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 March 31,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
Tompkins Financial logo Color.jpgTomp_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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.10 par valueTMPNYSE 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 FilerAccelerated Filer
Non-Accelerated FilerSmaller 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: 14,518,87614,350,177 shares as of May 4,October 27, 2023.







TOMPKINS FINANCIAL CORPORATION
 
FORM 10-Q
 
INDEX
 
   PAGE
 
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 






Item 1. Financial Statements

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share and per share data)As ofAs of
ASSETS03/31/202312/31/2022
 (unaudited)(audited)
Cash and noninterest bearing balances due from banks$49,753 $18,572 
Interest bearing balances due from banks20,784 59,265 
Cash and Cash Equivalents70,537 77,837 
Available-for-sale debt securities, at fair value (amortized cost of $1,795,423 at March 31, 2023 and $1,831,791 at December 31, 2022)1,585,854 1,594,967 
Held-to-maturity securities, at amortized cost (fair value of $267,099 at March 31, 2023 and $261,692 at December 31, 2022)312,357 312,344 
Equity securities, at fair value790 777 
Total loans and leases, net of unearned income and deferred costs and fees5,273,671 5,268,911 
Less: Allowance for credit losses46,099 45,934 
Net Loans and Leases5,227,572 5,222,977 
Federal Home Loan Bank and other stock19,326 17,720 
Bank premises and equipment, net81,633 82,140 
Corporate owned life insurance86,175 85,556 
Goodwill92,602 92,602 
Other intangible assets, net2,605 2,708 
Accrued interest and other assets164,920 181,058 
Total Assets$7,644,371 $7,670,686 
LIABILITIES
Deposits:
Interest bearing:
Checking, savings and money market3,774,092 3,820,739 
Time725,338 631,411 
Noninterest bearing2,009,579 2,150,145 
Total Deposits6,509,009 6,602,295 
Federal funds purchased and securities sold under agreements to repurchase63,491 56,278 
Other borrowings327,000 291,300 
Other liabilities95,106 103,423 
Total Liabilities$6,994,606 $7,053,296 
EQUITY
Tompkins Financial Corporation shareholders' equity:
Common Stock - par value $0.10 per share: Authorized 25,000,000 shares; Issued: 14,555,658 at March 31, 2023; and 14,555,741 at December 31, 20221,456 1,456 
Additional paid-in capital303,357 302,763 
Retained earnings537,331 526,727 
Accumulated other comprehensive loss(187,846)(208,689)
Treasury stock, at cost – 120,879 shares at March 31, 2023, and 128,749 shares at December 31, 2022(5,976)(6,279)
Total Tompkins Financial Corporation Shareholders’ Equity648,322 615,978 
Noncontrolling interests1,443 1,412 
Total Equity$649,765 $617,390 
Total Liabilities and Equity$7,644,371 $7,670,686 
(In thousands, except share and per share data)As ofAs of
ASSETS9/30/202312/31/2022
 (unaudited)(audited)
Cash and noninterest bearing balances due from banks$75,370 $18,572 
Interest bearing balances due from banks64,846 59,265 
Cash and Cash Equivalents140,216 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 fees5,434,860 5,268,911 
Less: Allowance for credit losses49,336 45,934 
Net Loans and Leases5,385,524 5,222,977 
Federal Home Loan Bank and other stock19,985 17,720 
Bank premises and equipment, net80,685 82,140 
Corporate owned life insurance86,708 85,556 
Goodwill92,602 92,602 
Other intangible assets, net2,421 2,708 
Accrued interest and other assets181,385 181,058 
Total Assets$7,691,162 $7,670,686 
LIABILITIES
Deposits:
Interest bearing:
Checking, savings and money market3,779,991 3,820,739 
Time880,412 631,411 
Noninterest bearing1,963,033 2,150,145 
Total Deposits6,623,436 6,602,295 
Federal funds purchased and securities sold under agreements to repurchase56,120 56,278 
Other borrowings296,800 291,300 
Other liabilities102,450 103,423 
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, 20221,439 1,456 
Additional paid-in capital296,721 302,763 
Retained earnings495,123 526,727 
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’ Equity610,851 615,978 
Noncontrolling interests1,505 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 EndedThree Months EndedNine Months Ended
(In thousands, except per share data) (Unaudited)(In thousands, except per share data) (Unaudited)03/31/202303/31/2022(In thousands, except per share data) (Unaudited)9/30/20239/30/20229/30/20239/30/2022
INTEREST AND DIVIDEND INCOMEINTEREST AND DIVIDEND INCOMEINTEREST AND DIVIDEND INCOME
LoansLoans$60,842 $51,131 Loans$67,030 $55,041 $191,399 $158,677 
Due from banksDue from banks139 41 Due from banks125 85 447 190 
Available-for-sale debt securitiesAvailable-for-sale debt securities6,743 6,770 Available-for-sale debt securities6,599 7,157 19,960 20,990 
Held-to-maturity securitiesHeld-to-maturity securities1,214 1,129 Held-to-maturity securities1,221 1,221 3,654 3,551 
Federal Home Loan Bank and other stockFederal Home Loan Bank and other stock300 105 Federal Home Loan Bank and other stock490 166 1,113 391 
Total Interest and Dividend IncomeTotal Interest and Dividend Income69,238 59,176 Total Interest and Dividend Income75,465 63,670 216,573 183,799 
INTEREST EXPENSEINTEREST EXPENSEINTEREST EXPENSE
Time certificates of deposits of $250,000 or moreTime certificates of deposits of $250,000 or more1,788 426 Time certificates of deposits of $250,000 or more3,158 563 7,472 1,389 
Other depositsOther deposits10,394 1,620 Other deposits16,348 3,631 39,861 6,898 
Federal funds purchased and securities sold under agreements to repurchaseFederal funds purchased and securities sold under agreements to repurchase14 16 Federal funds purchased and securities sold under agreements to repurchase15 14 44 45 
Other borrowingsOther borrowings2,796 500 Other borrowings4,931 1,351 12,041 2,480 
Total Interest ExpenseTotal Interest Expense14,992 2,562 Total Interest Expense24,452 5,559 59,418 10,812 
Net Interest IncomeNet Interest Income54,246 56,614 Net Interest Income51,013 58,111 157,155 172,987 
Less: (Credit) for credit loss expense(825)(520)
Less: Provision for credit loss expenseLess: Provision for credit loss expense1,150 1,056 2,578 1,392 
Net Interest Income After Credit for Credit Loss ExpenseNet Interest Income After Credit for Credit Loss Expense55,071 57,134 Net Interest Income After Credit for Credit Loss Expense49,863 57,055 154,577 171,595 
NONINTEREST INCOMENONINTEREST INCOMENONINTEREST INCOME
Insurance commissions and feesInsurance commissions and fees9,509 9,317 Insurance commissions and fees11,397 10,825 29,578 28,571 
Wealth management feesWealth management fees4,509 4,917 Wealth management fees4,342 4,337 13,529 13,850 
Service charges on deposit accountsService charges on deposit accounts1,746 1,779 Service charges on deposit accounts1,754 1,917 5,140 5,452 
Card services incomeCard services income2,682 2,543 Card services income2,860 2,731 8,629 8,233 
Other incomeOther income1,941 1,476 Other income990 977 4,534 3,694 
Net gain (loss) on securities transactions13 (47)
Net loss on securities transactionsNet loss on securities transactions(62,967)(95)(70,019)(179)
Total Noninterest IncomeTotal Noninterest Income20,400 19,985 Total Noninterest Income(41,624)20,692 (8,609)59,621 
NONINTEREST EXPENSENONINTEREST EXPENSENONINTEREST EXPENSE
Salaries and wagesSalaries and wages24,512 23,272 Salaries and wages23,811 25,344 73,660 73,012 
Other employee benefitsOther employee benefits6,741 5,797 Other employee benefits7,319 6,489 20,707 18,627 
Net occupancy expense of premisesNet occupancy expense of premises3,299 3,541 Net occupancy expense of premises3,108 3,258 9,734 9,930 
Furniture and fixture expenseFurniture and fixture expense2,054 1,991 Furniture and fixture expense2,079 2,056 6,238 6,051 
Amortization of intangible assetsAmortization of intangible assets83 218 Amortization of intangible assets83 218 250 655 
Other operating expenseOther operating expense13,469 12,020 Other operating expense13,466 12,237 41,403 37,286 
Total Noninterest ExpensesTotal Noninterest Expenses50,158 46,839 Total Noninterest Expenses49,866 49,602 151,992 145,561 
Income Before Income Tax Expense25,313 30,280 
Income Tax Expense5,901 6,976 
Net Income Attributable to Noncontrolling Interests and Tompkins Financial Corporation19,412 23,304 
(Loss)/Income Before Income Tax (Benefit)/Expense(Loss)/Income Before Income Tax (Benefit)/Expense(41,627)28,145 (6,024)85,655 
Income Tax (Benefit)/ExpenseIncome Tax (Benefit)/Expense(8,304)6,774 (619)20,079 
Net (Loss)/Income Attributable to Noncontrolling Interests and Tompkins Financial CorporationNet (Loss)/Income Attributable to Noncontrolling Interests and Tompkins Financial Corporation(33,323)21,371 (5,405)65,576 
Less: Net Income Attributable to Noncontrolling InterestsLess: Net Income Attributable to Noncontrolling Interests31 31 Less: Net Income Attributable to Noncontrolling Interests31 31 93 94 
Net Income Attributable to Tompkins Financial Corporation$19,381 $23,273 
Basic Earnings Per Share$1.35 $1.61 
Diluted Earnings Per Share$1.35 $1.60 
Net (Loss)/Income Attributable to Tompkins Financial CorporationNet (Loss)/Income Attributable to Tompkins Financial Corporation$(33,354)$21,340 $(5,498)$65,482 
Basic (Loss) Earnings Per ShareBasic (Loss) Earnings Per Share$(2.35)$1.49 $(0.39)$4.55 
Diluted (Loss) Earnings Per ShareDiluted (Loss) Earnings Per Share$(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 EndedThree Months Ended
(In thousands) (Unaudited)(In thousands) (Unaudited)03/31/202303/31/2022(In thousands) (Unaudited)9/30/20239/30/2022
Net income attributable to noncontrolling interests and Tompkins Financial Corporation$19,412 $23,304 
Net (loss) income attributable to noncontrolling interests and Tompkins Financial CorporationNet (loss) income attributable to noncontrolling interests and Tompkins Financial Corporation$(33,323)$21,371 
Other comprehensive (loss) income, net of tax:Other comprehensive (loss) income, net of tax:Other comprehensive (loss) income, net of tax:
Available-for-sale debt securities:Available-for-sale debt securities:Available-for-sale debt securities:
Change in net unrealized gain (loss) during the period20,578 (80,405)
Change in net unrealized loss during the periodChange 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 incomeReclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income0 Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income47,513 37 
Employee benefit plans:Employee benefit plans:Employee benefit plans:
Amortization of net retirement plan actuarial lossAmortization of net retirement plan actuarial loss224 464 Amortization of net retirement plan actuarial loss211 427 
Amortization of net retirement plan prior service costAmortization of net retirement plan prior service cost41 42 Amortization of net retirement plan prior service cost40 41 
Other comprehensive income (loss)Other comprehensive income (loss)20,843 (79,899)Other comprehensive income (loss)19,491 (64,368)
Subtotal comprehensive income (loss) attributable to noncontrolling interests and Tompkins Financial CorporationSubtotal comprehensive income (loss) attributable to noncontrolling interests and Tompkins Financial Corporation40,255 (56,595)Subtotal comprehensive income (loss) attributable to noncontrolling interests and Tompkins Financial Corporation(13,832)(42,997)
Less: Net income attributable to noncontrolling interests(31)(31)
Less: Net income (loss) attributable to noncontrolling interestsLess: Net income (loss) attributable to noncontrolling interests(31)(31)
Total comprehensive income (loss) attributable to Tompkins Financial CorporationTotal comprehensive income (loss) attributable to Tompkins Financial Corporation$40,224 $(56,626)Total comprehensive income (loss) attributable to Tompkins Financial Corporation$(13,863)$(43,028)

Nine Months Ended
(In thousands) (Unaudited)9/30/20239/30/2022
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 income52,838 37 
Employee benefit plans:
Amortization of net retirement plan actuarial loss632 1,280 
Amortization of net retirement plan prior service cost122 123 
Other comprehensive income (loss)32,660 (187,287)
Subtotal comprehensive income (loss) attributable to noncontrolling interests and Tompkins Financial Corporation27,255 (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
Three Months EndedNine Months Ended
(In thousands) (Unaudited)(In thousands) (Unaudited)03/31/202303/31/2022(In thousands) (Unaudited)9/30/20239/30/2022
OPERATING ACTIVITIESOPERATING ACTIVITIESOPERATING ACTIVITIES
Net income attributable to Tompkins Financial Corporation$19,381 $23,273 
Adjustments to reconcile net income to net cash provided by operating activities:
(Credit) for credit loss expense(825)(520)
Net (loss) income attributable to Tompkins Financial CorporationNet (loss) income attributable to Tompkins Financial Corporation$(5,498)$65,482 
Provision for credit loss expenseProvision for credit loss expense2,578 1,392 
Depreciation and amortization of premises, equipment, and softwareDepreciation and amortization of premises, equipment, and software2,678 2,650 Depreciation and amortization of premises, equipment, and software8,208 7,977 
Amortization of intangible assetsAmortization of intangible assets83 218 Amortization of intangible assets250 655 
Earnings from corporate owned life insuranceEarnings from corporate owned life insurance(615)(423)Earnings from corporate owned life insurance(1,167)(357)
Net amortization on securitiesNet amortization on securities961 1,819 Net amortization on securities2,692 4,512 
Amortization/accretion related to purchase accountingAmortization/accretion related to purchase accounting(213)(191)Amortization/accretion related to purchase accounting(508)(712)
Net loss on securities transactionsNet loss on securities transactions70,019 179 
Net (gain) loss on securities transactions(13)47 
Net gain on sale of loans originated for saleNet gain on sale of loans originated for sale(38)(4)Net gain on sale of loans originated for sale(86)(140)
Proceeds from sale of loans originated for saleProceeds from sale of loans originated for sale1,345 139 Proceeds from sale of loans originated for sale3,276 7,468 
Loans originated for saleLoans originated for sale(1,453)(685)Loans originated for sale(3,345)(7,123)
Net gain on sale of bank premises and equipmentNet gain on sale of bank premises and equipment(20)(17)Net gain on sale of bank premises and equipment(79)(92)
Net excess tax benefit from stock based compensationNet excess tax benefit from stock based compensation41 21 Net excess tax benefit from stock based compensation(10)42 
Stock-based compensation expenseStock-based compensation expense1,045 945 Stock-based compensation expense2,945 3,062 
Decrease in accrued interest receivable1,236 1,047 
(Increase) decrease in accrued interest receivable(Increase) decrease in accrued interest receivable(1,670)514 
Increase (decrease) in accrued interest payableIncrease (decrease) in accrued interest payable159 (106)Increase (decrease) in accrued interest payable972 (20)
Other, netOther, net(994)(4,295)Other, net(8,505)(516)
Net Cash Provided by Operating ActivitiesNet Cash Provided by Operating Activities22,758 23,918 Net Cash Provided by Operating Activities70,072 82,323 
INVESTING ACTIVITIESINVESTING ACTIVITIESINVESTING ACTIVITIES
Proceeds from maturities, calls and principal paydowns of available-for-sale debt securitiesProceeds from maturities, calls and principal paydowns of available-for-sale debt securities35,646 79,753 Proceeds from maturities, calls and principal paydowns of available-for-sale debt securities111,097 179,305 
Proceeds from sales of available-for-sale debt securitiesProceeds from sales of available-for-sale debt securitiesProceeds from sales of available-for-sale debt securities440,488 24,621 
Purchases of available-for-sale debt securitiesPurchases of available-for-sale debt securities(252)(124,668)Purchases of available-for-sale debt securities(375,585)(154,798)
Purchases of held-to-maturity securitiesPurchases of held-to-maturity securities(19,534)Purchases of held-to-maturity securities(28,320)
Net (increase) decrease in loans(3,218)12,662 
Net increase in loansNet increase in loans(168,400)(132,051)
Proceeds from sale/redemptions of Federal Home Loan Bank stockProceeds from sale/redemptions of Federal Home Loan Bank stock25,507 12,751 Proceeds from sale/redemptions of Federal Home Loan Bank stock90,702 57,152 
Purchases of Federal Home Loan Bank and other stockPurchases of Federal Home Loan Bank and other stock(27,113)(8,870)Purchases of Federal Home Loan Bank and other stock(92,967)(55,312)
Proceeds from sale of bank premises and equipmentProceeds from sale of bank premises and equipment55 42 Proceeds from sale of bank premises and equipment123 188 
Purchases of bank premises, equipment and softwarePurchases of bank premises, equipment and software(1,406)(27)Purchases of bank premises, equipment and software(5,308)(6,188)
Redemption of corporate owned life insuranceRedemption of corporate owned life insurance20 
Other, netOther, net(138)Other, net463 (142)
Net Cash Provided by (Used in) Investing ActivitiesNet Cash Provided by (Used in) Investing Activities29,081 (47,891)Net Cash Provided by (Used in) Investing Activities633 (115,545)
FINANCING ACTIVITIESFINANCING ACTIVITIESFINANCING ACTIVITIES
Net (decrease) increase in demand, money market, and savings depositsNet (decrease) increase in demand, money market, and savings deposits(187,213)249,042 Net (decrease) increase in demand, money market, and savings deposits(227,860)185,353 
Net increase (decrease) in time depositsNet increase (decrease) in time deposits94,021 (23,630)Net increase (decrease) in time deposits249,361 (39,691)
Net increase (decrease) in Federal funds purchased and securities sold under agreements to repurchase7,213 (9,672)
Net decrease in Federal funds purchased and securities sold under agreements to repurchaseNet decrease in Federal funds purchased and securities sold under agreements to repurchase(158)(11,447)
Increase in other borrowingsIncrease in other borrowings85,000 Increase in other borrowings145,100 235,600 
Repayment of other borrowingsRepayment of other borrowings(49,300)(64,000)Repayment of other borrowings(139,600)(258,600)
Cash dividendsCash dividends(8,712)(8,335)Cash dividends(26,041)(24,874)
Repurchase of common stockRepurchase of common stock(10,370)Repurchase of common stock(8,703)(15,430)
Shares issued for employee stock ownership planShares issued for employee stock ownership plan2,951 Shares issued for employee stock ownership plan2,951 
Net shares issued related to restricted stock awardsNet shares issued related to restricted stock awards(40)(3)Net shares issued related to restricted stock awards(307)(80)
Net proceeds from exercise of stock optionsNet proceeds from exercise of stock options(108)(42)Net proceeds from exercise of stock options(118)(55)
Net Cash (Used) Provided by Financing Activities(59,139)135,941 
Net (Decrease) Increase in Cash and Cash Equivalents(7,300)111,968 
Net Cash (Used in) Provided by Financing ActivitiesNet Cash (Used in) Provided by Financing Activities(8,326)73,727 
Net Increase in Cash and Cash EquivalentsNet Increase in Cash and Cash Equivalents62,379 40,505 
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period77,837 63,107 Cash and cash equivalents at beginning of period77,837 63,107 
Total Cash and Cash Equivalents at End of PeriodTotal Cash and Cash Equivalents at End of Period$70,537 $175,075 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
 
Three Months EndedNine Months Ended
(In thousands) (Unaudited)(In thousands) (Unaudited)03/31/202303/31/2022(In thousands) (Unaudited)9/30/20239/30/2022
Supplemental Information:Supplemental Information:Supplemental Information:
Cash paid during the year for - InterestCash paid during the year for - Interest$14,927 $2,775 Cash paid during the year for - Interest$58,806 $11,203 
Cash paid during the year for - TaxesCash paid during the year for - Taxes1,249 1,396 Cash paid during the year for - Taxes9,907 17,540 
Transfer of loans to other real estate ownedTransfer of loans to other real estate owned0 49 Transfer of loans to other real estate owned0 315 
Initial recognition of operating lease right-of-use assets0
Initial recognition of operating lease liabilities0
Right-of-use assets obtained in exchange for new lease liabilitiesRight-of-use assets obtained in exchange for new lease liabilities418 552 Right-of-use assets obtained in exchange for new lease liabilities428 2,488 
 
See notes to unaudited consolidated financial statements.
 


5


TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands except share and per share data)(Unaudited)Common
Stock
Additional Paid-in CapitalRetained
Earnings
Accumulated Other Comprehensive (Loss) IncomeTreasury
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 Corporation23,273 31 23,304 
Other comprehensive loss(79,899)(79,899)
Total Comprehensive Loss(56,595)
Cash dividends ($0.57 per share)(8,335)(8,335)
Net exercise of stock options (630 shares)(42)(42)
Common stock repurchased and returned to unissued status (130,168 shares)(13)(10,357)(10,370)
Stock-based compensation expense945 945 
Shares issued for employee stock ownership plan (37,454 shares)2,947 2,951 
Directors deferred compensation plan (4,367 shares)(149)149 
Restricted stock activity (7,467 shares)(1)(2)(3)
Balances at March 31, 2022$1,460 $305,880 $490,200 $(135,849)$(5,642)$1,443 $657,492 
Balances at January 1, 2023$1,456 $302,763 $526,727 $(208,689)$(6,279)$1,412 $617,390 
Net income attributable to noncontrolling interests and Tompkins Financial Corporation19,381 31 19,412 
Other comprehensive income20,843 20,843 
Total Comprehensive Income40,255 
Cash dividends ($0.60 per share)(8,712)(8,712)
Net exercise of stock options (1,509 shares) (108)(108)
Stock-based compensation expense1,045 1,045 
Directors deferred compensation plan (7,870 shares)(303)303 
Restricted stock activity (1,592 shares) (40)(40)
Adoption of Accounting Guidance(65)(65)
Balances at March 31, 2023$1,456 $303,357 $537,331 $(187,846)$(5,976)$1,443 $649,765 
(Unaudited)
(In thousands except share and per share data) (Unaudited)Common
Stock
Additional Paid-in CapitalRetained
Earnings
Accumulated Other Comprehensive (Loss) IncomeTreasury
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 Corporation21,340 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 expense1,089 1,089 
Directors deferred compensation plan (2,914 shares)216 (216)
Restricted stock activity (2,922 shares)(51)(51)
Adjustment to goodwill155155 
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 income19,491 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 expense790 790 
Directors deferred compensation plan (3,831 shares)218 (218)
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 CapitalRetained
Earnings
Accumulated Other Comprehensive (Loss) IncomeTreasury
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 Corporation65,482 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 expense3,062 3,062 
Shares issued for employee stock ownership plan (37,454 shares)2,947 2,951 
Directors deferred compensation plan (1,235 shares)272 (272)
Restricted stock activity (17,606 shares)(2)(78)(80)
Adjustment to goodwill155155 
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 income32,660 32,660 
Total Comprehensive Income27,255 
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 expense2,945 2,945 
Directors deferred compensation plan ((653) shares)124 (124)
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.statements
6

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 March 31,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.

7

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 table summarizestables summarize available-for-sale debt securities held by the Company at March 31, 2023:
Available-for-Sale Debt Securities
March 31, 2023Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(In thousands)
U.S. Treasuries$190,220 $$19,406 $170,814 
Obligations of U.S. Government sponsored entities670,978 71,216 599,762 
Obligations of U.S. states and political subdivisions92,915 10 6,241 86,684 
Mortgage-backed securities – residential, issued by
 U.S. Government agencies56,224 15 5,348 50,891 
 U.S. Government sponsored entities782,586 107,276 675,310 
U.S. corporate debt securities2,500 107 2,393 
Total available-for-sale debt securities$1,795,423 $25 $209,594 $1,585,854 
The following table summarizes available-for-sale debt securities held by the Company atSeptember 30, 2023 and December 31, 2022:
Available-for-Sale Debt Securities
September 30, 2023Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(In thousands)
U.S. Treasuries$114,220 $$6,926 $107,294 
Obligations of U.S. Government sponsored entities491,968 10 32,037 459,941 
Obligations of U.S. states and political subdivisions90,154 12,919 77,237 
Mortgage-backed securities – residential, issued by
 U.S. Government agencies52,263 6,864 45,399 
 U.S. Government sponsored entities831,970 135,661 696,309 
U.S. corporate debt securities2,500 170 2,330 
Total available-for-sale debt securities$1,583,075 $12 $194,577 $1,388,510 
Available-for-Sale Debt Securities
December 31, 2022Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(In thousands)
U.S. Treasuries$190,170 $$22,919 $167,251 
Obligations of U.S. Government sponsored entities681,192 80,025 601,167 
Obligations of U.S. states and political subdivisions93,599 8,326 85,281 
Mortgage-backed securities – residential, issued by
U.S. Government agencies58,727 12 6,071 52,668 
U.S. Government sponsored entities805,603 119,381 686,222 
U.S. corporate debt securities2,500 122 2,378 
Total available-for-sale debt securities$1,831,791 $20 $236,844 $1,594,967 

8


Held-to-Maturity Debt Securities
The following table summarizestables summarize held-to-maturity debt securities held by the Company at MarchSeptember 30, 2023 and December 31, 2023:2022:
Held-to-Maturity Securities
September 30, 2023Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(In thousands)
U.S. Treasuries$86,318 $$14,767 $71,551 
Obligations of U.S. Government sponsored entities226,067 44,640 181,427 
Total held-to-maturity debt securities$312,385 $0 $59,407 $252,978 


Held-to-Maturity Securities
March 31, 2023Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(In thousands)
U.S. Treasuries$86,425 $$10,966 $75,459 
Obligations of U.S. Government sponsored entities225,932 34,292 191,640 
Total held-to-maturity debt securities$312,357 $0 $45,258 $267,099 
9


The following table summarizes held-to-maturity debt securities held by the Company at December 31, 2022:

Held-to-Maturity Securities
December 31, 2022Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(In thousands)
U.S. Treasuries$86,478 $$12,937 $73,541 
Obligations of U.S. Government sponsored entities225,866 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. There were no sales of available-for-sale debt securities for both the three months ended March 31, 2023 and the three months ended March 31, 2022. Realized gains (losses) on sales of available-for-sale debt securities were $0 for both the three and nine months ended March 31,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 March 31,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 available-for-saleinvestment portfolio includes callable securities that may be called prior to maturity. There were no realized gains (losses)or losses on called available-for-sale debt securities for both the three and nine months ended March 31,September 30, 2023 and the three months ended March 31,September 30, 2022. The Company also recognized net gainslosses 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, of $13,000 for the three months ended March 31, 2023 and net losses of $47,000 for the same period during 2022, reflecting the change in fair value.

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

Less than 12 Months12 Months or LongerTotal
September 30, 2023September 30, 2023Less than 12 Months12 Months or LongerTotal
(In thousands)(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. TreasuriesU.S. Treasuries$$$170,814 $19,406 $170,814 $19,406 U.S. Treasuries$43,560 $23 $63,734 $6,903 $107,294 $6,926 
Obligations of U.S. Government sponsored entitiesObligations of U.S. Government sponsored entities95,536 1,931 504,226 69,286 599,762 71,217 Obligations of U.S. Government sponsored entities197,508 1,492 232,541 30,545 430,049 32,037 
Obligations of U.S. states and political subdivisionsObligations of U.S. states and political subdivisions20,397 306 58,598 5,936 78,995 6,242 Obligations of U.S. states and political subdivisions11,449 592 65,436 12,327 76,885 12,919 
Mortgage-backed securities – residential, issued byMortgage-backed securities – residential, issued byMortgage-backed securities – residential, issued by
U.S. Government agenciesU.S. Government agencies5,484 183 45,046 5,164 50,530 5,347 U.S. Government agencies1,436 48 43,963 6,816 45,399 6,864 
U.S. Government sponsored entitiesU.S. Government sponsored entities16,950 761 658,360 106,514 675,310 107,275 U.S. Government sponsored entities97,751 1,671 598,559 133,990 696,310 135,661 
U.S. corporate debt securitiesU.S. corporate debt securities2,393 107 2,393 107 U.S. corporate debt securities2,330 170 2,330 170 
Total available-for-sale debt securitiesTotal available-for-sale debt securities$138,367 $3,181 $1,439,437 $206,413 $1,577,804 $209,594 Total available-for-sale debt securities$351,704 $3,826 $1,006,563 $190,751 $1,358,267 $194,577 


910


The following table summarizes available-for-sale debt securities that had unrealized losses at December 31, 2022:
December 31, 2022Less than 12 Months12 Months or LongerTotal
(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasuries$28,602 $2,132 $138,649 $20,787 $167,251 $22,919 
Obligations of U.S. Government sponsored entities143,794 7,508 457,373 72,517 601,167 80,025 
Obligations of U.S. states and political subdivisions46,638 2,385 33,435 5,941 80,073 8,326 
Mortgage-backed securities – residential, issued by
U.S. Government agencies22,9451,25829,3564,81352,3016,071
U.S. Government sponsored entities186,69016,869499,532102,512686,222119,381
U.S. corporate debt securities2,378 122 2,378 122 
Total available-for-sale debt securities$428,669 $30,152 $1,160,723 $206,692 $1,589,392 $236,844 

Less than 12 Months12 Months or LongerTotal
(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasuries$28,602 $2,132 $138,649 $20,787 $167,251 $22,919 
Obligations of U.S. Government sponsored entities143,794 7,508 457,373 72,517 601,167 80,025 
Obligations of U.S. states and political subdivisions46,638 2,385 33,435 5,941 80,073 8,326 
Mortgage-backed securities – residential, issued by
U.S. Government agencies22,945 1,258 29,356 4,813 52,301 6,071 
U.S. Government sponsored entities186,690 16,869 499,532 102,512 686,222 119,381 
U.S. corporate debt securities2,378 122 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 MarchSeptember 30, 2023 and December 31, 2023:2022:

Less than 12 Months12 Months or LongerTotal
September 30, 2023September 30, 2023Less than 12 Months12 Months or LongerTotal
(In thousands)(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. TreasuriesU.S. Treasuries$$$75,459 $10,966 $75,459 $10,966 U.S. Treasuries$$$71,551 $14,767 $71,551 $14,767 
Obligations of U.S. Government sponsored entitiesObligations of U.S. Government sponsored entities8,293 604 183,347 33,688 191,640 34,292 Obligations of U.S. Government sponsored entities181,427 44,640 181,427 44,640 
Total held-to-maturity debt securitiesTotal held-to-maturity debt securities$8,293 $604 $258,806 $44,654 $267,099 $45,258 Total held-to-maturity debt securities$0 $0 $252,978 $59,407 $252,978 $59,407 

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

Less than 12 Months12 Months or LongerTotal
December 31, 2022December 31, 2022Less than 12 Months12 Months or LongerTotal
(In thousands)(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. TreasuriesU.S. Treasuries$$$73,542 $12,937 $73,542 $12,937 U.S. Treasuries$$$73,542 $12,937 $73,542 $12,937 
Obligations of U.S. Government sponsored entitiesObligations of U.S. Government sponsored entities24,543 3,903 163,607 33,812 188,150 37,715 Obligations of U.S. Government sponsored entities24,543 3,903 163,607 33,812 188,150 37,715 
Total held-to-maturity debt securitiesTotal held-to-maturity debt securities$24,543 $3,903 $237,149 $46,749 $261,692 $50,652 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
10


recognized in other comprehensive income (loss), net of applicable taxes.Credit-related impairment is recognized as an


11


allowance for credit losses ("ACL") on the StatementConsolidated Statements 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 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 March 31,September 30, 2023, the held-to- maturityheld-to-maturity portfolio consisted of U.S. Treasury securities and securities issued by U.S. government-sponsored enterprises, including Thethe 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 "low-risk,"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 MarchSeptember 30, 2023 or December 31, 2023.

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.

The Company did not recognize any net credit impairment charge to earnings on investment securities in the first quarter of 2023.2022.

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.

March 31, 2023
September 30, 2023September 30, 2023
(In thousands)(In thousands)Amortized CostFair Value(In thousands)Amortized CostFair Value
Available-for-sale debt securities:Available-for-sale debt securities:Available-for-sale debt securities:
Due in one year or lessDue in one year or less$40,237 $39,828 Due in one year or less$79,189 $78,511 
Due after one year through five yearsDue after one year through five years554,392 506,082 Due after one year through five years334,059 316,627 
Due after five years through ten yearsDue after five years through ten years325,346 283,610 Due after five years through ten years234,283 208,592 
Due after ten yearsDue after ten years36,638 30,133 Due after ten years51,311 43,072 
TotalTotal956,613 859,653 Total698,842 646,802 
Mortgage-backed securitiesMortgage-backed securities838,810 726,201 Mortgage-backed securities884,233 741,708 
Total available-for-sale debt securitiesTotal available-for-sale debt securities$1,795,423 $1,585,854 Total available-for-sale debt securities$1,583,075 $1,388,510 

December 31, 2022
(In thousands)Amortized CostFair Value
Available-for-sale debt securities:
Due in one year or less$50,922 $50,269 
Due after one year through five years508,880 459,721 
Due after five years through ten years367,743 314,408 
Due after ten years39,916 31,679 
Total967,461 856,077 
Mortgage-backed securities864,330 738,890 
Total available-for-sale debt securities$1,831,791 $1,594,967 

11

12


December 31, 2022
(In thousands)Amortized CostFair Value
Available-for-sale debt securities:
Due in one year or less$50,922 $50,269 
Due after one year through five years508,880 459,721 
Due after five years through ten years367,743 314,408 
Due after ten years39,916 31,679 
Total967,461 856,077 
Mortgage-backed securities864,330 738,890 
Total available-for-sale debt securities$1,831,791 $1,594,967 

March 31, 2023
September 30, 2023September 30, 2023
(In thousands)(In thousands)Amortized CostFair Value(In thousands)Amortized CostFair Value
Held-to-maturity debt securities:Held-to-maturity debt securities:Held-to-maturity debt securities:
Due after five years through ten yearsDue after five years through ten years$312,357 $267,099 Due after five years through ten years$312,385 $252,978 
Total held-to-maturity debt securitiesTotal held-to-maturity debt securities$312,357 $267,099 Total held-to-maturity debt securities$312,385 $252,978 

December 31, 2022
(In thousands)Amortized CostFair 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 Federal Home Loan Bank ("FHLB")FHLB stock is tied to the Company’s borrowing levels with the FHLB. Holdings of FHLBNY stock and ACBB stock totaled $19.2$19.9 million and $95,000, respectively, at March 31,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 March 31,September 30, 2023, we determined that no impairment write-downs were required.

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4. Loans and Leases
Loans and Leasesleases at March 31,September 30, 2023 and December 31, 2022 were as follows:
(In thousands)(In thousands)03/31/202312/31/2022(In thousands)9/30/202312/31/2022
Commercial and industrialCommercial and industrialCommercial and industrial
AgricultureAgriculture$65,223 $85,073 Agriculture$77,720 $85,073 
Commercial and industrial otherCommercial and industrial other673,104 705,700 Commercial and industrial other695,445 705,700 
PPP loans*PPP loans*686 756 PPP loans*488 756 
Subtotal commercial and industrialSubtotal commercial and industrial739,013 791,529 Subtotal commercial and industrial773,653 791,529 
Commercial real estateCommercial real estateCommercial real estate
ConstructionConstruction219,789 201,116 Construction270,961 201,116 
AgricultureAgriculture214,014 214,963 Agriculture218,144 214,963 
Commercial real estate otherCommercial real estate other2,476,532 2,437,339 Commercial real estate other2,507,164 2,437,339 
Subtotal commercial real estateSubtotal commercial real estate2,910,335 2,853,418 Subtotal commercial real estate2,996,269 2,853,418 
Residential real estateResidential real estateResidential real estate
Home equityHome equity183,636 188,623 Home equity187,387 188,623 
MortgagesMortgages1,342,214 1,346,318 Mortgages1,368,292 1,346,318 
Subtotal residential real estateSubtotal residential real estate1,525,850 1,534,941 Subtotal residential real estate1,555,679 1,534,941 
Consumer and otherConsumer and otherConsumer and other
IndirectIndirect1,783 2,224 Indirect1,090 2,224 
Consumer and otherConsumer and other83,775 75,412 Consumer and other97,165 75,412 
Subtotal consumer and otherSubtotal consumer and other85,558 77,636 Subtotal consumer and other98,255 77,636 
LeasesLeases18,016 16,134 Leases15,818 16,134 
Total loans and leasesTotal loans and leases5,278,772 5,273,658 Total loans and leases5,439,674 5,273,658 
Less: unearned income and deferred costs and feesLess: unearned income and deferred costs and fees(5,101)(4,747)Less: unearned income and deferred costs and fees(4,814)(4,747)
Total loans and leases, net of unearned income and deferred costs and feesTotal loans and leases, net of unearned income and deferred costs and fees$5,273,671 $5,268,911 Total loans and leases, net of unearned income and deferred costs and fees$5,434,860 $5,268,911 
*SBA Paycheck Protection Program ("PPP")*SBA Paycheck Protection Program ("PPP")*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 contractually past due and/or management deems the collectability of the principal and/or interest to be in question as well as when required by regulatory agencies. When interest accrual is discontinued, all unpaid accrued interest is reversed. Payments received on loans on nonaccrual are generally applied to reduce the principal balance of the loan. Loans are generally returned to accrual status when all the principal and interest amounts contractually due are brought current, the borrower has established a payment history, and future payments are reasonably assured. When management determines that the collection of principal in full is not probable, management will charge-off a partial amount or full amount of the loan balance. Management considers specific facts and circumstances relative to each individual credit in making such a determination. For residential and consumer loans, management uses specific regulatory guidance and thresholds for determining charge-offs.


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The below tables are an age analysis of past due loans, segregated by class of loans, as of March 31,September 30, 2023 and December 31, 2022:
March 31, 2023
September 30, 2023September 30, 2023
(In thousands)(In thousands)30-59 Days60-89 Days90 Days or MoreTotal Past DueCurrent LoansTotal Loans(In thousands)30-59 Days60-89 Days90 Days or MoreTotal Past DueCurrent LoansTotal Loans
Loans and LeasesLoans and LeasesLoans and Leases
Commercial and industrialCommercial and industrialCommercial and industrial
AgricultureAgriculture$152 $$$152 $65,071 $65,223Agriculture$$$$$77,720 $77,720
Commercial and industrial otherCommercial and industrial other2,586 46 371 3,003 670,101 673,104 Commercial and industrial other3,316 170 3,014 6,500 688,945 695,445 
PPP loans*PPP loans*686 686 PPP loans*488 488 
Subtotal commercial and industrialSubtotal commercial and industrial2,738 46 371 3,155 735,858 739,013 Subtotal commercial and industrial3,316 170 3,014 6,500 767,153 773,653 
Commercial real estateCommercial real estateCommercial real estate
ConstructionConstruction219,789 219,789Construction863 863 270,098 270,961
AgricultureAgriculture170 170 213,844 214,014Agriculture169 169 217,975 218,144
Commercial real estate otherCommercial real estate other10,037 10,037 2,466,495 2,476,532Commercial real estate other18,781 15,300 8,610 42,691 2,464,473 2,507,164
Subtotal commercial real estateSubtotal commercial real estate170 10,037 10,207 2,900,128 2,910,335 Subtotal commercial real estate19,813 15,300 8,610 43,723 2,952,546 2,996,269 
Residential real estateResidential real estateResidential real estate
Home equityHome equity512 400 1,426 2,338 181,298 183,636Home equity751 1,443 2,202 185,185 187,387
MortgagesMortgages1,741 30 6,505 8,276 1,333,938 1,342,214Mortgages1,118 8,915 10,033 1,358,259 1,368,292
Subtotal residential real estateSubtotal residential real estate2,253 430 7,931 10,614 1,515,236 1,525,850 Subtotal residential real estate1,869 10,358 12,235 1,543,444 1,555,679 
Consumer and otherConsumer and otherConsumer and other
IndirectIndirect56 11 41 108 1,675 1,783Indirect17 31 52 1,038 1,090
Consumer and otherConsumer and other120 70 104 294 83,481 83,775Consumer and other261 136 239 636 96,529 97,165
Subtotal consumer and otherSubtotal consumer and other176 81 145 402 85,156 85,558 Subtotal consumer and other278 140 270 688 97,567 98,255 
LeasesLeases18,016 18,016 Leases15,818 15,818 
Total loans and leasesTotal loans and leases5,337 557 18,484 24,378 5,254,394 5,278,772 Total loans and leases25,276 15,618 22,252 63,146 5,376,528 5,439,674 
Less: unearned income and deferred costs and feesLess: unearned income and deferred costs and fees(5,101)(5,101)Less: unearned income and deferred costs and fees(4,814)(4,814)
Total loans and leases, net of unearned income and deferred costs and feesTotal loans and leases, net of unearned income and deferred costs and fees$5,337 $557 $18,484 $24,378 $5,249,293 $5,273,671 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 ("PPP")
*SBA Paycheck Protection Program*SBA Paycheck Protection Program
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December 31, 2022December 31, 2022December 31, 2022
(In thousands)(In thousands)30-59 Days60-89 Days90 Days or MoreTotal Past DueCurrent LoansTotal Loans(In thousands)30-59 Days60-89 Days90 Days or MoreTotal Past DueCurrent LoansTotal Loans
Loans and LeasesLoans and LeasesLoans and Leases
Commercial and industrialCommercial and industrialCommercial and industrial
AgricultureAgriculture$58 $$$58 $85,015 $85,073 Agriculture$58 $$$58 $85,015 $85,073 
Commercial and industrial otherCommercial and industrial other50 381 82 513 705,187 705,700 Commercial and industrial other50 381 82 513 705,187 705,700 
PPP loans*PPP loans*756 756 PPP loans*756 756 
Subtotal commercial and industrialSubtotal commercial and industrial108 381 82 571 790,958 791,529 Subtotal commercial and industrial108 381 82 571 790,958 791,529 
Commercial real estateCommercial real estateCommercial real estate
ConstructionConstruction201,116 201,116 Construction201,116 201,116 
AgricultureAgriculture128 128 214,835 214,963 Agriculture128 128 214,835 214,963 
Commercial real estate otherCommercial real estate other11,449 11,449 2,425,890 2,437,339 Commercial real estate other11,449 11,449 2,425,890 2,437,339 
Subtotal commercial real estateSubtotal commercial real estate128 11,449 11,577 2,841,841 2,853,418 Subtotal commercial real estate128 11,449 11,577 2,841,841 2,853,418 
Residential real estateResidential real estateResidential real estate
Home equityHome equity435 204 1,628 2,267 186,356 188,623 Home equity435 204 1,628 2,267 186,356 188,623 
MortgagesMortgages1,748 6,802 8,550 1,337,768 1,346,318 Mortgages1,748 6,802 8,550 1,337,768 1,346,318 
Subtotal residential real estateSubtotal residential real estate2,183 204 8,430 10,817 1,524,124 1,534,941 Subtotal residential real estate2,183 204 8,430 10,817 1,524,124 1,534,941 
Consumer and otherConsumer and otherConsumer and other
IndirectIndirect66 31 53 150 2,074 2,224 Indirect66 31 53 150 2,074 2,224 
Consumer and otherConsumer and other52 19 112 183 75,229 75,412 Consumer and other52 19 112 183 75,229 75,412 
Subtotal consumer and otherSubtotal consumer and other118 50 165 333 77,303 77,636 Subtotal consumer and other118 50 165 333 77,303 77,636 
LeasesLeases16,134 16,134 Leases16,134 16,134 
Total loans and leasesTotal loans and leases2,537 635 20,126 23,298 5,250,360 5,273,658 Total loans and leases2,537 635 20,126 23,298 5,250,360 5,273,658 
Less: unearned income and deferred costs and feesLess: unearned income and deferred costs and fees(4,747)(4,747)Less: unearned income and deferred costs and fees(4,747)(4,747)
Total loans and leases, net of unearned income and deferred costs and feesTotal 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 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 ("PPP")
*SBA Paycheck Protection Program*SBA Paycheck Protection Program

























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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 March 31,September 30, 2023 and December 31, 2022:

March 31, 2023
September 30, 2023September 30, 2023
(In thousands)(In thousands)Nonaccrual Loans and Leases with no ACLNonaccrual Loans and LeasesLoans and Leases Past Due Over 89 Days and Accruing(In thousands)Nonaccrual Loans and Leases with no ACLNonaccrual Loans and LeasesLoans and Leases Past Due Over 89 Days and Accruing
Loans and LeasesLoans and LeasesLoans and Leases
Commercial and industrialCommercial and industrialCommercial and industrial
Agriculture$$17 $
Commercial and industrial otherCommercial and industrial other906 Commercial and industrial other$2,494 $3,163 $
Subtotal commercial and industrialSubtotal commercial and industrial923 Subtotal commercial and industrial2,494 3,163 
Commercial real estateCommercial real estateCommercial real estate
AgricultureAgriculture183 Agriculture174 
Commercial real estate otherCommercial real estate other10,547 12,197 Commercial real estate other7,033 10,760 
Subtotal commercial real estateSubtotal commercial real estate10,547 12,380 Subtotal commercial real estate7,033 10,934 
Residential real estateResidential real estateResidential real estate
Home equityHome equity2,547 Home equity3,112 
MortgagesMortgages181 12,322 Mortgages13,812 
Subtotal residential real estateSubtotal residential real estate181 14,869 Subtotal residential real estate16,924 
Consumer and otherConsumer and otherConsumer and other
IndirectIndirect78 Indirect67 
Consumer and otherConsumer and other174 13 Consumer and other293 51 
Subtotal consumer and otherSubtotal consumer and other252 13 Subtotal consumer and other360 51 
Total loans and leasesTotal loans and leases$10,728 $28,424 $13 Total loans and leases$9,527 $31,381 $52 

December 31, 2022
(In thousands)Nonaccrual Loans and Leases with no ACLNonaccrual Loans and LeasesLoans 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 industrial411 618 25 
Commercial real estate
Agriculture186 186 
Commercial real estate other13,101 13,672 
Subtotal commercial real estate13,287 13,858 
Residential real estate
Home equity318 2,391 
Mortgages1,177 11,153 
Subtotal residential real estate1,495 13,544 
Consumer and other
Indirect94 
Consumer and other175 
Subtotal consumer and other269 
Total loans and leases$15,193 $28,289 $25 

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The Company recognized $0 of interest income on nonaccrual loans during the three and nine months ended March 31, 2023.September 30, 2023 and 2022.

5. Allowance for Credit Losses
 
Management reviews the appropriateness of the allowance for credit losses ("allowance" or "ACL")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 March 31,September 30, 2023, considers the allowance to be appropriate, under adversely differentcertain 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 for credit loss expense in the Company's consolidated statements of income.

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The following table details activity in the allowance for credit losses on loans and leases for the three and nine months ended March 31,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 March 31, 2023
Three Months Ended September 30, 2023Three Months Ended September 30, 2023
(In thousands)(In thousands)Commercial
& Industrial
Commercial
Real Estate
Residential
Real Estate
Consumer
and Other
Finance
Leases
Total(In thousands)Commercial
& Industrial
Commercial
Real Estate
Residential
Real Estate
Consumer
and Other
Finance
Leases
Total
Allowance for credit losses:Allowance for credit losses:Allowance for credit losses:
Beginning balanceBeginning balance$6,039 $27,287 $11,154 $1,358 $96 $45,934 Beginning balance$6,685 $28,968 $11,111 $1,680 $101 $48,545 
Impact of adopting ASU 2022-2216 46 64 
Charge-offsCharge-offs(2)(106)(108)Charge-offs(271)(271)
RecoveriesRecoveries46 1,246 64 33 1,389 Recoveries81 94 
(Credit) provision for credit loss expense229 (1,363)(404)343 15 (1,180)
Provision (credit) for credit loss expenseProvision (credit) for credit loss expense(241)366 791 70 (18)968 
Ending BalanceEnding Balance$6,316 $27,186 $10,858 $1,628 $111 $46,099 Ending Balance$6,452 $29,335 $11,906 $1,560 $83 $49,336 

Three Months Ended March 31, 2022
Three Months Ended September 30, 2022Three Months Ended September 30, 2022
(In thousands)(In thousands)Commercial
& Industrial
Commercial
Real Estate
Residential
Real Estate
Consumer
and Other
Finance
Leases
Total(In thousands)Commercial
& Industrial
Commercial
Real Estate
Residential
Real Estate
Consumer
and Other
Finance
Leases
Total
Allowance for credit losses:Allowance for credit losses:Allowance for credit losses:
Beginning balanceBeginning balance$6,335 $24,813 $10,139 $1,492 $64 42,843 Beginning balance$7,814 $23,227 $11,082 $1,591 $79 $43,793 
Charge-offsCharge-offs(23)(27)(196)(246)Charge-offs(343)51 (132)(424)
RecoveriesRecoveries20 42 109 92 263 Recoveries106 105 83 302 
(Credit) provision for credit loss expense695 (1,846)199 200 18 (734)
Provision (credit) for credit loss expenseProvision (credit) for credit loss expense(1,053)3,207 (698)(362)1,101 
Ending BalanceEnding Balance$7,027 $22,982 $10,447 $1,588 $82 $42,126 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 2016-1316 46 64 
Charge-offs(2)(546)(548)
Recoveries67 1,238 182 192 1,679 
Provision (credit) for credit loss expense344 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)(410)(826)
Recoveries132 910 315 251 1,608 
Provision (credit) for credit loss expense423 866 (11)(153)22 1,147 
Ending Balance$6,524 $26,539 $10,443 $1,180 $86 $44,772 



19


The following table details activity in the liabilities for off-balance sheet credit exposures for the three and nine months ended March 31,September 30, 2023 and 2022:

Three Months Ended September 30,Three Months Ended September 30,
(In thousands)(In thousands)20232022(In thousands)20232022
Liabilities for off-balance sheet credit exposures at beginning of periodLiabilities for off-balance sheet credit exposures at beginning of period$2,796 $2,507 Liabilities for off-balance sheet credit exposures at beginning of period$2,985 $2,796 
Provision for credit loss expense related to off-balance sheet credit exposures355 214 
(Credit) provision for credit loss expense related to off-balance sheet credit exposures(Credit) provision for credit loss expense related to off-balance sheet credit exposures182 (45)
Liabilities for off-balance sheet credit exposures at end of periodLiabilities for off-balance sheet credit exposures at end of period$3,151 $2,721 Liabilities for off-balance sheet credit exposures at end of period$3,167 $2,751 


Nine Months Ended September 30,
(In thousands)20232022
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 exposures371 245 
Liabilities for off-balance sheet credit exposures at end of period$3,167 $2,751 

















18


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:

March 31, 2023
(In thousands)(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
September 30, 2023September 30, 2023
Commercial and IndustrialCommercial and Industrial$2,494 $$$2,494 $
Commercial Real EstateCommercial Real Estate9,362 9,362 1,082 
Commercial Real Estate$10,547 $$$10,547 $
Residential Real Estate181 181 
TotalTotal$10,728 $0 $0 $10,728 $0 Total$11,856 $0 $0 $11,856 $1,082 

(In thousands)(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
December 31, 2022December 31, 2022December 31, 2022
(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
Commercial and IndustrialCommercial and Industrial$642 $28 $$670 $Commercial and Industrial$642 $28 $$670 $
Commercial Real EstateCommercial Real Estate13,209 78 13,287 Commercial Real Estate13,209 78 13,287 
Commercial Real Estate - AgricultureCommercial Real Estate - Agriculture1,515 1,515 Commercial Real Estate - Agriculture1,515 1,515 
Residential Real EstateResidential Real Estate188 188 Residential Real Estate188 188 
TotalTotal$15,554 $28 $78 $15,660 $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)("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.

ThereDuring the three and nine months ended September 30, 2023, loans that were no newmodified to borrowers experiencing financial difficulty in the first quarter of 2023, andwere immaterial. There were no new TDRs reported in the first quarter of 2022three and nine months ended September 30, 2022.
.










20


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

September 30, 2023
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal 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 Mention46 104 395 96 1,521 638 2,800 
Substandard86 360 24 798 5,672 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$$$323 $165 $$$$$488 
Special Mention000000000
Substandard000000000
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 Mention268 49 317 
Substandard60 10 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 Mention636 2,027 3,720 11,062 43,986 61,431 
Substandard15,300 107 2,529 30,343 1,434 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 Mention384 1,061 1,445 
Substandard174 47 221 
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 
19


21


March 31, 2023
(In thousands)(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial and Industrial - Other:
Internal risk grade:
Commercial Real Estate - ConstructionCommercial Real Estate - Construction
PassPass$16,897 $113,621 $80,606 $36,432 $44,230 $167,183 $203,174 $1,170 $663,313 Pass$$2,821 $9,731 $2,524 $468 $1,129 $250,483 $3,805 $270,961 
Special MentionSpecial Mention120 338 132 1,339 800 2,729 Special Mention
SubstandardSubstandard102 417 65 1,562 4,916 7,062 Substandard
Total Commercial and Industrial - Other$16,897 $113,621 $80,828 $37,187 $44,427 $170,084 $208,890 $1,170 $673,104 
Total Commercial Real Estate - ConstructionTotal Commercial Real Estate - Construction$0 $2,821 $9,731 $2,524 $468 $1,129 $250,483 $3,805 $270,961 
Current-period gross writeoffsCurrent-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial and Industrial - PPP:
Pass$$$383 $303 $$$$$686 
Special Mention0
Substandard0
Total Commercial and Industrial - PPP$0 $0 $383 $303 $0 $0 $0 $0 $686 
Residential - Home EquityResidential - Home Equity
PerformingPerforming$1,729 $2,164 $939 $557 $864 $8,640 $163,758 $5,624 $184,275 
NonperformingNonperforming331 2,781 3,112 
Total Residential - Home EquityTotal Residential - Home Equity$1,729 $2,164 $939 $557 $864 $8,971 $166,539 $5,624 $187,387 
Current-period gross writeoffsCurrent-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 Current-period gross writeoffs$0 $0 $0 $0 $0 $2 $0 $0 $2 
Commercial and Industrial - Agriculture:
Pass$2,152 $15,034 $4,399 $4,162 $3,479 $12,092 $23,745 $$65,063 
Special Mention56 20 76 
Substandard67 13 84 
Total Commercial and Industrial - Agriculture$2,152 $15,034 $4,455 $4,229 $3,479 $12,105 $23,769 $0 $65,223 
Residential - MortgagesResidential - Mortgages
PerformingPerforming$99,637 $188,901 $260,395 $225,960 $111,379 $468,208 $$$1,354,480 
NonperformingNonperforming514 330 1,180 896 10,892 13,812 
Total Residential - MortgagesTotal Residential - Mortgages$99,637 $189,415 $260,725 $227,140 $112,275 $479,100 $0 $0 $1,368,292 
Current-period gross writeoffsCurrent-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial Real Estate
Pass$39,210 $340,604 $367,485 $317,991 $278,372 $1,021,145 $35,794 $2,056 $2,402,657 
Special Mention643 1,682 11,380 21,234 34,939 
Substandard74 109 3,147 35,482 124 38,936 
Total Commercial Real Estate$39,210 $341,321 $367,594 319,673 292,899 1,077,861 $35,918 $2,056 $2,476,532 
Consumer - DirectConsumer - Direct
PerformingPerforming$47,087 $14,091 $12,163 $5,884 $4,382 $10,589 $2,676 $$96,872 
NonperformingNonperforming10 11 115 133 11 293 
Total Consumer - DirectTotal Consumer - Direct$47,097 $14,100 $12,174 $5,888 $4,497 $10,722 $2,687 $0 $97,165 
Current-period gross writeoffsCurrent-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 Current-period gross writeoffs$406 $8 $0 $17 $38 $14 $0 $0 $483 
Commercial Real Estate - Agriculture:
Pass$2,578 $34,652 $23,976 $22,525 $24,893 $100,038 $2,158 $1,450 $212,270 
Special Mention396 1,115 1,511 
Substandard183 50 233 
Total Commercial Real Estate - Agriculture$2,578 $34,652 $23,976 $22,525 $25,472 $101,203 $2,158 $1,450 $214,014 
Consumer - IndirectConsumer - Indirect
PerformingPerforming$$$112 $82 $522 $307 $$$1,023 
NonperformingNonperforming55 12 67 
Total Consumer - IndirectTotal Consumer - Indirect$0 $0 $112 $82 $577 $319 $0 $0 $1,090 
Current-period gross writeoffsCurrent-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 Current-period gross writeoffs$0 $0 $0 $0 $49 $14 $0 $0 $63 
20



(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial Real Estate - Construction
Pass$$30,152 $73,446 $17,738 $11,859 $16,312 $62,168 $8,114 $219,789 
Special Mention
Substandard
Total Commercial Real Estate - Construction$0 $30,152 $73,446 $17,738 $11,859 $16,312 $62,168 $8,114 $219,789 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Residential - Home Equity
Performing$499 $2,357 $1,033 $610 $953 $10,589 $164,730 $317 $181,088 
Nonperforming288 2,260 2,548 
Total Residential - Home Equity$499 $2,357 $1,033 $610 $953 $10,877 $166,990 $317 $183,636 
Current-period gross writeoffs$0 $0 $0 $0 $0 $2 $0 $0 $2 
Residential - Mortgages
Performing$15,811 $192,106 $269,413 $235,432 $116,045 $501,085 $$$1,329,892 
Nonperforming218 330 619 670 10,485 12,322 
Total Residential - Mortgages$15,811 $192,324 $269,743 $236,051 $116,715 $511,570 $0 $0 $1,342,214 
Current-period gross writeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Consumer - Direct
Performing$26,213 $16,366 $13,338 $6,844 $5,762 $11,873 $3,205 $$83,601 
Nonperforming63 108 174 
Total Consumer - Direct$26,213 $16,366 $13,338 $6,844 $5,825 $11,981 $3,208 $0 $83,775 
Current-period gross writeoffs$33 $0 $0 $14 $20 $3 $0 $0 $70 
Consumer - Indirect
Performing$$$139 $127 $885 $554 $$$1,705 
Nonperforming55 23 78 
Total Consumer - Indirect$0 $0 $139 $127 $940 $577 $0 $0 $1,783 
Current-period gross writeoffs$0 $0 $0 $0 $31 $5 $0 $0 $36 
2122


December 31, 2022
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal 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 Mention127 421 285 271 1,380 501 2,985 
Substandard111 442 35 733 503 5,659 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 Mention058000050 0108 
Substandard00710016 092 
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$$416 $340 $$$$$$756 
Special Mention
Substandard
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 Mention643 3,406 1,688 11,462 2,555 25,361 45,115 
Substandard78 110 3,394 1,692 35,221 132 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 Mention401 1,142 1,543 
Substandard186 38 110 334 
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
Substandard
Total Commercial Real Estate - Construction$23,105 $75,245 $27,584 $14,842 $9,083 $7,268 $42,701 $1,288 $201,116 





22


23


The following tables presenttable 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)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Residential - Home Equity
Performing$3,030 $1,062 $637 $992 $792 $3,183 $175,451 $1,085 $186,232 
Nonperforming14 25 2,352 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 $$$1,335,165 
Nonperforming218 335 628 682 1,552 7,738 11,153 
Total Residential - Mortgages$187,347 $272,570 $240,212 $118,073 $68,157 $459,959 $0 $0 $1,346,318 
Consumer - Direct
Performing$31,243 $13,999 $7,372 $6,138 $4,386 $8,029 $4,070 $$75,237 
Nonperforming93 76 175 
Total Consumer - Direct$31,243 $13,999 $7,375 $6,231 $4,462 $8,029 $4,073 $0 $75,412 
Consumer - Indirect
Performing$$156 $146 $1,092 $635 $101 $$$2,130 
Nonperforming76 10 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 March 31,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.
 
23

24


Three Months EndedThree Months Ended
(In thousands, except share and per share data)(In thousands, except share and per share data)03/31/202303/31/2022(In thousands, except share and per share data)9/30/20239/30/2022
BasicBasicBasic
Net income available to common shareholders$19,381 $23,273 
Net (loss) income available to common shareholdersNet (loss) income available to common shareholders$(33,354)$21,340 
Less: income attributable to unvested stock-based compensation awardsLess: income attributable to unvested stock-based compensation awards(18)(76)Less: income attributable to unvested stock-based compensation awards(8)(66)
Net earnings allocated to common shareholdersNet earnings allocated to common shareholders19,363 23,197 Net earnings allocated to common shareholders(33,362)21,274 
Weighted average shares outstanding, including unvested stock-based compensation awardsWeighted average shares outstanding, including unvested stock-based compensation awards14,520,092 14,611,709 Weighted average shares outstanding, including unvested stock-based compensation awards14,364,909 14,489,970 
Less: average unvested stock-based compensation awardsLess: average unvested stock-based compensation awards(193,497)(211,706)Less: average unvested stock-based compensation awards(179,146)(200,948)
Weighted average shares outstanding - BasicWeighted average shares outstanding - Basic14,326,595 14,400,003 Weighted average shares outstanding - Basic14,185,763 14,289,022 
DilutedDilutedDiluted
Net earnings allocated to common shareholdersNet earnings allocated to common shareholders19,363 23,197 Net earnings allocated to common shareholders(33,362)21,274 
Weighted average shares outstanding - BasicWeighted average shares outstanding - Basic14,326,595 14,400,003 Weighted average shares outstanding - Basic14,185,763 14,289,022 
Plus: incremental shares from assumed conversion of stock-based compensation awardsPlus: incremental shares from assumed conversion of stock-based compensation awards63,078 78,180 Plus: incremental shares from assumed conversion of stock-based compensation awards38,985 78,127 
Weighted average shares outstanding - DilutedWeighted average shares outstanding - Diluted14,389,673 14,478,183 Weighted average shares outstanding - Diluted14,224,748 14,367,149 
Basic EPSBasic EPS$1.35 $1.61 Basic EPS$(2.35)$1.49 
Diluted EPSDiluted EPS$1.35 $1.60 Diluted EPS$(2.35)$1.48 

Stock-based compensation awards representing 2,86053,490 and 1,848369 of common shares during the three months ended March 31,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)9/30/20239/30/2022
Basic
Net (loss) income available to common shareholders$(5,498)$65,482 
Less: income attributable to unvested stock-based compensation awards(34)(209)
Net earnings allocated to common shareholders(5,532)65,273 
Weighted average shares outstanding, including unvested stock-based compensation awards14,461,819 14,541,772 
Less: unvested stock-based compensation awards(186,890)(206,738)
Weighted average shares outstanding - Basic14,274,929 14,335,034 
Diluted
Net earnings allocated to common shareholders(5,532)65,273 
Weighted average shares outstanding - Basic14,274,929 14,335,034 
Plus: incremental shares from assumed conversion of stock-based compensation awards44,906 75,498 
Weighted average shares outstanding - Diluted14,319,835 14,410,532 
Basic EPS$(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 the accumulated other comprehensive income (loss) for the three and nine month periods ended March 31,September 30, 2023 and 2022:
Three Months Ended March 31, 2023Three Months Ended September 30, 2023
(In thousands)(In thousands)Before-Tax
Amount
Tax (Expense)
Benefit
Net of Tax(In thousands)Before-Tax
Amount
Tax (Expense)
Benefit
Net of Tax
Available-for-sale debt securities:Available-for-sale debt securities:Available-for-sale debt securities:
Change in net unrealized gain (loss) during the periodChange in net unrealized gain (loss) during the period$27,255 $(6,677)$20,578 Change in net unrealized gain (loss) during the period$(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)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/lossesNet unrealized gains/losses27,255 (6,677)20,578 Net unrealized gains/losses25,483 (6,243)19,240 
Employee benefit plans:Employee benefit plans:Employee benefit plans:
Amortization of net retirement plan actuarial gainAmortization of net retirement plan actuarial gain297 (73)224 Amortization of net retirement plan actuarial gain279 (68)211 
Amortization of net retirement plan prior service costAmortization of net retirement plan prior service cost55 (14)41 Amortization of net retirement plan prior service cost53 (13)40 
Employee benefit plansEmployee benefit plans352 (87)265 Employee benefit plans332 (81)251 
Other comprehensive (loss) incomeOther comprehensive (loss) income$27,607 $(6,764)$20,843 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 $(64,873)
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income49 (12)37 
Net unrealized gains/losses(85,863)21,027 (64,836)
Employee benefit plans:
Amortization of net retirement plan actuarial gain565 (138)427 
Amortization of net retirement plan prior service cost54 (13)41 
Employee benefit plans619 (151)468 
Other comprehensive (loss) income$(85,244)$20,876 $(64,368)

24


26


Three Months Ended March 31, 2022Nine Months Ended September 30, 2023
(In thousands)(In thousands)Before-Tax
Amount
Tax (Expense)
Benefit
Net of Tax(In thousands)Before-Tax
Amount
Tax (Expense)
Benefit
Net of Tax
Available-for-sale debt securities:Available-for-sale debt securities:Available-for-sale debt securities:
Change in net unrealized (loss) gain during the period$(106,481)$26,076 $(80,405)
Change in net unrealized gain (loss) during the periodChange in net unrealized gain (loss) during the period$(27,725)$6,793 $(20,932)
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income (loss)Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income (loss)69,984 (17,146)52,838 
Net unrealized gains/lossesNet unrealized gains/losses(106,481)26,076 (80,405)Net unrealized gains/losses42,259 (10,353)31,906 
Employee benefit plans:Employee benefit plans:Employee benefit plans:
Amortization of net retirement plan actuarial gain615 (151)464 
Amortization of net retirement plan actuarial lossAmortization of net retirement plan actuarial loss837 (205)632 
Amortization of net retirement plan prior service costAmortization of net retirement plan prior service cost56 (14)42 Amortization of net retirement plan prior service cost162 (40)122 
Employee benefit plansEmployee benefit plans671 (165)506 Employee benefit plans999 (245)754 
Other comprehensive (loss) incomeOther comprehensive (loss) income$(105,810)$25,911 $(79,899)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 $(188,727)
Reclassification adjustment for net realized gain on sale of available-for-sale debt securities included in net income49 (12)37 
Net unrealized gains/losses(249,888)61,198 (188,690)
Employee benefit plans:
Amortization of net retirement plan actuarial loss1,695 (415)1,280 
Amortization of net retirement plan prior service cost162 (39)123 
Employee benefit plans1,857 (454)1,403 
Other comprehensive (loss) income$(248,031)$60,744 $(187,287)



27


The following table presents the activity in our accumulated other comprehensive (loss) income (loss) for the periods indicated:
 
(In thousands)(In thousands)Available-for-
Sale Debt Securities
Employee
Benefit Plans
Accumulated
Other
Comprehensive
(Loss) Income
(In thousands)Available-for-
Sale Debt Securities
Employee
Benefit Plans
Accumulated
Other
Comprehensive
(Loss) Income
Balance at January 1, 2023$(178,803)$(29,886)$(208,689)
Other comprehensive income before reclassifications20,578 20,578 
Amounts reclassified from accumulated other comprehensive (loss) income265 265 
Net current-period other comprehensive income (loss)20,578 265 20,843 
Balance at March 31, 2023$(158,225)$(29,621)$(187,846)
Balance at January 1, 2022$(14,560)$(41,390)$(55,950)
Balance at June 30, 2023Balance at June 30, 2023$(166,137)$(29,383)$(195,520)
Other comprehensive loss before reclassificationsOther comprehensive loss before reclassifications(80,405)(80,405)Other comprehensive loss before reclassifications(28,273)(28,273)
Amounts reclassified from accumulated other comprehensive (loss) incomeAmounts reclassified from accumulated other comprehensive (loss) income506 506 Amounts reclassified from accumulated other comprehensive (loss) income47,513 251 47,764 
Net current-period other comprehensive income (loss)Net current-period other comprehensive income (loss)(80,405)506 (79,899)Net current-period other comprehensive income (loss)19,240 251 19,491 
March 31, 2022$(94,965)$(40,884)$(135,849)
Balance at September 30, 2023Balance at September 30, 2023$(146,897)$(29,132)$(176,029)
Balance at January 1, 2023Balance at January 1, 2023$(178,803)$(29,886)$(208,689)
Other comprehensive loss before reclassificationsOther comprehensive loss before reclassifications(20,932)(20,932)
Amounts reclassified from accumulated other comprehensive (loss) incomeAmounts reclassified from accumulated other comprehensive (loss) income52,838 754 53,592 
Net current-period other comprehensive (loss) incomeNet current-period other comprehensive (loss) income31,906 754 32,660 
Balance at September 30, 2023Balance at September 30, 2023$(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)$(178,869)
Other comprehensive loss before reclassifications(64,873)(64,873)
Amounts reclassified from accumulated other comprehensive (loss) income37 468 505 
Net current-period other comprehensive income (loss)(64,836)468 (64,368)
Balance at September 30, 2022$(203,250)$(39,987)$(243,237)
Balance at January 1, 2022$(14,560)$(41,390)$(55,950)
Other comprehensive loss before reclassifications(188,727)(188,727)
Amounts reclassified from accumulated other comprehensive (loss) income37 1,403 1,440 
Net current-period other comprehensive (loss) income(188,690)1,403 (187,287)
Balance at September 30, 2022$(203,250)$(39,987)$(243,237)















25

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 March 31,September 30, 2023 and 2022:

Three Months Ended March 31,September 30, 2023
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount
Reclassified from
Accumulated
Other
Comprehensive
(Loss) Income
1
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) gainloss on securities transactions
015,419 Tax expense
(47,513)Net of tax
Employee benefit plans:
Amortization of the following 2
Net retirement plan actuarial loss(297)(279)Other operating expense
Net retirement plan prior service cost(55)(53)Other operating expense
(352)(332)Total before tax
8781 Tax benefit
$(265)(251)Net of tax
 
Three Months Ended March 31,September 30, 2022
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount
Reclassified from
Accumulated
Other
Comprehensive
(Loss) Income
1
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) gainloss on securities transactions
012 Tax expense
(37)Net of tax
Employee benefit plans:
Amortization of the following2
Net retirement plan actuarial loss(615)(565)Other operating expense
Net retirement plan prior service cost(56)(54)Other operating expense
(671)(619)Total before tax
165151 Tax benefit
$(506)(468)Net of tax


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Nine Months Ended September 30, 2023
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount
Reclassified from
Accumulated
Other
Comprehensive
(Loss) Income
1
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) Income
1
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").
 

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8. Employee Benefit PlanPlans
 
The following table setstables 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 net retirement plan actuarial loss,the unrecognized transitional obligation or transition asset, and the amounts of recognized gains and losses, prior service cost recognized.recognized, and gain or loss recognized due to settlement or curtailment.

Components of Net Periodic Benefit Cost:Cost
Pension BenefitsLife and HealthSERP BenefitsPension BenefitsLife and HealthSERP Benefits
Three Months EndedThree Months Ended
(In thousands)(In thousands)03/31/202303/31/202203/31/202303/31/202203/31/202303/31/2022(In thousands)9/30/20239/30/20229/30/20239/30/20229/30/20239/30/2022
Service costService cost$0 $$15 $44 $14 $52 Service cost$0 $$8 $43 $11 $19 
Interest costInterest cost823 463 89 52 299 201 Interest cost819 496 89 56 287 203 
Expected return on plan assetsExpected return on plan assets(1,199)(1,468)0 0 Expected return on plan assets(1,198)(1,471)0 0 
Amortization of net retirement plan actuarial lossAmortization of net retirement plan actuarial loss304 323 (7)52 0 240 Amortization of net retirement plan actuarial loss289 304 (10)49 0 212 
Amortization of net retirement plan prior service (credit) costAmortization of net retirement plan prior service (credit) cost0 (15)(15)70 71 Amortization of net retirement plan prior service (credit) cost0 (16)(15)69 69 
Net periodic benefit (income) costNet periodic benefit (income) cost$(72)$(682)$82 $133 $383 $564 Net periodic benefit (income) cost$(90)$(671)$71 $133 $367 $503 

Pension BenefitsLife and HealthSERP Benefits
Nine Months EndedNine Months EndedNine Months Ended
(In thousands)9/30/20239/30/20229/30/20239/30/20229/30/20239/30/2022
Service cost$0 $$24 $130 $32 $58 
Interest cost2,456 1,489 266 167 861 610 
Expected return on plan assets(3,592)(4,414)0 0 
Amortization of net retirement plan actuarial loss867 913 (30)147 0 635 
Amortization of net retirement plan prior service cost (credit)0 (46)(46)208 208 
Net periodic benefit (income) cost$(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 $266,000$754,000 and $506,000,$1.4 million, net of tax, as amortization of amounts previously recognized in accumulated other comprehensive (loss) income, for the threenine months ended March 31,September 30, 2023 and 2022, respectively.
 
The Company is not required to contribute to the pension plan, in 2023, but it may make voluntary contributions. The Company did not contribute to the pension plan in the first threenine months of 2023 and 2022.



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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 EndedThree Months EndedNine Months Ended
(In thousands)(In thousands)03/31/202303/31/2022(In thousands)9/30/20239/30/20229/30/20239/30/2022
Noninterest IncomeNoninterest IncomeNoninterest Income
Other service chargesOther service charges$615 $627 Other service charges$645 $721 $1,909 $2,017 
Earnings from corporate owned life insuranceEarnings from corporate owned life insurance615 423 Earnings from corporate owned life insurance(2)(236)1,167 357 
Net gains on the sale of loans originated for saleNet gains on the sale of loans originated for sale38 Net gains on the sale of loans originated for sale21 83 86 140 
Other incomeOther income673 422 Other income326 409 1,372 1,180 
Total other incomeTotal other income$1,941 $1,476 Total other income$990 $977 $4,534 $3,694 
Noninterest ExpensesNoninterest ExpensesNoninterest Expenses
Marketing expenseMarketing expense$1,105 $1,056 Marketing expense$782 $1,207 $3,575 $3,719 
Professional feesProfessional fees1,804 1,606 Professional fees1,761 1,665 5,689 4,990 
Legal feesLegal fees419 210 Legal fees293 298 1,347 1,006 
Technology expenseTechnology expense4,007 3,683 Technology expense3,928 3,890 11,590 11,253 
FDIC insuranceFDIC insurance1,054 701 FDIC insurance1,041 719 2,874 2,097 
Cardholder expenseCardholder expense1,016 1,141 Cardholder expense1,059 1,129 3,192 3,551 
Other expensesOther expenses4,064 3,623 Other expenses4,602 3,329 13,136 10,670 
Total other operating expenseTotal other operating expense$13,469 $12,020 Total other operating expense$13,466 $12,237 $41,403 $37,286 
 
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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 new 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.


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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
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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 table presentstables present noninterest income, segregated by revenue streams in-scope and out-of-scope of ASC 606, for the three and nine months ended March 31,September 30, 2023 and 2022:
Three Months EndedThree Months Ended
(In thousands)(In thousands)03/31/202303/31/2022(In thousands)09/30/202309/30/2022
Noninterest IncomeNoninterest IncomeNoninterest Income
In-scope of Topic 606:In-scope of Topic 606:In-scope of Topic 606:
Commissions and FeesCommissions and Fees$8,517 $7,964 Commissions and Fees$10,301 $9,827 
Installment BillingInstallment Billing1 44 Installment Billing138 126 
Refund of CommissionsRefund of Commissions59 (28)Refund of Commissions(60)(133)
Contract Liabilities/Deferred RevenueContract Liabilities/Deferred Revenue(3)(1)Contract Liabilities/Deferred Revenue0 
Contingent CommissionsContingent Commissions935 1,338 Contingent Commissions1,018 1,004 
Subtotal Insurance RevenuesSubtotal Insurance Revenues9,509 9,317 Subtotal Insurance Revenues11,397 10,825 
Trust and Asset ManagementTrust and Asset Management3,435 3,503 Trust and Asset Management3,423 3,209 
Mutual Fund & Investment IncomeMutual Fund & Investment Income1,074 1,414 Mutual Fund & Investment Income919 1,128 
Subtotal Investment Service IncomeSubtotal Investment Service Income4,509 4,917 Subtotal Investment Service Income4,342 4,337 
Service Charges on Deposit AccountsService Charges on Deposit Accounts1,746 1,779 Service Charges on Deposit Accounts1,754 1,917 
Card Services IncomeCard Services Income2,682 2,543 Card Services Income2,860 2,731 
OtherOther351 316 Other314 332 
Noninterest Income (in-scope of ASC 606)Noninterest Income (in-scope of ASC 606)18,797 18,872 Noninterest Income (in-scope of ASC 606)20,667 20,142 
Noninterest Income (out-of-scope of ASC 606)Noninterest Income (out-of-scope of ASC 606)1,603 1,113 Noninterest Income (out-of-scope of ASC 606)(62,291)550 
Total Noninterest IncomeTotal Noninterest Income$20,400 $19,985 Total Noninterest Income$(41,624)$20,692 

29
Nine Months Ended
(In thousands)9/30/20239/30/2022
Noninterest Income
In-scope of Topic 606:
Commissions and Fees$26,796 $25,663 
Installment Billing97 124 
Refund of Commissions113 (151)
Contract Liabilities/Deferred Revenue(298)(266)
Contingent Commissions2,870 3,201 
Subtotal Insurance Revenues29,578 28,571 
Trust and Asset Management10,494 9,834 
Mutual Fund & Investment Income3,035 4,016 
Subtotal Investment Service Income13,529 13,850 
Service Charges on Deposit Accounts5,140 5,452 
Card Services Income8,629 8,233 
Other989 957 
Noninterest Income (in-scope of ASC 606)57,865 57,063 
Noninterest Income (out-of-scope of ASC 606)(66,474)2,558 
Total Noninterest Income$(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


34


which the Company's performance obligations have been fully satisfied. Receivables for the insurance and wealth management services segments amounted to $4.3$6.1 million and $2.8$2.7 million, respectively, at March 31,September 30, 2023, compared to $6.1 million and $2.5 million, respectively, at December 31, 2022. Additionally, the Company hadIncluded in those amounts are contract assets related to contingent income of $0.7$2.3 million and $2.9 million, respectively, at March 31,September 30, 2023 and December 31, 2022, and contract liabilities of $0.8$0.5 million and $1.6 million, respectively, at March 31,September 30, 2023 and December 31, 2022.

Contract Acquisition Costs
In connection with the adoption of ASC 606, an entityThe 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. Upon adoption of ASC 606, the Company did not capitalize any contract acquisition costs.

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 March 31,September 30, 2023, the Company’s maximum potential obligation under standby letters of credit was $34.9$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; sixteenfifteen 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.

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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.
 
Three months ended March 31, 2023
(In thousands)BankingInsuranceWealth ManagementIntercompanyConsolidated
Interest income$69,238 $$$(1)$69,238 
Interest expense14,993 (1)14,992 
Net interest income54,245 54,246 
Credit for credit loss expense(825)(825)
Noninterest income6,698 9,636 4,621 (555)20,400 
Noninterest expense39,848 7,215 3,650 (555)50,158 
Income before income tax expense21,920 2,422 971 25,313 
Income tax expense4,989 673 239 5,901 
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation16,931 1,749 732 19,412 
Less: Net income attributable to noncontrolling interests31 31 
Net Income attributable to Tompkins Financial Corporation$16,900 $1,749 $732 $$19,381 
Depreciation and amortization$2,589 $44 $45 $$2,678 
Assets7,586,753 43,779 29,013 (15,174)7,644,371 
Goodwill64,655 19,866 8,081 92,602 
Other intangibles, net984 1,576 45 2,605 
Net loans and leases5,227,572 5,227,572 
Deposits6,527,953 (4,245)(14,699)6,509,009 
Total Equity$584,650 $35,625 $29,490 $$649,765 


3135


Three months ended March 31, 2022
Three Months Ended September 30, 2023Three Months Ended September 30, 2023
(In thousands)(In thousands)BankingInsuranceWealth
Management
IntercompanyConsolidated(In thousands)BankingInsuranceWealth ManagementIntercompanyConsolidated
Interest incomeInterest income$59,176 $$$(1)$59,176 Interest income$75,465 $$$(1)$75,465 
Interest expenseInterest expense2,563 (1)2,562 Interest expense24,453 (1)24,452 
Net interest incomeNet interest income56,613 56,614 Net interest income51,012 51,013 
Credit for credit loss expense(520)(520)
Provision for credit loss expenseProvision for credit loss expense1,150 1,150 
Noninterest incomeNoninterest income6,193 9,434 4,934 (576)19,985 Noninterest income(57,007)11,529 4,414 (560)(41,624)
Noninterest expenseNoninterest expense37,190 6,501 3,724 (576)46,839 Noninterest expense39,648 7,109 3,668 (559)49,866 
Income before income tax expense26,136 2,934 1,210 30,280 
Income tax expense5,791 815 370 6,976 
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation20,345 2,119 840 23,304 
(Loss) Income before income tax expense(Loss) Income before income tax expense(46,793)4,421 746 (1)(41,627)
Income tax (benefit) expenseIncome tax (benefit) expense(9,701)1,213 184 (8,304)
Net (Loss) Income attributable to noncontrolling interests and Tompkins Financial CorporationNet (Loss) Income attributable to noncontrolling interests and Tompkins Financial Corporation(37,092)3,208 562 (1)(33,323)
Less: Net income attributable to noncontrolling interestsLess: Net income attributable to noncontrolling interests31 31 Less: Net income attributable to noncontrolling interests31 31 
Net Income attributable to Tompkins Financial Corporation$20,314 $2,119 $840 $$23,273 
Net (Loss) Income attributable to Tompkins Financial CorporationNet (Loss) Income attributable to Tompkins Financial Corporation$(37,123)$3,208 $562 $(1)$(33,354)
Depreciation and amortizationDepreciation and amortization$2,578 $44 $28 $$2,650 Depreciation and amortization$2,702 $44 $44 $$2,790 
AssetsAssets7,835,767 44,247 26,684 (15,587)7,891,111 Assets7,632,733 46,222 28,730 (16,523)7,691,162 
GoodwillGoodwill64,500 19,866 8,081 92,447 Goodwill64,655 19,866 8,081 92,602 
Other intangibles, netOther intangibles, net1,402 1,917 63 3,382 Other intangibles, net967 1,416 38 2,421 
Net loans and leasesNet loans and leases5,021,325 5,021,325 Net loans and leases5,385,524 5,385,524 
DepositsDeposits7,031,223 (10)(14,474)7,016,739 Deposits6,645,587 (22,151)6,623,436 
Total EquityTotal Equity$598,707 $34,128 $24,657 $$657,492 Total Equity545,037 36,745 30,574 612,356 



36


Three Months Ended September 30, 2022
(In thousands)BankingInsuranceWealth
Management
IntercompanyConsolidated
Interest income$63,670 $$$(1)$63,670 
Interest expense5,560 (1)5,559 
Net interest income58,110 58,111 
Provision for credit loss expense1,056 1,056 
Noninterest income5,973 10,953 4,342 (576)20,692 
Noninterest expense39,448 7,178 3,552 (576)49,602 
Income before income tax expense23,579 3,776 790 28,145 
Income tax expense5,528 1,052 194 6,774 
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation18,051 2,724 596 21,371 
Less: Net income attributable to noncontrolling interests31 31 
Net Income attributable to Tompkins Financial Corporation$18,020 $2,724 $596 $$21,340 
Depreciation and amortization$2,652 $44 $36 $$2,732 
Assets7,721,022 46,807 28,761 (16,649)7,779,941 
Goodwill64,655 19,866 8,081 92,602 
Other intangibles, net1,137 1,742 53 2,932 
Net loans and leases5,163,664 5,163,664 
Deposits6,954,839 (18,113)6,936,726 
Total Equity511,298 35,625 26,036 572,959 

Nine Months Ended September 30, 2023
(In thousands)BankingInsuranceWealth
Management
IntercompanyConsolidated
Interest income$216,573 $$$(3)$216,573 
Interest expense59,421 (3)59,418 
Net interest income157,152 157,155 
Provision for credit loss expense2,578 2,578 
Noninterest income(50,687)29,963 13,771 (1,656)(8,609)
Noninterest expense120,882 21,526 11,240 (1,656)151,992 
(Loss) Income before income tax expense(16,995)8,440 2,531 (6,024)
Income tax (benefit) expense(3,565)2,323 623 (619)
Net (Loss) Income attributable to noncontrolling interests and Tompkins Financial Corporation(13,430)6,117 1,908 (5,405)
Less: Net income attributable to noncontrolling interests93 93 
Net (Loss) Income attributable to Tompkins Financial Corporation$(13,523)$6,117 $1,908 $$(5,498)
Depreciation and amortization$7,942 $133 $133 $$8,208 



37


Nine Months Ended September 30, 2022
(In thousands)BankingInsuranceWealth
Management
IntercompanyConsolidated
Interest income$183,798 $$$(3)$183,799 
Interest expense10,815 (3)10,812 
Net interest income172,983 172,987 
Provision for credit loss expense1,392 1,392 
Noninterest income18,495 28,959 13,874 (1,707)59,621 
Noninterest expense116,031 20,492 10,745 (1,707)145,561 
Income before income tax expense74,055 8,471 3,129 85,655 
Income tax expense16,948 2,361 770 20,079 
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation57,107 6,110 2,359 65,576 
Less: Net income attributable to noncontrolling interests94 94 
Net Income attributable to Tompkins Financial Corporation$57,013 $6,110 $2,359 $$65,482 
Depreciation and amortization$7,745 $132 $100 $$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 generally accepted accounting principlesGAAP and expands disclosures about fair value measurements. FASB ASC Topic 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 FASB ASC Topic 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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38


The following tables summarizetable summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of March 31,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 $$107,294 $
Obligations of U.S. Government sponsored entities459,941 459,941 
Obligations of U.S. states and political subdivisions77,237 77,237 
Mortgage-backed securities – residential, issued by:
U.S. Government agencies45,399 45,399 
U.S. Government sponsored entities696,309 696,309 
U.S. corporate debt securities2,330 2,330 
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 instruments3,991 0 3,991 0 
Derivatives not designated as hedging instruments47 0 47 0 
Liabilities
Derivatives not designated as hedging instruments$56 $0 $56 $0 

Recurring Fair Value MeasurementsRecurring Fair Value MeasurementsRecurring Fair Value Measurements
March 31, 2023
December 31, 2022December 31, 2022
(In thousands)(In thousands)Total(Level 1)(Level 2)(Level 3)(In thousands)Total(Level 1)(Level 2)(Level 3)
AssetsAssets
Available-for-sale debt securitiesAvailable-for-sale debt securitiesAvailable-for-sale debt securities
U.S. TreasuriesU.S. Treasuries$170,814 $$170,814 $U.S. Treasuries$167,251 $$167,251 $
Obligations of U.S. Government sponsored entitiesObligations of U.S. Government sponsored entities599,762 599,762 Obligations of U.S. Government sponsored entities601,167 601,167 
Obligations of U.S. states and political subdivisionsObligations of U.S. states and political subdivisions86,684 86,684 Obligations of U.S. states and political subdivisions85,281 85,281 
Mortgage-backed securities – residential, issued by:Mortgage-backed securities – residential, issued by:Mortgage-backed securities – residential, issued by:
U.S. Government agenciesU.S. Government agencies50,891 50,891 U.S. Government agencies52,668 52,668 
U.S. Government sponsored entitiesU.S. Government sponsored entities675,310 675,310 U.S. Government sponsored entities686,222 686,222 
U.S. corporate debt securitiesU.S. corporate debt securities2,393 2,393 U.S. corporate debt securities2,378 2,378 
Total Available-for-sale debt securitiesTotal Available-for-sale debt securities$1,585,854 $0 $1,585,854 $0 Total Available-for-sale debt securities$1,594,967 $0 $1,594,967 $0 
Equity securities, at fair valueEquity securities, at fair value$790 $$$790 Equity securities, at fair value$777 $0 $0 $777 
LiabilitiesLiabilities
Derivatives not designated as hedging instrumentsDerivatives not designated as hedging instruments$21 $0 $21 $0 
 
Recurring Fair Value Measurements
December 31, 2022
(In thousands)Total(Level 1)(Level 2)(Level 3)
Available-for-sale debt securities
U.S. Treasuries$167,251 $$167,251 $
Obligations of U.S. Government sponsored entities601,167 601,167 
Obligations of U.S. states and political subdivisions85,281 85,281 
Mortgage-backed securities – residential, issued by:
U.S. Government agencies52,668 52,668 
U.S. Government sponsored entities686,222 686,222 
U.S. corporate debt securities2,378 2,378 
Total Available-for-sale debt securities$1,594,967 $0 $1,594,967 $0 
Equity securities, at fair value$777 $$$777 

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.



39


The change in the fair value of equity securities valued using significant unobservable inputs (level 3), betweenfor the periods ended September 30, 2023 and December 31, 2022, and March 31, 2023, was immaterial.
 
There were no transfers between Levels 1, 2 and 3 for the threenine months ended March 31,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.
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Certain assets are measured at fair value on a nonrecurring basis. For the Company, these include loans held for sale, collateral dependent individually evaluated loans, and other real estate owned ("OREO"). As of March 31,For the three and nine months ended September 30, 2023, and 2022, certain collateral dependentindividually 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.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.

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at March 31, 2023 and 2022. The carrying amounts shown in the table are included in the Consolidated Statements of Condition under the indicated captions:
Three months ended March 31, 2023
Three months ended September 30, 2023Three months ended September 30, 2023
(In thousands)(In thousands)Fair value measurements at reporting
date using:
Gain (losses)
from fair
value changes
(In thousands)Fair value measurements at reporting
date using:
Gain (losses)
from fair
value changes
Assets:Assets:As of 03/31/2023Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable inputs
(Level 3)
Three months ended 03/31/2023Assets:As of 09/30/2023Quoted 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
Individually evaluated loans$$$$$826 
Other real estate ownedOther real estate owned36 36 22 Other real estate owned$$$$$

December 31, 2022
Three months ended September 30, 2022Three months ended September 30, 2022
(In thousands)(In thousands)Fair value measurements at reporting
date using:
Gain (losses)
from fair
value changes
(In thousands)Fair value measurements at reporting
date using:
Gain (losses)
from fair
value changes
Assets:Assets:As of 12/31/2022Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable inputs
(Level 3)
Three months ended 12/31/2022Assets:As of 9/30/2022Quoted 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 loansIndividually evaluated loans$9,460 $$$9,460 $59 Individually evaluated loans$8,099 $$$8,099 $
Other real estate ownedOther real estate owned152 152 15 Other real estate owned247 247 27 



40


Nine months ended September 30, 2023
(In thousands)Fair value measurements at reporting
date using:
Gain (losses)
from fair
value changes
Assets:As of 09/30/2023Quoted 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 $$$3,742 $826 
Other real estate owned23 

Nine months ended September 30, 2022
(In thousands)Fair value measurements at reporting
date using:
Gain (losses)
from fair
value changes
Assets:As of 09/30/2022Quoted 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 $$$10,138 $59 
Other real estate owned247 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 U.S. GAAP and should be read in conjunction with the financial statements and notes included herein.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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41


Estimated Fair Value of Financial InstrumentsEstimated Fair Value of Financial InstrumentsEstimated Fair Value of Financial Instruments
March 31, 2023
September 30, 2023September 30, 2023
(In thousands)(In thousands)Carrying
Amount
Fair Value(Level 1)(Level 2)(Level 3)(In thousands)Carrying
Amount
Fair Value(Level 1)(Level 2)(Level 3)
Financial Assets:Financial Assets:Financial Assets:
Cash and cash equivalentsCash and cash equivalents$70,537 $70,537 $70,537 $$Cash and cash equivalents$140,216 $140,216 $140,216 $$
Securities - held-to-maturitySecurities - held-to-maturity312,357 267,099 267,099 Securities - held-to-maturity312,385 252,978 252,978 
FHLB and other stockFHLB and other stock19,326 19,326 19,326 FHLB and other stock19,985 19,985 19,985 
Accrued interest receivableAccrued interest receivable23,629 23,629 23,629 Accrued interest receivable26,535 26,535 26,535 
Loans/leases, net1
Loans/leases, net1
5,227,572 4,911,105 4,911,105 
Loans/leases, net1
5,385,524 4,994,285 4,994,285 
Financial Liabilities:Financial Liabilities:Financial Liabilities:
Time depositsTime deposits$725,338 $713,125 $$713,125 $Time deposits$880,412 $869,728 $$869,728 $
Other depositsOther deposits5,783,671 5,783,671 5,783,671 Other deposits5,743,024 5,743,024 5,743,024 
Fed funds purchased and securities soldFed funds purchased and securities soldFed funds purchased and securities sold
under agreements to repurchaseunder agreements to repurchase63,491 63,491 63,491 under agreements to repurchase56,120 56,120 56,120 
Other borrowingsOther borrowings327,000 324,849 324,849 Other borrowings296,800 293,922 293,922 
Accrued interest payableAccrued interest payable1,579 1,579 1,579 Accrued interest payable2,392 2,392 2,392 
 
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 $$
Securities - held to maturity312,344 261,692 261,692 
FHLB and other stock17,720 17,720 17,720 
Accrued interest receivable24,865 24,865 24,865 
Loans/leases, net1
5,222,977 4,939,246 4,939,246 
Financial Liabilities:
Time deposits$631,411 $616,488 $$616,488 $
Other deposits5,970,884 5,970,884 5,970,884 
Fed funds purchased and securities
sold under agreements to repurchase56,278 56,278 56,278 
Other borrowings291,300 289,234 289,234 
Accrued interest payable1,420 1,420 1,420 
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.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 other stock reported above,miscellaneous equity securities, carrying value is cost.

35


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 risksrisk 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. Management ofThe Company manages economic risks, by the Company, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities. Existingliabilities 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 participation inparticipations 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.



43


Line Item in the Statement of Financial Position in Which the Hedged Item is IncludedCarrying 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, 2023September 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 participationparticipations in or out of interest rate swaps provided by or to external lenders as part of loan participation arrangements, and 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 Balance SheetConsolidated 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 March 31,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 Liabilities
Derivative AssetsDerivative Assets
March 31, 2023December 31, 2022September 30, 2023
NotionalBalance SheetFairBalance SheetFairNotionalBalance SheetFair
(In thousands)(In thousands)AmountLocationValueLocationValue(In thousands)AmountLocationValue*
Derivatives designated as hedging instrumentsDerivatives designated as hedging instruments
Interest Rate ProductsInterest Rate Products$150,000  Other Assets$3,991 
Total derivatives designated as hedging instrumentsTotal derivatives designated as hedging instruments$3,991 
Derivatives not designated as hedging instrumentsDerivatives not designated as hedging instrumentsDerivatives not designated as hedging instruments
Interest Rate ProductsInterest Rate Products$ Other Liabilities$ Other Liabilities$Interest Rate Products$2,842 Other Assets$47 
Risk Participation AgreementRisk Participation Agreement7,499  Other Liabilities26  Other Liabilities21 Risk Participation AgreementOther Assets
Total derivatives not designated as hedging instrumentsTotal derivatives not designated as hedging instruments$26 $21 Total derivatives not designated as hedging instruments$47 



44


Derivative Assets
December 31, 2022
NotionalBalance SheetFair
(In thousands)AmountLocationValue
Derivatives designated as hedging instruments
Interest Rate Products$Other Assets$
Total derivatives not designated as hedging instruments$0 
Derivatives not designated as hedging instruments
Interest Rate Products$ Other Assets$
Risk Participation Agreement Other Assets
Total derivatives not designated as hedging instruments$0 

 Derivative Liabilities
September 30, 2023
NotionalBalance SheetFair
(In thousands)AmountLocationValue
Derivatives not designated as hedging instruments
Interest Rate Products$2,842  Other Liabilities$49 
Risk Participation Agreement7,499  Other Liabilities
Total derivatives not designated as hedging instruments$56 

 Derivative Liabilities
December 31, 2022
NotionalBalance SheetFair
(In thousands)AmountLocationValue
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, 2023Three 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 $
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)
Derivatives designated as hedging instruments1,202 

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, 2023Nine 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 $
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)
Derivatives designated as hedging instruments4,827 



46


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 March 31, 2023: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 815-20Location of Gain or (Loss) Recognized in Income on DerivativeAmount of Gain or (Loss) Recognized in Income on DerivativeAmount of Gain or (Loss) Recognized in Income on Derivative
Three Months Ended
(In thousands)September 30, 2023September 30, 2022
Interest Rate ProductsOther income / (expense)$(2)$
Risk Participation AgreementOther income / (expense)12 15 
Total$10 $15 
Fee IncomeOther income / (expense)$70 $

Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20Location of Gain or (Loss) Recognized in Income on DerivativeAmount of Gain or (Loss) Recognized in Income on DerivativeAmount of Gain or (Loss) Recognized in Income on Derivative
Nine Months Ended
(In thousands)September 30, 2023September 30, 2022
Interest Rate ProductsOther income / (expense)$(2)$
Risk Participation AgreementOther income / (expense)14 56 
Total$12 $56 
Fee IncomeOther income / (expense)$70 $
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.
36


47


Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20Location of Gain or (Loss) Recognized in Income on DerivativeAmount of Gain or (Loss) Recognized in Income on Derivative
(In thousands)Three Months Ended March 31, 2023
Interest Rate ProductsOther income / (expense)$
Risk Participation AgreementOther income / (expense)(6)
Total$(6)

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

BUSINESS
 
Overview
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,locally-oriented, community-based financial services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, and insurance services. At March 31,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 TompkinsTompkins' 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 6059 banking offices (41(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.
 
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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 March 31,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.
 
In thisThis Report there areincludes comparisons of the Company’s performance to that of a peer group, which is comprised of 167the 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 December 31, 2022June 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; whether, when and how borrowers will repay deferred amounts and resume scheduled payments; 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
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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 thisthe 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; GDPgross domestic product growth and inflation trends; the impact of the interest rate and inflationary environment on the Company'Company's business, financial condition and results of operations; other income or cash flow anticipated fromfrom the Company's operations, investment and/or lending activities; changes in laws and regulations affecting banks, bank holding companies and/or financial holding companies, such asincluding the Dodd-Frank Act, and state and local government mandates, the Dodd-Frank Act and Basel III and the Economic Growth, Regulatory Relief, and Consumer Protection Act;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


49


public policy changes, including environmental regulation; reliance on large customers; the impact of national and global events, including the responseability to recent bank failures, the war in Ukraine, widespread protests, civil unrest, political uncertainty, and pandemics or other public health crises, including the COVID-19 pandemic on the economy and the financial services industry; and access to financial resources in the amounts, at the times, and on the terms required to support the Company’sCompany's future businesses.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.

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:

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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 losseslosses 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 NoteNotes to the Unaudited Consolidated Financial Statements.

Recent Events

During the first quarterhalf of 2023, the banking industry experienced significant volatility with the recent 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 recent 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 $1.7$1.6 billion through its membership with the FHLBFederal Home Loan Bank ("FHLB") and FRB. As of March 31, 2023, the Company’s liquidity and balance sheet remain well positioned and stable. The Company’s total deposits of $6.5$6.6 billion at March 31,September 30, 2023 were down $93.3up $168.8 million, or 1.4%2.6% from June 30, 2023 and flat compared to December 31, 2022, reflecting minimal deposit outflow.2022. At March 31,September 30, 2023, the Company estimates total uninsured deposits of $2.6$3.1 billion. These uninsured deposit balances of $3.1 billion which is unchanged from December 31, 2022, including $1.1at September 30, 2023 include $1.3 billion of collateralized government deposits and $1.5$1.8 billion of uninsured customer deposits without liquid collateral pledged. Total insured deposits and collateralized government deposits represent 76.9%72.4% of the Company's total FDIC insurance eligible deposits of $6.5 billion at March 31,September 30, 2023. Furthermore, the Company’s regulatory capital ratios at March 31, 2023, were up over December 31, 2022. At March 31,September 30, 2023, Tier 1 leverage and Total Capital ratios were 9.63%9.01% and 14.62%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 firstthird quarter of 2023 was $19.4a loss of $33.4 million, or $1.35$(2.35) diluted (loss) earnings per share, compared to $23.3$21.3 million, or $1.60$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 firstthree 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 first quarter of 2022three and nine months ended September 30, 2023, was mainly a result of increaseddown from prior year periods as the increase in interest expense andrates paid on interest-bearing liabilities continues to outpace increases in other operating expenses.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-GAAPDisclosure" on page 69.



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Return on average assets ("ROA") for the quarter ended March 31,September 30, 2023 was 1.03%(1.73)%, compared to 1.19%1.08% for the quarter ended March 31,September 30, 2022. Return on average shareholders’ equity ("ROE") for the firstthird quarter of 2023 was 12.45%(20.84)%, compared to 13.24%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 incomeloss of $16.9$37.1 million for the firstthird quarter of 2023, a decrease of $3.4$55.1 million, or 16.8%306.0% from net income of $20.3$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 first quarter ofthree month and nine month periods ended September 30, 2023 compared to the first quarter ofsame periods in 2022 was primarily due to increased funding costs coupled with increaseslower noninterest income, lower net interest income and higher operating expenses. The decrease in operating expenses.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.
 
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Net interest income of $54.2$51.0 million for the firstthird quarter of 2023 was down $2.4$7.1 million, or 4.2%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 funding costs and a decrease in average earnings assets, partially offset by an increase in the average yield on interest-earning assets in the first quarter of 2023 compared to the first quarter of 2022. The average yield on interest-earning assets benefited from higher market interest rates as well as a shift in the composition of average earning assets with growth in average loan balances.rate environment.

The provision for credit losses was a credit of $825,000$1.2 million for the three months ended March 31,September 30, 2023, compared to a credit of $520,000$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 $6.7$57.0 million for the three months ended March 31,September 30, 2023, was up $505,000 or 8.2% 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 increase indecrease 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 March 31,September 30, 2023, fromcompared to pre-tax losses of $49,000 on the sale of available-for-sale debt securities for both the same periodperiods 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, included an increase in earningswhile service charges on bank-owned life insurance ("BOLI")deposit accounts were down $163,000, or 8.5% and incentive fees related to renewal of our debit card services contract.$312,000, or 5.7%, respectively, for the same time periods.

Noninterest expense of $39.8$39.6 million and $120.9 million for the first quarter ofthree and nine months ended September 30, 2023, respectively, was up $2.7$0.2 million, or 7.2% from0.5% 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. Salaries2022 was mainly in other operating expenses which were up $1.0 million and employee benefits$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 mainly duewere the following: expenses related to yearly merit increasesthe Company’s retirement plans, up $1.0 million; professional fees, up $573,000 and higher healthcare expense. Higher FDIC insurance, expense and technologyup $776,000. The increase in personnel-related expenses in the first quarter of 2023 also contributed to increases in noninterest expense as compared to same period in 2022. Higher FDIC insurance expense was mainly due to an increase in assessment rates in 2023.health insurance, which is up $1.2 million.



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Insurance Segment
The insurance segment reported net income of $1.7$3.2 million for the three months ended March 31,September 30, 2023, which was down $370,000up $484,000, or 17.5%17.8% compared to the firstthird quarter of 2022. Noninterest income inTotal noninterest revenue was up $576,000, or 5.3% for the firstthird quarter of 2023 increased by $202,000 or 2.1%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 2022. Insurance commissions werethe prior year. Total revenue for the year-to-date period ended September 30, 2023 was up $617,000$1.0 million, or 7.6%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%, partially offsetwith 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 lower contingency revenue, which was down $402,000 or 30.1% from the first quarter of 2022.new business along with rate increases related to current market conditions.

Noninterest expenses for the three months ended September 30, 2023 were up $714,000down $69,000, or 11.0%1.0% compared to the first quarter ofthree 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; incentive commissions related to new business and growth in revenues; and employee benefits, includingincreases, increases in health insurance.insurance, partially offset by decreases in incentive accruals.

Wealth Management Segment
The wealth management segment reported net income of $732,000$562,000 for the three months ended March 31,September 30, 2023, which was down $108,000$34,000, or 12.9%5.7% compared to the firstthird quarter of 2022. The decreaseRevenue 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 three monthyear-to-date period ended March 31,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 was mainly attributable to a decrease in revenue, driven by a decrease in assets under management; which was primarily a result of volatile market conditions. Noninterest expense forwere the first quarter of 2023 decreased $74,000 or 2.0% comparedfollowing: expenses related to the same period of 2022.Company’s retirement plans, up $208,000 and professional fees, up $64,000. The decreaseincrease in personnel-related expenses was mainly in salaries and wages, reflecting annual merit increases, and benefits, which were down $141,000 or 5.7% for the first three months of 2023 compared to the same period prior year.increases in health insurance, partially offset by decreases in incentive accruals.

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Net Interest Income

The following table showstables show average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with prior quarter of 2023 and for each forof the three and nine month periods ended March 31,September 30, 2023 and 2022:
Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Quarter EndedQuarter Ended
March 31, 2023March 31, 2022
AverageAverage
BalanceAverageBalanceAverage
(Dollar amounts in thousands)(QTD)InterestYield/Rate(QTD)InterestYield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks$12,733 $139 4.42 %$134,129 $41 0.12 %
Securities (1)
U.S. Government securities2,033,307 7,424 1.48 %2,293,611 7,362 1.30 %
State and municipal (2)93,201 599 2.60 %101,746 649 2.59 %
Other securities (2)3,284 53 6.55 %3,390 23 2.73 %
Total securities2,129,792 8,076 1.54 %2,398,747 8,034 1.36 %
FHLBNY and FRB stock16,750 300 7.26 %10,098 105 4.23 %
Total loans and leases, net of unearned income (2)(3)5,251,278 61,034 4.71 %5,055,948 51,355 4.12 %
Total interest-earning assets7,410,553 69,549 3.81 %7,598,922 59,535 3.18 %
Other assets223,240 311,125 
Total assets$7,633,793 $7,910,047 
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market3,833,566 8,641 0.91 %4,160,946 750 0.07 %
Time deposits673,871 3,541 2.13 %631,594 1,296 0.83 %
Total interest-bearing deposits4,507,437 12,182 1.10 %4,792,540 2,046 0.17 %
Federal funds purchased & securities sold under agreements to repurchase57,523 14 0.10 %64,237 16 0.10 %
Other borrowings269,752 2,796 4.20 %125,298 500 1.62 %
Total interest-bearing liabilities4,834,712 14,992 1.26 %4,982,075 2,562 0.21 %
Noninterest bearing deposits2,065,701 2,108,825 
Accrued expenses and other liabilities102,172 106,120 
Total liabilities7,002,585 7,197,020 
Tompkins Financial Corporation Shareholders’ equity629,784 711,601 
Noncontrolling interest1,424 1,426 
Total equity631,208 713,027 
Total liabilities and equity$7,633,793 $7,910,047 
Interest rate spread2.55 %2.97 %
Net interest income/margin on earning assets54,557 2.99 %56,973 3.04 %
Tax Equivalent Adjustment(311)(359)
Net interest income per consolidated financial statements$54,246 $56,614 

Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Quarter EndedQuarter Ended
September 30, 2023June 30, 2023
AverageAverage
BalanceAverageBalanceAverage
(Dollar amounts in thousands)(QTD)InterestYield/Rate(QTD)InterestYield/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 securities1,890,659 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 securities1,984,143 7,929 1.59 %2,068,201 7,950 1.54 %
FHLBNY and FRB stock24,511 490 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 assets7,405,434 75,743 4.06 %7,409,714 72,165 3.91 %
Other assets224,442 226,086 
Total assets$7,629,876 $7,635,800 
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market3,615,395 12,674 1.39 %3,701,229 10,590 1.15 %
Time deposits826,082 6,832 3.28 %745,970 5,055 2.72 %
Total interest-bearing deposits4,441,477 19,506 1.74 %4,447,199 15,645 1.41 %
Federal funds purchased & securities sold under agreements to repurchase57,624 15 0.10 %56,083 15 0.11 %
Other borrowings403,829 4,931 4.84 %379,744 4,315 4.56 %
Total interest-bearing liabilities4,902,930 24,452 1.98 %4,883,026 19,975 1.64 %
Noninterest bearing deposits1,990,320 2,004,560 
Accrued expenses and other liabilities101,646 97,660 
Total liabilities6,994,896 6,985,246 
Tompkins Financial Corporation Shareholders’ equity633,494 649,097 
Noncontrolling interest1,487 1,457 
Total equity634,980 650,554 
Total liabilities and equity$7,629,876 $7,635,800 
Interest rate spread2.08 %2.27 %
Net interest income/margin on earning assets51,291 2.75 %52,191 2.83 %
Tax Equivalent Adjustment(278)(294)
Net interest income per consolidated financial statements$51,013 $51,896 



54


Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Quarter EndedQuarter Ended
September 30, 2023September 30, 2022
AverageAverage
BalanceAverageBalanceAverage
(Dollar amounts in thousands)(QTD)InterestYield/Rate(QTD)InterestYield/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 securities1,890,659 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 securities1,984,143 7,929 1.59 %2,375,330 8,504 1.42 %
FHLBNY and FRB stock24,511 490 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 assets7,405,434 75,743 4.06 %7,639,123 64,020 3.32 %
Other assets224,442 214,724 
Total assets$7,629,876 $7,853,847 
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market3,615,395 12,674 1.39 %3,979,590 2,863 0.29 %
Time deposits826,082 6,832 3.28 %596,299 1,331 0.89 %
Total interest-bearing deposits4,441,477 19,506 1.74 %4,575,889 4,194 0.36 %
Federal funds purchased & securities sold under agreements to repurchase57,624 15 0.10 %53,810 14 0.10 %
Other borrowings403,829 4,931 4.84 %232,158 1,351 2.31 %
Total interest-bearing liabilities4,902,930 24,452 1.98 %4,861,857 5,559 0.45 %
Noninterest bearing deposits1,990,320 2,250,263 
Accrued expenses and other liabilities101,646 106,403 
Total liabilities6,994,896 7,218,523 
Tompkins Financial Corporation Shareholders’ equity633,494 633,837 
Noncontrolling interest1,487 1,487 
Total equity634,980 635,324 
Total liabilities and equity$7,629,876 $7,853,847 
Interest rate spread2.08 %2.87 %
Net interest income/margin on earning assets51,291 2.75 %58,461 3.04 %
Tax Equivalent Adjustment(278)(350)
Net interest income per consolidated financial statements$51,013 $58,111 




55


Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Year to Date Period EndedYear to Date Period Ended
September 30, 2023September 30, 2022
AverageAverage
BalanceAverageBalanceAverage
(Dollar amounts in thousands)(YTD)InterestYield/Rate(YTD)InterestYield/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 securities1,965,039 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 securities2,060,178 23,955 1.55 %2,393,247 24,930 1.39 %
FHLBNY and FRB stock21,519 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 assets7,408,548 217,461 3.92 %7,620,025 184,864 3.24 %
Other assets224,594 244,615 
Total assets$7,633,142 $7,864,640 
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market3,715,931 31,905 1.15 %4,070,607 4,502 0.15 %
Time deposits749,198 15,428 2.75 %610,432 3,785 0.83 %
Total interest-bearing deposits4,465,129 47,333 1.42 %4,681,039 8,287 0.24 %
Federal funds purchased & securities sold under agreements to repurchase57,077 44 0.10 %57,606 45 0.10 %
Other borrowings351,600 12,041 4.58 %176,007 2,480 1.88 %
Total interest-bearing liabilities4,873,806 59,418 1.63 %4,914,652 10,812 0.29 %
Noninterest bearing deposits2,019,917 2,183,258 
Accrued expenses and other liabilities100,491 104,445 
Total liabilities6,994,214 7,202,356 
Tompkins Financial Corporation Shareholders’ equity637,472 660,826 
Noncontrolling interest1,456 1,458 
Total equity638,928 662,284 
Total liabilities and equity$7,633,142 $7,864,640 
Interest rate spread2.29 %2.95 %
Net interest income/margin on earning assets158,043 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 costcost.
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.
3Nonaccrual 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.

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Net Interest Income 
Net interest income is the Company’s largest source of revenue, representing 72.7% of total revenues for the three months ended March 31, 2023, compared to 73.9% for the same period in 2022. Net interest incomeand is dependent on the volume and composition of interest-earninginterest 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.


56


Net interest income for the three months and nine months ended March 31,September 30, 2023, was down $2.4$7.1 million, or 4.2%12.2%, and $15.8 million, or 9.2%, respectively, from the same periodperiods in 2022. The decrease was primarily due to higher funding costs and a decrease in average earningsearning assets, partially offset by an increase in the average yield on interest-earning assets and a decrease in the quarter ended March 31,average interest-bearing liabilities in 2023 compared to the same period in 2022. For the three months ended March 31, 2023, average total deposits represented 93.9% of average total liabilities compared to 95.9% for the same period in 2022, while total average borrowings represented 3.9% of average total liabilities for the period ended March 31, 2023 compared to 1.7% in 2022. Average earnings assets for the three months ended March 31, 2023 were down $188.4 million or 2.5% over the same period in 2022, while average asset yields for the first quarter of 2023 were up 63 basis points from the first quarter of 2022.

Net interest margin for the three months ended March 31,September 30, 2023 was 2.99%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 an increaseincreases 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 March 31,September 30, 2023 was $69.5$75.5 million and $216.6 million, up 17.0%18.5% and 17.8%, respectively, compared to the same periodperiods in 2022, reflecting2022. The growth in the three and nine month periods was mainly driven by higher averageinterest earning asset yields due to the higher interest rate environment, and partially offset by lowerdecreases in the volume of average balances of interest-earning assets. TheFor the three and nine months ended September 30, 2023 average yield on interest-earning assets increased 6374 and 68 basis points, while average interest earningrespectively, over the same periods in 2022. Average interest-earning assets for the three and nine months ended September 30, 2023, decreased $188.4$233.7 million, or 2.5%. The increase3.1% and $211.5 million, or 2.8%, respectively, compared to the same periods in interest2022.

Interest income was mainly in interest and fees 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 balancesbalances. The average yields on loans for the three and nine months ended March 31,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 periodperiods in 2022. Average loan balances2022, as higher average yields were more than offset by lower average balances. The average yield on total securities for the first quarter ofthree and nine months ended September 30, 2023, were up $195.3 million or 3.9% from the first quarter of 2022, while the average yield on loans of 4.71% for the first quarter of 2023 was up 5917 basis points fromand 16 basis points, respectively, over the average loan yieldsame periods in the first quarter of 2022. Interest income in the first quarter of 2023 included $2,000 of net deferred loan fees related to PPP loans compared to net deferred loan fees of $2.0 million in the first quarter of 2022. For the three months ended March 31, 2023,2022, while average balances for securities were down $269.0$391.2 million, or 11.2%16.5% and $333.1 million, or 13.9%, respectively, over the first quartersame periods in 2022. The increase in securities yields were driven by market interest rate increases and the sales and maturities of 2022, while the average yield oncertain available-for-sale investment securities of 1.54% forduring the first nine months of 2023. During the second quarter of 2023, was up 18 basis points. For the three months ended March 31,Company sold $80.9 million and used the proceeds mainly to pay down overnight borrowings with the FHLB. During the third quarter of 2023 average interest-bearing balances were down $121.4the Company sold $429.6 million or 90.5%, while theof available-for-sale debt securities with an average yield on interest-bearing balances of 4.42%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 up 330 basis points.approximately 4.3 years.

Interest expense for the three months ended March 31,September 30, 2023 increased by $12.4$18.9 million, or 485.2%339.9%, and increased $48.6 million, or 449.6% for the nine month period ended September 30, 2023 compared to the same periodperiods in 2022, reflecting higher2022. The increase was mainly driven by the increase in the average costs of funds and a shift in funding mix, partially offset by a decrease in averagerates paid on interest-bearing liabilities. The average cost of interest-bearing liabilities for the first quarter of 2023 increased 105 basis points from the first quarter of 2022 as a result of higher market interest rates and a change in the mix of interest-bearing liabilities, with an increase in average time deposits and average other borrowings. The average cost of interest bearing liabilities was 1.26% for the first quarter of 2023, compared to 0.21% for the first quarter of 2022. Average interest bearing deposits for the first quarter ofthree and nine months ended September 30, 2023 were down $285.1 million or 6.0%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 other borrowingsnoninterest bearing deposits were down $259.9 million, or 11.6% for the three months ended March 31,September 30, 2023 when compared to the third quarter of 2022, and for the nine months ended September 30, 2023 were up $144.5down $163.3 million, or 115.3%7.48% compared to the same period in 2022.


57


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 March 31,September 30, 2023 wasincluded a creditprovision expense of $825,000 compared to a credit of $520,000 for the same period in 2022. Included in the credits for both the first quarter of 2023$182,000 and 2022 were provision expenses of $355,000 and $214,000,$371,000, respectively, related to off-balance sheet credit exposures.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 inlosses for both the first quarter of 2023 wasthree and nine month periods is mainly driven by improvementeconomic forecasts, loan growth, and changes in the macroeconomic factor assumptions utilized in the allowance calculation as well as net loan recoveries during the quarter and stable 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 $20.4a loss of $41.6 million and a loss of $8.6 million for the firstthree 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 2.1%$1.0 million, or 3.5% compared to the first quarter of 2022. Noninterest income represented 27.3% of total revenue for the three months ended March 31, 2023, compared to 26.1% for the same period in 2022.
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Insurance commissions and fees of $9.5 million The increase in revenues for the first quarter ofnine months ended September 30, 2023 were up $192,000 or 2.1% compared to the same period prior year. Insurance commissionsin 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 up $617,000 or 7.6%, while contingency and other revenue was down $416,000flat compared to the firstthird quarter of 2022.
Investment services income of $4.5 million in For the first quarternine months of 2023, waswealth management fees were down $408,000$321,000, or 8.3% compared to the first quarter of 2022. The decrease in investment services income for the three-month period ended March 31, 2023, was mainly attributable to a decrease in advisory fees related to a decrease in period end assets2.3% compared to the same quarter prior year, primarily due to volatile market conditions throughoutperiod in 2022. InvestmentWealth management fees include trust services, income includes investmentfinancial planning, wealth management trust and estate, financial and tax planning,services, and brokerage related services. The fair value of assets managed by, or in custody of, Tompkins was $3.1$2.9 billion at March 31,September 30, 2023, compared to $4.4up from $2.8 billion at March 31,September 30, 2022. The fair valueincrease in assets from prior year was mainly a result of assets at March 31, 2022, includes $1.3 billionimproved market performance in 2023, in comparison to market conditions experienced during the same period of Company-owned securities where Tompkins is custodian. The Company outsourced the custody of Company-owned securities to a third party in 2022.

Card services income of $2.7 million in the firstthird quarter of 2023 was up $139,000$129,000, or 5.6% compared to4.7% over the same three month period in 2022. Debit card income,2022, and up $396,000, or 4.8% for the largest component of card services income, was in linenine months ended September 30, 2023 compared to the same period in 2022.

Other income of $1.9$1.0 million in the firstthird quarter of 2023 was up $465,000$13,000, or 31.5%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 infor the first quarter ofnine months ended September 30, 2023 compared to the same period in 2022 included an increase inwas mainly due to higher earnings on bank owned life insurance. Earnings on bank owned life insurance (up $192,000) and recognitionwere 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 incentives related to card services contract ($450,000).assets supporting certain separate account policies.

Noninterest Expense 
Noninterest expense was $50.1of $49.9 million for the third quarter of 2023 and $152.0 million for the first quarternine months of 2023 were flat and up 7.1%$6.4 million, or 4.4%, respectively, compared to the same periodperiods in 2022. NoninterestThe increase in noninterest expense as a percentage of total revenue forin the first quarter ofnine months ended September 30, 2023 was 67.2% compared to 61.2% forover the same period in 2022.2022 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 salariescompensation and wages and employee benefits arecomprise the largest component of noninterest expense, representing 62.3%62.4% and 62.1% of total noninterest expense for the first quarter ofthree and nine months ended September 30, 2023, compared to 62.1% for the first quarter of 2022. Salaries andrespectively. Total


58


salaries, wages and employee benefit expensebenefits for the three and nine months ended March 31,September 30, 2023, were down $703,000, or 2.2% and up $2.2$2.7 million, or 7.5% from3.0% over the same periods in 2022. The increase for the nine month period in 2023 over the same period in 2022 resulting from normal merit adjustmentswas mainly in health insurance, which was up $1.5 million, or 21.2%. Salaries and an increase in healthcarewage expense in the firstthird quarter of 2023 overand nine month period in 2023 was favorably impacted by lower accruals for certain incentive benefits compared to the same period prior year.periods in 2022.

Other expense categories, not related to compensation and benefits, such as technology, FDIC insurance,for the three and professional feenine 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 March 31,September 30, 2023, were up $1.4 million or 12.1% compared to the same period in 2022. Technology expenses for the first quarter of 2023 were up $324,000 or 8.8% over the same periodperiods in 2022 driven mainly by annual software increases.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, expenseup $322,000, or 44.7% and $777,000, or 37.0%, respectively; and accrual for the first quarter of 2023 wasNew York State minimum tax, up $353,000 or 50.4% over the same period in 2022, driven by an$623,000 for both periods. The increase in assessment rates.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 $5.9a benefit of $8.3 million for an effective rate of 23.3%20.0% for the firstthird quarter of 2023, compared to tax expense of $7.0$6.8 million and an effective rate of 23.0%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 raterates 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 effective tax rate assumes the anticipated loss of certain New York State tax benefits due to the expectation that average assets will exceed $8.0 billion for the 2023 tax year.

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$8.0 billion for the taxable year. The Company expects average assets to exceed the $8.0 billion threshold for the 2023 tax year. AsBased on current estimates of March 31, 2023, the Company's consolidated average assets, as defined by New York tax law, were slightly under the $8.0 billion threshold. The Company will continue to monitor the consolidated average assets during 2023, the Company expects to determine future eligibility.retain the benefits in 2023.

FINANCIAL CONDITION
 
Total assets were $7.6$7.7 billion at March 31,September 30, 2023, down $26.3up $20.5 million, or 0.3% from December 31, 2022. Total securitiesloans were up $165.9 million, or 3.1%, cash and cash equivalents were up $62.4 million, or 80.1% and total loans at Marchsecurities were down $206.5 million compared to December 31, 2023 were in line with year-end 2022. Total deposits were down $93.3 million or 1.4% from December 31, 2022, and total borrowings were up $35.7 million or 12.3% from December 31, 2022. The decrease in deposits at March 31, 2023 was in noninterest bearing deposits, which were down $140.6 million or 6.5%, and checking, savings and money market account, which were down $46.6 million or 1.2%. Time deposits at March 31,September 30, 2023 were up $93.9$21.1 million, or 14.9%0.3% from December 31, 2022.
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Securities

As of March 31,September 30, 2023, the Company’s securities portfolio was $1.9$1.7 billion, or 24.8%22.1% of total assets compared to $1.9 billion, or 24.9% of total assets at year-endyear 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:
Available-for-Sale Debt Securities
March 31, 2023December 31, 2022
(In thousands)Amortized CostFair ValueAmortized CostFair Value
U.S. Treasuries$190,220 $170,814 $190,170 $167,251 
Obligations of U.S. Government sponsored entities670,978 599,762 681,192 601,167 
Obligations of U.S. states and political subdivisions92,915 86,684 93,599 85,281 
Mortgage-backed securities - residential, issued by
U.S. Government agencies56,224 50,891 58,727 52,668 
U.S. Government sponsored entities782,586 675,310 805,603 686,222 
U.S. corporate debt securities2,500 2,393 2,500 2,378 
Total available-for-sale debt securities$1,795,423 $1,585,854 $1,831,791 $1,594,967 


Held-to-Maturity Debt Securities
March 31, 2023December 31, 2022
(In thousands)Amortized CostFair ValueAmortized CostFair Value
U.S. Treasuries$86,425 $75,459 $86,478 $73,541 
Obligations of U.S. Government sponsored entities225,932 191,640 225,866 188,151 
Total held-to-maturity debt securities$312,357 $267,099 $312,344 $261,692 
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Available-for-Sale Debt Securities
September 30, 2023December 31, 2022
(In thousands)Amortized CostFair ValueAmortized CostFair Value
U.S. Treasuries$114,220 $107,294 $190,170 $167,251 
Obligations of U.S. Government sponsored entities491,968 459,941 681,192 601,167 
Obligations of U.S. states and political subdivisions90,154 77,237 93,599 85,281 
Mortgage-backed securities - residential, issued by
U.S. Government agencies52,263 45,399 58,727 52,668 
U.S. Government sponsored entities831,970 696,309 805,603 686,222 
U.S. corporate debt securities2,500 2,330 2,500 2,378 
Total available-for-sale debt securities$1,583,075 $1,388,510 $1,831,791 $1,594,967 
 
The decrease in
Held-to-Maturity Debt Securities
September 30, 2023December 31, 2022
(In thousands)Amortized CostFair ValueAmortized CostFair Value
U.S. Treasuries$86,318 $71,551 $86,478 $73,541 
Obligations of U.S. Government sponsored entities226,067 181,427 225,866 188,151 
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 held-to-maturityrates 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 portfolios was due primarily to changes in market interest ratessecurities at a pre-tax loss of $70.0 million during the first threenine 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.
 
ForThe Company evaluates available-for-sale and held-to-maturity 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)(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 StatementsStatement 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 gross unrealized losses reported for residential mortgage-backedCompany determined that at September 30, 2023, all impaired available-for-sale and held-to-maturity debt 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 toimpaired 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-related qualitycredit worthiness of the investment securities.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.

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 March 31, 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 FHLB and the Federal Farm Credit Banks Funding Corporation. U.S.


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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 March 31, 2023. Net unrealized losses on held-to-maturity securities, tax effected, at March 31, 2023, totaled 5.3% of total common equity capital and 6.2% of tangible common equity compared to 6.2% of total equity capital and 7.3% of tangible common equity capital at December 31, 2022.
Loans and Leases
Loans and leases as of the end of the third quarter and prior year-end period were as follows:
(In thousands)9/30/202312/31/2022
Commercial and industrial
Agriculture$77,720 $85,073 
Commercial and industrial other695,445 705,700 
PPP loans*488 756 
Subtotal commercial and industrial773,653 791,529 
Commercial real estate
Construction270,961 201,116 
Agriculture218,144 214,963 
Commercial real estate other2,507,164 2,437,339 
Subtotal commercial real estate2,996,269 2,853,418 
Residential real estate
Home equity187,387 188,623 
Mortgages1,368,292 1,346,318 
Subtotal residential real estate1,555,679 1,534,941 
Consumer and other
Indirect1,090 2,224 
Consumer and other97,165 75,412 
Subtotal consumer and other98,255 77,636 
Leases15,818 16,134 
Total loans and leases5,439,674 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 did not recognize any net credit impairment charge to earnings on investment securities in the first quarter of 2023.

Loans and Leases
Loans and leases as of the end of the first quarter and prior year-end period were as follows:
(In thousands)03/31/202312/31/2022
Commercial and industrial
Agriculture$65,223 $85,073 
Commercial and industrial other673,104 705,700 
PPP loans*686 756 
Subtotal commercial and industrial739,013 791,529 
Commercial real estate
Construction219,789 201,116 
Agriculture214,014 214,963 
Commercial real estate other2,476,532 2,437,339 
Subtotal commercial real estate2,910,335 2,853,418 
Residential real estate
Home equity183,636 188,623 
Mortgages1,342,214 1,346,318 
Subtotal residential real estate1,525,850 1,534,941 
Consumer and other
Indirect1,783 2,224 
Consumer and other83,775 75,412 
Subtotal consumer and other85,558 77,636 
Leases18,016 16,134 
Total loans and leases5,278,772 5,273,658 
Less: unearned income and deferred costs and fees(5,101)(4,747)
Total loans and leases, net of unearned income and deferred costs and fees$5,273,671 $5,268,911 
*SBA Paycheck Protection Program ("PPP")
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The below table shows a more detailed break-out of CREcommercial real estate ("CRE") loans as of March 31,September 30, 2023 and December 31, 2022.2022:
 
03/31/202312/31/20229/30/202312/31/2022
CRE ConcentrationCRE ConcentrationBalance% CREBalance% CRECRE ConcentrationBalance% CREBalance% CRE
ConstructionConstruction$219,789 7.55 %$201,031 7.05 %Construction$270,961 9.04 %$201,031 7.05 %
Multi-family/Single family real estateMulti-family/Single family real estate600,816 20.64 %587,467 20.59 %Multi-family/Single family real estate605,050 20.19 %587,467 20.59 %
AgricultureAgriculture215,038 7.39 %211,231 7.40 %Agriculture218,144 7.28 %214,963 7.53 %
Retail1
Retail1
432,076 14.85 %434,998 15.25 %
Retail1
421,014 14.05 %434,998 15.25 %
Hotels/motelsHotels/motels151,517 5.21 %144,710 5.07 %Hotels/motels169,103 5.64 %144,710 5.07 %
Office space2
Office space2
242,585 8.34 %236,281 8.28 %
Office space2
236,748 7.90 %236,281 8.28 %
Mixed/OtherMixed/Other1,048,515 36.03 %1,037,614 36.36 %Mixed/Other1,075,249 35.89 %1,033,881 36.23 %
Total CRETotal CRE$2,910,336 100.00 %$2,853,332 100.00 %Total CRE$2,996,269 100.00 %$2,853,331 100.00 %
1Reatail includes 3.1% and 3.2% of owner occupied real estate at March 31, 2023 and December 31, 2022.
2Office space includes 1.5% of owner occupied real estate at both March 31, 2023 and December 31, 2022.
1Retail includes 3.0% and 3.2% of owner occupied real estate at September 30, 2023 and December 31, 2022.
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.
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 $5.3$5.4 billion at March 31,September 30, 2023 were up $4.8$165.9 million, or 0.1%3.1% from December 31, 2022. The increase was2022, mainly in the commercial real estate loans, which were up $56.9 million or 2.0%, to $2.9 billion at March 31, 2023.portfolio, and partially offset by the decline in commercial and industrial loan balances. As of March 31,


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September 30, 2023, total loans and leases represented 69.0%70.7% of total assets compared to 68.7% of total assets at December 31, 2022.

Residential real estate loans, including home equity loans, were $1.5$1.6 billion at March 31,September 30, 2023, down $9.1up $20.7 million, or 0.6%1.4% compared to December 31, 2022, and comprised 28.9%28.6% of total loans and leases at March 31,September 30, 2023. Changes in residential loan balances are impacted by the Company’s decision to retain these loans or sell them in the secondary market due to interest rate considerations. The Company’s Asset/Liability Committee meets regularly and establishes standards for selling and retaining residential real estate mortgage originations.
 
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 threenine months of 2023 and 2022, the Company sold residential loans totaling $1.3$3.2 million and $135,000,$7.3 million, respectively, recognizing gains on these sales of $38,000$86,000 and $4,000,$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 $1.0 million$937,000 at both March 31,September 30, 2023, and $973,000 at December 31, 2022. 

Commercial real estate loans and commercial and industrial loans totaled $2.9$3.0 billion and $739.0$773.7 million, respectively, and represented 55.2%55.1% and 14.0%14.2%, respectively, of total loans and leases as of March 31,September 30, 2023. The commercial real estate portfolio was up $56.9$142.9 million, or 2.0% over year-end5.0% compared to December 31, 2022, while commercial and industrial loans were down $52.5$17.9 million, or 6.6% from year-end 2022.2.3%.

As of March 31,September 30, 2023, agriculturally-related loans totaled $279.2$295.9 million, or 5.3%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. Agricultural-relatedAgriculturally-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.

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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 State 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 tablestable represents the allowance for credit losses as of March 31,September 30, 2023 and December 31, 2022. The tables provide,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)9/30/202312/31/2022
Allowance for credit losses
Commercial and industrial$6,452 $6,039 
Commercial real estate29,335 27,287 
Residential real estate11,906 11,154 
Consumer and other1,560 1,358 
Finance leases83 96 
Total$49,336 $45,934 
(In thousands)03/31/202312/31/2022
Allowance for credit losses
Commercial and industrial$6,316 $6,039 
Commercial real estate27,186 27,287 
Residential real estate10,858 11,154 
Consumer and other1,628 1,358 
Finance leases111 96 
Total$46,099 $45,934 

As of March 31,September 30, 2023, the total allowance for credit losses for loans was $46.1$49.3 million, and was in line withup $3.4 million, or 7.4% compared to December 31, 2022. The allowance for credit lossesACL as a percentage of total loans measured 0.91% at September 30, 2023, compared to 0.87% at both March 31, 2023 and 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 March 31,September 30, 2023 were generally favorable compared towith December 31, 2022. Loans internally-classified Special Mention or Substandard were down $12.7up $24.7 million, or 12.9%25.1% compared to December 31, 2022. Nonperforming loans and leases were down $4.4$1.4 million, or 13.4%4.3% from year end 2022 and represented 0.54%0.58% of total loans at March 31,September 30, 2023 compared to 0.62% at December 31, 2022. The allowance for credit losses covered 162.11%156.96% of nonperforming loans and leases as of March 31,at September 30, 2023, compared to 139.86% at December 31, 2022. The Company had net recoveries of $1.3increase in Special Mention and Substandard loans and leases was mainly due to one commercial real estate loan totaling approximately $15.3 million inbeing added to Substandard, and one commercial real estate relationship totaling approximately $18.6 million being added to Special Mention during the firstsecond quarter of 2023, compared to net recoveries of $17,000 for the same period in 2022.2023.

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

Analysis of the Allowance for Credit LossesAnalysis of the Allowance for Credit LossesAnalysis of the Allowance for Credit Losses
(In thousands)(In thousands)03/31/202303/31/2022(In thousands)9/30/20239/30/2022
Average loans outstanding during periodAverage loans outstanding during period$5,251,278 $5,055,948 Average loans outstanding during period$5,314,221 $5,119,309 
Allowance at beginning of year, prior to adoption of ASU 2022-0245,934 42,843 
Impact of adopting ASU 2022-0264 
Allowance at beginning of year, prior to adoption of ASU 2016-13Allowance at beginning of year, prior to adoption of ASU 2016-1345,934 42,843 
Impact of adopting ASU 2016-13Impact of adopting ASU 2016-1364 
Balance of allowance at beginning of yearBalance of allowance at beginning of year45,998 42,843 Balance of allowance at beginning of year45,998 42,843 
LOANS CHARGED-OFF:LOANS CHARGED-OFF:LOANS CHARGED-OFF:
Commercial and industrialCommercial and industrial0 23 Commercial and industrial0 366 
Commercial real estateCommercial real estate0 27 Commercial real estate0 50 
Residential real estateResidential real estate2 Residential real estate2 
Consumer and otherConsumer and other106 196 Consumer and other546 410 
Finance leasesFinance leases0 
Total loans charged-offTotal loans charged-off$108 $246 Total loans charged-off$548 $826 
RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:
Commercial and industrialCommercial and industrial46 20 Commercial and industrial67 132 
Commercial real estateCommercial real estate1,246 42 Commercial real estate1,238 910 
Residential real estateResidential real estate64 109 Residential real estate182 315 
Consumer and otherConsumer and other33 92 Consumer and other192 251 
Total loans recoveredTotal loans recovered$1,389 $263 Total loans recovered$1,679 $1,608 
Net loans recoveredNet loans recovered(1,281)(17)Net loans recovered(1,131)(782)
(Credit) for credit losses related to loans(1,180)(734)
Provision for credit losses related to loansProvision for credit losses related to loans2,207 1,147 
Balance of allowance at end of periodBalance of allowance at end of period$46,099 $42,126 Balance of allowance at end of period$49,336 $44,772 
Allowance for credit losses as a percentage of total loans and leasesAllowance for credit losses as a percentage of total loans and leases0.87 %0.83 %Allowance for credit losses as a percentage of total loans and leases0.91 %0.86 %
Annualized net (recoveries) charge-offs on loans to average total loans and leases during the periodAnnualized net (recoveries) charge-offs on loans to average total loans and leases during the period(0.10)%0.00 %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 a credit of $1.2 million$968,000 for the three months ended March 31,September 30, 2023, compared to a$1.1 million for the same period in 2022. For the nine month period ended September 30, 2023, the provision for credit of $734,000losses 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. The March 31, 2023, allowance for credit lossesAs discussed above, the ACL model estimated a modest increasehigher 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 year-endnet recoveries of $782,000 for the same period in 2022. Increases in qualitative and large loan reserves were mainly offset by lower quantitative reserves as forecasts for economic growth and unemployment were slightly improved as compared to December 31, 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 cancelable,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 March 31,September 30, 2023, the provision for credit losses for off-balance sheet credit exposures was $355,000$182,000 compared to $214,000provision credit of $45,000 for the same period in 2022. TheFor the nine month period ended September 30, 2023, the provision in 2023 was driven by an increase infor credit losses for off-balance sheet credit exposures specifically commercial real estate loan commitments.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)03/31/202312/31/202203/31/2022
Loans 90 days past due and accruing
Commercial and industrial$0 $25 $
Consumer and other13 
Total loans 90 days past due and accruing$13 $25 $
Nonaccrual loans
Commercial and industrial923 618 806 
Commercial real estate12,380 13,858 13,623 
Residential real estate14,869 13,544 10,200 
Consumer and other252 269 571 
Total nonaccrual loans$28,424 $28,289 $25,200 
Performing troubled debt restructuring*0 4,530 5,064 
Total nonperforming loans and leases$28,437 $32,844 $30,264 
Other real estate owned36 152 88 
Total nonperforming assets$28,473 $32,996 $30,352 
Allowance as a percentage of nonperforming loans and leases162.11 %139.86 %139.20 %
Total nonperforming loans and leases as percentage of total loans and leases0.54 %0.62 %0.60 %
Total nonperforming assets as percentage of total assets0.37 %0.43 %0.38 %
*No amount shown for periods subsequent to the Company's adoption of ASU 2022-02 effective January 1, 2023.
Analysis of Past Due and Nonperforming Loans  
(In thousands)9/30/202312/31/20229/30/2022
Loans 90 days past due and accruing
Commercial and industrial$0 $25 $
Commercial real estate0 161 
Residential real estate1 
Consumer and other51 
Total loans 90 days past due and accruing$52 $25 $161 
Nonaccrual loans
Commercial and industrial$3,163 $618 $803 
Commercial real estate10,934 13,858 15,901 
Residential real estate16,924 13,544 13,041 
Consumer and other360 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 owned0 152 335 
Total nonperforming assets$31,433 $32,996 $35,239 
Allowance as a percentage of nonperforming loans and leases156.96 %139.86 %128.27 %
Total nonperforming loans and leases as percentage of total loans and leases0.58 %0.62 %0.67 %
Total nonperforming assets as percentage of total assets0.41 %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, TDRs,modified loans due to financial difficulty, and foreclosed real estate/other real estate owned. Total nonperforming assets of $28.5$31.4 million at March 31,September 30, 2023 were down $4.5$1.6 million, or 13.7%4.7% compared to December 31, 2022, and down $1.9$3.8 million, or 6.2%10.8% compared to March 31,September 30, 2022. The decrease in nonperforming assets from March 31, 2022, was mainly due to the adoption of ASU 2022-02, which eliminates the TDR designation and requires entities to evaluate all loan modifications under the same guidance and report on modifications where the borrower is experiencing financial difficulty at the time of the modification. Nonperforming assets represented 0.37%0.41% of total assets at March 31,September 30, 2023, down from 0.43% at December 31, 2022, and 0.38%down from 0.45% at March 31,September 30, 2022. Our peer group's average ratio of nonperforming assets to total assets was 0.35%0.33% at December 31, 2022.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", or "borrowers experiencing financial difficulty not included above". 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 March 31,September 30, 2023, the Company had noloans modified loans under the new guidance.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 162.11%156.96% at March 31,September 30, 2023, compared to 139.86% at December 31, 2022, and 139.20%128.27% at March 31,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 1720 commercial relationships from the loan portfolio totaling $32.8$43.3 million at March 31,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 17 commercial20 relationships at March 31,September 30, 2023, that were Substandard, there were 5 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $28.8$39.0 million, the largest of which was $16.9$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’smanagement's attention is focused on these credits, which are reviewed on at least a quarterly basis.

Capital

Total equity was $649.8$612.4 million at March 31,September 30, 2023, an increasea decrease of $32.4$5.0 million, or 5.2%0.8% from December 31, 2022. The increase was mainly a result of the decrease in accumulated other comprehensive loss, reflecting the change in unrealized gains/loss on available-for-sale securities from an unrealized loss of $178.8 million at December 31, 2022 to an unrealized loss of $158.2 million at March 31, 2023. During the first quarter of 2023, retained earnings increased $10.7 million.
 
Additional paid-in capital increaseddecreased by $6.0 million, or 2.0%, from $302.8 million at December 31, 2022, to $303.4$296.7 million at March 31,September 30, 2023. The increasedecrease was primarily attributable to $1.0an $8.7 million aggregate purchase price related to the Company's repurchase and retirement of 150,000 shares of its common stock based compensation;during the first nine months of 2023 pursuant to its publicly announced stock repurchase plan; and partially offset by $303,000 of deferred director$2.9 million attributed to stock-based compensation.

Retained earnings increaseddecreased by $10.6$31.6 million, or 6.0% from $526.7 million at December 31, 2022, to $537.3$495.1 million at March 31,September 30, 2023, mainly reflecting a net incomeloss of $19.4$5.5 million lessfor the year-to-date period and dividends of $8.7$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 $187.8$176.0 million at March 31,September 30, 2023, reflecting a $20.6$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 rates coupled withinterest rates; and a $265,000$754,000 decrease related to post-retirement benefit plans.plan.

Cash dividends paid in the first threenine months of 2023 totaled approximately $8.7$26.0 million, or $0.60$1.80 per common share, representing 45.0% ofwhich exceeded year to date 2023 earningsnet loss through March 31,September 30, 2023 and were up 5.3% overof $5.5 million, or $0.39 loss per diluted share, compared to cash dividends of $8.3$24.9 million, or $0.57$1.71 per common share paid in the first threenine 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 meetmeets all capital adequacy requirements to which they are subject.

In addition to setting higher minimum capital ratios, the Basel III Capital Rules introduced a 2.5% capital conservation buffer, which has been fully phased in and must be added to each of the minimum capital ratios and is designed to absorb losses during periods of economic stress.

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The following table provides a summary of the Company’s capital ratios as of March 31,September 30, 2023:
Regulatory Capital Analysis
March 31, 2023ActualMinimum Capital Required - Basel III Fully Phased-InWell Capitalized Requirement
(dollar amounts in thousands)AmountRatioAmountRatioAmountRatio
Total Capital (to risk weighted assets)$792,609 14.62 %$569,163 10.50 %$542,060 10.00 %
Tier 1 Capital (to risk weighted assets)741,915 13.69 %460,751 8.50 %433,648 8.00 %
Tier 1 Common Equity (to risk weighted assets)741,915 13.69 %379,442 7.00 %352,339 6.50 %
Tier 1 Capital (to average assets)741,915 9.63 %308,123 4.00 %385,153 5.00 %

Regulatory Capital Analysis
September 30, 2023ActualMinimum Capital Required - Basel III Fully Phased-InWell Capitalized Requirement
(dollar amounts in thousands)AmountRatioAmountRatioAmountRatio
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 March 31,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 increaseddecreased to 14.6%13.5% at March 31,September 30, 2023, compared with 14.4% as of December 31, 2022. Tier 1 capital as a percent of risk weighted assets increased fromdeclined to 12.5% at September 30, 2023 compared to 13.5% at the end of 2022 to 13.7% as of March 31, 2023.2022. Tier 1 capital as a percent of average assets was 9.6%9.0% at March 31,September 30, 2023, which is updown from 9.3% atas of December 31, 2022. Common equity Tier 1 capital was 13.7%12.5% at the end of the firstthird quarter of 2023, updown 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 March 31,September 30, 2023, the capital ratios for the Company’s subsidiary banksbank also exceeded the minimum required capital ratios plus the fully phased-in capital conservation buffer, and the minimum required capital ratios for well capitalized institutions.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 have elected to utilize the five-year CECL transition.

Deposits and Other Liabilities

Total deposits of $6.5$6.6 billion at March 31,September 30, 2023 were down $93.3flat compared to December 31, 2022, and were up $168.8 million, or 1.4%2.6% from December 31, 2022.June 30, 2023. The decreaseincrease 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 balances,deposits, which collectively were down $46.6$187.1 million, or 1.2%8.7%, and in non-interest bearing deposits, down $140.6$40.7 million, or 6.5% from year end 2022. The decrease was partially offset by an increase in time deposits of $93.9 million or 14.9%. The decline in elevated customer deposit balances was largely driven by stimulus funding and tightening monetary policy that has led to a declining trend in bank deposits on a national level, as reported by the Federal Reserve.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, and municipal money market deposits, and reciprocal deposit relationships with municipalities. Core deposits were downdecreased by $181.1$153.3 million, or 3.2%2.7% from year-end 2022, to $5.4 billion at March 31,September 30, 2023. Core deposits at September 30, 2023 were up $143.0 million, or 2.7% from June 30, 2023. Core deposits represented 82.9%81.9% of total deposits at March 31,September 30, 2023, compared to 84.5% of total deposits at December 31, 2022.2022 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 $63.5$56.1 million at March 31,September 30, 2023, and $56.3 million at December 31, 2022. Management generally views localretail repurchase agreements as an alternative to large time deposits.


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The Company’s other borrowings totaled $327.0$296.8 million at March 31,September 30, 2023, compared toup $5.5 million, or 1.9% from $291.3 million at December 31, 2022. Lower deposit balances compared to year-end 2022 contributed to the increase in other borrowings. Other borrowingsBorrowings at March 31,September 30, 2023 represented $192.0consisted of $171.8 million in overnight FHLB advances from the FHLB and $135.0$125.0 million of FHLB term advances. The $291.3 million in other borrowings at December 31, 2022, representedadvances, compared to $241.3 million in FHLB overnight advances from the FHLB and $50.0 million inof FHLB term advances from the FHLB.at year end 2022. Of the $135.0$125.0 million in FHLB term advances at March 31,September 30, 2023, $115.0$40.0 million wasis 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'sCompany’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-costlow 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, brokered deposits, municipal money market deposits, reciprocal deposits, bank borrowings, securities sold under agreements to repurchase and overnight and term advances from the FHLB and other funding sources.FHLB. Rates and terms are the primary determinants of the mix of these funding sources. Non-core funding sources of $1.5$1.6 billion at March 31,September 30, 2023 increased $130.8$179.9 million, or 9.5%13.1% as compared to year endDecember 31, 2022. Non-core funding sources, as a percentage of total liabilities, were 21.5%21.9% at March 31,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 carriedheld with a carrying value of $1.3 billion at September 30, 2023 and $1.8 billion at both March 31, 2023 and December 31, 2022, were either pledged or sold under agreements to repurchase. Pledged securities represented 85.6%67.2% of total securities at March 31,September 30, 2023, compared to 82.4% of total securities at December 31, 2022.
 
Cash and cash equivalents totaled $70.5$140.2 million as of March 31,September 30, 2023 which decreasedincreased from $77.8 million at December 31, 2022. Short-term investments, consisting of securities due in one year or less, decreasedincreased from $50.3 million at December 31, 2022, to $39.8$78.5 million at March 31,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 $726.2$741.7 million at March 31,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 $1.6$1.7 billion at March 31,September 30, 2023, unchangedup $41.0 million, or 2.5% compared with year endDecember 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, Federal Reserve Bank Discount Window advances and FHLB advances. Through its subsidiary bank, the Company has borrowing relationships with the FHLB the Federal Reserve Bank 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 March 31,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 $1.31$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 March 31,September 30, 2023 the available borrowing capacity with the Federal Reserve Bank was $157$91.8 million, secured by investment securities. In addition to the available borrowing lines at the FHLB and Federal Reserve Bank, the Company maintains $265$411.7 million of unencumbered securities which could be pledged to further enhance secured borrowing capacity.




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Non-GAAP Financial Information

Disclosure
The following table includes disclosuresummarizes 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. Tangible common equity, a non-GAAP financial measure, is total stockholders' equity less intangible assets. Tangible book value per share is tangible equity divided by total shares issued and outstanding. These measures adjust common equity per shareGAAP measures to exclude the effects of goodwill and intangible amortization expense on earnings, equity, and capital.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 in comparison to others in the financial services industry.trends. These non-GAAP financial measures should not be considered in isolation or as supplementala measure of the Company's profitability or liquidity; they are in natureaddition to, and are not as a substitute for, our superior to the related financial information prepared in accordance withmeasures under GAAP. Tangible book value per share asThe 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.

Reconciliation of Tangible Book Value Per Share (non-GAAP) to Common Equity Book Value Per Share (GAAP)
Quarter-EndedYear-ended
03/31/202312/31/2022
Total common equity$648,322 $615,978 
Less: Goodwill and intangibles94,253 94,336 
Tangible common equity (Non-GAAP)554,069 521,642 
Ending shares outstanding14,519,748 14,519,831 
Common equity per share$44.65 $42.42 
Tangible book value per share (Non-GAAP)$38.16 $35.93 
Adjusted Net Income/Adjusted Basic and Diluted Earnings Per Share (Non-GAAP) to Net Income
Three Months EndedNine Months Ended
(In thousands, except per share data)9/30/20239/30/20229/30/20239/30/2022
Net income
Net (loss) income (GAAP)$(33,354)$21,340 $(5,498)$65,482 
Loss on sale of investment securities62,967 95 70,019 179 
Tax effect of loss on sale of investment securities15,427 23 17,155 44 
Adjusted net income (non-GAAP)14,186 21,412 47,366 65,617 
Basic (loss) earnings per share
Net income (GAAP)$(33,354)$21,340 $(5,498)$65,482 
Adjusted net income (non-GAAP)14,186 21,412 47,366 65,617 
Income attributable to unvested stock based compensation awards(8)(66)(34)(209)
Weighted average basic shares14,185,763 14,289,022 14,274,929 14,335,034 
Basic (loss) earnings per share$(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)$65,482 
Adjusted net income (non-GAAP)14,186 21,412 47,366 65,617 
Income attributable to unvested stock based compensation awards(8)(66)(34)(209)
Weighted average diluted shares14,224,748 14,367,149 14,319,835 14,410,532 
Diluted (loss) earnings per share$(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)$65,482 
Adjusted net income (non-GAAP)14,186 21,412 47,366 65,617 
Average total assets7,629,876 7,853,847 7,633,142 7,864,640 
Return on average assets(1.73)%1.08 %(0.10)%1.11 %
Adjusted return on average assets (non-GAAP)0.74 %1.08 %0.83 %1.12 %
Return on average equity
Net income (GAAP)$(33,354)$21,340 $(5,498)$65,482 
Adjusted net income (non-GAAP)14,186 21,412 47,366 65,617 
Average total equity634,980 635,324 638,928 662,284 
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") clarifies): provides the guidancedisclosure 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 ASC 815derivative 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 of interest rate risk for portfolios and financial assets. Among other things,does not apply or the amended guidance establishedCompany elects not to apply hedge accounting.

In accordance with the “last-of-layer” method for making theFASB’s fair value hedge accounting for these portfolios more accessible and renamed that method the “portfolio layer” method.measurement guidance in ASU 2022-01 became effective for2011-04, the Company on January 1, 2023. As there are no securities in our portfoliomade an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to this pronouncement in the current or prior year of adoption, the adoption of ASU 2022-01 had no effectmaster netting agreements on the financial statements for the current fiscal year, and the Company will apply the guidance prospectively, where applicable.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 into 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
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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. This update


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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 Board-approved levels.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 does not currently use derivatives, such as interest rate swaps, to manage its interest rate risk exposure, but may consider such instruments in the future.

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 February 28,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 4.3%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 2.6%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.
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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.



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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 March 31,September 30, 2023. The Company’s one-year net interest rate gap was a negative $738.8$671.2 million, or 9.67%8.73% of total assets at March 31,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 significantly affected by external factors such as a rise or decline in interest rates, loan or securities prepayments, and deposit withdrawals.

Condensed Static Gap - March 31, 2023 Repricing Interval 
Condensed Static Gap - September 30, 2023Condensed Static Gap - September 30, 2023Repricing Interval 
(In thousands)(In thousands)Total0-3 months3-6 months6-12 monthsCumulative 12 months(In thousands)Total0-3 months3-6 months6-12 monthsCumulative 12 months
Interest-earning assets1
Interest-earning assets1
$7,422,351 $950,893 $309,368 $529,553 $1,789,814 
Interest-earning assets1
$7,415,891 $1,067,647 $299,572 $663,611 $2,030,830 
Interest-bearing liabilitiesInterest-bearing liabilities4,889,921 2,133,366 142,679 252,614 2,528,659 Interest-bearing liabilities5,013,322 2,108,776 297,932 295,325 2,702,033 
Net gap positionNet gap position(1,182,473)166,689 276,939 (738,845)Net gap position$(1,041,129)$1,640 $368,286 $(671,203)
Net gap position as a percentage of total assetsNet gap position as a percentage of total assets(15.47)%2.18 %3.62 %(9.67)%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 

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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 March 31,September 30, 2023.

Based upon that evaluation, the Company’sCompany'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’sCompany'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 March 31,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 March 31,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

The following risk factors supplementThere have been no material changes in the risk factors previously disclosed under Item 1A in1A. 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 and should be read in conjunction therewith.2022.

Adverse developments affecting the banking industry, and resulting media coverage, have contributed to market volatility and eroded confidence in the banking system and could have a material effect on the Company's results of operations and/or stock price.

Recent events impacting the financial services industry, including bank failures, have resulted in decreased confidence in banks among investors, customers and counterparties, which has generated significant market volatility among publicly traded bank holding companies. As a result, customers may choose to maintain deposits with other financial institutions or invest in higher yielding short term fixed income securities, which could adversely impact our liquidity and results of operations. Uncertainty and concern regarding soundness or creditworthiness of other financial institutions has been, and may be in the future, compounded by advances in technology that increase the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns and market disruption within the financial services industry, and may increase the risk of a wider economic recession. These recent events have, and could continue to, adversely impact the market price and volatility of the Company's common stock.

These recent events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements. The cost of resolving the recent bank failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments. Any of these changes could have a material impact on our business, financial condition and results of operations.


5772


Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities
 
Issuer Purchases of Equity Securities
Total Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
(a)(b)(c)(d)
July 1, 2023 through July 31, 202346,435 $55.70 41,781 19,818 
August 1, 2023 through August 31, 20232,733 56.31 400,000 
September 1, 2023 through September 30, 202310 50.54 400,000 
Total49,178 $55.74 41,781 400,000 
Total Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
(a)(b)(c)(d)
January 1, 2023 through January 31, 20231,487 $75.83 169,818 
February 1, 2023 through February 28, 20231,186 77.51 169,818 
March 1, 2023 through March 31, 2023169,818 
Total2,673 $76.58 0 169,818 

Included in the table above are 1,4872,866 shares purchased in JanuaryJuly 2023, at an average cost of $75.83,$56.52, and 663945 shares purchased in FebruaryAugust 2023, at an average cost of $77.46,$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 5231,788 shares delivered to the Company in FebruaryJuly 2023 and 10 shares in September 2023 at an average cost of $77.51$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 Plan. 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 20212023 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. UnderAs of September 30, 2023, there have been no shares repurchased under the 20212023 Repurchase Plan, the Company has repurchased a total of 230,182 shares through March 31, 2023, at an average cost of $78.31.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
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Item 6.     Exhibits
 
EXHIBIT INDEX
 
Exhibit NumberDescription
3.1
3.2
4.110.1#*
Form of Specimen Common Stock Certificate of the Company, incorporated herein by referenceLetter Agreement, dated August 4, 2023, between Tompkins Financial Corporation and Francis M. Fetsko.
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
104Cover 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.
** 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 March 31, 2023 and December 31, 2022; (ii) Consolidated Statements of Income for the three months ended March 31, 2023 and 2022; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022; (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022; (v) Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2023 and 2022; and (vi)#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.

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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: May 10,November 08, 2023
 
TOMPKINS FINANCIAL CORPORATION
 
By:/s/ Stephen S. Romaine 
 Stephen S. Romaine 
 President and Chief Executive Officer 
 (Principal Executive Officer) 
 
By:/s/ Francis M. FetskoMatthew D. Tomazin 
 Francis M. FetskoMatthew D. Tomazin 
 Executive Vice President, Chief Financial Officer, and Chief Operating OfficerTreasurer
 (Principal Financial Officer) 
(Principal Accounting Officer)
 

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