nine months ended September 30, 2023, were up 17 basis points and 16 basis points, respectively, over the same periods in 2022, while average balances for securities were down $391.2 million, or 16.5% and $333.1 million, or 13.9%, respectively, over the same periods in 2022. The increase in securities yields were driven by market interest rate increases and the sales and maturities of certain available-for-sale investment securities during the first nine months of 2023. During the second quarter of 2023, the Company sold $80.9 million and used the proceeds mainly to pay down overnight borrowings with the FHLB. During the third quarter of 2023 the Company sold $429.6 million of available-for-sale debt securities with an average yield of 0.93% and reinvested $357.3 million of the proceeds into securities with an estimated yield of approximately 5.12%. The weighted average life of the securities purchased and sold was approximately 4.3 years.

Interest expense for the three months ended September 30, 2023 increased $18.9 million, or 339.9%, and increased $48.6 million, or 449.6% for the nine month period ended September 30, 2023 compared to the same periods in 2022. The increase was mainly driven by the increase in the average rates paid on interest-bearing liabilities. The average cost of interest-bearing deposits for the three and nine months ended September 30, 2023 was 1.74% and 1.42%, respectively, up 138 and 118 basis points, respectively, as compared to the same periods in 2022. The rate paid on average interest-bearing deposits increased as interest rates on certain interest-bearing deposits were raised in response to market conditions. Average interest-bearing deposits for the three and nine months ended September 30, 2023, were down $134.4 million, or 2.9% and $215.9 million, or 4.6%, respectively, from the same three and nine months period in 2022. Average noninterest bearing deposits were down $259.9 million, or 11.6% for the three months ended September 30, 2023 when compared to the third quarter of 2022, and for the nine months ended September 30, 2023 were down $163.3 million, or 7.48% compared to the same period in 2022.


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The average rate paid on other borrowings for the three and nine months ended September 30, 2023, were up 253 basis points and 270 basis points, respectively, over the same periods in 2022. The increase in the cost of average borrowings was primarily the result of the greater utilization of comparatively higher rate overnight borrowings to fund loan growth as a result of lower average deposit balances. Average other borrowings for the three and nine months ended September 30, 2023 were up $171.7 million, or 73.9%, and up $175.6 million, or 99.8%, respectively, compared to the same periods in 2022.
Provision for Credit Losses 
The provision for credit losses represents management’s estimate of the amount necessary to maintain the allowance for credit losses ("ACL") at an appropriate level. Provision for credit losses in the third quarter of 2023 was $1.2 million compared to $1.1 million for the third quarter of 2022. Provision for credit losses for the nine months ended September 30, 2023 was $2.6 million compared to $1.4 million for the same period in 2022. The provision for credit losses for the three and nine months ended September 30, 2023 included a provision expense of $182,000 and $371,000, respectively, related to off-balance sheet credit exposures compared to a credit of $45,000 and an expense of $245,000, respectively, for the same periods in 2022. The increase in provision for credit losses for both the three and nine month periods is mainly driven by economic forecasts, loan growth, and changes in asset quality. The section captioned "Financial Condition – The Allowance for Credit Losses" below has further details on the allowance for credit losses and asset quality metrics.
 
Noninterest Income 
Noninterest income was a loss of $41.6 million and a loss of $8.6 million for the three and nine months ended September 30, 2023, which were down $62.3 million and $68.2 million, respectively, from the same periods in 2022. The net loss for both periods and the decrease from prior year was primarily the result of the $62.9 million pre-tax loss on the sale of certain available-for-sale debt securities in connection with a strategic balance sheet repositioning executed during the third quarter of 2023. Fee-based revenues, including insurance commissions and fees, wealth management fees, service charges on deposit accounts and card services income, for the third quarter and nine months ended September 30, 2023, were collectively up $543,000, or 2.7%, and $770,000, or 1.4%, respectively, over the same periods in 2022.
 
Insurance commissions and fees, the largest component of noninterest income, were $11.4 million for the third quarter of 2023, an increase of 5.3% from the same period for the prior year. The increase in insurance commissions and fees in the third quarter of 2023 over the same period in 2022 was mainly due to property and casualty commission revenue attributed to new business, along with premium increases related to the change in general market conditions. For the first nine months of 2023, insurance commissions and fees were up $1.0 million, or 3.5% compared to the same period in 2022. The increase in revenues for the nine months ended September 30, 2023 compared to the same period in 2022 was mainly in personal lines, commercial lines, and employee benefits, driven by new business along with rate increases related to current market conditions.

Wealth management fees of $4.3 million in the third quarter of 2023 were flat compared to the third quarter of 2022. For the first nine months of 2023, wealth management fees were down $321,000, or 2.3% compared to the same period in 2022. Wealth management fees include trust services, financial planning, wealth management services, and brokerage related services. The fair value of assets managed by, or in custody of, Tompkins was $2.9 billion at September 30, 2023, up from $2.8 billion at September 30, 2022. The increase in assets from prior year was mainly a result of improved market performance in 2023, in comparison to market conditions experienced during the same period of 2022.
 
Card services income in the third quarter of 2023 was up $129,000, or 4.7% over the same three month period in 2022, and up $396,000, or 4.8% for the nine months ended September 30, 2023 compared to the same period in 2022.

Other income of $1.0 million in the third quarter of 2023 was up $13,000, or 1.3% compared to the same period in 2022. For the first nine months of 2023, other income of $4.5 million was up $840,000, or 22.7% compared to the same period in 2022. The increase for the nine months ended September 30, 2023 compared to the same period in 2022 was mainly due to higher earnings on bank owned life insurance. Earnings on bank owned life insurance were up $810,000 for the nine months ended September 30 2023 compared to the same period in 2022 but were adversely impacted by decreases in the market value of assets supporting certain separate account policies.

Noninterest Expense 
Noninterest expense of $49.9 million for the third quarter of 2023 and $152.0 million for the first nine months of 2023 were flat and up $6.4 million, or 4.4%, respectively, compared to the same periods in 2022. The increase in noninterest expense in the nine months ended September 30, 2023 over the same period in 2022 was mainly in other operating expenses which were up $4.1 million and higher personnel-related expenses, which were up $2.7 million.
 
Expenses associated with compensation and benefits comprise the largest component of noninterest expense, representing 62.4% and 62.1% of total noninterest expense for the three and nine months ended September 30, 2023, respectively. Total salaries, wages and benefits for the three and nine months ended September 30, 2023, were down $703,000, or 2.2% and up $2.7 million, or 3.0% over the same periods in 2022.


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The increase for the nine month period in 2023 over the same period in 2022 was mainly in health insurance, which was up $1.5 million, or 21.2%. Salaries and wage expense in the third quarter of 2023 and nine month period in 2023 was favorably impacted by lower accruals for certain incentive benefits compared to the same periods in 2022.

Other expense categories, not related to compensation and benefits, for the three and nine months ended September 30, 2023 were up $967,000, or 5.4%, and up $3.7 million, or 6.9%, respectively from the prior year periods. Contributing to the growth in these expenses for the three and nine months ended September 30, 2023, compared to the same periods in 2022 were the following: expenses related to the Company’s retirement plans, up $426,000, or 440.2% and $1.3 million, or 441.0%, respectively; professional fees, up $96,000, or 5.8% and $699,000, or 14.0%, respectively, FDIC insurance, up $322,000, or 44.7% and $777,000, or 37.0%, respectively; and accrual for New York State minimum tax, up $623,000 for both periods. The increase in other expense categories were partially offset by marketing expenses, down $424,000, or 35.1% and $144,000, or 3.9%, respectively.

Income Tax Expense 
The provision for income taxes was a benefit of $8.3 million for an effective rate of 20.0% for the third quarter of 2023, compared to tax expense of $6.8 million and an effective rate of 24.1% for the same quarter in 2022. For the first nine months of 2023, the provision for income taxes was a benefit of $619,000 for an effective rate of 10.3% compared to tax expense of $20.1 million and an effective rate of 23.4% for the same period in 2022. The decrease in the effective tax rate for the three and nine months ended September 30, 2023, compared to the same periods in 2022 is largely due to a decrease in pre-tax income, due primarily to the realized losses on the sale of certain available-for-sale debt securities and the anticipated retention of certain New York State tax benefits. The effective rates differ from the U.S. and state statutory rates primarily due to the effect of tax-exempt income from loans, securities and life insurance assets, and the income tax effects associated with stock based compensation.

The Company's banking subsidiary has an investment in a real estate investment trust that provides certain benefits on its New York State tax return for qualifying entities. A condition to claim the benefit is that the consolidated company has qualified average assets of no more than $8.0 billion for the taxable year. Based on current estimates of average assets during 2023, the Company expects to retain the benefits in 2023.

FINANCIAL CONDITION
 
Total assets were $7.7 billion at September 30, 2023, up $20.5 million, or 0.3% from December 31, 2022. Total loans were up $165.9 million, or 3.1%, cash and cash equivalents were up $62.4 million, or 80.1% and total securities were down $206.5 million compared to December 31, 2022. Total deposits at September 30, 2023 were up $21.1 million, or 0.3% from December 31, 2022.

Securities
As of September 30, 2023, the Company’s securities portfolio was $1.7 billion, or 22.1% of total assets compared to $1.9 billion, or 24.9% of total assets at year end 2022. The decrease in total securities was mainly due to the sale of $80.9 million of available-for-sale debt securities during the second quarter of 2023 and the sale of $429.6 million of available-for-sale debt securities during the third quarter of 2023. The proceeds from the sale in the second quarter were mainly used to pay down FHLB borrowings. Approximately $357.3 million of the proceeds from the third quarter sale were used to purchase securities with an average yield of 5.12% and an average life of 4.3 years. The following table details the composition of the securities portfolio:


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Available-for-Sale Debt Securities
September 30, 2023 December 31, 2022
(In thousands) Amortized Cost Fair Value Amortized Cost Fair Value
U.S. Treasuries $ 114,220  $ 107,294  $ 190,170  $ 167,251 
Obligations of U.S. Government sponsored entities 491,968  459,941  681,192  601,167 
Obligations of U.S. states and political subdivisions 90,154  77,237  93,599  85,281 
Mortgage-backed securities - residential, issued by
U.S. Government agencies 52,263  45,399  58,727  52,668 
U.S. Government sponsored entities 831,970  696,309  805,603  686,222 
U.S. corporate debt securities 2,500  2,330  2,500  2,378 
Total available-for-sale debt securities $ 1,583,075  $ 1,388,510  $ 1,831,791  $ 1,594,967 
 
Held-to-Maturity Debt Securities
September 30, 2023 December 31, 2022
(In thousands) Amortized Cost Fair Value Amortized Cost Fair Value
U.S. Treasuries $ 86,318  $ 71,551  $ 86,478  $ 73,541 
Obligations of U.S. Government sponsored entities 226,067  181,427  225,866  188,151 
Total held-to-maturity debt securities $ 312,385  $ 252,978  $ 312,344  $ 261,692 

As of September 30, 2023, the available-for-sale debt securities portfolio had net unrealized losses, which reflects the amount that the amortized cost exceeds fair value, of $194.6 million compared to net unrealized losses of $236.8 million at December 31, 2022. The decrease in unrealized losses related to the available-for-sale debt securities portfolio reflects interest rate volatility in the market, the volume and rates associated with the securities purchases, sales, maturities in 2023, and the recognition of the loss on the sales of $510.5 million of available-for-sale debt securities at a pre-tax loss of $70.0 million during the first nine months of 2023. Approximately $371.8 million of the proceeds from the sales were reinvested in available-for-sale debt securities, while the remaining proceeds were mainly used to pay down overnight borrowings with the FHLB. The Company sold the securities to restructure the investment portfolio by reinvesting in higher yielding bonds to improve future earnings performance. Management’s policy is to purchase investment grade securities that on average have relatively short duration, which helps mitigate interest rate risk and provides sources of liquidity without significant risk to capital.
 
The Company evaluates available-for-sale and held-to-maturity debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is the result of changes in interest rates or reflects a fundamental change in the credit worthiness of the underlying issuer. Any impairment that is not credit related is recognized in other comprehensive income (loss), net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses on the Statement of Condition, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the ACL and the adjustment to net income may be reversed if conditions change.

The Company determined that at September 30, 2023, all impaired available-for-sale and held-to-maturity debt securities were impaired because of changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit worthiness of the underlying issuers. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost. Therefore, the Company carried no ACL at September 30, 2023 and there was no credit loss expense recognized by the Company with respect to the securities portfolio during the three and nine months ended September 30, 2023.



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Loans and Leases
Loans and leases as of the end of the third quarter and prior year-end period were as follows:
(In thousands) 9/30/2023 12/31/2022
Commercial and industrial
Agriculture $ 77,720  $ 85,073 
Commercial and industrial other 695,445  705,700 
PPP loans* 488  756 
Subtotal commercial and industrial 773,653  791,529 
Commercial real estate
Construction 270,961  201,116 
Agriculture 218,144  214,963 
Commercial real estate other 2,507,164  2,437,339 
Subtotal commercial real estate 2,996,269  2,853,418 
Residential real estate
Home equity 187,387  188,623 
Mortgages 1,368,292  1,346,318 
Subtotal residential real estate 1,555,679  1,534,941 
Consumer and other
Indirect 1,090  2,224 
Consumer and other 97,165  75,412 
Subtotal consumer and other 98,255  77,636 
Leases 15,818  16,134 
Total loans and leases 5,439,674  5,273,658 
Less: unearned income and deferred costs and fees (4,814) (4,747)
Total loans and leases, net of unearned income and deferred costs and fees $ 5,434,860  $ 5,268,911 
*SBA Paycheck Protection Program ("PPP")

The below table shows a more detailed break-out of commercial real estate ("CRE") loans as of September 30, 2023 and December 31, 2022:
 
9/30/2023 12/31/2022
CRE Concentration Balance % CRE Balance % CRE
Construction $ 270,961  9.04  % $ 201,031  7.05  %
Multi-family/Single family real estate 605,050  20.19  % 587,467  20.59  %
Agriculture 218,144  7.28  % 214,963  7.53  %
Retail1
 421,014  14.05  % 434,998  15.25  %
Hotels/motels 169,103  5.64  % 144,710  5.07  %
Office space2
 236,748  7.90  % 236,281  8.28  %
Mixed/Other 1,075,249  35.89  % 1,033,881  36.23  %
Total CRE $ 2,996,269  100.00  % $ 2,853,331  100.00  %
1Retail includes 3.0% and 3.2% of owner occupied real estate at September 30, 2023 and December 31, 2022.
2Office space includes 1.4% and 1.5% of owner occupied real estate at September 30, 2023 and December 31, 2022.
 
Total loans and leases of $5.4 billion at September 30, 2023 were up $165.9 million, or 3.1% from December 31, 2022, mainly in the commercial real estate portfolio, and partially offset by the decline in commercial and industrial loan balances. As of September 30, 2023, total loans and leases represented 70.7% of total assets compared to 68.7% of total assets at December 31, 2022.


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Residential real estate loans, including home equity loans, were $1.6 billion at September 30, 2023, up $20.7 million, or 1.4% compared to December 31, 2022, and comprised 28.6% of total loans and leases at September 30, 2023.
 
The Company may sell residential real estate loans in the secondary market based on interest rate considerations. The Company's Asset/Liability Committee meets regularly and establishes standards for selling and retaining residential real estate mortgage originations. These residential real estate loans are generally sold to Federal Home Loan Mortgage Corporation ("FHLMC") or State of New York Mortgage Agency ("SONYMA") without recourse in accordance with standard secondary market loan sale agreements. These residential real estate loans also are subject to customary representations and warranties made by the Company, including representations and warranties related to gross incompetence and fraud. The Company has not had to repurchase any loans as a result of these representations and warranties.
 
During the first nine months of 2023 and 2022, the Company sold residential loans totaling $3.2 million and $7.3 million, respectively, recognizing gains of $86,000 and $140,000, respectively. These residential real estate loans were sold without recourse in accordance with standard secondary market loan sale agreements. When residential mortgage loans are sold, the Company typically retains all servicing rights, which provides the Company with a source of fee income. Mortgage servicing rights totaled $937,000 at September 30, 2023, and $973,000 at December 31, 2022. 

Commercial real estate loans and commercial and industrial loans totaled $3.0 billion and $773.7 million, respectively, and represented 55.1% and 14.2%, respectively, of total loans and leases as of September 30, 2023. The commercial real estate portfolio was up $142.9 million, or 5.0% compared to December 31, 2022, while commercial and industrial loans were down $17.9 million, or 2.3%.

As of September 30, 2023, agriculturally-related loans totaled $295.9 million, or 5.4% of total loans and leases, compared to $300.0 million, or 5.7% of total loans and leases at December 31, 2022. Agriculturally-related loans include loans to dairy farms and crop farms. Agriculturally-related loans are primarily made based on identified cash flows of the borrower with consideration given to underlying collateral, personal guarantees, and government related guarantees. Agriculturally-related loans are generally secured by the assets or property being financed or other business assets such as accounts receivable, livestock, equipment or commodities/crops.

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 4 – "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, 2022. There have been no significant changes in these policies and guidelines since the date of that report. 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 originations, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans. 

The Company’s loan and lease customers are located primarily in the New York and Pennsylvania communities served by its subsidiary bank. Although operating in numerous communities in New York and Pennsylvania, the Company is still dependent on the general economic conditions of these states and the local economic conditions of the communities within those states in which the Company does business.



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The Allowance for Credit Losses
The below table represents the allowance for credit losses as of September 30, 2023 and December 31, 2022. The table provides, as of the dates indicated, an allocation of the allowance for credit losses for inherent loan losses by type. The allocation is neither indicative of the specific amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of future loss trends. The allocation of the allowance for credit losses to each category does not restrict the use of the allowance to absorb losses in any category.
(In thousands) 9/30/2023 12/31/2022
Allowance for credit losses
Commercial and industrial $ 6,452  $ 6,039 
Commercial real estate 29,335  27,287 
Residential real estate 11,906  11,154 
Consumer and other 1,560  1,358 
Finance leases 83  96 
Total $ 49,336  $ 45,934 
 
As of September 30, 2023, the total allowance for credit losses was $49.3 million, up $3.4 million, or 7.4% compared to December 31, 2022. The ACL as a percentage of total loans measured 0.91% at September 30, 2023, compared to 0.87% at December 31, 2022. The increase in the ACL from year-end 2022 reflects updated economic forecasts for unemployment and gross domestic product ("GDP") coupled with loan growth, mainly in the real estate portfolios, and the addition of a specific reserve added to one commercial real estate relationship.

Asset quality measures at September 30, 2023 were generally favorable compared with December 31, 2022. Loans internally-classified Special Mention or Substandard were up $24.7 million, or 25.1% compared to December 31, 2022. Nonperforming loans and leases were down $1.4 million, or 4.3% from year end 2022 and represented 0.58% of total loans at September 30, 2023 compared to 0.62% at December 31, 2022. The allowance for credit losses covered 156.96% of nonperforming loans and leases at September 30, 2023, compared to 139.86% at December 31, 2022. The increase in Special Mention and Substandard loans and leases was mainly due to one commercial real estate loan totaling approximately $15.3 million being added to Substandard, and one commercial real estate relationship totaling approximately $18.6 million being added to Special Mention during the second quarter of 2023.



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Activity in the Company’s allowance for credit losses during the first nine months of 2023 and 2022 is illustrated in the table below:

Analysis of the Allowance for Credit Losses
(In thousands) 9/30/2023 9/30/2022
Average loans outstanding during period $ 5,314,221  $ 5,119,309 
Allowance at beginning of year, prior to adoption of ASU 2016-13 45,934  42,843 
Impact of adopting ASU 2016-13 64  0 
Balance of allowance at beginning of year 45,998  42,843 
LOANS CHARGED-OFF:
Commercial and industrial 0  366 
Commercial real estate 0  50 
Residential real estate 2  0 
Consumer and other 546  410 
Finance leases 0  0 
Total loans charged-off $ 548  $ 826 
RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:
Commercial and industrial 67  132 
Commercial real estate 1,238  910 
Residential real estate 182  315 
Consumer and other 192  251 
Total loans recovered $ 1,679  $ 1,608 
Net loans recovered (1,131) (782)
Provision for credit losses related to loans 2,207  1,147 
Balance of allowance at end of period $ 49,336  $ 44,772 
Allowance for credit losses as a percentage of total loans and leases 0.91  % 0.86  %
Annualized net (recoveries) charge-offs on loans to average total loans and leases during the period (0.03) % (0.02) %

The provision for credit losses for loans was $968,000 for the three months ended September 30, 2023, compared to $1.1 million for the same period in 2022. For the nine month period ended September 30, 2023, the provision for credit losses for loans was $2.2 million compared to $1.1 million for the same period in 2022. The provision expense for credit losses for loans is based upon the Company's quarterly evaluation of the appropriateness of the allowance for credit losses. As discussed above, the ACL model estimated higher reserves at September 30, 2023 due to changes in economic forecasts coupled with loan growth and additional reserves for an individually evaluated commercial loan. Net loan and lease recoveries for the nine months ended September 30, 2023 were $1.1 million compared to net recoveries of $782,000 for the same period in 2022.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, and commercial letters of credit. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancellable, through a charge to credit loss expense for off-balance sheet credit exposures included in provision for credit loss expense in the Company's consolidated statements of income.

For the three months ended September 30, 2023, the provision for credit losses for off-balance sheet credit exposures was $182,000 compared to provision credit of $45,000 for the same period in 2022. For the nine month period ended September 30, 2023, the provision for credit losses for off-balance sheet credit exposures was $371,000 compared to $245,000 for the same nine month period in 2022.



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Analysis of Past Due and Nonperforming Loans    
(In thousands) 9/30/2023 12/31/2022 9/30/2022
Loans 90 days past due and accruing
Commercial and industrial $ 0  $ 25  $ 0 
Commercial real estate 0  0  161 
Residential real estate 1  0  0 
Consumer and other 51  0  0 
Total loans 90 days past due and accruing $ 52  $ 25  $ 161 
Nonaccrual loans
Commercial and industrial $ 3,163  $ 618  $ 803 
Commercial real estate 10,934  13,858  15,901 
Residential real estate 16,924  13,544  13,041 
Consumer and other 360  269  268 
Total nonaccrual loans $ 31,381  $ 28,289  $ 30,013 
Performing troubled debt restructuring* 0  4,530  4,730 
Total nonperforming loans and leases $ 31,433  $ 32,844  $ 34,904 
Other real estate owned 0  152  335 
Total nonperforming assets $ 31,433  $ 32,996  $ 35,239 
Allowance as a percentage of nonperforming loans and leases 156.96  % 139.86  % 128.27  %
Total nonperforming loans and leases as percentage of total loans and leases 0.58  % 0.62  % 0.67  %
Total nonperforming assets as percentage of total assets 0.41  % 0.43  % 0.45  %
*No amount shown for periods subsequent to the Company's adoption of ASU 2022-02 effective January 1, 2023.

Nonperforming assets include loans past due 90 days and accruing, nonaccrual loans, modified loans due to financial difficulty, and foreclosed real estate/other real estate owned. Total nonperforming assets of $31.4 million at September 30, 2023 were down $1.6 million, or 4.7% compared to December 31, 2022, and down $3.8 million, or 10.8% compared to September 30, 2022. Nonperforming assets represented 0.41% of total assets at September 30, 2023, down from 0.43% at December 31, 2022, and down from 0.45% at September 30, 2022. Our peer group's average ratio of nonperforming assets to total assets was 0.33% at June 30, 2023.

The Company adopted ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2022-02") effective January 1, 2023. ASU 2022-02 eliminates the guidance on TDRs and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. Loans in the current period are reported using ASU 2022-02, while loans for prior periods are reported using the previous TDR guidance. Loans are considered modified if the Company makes a concession(s) to a borrower experiencing financial difficulty that it would not otherwise consider and the borrower could not obtain elsewhere. These modifications may include, among others, an extension of the term of the loan, and granting a period when interest-only payments can be made, with the principal payments made over the remaining term of the loan or at maturity. Modified loans and TDRs reported for prior periods are included in the above table within the following categories: "loans 90 days past due and accruing", or "nonaccrual loans". Loans in the latter category include loans that meet the definition of a modified loan but are performing in accordance with the modified terms and have shown a satisfactory period of repayment (generally six consecutive months) and where full collection of all is reasonably assured. At September 30, 2023, loans modified under the new guidance were immaterial.

In general, the Company places a loan 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 applicable regulations. Although in nonaccrual status, the Company may continue to receive payments on these loans. These payments are generally recorded as a reduction to principal, and interest income is recorded only after principal recovery is reasonably assured. 



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The ratio of the allowance to nonperforming loans and leases (loans past due 90 days and accruing, nonaccrual loans and restructured troubled debt) was 156.96% at September 30, 2023, compared to 139.86% at December 31, 2022, and 128.27% at September 30, 2022. The Company’s nonperforming loans and leases are mostly comprised of collateral dependent loans with limited exposure or loans that require limited specific reserve due to the level of collateral available with respect to these loans and/or previous charge-offs.
 
The Company, through its internal loan review function, identified 20 commercial relationships from the loan portfolio totaling $43.3 million at September 30, 2023, that were potential problem loans. At December 31, 2022, the Company had identified 17 relationships totaling $33.3 million that were potential problem loans. Of the 20 relationships at September 30, 2023, that were Substandard, there were 5 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $39.0 million, the largest of which was $16.8 million. The Company continues to monitor these potential problem relationships; however, management cannot predict the extent to which continued weak economic conditions or other factors may further impact borrowers. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and personal or government guarantees. These factors, when considered in the aggregate, give management reason to believe that the current risk exposure on these loans does not warrant accounting for these loans as nonperforming. However, these loans do exhibit certain risk factors, which have the potential to cause them to become nonperforming. Accordingly, management's attention is focused on these credits, which are reviewed on at least a quarterly basis.

Capital
Total equity was $612.4 million at September 30, 2023, a decrease of $5.0 million, or 0.8% from December 31, 2022.
 
Additional paid-in capital decreased by $6.0 million, or 2.0%, from $302.8 million at December 31, 2022, to $296.7 million at September 30, 2023. The decrease was primarily attributable to an $8.7 million aggregate purchase price related to the Company's repurchase and retirement of 150,000 shares of its common stock during the first nine months of 2023 pursuant to its publicly announced stock repurchase plan; and partially offset by $2.9 million attributed to stock-based compensation.

Retained earnings decreased by $31.6 million, or 6.0% from $526.7 million at December 31, 2022, to $495.1 million at September 30, 2023, mainly reflecting a net loss of $5.5 million for the year-to-date period and dividends of $26.0 million.

Accumulated other comprehensive loss decreased from a net loss of $208.7 million at December 31, 2022, to a net loss of $176.0 million at September 30, 2023, reflecting a $31.9 million decrease in unrealized losses on available-for-sale debt securities, mainly due to the recognition of the $70.0 million pre-tax loss on sales of available-for-sale investment securities, including the $62.9 million pre-tax loss recognized in the third quarter of 2023 related to aforementioned balance sheet repositioning, partially offset by increases in unrealized losses on available-for-sale debt securities due to changes in market interest rates; and a $754,000 decrease related to post-retirement benefit plan.

Cash dividends paid in the first nine months of 2023 totaled approximately $26.0 million, or $1.80 per common share, which exceeded year to date 2023 net loss through September 30, 2023 of $5.5 million, or $0.39 loss per diluted share, compared to cash dividends of $24.9 million, or $1.71 per common share paid in the first nine months of 2022. Cash dividends per share during the first nine months of 2023 were up 5.3% over the same period in 2022.
 
The Company and its subsidiary bank are subject to various regulatory capital requirements administered by Federal bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s business, results of operation and financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (PCA), banks must meet specific guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classifications of the Company and its subsidiary banks are also subject to qualitative judgments by regulators concerning components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios of common equity Tier 1 capital, Total capital and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that the Company and its subsidiary bank meets all capital adequacy requirements to which they are subject.





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The following table provides a summary of the Company’s capital ratios as of September 30, 2023: 

Regulatory Capital Analysis
September 30, 2023 Actual Minimum Capital Required - Basel III Fully Phased-In Well Capitalized Requirement
(dollar amounts in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 746,803  13.46  % $ 582,494  10.50  % $ 554,757  10.00  %
Tier 1 Capital (to risk weighted assets) $ 692,794  12.49  % $ 471,543  8.50  % $ 443,805  8.00  %
Tier 1 Common Equity (to risk weighted assets) $ 692,794  12.49  % $ 388,330  7.00  % $ 360,592  6.50  %
Tier 1 Capital (to average assets) $ 692,794  9.01  % $ 307,734  4.00  % $ 384,667  5.00  %

As of September 30, 2023, the Company’s capital ratios exceeded the minimum required capital ratios plus the fully phased-in capital conservation buffer, and the minimum required capital ratios for well capitalized institutions. The capital levels required to be considered well capitalized, presented in the above table, are based upon prompt corrective action regulations, as amended to reflect the changes under Basel III Capital Rules.

Total capital as a percent of risk weighted assets decreased to 13.5% at September 30, 2023, compared with 14.4% as of December 31, 2022. Tier 1 capital as a percent of risk weighted assets declined to 12.5% at September 30, 2023 compared to 13.5% at the end of 2022. Tier 1 capital as a percent of average assets was 9.0% at September 30, 2023, down from 9.3% as of December 31, 2022. Common equity Tier 1 capital was 12.5% at the end of the third quarter of 2023, down from 13.5% at the end of 2022. The decrease in aforementioned capital ratios at September 30, 2023, as compared to December 31, 2022, was mainly driven by the pre-tax loss on the sale of securities of $62.9 million and $70.0 million, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022 due to balance sheet repositioning by the Company.

As of September 30, 2023, the capital ratios for the Company’s subsidiary bank also exceeded the minimum required capital ratios for well capitalized institutions, plus the fully phased-in capital conservation buffer.

In the first quarter of 2020, U.S. Federal regulatory authorities issued an interim final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition.
 
Deposits and Other Liabilities
Total deposits of $6.6 billion at September 30, 2023 were flat compared to December 31, 2022, and were up $168.8 million, or 2.6% from June 30, 2023. The increase from year-end 2022 was primarily in time deposits, which were up $249.0 million, or 39.4%, mainly offset by decreases in noninterest-bearing deposits and checking, money market and savings deposits, which were down $187.1 million, or 8.7%, and $40.7 million, or 1.1%, respectively.

The most significant source of funding for the Company is core deposits. The Company defines core deposits as total deposits less time deposits of $250,000 or more, brokered deposits, municipal money market deposits, and reciprocal deposit relationships with municipalities. Core deposits decreased by $153.3 million, or 2.7% from year-end 2022, to $5.4 billion at September 30, 2023. Core deposits at September 30, 2023 were up $143.0 million, or 2.7% from June 30, 2023. Core deposits represented 81.9% of total deposits at September 30, 2023, compared to 84.5% of total deposits at December 31, 2022 and 81.9% at June 30, 2023.
 
The Company uses both retail and wholesale repurchase agreements. Retail repurchase agreements are arrangements with local customers of the Company, in which the Company agrees to sell securities to the customer with an agreement to repurchase those securities at a specified later date. Retail repurchase agreements totaled $56.1 million at September 30, 2023, and $56.3 million at December 31, 2022. Management generally views retail repurchase agreements as an alternative to large time deposits.
 


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The Company’s other borrowings totaled $296.8 million at September 30, 2023, up $5.5 million, or 1.9% from $291.3 million at December 31, 2022. Borrowings at September 30, 2023 consisted of $171.8 million in overnight FHLB advances and $125.0 million of FHLB term advances, compared to $241.3 million in FHLB overnight advances and $50.0 million of FHLB term advances at year end 2022. Of the $125.0 million in FHLB term advances at September 30, 2023, $40.0 million is due to mature in less than one year and $85.0 million is due to mature in over one year.

Liquidity
The objective of liquidity management is to ensure the availability of adequate funding sources to satisfy the demand for credit, deposit withdrawals, and business investment opportunities. The Company’s large, stable core deposit base and strong capital position are the foundation for the Company’s liquidity position. The Company uses a variety of resources to meet its liquidity needs, which include deposits, cash and cash equivalents, short-term investments, cash flow from lending and investing activities, repurchase agreements, and borrowings. The Company’s Asset/Liability Management Committee monitors asset and liability positions of the Company’s subsidiary banks individually and on a combined basis. The Committee reviews periodic reports on liquidity and interest rate sensitivity positions. Comparisons with industry and peer groups are also monitored. The Company’s strong reputation in the communities it serves, along with its strong financial condition, provides access to numerous sources of liquidity as described below. Management believes these diverse liquidity sources provide sufficient means to meet all demands on the Company’s liquidity that are reasonably likely to occur. Management measures liquidity, including the level of cash, unencumbered securities, and the availability of dependable borrowing sources. The Board has set a policy limit stating that reliable sources of liquidity should remain in excess of 6% of total assets. The ratio was 14.5% at September 30, 2023 compared to 21.6% of assets at December 31, 2022.
 
Core deposits, discussed above under "Deposits and Other Liabilities", are a primary and low cost funding source obtained primarily through the Company’s branch network. In addition to core deposits, the Company uses non-core funding sources to support asset growth. These non-core funding sources include time deposits of $250,000 or more, municipal money market deposits, reciprocal deposits, bank borrowings, securities sold under agreements to repurchase and overnight and term advances from the FHLB. Rates and terms are the primary determinants of the mix of these funding sources. Non-core funding sources of $1.6 billion at September 30, 2023 increased $179.9 million, or 13.1% as compared to December 31, 2022. Non-core funding sources, as a percentage of total liabilities, were 21.9% at September 30, 2023, compared to 19.4% at December 31, 2022. 
 
Non-core funding sources may require securities to be pledged against the underlying liability. Securities held with a carrying value of $1.3 billion at September 30, 2023 and $1.8 billion at December 31, 2022, were either pledged or sold under agreements to repurchase. Pledged securities represented 67.2% of total securities at September 30, 2023, compared to 82.4% of total securities at December 31, 2022.
 
Cash and cash equivalents totaled $140.2 million as of September 30, 2023 which increased from $77.8 million at December 31, 2022. Short-term investments, consisting of securities due in one year or less, increased from $50.3 million at December 31, 2022, to $78.5 million on September 30, 2023.
 
Cash flow from the loan and investment portfolios provides a significant source of liquidity. These assets may have stated maturities in excess of one year, but have monthly principal reductions. Total mortgage-backed securities, at fair value, were $741.7 million at September 30, 2023 compared with $738.9 million at December 31, 2022. Outstanding principal balances of residential mortgage loans, consumer loans, and leases totaled approximately $1.7 billion at September 30, 2023, up $41.0 million, or 2.5% compared with December 31, 2022. Aggregate amortization from monthly payments on these assets provides significant additional cash flow to the Company.

The Company's liquidity is enhanced by ready access to national and regional wholesale funding sources including Federal funds purchased, repurchase agreements, brokered deposits, and FHLB advances. Through its subsidiary bank, the Company has borrowing relationships with the FHLB and correspondent banks, which provide secured and unsecured borrowing capacity. As members of the FHLB, the Company can use certain unencumbered mortgage-related assets and securities to secure borrowings from the FHLB. At September 30, 2023, the established borrowing capacity with the FHLB was $1.6 billion, or 20.6% of total assets, with available unencumbered mortgage-related assets of $1.0 billion. Additional assets may also qualify as collateral for FHLB advances, upon approval of the FHLB. Through various programs at the Federal Reserve Bank, the Company has the ability to use certain unencumbered mortgage-related assets and securities to secure borrowings from the Federal Reserve Bank's Discount Window. At September 30, 2023 the available borrowing capacity with the Federal Reserve Bank was $91.8 million, secured by investment securities. In addition to the available borrowing lines at the FHLB and Federal Reserve Bank, the Company maintains $411.7 million of unencumbered securities which could be pledged to further enhance secured borrowing capacity.



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Non-GAAP Disclosure
The following table summarizes the Company's results of operations on a GAAP basis and on an operating (non-GAAP) basis for the periods indicated. The non-GAAP financial measures adjust GAAP measures to exclude the effects of the sales of available-for-sale debt securities at a loss. The Company believes the non-GAAP measures provide meaningful comparisons of our underlying operational performance and facilitate management's and investors' assessments of business and performance trends. These non-GAAP financial measures should not be considered in isolation or as a measure of the Company's profitability or liquidity; they are in addition to, and are not a substitute for, financial measures under GAAP. The non-GAAP financial measures presented herein may be different from non-GAAP financial measures used by other companies, and may not be comparable to similarly titled measures reported by other companies. Non-GAAP financial measures have limitations since they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP.

Adjusted Net Income/Adjusted Basic and Diluted Earnings Per Share (Non-GAAP) to Net Income
Three Months Ended Nine Months Ended
(In thousands, except per share data) 9/30/2023 9/30/2022 9/30/2023 9/30/2022
Net income
Net (loss) income (GAAP) $ (33,354) $ 21,340  $ (5,498) $ 65,482 
Loss on sale of investment securities 62,967  95  70,019  179 
Tax effect of loss on sale of investment securities 15,427  23  17,155  44 
Adjusted net income (non-GAAP) 14,186  21,412  47,366  65,617 
Basic (loss) earnings per share
Net income (GAAP) $ (33,354) $ 21,340  $ (5,498) $ 65,482 
Adjusted net income (non-GAAP) 14,186  21,412  47,366  65,617 
Income attributable to unvested stock based compensation awards (8) (66) (34) (209)
Weighted average basic shares 14,185,763  14,289,022  14,274,929  14,335,034 
Basic (loss) earnings per share $ (2.35) $ 1.49  $ (0.39) $ 4.55 
Adjusted basic (loss) earnings per share (non-GAAP) 1.00  1.49  3.32  4.56 
Diluted (loss) earnings per share
Net income (GAAP) $ (33,354) $ 21,340  $ (5,498) $ 65,482 
Adjusted net income (non-GAAP) 14,186  21,412  47,366  65,617 
Income attributable to unvested stock based compensation awards (8) (66) (34) (209)
Weighted average diluted shares 14,224,748  14,367,149  14,319,835  14,410,532 
Diluted (loss) earnings per share $ (2.35) $ 1.48  $ (0.39) $ 4.53 
Adjusted diluted (loss) earnings per share (non-GAAP) 1.00  1.49  3.31  4.54 
Return on average assets
Net income (GAAP) $ (33,354) $ 21,340  $ (5,498) $ 65,482 
Adjusted net income (non-GAAP) 14,186  21,412  47,366  65,617 
Average total assets 7,629,876  7,853,847  7,633,142  7,864,640 
Return on average assets (1.73) % 1.08  % (0.10) % 1.11  %
Adjusted return on average assets (non-GAAP) 0.74  % 1.08  % 0.83  % 1.12  %
Return on average equity
Net income (GAAP) $ (33,354) $ 21,340  $ (5,498) $ 65,482 
Adjusted net income (non-GAAP) 14,186  21,412  47,366  65,617 
Average total equity 634,980  635,324  638,928  662,284 
Return on average equity (20.84) % 13.33  % (1.15) % 13.22  %
Adjusted return on average equity (non-GAAP) 8.86  % 13.37  % 9.91  % 13.25  %



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Newly Adopted Accounting Standards

ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying U.S. generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.

ASU 2022-01, "Derivatives and Hedging (Topic 815)" ("ASU 2022-01"): provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by ASU 2022-01, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

In accordance with the FASB’s fair value measurement guidance in ASU 2011-04, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2022-02"): eliminates the guidance on troubled debt restructurings and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. ASU 2022-02 became effective for the Company on January 1, 2023. The Company elected to apply the ASU on a modified retrospective basis to recognize any change in the allowance for credit losses that had been recognized for receivables previously modified (or reasonably expected to be modified) in a TDR. This election resulted in cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amount of the adjustment to retained earnings was a decrease of $64,000. See Note 5 to the Consolidated Financial Statements for changes in disclosures related to this adoption. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.

ASU No. 2022-03, "Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." The amendments in this update provides clarification on guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and provides new disclosure requirements for equity securities subject to contractual sale restrictions, that are measured at fair value. ASU 2022-03 became effective for the Company on January 1, 2023. As there are no equity securities subject to contract sales during the current or prior year, the adoption of ASU 2022-03 had no effect on the financial statements for the current fiscal year, and the Company will apply the guidance prospectively to future acquisitions.

Accounting Standards Pending Adoption

ASU No. 2023-02, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." This update will allow reporting entities to consistently account for equity investments made primarily for the purpose of receiving income tax credits or other income tax benefits.


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This update applies this to all reporting entities that hold (1) tax equity investments that meet the conditions for and elect to account for them using the proportional amortization method or (2) an investment in a LIHTC structure through a limited liability entity that is not accounted for using the proportional amortization method and to which certain LIHTC specific guidance removed from Subtopic 323-740 has been applied. Additionally, the disclosure requirements apply to investments that generate income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method (including investments within that elected program that do not meet the conditions to apply the proportional amortization method). The amendments in this Update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective for fiscal years beginning after December 15, 2023 and interim periods in those years. Tompkins is currently evaluating the potential impact of ASU 2023-02 on our consolidated financial statements.

The Company reviewed new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company’s financial statements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk
 
Interest rate risk is the primary market risk category associated with the Company’s operations. Interest rate risk refers to the volatility of earnings caused by changes in interest rates. The Company manages interest rate risk using income simulation to measure interest rate risk inherent in its on-balance sheet and off-balance sheet financial instruments at a given point in time. The simulation models are used to estimate the potential effect of interest rate shifts on net interest income for future periods. Each quarter, the Company’s Asset/Liability Management Committee reviews the simulation results to determine whether the exposure of net interest income to changes in interest rates remains within levels approved by the Company’s Board of Directors. The Committee also considers strategies to manage this exposure and incorporates these strategies into the investment and funding decisions of the Company.

The Company’s Board of Directors has set a policy that interest rate risk exposure will remain within a range whereby net interest income will not decline by more than 10% in one year as a result of a 100 basis point parallel change in rates. Based upon the most recent simulation analysis performed as of August 31, 2023, a 200 basis point parallel upward change in interest rates over a one-year time frame would result in a one-year decrease in net interest income from the base case of approximately 4.4%, while a 200 basis point parallel decline in interest rates over a one-year period would result in a one year increase in net interest income of 3.3% from the base case. This simulation assumes no balance sheet growth, no changes in balance sheet mix, deposit rates move in a manner that reflects the historical relationship between deposit rate movement and changes in Federal funds rate, and no management action to address balance sheet mismatches.

The decrease in net interest income in the rising rate scenario is a result of the balance sheet showing a more liability sensitive position over a one year time horizon. As such, in the short-term net interest income is expected to trend slightly below the base assumption, as upward adjustments to rate sensitive deposits and short-term funding outpace increases to asset yields which are concentrated in intermediate to longer-term products. As intermediate and longer-term assets continue to reprice/adjust into higher rate environment and funding costs stabilize, the simulation shows net interest income is expected to trend upwards.

The down 200 basis point scenario increases net income slightly in the first year as a result of the Company's assets repricing downward to a lesser degree than the rates on the Company's interest-bearing liabilities, mainly deposits and overnight borrowings. The model assumes that prepayments accelerate in the down interest rate environment resulting in additional pressure on asset yields as proceeds are reinvested at lower rates.

The most recent simulation of a base case scenario, which in addition to the above assumptions, also assumes interest rates remain unchanged from the date of the simulation, reflects a net interest margin that is increasing slightly over the next 12 to 18 months.

Although the simulation model is useful in identifying potential exposure to interest rate movements, actual results may differ from those modeled as the repricing, maturity, balance sheet mix, and prepayment characteristics of financial instruments may change to a different degree than modeled. In addition, the model does not reflect actions that management may employ to manage the Company's interest rate risk exposure. The Company’s current liquidity profile, capital position, and growth prospects, offer a level of flexibility for management to take actions that could offset some of the negative effects of unfavorable movements in interest rates. Management believes the current exposure to changes in interest rates is not significant in relation to the earnings and capital strength of the Company.



71

In addition to the simulation analysis, management uses an interest rate gap measure. The table below is a Condensed Static Gap Report, which illustrates the anticipated repricing intervals of assets and liabilities as of September 30, 2023. The Company’s one-year net interest rate gap was a negative $671.2 million, or 8.73% of total assets at September 30, 2023, compared with a negative $656.5 million, or 8.56% of total assets at December 31, 2022. A negative gap position exists when the amount of interest-bearing liabilities maturing or repricing exceeds the amount of interest-earning assets maturing or repricing within a particular time period. This analysis suggests that the Company’s net interest income contains a higher degree of risk in a rising rate environment over the next 12 months. An interest rate gap measure could be affected by external factors such as a rise or decline in interest rates, loan or securities prepayments, and deposit withdrawals.

Condensed Static Gap - September 30, 2023 Repricing Interval  
(In thousands) Total 0-3 months 3-6 months 6-12 months Cumulative 12 months
Interest-earning assets1
 $ 7,415,891  $ 1,067,647  $ 299,572  $ 663,611  $ 2,030,830 
Interest-bearing liabilities 5,013,322  2,108,776  297,932  295,325  2,702,033 
Net gap position $ (1,041,129) $ 1,640  $ 368,286  $ (671,203)
Net gap position as a percentage of total assets (13.54) % 0.02  % 4.79  % (8.73) %
 1 Balances of available securities are shown at amortized cost 

Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2023.

Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Report on Form 10-Q, the Company's disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings 

The Company is subject to various claims and legal actions that arise in the ordinary course of conducting business. As of September 30, 2023, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company or its subsidiaries will be material to the Company's consolidated financial position. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with such legal proceedings. Although the Company does not believe that the outcome of pending litigation will be material to the Company's consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.
 
Item 1A. Risk Factors
 
There have been no material changes in the risk factors previously disclosed under Item 1A. of the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2023 and the Company's Annual Report on Form 10-K, for the fiscal year ended December 31, 2022.



72

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
 
Issuer Purchases of Equity Securities
Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
(a) (b) (c) (d)
July 1, 2023 through July 31, 2023 46,435  $ 55.70  41,781  19,818 
August 1, 2023 through August 31, 2023 2,733  56.31  0  400,000 
September 1, 2023 through September 30, 2023 10  50.54  0  400,000 
Total 49,178  $ 55.74  41,781  400,000 

Included in the table above are 2,866 shares purchased in July 2023, at an average cost of $56.52, and 945 shares purchased in August 2023, at an average cost of $57.93, by the trustee of the rabbi trust established by the Company under the Company’s Stock Retainer Plan For Eligible Directors of Tompkins Financial Corporation and Participating Subsidiaries, which were part of the director deferred compensation under that plan. In addition, the table includes 1,788 shares delivered to the Company in July 2023 and 10 shares in September 2023 at an average cost of $55.46 and $50.54, respectively to satisfy mandatory tax withholding requirements upon vesting of restricted stock under the Company's 2009 and 2019 Equity Plans.

On October 22, 2021, the Company’s Board of Directors authorized a share repurchase plan (the "2021 Repurchase Plan") for the repurchase of up to 400,000 shares of the Company’s common stock over the 24 months following adoption of the 2021 Repurchase Plan. Under the 2021 Repurchase Plan, the Company had repurchased 380,182 shares as of July 20, 2023, at an average cost of $70.14. No further shares will be repurchased under the 2021 Repurchase Plan.

On July 20, 2023, the Company’s Board of Directors authorized a replacement share repurchase plan (the “2023 Repurchase Plan”) under which it may repurchase up to 400,000 shares of the Company’s common stock over the 24 months following adoption of the plan. Shares may be repurchased from time to time under the 2023 Repurchase Plan in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws, and the repurchase program may be suspended, modified or terminated by the Board of Directors at any time for any reason. As of September 30, 2023, there have been no shares repurchased under the 2023 Repurchase Plan.

Recent Sales of Unregistered Securities
 
None
 
Item 3. Defaults Upon Senior Securities
 
None 

Item 4. Mine Safety Disclosures
 
Not applicable

Item 5. Other Information
 
(a)

None

(c)

None


73

Item 6.     Exhibits
 
EXHIBIT INDEX
 
Exhibit Number Description
3.1
3.2
10.1#*
10.2#*
10.3#*
10.4#*
31.1#
31.2#
32.1#
32.2#
101 INS** The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
101 SCH** Inline XBRL Taxonomy Extension Schema Document
101 CAL** Inline XBRL Taxonomy Extension Calculation Linkbase Document
101 DEF** Inline XBRL Taxonomy Extension Definition Linkbase Document
101 LAB** Inline XBRL Taxonomy Extension Label Linkbase Document
101 PRE** Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File - the cover page interactive data file does not appear in the interactive date file because its XBRL tags are embedded with the inline XBRL document.
#Indicates Filed Herewith
*Indicates Management Contract
** Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Condition as of September 30, 2023 and December 31, 2022; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022; (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022; (v) Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2023 and 2022; and (vi Notes to Unaudited Consolidated Financial Statements.



74

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: November 08, 2023
 
TOMPKINS FINANCIAL CORPORATION
 
By: /s/ Stephen S. Romaine  
  Stephen S. Romaine  
  President and Chief Executive Officer  
  (Principal Executive Officer)  
 
By: /s/ Matthew D. Tomazin  
  Matthew D. Tomazin  
  Executive Vice President, Chief Financial Officer, and Treasurer
  (Principal Financial Officer)  
 



75
EX-10.1 2 tmp2023-09x30ex101.htm EX-10.1 Document

Exhibit 10.1
image_0.jpg


August 4, 2023

[address]

Dear Frank:

In connection with your retirement as Executive Vice President, Chief Financial Officer and Chief Operating Officer of Tompkins Financial Corporation and Tompkins Community Bank, and your willingness to provide services and guidance to assist in the transition of your responsibilities, I am pleased to offer you the position of part-time Director of Strategy Development of Tompkins Financial Corporation.

Below, please find an outline of the major terms and conditions of this offer based on a projected start date of October 1, 2023 and continuing through December 31, 2024.

You will continue to report to me in this role and your responsibilities will primarily be to provide transitional advice and guidance to the Chief Financial Officer, the finance and operations teams. Your work schedule will be twenty-four (24) hours per week and you will no longer be considered to be an officer nor otherwise in a policy-making role with Tompkins Financial Corporation and Tompkins Community Bank.

Below is a summary of the compensation and benefits you will receive in this role:
•Your bi-weekly rate of pay will be $11,254.62 ($292,620 annual basis).
•You will be eligible to receive a payout under the Company’s 2023 Senior Incentive Plan payable in 2024 with a potential payout of thirty percent (30%) of your base salary in effect at September 30, 2023.
•You will forfeit those shares of performance-based restricted stock granted as retention awards under the Tompkins Financial Corporation 2019 Equity Incentive Plan (the “Equity Incentive Plan”) as identified in Amendment No. 1 to Performance Share Award Agreements between Tompkins Financial Corporation and Francis M. Fetsko.
•Your other outstanding equity awards under the Equity Incentive Plan will vest in accordance with their terms.
•You will no longer be eligible for consideration for grants under the Equity Incentive Plan.
•You will receive a stipend payable through regular payroll to cover the difference between the cost of any employee medical and dental premiums you would have paid had you remained a full-time employee and the cost of premiums you will pay under any replacement COBRA plan beginning on October 1, 2023 and continuing through the remainder of your employment in this capacity. This healthcare stipend is a taxable payment.
•You will be eligible for such other benefits as may apply to part-time employees.

Your employment continues to be at will, meaning that you or the Company may at any time terminate this relationship. Please note this does not represent an employment contract entitling you employment, compensation or benefits for any specific period of time.


Please indicate to me in writing your acceptance of this offer at your earliest convenience. We would like your transition to this new position to commence on October 1, 2023. Thank you for your continued service to Tompkins Financial Corporation.

Sincerely,


/s/ Stephen S. Romaine
Stephen S. Romaine
President & CEO Tompkins Financial Corporation


I accept the terms and provisions of this offer of at will employment.
                            

/s/ Francis M. Fetsko                        August 3, 2023
Francis M. Fetsko                        Date    


                    
2

EX-10.2 3 tmp2023-09x30ex102.htm EX-10.2 Document

Exhibit 10.2
AMENDMENT NO. 1 TO
PERFORMANCE SHARE AWARD AGREEMENTS
2019 EQUITY PLAN
TOMPKINS FINANCIAL CORPORATION
FRANCIS M. FETSKO

Reference is hereby made to the following Performance Share Award Agreements between Francis M. Fetsko (the “Executive”) and Tompkins Financial Corporation (the “Company”):
(1)Tompkins Financial Corporation 2019 Equity Plan Performance Share Award Agreement, dated 11/12/2019, covering 2,240 shares of Company common stock (the “2019 Agreement”);
(2)Tompkins Financial Corporation 2019 Equity Plan Performance Share Award Agreement, dated 11/09/2020, covering 3,155 shares of Company common stock (the “2020 Agreement”);
(3)Tompkins Financial Corporation 2019 Equity Plan Performance Share Award Agreement, dated 11/09/2021, covering 2,445 shares of Company common stock (the “2021 Agreement”);
(4)Tompkins Financial Corporation 2019 Equity Plan Performance Share Award Agreement, dated 11/09/2022, covering 2,615 shares of Company common stock (the “2022 Agreement”);
As used herein, the 2019 Agreement, 2020 Agreement, 2021 Agreement, and 2022 Agreement shall be referred to collectively as the “Performance Share Award Agreements.”
WHEREAS, Executive has notified the Company of his desire, on or about September 30, 2023, to scale back his current full-time duties as Executive Vice President, Chief Financial Officer, and Chief Operating Officer, while remaining employed by the Company for a period of time to assist with the transition to his successor, among other duties (referred to as the “Transition Role”); and,
WHEREAS, the Company is willing to offer the Executive the Transition Role on an at-will basis, on or about September 30, 2023, conditioned upon Executive’s agreement to amend the Performance Share Award Agreements as described herein.
NOW THEREFORE, in consideration of the premises, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Performance Share Award Agreements are all hereby amended as follows:
1.Section 3, Subheading “Additional Vesting Requirements (if any)” is hereby amended and restated as follows:


Additional Vesting Requirements (if any): In addition to the satisfaction of the Performance Goal, the Grant shall also be subject to certain timebased vesting provisions as set forth in the table above next to the caption “Additional Vesting Requirements.” Specifically, the Participant must have provided full-time service as the Company’s Executive Vice President, Chief Financial Officer and Chief Operating Officer through the dates specified above in order to receive the applicable percentage of the Grant specified in the table, in addition to satisfaction of the Performance Goal. If the Committee determines that the Performance Goal specified above has been attained, and the Additional Vesting Requirements have been satisfied, then the Grant shall vest, and the restrictions on the Performance Shares covered by the Grant shall lapse, in the amounts and on the dates specified above. If the Committee determines that the Performance Goal specified above has not been attained and/or if the Additional Vesting Requirements have not been satisfied, then the unvested portion of the Grant shall immediately be deemed to have been forfeited by the Participant, and shall not vest.
For the avoidance of doubt, the Company and the Participant:
(1)acknowledge Participant’s desire, on or about September 30, 2023, to scale back Participant’s current full-time duties as Executive Vice President, Chief Financial Officer, and Chief Operating Officer, while remaining employed by the Company for a period of time to assist with the transition to his successor, among other duties (referred to as the “Transition Role”);
(2)agree that Company’s employment of Participant in the Transition Role will not satisfy the Additional Vesting Requirements, resulting in forfeiture of the unvested portion of the Grant on the date when Executive is no longer performing full-time duties as Executive Vice President, Chief Financial Officer, and Chief Operating Officer; and,
(3)agree that the Transition Role will be on an at-will basis, and may be terminated by the Participant or the Company at any time, with or without cause.
2. In all other respects the provisions of the Performance Share Award Agreements shall continue in full force and effect.
Executed this 4th day of August, 2023.
EXECUTIVE:                    TOMPKINS FINANCIAL CORPORATION

By: /s/ Francis M. Fetsko            By: /s/ Stephen S. Romaine            
Francis M. Fetsko, Individually        Name:    Stephen S. Romaine, President & CEO


EX-10.3 4 tmp2023-09x30ex103.htm EX-10.3 Document

Exhibit 10.3
Amendment to the Officer Group Term Replacement Plan
Reference is hereby made to the undersigned’s Officer Group Term Replacement Plan (the “Plan”), as amended February 28, 2020. The parties agree that the Plan is hereby amended as set forth below. All other sections of the Plan shall continue in full force and effect except as expressly amended hereby.
Section 1.11 of the Plan defining the term “Base Annual Salary” is hereby amended to add the following paragraph:
Notwithstanding the forgoing, for participant Francis M. Fetsko, Base Annual Salary shall mean the highest base annual salary in effect for any year in the five (5) year period ending on the earliest of (1) the date of the participant's death; (2) the date of the participant's disability; (3) the date of the participant's retirement, or (4) the date of a change of control.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the last date below.
TOMPKINS FINANCIAL CORPORATION            PARTICIPANT
(f/k/a Tompkins Trustco, Inc.)

By: /s/ Bonita N. Lindberg /s/ Francis M. Fetsko
Name: Bonita N. Lindberg Francis M. Fetsko
Title: Senior Vice President, Director of Human Resources
Date: August 4, 2023


EX-10.4 5 tmp2023-09x30ex104.htm EX-10.4 Document

Exhibit 10.4

JOINT AMENDMENT to AWARD AGREEMENTS (Eligible Retirees)

TOMPKINS FINANCIAL CORPORATION
2009 EQUITY PLAN
AND
2019 TOMPKINS FINANCIAL CORPORATION
EQUITY INCENTIVE PLAN

July 10, 2023

[address]

Dear Greg:

I am pleased to advise you that the Compensation Committee (the “Committee”) of the Board of Directors of Tompkins Financial Corporation (“we” or the “Company”) has established a post-retirement vesting program for eligible retirees (the “Program”). This Program is implemented through this Joint Amendment to Award Agreements under the Tompkins Financial Corporation 2009 Equity Plan and 2019 Tompkins Financial Corporation Equity Incentive Plan (the “Amendment”) covering certain of your unvested restricted stock awards that are outstanding at the time of your retirement date. This Amendment describes the terms and conditions on which this Program is offered; if you wish to accept this Amendment and participate in the Program, please countersign where indicated below. Any awards not identified herein will continue to be governed by their award agreements and 2009 Equity Plan or the 2019 Equity Incentive Plan, as amended and as applicable.

Initial Eligibility: Company employees who are in good standing on their retirement date, and who also satisfy both of the following criteria on their retirement date, are eligible for the Program (the “Eligible Retirees”): Employees Age 55 with 10 years of service and Age + Service = 75 years.

Covered Awards: This Amendment amends the following Award Agreement(s) covering the below shares of unvested restricted stock as of your retirement date (the “Unvested Awards”):

image_01.jpg



Please note that we will withhold the number of shares from the total gross distribution set forth above sufficient to cover your taxes based on the closing price of our common stock on your retirement date.

Vesting: Unvested Awards held by Eligible Retirees which are listed in the chart above shall vest as of your retirement date but will be paid and distributed for a period of three (3) years following your retirement date (the “Special Distribution”), unless such distribution is forfeited in accordance with this Agreement. Neither this Amendment nor the Special Distribution shall affect the exercise periods for equity awards which vested on or prior to your retirement date, the exercise periods of which are governed by the 2009 Equity Plan or the 2019 Equity Incentive Plan, as amended and as applicable.

Program Covenants: Your Special Distribution will be immediately terminated and forfeited if at any time prior to, on, or during the three (3) year period immediately following your retirement date, you engage in Competition with the Company. “Competition with the Company” shall occur if you, directly or indirectly, (a) come to own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any other manner with, any business (but which shall exclude your ownership of less than 1% of any class of equity or debt security of a publicly-traded competing business) which, in the judgment of the Committee, is in substantial competition with the Company, including any of its affiliates or subsidiaries and which is located within, or is actively directing marketing efforts within, ten (10) miles of any location of the Company or any of its subsidiaries, (b) solicit customers of the Company or any of its subsidiaries to reduce or stop doing business with the Company or any of its subsidiaries, or initiate any customer contact, for any reason, except for social contact with customers with whom you have a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of business or business opportunities, or (c) solicit employees of the Company or any of its subsidiaries to leave such employment, or offer employment to employees of the Company or any of its subsidiaries, or initiate any employee contact, for any reason, except for social contact with employees with whom you have a long-standing social or familial relationship, and such contact leads to the Company/subsidiary’s loss of such employee’s services.

Forfeiture: Your participation in the Program will be terminated, and any remaining Unvested Awards shall expire and any rights thereunder shall terminate immediately, in the event that the Committee determines, in its sole discretion, that (i) you have breached the Program Covenants described above, and/or (ii) you engaged in conduct in violation of Company policies and procedures (including without limitation conduct which caused, or reasonably could have resulted in, consumer harm), or exposed the Company to imprudent business, compliance or reputational risks through your conduct.

Other Agreements: To the extent that you have previously executed any agreement(s) in favor of the Company (or any of its subsidiaries) that contain restrictive covenants (the “Existing Agreement(s)”), you understand and agree that this Amendment shall not limit, terminate or otherwise amend such Existing Agreements. By signing below, you agree to be bound by the Program Covenants with respect to your Performance Share Award Agreement dated November 9, 2022.




The Employee and the Company hereby execute and deliver this Amendment.

Employee Signature: /s/ Gregory J. Hartz
Name: Gregory J. Hartz
Date: July 10, 2023

TOMPKINS FINANCIAL CORPORATION

By: /s/ Christopher Chinici

Name/Title: Christopher Chinici / VP, Total Rewards



EX-31.1 6 tmp2023-09x30ex311.htm EX-31.1 Document

Exhibit 31.1

 CERTIFICATION
 
I, Stephen S. Romaine, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of Tompkins Financial Corporation;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
  
Date: November 08, 2023  
   
/s/ Stephen S. Romaine  
Stephen S. Romaine  
President and Chief Executive Officer  
(Principal Executive Officer)  
  


EX-31.2 7 tmp2023-09x30ex312.htm EX-31.2 Document

Exhibit 31.2

CERTIFICATION
 
I,  Matthew D. Tomazin, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of Tompkins Financial Corporation;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: November 08, 2023  
   
/s/ Matthew D. Tomazin  
Matthew D. Tomazin  
Executive Vice President, Chief Financial Officer, and Treasurer  
(Principal Financial Officer)  

EX-32.1 8 tmp2023-09x30ex321.htm EX-32.1 Document

Exhibit 32.1

CERTIFICATION
 
In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 (the “Report”) by Tompkins Financial Corporation (the “Company”), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
 
The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and
 
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
November 08, 2023  
  /s/ Stephen S. Romaine
  Stephen S. Romaine
  President and Chief Executive Officer
  (Principal Executive Officer)


EX-32.2 9 tmp2023-09x30ex322.htm EX-32.2 Document

Exhibit 32.2
CERTIFICATION
 
In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023 (the “Report”) by Tompkins Financial Corporation (the “Company”), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
 
The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and
 
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
November 08, 2023  
     
  /s/ Matthew D. Tomazin
  Matthew D. Tomazin
  Executive Vice President, Chief Financial Officer, and Treasurer
  (Principal Financial Officer)