Tompkins Financial Corporation

11/06/2024 | Press release | Distributed by Public on 11/06/2024 12:18

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

tmp-20240930
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
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 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.10 par value TMP NYSE American, LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒ Accelerated Filer ☐
Non-Accelerated Filer ☐ Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐No ☒.
Indicate the number of shares of the Registrant's Common Stock outstanding as of the latest practicable date: 14,393,682 shares as of November 4, 2024.
TOMPKINS FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I -FINANCIAL INFORMATION
PAGE
Item 1 -
Financial Statements
Consolidated Statements of Condition as of September 30, 2024 (Unaudited) and December 31, 2023 (Audited)
1
Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023 (Unaudited)
2
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023 (Unaudited)
3
Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (Unaudited)
4
Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2024 and 2023 (Unaudited)
6
Notes to Unaudited Consolidated Financial Statements
8
Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of Operations
48
Item 3 -
Quantitative and Qualitative Disclosures About Market Risk
68
Item 4 -
Controls and Procedures
69
PART II - OTHER INFORMATION
Item 1 -
Legal Proceedings
69
Item 1A - Risk Factors
69
Item 2 -
Unregistered Sales of Equity Securities and Use of Proceeds
70
Item 3 -
Defaults Upon Senior Securities
70
Item 4 -
Mine Safety Disclosures
70
Item 5 -
Other Information
71
Item 6 -
Exhibits
72
SIGNATURES
73
Item 1. Financial Statements
TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share and per share data) (Unaudited)
As of As of
ASSETS 9/30/2024 12/31/2023
(unaudited) (audited)
Cash and noninterest bearing balances due from banks $ 110,375 $ 67,212
Interest bearing balances due from banks 21,945 12,330
Cash and Cash Equivalents 132,320 79,542
Available-for-sale debt securities, at fair value (amortized cost of $1,410,405 at September 30, 2024 and $1,548,482 at December 31, 2023)
1,309,279 1,416,650
Held-to-maturity debt securities, at amortized cost (fair value of $276,599 at September 30, 2024 and $267,455 December 31, 2023)
312,446 312,401
Equity securities, at fair value (amortized cost $801 at September 30, 2024 and $787 at December 31, 2023)
801 787
Total loans and leases, net of unearned income and deferred costs and fees 5,881,261 5,605,935
Less: Allowance for credit losses 55,384 51,584
Net Loans and Leases 5,825,877 5,554,351
Federal Home Loan Bank and other stock 30,936 33,719
Bank premises and equipment, net 77,603 79,687
Corporate owned life insurance 75,966 67,884
Goodwill 92,602 92,602
Other intangible assets, net 2,238 2,327
Accrued interest and other assets 146,359 179,799
Total Assets 8,006,427 7,819,749
LIABILITIES
Deposits:
Interest bearing:
Checking, savings and money market 3,655,041 3,484,878
Time 1,042,007 998,013
Noninterest bearing 1,880,848 1,916,956
Total Deposits 6,577,896 6,399,847
Federal funds purchased and securities sold under agreements to repurchase 67,506 50,996
Other borrowings 539,327 602,100
Other liabilities 100,350 96,872
Total Liabilities 7,285,079 7,149,815
EQUITY
Tompkins Financial Corporation shareholders' equity:
Common Stock - par value $0.10 per share: Authorized 25,000,000 shares; Issued: 14,426,922 at September 30, 2024; and 14,441,830 at December 31, 2023
1,443 1,444
Additional paid-in capital 299,741 297,183
Retained earnings 526,423 501,510
Accumulated other comprehensive loss (101,200) (125,005)
Treasury stock, at cost - 129,317 shares at September 30, 2024, and 132,097 shares at December 31, 2023
(6,552) (6,610)
Total Tompkins Financial Corporation Shareholders' Equity 719,855 668,522
Noncontrolling interests 1,493 1,412
Total Equity 721,348 669,934
Total Liabilities and Equity $ 8,006,427 $ 7,819,749
See notes to unaudited consolidated financial statements.
1
TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
(In thousands, except per share data) (Unaudited) 9/30/2024 9/30/2023 9/30/2024 9/30/2023
INTEREST AND DIVIDEND INCOME
Loans $ 77,814 $ 67,030 $ 223,059 $ 191,399
Due from banks 168 125 506 447
Available-for-sale debt securities 9,037 6,599 28,019 19,960
Held-to-maturity debt securities 1,222 1,221 3,659 3,654
Federal Home Loan Bank and other stock 888 490 2,309 1,113
Total Interest and Dividend Income 89,129 75,465 257,552 216,573
INTEREST EXPENSE
Time certificates of deposits of $250,000 or more 4,158 3,158 12,216 7,472
Other deposits 22,553 16,348 64,213 39,861
Federal funds purchased and securities sold under agreements to repurchase 11 15 35 44
Other borrowings 9,214 4,931 26,267 12,041
Total Interest Expense 35,936 24,452 102,731 59,418
Net Interest Income 53,193 51,013 154,821 157,155
Less: Provision for credit loss expense 2,174 1,150 5,200 2,578
Net Interest Income After Provision for Credit Loss Expense 51,019 49,863 149,621 154,577
NONINTEREST INCOME
Insurance commissions and fees 11,283 11,397 30,629 29,578
Wealth management fees 4,925 4,342 14,711 13,529
Service charges on deposit accounts 1,872 1,754 5,434 5,140
Card services income 2,921 2,860 9,138 8,629
Other income 2,299 990 7,321 4,534
Net gain (loss) on securities transactions 85 (62,967) 65 (70,019)
Total Noninterest Income 23,385 (41,624) 67,298 (8,609)
NONINTEREST EXPENSE
Salaries and wages 25,664 23,811 75,280 73,660
Other employee benefits 6,276 7,319 19,232 20,707
Net occupancy expense of premises 3,065 3,108 9,761 9,734
Furniture and fixture expense 1,797 2,079 5,832 6,238
Amortization of intangible assets 86 83 242 250
Other operating expense 12,989 13,466 39,329 41,403
Total Noninterest Expenses 49,877 49,866 149,676 151,992
Income/(Loss) Before Income Tax Expense/(Benefit) 24,527 (41,627) 67,243 (6,024)
Income Tax Expense/(Benefit) 5,858 (8,304) 15,958 (619)
Net Income/(Loss) Attributable to Noncontrolling Interests and Tompkins Financial Corporation 18,669 (33,323) 51,285 (5,405)
Less: Net Income Attributable to Noncontrolling Interests 31 31 93 93
Net Income/(Loss) Attributable to Tompkins Financial Corporation $ 18,638 $ (33,354) $ 51,192 $ (5,498)
Basic Earnings (Loss) Per Share $ 1.31 $ (2.35) $ 3.60 $ (0.39)
Diluted Earnings (Loss) Per Share $ 1.30 $ (2.35) $ 3.59 $ (0.39)
See notes to unaudited consolidated financial statements.
2
TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
(In thousands) (Unaudited) 9/30/2024 9/30/2023
Net income (loss) attributable to noncontrolling interests and Tompkins Financial Corporation $ 18,669 $ (33,323)
Other comprehensive (loss) income, net of tax:
Available-for-sale debt securities:
Change in net unrealized loss during the period 34,300 (28,273)
Reclassification adjustment for net realized (gain) loss on sale of available-for-sale debt securities included in net income (38) 47,513
Employee benefit plans:
Amortization of net retirement plan actuarial loss 173 211
Amortization of net retirement plan prior service cost 35 40
Other comprehensive income 34,470 19,491
Subtotal comprehensive income (loss) attributable to noncontrolling interests and Tompkins Financial Corporation 53,139 (13,832)
Less: Net income attributable to noncontrolling interests 31 31
Total comprehensive income (loss) attributable to Tompkins Financial Corporation $ 53,108 $ (13,863)
Nine Months Ended
(In thousands) (Unaudited) 9/30/2024 9/30/2023
Net income (loss) attributable to noncontrolling interests and Tompkins Financial Corporation $ 51,285 $ (5,405)
Other comprehensive income, net of tax:
Available-for-sale debt securities:
Change in net unrealized loss during the period 23,221 (20,932)
Reclassification adjustment for net realized (gain) loss on sale of available-for-sale debt securities included in net income (38) 52,838
Employee benefit plans:
Amortization of net retirement plan actuarial loss 518 632
Amortization of net retirement plan prior service cost 104 122
Other comprehensive income 23,805 32,660
Subtotal comprehensive income attributable to noncontrolling interests and Tompkins Financial Corporation 75,090 27,255
Less: Net income attributable to noncontrolling interests 93 93
Total comprehensive income attributable to Tompkins Financial Corporation $ 74,997 $ 27,162
See notes to unaudited consolidated financial statements.
3
TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
(In thousands) (Unaudited) 9/30/2024 9/30/2023
OPERATING ACTIVITIES
Net income (loss) attributable to Tompkins Financial Corporation $ 51,192 $ (5,498)
Provision for credit loss expense 5,200 2,578
Depreciation and amortization of premises, equipment, and software 7,834 8,208
Amortization of intangible assets 242 250
Earnings from corporate owned life insurance (2,290) (1,167)
Net amortization on securities (850) 2,692
Amortization/accretion related to purchase accounting (616) (508)
Net (gain) loss on securities transactions (65) 70,019
Net gain on sale of loans originated for sale (701) (86)
Proceeds from sale of loans originated for sale 30,224 3,276
Loans originated for sale (30,949) (3,345)
Net gain on sale of bank premises and equipment (218) (79)
Net excess tax (expense) benefit from stock based compensation (191) (10)
Stock-based compensation expense 2,693 2,945
Increase in accrued interest receivable (2,087) (1,670)
Increase in accrued interest payable 483 972
Other, net 11,816 (8,505)
Net Cash Provided by Operating Activities 71,717 70,072
INVESTING ACTIVITIES
Proceeds from maturities, calls and principal paydowns of available-for-sale debt securities 149,012 111,097
Proceeds from sales of available-for-sale debt securities 39,952 440,488
Purchases of available-for-sale debt securities (50,032) (375,585)
Net increase in loans (274,267) (168,400)
Proceeds from sale/redemptions of Federal Home Loan Bank stock 86,540 90,702
Purchases of Federal Home Loan Bank and other stock (83,757) (92,967)
Proceeds from sale of bank premises and equipment 294 123
Purchases of bank premises, equipment and software (4,624) (5,308)
Purchase of corporate owned life insurance (5,746) 0
Proceeds from redemption of corporate owned life insurance 17,993 20
Other, net (413) 463
Net Cash (Used in) Provided by Investing Activities (125,048) 633
FINANCING ACTIVITIES
Net increase (decrease) in demand, money market, and savings deposits 134,055 (227,860)
Net increase in time deposits 44,343 249,361
Net increase (decrease) in Federal funds purchased and securities sold under agreements to repurchase 16,510 (158)
Increase in other borrowings 501,027 145,100
Repayment of other borrowings (563,800) (139,600)
Cash dividends (25,907) (26,041)
Common stock issued 122 0
Repurchase of common stock 0 (8,703)
Net shares issued related to restricted stock awards (200) (307)
Net proceeds from exercise of stock options (41) (118)
Net Cash Provided by (Used in) Financing Activities 106,109 (8,326)
Net Increase in Cash and Cash Equivalents 52,778 62,379
Cash and cash equivalents at beginning of period 79,542 77,837
Total Cash and Cash Equivalents at End of Period $ 132,320 $ 140,216
See notes to unaudited consolidated financial statements.
4
TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
(In thousands) (Unaudited) 9/30/2024 9/30/2023
Supplemental Information:
Cash paid during the year for - Interest $ 102,596 $ 58,806
Cash paid during the year for - Taxes 8,249 9,907
Transfer of loans to other real estate owned 81 0
Right-of-use assets obtained in exchange for new lease liabilities 893 428
See notes to unaudited consolidated financial statements.
5
TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands except share and per share data) (Unaudited) Common
Stock 		Additional Paid-in Capital Retained
Earnings 		Accumulated Other Comprehensive (Loss) Income Treasury
Stock 		Non-
controlling Interests 		Total
Balances at July 1, 2023 $ 1,444 $ 298,133 $ 537,095 $ (195,520) $ (6,185) $ 1,474 $ 636,441
Net income attributable to noncontrolling interests and Tompkins Financial Corporation (33,354) 31 (33,323)
Other comprehensive income 19,491 19,491
Total Comprehensive Loss (13,832)
Cash dividends ($0.60 per share)
(8,618) (8,618)
Common stock repurchased and returned to unissued status (41,781 shares)
(4) (2,321) (2,325)
Stock-based compensation expense 790 790
Directors deferred compensation plan (3,831 shares)
218 (218) 0
Restricted stock activity (13,545 shares)
(1) (99) (100)
Balances at September 30, 2023 $ 1,439 $ 296,721 $ 495,123 $ (176,029) $ (6,403) $ 1,505 $ 612,356
Balances at July 1, 2024 $ 1,443 $ 298,647 $ 516,566 $ (135,670) $ (6,356) $ 1,463 $ 676,093
Net income attributable to noncontrolling interests and Tompkins Financial Corporation 18,638 31 18,669
Other comprehensive income 34,470 34,470
Total Comprehensive Income 53,139
Cash dividends ($0.61 per share)
(8,781) (8,781)
Net exercise of stock options (754 shares)
(41) (41)
Treasury stock activity (1,253 shares)
41 16 57
Stock-based compensation expense 977 977
Directors deferred compensation plan (4,150 shares)
212 (212) 0
Restricted stock activity ((2,956) shares)
(95) (95)
Partial repurchase of noncontrolling interest (1) (1)
Balances at September 30, 2024 $ 1,443 $ 299,741 $ 526,423 $ (101,200) $ (6,552) $ 1,493 $ 721,348
6
(In thousands except share and per share data)(Unaudited) Common
Stock 		Additional Paid-in Capital Retained
Earnings 		Accumulated Other Comprehensive (Loss) Income Treasury
Stock 		Non-
controlling Interests 		Total
Balances at January 1, 2023 $ 1,456 $ 302,763 $ 526,727 $ (208,689) $ (6,279) $ 1,412 $ 617,390
Net income attributable to noncontrolling interests and Tompkins Financial Corporation (5,498) 93 (5,405)
Other comprehensive income 32,660 32,660
Total Comprehensive Income 27,255
Cash dividends ($1.80 per share)
(26,041) (26,041)
Net exercise of stock options (1,824 shares)
(118) (118)
Common stock repurchased and returned to unissued status (150,000 shares)
(15) (8,688) (8,703)
Stock-based compensation expense 2,945 2,945
Directors deferred compensation plan (653 shares)
124 (124) 0
Restricted stock activity (21,478 shares)
(2) (305) (307)
Adoption of Accounting Guidance ASU 2022-02 (65) (65)
Balances at September 30, 2023 $ 1,439 $ 296,721 $ 495,123 $ (176,029) $ (6,403) $ 1,505 $ 612,356
Balances at January 1, 2024 $ 1,444 $ 297,183 $ 501,510 $ (125,005) $ (6,610) $ 1,412 $ 669,934
Net income attributable to noncontrolling interests and Tompkins Financial Corporation 51,192 93 51,285
Other comprehensive income 23,805 23,805
Total Comprehensive Income 75,090
Cash dividends ($1.82 per share)
(26,208) (26,208)
Net exercise of stock options (754 shares)
(41) (41)
Treasury stock issued (-3,243 shares)
122 42 164
Stock-based compensation expense 2,692 2,692
Directors deferred compensation plan (463 shares)
(16) 16 0
Restricted stock activity (15,662 shares)
(1) (199) (200)
Adjustment due to the adoption of ASU 2023-02 (71) (71)
Partial repurchase of noncontrolling interest (12) (12)
Balances at September 30, 2024 $ 1,443 $ 299,741 $ 526,423 $ (101,200) $ (6,552) $ 1,493 $ 721,348
See notes to unaudited consolidated financial statements
7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Tompkins Financial Corporation ("Tompkins" or the "Company") is headquartered in Ithaca, New York and is registered as a Financial Holding Company with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. The Company is a locally oriented, community-based financial services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, and insurance services. At September 30, 2024, 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 those 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 policy that management considers critical in this respect is the determination of the allowance for credit losses.
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, 2024. 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, 2023.
Cash and cash equivalents in the consolidated statements of cash flow include cash and noninterest bearing balances due from banks, interest-bearing balances due from banks, and money market funds. Management regularly evaluates the credit risk associated with the counterparties to these transactions and believes that the Company is not exposed to any significant credit risk on cash and cash equivalents.
The Company has evaluated subsequent events for potential recognition and/or disclosure, and determined that no further disclosures were required.
8
The consolidated financial information included herein combines the results of operations, 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.
Newly Adopted Accounting Standards
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 applies 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 low income housing tax credit ("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. The adoption of ASU 2023-02 on January 1, 2024 did not have a material effect on the Company's financial statements.
Transition for existing tax credits that qualify must be recognized using either a modified retrospective transition or a retrospective transition for all existing tax investments still expected to provide tax benefits and elected under ASU 2023-02 to apply the proportional amortization method. The Company has elected to treat all existing tax credit investments requiring adjustment under ASU 2023-02 using the modified retrospective method approach.
The Company had recorded investments in 2 separate LIHTC structures as of September 30, 2024 totaling $2.2 million already using proportional amortization, with a $58,000 benefit recorded to income tax expense in the nine months ending September 30, 2024 and $41,000 benefit for the nine months ending September 30, 2023. In addition, the Company has a historic rehabilitation tax credit that was previously recorded using the equity investment accounting method and had no residual book value or financial impact in either the current or prior year. The ASU 2023-02 day 1 adoption entry for this tax credit included the recording of a $40,000 investment and the write-off of a $444,000 gross timing difference (tax effective at $111,000) with a corresponding $71,000 reduction to retained earnings.
The Company has also elected to treat the following categories of tax credit investments under the proportional amortization method:
•LIHTC- Low Income Housing Tax Credits
•New Market Tax Credits
•Historic Rehabilitation Tax Credit
•Renewable Energy Tax Credit
•State Specific Tax Credits
Accounting Standards Pending Adoption
ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." The amendments in this update improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2024 and interim periods in those years, and its adoption is not expected to have a significant effect on our financial statements or disclosures.
ASU No. 2023-09, "Income Taxes (Topic 740) - Improvements to Income Tax Disclosures." The amendments in this update related to the rate reconciliation and income taxes paid disclosures improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and interim periods in those years, and its adoption, other than to meet the new disclosure requirements, is not expected to have a material impact on the Company's consolidated financial statements.
The Company reviews 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.
9
3. Securities
Available-for-Sale Debt Securities
The following tables summarize available-for-sale debt securities held by the Company at September 30, 2024 and December 31, 2023:
Available-for-Sale Debt Securities
September 30, 2024 Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Fair Value
(In thousands)
U.S. Treasuries $ 85,036 $ 380 $ 3,305 $ 82,111
Obligations of U.S. Government sponsored entities 408,292 8,241 16,328 400,205
Obligations of U.S. states and political subdivisions 86,583 14 7,079 79,518
Mortgage-backed securities - residential, issued by
U.S. Government agencies 70,886 12 3,798 67,100
U.S. Government sponsored entities 757,108 3,720 82,875 677,953
U.S. corporate debt securities 2,500 0 108 2,392
Total available-for-sale debt securities $ 1,410,405 $ 12,367 $ 113,493 $ 1,309,279
Available-for-Sale Debt Securities
December 31, 2023 Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Fair Value
(In thousands)
U.S. Treasuries $ 114,418 $ 495 $ 5,009 $ 109,904
Obligations of U.S. Government sponsored entities 472,286 6,449 22,277 456,458
Obligations of U.S. states and political subdivisions 89,999 2 8,077 81,924
Mortgage-backed securities - residential, issued by
U.S. Government agencies 49,976 8 4,744 45,240
U.S. Government sponsored entities 819,303 2,422 100,895 720,830
U.S. corporate debt securities 2,500 0 206 2,294
Total available-for-sale debt securities $ 1,548,482 $ 9,376 $ 141,208 $ 1,416,650
Held-to-Maturity Debt Securities
The following tables summarize held-to-maturity debt securities held by the Company at September 30, 2024 and December 31, 2023:
Held-to-Maturity Debt Securities
September 30, 2024 Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Fair Value
(In thousands)
U.S. Treasuries $ 86,103 $ 0 $ 8,956 $ 77,147
Obligations of U.S. Government sponsored entities 226,343 0 26,891 199,452
Total held-to-maturity debt securities $ 312,446 $ 0 $ 35,847 $ 276,599
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Held-to-Maturity Debt Securities
December 31, 2023 Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Fair Value
(In thousands)
U.S. Treasuries $ 86,266 $ 0 $ 11,051 $ 75,215
Obligations of U.S. Government sponsored entities 226,135 0 33,895 192,240
Total held-to-maturity debt securities $ 312,401 $ 0 $ 44,946 $ 267,455
The Company may from time to time sell debt securities from its available-for-sale portfolio. Realized gains on sales of available-for-sale debt securities were $50,300 for both the three and nine months ended September 30, 2024 and $0 for both the three and nine months endedSeptember 30, 2023. Realized losses on sales of available-for-sale debt securities were $0 for both the three and nine months ended September 30, 2024, and $62.9 million and $70.0 million forthe three and ninemonths ended September 30, 2023, respectively.The amortized cost of available-for-sale debt securities sold during both the three and nine months ended September 30, 2024 were $39.9 million, compared to $429.6 millionand $510.5 million of available-for-sale debt securities sold during the three and nine months ended September 30, 2023, respectively. Sales of available-for-sale debt securities were the result of general investment portfolio, interest rate risk and balance sheet management. Proceeds from the sale of available-for-sale debt securities were $40.0 million for both the three and nine months ended September 30, 2024 and $366.7 million and $440.5 millionfor the three and nine months ended September 30, 2023, respectively. The Company's investment portfolio includes callable securities that may be called prior to maturity. There were no realized gains or losses on called available-for-sale debt securities for both the three and nine months ended September 30, 2024 and September 30, 2023. The Company also recognized net gains of $34,700 and $14,300for the three and nine months ended September 30, 2024, respectively, compared to net losses of $36,700and $35,700for the three and nine months ended September 30, 2023, respectively, on equity securities, reflecting the change in fair value.
The following table summarizes available-for-sale debt securities that had unrealized losses at September 30, 2024, and December 31, 2023:
September 30, 2024 Less than 12 Months 12 Months or Longer Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U.S. Treasuries $ 0 $ 0 $ 67,465 $ 3,305 $ 67,465 $ 3,305
Obligations of U.S. Government sponsored entities 0 0 201,802 16,328 201,802 16,328
Obligations of U.S. states and political subdivisions 0 0 75,370 7,079 75,370 7,079
Mortgage-backed securities - residential, issued by
U.S. Government agencies 27,779 63 39,010 3,735 66,789 3,798
U.S. Government sponsored entities 5,562 31 560,180 82,844 565,742 82,875
U.S. corporate debt securities 0 0 2,392 108 2,392 108
Total available-for-sale debt securities $ 33,341 $ 94 $ 946,219 $ 113,399 $ 979,560 $ 113,493
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December 31, 2023 Less than 12 Months 12 Months or Longer Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U.S. Treasuries $ 0 $ 0 $ 65,663 $ 5,009 $ 65,663 $ 5,009
Obligations of U.S. Government sponsored entities 14,453 110 220,913 22,167 235,366 22,277
Obligations of U.S. states and political subdivisions 10,572 106 69,601 7,971 80,173 8,077
Mortgage-backed securities - residential, issued by
U.S. Government agencies 1,145 4 43,764 4,740 44,909 4,744
U.S. Government sponsored entities 5,659 66 609,456 100,829 615,115 100,895
U.S. corporate debt securities 0 0 2,294 206 2,294 206
Total available-for-sale debt securities $ 31,829 $ 286 $ 1,011,691 $ 140,922 $ 1,043,520 $ 141,208
The following table summarizes held-to-maturity debt securities that had unrealized losses at September 30, 2024 and December 31, 2023:
September 30, 2024 Less than 12 Months 12 Months or Longer Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U.S. Treasuries $ 0 $ 0 $ 77,147 $ 8,956 $ 77,147 $ 8,956
Obligations of U.S. Government sponsored entities 0 0 199,452 26,891 199,452 26,891
Total held-to-maturity debt securities $ 0 $ 0 $ 276,599 $ 35,847 $ 276,599 $ 35,847
December 31, 2023 Less than 12 Months 12 Months or Longer Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U.S. Treasuries $ 0 $ 0 $ 75,215 $ 11,051 $ 75,215 $ 11,051
Obligations of U.S. Government sponsored entities 0 0 192,240 33,895 192,240 33,895
Total held-to-maturity debt securities $ 0 $ 0 $ 267,455 $ 44,946 $ 267,455 $ 44,946
The Company evaluates available-for-sale debt securities for expected credit losses ("ECL") in unrealized loss positions at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors.
Factors that may be indicative of ECL include, but are not limited to, the following:
•Extent to which the fair value is less than the amortized cost basis.
•Adverse conditions specifically related to the security, an industry, or geographic area (changes in technology, business practice).
•Payment structure of the debt security with respect to underlying issuer or obligor.
•Failure of the issuer to make scheduled payment of principal and/or interest.
•Changes to the rating of a security or issuer by a nationally recognized statistical rating organization.
•Changes in tax or regulatory guidelines that impact a security or underlying issuer.
For available-for-sale debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (technical impairment) is the result of changes in interest rates or reflects a fundamental change in the credit worthiness of the underlying issuer. Any impairment that is not credit related is recognized in other comprehensive income (loss), net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses ("ACL") on the Consolidated Statements of Condition, limited to the amount by which the amortized
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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.
Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity debt securities from the estimate of credit losses. As of September 30, 2024, the held-to-maturity portfolio consisted of U.S. Treasury securities and securities issued by U.S. government-sponsored enterprises, including the Federal National Mortgage Agency, the Federal Home Loan Bank ("FHLB") and the Federal Farm Credit Banks Funding Corporation. U.S. Treasury securities are backed by the full faith and credit of and/or guaranteed by the U.S. government, and it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities. Securities issued by U.S. government agencies or U.S. government-sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as "risk-free," and have a long history of zero credit loss. As such, the Company did not record an allowance for credit losses for these securities as of September 30, 2024 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 amortized cost and estimated fair value of debt securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are shown separately since they are not due at a single maturity date.
September 30, 2024
(In thousands) Amortized Cost Fair Value
Available-for-sale debt securities:
Due in one year or less $ 109,842 $ 108,632
Due after one year through five years 226,448 219,556
Due after five years through ten years 223,794 217,790
Due after ten years 22,327 18,248
Total 582,411 564,226
Mortgage-backed securities 827,994 745,053
Total available-for-sale debt securities $ 1,410,405 $ 1,309,279
December 31, 2023
(In thousands) Amortized Cost Fair Value
Available-for-sale debt securities:
Due in one year or less $ 99,242 $ 98,650
Due after one year through five years 307,093 296,279
Due after five years through ten years 245,617 233,569
Due after ten years 27,251 22,082
Total 679,203 650,580
Mortgage-backed securities 869,279 766,070
Total available-for-sale debt securities $ 1,548,482 $ 1,416,650
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September 30, 2024
(In thousands) Amortized Cost Fair Value
Held-to-maturity debt securities:
Due after one year through five years $ 76,717 $ 68,743
Due after five years through ten years 235,729 207,856
Total held-to-maturity debt securities $ 312,446 $ 276,599
December 31, 2023
(In thousands) Amortized Cost Fair Value
Held-to-maturity debt securities:
Due after five years through ten years $ 312,401 $ 267,455
Total held-to-maturity debt securities $ 312,401 $ 267,455
The Company also holds non-marketable Federal Home Loan Bank of New York ("FHLBNY") stock and non-marketable Atlantic Community Bankers Bank ("ACBB") stock, all of which are required to be held for regulatory purposes and for borrowing availability. The required investment in FHLB stock is tied to the Company's borrowing levels with the FHLB. Holdings of FHLBNY stock and ACBB stock totaled $30.8 million and $95,000, respectively, at September 30, 2024. These securities are carried at par, which is also cost. The FHLBNY continues to pay dividends and repurchase stock. Quarterly, we evaluate our investment in the FHLB for impairment. We evaluate recent and long-term operating performance, liquidity, funding and capital positions, stock repurchase history, dividend history and impact of legislative and regulatory changes. Based on our most recent evaluation, as of September 30, 2024, we determined that no impairment write-downs were required.
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4. Loans and Leases
Loans and leases at September 30, 2024 and December 31, 2023 were as follows:
(In thousands) 9/30/2024 12/31/2023
Commercial and industrial
Agriculture $ 90,146 $ 101,211
Commercial and industrial other 799,847 721,890
PPP loans 214 404
Subtotal commercial and industrial 890,207 823,505
Commercial real estate
Construction 371,022 303,406
Agriculture 209,342 221,670
Commercial real estate other 2,730,074 2,587,591
Subtotal commercial real estate 3,310,438 3,112,667
Residential real estate
Home equity 200,369 188,316
Mortgages 1,371,738 1,373,275
Subtotal residential real estate 1,572,107 1,561,591
Consumer and other
Indirect 337 841
Consumer and other 100,312 96,942
Subtotal consumer and other 100,649 97,783
Leases 13,094 15,383
Total loans and leases 5,886,495 5,610,929
Less: unearned income and deferred costs and fees (5,234) (4,994)
Total loans and leases, net of unearned income and deferred costs and fees $ 5,881,261 $ 5,605,935
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, 2023. 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, 2023. The Company's Board of Directors approves the lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to monitor loan origination, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments are due. Generally loans are placed on nonaccrual status if principal or interest payments become 90 days or more past due and/or management deems the collectability of the principal and/or interest to be in question as well as when required by regulatory agencies. When interest accrual is discontinued, all unpaid accrued interest is reversed. Payments received on loans on nonaccrual are generally applied to reduce the principal balance of the loan. Loans are generally returned to accrual status when all the principal and interest amounts due are brought current, the borrower has established a payment history, and future payments are reasonably assured. When management determines that the collection of principal in full is not probable, management will charge-off a partial amount or full amount of the loan balance. Management considers specific facts and circumstances relative to each individual credit in making such a determination. For residential and consumer loans, management uses specific regulatory guidance and thresholds for determining charge-offs.
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The below tables are an age analysis of past due loans, segregated by class of loans, as of September 30, 2024 and December 31, 2023:
September 30, 2024
(In thousands) 30-59 Days 60-89 Days 90 Days or More Total Past Due Current Loans Total Loans
Loans and Leases
Commercial and industrial
Agriculture $ 0 $ 0 $ 0 $ 0 $ 90,146 $ 90,146
Commercial and industrial other 826 1,059 2,083 3,968 795,879 799,847
PPP loans 0 0 0 0 214 214
Subtotal commercial and industrial 826 1,059 2,083 3,968 886,239 890,207
Commercial real estate
Construction 0 0 0 0 371,022 371,022
Agriculture 84 147 0 231 209,111 209,342
Commercial real estate other 166 2,510 23,301 25,977 2,704,097 2,730,074
Subtotal commercial real estate 250 2,657 23,301 26,208 3,284,230 3,310,438
Residential real estate
Home equity 465 0 1,832 2,297 198,072 200,369
Mortgages 20 853 9,586 10,459 1,361,279 1,371,738
Subtotal residential real estate 485 853 11,418 12,756 1,559,351 1,572,107
Consumer and other
Indirect 7 22 5 34 303 337
Consumer and other 640 232 235 1,107 99,205 100,312
Subtotal consumer and other 647 254 240 1,141 99,508 100,649
Leases 0 0 0 0 13,094 13,094
Total loans and leases 2,208 4,823 37,042 44,073 5,842,422 5,886,495
Less: unearned income and deferred costs and fees 0 0 0 0 (5,234) (5,234)
Total loans and leases, net of unearned income and deferred costs and fees $ 2,208 $ 4,823 $ 37,042 $ 44,073 $ 5,837,188 $ 5,881,261
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December 31, 2023
(In thousands) 30-59 Days 60-89 Days 90 Days or More Total Past Due Current Loans Total Loans
Loans and Leases
Commercial and industrial
Agriculture $ 0 $ 0 $ 0 $ 0 $ 101,211 $ 101,211
Commercial and industrial other 389 887 2,124 3,400 718,490 721,890
PPP loans 0 0 0 0 404 404
Subtotal commercial and industrial 389 887 2,124 3,400 820,105 823,505
Commercial real estate
Construction 0 0 0 0 303,406 303,406
Agriculture 61 0 0 61 221,609 221,670
Commercial real estate other 290 0 25,056 25,346 2,562,245 2,587,591
Subtotal commercial real estate 351 0 25,056 25,407 3,087,260 3,112,667
Residential real estate
Home equity 466 211 1,968 2,645 185,671 188,316
Mortgages 1,353 111 6,916 8,380 1,364,895 1,373,275
Subtotal residential real estate 1,819 322 8,884 11,025 1,550,566 1,561,591
Consumer and other
Indirect 7 11 11 29 812 841
Consumer and other 302 122 270 694 96,248 96,942
Subtotal consumer and other 309 133 281 723 97,060 97,783
Leases 0 0 0 0 15,383 15,383
Total loans and leases 2,868 1,342 36,345 40,555 5,570,374 5,610,929
Less: unearned income and deferred costs and fees 0 0 0 0 (4,994) (4,994)
Total loans and leases, net of unearned income and deferred costs and fees $ 2,868 $ 1,342 $ 36,345 $ 40,555 $ 5,565,380 $ 5,605,935
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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 September 30, 2024 and December 31, 2023:
September 30, 2024
(In thousands) Nonaccrual Loans and Leases with no ACL Nonaccrual Loans and Leases Loans and Leases Past Due Over 89 Days and Accruing
Loans and Leases
Commercial and industrial
Commercial and industrial other $ 0 $ 2,223 $ 0
Subtotal commercial and industrial 0 2,223 0
Commercial real estate
Agriculture 0 132 0
Commercial real estate other 40,373 43,861 0
Subtotal commercial real estate 40,373 43,993 0
Residential real estate
Home equity 0 2,992 0
Mortgages 0 13,021 5
Subtotal residential real estate 0 16,013 5
Consumer and other
Indirect 0 16 0
Consumer and other 0 136 188
Subtotal consumer and other 0 152 188
Total loans and leases $ 40,373 $ 62,381 $ 193
December 31, 2023
(In thousands) Nonaccrual Loans and Leases with no ACL Nonaccrual Loans and Leases Loans and Leases Past Due Over 89 Days and Accruing
Loans and Leases
Commercial and industrial
Commercial and industrial other $ 0 $ 2,253 $ 0
Subtotal commercial and industrial 0 2,273 0
Commercial real estate
Agriculture 0 170 0
Commercial real estate other 42,038 44,280 0
Subtotal commercial real estate 42,038 44,450 0
Residential real estate
Home equity 0 3,230 0
Mortgages 0 11,942 0
Subtotal residential real estate 0 15,172 0
Consumer and other
Indirect 0 40 0
Consumer and other 0 230 101
Subtotal consumer and other 0 270 101
Total loans and leases $ 42,038 $ 62,165 $ 101
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The Company did not recognize any interest income on nonaccrual loans during the three and nine months ended September 30, 2024 and 2023.
5. Allowance for Credit Losses
Management reviews the appropriateness of the ACL on a regular basis. Management considers the accounting policy relating to the allowance to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that assumptions could have on the Company's results of operations. The Company has developed a methodology to measure the amount of estimated credit loss exposure inherent in the loan portfolio to assure that an appropriate allowance is maintained. The Company's methodology is based upon guidance provided in SEC Staff Accounting Bulletin No. 119, Measurement of Credit Losses on Financial Instruments ("CECL"), and Financial Instruments - Credit Losses andASC Topic 326, Financial Instruments - Credit Losses.
The Company uses a Discounted Cash Flow ("DCF") method to estimate expected credit losses for all loan segments excluding the leasing segment. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, recovery lag, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on internal historical data.
The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loans utilizing the DCF method, management utilizes forecasts of national unemployment and a one year percentage change in national gross domestic product as loss drivers in the model.
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts, and scenario weightings, are also considered by management when developing the forecast metrics.
Due to the size and characteristics of the leasing portfolio, the Company uses the remaining life method, using the historical loss rate of the commercial and industrial segment, to determine the allowance for credit losses.
The combination of adjustments for credit expectations and timing expectations produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce a net present value of expected cash flows ("NPV"). An ACL is established for the difference between the NPV and amortized cost basis.
Since the methodology is based upon historical experience and trends, current conditions, and reasonable and supportable forecasts, as well as management's judgment, factors may arise that result in different estimates. While management's evaluation of the allowance as of September 30, 2024 considers the allowance to be appropriate, under certain conditions or assumptions, the Company would need to increase or decrease the allowance. In addition, various federal and State regulatory agencies, as part of their examination process, review the Company's allowance and may require the Company to recognize additions to the allowance based on their judgements and information available to them at the time of their examinations.
Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, and commercial letters of credit. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancellable, through a charge to credit loss expense for off-balance sheet credit exposures included in provision expense in the Company's consolidated statements of income.
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The following tables detail activity in the allowance for credit losses on loans for the three and nine months ended September 30, 2024 and 2023. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
Three Months Ended September 30, 2024
(In thousands) Commercial
& Industrial 		Commercial
Real Estate 		Residential
Real Estate 		Consumer
and Other 		Finance
Leases 		Total
Allowance for credit losses:
Beginning balance $ 7,412 $ 32,559 $ 11,569 $ 1,451 $ 68 $ 53,059
Charge-offs (253) 0 0 (796) 0 (1,049)
Recoveries 11 3 5 118 0 137
Provision (credit) for credit loss expense 444 1,302 802 694 (5) 3,237
Ending Balance $ 7,614 $ 33,864 $ 12,376 $ 1,467 $ 63 $ 55,384
Three Months Ended September 30, 2023
(In thousands) Commercial
& Industrial 		Commercial
Real Estate 		Residential
Real Estate 		Consumer
and Other 		Finance
Leases 		Total
Allowance for credit losses:
Beginning balance $ 6,685 $ 28,968 $ 11,111 $ 1,680 $ 101 $ 48,545
Charge-offs 0 0 0 (271) 0 (271)
Recoveries 8 1 4 81 0 94
Provision (credit) for credit loss expense (241) 366 791 70 (18) 968
Ending Balance $ 6,452 $ 29,335 $ 11,906 $ 1,560 $ 83 $ 49,336
Nine Months Ended September 30, 2024
(In thousands) Commercial
& Industrial 		Commercial
Real Estate 		Residential
Real Estate 		Consumer
and Other 		Finance
Leases 		Total
Allowance for credit losses:
Beginning balance $ 6,667 $ 31,581 $ 11,700 $ 1,557 $ 79 $ 51,584
Charge-offs (283) 0 0 (1,867) 0 (2,150)
Recoveries 29 6 130 336 0 501
Provision (credit) for credit loss expense 1,201 2,277 546 1,441 (16) 5,449
Ending Balance $ 7,614 $ 33,864 $ 12,376 $ 1,467 $ 63 $ 55,384
Nine Months Ended September 30, 2023
(In thousands) Commercial
& Industrial 		Commercial
Real Estate 		Residential
Real Estate 		Consumer
and Other 		Finance
Leases 		Total
Allowance for credit losses:
Beginning balance $ 6,039 $ 27,287 $ 11,154 $ 1,358 $ 96 $ 45,934
Impact of adopting ASU 2016-13 2 16 46 0 0 64
Charge-offs 0 0 (2) (546) 0 (548)
Recoveries 67 1,238 182 192 0 1,679
Provision (credit) for credit loss expense 344 794 526 556 (13) 2,207
Ending Balance $ 6,452 $ 29,335 $ 11,906 $ 1,560 $ 83 $ 49,336
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The following tables detail activity in the liabilities for off-balance sheet credit exposures for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,
(In thousands) 2024 2023
Liabilities for off-balance sheet credit exposures at beginning of period $ 3,084 $ 2,985
(Credit) provision for credit loss expense related to off-balance sheet credit exposures (1,063) 182
Liabilities for off-balance sheet credit exposures at end of period $ 2,021 $ 3,167
Nine Months Ended September 30,
(In thousands) 2024 2023
Liabilities for off-balance sheet credit exposures at beginning of period $ 2,270 $ 2,796
(Credit) provision for credit loss expense related to off-balance sheet credit exposures (249) 371
Liabilities for off-balance sheet credit exposures at end of period $ 2,021 $ 3,167
The following tables present 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, as of September 30, 2024
and December 31, 2023:
(In thousands) Real Estate Business Assets Other Total ACL Allocation
September 30, 2024
Commercial and Industrial $ 1,978 $ 0 $ 0 $ 1,978 $ 0
Commercial Real Estate 42,517 0 0 42,517 1,429
Total Loans and Leases $ 44,495 $ 0 $ 0 $ 44,495 $ 1,429
(In thousands) Real Estate Business Assets Other Total ACL Allocation
December 31, 2023
Commercial and Industrial $ 2,035 $ 0 $ 0 $ 2,035 $ 0
Commercial Real Estate 42,333 0 0 42,333 1,082
Total Loans and Leases $ 44,368 $ 0 $ 0 $ 44,368 $ 1,082
Loan Modifications to Borrowers Experiencing Financial Difficulty
The Company adopted ASU 2022-02 Financial Instruments - Credit Losses (Topic 326) effective January 1, 2023. This standard eliminated the previous troubled debt restructuring accounting model and replaced it with guidance and disclosure requirements for identifying modifications to loans to borrowers experiencing financial difficulty. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.
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The following table shows the amortized cost basis as of September 30, 2024 of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted:
(In thousands) Term Extension Interest Rate Reduction Payment Delay and Term Extension Term Extension and Interest Rate Reduction Payment Delay Total % of Total Class of Loans and Leases
Commercial and Industrial
Commercial and Industrial Other $ 12 $ 490 $ 0 $ 0 $ 75 $ 577 0.07 %
Total Commercial and Industrial 12 490 0 0 75 577 0.06 %
Commercial Real Estate
Commercial Real Estate Other 0 3,022 0 0 394 3,416 0.13 %
Total Commercial Real Estate 0 3,022 0 0 394 3,416 0.10 %
Residential
Home Equity 0 0 0 41 0 41 0.02 %
Mortgages 0 0 0 0 486 486 0.04 %
Total Residential 0 0 0 41 486 527 0.03 %
Consumer
Consumer and Other 23 0 0 0 0 23 0.02 %
Total Consumer 23 0 0 0 0 23 0.02 %
Total Loans and Leases $ 35 $ 3,512 $ 0 $ 41 $ 955 $ 4,543 0.08 %
There were no loan modifications made to borrowers experiencing financial difficulty that defaulted during the three and nine months ended September 30, 2024.
The following table shows the aging analysis of loan modifications made to borrowers experiencing financial difficulty as of September 30, 2024:
September 30, 2024 Payment Status (Amortized Cost Basis)
(In thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Non-Accrual Total
Commercial and Industrial
Commercial and industrial other $ 565 $ 0 $ 0 $ 0 $ 12 $ 577
Total Commercial and Industrial 565 0 0 0 12 577
Commercial Real Estate
Commercial real estate other 3,416 0 0 0 0 3,416
Total Commercial Real Estate 3,416 0 0 0 0 3,416
Residential Real Estate
Home equity 0 0 0 0 41 41
Mortgages 155 0 0 0 331 486
Total Residential Real Estate 155 0 0 0 372 527
Consumer and Other
Consumer and other 0 0 0 0 23 23
Total Consumer and Other 0 0 0 0 23 23
Total $ 4,136 $ 0 $ 0 $ 0 $ 407 $ 4,543
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The following tables present credit quality indicators by total loans on an amortized cost basis by origination year as of September 30, 2024 and December 31, 2023:
September 30, 2024
(In thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Loans
Commercial and Industrial - Other:
Pass $ 115,477 $ 122,968 $ 89,318 $ 57,209 $ 22,038 $ 154,402 $ 223,210 $ 10,771 $ 795,393
Special Mention 1,104 222 159 808 130 261 162 0 2,846
Substandard 440 0 0 52 17 681 418 0 1,608
Total Commercial and Industrial - Other $ 117,021 $ 123,190 $ 89,477 $ 58,069 $ 22,185 $ 155,344 $ 223,790 $ 10,771 $ 799,847
Current-period gross writeoffs $ 0 $ 15 $ 30 $ 44 $ 11 $ 183 $ 0 $ 0 $ 283
Commercial and Industrial - PPP:
Pass $ 0 $ 0 $ 0 $ 176 $ 38 $ 0 $ 0 $ 0 $ 214
Special Mention 0 0 0 0 0 0 0 0 0
Substandard 0 0 0 0 0 0 0 0 0
Total Commercial and Industrial - PPP $ 0 $ 0 $ 0 $ 176 $ 38 $ 0 $ 0 $ 0 $ 214
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Commercial and Industrial - Agriculture:
Pass $ 9,215 $ 25,104 $ 10,475 $ 2,366 $ 1,754 $ 7,016 $ 32,153 $ 1,980 $ 90,063
Special Mention 0 0 0 38 0 0 0 0 38
Substandard 0 0 0 0 45 0 0 0 45
Total Commercial and Industrial - Agriculture $ 9,215 $ 25,104 $ 10,475 $ 2,404 $ 1,799 $ 7,016 $ 32,153 $ 1,980 $ 90,146
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Commercial Real Estate
Pass $ 239,979 $ 244,508 $ 331,282 $ 362,119 $ 283,057 $ 1,114,169 $ 38,270 $ 14,092 $ 2,627,476
Special Mention 0 0 714 606 16,769 14,574 4,501 0 37,164
Substandard 0 988 15,017 2,121 0 46,264 1,044 0 65,434
Total Commercial Real Estate $ 239,979 $ 245,496 $ 347,013 $ 364,846 $ 299,826 $ 1,175,007 $ 43,815 $ 14,092 $ 2,730,074
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Commercial Real Estate - Agriculture:
Pass $ 9,421 $ 12,288 $ 37,885 $ 22,008 $ 20,215 $ 101,556 $ 3,923 $ 562 $ 207,858
Special Mention 0 0 0 0 0 1,310 0 0 1,310
Substandard 0 0 0 0 0 174 0 0 174
Total Commercial Real Estate - Agriculture $ 9,421 $ 12,288 $ 37,885 $ 22,008 $ 20,215 $ 103,040 $ 3,923 $ 562 $ 209,342
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
23
(In thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Loans
Commercial Real Estate - Construction
Pass $ 6,000 $ 444 $ 685 $ 6,904 $ 2,010 $ 0 $ 311,747 $ 25,832 $ 353,622
Special Mention 0 0 0 0 0 0 17,400 0 17,400
Substandard 0 0 0 0 0 0 0 0 0
Total Commercial Real Estate - Construction $ 6,000 $ 444 $ 685 $ 6,904 $ 2,010 $ 0 $ 329,147 $ 25,832 $ 371,022
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Residential - Home Equity
Performing $ 16,352 $ 2,904 $ 2,219 $ 1,071 $ 575 $ 13,568 $ 158,769 $ 1,918 $ 197,376
Nonperforming 0 0 0 0 0 607 2,386 0 2,993
Total Residential - Home Equity $ 16,352 $ 2,904 $ 2,219 $ 1,071 $ 575 $ 14,175 $ 161,155 $ 1,918 $ 200,369
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Residential - Mortgages
Performing $ 81,994 $ 133,491 $ 175,375 $ 243,173 $ 208,186 $ 516,498 $ 0 $ 0 $ 1,358,717
Nonperforming 0 713 388 593 954 10,373 0 0 13,021
Total Residential - Mortgages $ 81,994 $ 134,204 $ 175,763 $ 243,766 $ 209,140 $ 526,871 $ 0 $ 0 $ 1,371,738
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Consumer - Direct
Performing $ 41,761 $ 19,322 $ 10,727 $ 9,507 $ 4,226 $ 12,088 $ 2,545 $ 0 $ 100,176
Nonperforming 0 4 0 0 0 77 55 0 136
Total Consumer - Direct $ 41,761 $ 19,326 $ 10,727 $ 9,507 $ 4,226 $ 12,165 $ 2,600 $ 0 $ 100,312
Current-period gross writeoffs $ 1,633 $ 13 $ 5 $ 32 $ 10 $ 165 $ 0 $ 0 $ 1,858
Consumer - Indirect
Performing $ 0 $ 0 $ 0 $ 62 $ 30 $ 229 $ 0 $ 0 $ 321
Nonperforming 0 0 0 0 0 16 0 0 16
Total Consumer - Indirect $ 0 $ 0 $ 0 $ 62 $ 30 $ 245 $ 0 $ 0 $ 337
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 9 $ 0 $ 0 $ 9
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December 31, 2023
(In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Loans
Commercial and Industrial - Other:
Pass $ 130,993 $ 92,335 $ 68,030 $ 28,237 $ 33,618 $ 141,758 $ 212,349 $ 5,063 $ 712,383
Special Mention 915 196 222 242 79 1,287 682 0 3,623
Substandard 0 46 78 329 18 2,833 2,580 0 5,884
Total Commercial and Industrial - Other $ 131,908 $ 92,577 $ 68,330 $ 28,808 $ 33,715 $ 145,878 $ 215,611 $ 5,063 $ 721,890
Current-period gross writeoffs $ 6 $ 0 $ 0 $ 0 $ 0 $ 29 $ 0 $ 0 $ 35
Commercial and Industrial - Agriculture:
Pass $ 24,924 $ 11,935 $ 3,341 $ 3,114 $ 3,268 $ 16,759 $ 36,728 $ 1,030 $ 101,099
Special Mention 0 0 47 0 0 0 0 0 47
Substandard 0 0 0 56 0 8 1 0 65
Total Commercial and Industrial - Agriculture $ 24,924 $ 11,935 $ 3,388 $ 3,170 $ 3,268 $ 16,767 $ 36,729 $ 1,030 $ 101,211
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Commercial and Industrial - PPP:
Pass $ 0 $ 0 $ 264 $ 140 $ 0 $ 0 $ 0 $ 0 $ 404
Special Mention 0 0 0 0 0 0 0 0 0
Substandard 0 0 0 0 0 0 0 0 0
Total Commercial and Industrial - PPP $ 0 $ 0 $ 264 $ 140 $ 0 $ 0 $ 0 $ 0 $ 404
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Commercial Real Estate
Pass $ 246,016 $ 317,583 $ 365,975 $ 292,960 $ 272,722 $ 921,201 $ 34,346 $ 24,949 $ 2,475,752
Special Mention 0 632 0 17,133 11,422 16,100 0 0 45,287
Substandard 0 15,300 2,128 0 2,059 45,709 1,356 0 66,552
Total Commercial Real Estate $ 246,016 $ 333,515 $ 368,103 $ 310,093 $ 286,203 $ 983,010 $ 35,702 $ 24,949 $ 2,587,591
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Commercial Real Estate - Agriculture:
Pass $ 14,668 $ 37,256 $ 22,813 $ 21,001 $ 23,794 $ 93,890 $ 257 $ 6,364 $ 220,043
Special Mention 0 0 0 0 378 1,033 0 0 1,411
Substandard 0 0 0 0 170 46 0 0 216
Total Commercial Real Estate - Agriculture $ 14,668 $ 37,256 $ 22,813 $ 21,001 $ 24,342 $ 94,969 $ 257 $ 6,364 $ 221,670
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
25
(In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Loans
Commercial Real Estate - Construction
Pass $ 9,265 $ 2,793 $ 8,068 $ 2,501 $ 357 $ 596 $ 274,224 $ 5,602 $ 303,406
Special Mention 0 0 0 0 0 0 0 0 0
Substandard 0 0 0 0 0 0 0 0 0
Total Commercial Real Estate - Construction $ 9,265 $ 2,793 $ 8,068 $ 2,501 $ 357 $ 596 $ 274,224 $ 5,602 $ 303,406
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Residential - Home Equity
Performing $ 2,378 $ 2,237 $ 890 $ 529 $ 832 $ 8,178 $ 164,205 $ 5,837 $ 185,086
Nonperforming 0 0 0 0 0 337 2,893 0 3,230
Total Residential - Home Equity $ 2,378 $ 2,237 $ 890 $ 529 $ 832 $ 8,515 $ 167,098 $ 5,837 $ 188,316
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 20 $ 0 $ 0 $ 20
Residential - Mortgages
Performing $ 131,004 $ 186,401 $ 256,127 $ 221,945 $ 109,594 $ 456,167 $ 0 $ 0 $ 1,361,238
Nonperforming 0 393 329 986 883 9,446 0 0 12,037
Total Residential - Mortgages $ 131,004 $ 186,794 $ 256,456 $ 222,931 $ 110,477 $ 465,613 $ 0 $ 0 $ 1,373,275
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Consumer - Direct
Performing $ 50,295 $ 13,327 $ 11,316 $ 5,157 $ 4,037 $ 9,857 $ 2,723 $ 0 $ 96,712
Nonperforming 2 0 0 0 70 157 1 0 230
Total Consumer - Direct $ 50,297 $ 13,327 $ 11,316 $ 5,157 $ 4,107 $ 10,014 $ 2,724 $ 0 $ 96,942
Current-period gross writeoffs $ 801 $ 29 $ 16 $ 21 $ 83 $ 28 $ 0 $ 0 $ 978
Consumer - Indirect
Performing $ 0 $ 0 $ 97 $ 68 $ 402 $ 234 $ 0 $ 0 $ 801
Nonperforming 0 0 0 0 30 10 0 0 40
Total Consumer - Indirect $ 0 $ 0 $ 97 $ 68 $ 432 $ 244 $ 0 $ 0 $ 841
Current-period gross writeoffs $ 0 $ 0 $ 0 $ 0 $ 53 $ 14 $ 0 $ 0 $ 67
6. Earnings Per Share
Earnings per share in the table below, for the three and nine month periods ended September 30, 2024 and 2023 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. Prior to 2019, the Company issued restricted stock awards that contained such rights and are therefore considered participating securities. Since 2019, the Company has issued restricted stock awards that do not have nonforfeitable rights to dividends and are therefore not 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.
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Three Months Ended
(In thousands, except share and per share data) 9/30/2024 9/30/2023
Basic
Net income (loss) available to common shareholders $ 18,638 $ (33,354)
Less: income (loss) attributable to unvested stock-based compensation awards 0 (8)
Net earnings (loss) allocated to common shareholders 18,638 (33,362)
Weighted average shares outstanding, including unvested stock-based compensation awards 14,394,900 14,364,909
Less: average unvested stock-based compensation awards (179,293) (179,146)
Weighted average shares outstanding - Basic 14,215,607 14,185,763
Diluted
Net earnings (loss) allocated to common shareholders 18,638 (33,362)
Weighted average shares outstanding - Basic 14,215,607 14,185,763
Plus: incremental shares from assumed conversion of stock-based compensation awards 67,648 38,985
Weighted average shares outstanding - Diluted 14,283,255 14,224,748
Basic EPS $ 1.31 $ (2.35)
Diluted EPS $ 1.30 $ (2.35)
Stock-based compensation awards representing 2,157 and 53,490 common shares during the three months ended September 30, 2024 and 2023, 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) 9/30/2024 9/30/2023
Basic
Net income (loss) available to common shareholders $ 51,192 $ (5,498)
Less: income (loss) attributable to unvested stock-based compensation awards 0 (34)
Net earnings (loss) allocated to common shareholders 51,192 (5,532)
Weighted average shares outstanding, including unvested stock-based compensation awards 14,399,961 14,461,819
Less: unvested stock-based compensation awards (185,949) (186,890)
Weighted average shares outstanding - Basic 14,214,012 14,274,929
Diluted
Net earnings (loss) allocated to common shareholders 51,192 (5,532)
Weighted average shares outstanding - Basic 14,214,012 14,274,929
Plus: incremental shares from assumed conversion of stock-based compensation awards 39,716 44,906
Weighted average shares outstanding - Diluted 14,253,728 14,319,835
Basic EPS $ 3.60 $ (0.39)
Diluted EPS $ 3.59 $ (0.39)
Stock-based compensation awards representing approximately 47,919 and 39,266 common shares during the nine months ended September 30, 2024 and 2023, respectively were not included in the computations of diluted earnings per common share because the effect on those periods would have been anti-dilutive.
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7. Other Comprehensive Income (Loss)
The following tables present reclassifications out of accumulated other comprehensive income (loss) for the three and nine month periods ended September 30, 2024 and 2023:
Three Months Ended September 30, 2024
(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 $ 45,431 $ (11,131) $ 34,300
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income (loss) (50) 12 (38)
Net unrealized losses 45,381 (11,119) 34,262
Employee benefit plans:
Amortization of net retirement plan actuarial gain (loss) 229 (56) 173
Amortization of net retirement plan prior service cost 45 (10) 35
Employee benefit plans 274 (66) 208
Other comprehensive loss $ 45,655 $ (11,185) $ 34,470
Three Months Ended September 30, 2023
(In thousands) Before-Tax
Amount 		Tax (Expense)
Benefit 		Net of Tax
Available-for-sale debt securities:
Change in net unrealized gain (loss) during the period $ (37,449) $ 9,176 $ (28,273)
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income (loss) 62,932 (15,419) 47,513
Net unrealized gains/losses 25,483 (6,243) 19,240
Employee benefit plans:
Amortization of net retirement plan actuarial gain 279 (68) 211
Amortization of net retirement plan prior service cost 53 (13) 40
Employee benefit plans 332 (81) 251
Other comprehensive (loss) income $ 25,815 $ (6,324) $ 19,491
Nine Months Ended September 30, 2024
(In thousands) Before-Tax
Amount 		Tax (Expense)
Benefit 		Net of Tax
Available-for-sale debt securities:
Change in net unrealized gain (loss) during the period $ 30,756 $ (7,535) $ 23,221
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income (50) 12 (38)
Net unrealized losses 30,706 (7,523) 23,183
Employee benefit plans:
Amortization of net retirement plan actuarial loss 686 (168) 518
Amortization of net retirement plan prior service cost 137 (33) 104
Employee benefit plans 823 (201) 622
Other comprehensive loss $ 31,529 $ (7,724) $ 23,805
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Nine Months Ended September 30, 2023
(In thousands) Before-Tax
Amount 		Tax (Expense)
Benefit 		Net of Tax
Available-for-sale debt securities:
Change in net unrealized gain (loss) during the period $ (27,725) $ 6,793 $ (20,932)
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income (loss) 69,984 (17,146) 52,838
Net unrealized gains/losses 42,259 (10,353) 31,906
Employee benefit plans:
Amortization of net retirement plan actuarial loss 837 (205) 632
Amortization of net retirement plan prior service cost 162 (40) 122
Employee benefit plans 999 (245) 754
Other comprehensive (loss) income $ 43,258 $ (10,598) $ 32,660
The following table presents the activity in our accumulated other comprehensive (loss) income for the periods indicated:
(In thousands) Available-for-
Sale Debt Securities 		Employee
Benefit Plans 		Accumulated
Other
Comprehensive
(Loss) Income
Balance at July 1, 2024 $ (110,614) $ (25,056) $ (135,670)
Other comprehensive loss before reclassifications 34,300 0 34,300
Amounts reclassified from accumulated other comprehensive (loss) income (38) 208 170
Net current-period other comprehensive income 34,262 208 34,470
Balance at September 30, 2024 $ (76,352) $ (24,848) $ (101,200)
Balance at January 1, 2024 $ (99,535) $ (25,470) $ (125,005)
Other comprehensive loss before reclassifications 23,221 0 23,221
Amounts reclassified from accumulated other comprehensive (loss) income (38) 622 584
Net current-period other comprehensive income 23,183 622 23,805
Balance at September 30, 2024 $ (76,352) $ (24,848) $ (101,200)
(In thousands) Available-for-
Sale Debit Securities 		Employee
Benefit Plans 		Accumulated
Other
Comprehensive
(Loss) Income
Balance at July 1, 2023 $ (166,137) $ (29,383) $ (195,520)
Other comprehensive income before reclassifications (28,273) 0 (28,273)
Amounts reclassified from accumulated other comprehensive (loss) income 47,513 251 47,764
Net current-period other comprehensive (loss) income 19,240 251 19,491
Balance at September 30, 2023 $ (146,897) $ (29,132) $ (176,029)
Balance at January 1, 2023 $ (178,803) $ (29,886) $ (208,689)
Other comprehensive loss before reclassifications (20,932) 0 (20,932)
Amounts reclassified from accumulated other comprehensive (loss) income 52,838 754 53,592
Net current-period other comprehensive income (loss) 31,906 754 32,660
Balance at September 30, 2023 $ (146,897) $ (29,132) $ (176,029)
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The following tables present the amounts reclassified out of each component of accumulated other comprehensive (loss) income for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30, 2024
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount
Reclassified from
Accumulated
Other
Comprehensive
(Loss) Income1
Affected Line Item in the
Statement Where Net Income is
Presented
Available-for-sale debt securities:
Unrealized gains and losses on available-for-sale debt securities $ 50 Net gain (loss) on securities transactions
(12) Income tax expense
38 Net of tax
Employee benefit plans:
Amortization of the following2
Net retirement plan actuarial loss (229) Other operating expense
Net retirement plan prior service cost (45) Other operating expense
(274) Total before tax
66 Income tax expense
$ (208) Net of tax
Three Months Ended September 30, 2023
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount
Reclassified from
Accumulated
Other
Comprehensive
(Loss) Income1
Affected Line Item in the
Statement Where Net Income is
Presented
Available-for-sale debt securities:
Unrealized gains and losses on available-for-sale debt securities $ (62,932) Net gain (loss) on securities transactions
15,419 Tax expense
(47,513) Net of tax
Employee benefit plans:
Amortization of the following2
Net retirement plan actuarial loss (279) Other operating expense
Net retirement plan prior service cost (53) Other operating expense
(332) Total before tax
81 Tax benefit
$ (251) Net of tax
30
Nine Months Ended September 30, 2024
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount Reclassified from Accumulated Other Comprehensive (Loss)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 $ 50 Net gain (loss) on securities transactions
(12) Income tax expense
38 Net of tax
Employee benefit plans:
Amortization of the following2
Net retirement plan actuarial loss (686) Other operating expense
Net retirement plan prior service cost (137) Other operating expense
(823) Total before tax
201 Income tax expense
$ (622) Net of tax
Nine Months Ended September 30, 2023
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount Reclassified from Accumulated Other Comprehensive (Loss)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 gain (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
1 Amounts in parentheses indicate 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").
8. Employee Benefit Plans
The following tables set forth the amount of the net periodic benefit cost recognized by the Company for the Company's pension plan, post-retirement plan (Life and Health), and supplemental employee retirement plans ("SERP") including the following components: service cost, interest cost, expected return on plan assets for the period, amortization of the unrecognized transitional obligation or transition asset, and the amounts of recognized gains and losses, prior service cost recognized, and gain or loss recognized due to settlement or curtailment.
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Components of Net Periodic Benefit Cost
Pension Benefits Life and Health SERP Benefits
Three Months Ended Three Months Ended Three Months Ended
(In thousands) 9/30/2024 9/30/2023 9/30/2024 9/30/2023 9/30/2024 9/30/2023
Service cost $ 0 $ 0 $ 6 $ 8 $ 15 $ 11
Interest cost 797 819 86 89 283 287
Expected return on plan assets (1,287) (1,198) 0 0 0 0
Amortization of net retirement plan actuarial loss 244 289 (15) (10) 0 0
Amortization of net retirement plan prior service (credit) cost 0 0 (11) (16) 56 69
Net periodic benefit (income) cost $ (246) $ (90) $ 66 $ 71 $ 354 $ 367
Pension Benefits Life and Health SERP Benefits
Nine Months Ended Nine Months Ended Nine Months Ended
(In thousands) 9/30/2024 9/30/2023 9/30/2024 9/30/2023 9/30/2024 9/30/2023
Service cost $ 0 $ 0 $ 19 $ 24 $ 44 $ 32
Interest cost 2,391 2,456 257 266 848 861
Expected return on plan assets (3,860) (3,592) 0 0 0 0
Amortization of net retirement plan actuarial loss 732 867 (46) (30) 0 0
Amortization of net retirement plan prior service cost (credit) 0 0 (32) (46) 169 208
Net periodic benefit (income) cost $ (737) $ (269) $ 198 $ 214 $ 1,061 $ 1,101
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 $622,000 and $754,000, net of tax, as amortization of amounts previously recognized in accumulated other comprehensive (loss) income, for the nine months ended September 30, 2024 and 2023, respectively.
The Company is not required to contribute to the pension plan, but it may make voluntary contributions. The Company did not contribute to the pension plan in the first nine months of 2024 and 2023.
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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 Ended Nine Months Ended
(In thousands) 9/30/2024 9/30/2023 9/30/2024 9/30/2023
Noninterest Income
Other service charges $ 646 $ 645 $ 1,967 $ 1,909
Earnings from corporate owned life insurance 513 (2) 2,290 1,167
Net gains on the sale of loans originated for sale 387 21 701 86
Other income 753 326 2,363 1,372
Total other income $ 2,299 $ 990 $ 7,321 $ 4,534
Noninterest Expenses
Marketing expense $ 982 $ 782 $ 3,050 $ 3,575
Professional fees 1,544 1,761 4,910 5,689
Legal fees 313 293 863 1,347
Technology expense 3,357 3,928 11,467 11,590
FDIC insurance 1,400 1,041 4,304 2,874
Cardholder expense 1,007 1,059 3,105 3,192
Other expenses 4,386 4,602 11,630 13,136
Total other operating expense $ 12,989 $ 13,466 $ 39,329 $ 41,403
10. Revenue Recognition
The Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification ("ASC") Topic 606) ("ASC 606"), and all subsequent ASUs that modified ASC 606. 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.
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 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. 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.
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
The Company also earns transaction fees and commissions related to product sales that represent the Company's share of transaction fees resulting from investment services and programs provided through an agent relationship with a third-party
33
broker-dealer. Those fees are collected and recognized on a monthly basis. Trailing fees are based upon fair values and are assessed, collected and recognized on a quarterly basis. Tompkins Community Bank acts as an agent in arranging the relationship between the customer and the third-party provider and does not control the services rendered; therefore, investment product sales commissions and fees are reported net of related costs.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company's performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company's performance obligation is satisfied and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers' accounts.
Card Services Income
Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company's debit and credit cards are processed through card payment networks such as MasterCard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. The Company's performance obligation for fees and exchange are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Other
Other service charges include revenue from processing wire and ACH transfers, lock box service and safe deposit box rental. Payment on these revenue streams is received primarily through a direct charge to the customer's account, immediately or in the following month, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time.
The following tables present noninterest income, segregated by revenue streams in-scope and out-of-scope of ASC 606, for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended
(In thousands) 09/30/2024 09/30/2023
Noninterest Income
In-scope of Topic 606:
Commissions and Fees $ 10,159 $ 10,301
Installment Billing 120 138
Refund of Commissions (95) (60)
Contract Liabilities/Deferred Revenue 0 0
Contingent Commissions 1,099 1,018
Subtotal Insurance Revenues 11,283 11,397
Trust and Asset Management 4,632 3,423
Mutual Fund & Investment Income 293 919
Subtotal Investment Service Income 4,925 4,342
Service Charges on Deposit Accounts 1,872 1,754
Card Services Income 2,921 2,860
Other 306 314
Noninterest Income (in-scope of ASC 606) 21,307 20,667
Noninterest Income (out-of-scope of ASC 606) 2,078 (62,291)
Total Noninterest Income $ 23,385 $ (41,624)
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Nine Months Ended
(In thousands) 9/30/2024 9/30/2023
Noninterest Income
In-scope of Topic 606:
Commissions and Fees $ 27,553 $ 26,796
Installment Billing 115 97
Refund of Commissions (75) 113
Contract Liabilities/Deferred Revenue (289) (298)
Contingent Commissions 3,325 2,870
Subtotal Insurance Revenues 30,629 29,578
Trust and Asset Management 13,541 10,494
Mutual Fund & Investment Income 1,170 3,035
Subtotal Investment Service Income 14,711 13,529
Service Charges on Deposit Accounts 5,434 5,140
Card Services Income 9,138 8,629
Other 930 989
Noninterest Income (in-scope of ASC 606) 60,842 57,865
Noninterest Income (out-of-scope of ASC 606) 6,456 (66,474)
Total Noninterest Income $ 67,298 $ (8,609)
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration or before payment is due, which would result in contract receivables or assets, respectively. A contract liability balance is an entity's obligation to transfer a service to a customer for which the entity has already received payment or for which payment is due from the customer. The Company's noninterest revenue streams, excluding some insurance commissions and fees, are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Receivables primarily consist of amounts due for insurance and wealth management services performed for which the Company's performance obligations have been fully satisfied. Receivables for the insurance and wealth management services segments amounted to $6.1 million and $3.7 million, respectively, at September 30, 2024, compared to $5.7 million and $3.0 million, respectively, at December 31, 2023. Included in those amounts are contract assets related to contingent income of $2.2 million and $2.8 million, respectively, at September 30, 2024 and December 31, 2023, and contract liabilities of $0.6 million and $1.9 million, respectively, at September 30, 2024 and December 31, 2023.
Contract Acquisition Costs
The Company is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less.
11. Financial Guarantees
The Company currently does not issue any guarantees that would require liability recognition or disclosure, other than standby letters of credit. The Company extends standby letters of credit to its customers in the normal course of business. The standby letters of credit are generally short-term. As of September 30, 2024, the Company's maximum potential obligation under standby letters of credit was $33.6 million compared to $39.1 million at December 31, 2023. 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.
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12. Segment and Related Information
The Company manages its operations through three reportable business segments in accordance with the standards set forth in FASB ASC 280, "Segment Reporting": (i) banking ("Banking"), (ii) insurance ("Tompkins Insurance") and (iii) wealth management ("Tompkins Financial Advisors"). The Company's insurance services and wealth management services, other than trust services, are managed separately from the Banking segment.
Banking
Tompkins Community Bank has twelve banking offices located in Ithaca, NY and surrounding communities; fifteen banking offices located in the Genesee Valley region of New York State, which includes Monroe County; twelve banking offices located in the counties north of New York City; and sixteen banking offices headquartered and operating in 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 four stand-alone offices in Western New York.
Wealth Management
The wealth management segment is generally organized under the Tompkins Financial Advisors brand. Tompkins Financial Advisors offers a comprehensive suite of financial services to customers, including trust and estate services, investment management and financial and insurance planning for individuals, corporate executives, small business owners and high net worth individuals. Tompkins Financial Advisors has offices in each of the Company's regional markets.
Summarized financial information concerning the Company's reportable segments and the reconciliation to the Company's consolidated results is shown in the following tables. 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, 2023.
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Three Months Ended September 30, 2024
(In thousands) Banking Insurance Wealth Management Intercompany Consolidated
Interest income $ 89,129 $ 1 $ 0 $ (1) $ 89,129
Interest expense 35,937 0 0 (1) 35,936
Net interest income 53,192 1 0 0 53,193
Provision for credit loss expense 2,174 0 0 0 2,174
Noninterest income 7,465 11,414 5,019 (513) 23,385
Noninterest expense 39,180 7,193 4,017 (513) 49,877
Income before income tax expense 19,303 4,222 1,002 0 24,527
Income tax expense 4,456 1,155 247 0 5,858
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation 14,847 3,067 755 0 18,669
Less: Net income attributable to noncontrolling interests 31 0 0 0 31
Net Income attributable to Tompkins Financial Corporation $ 14,816 $ 3,067 $ 755 $ 0 $ 18,638
Depreciation and amortization $ 2,144 $ 38 $ 42 $ 0 $ 2,224
Assets 7,946,772 49,928 29,520 (19,793) 8,006,427
Goodwill 64,525 19,866 8,211 0 92,602
Other intangibles, net 1,110 1,103 25 0 2,238
Net loans and leases 5,825,877 0 0 0 5,825,877
Deposits 6,605,596 0 0 (27,700) 6,577,896
Total Equity 647,369 40,266 33,713 0 721,348
Three Months Ended September 30, 2023
(In thousands) Banking Insurance Wealth
Management 		Intercompany Consolidated
Interest income $ 75,465 $ 1 $ 0 $ (1) $ 75,465
Interest expense 24,453 0 0 (1) 24,452
Net interest income 51,012 1 0 0 51,013
Provision for credit loss expense 1,150 0 0 0 1,150
Noninterest income (57,007) 11,529 4,414 (560) (41,624)
Noninterest expense 39,648 7,109 3,668 (559) 49,866
(Loss) Income before income tax expense (46,793) 4,421 746 (1) (41,627)
Income tax (benefit) expense (9,701) 1,213 184 0 (8,304)
Net (Loss) Income attributable to noncontrolling interests and Tompkins Financial Corporation (37,092) 3,208 562 (1) (33,323)
Less: Net income attributable to noncontrolling interests 31 0 0 0 31
Net (Loss) Income attributable to Tompkins Financial Corporation $ (37,123) $ 3,208 $ 562 $ (1) $ (33,354)
Depreciation and amortization $ 2,702 $ 44 $ 44 $ 0 $ 2,790
Assets 7,632,733 46,222 28,730 (16,523) 7,691,162
Goodwill 64,655 19,866 8,081 0 92,602
Other intangibles, net 967 1,416 38 0 2,421
Net loans and leases 5,385,524 0 0 0 5,385,524
Deposits 6,645,587 0 0 (22,151) 6,623,436
Total Equity 545,037 36,745 30,574 0 612,356
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Nine Months Ended September 30, 2024
(In thousands) Banking Insurance Wealth
Management 		Intercompany Consolidated
Interest income $ 257,552 $ 3 $ 0 $ (3) $ 257,552
Interest expense 102,734 0 0 (3) 102,731
Net interest income 154,818 3 0 0 154,821
Provision for credit loss expense 5,200 0 0 0 5,200
Noninterest income 22,398 31,161 15,318 (1,579) 67,298
Noninterest expense 118,205 21,506 11,544 (1,579) 149,676
Income before income tax expense 53,811 9,658 3,774 0 67,243
Income tax expense 12,380 2,644 934 0 15,958
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation 41,431 7,014 2,840 0 51,285
Less: Net income attributable to noncontrolling interests 93 0 0 0 93
Net Income attributable to Tompkins Financial Corporation $ 41,338 $ 7,014 $ 2,840 $ 0 $ 51,192
Depreciation and amortization $ 7,588 $ 122 $ 124 $ 0 $ 7,834
Nine Months Ended September 30, 2023
(In thousands) Banking Insurance Wealth
Management 		Intercompany Consolidated
Interest income $ 216,573 $ 3 $ 0 $ (3) $ 216,573
Interest expense 59,421 0 0 (3) 59,418
Net interest income 157,152 3 0 0 157,155
Provision for credit loss expense 2,578 0 0 0 2,578
Noninterest income (50,687) 29,963 13,771 (1,656) (8,609)
Noninterest expense 120,882 21,526 11,240 (1,656) 151,992
(Loss) Income before income tax expense (16,995) 8,440 2,531 0 (6,024)
Income tax (benefit) expense (3,565) 2,323 623 0 (619)
Net (Loss) Income attributable to noncontrolling interests and Tompkins Financial Corporation (13,430) 6,117 1,908 0 (5,405)
Less: Net income attributable to noncontrolling interests 93 0 0 0 93
Net (Loss) Income attributable to Tompkins Financial Corporation $ (13,523) $ 6,117 $ 1,908 $ 0 $ (5,498)
Depreciation and amortization $ 7,942 $ 133 $ 133 $ 0 $ 8,208
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 accordance with GAAP and expands disclosures about fair value measurements. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Transfers between levels, when determined to be appropriate, are recognized at the end of each reporting period.
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The three levels of the fair value hierarchy under ASC 820 are:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023, segregated by the level of valuation inputs within the fair value hierarchy used to measure fair value:
Recurring Fair Value Measurements
September 30, 2024
(In thousands) Total (Level 1) (Level 2) (Level 3)
Assets
Available-for-sale debt securities
U.S. Treasuries $ 82,111 $ 0 $ 82,111 $ 0
Obligations of U.S. Government sponsored entities 400,205 0 400,205 0
Obligations of U.S. states and political subdivisions 79,518 0 79,518 0
Mortgage-backed securities - residential, issued by:
U.S. Government agencies 67,100 0 67,100 0
U.S. Government sponsored entities 677,953 0 677,953 0
U.S. corporate debt securities 2,392 0 2,392 0
Total Available-for-sale debt securities $ 1,309,279 $ 0 $ 1,309,279 $ 0
Equity securities, at fair value 801 0 0 801
Derivatives designated as hedging instruments 362 0 362 0
Derivatives not designated as hedging instruments 4,452 0 4,452 0
Liabilities
Derivatives not designated as hedging instruments $ 4,880 $ 0 $ 4,880 $ 0
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Recurring Fair Value Measurements
December 31, 2023
(In thousands) Total (Level 1) (Level 2) (Level 3)
Assets
Available-for-sale debt securities
U.S. Treasuries $ 109,904 $ 0 $ 109,904 $ 0
Obligations of U.S. Government sponsored entities 456,458 0 456,458 0
Obligations of U.S. states and political subdivisions 81,924 0 81,924 0
Mortgage-backed securities - residential, issued by:
U.S. Government agencies 45,240 0 45,240 0
U.S. Government sponsored entities 720,830 0 720,830 0
U.S. corporate debt securities 2,294 0 2,294 0
Total Available-for-sale debt securities $ 1,416,650 $ 0 $ 1,416,650 $ 0
Equity securities, at fair value 787 0 0 787
Derivatives designated as hedging instruments 1,503 0 1,503 0
Derivatives not designated as hedging instruments 1,610 0 1,610 0
Liabilities
Derivatives not designated as hedging instruments $ 1,826 $ 0 $ 1,826 $ 0
Securities:Fair values for U.S. Treasury securities are based on quoted market prices. Fair values for obligations of U.S. government sponsored entities, mortgage-backed securities-residential, obligations of U.S. states and political subdivisions, and U.S. corporate debt securities are based on quoted market prices, where available, as provided by third party pricing vendors. If quoted market prices were not available, fair values are based on quoted market prices of comparable instruments in active markets and/or based upon a matrix pricing methodology, which uses comprehensive interest rate tables to determine market price, movement and yield relationships. These securities are reviewed periodically to determine if there are any events or changes in circumstances that would adversely affect their value.
The change in the fair value of equity securities valued using significant unobservable inputs (Level 3), for the periods ended September 30, 2024 and December 31, 2023, was immaterial.
There were no transfers between Levels 1, 2 and 3 for the nine months ended September 30, 2024.
The Company determines fair value for its available-for-sale debt securities using an independent bond pricing service for identical assets or very similar securities. The Company determines fair value for its equity securities based on the underlying equity fund's pricing and valuation procedures which consider recent sales price, market quotations from a pricing service, or market quotes from an independent broker-dealer. The Company has reviewed the pricing sources, including methodologies used, and finds them to be fairly stated.
Derivatives:The Company has contracted with a third party vendor to provide periodic valuations for its interest rate derivatives to determine the fair value of its interest rate contracts. The vendor utilizes standard valuation methodologies applicable to interest rate derivatives such as discounted cash flow analysis. Such valuations are based upon readily observable market data and are therefore considered Level 2 valuations by the Company.
Certain assets are measured at fair value on a nonrecurring basis. For the Company, these include loans held for sale, individually evaluated loans, and other real estate owned ("OREO"). For the three and nine months ended September 30, 2024, certain individually evaluated loans were remeasured and reported at fair value through a specific valuation allowance and/or partial charge-offs for credit losses based upon the fair value of the underlying collateral. Collateral values are estimated using Level 3 inputs based upon customized discounting criteria. In addition to collateral dependent evaluated loans, certain other real estate owned was 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.
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Three months ended September 30, 2024
(In thousands) Fair value measurements at reporting
date using: 		Gain (losses)
from fair
value changes
Assets: As of 09/30/2024 Quoted prices in
active markets for
identical assets
(Level 1) 		Significant other
observable inputs
(Level 2) 		Significant
unobservable inputs
(Level 3) 		Three months ended 9/30/2024
Individually evaluated loans $ 1,211 $ 0 $ 0 $ 1,211 $ 0
Three months ended September 30, 2023
(In thousands) Fair value measurements at reporting
date using: 		Gain (losses)
from fair
value changes
Assets: As of 09/30/2023 Quoted prices in
active markets for
identical assets
(Level 1) 		Significant other
observable inputs
(Level 2) 		Significant
unobservable inputs
(Level 3) 		Three months ended 9/30/2023
Other real estate owned $ 0 $ 0 $ 0 $ 0 $ 1
Nine months ended September 30, 2024
(In thousands) Fair value measurements at reporting
date using: 		Gain (losses)
from fair
value changes
Assets: As of 09/30/2024 Quoted prices in
active markets for
identical assets
(Level 1) 		Significant other
observable inputs
(Level 2) 		Significant
unobservable inputs
(Level 3) 		Nine months ended 9/30/2024
Individually evaluated loans $ 3,420 $ 0 $ 0 $ 3,420 $ 0
Other real estate owned 81 0 0 81 43
Nine months ended September 30, 2023
(In thousands) Fair value measurements at reporting
date using: 		Gain (losses)
from fair
value changes
Assets: As of 09/30/2023 Quoted prices in
active markets for
identical assets
(Level 1) 		Significant other
observable inputs
(Level 2) 		Significant
unobservable inputs
(Level 3) 		Nine months ended 9/30/2023
Individually evaluated loans $ 3,742 $ 0 $ 0 $ 3,742 $ 826
Other real estate owned 0 0 0 23
The fair value estimates, methods and assumptions set forth below for the Company's financial instruments, including those financial instruments carried at cost, are made solely to comply with disclosures required by GAAP and should be read in conjunction with the financial statements and notes included in this Report.
For loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. For real estate loans, fair value of the loan's collateral is determined by third party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the
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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 tables present the carrying amounts and estimated fair values of the Company's financial instruments at September 30, 2024 and December 31, 2023. The carrying amounts shown in the tables are included in the Consolidated Statements of Condition under the indicated captions.
Estimated Fair Value of Financial Instruments
September 30, 2024
(In thousands) Carrying
Amount 		Fair Value (Level 1) (Level 2) (Level 3)
Financial Assets:
Cash and cash equivalents $ 132,320 $ 132,320 $ 132,320 $ 0 $ 0
Securities - held-to-maturity 312,446 276,599 0 276,599 0
FHLB stock and other stock 30,936 30,936 0 30,936 0
Accrued interest receivable 28,194 28,194 0 28,194 0
Loans/leases, net1
5,825,877 5,489,226 0 0 5,489,226
Financial Liabilities:
Time deposits $ 1,042,007 $ 1,039,418 $ 0 $ 1,039,418 $ 0
Other deposits 5,535,889 5,535,889 0 5,535,889 0
Fed funds purchased and securities sold
under agreements to repurchase 67,506 67,506 0 67,506 0
Other borrowings 539,327 541,082 0 541,082 0
Accrued interest payable 3,957 3,957 0 3,957 0
Estimated Fair Value of Financial Instruments
December 31, 2023
(In thousands) Carrying
Amount 		Fair Value (Level 1) (Level 2) (Level 3)
Financial Assets:
Cash and cash equivalents $ 79,542 $ 79,542 $ 79,542 $ 0 $ 0
Securities - held to maturity 312,401 267,455 0 267,455 0
FHLB stock and other stock 33,719 33,719 0 33,719 0
Accrued interest receivable 26,107 26,107 0 26,107 0
Loans/leases, net1
5,554,351 5,126,679 0 0 5,126,679
Financial Liabilities:
Time deposits $ 998,013 $ 990,933 $ 0 $ 990,933 $ 0
Other deposits 5,401,834 5,401,834 0 5,401,834 0
Fed funds purchased and securities sold
under agreements to repurchase 50,996 50,996 0 50,996 0
Other borrowings 602,100 600,814 0 600,814 0
Accrued interest payable 3,474 3,474 0 3,474 0
1 Lease receivables, although excluded from the scope of ASC Topic 825, are included in the estimated fair value amounts at their carrying value.
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The following methods and assumptions were used in estimating fair value disclosures for financial instruments:
Cash and Cash Equivalents:The carrying amounts reported in the Consolidated Statements of Condition for cash, noninterest-bearing deposits, money market funds, and Federal funds sold approximate the fair value of those assets.
Securities - Held-to-Maturity: Fair values for U.S. Treasury securities are based on quoted market prices. Fair values for obligations of U.S. government sponsored entities and mortgage-backed securities-residential are based on quoted market prices, where available, as provided by third party pricing vendors. If quoted market prices were not available, fair values are based on quoted market prices of comparable instruments in active markets and/or based upon a matrix pricing methodology, which uses comprehensive interest rate tables to determine market price, movement and yield relationships. These securities are reviewed periodically to determine if there are any events or changes in circumstances that would adversely affect their value.
FHLB Stock and Other Stock:The carrying amount of FHLB stock approximates fair value. If the stock is redeemed, the Company will receive an amount equal to the par value of the stock. For miscellaneous equity securities, carrying value is cost.
Loans and Leases:Fair value for loans are calculated using an exit price notion. The Company's valuation methodology takes into account factors such as estimated cash flows, including contractual cash flow and assumptions for prepayments; liquidity risk; and credit risk. The fair values of residential loans were estimated using discounted cash flow analyses, based upon available market benchmarks for rates and prepayment assumptions. The fair values of commercial and consumer loans were estimated using discounted cash flow analyses, based upon interest rates currently offered for loans and leases with similar terms and credit quality. The fair values of loans held for sale were determined based upon contractual prices for loans with similar characteristics.
Accrued Interest Receivable and Accrued Interest Payable:The carrying amount of these short term instruments approximates 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 approximates 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 risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company also enters into interest rate derivatives to accommodate the business requirements of certain qualifying customers. All derivatives are recognized as other assets or other liabilities on the Company's Consolidated Statements of Condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and resulting designation.
Derivatives Designated as Hedging Instruments
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
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agreements without the exchange of the underlying notional amount. As of September 30, 2024, the Company had interest rate swaps with a total notional amount of $150.0 million hedging fixed-rate residential mortgage loans.
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, 2024 and December 31, 2023, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges.
Line Item in the Statement of Financial Position in Which the Hedged Item is Included Carrying Amount of the Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities) Carrying Amount of the Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
9/30/2024 9/30/2024 12/31/2023 12/31/2023
Fixed Rate Loans1
$149,734 $(266) $148,633 $(1,367)
Total $149,734 $(266) $148,633 $(1,367)
1These 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, 2024 and 12/31/2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $721.9 million and $763.4 million respectively; the cumulative basis adjustments associated with these hedging relationships was $0.3 million and $1.4 million, respectively; and the amounts of the designated hedged items were $150.0 million for both periods.
Derivatives Not Designated as Hedging Instruments
The Company enters into interest rate swaps to help commercial loan borrowers manage their interest rate risk. These interest rate swap contracts allow borrowers to convert variable-rate loan payments to fixed-rate loan payments. When the Company enters into an interest rate derivative contract with a commercial loan borrower, it simultaneously enters into a "mirror" interest rate contract with a third party. For interest rate swaps, the third party exchanges the client's fixed-rate loan payments for variable-rate loan payments. The Company's credit policies with respect to interest rate contracts with commercial borrowers are similar to those used for loans. The Company retains the risk that is associated with the potential failure of counterparties and the risk inherent in originating loans. The interest rate contracts with counterparties are generally subject to bilateral collateralization terms. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.
The Company has entered into risk participation agreements with other banks in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.
Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower for a fee received from the other bank.
Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Statements of Condition
The tables below present the fair value of the Company's derivative financial instruments as well as their classification on the consolidated statements of condition as of September 30, 2024 and December 31, 2023. Amounts below are presented on a net basis in accordance with applicable accounting guidance.
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Derivative Assets
September 30, 2024
(In thousands) Notional Amount Balance Sheet Location Fair Value
Derivatives designated as hedging instruments
Interest Rate Products $ 150,000 Other Assets $ 362
Total derivatives designated as hedging instruments $ 362
Derivatives not designated as hedging instruments
Interest Rate Products $ 150,475 Other Assets $ 4,452
Risk Participation Agreement 0 Other Assets 0
Total derivatives not designated as hedging instruments $ 4,452
Derivative Assets
December 31, 2023
(In thousands) Notional Amount Balance Sheet Location Fair Value
Derivatives designated as hedging instruments
Interest Rate Products $ 150,000 Other Assets $ 1,503
Total derivatives designated as hedging instruments $ 1,503
Derivatives not designated as hedging instruments
Interest Rate Products $ 34,930 Other Assets $ 1,610
Risk Participation Agreement 0 Other Assets 0
Total derivatives not designated as hedging instruments $ 1,610
Derivative Liabilities
September 30, 2024
(In thousands) Notional Amount Balance Sheet Location Fair Value
Derivatives not designated as hedging instruments
Interest Rate Products $ 150,475 Other Liabilities $ 4,843
Risk Participation Agreement 18,963 Other Liabilities 37
Total derivatives not designated as hedging instruments $ 4,880
Derivative Liabilities
December 31, 2023
(In thousands) Notional Amount Balance Sheet Location Fair Value
Derivatives not designated as hedging instruments
Interest Rate Products $ 34,930 Other Liabilities $ 1,778
Risk Participation Agreement 7,542 Other Liabilities 48
Total derivatives not designated as hedging instruments $ 1,826
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Tabular Disclosure of the Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income
The tables below present the effect of the Company's derivative financial instruments on the consolidated statements of income for the three and nine months ended September 30, 2024 and 2023:
The Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income
Location of Gain or (Loss) Recognized in Income on Derivative
Three Months Ended
9/30/2024 9/30/2023
(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 $ 675 $ 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 2,114 (555)
Derivatives designated as hedging instruments (1,439) 1,202
The Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income
Location of Gain or (Loss) Recognized in Income on Derivative
Nine Months Ended
9/30/2024 9/30/2023
(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 $ 2,010 $ 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 1,101 (3,875)
Derivatives designated as hedging instruments 909 4,827
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Tabular Disclosure of the Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Income
The tables below present the effect of the Company's derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income for the three and nine months ended September 30, 2024 and 2023:
Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Income
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20 Location of Gain or (Loss) Recognized in Income on Derivative Amount of Gain or (Loss) Recognized in Income on Derivative Amount of Gain or (Loss) Recognized in Income on Derivative
Three Months Ended
(In thousands) 9/30/2024 9/30/2023
Interest Rate Products Other Income $ (259) $ (2)
Risk Participation Agreement Other Income (18) 12
Total $ (277) $ 10
Fee Income Other income $ 791 $ 70
Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Income
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20 Location of Gain or (Loss) Recognized in Income on Derivative Amount of Gain or (Loss) Recognized in Income on Derivative Amount of Gain or (Loss) Recognized in Income on Derivative
Nine Months Ended
(In thousands) 9/30/2024 9/30/2023
Interest Rate Products Other Income $ (223) $ (2)
Risk Participation Agreement Other Income 61 14
Total $ (162) $ 12
Fee Income Other income $ 1,175 $ 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, 2024 and December 31, 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 $4.9 million and $1.8 million, respectively. As of September 30, 2024 and December 31, 2023, the Company had posted $4.4 million and $1.5 million, respectively, in collateral related to these agreements. The interest rate hedge counterparty has posted $0 and $1.5 million of collateral in proportion to potential losses in the derivative position at September 30, 2024 and December 31, 2023, respectively.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS
Tompkins Financial Corporation ("Tompkins" or the "Company") is headquartered in Ithaca, New York and is registered as a Financial Holding Company with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. The Company is a locally-oriented, community-based financial services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, and insurance services. At September 30, 2024, 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."
Tompkins' strategy centers around our core values and a commitment to delivering long-term value to our clients, communities, and shareholders. A key strategic initiative for the Company is a focus on responsible and sustainable growth, including initiatives to grow organically through our current businesses, as well as through possible acquisitions of financial institutions, branches, and financial services businesses. As such, the Company has acquired, and from time to time considers acquiring, banks, thrift institutions, branch offices of banks or thrift institutions, or other businesses that would complement the Company's business or its geographic reach. The Company generally targets merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale and expanded services.
Business Segments
Banking services consist primarily of attracting deposits from the areas served by Tompkins Community Bank, which has 55 banking offices (39 offices in New York and 16 offices in Pennsylvania) and using those deposits to originate a variety of commercial loans, agricultural loans, consumer loans, real estate loans, and leases. The Company's lending function is managed within the guidelines of a comprehensive Board-approved lending policy. Reporting systems are in place to provide management with ongoing information related to loan production, loan quality, concentrations of credit, loan delinquencies, and nonperforming and potential problem loans. Banking services also include a full suite of products such as debit cards, credit cards, remote deposit, electronic banking, mobile banking, cash management, and safe deposit services.
Wealth management services consist of investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. Wealth management services are provided under the trade name Tompkins Financial Advisors. Tompkins Financial Advisors offers services to customers of Tompkins Community Bank and shares offices in each of the banking markets.
Insurance services include property and casualty insurance, employee benefit consulting, and life, long-term care and disability insurance. Tompkins Insurance is headquartered in Batavia, New York. Over the years, Tompkins Insurance has acquired smaller insurance agencies in the market areas serviced by the Company's banking subsidiaries and successfully consolidated them into Tompkins Insurance. Tompkins Insurance offers services to customers of Tompkins Community Bank and shares offices in each of the banking markets. In addition to these shared offices, Tompkins Insurance has five stand-alone offices in Western New York, and one stand-alone office in Tompkins County, New York.
The Company's principal expenses are interest on deposits, interest on borrowings, and operating and general administrative expenses, as well as provisions for credit losses. Funding sources, other than deposits, include borrowings, securities sold under agreements to repurchase, and cash flow from lending and investing activities.
Competition
Competition for commercial banking and other financial services is strong in the Company's market areas. In one or more aspects of its business, the Company's subsidiaries compete with other commercial banks, savings and loan associations, credit unions, finance companies, Internet-based financial services companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Some of these competitors have substantially greater resources and lending capabilities and may offer services that the Company does not currently provide. In addition, many of the Company's non-bank competitors are not subject to the same extensive Federal regulations that govern financial holding companies and Federally-insured banks.
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Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges, the quality and scope of the services rendered, the convenience of facilities and services, and, in the case of loans to commercial borrowers, relative lending limits. Management believes that a community-based financial organization is better positioned to establish personalized financial relationships with both commercial customers and individual households. The Company's community commitment and involvement in its primary market areas, as well as its commitment to quality and personalized financial services, are factors that contribute to the Company's competitiveness. Management believes that the Company's subsidiary bank can compete successfully in its primary market areas by making prudent lending decisions quickly and more efficiently than its competitors, without compromising asset quality or profitability. In addition, the Company focuses on providing unparalleled customer service, which includes offering a strong suite of products and services, including products that are accessible to our customers through digital means. Although management feels that this business model has caused the Company to grow its customer base in recent years and allows it to compete effectively in the markets it serves, we cannot assure you that such factors will result in future success.
Regulation
Banking, insurance services and wealth management are highly regulated. As a financial holding company including a community bank, a registered investment adviser, and an insurance agency subsidiary, the Company and its subsidiaries are subject to examination and regulation by the Federal Reserve Board ("FRB"), Securities and Exchange Commission ("SEC"), the Federal Deposit Insurance Corporation ("FDIC"), the New York State Department of Financial Services, the Financial Industry Regulatory Authority, and the Pennsylvania Insurance Department.
OTHER IMPORTANT INFORMATION
The following discussion is intended to provide an understanding of the consolidated financial condition and results of operations of the Company for the three and nine months ended September 30, 2024. 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, 2023, and the Unaudited Consolidated Financial Statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.
This Report includes comparisons of the Company's performance to that of a peer group, which is comprised of the group of 190 domestic bank holding companies with $3 billion to $10 billion in total assets as defined in the Federal Reserve's "Bank Holding Company Performance Report" for June 30, 2024 (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", "commit", or "anticipate", as well as the negative and other variations of these terms, and other similar words. Examples of forward-looking statements may include statements regarding the asset quality of the Company's loan portfolios; the level of the Company's allowance for credit losses; the sufficiency of liquidity sources; the Company's exposure to changes in interest rates, and to new, changed, or extended government/regulatory expectations; the need to sell securities before recovery of amortized cost; the impact of changes in accounting standards; and trends, plans, prospects, growth and strategies. Forward-looking statements are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to certain uncertainties and factors relating to the Company's operations and economic environment, all of which are difficult to predict and many of which are beyond the control of the Company, that could cause actual results of the Company to differ materially from those expressed and/or implied by forward-looking statements and historical performance. The following factors, in addition to those listed as Risk Factors in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2023, are among those that could cause actual results to differ materially from the forward-looking statements and historical performance: changes in general economic, market and regulatory conditions; our ability to attract and retain deposits and other sources of liquidity; gross domestic product growth and inflation trends; the impact of the interest rate and inflationary environment on the Company's business, financial condition and results of operations; other income or cash flow anticipated from the Company's operations, investment and/or lending activities; changes in laws and regulations affecting banks, bank holding companies and/or financial holding companies, including the Dodd-Frank Act, and state and local government mandates; the impact of any change in the FDIC insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount; technological developments and changes; cybersecurity incidents and threats; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; governmental and public policy changes, including environmental regulation; reliance on large customers; the ability to access financial resources
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in the amounts, at the times, and on the terms required to support the Company's future businesses; and the economic impact, including potential market volatility, of national and global events, including the response to bank failures, war and geopolitical matters (including the war in Israel and surrounding regions and the war in Ukraine), widespread protests, civil unrest, political uncertainty, and pandemics or other public health crises. The Company does not undertake any obligation to update its forward-looking statements.
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 policy relating to the allowance for credit losses ("allowance", or "ACL") to be a critical accounting policy because of the uncertainty and subjectivity involved in this policy and the material effect that estimates related to this area 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 and to 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, 2023, for additional information on the Company's methodology for estimating the allowance.
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, 2023. Refer to Note 2 - "Basis of Presentation " 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 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, 2023. 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 areas in which management of the Company applies critical assumptions and estimates include the following:
•Accounting for credit losses - The Company accounts for the allowance for credit losses using the current expected credit loss model. Under this model, the allowance for credit losses represents a valuation account that is deducted from the amortized cost basis of certain financial assets, including loans and leases, to present the net amount expected to be collected at the balance sheet date. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. For certain loan pools that share similar risk characteristics, the Company utilizes statistically developed models to estimate amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers' abilities to repay obligations. Such models consider historical correlations of credit losses with various macroeconomic assumptions including unemployment and gross domestic product. These forecasts may be adjusted for inherent limitations or biases of the models. Subsequent to the forecast period, the Company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. Changes in the circumstances considered when determining management's estimates and assumptions could result in changes in those estimates and assumptions, which could result in adjustment of the allowance for credit losses in
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future periods. A discussion of facts and circumstances considered by management in determining the allowance for credit losses is included herein in Note 5 - "Allowance for Credit Losses" in the Notes to the Unaudited Consolidated Financial Statements.
RESULTS OF OPERATIONS
Performance Summary
Net income for the third quarter of 2024 was $18.6 million, or $1.30 diluted earnings per share, compared to a net loss of $33.4 million, or $(2.35) diluted (loss) per share for the third quarter of 2023. Net income for the first nine months of 2024 was $51.2 million, or $3.59 diluted earnings per share, compared to a net loss of $5.5 million, or $(0.39) diluted (loss) per share for the first nine months of 2023. The increase in net income and diluted earnings per share for the three and nine months ended September 30, 2024 compared to the same periods in 2023 largely reflects the Company's sale of $510.5 million of available-for-sale debt securities in the second and third quarters of 2023, which resulted in a pre-tax loss of $62.9 million (or $3.34 per share) and $70.0 million (or $3.69 per share) for the three and nine months ended September 30, 2023, respectively.
Return on average assets ("ROA") for the quarter ended September 30, 2024 was 0.94%, compared to (1.73)% for the quarter ended September 30, 2023. Return on average shareholders' equity ("ROE") for the third quarter of 2024 was 10.65%, compared to (20.84)% for the third quarter of 2023. For the year-to-date period ended September 30, 2024, ROA and ROE totaled 0.87% and 10.12%, respectively, compared to (0.10)% and (1.15)%, for the same period in 2023.
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 net income of $14.8 million for the third quarter of 2024, an increase of $51.9 million, or 139.9%, from net loss of $37.1 million for the third quarter of 2023. For the nine months ended September 30, 2024, the banking segment reported net income of $41.3 million, up $54.9 million, or 405.7%, from the same period in 2023. The increase in net income for the three and nine months ended September 30, 2024 compared to the same periods in 2023 was mainly a result of prior year pre-tax losses on the sales of available-for-sale debt securities of $62.9 million and $70.0 million, respectively.
Net interest income of $53.2 million for the third quarter of 2024 was up $2.2 million, or 4.3%, from the same period in 2023. The increase in net interest income compared to the third quarter of 2023 resulted primarily from the increase in average loan balances and the average yield on those loan balances, partially offset by the increase in cost of deposits. For the nine months ended September 30, 2024, net interest income of $154.8 million was down $2.3 million, or 1.5%, compared to the first nine months of 2023. The decrease in net interest income for the first nine months on 2024 compared to the same period in 2023 was due primarily to the increase in average interest rates on interest-bearing liabilities outpacing increases on interest earning asset yields. 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 and changes to the mix of securities. The increase in funding costs reflects the impact of higher market interest rates as well as the mix of funding sources, with an increase in average time deposits and other borrowings.
The provision for credit losses was $2.2 million for the three months ended September 30, 2024, compared to $1.2 million for the same period in 2023. For the nine months ended September 30, 2024, the provision for credit losses was $5.2 million compared to $2.6 million for the same period in 2023. The increase in provision expense for the quarter and year-to-date periods compared to the same periods in 2023 was mainly driven by loan growth which was up $119.4 million, or 2.1%, and $446.4 million, or 8.2%, respectively, and the increase in net charge-offs in 2024 over 2023. Net charge-offs for three and nine months ended September 30, 2024 were $912,000 and $1.6 million, respectively, compared to net charge-offs of $177,000 and net recoveries of $1.1 million for the same periods in 2023.. For additional information, see the section titled "The Allowance for Credit Losses" below.
Noninterest income was $7.5 million for the three months ended September 30, 2024, compared to noninterest loss of $57.0 million for the same period in 2023. For the nine months ended September 30, 2024, noninterest income was $22.4 million compared to noninterest income loss of $50.7 million for the nine months ended September 30, 2023. The increase in
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quarterly and year-to-date noninterest income compared to the same periods in 2023 was mainly due to the $62.9 million and $70.0 million, respectively of pre-tax loss on the sale of available-for-sale debt securities in 2023 as noted above. For the three and nine months ended September 30, 2024, card services income was up $61,000, or 2.1%, and $509,000, or 5.9%, respectively, over the same periods in 2023, and service charges on deposit accounts were up $118,000, or 6.7%, and $294,000, or 5.7%, respectively, over the same periods in 2023. Other income also benefited from increases in earnings on bank owned life insurance (up $515,000 and $1.1 million), derivatives related income (up $448,000 and $944,000) and gains on sales of residential mortgage loans (up $366,000 and $615,000) for the three and nine months, respectively, ended September 30, 2024 over the same periods in 2023.
Noninterest expense of $39.2 million and $118.2 million for the three and nine months ended September 30, 2024, respectively, were down $468,000, or 1.2%, and $2.7 million, or 2.2%, respectively, from the same periods in 2023. The decreases in noninterest expense for the three and nine months ended September 30, 2024 from the same period in 2023, are mainly attributable to other operating expenses down $794,000 and $1.9 million, respectively. For the quarterly comparison, this decrease was partially offset by higher salary and other employee benefit costs in the third quarter of 2024 (up $326,000 compared to the third quarter of 2023). Contributing to the decrease in noninterest expenses for the nine months ended September 30, 2024, compared to the same period in 2023 were the following: salary and other employee benefit costs (down $825,000), professional fees (down $763,000), legal costs (down $582,000), marketing (down $453,000), premise expenses (down $423,000) and technology (down $305,000). These decreases were partially offset by FDIC insurance (up $1.4 million) and increases in other losses (up $630,000) compared to the nine month period ended September 30, 2023.
Insurance Segment
The insurance segment reported net income of $3.1 million for the three months ended September 30, 2024, which was down $141,000, or 4.4%, compared to the third quarter of 2023. Total noninterest revenue was down $115,000, or 1.0%, for the third quarter of 2024 compared to the same quarter in the prior year, primarily due to a decrease in insurance commissions and fees in the third quarter of 2024 over the same period in 2023. The decrease in insurance commissions and fees was mainly due to a reduction in commission rates for certain personal lines carriers and lower than average commercial lines retention.
For the nine months ended September 30, 2024, net income was up $897,000, or 14.7%, from the same period in the prior year. Total noninterest revenue for the year-to-date period ended September 30, 2024 was up $1.2 million, or 4.0%, compared to the same period in the prior year. The increase in total noninterest revenue for the nine months ended September 30, 2024 compared to the prior year period includes growth in overall commission revenue of $603,000, or 2.2%, with increases in personal lines (up $455,000, or 5.7%), and commercial lines (up $214,000, or 1.7%); as well as growth in contingency revenues, which were up $455,000, or 15.9%. These increases were attributable to growth in all product lines from new business, rate increases related to current market conditions and improved ratios as they relate to carrier profit sharing calculations.
Noninterest expenses for the three months ended September 30, 2024 were up $84,000, or 1.2%, compared to the three months ended September 30, 2023. Year-to-date noninterest expenses were down $20,000, or 0.1%, compared to the nine months ended September 30, 2023. The increase in noninterest expenses for the three months ended September 30, 2024 was primarily driven by increases in salaries and employee benefits and legal expense, partially offset by decreases in intercompany expense and premises expense. For the nine months ended September 30, 2024, the slight decrease was mainly attributable to decreases in travel and meetings expense, intercompany expense, and marketing expense, which were partially offset by increases in salaries and employee benefits, and legal expenses.
Wealth Management Segment
The wealth management segment reported net income of $755,000 for the three months ended September 30, 2024, which was up $193,000, or 34.3%, compared to the third quarter of 2023. Revenue for the three months ended September 30, 2024 was up $605,000, or 13.7%, compared to the three months ended September 30, 2023, primarily due to higher assets under management and due to positive market conditions and new business production. Noninterest expense for the three months ended September 30, 2024 was up $349,000, or 9.5%, compared to the same period in 2023, which was primarily attributable to an increase in salaries and employee benefits.
For the nine months ended September 30, 2024, net income of $2.8 million was up $932,000, or 48.9%, compared to the same period in the prior year. Total revenue for the nine months ended September 30, 2024 was up $1.5 million, or 11.2%, compared to the same period in the prior year, due to higher assets under management and favorable market conditions in 2024, and a one time gain on sales of certain customer accounts. Noninterest expense for the nine months ended September 30, 2024 was up $304,000, or 2.7%, compared to the same period prior year. Increases in salaries and employee benefits and technology expense were slightly offset by decreases in travel, marketing and education expense.
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Net Interest Income
The following tables show average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with the second quarter of 2024 and for each of the three and nine month periods ended September 30, 2024 and 2023:
Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Quarter Ended Quarter Ended
September 30, 2024 June 30, 2024
Average Average
Balance Average Balance Average
(Dollar amounts in thousands) (QTD) Interest Yield/Rate (QTD) Interest Yield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks $ 13,189 $ 168 5.07 % $ 11,707 $ 184 6.33 %
Securities (1)
U.S. Government securities 1,664,611 9,740 2.33 % 1,717,975 10,067 2.36 %
State and municipal (2) 87,799 560 2.54 % 89,518 566 2.55 %
Other securities 3,282 60 7.27 % 3,260 59 7.32 %
Total securities 1,755,692 10,360 2.35 % 1,810,753 10,692 2.38 %
FHLBNY and FRB stock 38,534 888 9.17 % 37,681 820 8.76 %
Total loans and leases, net of unearned income (2)(3) 5,830,899 78,040 5.32 % 5,687,548 73,839 5.22 %
Total interest-earning assets 7,638,314 89,456 4.66 % 7,547,689 85,535 4.56 %
Other assets 276,610 262,372
Total assets $ 7,914,924 $ 7,810,061
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market 3,509,116 16,635 1.89 % 3,498,746 15,754 1.81 %
Time deposits 1,016,949 10,076 3.94 % 987,348 9,530 3.88 %
Total interest-bearing deposits 4,526,065 26,711 2.35 % 4,486,094 25,284 2.27 %
Federal funds purchased & securities sold under agreements to repurchase 42,449 11 0.10 % 40,298 11 0.11 %
Other borrowings 709,474 9,214 5.17 % 688,611 8,992 5.25 %
Total interest-bearing liabilities 5,277,988 35,936 2.71 % 5,215,003 34,287 2.64 %
Noninterest bearing deposits 1,838,725 1,837,325
Accrued expenses and other liabilities 101,679 94,764
Total liabilities 7,218,392 7,147,092
Tompkins Financial Corporation Shareholders' equity 695,057 661,523
Noncontrolling interest 1,475 1,446
Total equity 696,532 662,969
Total liabilities and equity $ 7,914,924 $ 7,810,061
Interest rate spread 1.95 % 1.91 %
Net interest income (TE)/margin on earning assets 53,520 2.79 % 51,248 2.73 %
Tax Equivalent Adjustment (327) (295)
Net interest income $ 53,193 $ 50,953
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Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Quarter Ended Quarter Ended
September 30, 2024 September 30, 2023
Average Average
Balance Average Balance Average
(Dollar amounts in thousands) (QTD) Interest Yield/Rate (QTD) Interest Yield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks $ 13,189 $ 168 5.07 % $ 11,585 $ 125 4.29 %
Securities (1)
U.S. Government securities 1,664,611 9,740 2.33 % 1,890,659 7,294 1.53 %
State and municipal (2) 87,799 560 2.54 % 90,212 576 2.53 %
Other securities 3,282 60 7.27 % 3,272 59 7.18 %
Total securities 1,755,692 10,360 2.35 % 1,984,143 7,929 1.59 %
FHLBNY and FRB stock 38,534 888 9.17 % 24,511 490 7.94 %
Total loans and leases, net of unearned income (2)(3) 5,830,899 78,040 5.32 % 5,385,195 67,199 4.95 %
Total interest-earning assets 7,638,314 89,456 4.66 % 7,405,434 75,743 4.06 %
Other assets 276,610 224,442
Total assets $ 7,914,924 $ 7,629,876
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market 3,509,116 16,635 1.89 % 3,615,395 12,674 1.39 %
Time deposits 1,016,949 10,076 3.94 % 826,082 6,832 3.28 %
Total interest-bearing deposits 4,526,065 26,711 2.35 % 4,441,477 19,506 1.74 %
Federal funds purchased & securities sold under agreements to repurchase 42,449 11 0.10 % 57,624 15 0.10 %
Other borrowings 709,474 9,214 5.17 % 403,829 4,931 4.84 %
Total interest-bearing liabilities 5,277,988 35,936 2.71 % 4,902,930 24,452 1.98 %
Noninterest bearing deposits 1,838,725 1,990,320
Accrued expenses and other liabilities 101,679 101,646
Total liabilities 7,218,392 6,994,896
Tompkins Financial Corporation Shareholders' equity 695,057 633,494
Noncontrolling interest 1,475 1,487
Total equity 696,532 634,980
Total liabilities and equity $ 7,914,924 $ 7,629,876
Interest rate spread 1.95 % 2.08 %
Net interest income (TE)/margin on earning assets 53,520 2.79 % 51,291 2.75 %
Tax Equivalent Adjustment (327) (278)
Net interest income $ 53,193 $ 51,013
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Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Year to Date Period Ended Year to Date Period Ended
September 30, 2024 September 30, 2023
Average Average
Balance Average Balance Average
(Dollar amounts in thousands) (YTD) Interest Yield/Rate (YTD) Interest Yield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks $ 12,369 $ 506 5.46 % $ 12,630 $ 447 4.73 %
Securities (1)
U.S. Government securities 1,712,727 30,109 2.35 % 1,965,039 22,022 1.50 %
State and municipal (2) 89,063 1,697 2.55 % 91,858 1,764 2.57 %
Other securities 3,273 179 7.31 % 3,281 169 6.87 %
Total securities 1,805,063 31,985 2.37 % 2,060,178 23,955 1.55 %
FHLBNY and FRB stock 36,948 2,309 8.35 % 21,519 1,113 6.93 %
Total loans and leases, net of unearned income (2)(3) 5,713,780 223,656 5.23 % 5,314,221 191,946 4.83 %
Total interest-earning assets 7,568,160 258,456 4.56 % 7,408,548 217,461 3.92 %
Other assets 274,143 224,594
Total assets $ 7,842,303 $ 7,633,142
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market 3,517,993 47,424 1.80 % 3,715,931 31,905 1.15 %
Time deposits 997,800 29,005 3.88 % 749,198 15,428 2.75 %
Total interest-bearing deposits 4,515,793 76,429 2.26 % 4,465,129 47,333 1.42 %
Federal funds purchased & securities sold under agreements to repurchase 43,837 35 0.11 % 57,077 44 0.10 %
Other borrowings 673,809 26,267 5.21 % 351,600 12,041 4.58 %
Total interest-bearing liabilities 5,233,439 102,731 2.62 % 4,873,806 59,418 1.63 %
Noninterest bearing deposits 1,835,776 2,019,917
Accrued expenses and other liabilities 97,593 100,491
Total liabilities 7,166,808 6,994,214
Tompkins Financial Corporation Shareholders' equity 674,048 637,472
Noncontrolling interest 1,447 1,456
Total equity 675,495 638,928
Total liabilities and equity $ 7,842,303 $ 7,633,142
Interest rate spread 1.94 % 2.29 %
Net interest income (TE)/margin on earning assets 155,725 2.75 % 158,043 2.85 %
Tax Equivalent Adjustment (904) (888)
Net interest income $ 154,821 $ 157,155
1 Average balances and yields on available-for-sale debt securities are based on historical amortized cost.
2 Interest income includes the tax effects of taxable-equivalent adjustments using an effective income tax rate of 21% in 2024 and 2023 to increase tax exempt interest income to taxable-equivalent basis.
3 Nonaccrual loans are included in the average asset totals presented above. Payments received on nonaccrual loans have been recognized as disclosed in Note 1 of the Company's consolidated financial statements included in Part 1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Net Interest Income
Net interest income is the Company's largest source of revenue, and is dependent on the volume and composition of interest earning assets and interest-bearing liabilities and the level of market interest rates. The above tables show average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each.
Net interest income was $53.2 million and $154.8 million, respectively, for the three and nine months ended September 30, 2024, and was up $2.2 million, or 4.3%, and down $2.3 million, or 1.5%, respectively, from the same periods in 2023.
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Net interest margin for the three months ended September 30, 2024 was 2.79% compared to 2.75% for the same period in 2023. The increase in net interest margin for the three months ended September 30, 2024 compared to the same period in 2023 was driven by higher yields on interest earning assets and higher average loan balances, and was partially offset by higher funding costs. Net interest margin for the nine months ended September 30, 2024 was 2.75% compared to 2.85% for the same period in 2023. The decrease in net interest margin for the nine months ended September 30, 2024 was primarily driven by higher average funding costs, which were up 99 basis points, outpacing higher average yields on interest-earning assets, which were up 64 basis points.
The quarterly net interest margin of 2.79% for the third quarter of 2024 was up 6 basis points from the second quarter of 2024, driven by higher yields on interest earning assets and higher average loan balances, and was partially offset by higher funding costs. The average yield on interest-earning assets for the third quarter of 2024 was 4.66%, up 10 basis points compared to 4.56% for the second quarter of 2024, while the average cost of interest-bearing liabilities for the third quarter of 2024 was 2.71% compared to 2.64% for the second quarter of 2024.
Interest income for the three and nine months ended September 30, 2024 was $89.1 million and $257.6 million, up 18.1% and 18.9%, respectively, compared to the same periods in 2023. For the three and nine months ended September 30, 2024, the average yield on interest-earning assets increased 60 and 64 basis points, respectively, over the same periods in 2023. Average interest-earning assets for the three and nine months ended September 30, 2024, increased $232.9 million, or 3.1%, and $159.6 million, or 2.2%, respectively, compared to the same periods in 2023.
Interest income on loans for the three and nine months ended September 30, 2024, was up $10.8 million, or 16.1%, and $31.7 million, or 16.5%, compared to the same periods in 2023, driven by higher average yields and higher average loan balances. The average yields on loans for the three and nine months ended September 30, 2024 of 5.32% and 5.23% respectively, were up 37 and 40 basis points from the same periods in 2023. The increase in loan yields was a result of market-related increases in interest rates on new loans, an increase in variable and adjustable rate loan yields driven by rising market interest rates, including the prime rate, and new loan originations. For the three and nine months ended September 30, 2024 average loan balances were up $445.7 million, or 8.3%, and $399.6 million, or 7.5%, respectively, over the same periods of 2023.
Interest income on securities for the three and nine months ended September 30, 2024, was up $2.4 million, or 31.2%, and $8.1 million or 34.2%, respectively, as compared to the same periods in 2023. The average yield on total securities for the three and nine months ended September 30, 2024, was up 76 and 82 basis points, respectively, over the same periods in 2023, while average balances for securities were down $228.5 million, or 11.5%, and $255.1 million, or 12.4%, respectively, over the same periods in 2023. The increase in securities yields was driven by market interest rate increases and the repositioning of the investment portfolio through the sale of approximately $510.5 million of available-for-sale investment securities in the second and third quarters of 2023. The securities sold had an average yield of 0.86%, while the proceeds of the sale were largely reinvested into securities with an estimated average yield of approximately 5.09%.
Interest expense for the three and nine months ended September 30, 2024 increased $11.5 million, or 47.0%, and $43.3 million, or 72.9%, compared to the same periods in 2023. The increases reflect higher average costs of funds and a shift in funding mix. The average cost of interest-bearing deposits for the three and nine months ended September 30, 2024 was 2.35% and 2.26%, respectively, up 61 and 84 basis points, respectively, as compared to the same periods in 2023. Average interest-bearing deposits for the three and nine months ended September 30, 2024, were up $84.6 million, or 1.9%, and $50.7 million, or 1.1%, respectively, from the same periods in 2023. Average noninterest bearing deposits were down $151.6 million, or 7.6%, for the three months ended September 30, 2024 compared to the same period in 2023, and for the nine months ended September 30, 2024 were down $184.1 million, or 9.1%, compared to the same period in 2023. Average other borrowings for the three and nine months ended September 30, 2024 were up $305.6 million, or 75.7%, and up $322.2 million, or 91.6%, respectively, compared to the same periods in 2023. The average rate paid on other borrowings for the three and nine months ended September 30, 2024 were up 33 basis points and 63 basis points, respectively, over the same periods in 2023. The increase in the cost of average borrowings was primarily the result of the greater utilization of comparatively higher rate overnight borrowings to support loan growth.
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 for the third quarter of 2024 was $2.2 million compared to $1.2 million for the third quarter of 2023. Provision for credit losses for the nine months ended September 30, 2024 was $5.2 million compared to $2.6 million for the nine months ended September 30, 2023. The increase in provision for credit losses for the nine month period ended September 30, 2024 was mainly driven by loan growth and the increase in net charge-offs in 2024 over 2023. The provision for credit losses for the three and nine months ended September 30, 2024 included a credit of $1.1
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million and $249,000, respectively, related to off-balance sheet credit exposures compared to an expense of $182,000 and $371,000, respectively, for the same periods in 2023. The decrease in off-balance sheet reserves was mainly due to model changes related to utilization rates and a decrease in the loan pipeline. 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 of $23.4 million and $67.3 million for the three and nine months ended September 30, 2024, were up $65.0 million, or 156.2% and $75.9 million, or 881.7%, respectively, from the same periods in 2023. The increase in quarterly and year-to-date noninterest income compared to the same periods for the three and nine months ended September 30, 2023, included pre-tax losses of $62.9 million and $70.0 million, respectively, on the sale of available-for-sale debt securities.
Insurance commissions and fees, the largest component of noninterest income, were $11.3 million for the third quarter of 2024, a decrease of 1.0% from the same period for the prior year. The decrease in insurance commissions and fees in the third quarter of 2024 over the same period in 2023 was mainly due to a reduction in commission rates for certain personal lines carriers and lower than average commercial lines retention. For the first nine months of 2024, insurance commissions and fees were up $1.1 million, or 3.6%, compared to the same period in 2023. The increase in revenues for the nine months ended September 30, 2024 compared to the same period in 2023 was due to growth in all product lines from new business, rate increases related to current market conditions and improved ratios as they relate to carrier profit sharing calculations.
Wealth management fees of $4.9 million in the third quarter of 2024 were up $583,000, or 13.4%, compared to the third quarter of 2023. For the first nine months of 2024, wealth management fees were up $1.2 million, or 8.7%, compared to the same period in 2023. Wealth management fees include trust services, financial planning, wealth management services, and brokerage related services. The fair value of assets managed by, or in custody of, Tompkins was $3.2 billion at September 30, 2024, up $281.0 million, or 9.6%, from September 30, 2023. The increase in assets from prior year was mainly a result of positive market performance.
Service charges on deposits accounts for the three and nine months ended September 30, 2024 were up $118,000, or 6.7%, and $294,000, or 5.7%, respectively, over the same periods in 2023. The increase was mainly in service fees on business accounts and net overdraft fees.
Card services income in the third quarter of 2024 was up $61,000, or 2.1%, over the same three month period in 2023, and up $509,000, or 5.9%, for the nine months ended September 30, 2024 compared to the same period in 2023. The increase in the first nine months of 2024 included a $255,000 sign-on bonus related to the renewal of a card services contract.
Other income of $2.3 million in the third quarter of 2024 was up $1.3 million, or 132.2%, compared to the same period in 2023. For the first nine months of 2024, other income of $7.3 million was up $2.8 million, or 61.5%, compared to the same period in 2023. The increase for the three and nine months ended September 30, 2024 compared to the same period in 2023 was mainly due to higher earnings on bank owned life insurance (up $515,000 and $1.1 million), derivatives related income (up $448,000 and $944,000), and gains on sale of residential loans (up $366,000 and $615,000). The nine months ended September 30, 2024 also included gains of $357,000 on the sale of certain customer accounts within the wealth management business.
Noninterest Expense
Noninterest expense of $49.9 million for the third quarter of 2024 was in line with the third quarter of 2023. Noninterest expense of $149.7 million for the first nine months of 2024 was down $2.3 million, or 1.5%, compared to the same period in 2023.
Expenses associated with compensation and benefits comprise the largest component of noninterest expense, representing 64.0% and 63.1% of total noninterest expense for the three and nine months ended September 30, 2024, respectively. Total salaries, wages and benefits for the three months ended September 30, 2024, were up $810,000, or 2.6%, over the same three month period in 2023, and for the nine months ended September 30, 2024 were in line with the same period in 2023. For both the three and nine months ended September 30, 2024, increases in salaries and wages, including incentive accruals, were largely offset by decreases in healthcare expense.
Other expense categories, not related to compensation and benefits, for the three and nine months ended September 30, 2024 were down $799,000, or 4.3%, and $2.5 million, or 4.3%, respectively, from the same periods in 2023. Contributing to the decrease in other operating expenses for the three and nine months ended September 30, 2024, compared to the same periods in 2023 were the following: travel and meetings down $164,000, or 40.5%, and $538,000, or 44.0%; professional fees and consulting down $217,000, or 12.3%, and $779,000, or 13.7%; expenses related to the Company's retirement plans down $174,000, or 52.7%, and $531,000 or 53.6%; legal up $20,000, or 6.8%, and down $484,000, or 35.9%; technology down
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$571,000, or 14.5%, and $123,000, or 1.1%; and marketing up $200,000, or 25.6%, and down $525,000, or 14.7%, when compared to the same periods in 2023. Decreases were partially offset by increases in FDIC insurance expense up $359,000, or 34.5%, and $1.4 million, or 49.8%, respectively, over the same periods in 2023, driven by an increase in assessment rates.
Income Tax Expense
The provision for income taxes was $5.9 million for an effective rate of 23.9% for the third quarter of 2024, compared to a tax benefit of $8.3 million and an effective rate of 20.0% for the same quarter in 2023. For the first nine months of 2024, the provision for income taxes was $16.0 million for an effective rate of 23.7% compared to tax benefit of $619,000 and an effective rate of 10.3% for the same period in 2023. The increase in the effective tax rate for the three and nine months ended September 30, 2024, compared to the same periods in 2023 is largely due to an increase in pre-tax income, driven primarily by the realized losses on the sale of certain available-for-sale debt securities recognized in the second and third quarters of 2023. The effective rates differ from the U.S. and state statutory rates primarily due to the effect of tax-exempt income from loans, securities and life insurance assets, and the income tax effects associated with stock-based compensation.
The Company's banking subsidiary has an investment in real estate investment trusts that provide certain benefits on its New York State tax return for qualifying entities. A condition to claim the benefit is that the consolidated company has average assets of no more than $8.0 billion for the taxable year. The Company expects average assets to exceed the $8.0 billion threshold for the 2024 tax year. The Company will continue to monitor the consolidated average assets to determine future eligibility.
FINANCIAL CONDITION
Total assets were $8.0 billion at September 30, 2024, up $186.7 million, or 2.4%, from December 31, 2023. Total loans were up $275.3 million, or 4.9%, cash and cash equivalents were up $52.8 million, or 66.4%, and total securities were down $107.3 million, or 6.2%, compared to December 31, 2023. Total deposits at September 30, 2024 were up $178.0 million, or 2.8%, and borrowings were down $62.8 million, or 10.4%, from December 31, 2023.
Securities
As of September 30, 2024, the Company's securities portfolio was $1.6 billion, or 20.3%, of total assets compared to $1.7 billion, or 22.1%, of total assets at year end 2023. The decrease in total securities was mainly due to principal runoff and maturities of debt securities during the first nine months of 2024, as cash flow was used to support loan growth. The following tables detail the composition of the securities portfolio:
Available-for-Sale Debt Securities
September 30, 2024 December 31, 2023
(In thousands) Amortized Cost Fair Value Amortized Cost Fair Value
U.S. Treasuries $ 85,036 $ 82,111 $ 114,418 $ 109,904
Obligations of U.S. Government sponsored entities 408,292 400,205 472,286 456,458
Obligations of U.S. states and political subdivisions 86,583 79,518 89,999 81,924
Mortgage-backed securities - residential, issued by
U.S. Government agencies 70,886 67,100 49,976 45,240
U.S. Government sponsored entities 757,108 677,953 819,303 720,830
U.S. corporate debt securities 2,500 2,392 2,500 2,294
Total available-for-sale debt securities $ 1,410,405 $ 1,309,279 $ 1,548,482 $ 1,416,650
Held-to-Maturity Debt Securities
September 30, 2024 December 31, 2023
(In thousands) Amortized Cost Fair Value Amortized Cost Fair Value
U.S. Treasuries $ 86,103 $ 77,147 $ 86,266 $ 75,215
Obligations of U.S. Government sponsored entities 226,343 199,452 226,135 192,240
Total held-to-maturity debt securities $ 312,446 $ 276,599 $ 312,401 $ 267,455
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As of September 30, 2024, the available-for-sale debt securities portfolio had net unrealized losses, which reflects the amount that the amortized cost exceeds fair value, of $101.1 million compared to net unrealized losses of $131.8 million at December 31, 2023. The decrease in unrealized losses related to the available-for-sale debt securities portfolio reflects interest rate volatility in the market, the volume and rates associated with securities purchases, and maturities in 2024. Management's policy is to purchase investment grade securities that on average have relatively short duration, which helps mitigate interest rate risk and provides sources of liquidity without significant risk to capital.
The Company evaluates available-for-sale and held-to-maturity debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is the result of changes in interest rates or reflects a fundamental change in the credit worthiness of the underlying issuer. Any impairment that is not credit related is recognized in other comprehensive income (loss), net of applicable taxes. Credit-related impairment is recognized as an ACL on the Statement of Condition, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the ACL and the adjustment to net income may be reversed if conditions change.
The Company determined that at September 30, 2024, all impaired available-for-sale and held-to-maturity debt securities were impaired because of changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit worthiness of the underlying issuers. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost. Therefore, the Company carried no ACL at September 30, 2024 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, 2024.
Loans and Leases
Loans and leases as of the end of the third quarter and prior year-end period were as follows:
(In thousands) 9/30/2024 12/31/2023
Commercial and industrial
Agriculture $ 90,146 $ 101,211
Commercial and industrial other 799,847 721,890
PPP loans 214 404
Subtotal commercial and industrial 890,207 823,505
Commercial real estate
Construction 371,022 303,406
Agriculture 209,342 221,670
Commercial real estate other 2,730,074 2,587,591
Subtotal commercial real estate 3,310,438 3,112,667
Residential real estate
Home equity 200,369 188,316
Mortgages 1,371,738 1,373,275
Subtotal residential real estate 1,572,107 1,561,591
Consumer and other
Indirect 337 841
Consumer and other 100,312 96,942
Subtotal consumer and other 100,649 97,783
Leases 13,094 15,383
Total loans and leases 5,886,495 5,610,929
Less: unearned income and deferred costs and fees (5,234) (4,994)
Total loans and leases, net of unearned income and deferred costs and fees $ 5,881,261 $ 5,605,935
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The below table shows a more detailed break-out of commercial real estate ("CRE") loans as of September 30, 2024 and December 31, 2023:
9/30/2024 12/31/2023
(In thousands) Balance % CRE Balance % CRE
Construction $ 371,022 11.21 % $ 303,406 9.75 %
Multi-family/Single family real estate 630,252 19.04 % 603,118 19.38 %
Agriculture 209,342 6.32 % 221,670 7.12 %
Retail1
429,945 12.99 % 425,871 13.68 %
Hotels/motels 182,803 5.52 % 167,408 5.38 %
Office space2
234,843 7.09 % 236,721 7.61 %
Industrial3
229,532 6.93 % 215,459 6.92 %
Mixed Use 365,454 11.04 % 349,985 11.24 %
Medical4
149,241 4.51 % 138,057 4.44 %
Other 508,004 15.35 % 450,972 14.49 %
Total $ 3,310,438 100.00 % $ 3,112,667 100.00 %
1Retail included 2.68% and 2.88%, respectively, of owner occupied real estate at September 30, 2024 and December 31, 2023.
2Office space included 1.36% and 1.42%, respectively, of owner occupied real estate at September 30, 2024 and December 31, 2023.
3Industrial included 2.27% and 2.16%, respectively, of owner occupied real estate at September 30, 2024 and December 31, 2023.
4Medical included 2.45% and 2.69%, respectively, of owner occupied real estate at September 30, 2024 and December 31, 2023.
Total loans and leases of $5.9 billion at September 30, 2024 were up $275.3 million, or 4.9%, from December 31, 2023, mainly in the commercial real estate and commercial and industrial loan portfolios. As of September 30, 2024, total loans and leases represented 73.5% of total assets compared to 71.7% of total assets at December 31, 2023.
Residential real estate loans, including home equity loans, were $1.6 billion at September 30, 2024, up $10.5 million, or 0.7%, compared to December 31, 2023, and comprised 26.7% of total loans and leases at September 30, 2024.
The Company may sell residential real estate loans in the secondary market based on interest rate considerations. The Company's Asset/Liability Committee meets regularly and establishes standards for selling and retaining residential real estate mortgage originations. These residential real estate loans are generally sold to Federal Home Loan Mortgage Corporation ("FHLMC") or State of New York Mortgage Agency ("SONYMA") without recourse in accordance with standard secondary market loan sale agreements. These residential real estate loans also are subject to customary representations and warranties made by the Company, including representations and warranties related to gross incompetence and fraud. The Company has not had to repurchase any loans as a result of these representations and warranties.
During the first nine months of 2024 and 2023, the Company sold residential loans totaling $29.5 million and $3.2 million, respectively, recognizing gains of $701,000 and $86,000, 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 $1.1 million at September 30, 2024, and $927,000 at December 31, 2023.
Commercial real estate loans and commercial and industrial loans totaled $3.3 billion and $890.2 million, respectively, and represented 56.3% and 15.1%, respectively, of total loans and leases as of September 30, 2024. The commercial real estate portfolio was up $197.8 million, or 6.4%, compared to December 31, 2023, while commercial and industrial loans were up $66.7 million, or 8.1%, compared to December 31, 2023.
As of September 30, 2024, agriculturally-related loans totaled $299.5 million, or 5.1%, of total loans and leases, compared to $322.9 million, or 5.8%, of total loans and leases at December 31, 2023. Agriculturally-related loans include loans to dairy farms and crop farms. Agriculturally-related loans are primarily made based on identified cash flows of the borrower with
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consideration given to underlying collateral, personal guarantees, and government related guarantees. Agriculturally-related loans are generally secured by the assets or property being financed or other business assets such as accounts receivable, livestock, equipment or commodities/crops.
The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures. Management reviews these policies and procedures on a regular basis. The Company discussed its lending policies and underwriting guidelines for its various lending portfolios in Note 4 - "Loans and Leases" in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes in these policies and guidelines since the date of that report. The Company's Board of Directors approves the lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.
The Company's loan and lease customers are located primarily in the New York and Pennsylvania communities served by its subsidiary bank. Although operating in numerous communities in New York and Pennsylvania, the Company is still dependent on the general economic conditions of these states and the local economic conditions of the communities within those states in which the Company does business.
The Allowance for Credit Losses
The below table represents the allowance for credit losses as of September 30, 2024 and December 31, 2023. The table provides, as of the dates indicated, an allocation of the allowance for credit losses for inherent loan losses by type. The allocation is neither indicative of the specific amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of future loss trends. The allocation of the allowance for credit losses to each category does not restrict the use of the allowance to absorb losses in any category.
(In thousands) 9/30/2024 12/31/2023
Allowance for credit losses
Commercial and industrial $ 7,614 $ 6,667
Commercial real estate 33,864 31,581
Residential real estate 12,376 11,700
Consumer and other 1,467 1,557
Finance leases 63 79
Total $ 55,384 $ 51,584
As of September 30, 2024, the total allowance for credit losses was $55.4 million, up $3.8 million, or 7.4%, compared to December 31, 2023. The allowance for credit losses as a percentage of total loans measured 0.94% at September 30, 2024 compared to 0.92% at December 31, 2023. The increase in the allowance for credit losses from year-end 2023 reflects loan growth, mainly in commercial real estate and commercial loans; updates to model assumptions, including prepayment speeds, curtailment rates, and recovery lag; as well as updated economic forecasts for unemployment and gross domestic product for the quarter. A reserve totaling approximately $310,000 was added to the allowance during the second quarter of 2024 for one commercial relationship that was individually evaluated for impairment.
Asset quality measures at September 30, 2024 were generally favorable when compared with December 31, 2023. Nonperforming loans and leases were up $308,000, or 0.5%, compared to year end 2023 and represented 1.06% of total loans at September 30, 2024 compared to 1.11% at December 31, 2023. The allowance for credit losses covered 88.51% of nonperforming loans and leases at September 30, 2024, compared to 82.84% at December 31, 2023. Loans internally-classified Special Mention or Substandard were up $2.9 million, or 2.4%, compared to December 31, 2023.
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Activity in the Company's allowance for credit losses during the first nine months of 2024 and 2023 is illustrated in the table below:
Analysis of the Allowance for Credit Losses
(In thousands) 9/30/2024 9/30/2023
Average loans outstanding during period $ 5,713,780 $ 5,314,221
Allowance at beginning of year, prior to adoption of ASU 2016-13 51,584 45,934
Impact of adopting ASU 2016-13 0 64
Balance of allowance at beginning of year 51,584 45,998
LOANS CHARGED-OFF:
Commercial and industrial 283 0
Residential real estate 0 2
Consumer and other 1,867 546
Total loans charged-off $ 2,150 $ 548
RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:
Commercial and industrial 29 67
Commercial real estate 6 1,238
Residential real estate 130 182
Consumer and other 336 192
Total loans recovered $ 501 $ 1,679
Net loans charged-off (recovered) 1,649 (1,131)
Provision for credit losses related to loans 5,449 2,207
Balance of allowance at end of period $ 55,384 $ 49,336
Allowance for credit losses as a percentage of total loans and leases 0.94 % 0.91 %
Annualized net charge-offs (recoveries) on loans to average total loans and leases during the period 0.04 % (0.03) %
As of September 30, 2024, the allowance for credit losses was $55.4 million and 0.94% of total loans and leases, compared to $51.6 million and 0.92% of total loans and leases at December 31, 2023 and $49.3 million and 0.91% of total loans and leases at September 30, 2023.
The provision for credit losses for loans was $3.2 million for the three months ended September 30, 2024, compared to $968,000 for the same period in 2023. For the nine month period ended September 30, 2024, the provision for credit losses for loans was $5.4 million compared to $2.2 million for the same period in 2023. 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 increase in provision for credit losses for both the three and nine month periods ended September 30, 2024 was mainly driven by loan growth, increases in net charge-offs, updates to model assumptions, and reserves for one commercial relationship that was individually evaluated for impairment.
Net loan and lease charge-offs for the three and nine months ended September 30, 2024 were $912,0000 and $1.6 million, respectively, compared to net charge-offs of $171,000 and net recoveries of $1.1 million, respectively, for the same periods in 2023. The recoveries in the nine months ended September 30, 2023 were largely related to one commercial relationship.
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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For the three months ended September 30, 2024, the provision for credit losses for off-balance sheet credit exposures was a credit of $1.1 million compared to provision of $182,000 for the same period in 2023. For the nine month period ended September 30, 2024, the provision for credit losses for off-balance sheet credit exposures was a credit of $249,000 compared to provision expense of $371,000 for the same period in 2023. The decrease for both periods in 2024 over 2023 was mainly driven by updates to model assumptions related to average utilization rates for lines of credit.
Analysis of Past Due and Nonperforming Loans
(In thousands) 9/30/2024 12/31/2023 9/30/2023
Loans 90 days past due and accruing
Residential real estate $ 5 $ 0 $ 1
Consumer and other 188 101 51
Total loans 90 days past due and accruing $ 193 $ 101 $ 52
Nonaccrual loans
Commercial and industrial $ 2,223 $ 2,273 $ 3,163
Commercial real estate 43,993 44,450 10,934
Residential real estate 16,013 15,172 16,924
Consumer and other 152 270 360
Total nonaccrual loans $ 62,381 $ 62,165 $ 31,381
Total nonperforming loans and leases $ 62,574 $ 62,266 $ 31,433
Other real estate owned 81 131 0
Total nonperforming assets $ 62,655 $ 62,397 $ 31,433
Allowance as a percentage of nonperforming loans and leases 88.51 % 82.84 % 156.96 %
Total nonperforming loans and leases as percentage of total loans and leases 1.06 % 1.11 % 0.58 %
Total nonperforming assets as percentage of total assets 0.78 % 0.80 % 0.41 %
Nonperforming assets include loans past due 90 days and accruing, nonaccrual loans, and foreclosed real estate/other real estate owned. Total nonperforming assets of $62.7 million at September 30, 2024 were up $258,000, or 0.4%, compared to December 31, 2023, and up $31.2 million, or 99.3%, compared to September 30, 2023. The increase in nonperforming assets at September 30, 2024 compared to September 30, 2023 was mainly due to the addition during the fourth quarter of 2023 of one relationship with two commercial real estate properties totaling approximately $33.3 million included in the office space and mixed use properties portion of the commercial real estate portfolio. Nonperforming assets represented 0.78% of total assets at September 30, 2024, down from 0.80% at December 31, 2023, and up from 0.41% at September 30, 2023. Our peer group's average ratio of nonperforming assets to total assets was 0.50% at June 30, 2024.
The Company adopted ASU 2022-02 Financial Instruments - Credit Losses (Topic 326), effective January 1, 2023. This standard eliminated the previous troubled debt restructuring accounting model and replaced it with guidance and disclosure requirements for identifying modifications to loans to borrowers experiencing financial difficulty. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. At September 30, 2024, the Company had $4.5 million of modifications to borrowers experiencing financial difficulty.
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 on 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.
The ratio of the allowance to nonperforming loans and leases (loans past due 90 days and accruing, and nonaccrual loans) was 88.51% at September 30, 2024, compared to 82.84% at December 31, 2023, and 156.96% at September 30, 2023. 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.
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The Company, through its internal loan review function, identified 14 commercial relationships from the loan portfolio totaling $23.5 million at September 30, 2024, that were potential problem, or Substandard, loans. At December 31, 2023, the Company had identified 17 relationships totaling $26.0 million that were potential problem loans. Of the 14 relationships at September 30, 2024 that were Substandard, there were 3 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $19.6 million, the largest of which was $16.3 million. The Company continues to monitor these potential problem relationships; however, management cannot predict the extent to which changing 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 government guarantees. These factors, when considered in the aggregate, give management reason to believe that the current risk exposure on these loans does not warrant accounting for these loans as nonperforming. However, these loans do exhibit certain risk factors, which have the potential to cause them to become nonperforming. Accordingly, management's attention is focused on these credits, which are reviewed on at least a quarterly basis.
Capital
Total equity was $721.3 million at September 30, 2024, an increase of $51.4 million, or 7.7%, from December 31, 2023.
Additional paid-in capital increased by $2.6 million, or 0.9%, from $297.2 million at December 31, 2023, to $299.7 million at September 30, 2024. The increase was primarily attributable to $2.7 million related to stock-based compensation.
Retained earnings increased by $24.9 million, or 5.0%, from $501.5 million at December 31, 2023, to $526.4 million at September 30, 2024, mainly reflecting net income of $51.2 million for the year-to-date period ended September 30, 2024, reduced by dividends paid of $26.2 million.
Accumulated other comprehensive loss decreased from a net loss of $125.0 million at December 31, 2023, to a net loss of $101.2 million at September 30, 2024, reflecting a $23.2 million decrease in unrealized losses on available-for-sale debt securities due to changes in market interest rates; and a $622,000 decrease related to post-retirement benefit plans.
Cash dividends paid in the first nine months of 2024 totaled approximately $26.2 million, or $1.82 per common share, representing 51.2% of year to date 2024 earnings through September 30, 2024, compared to cash dividends of $26.0 million, or $1.80 per common share paid in the first nine months of 2023. Cash dividends per share during the first nine months of 2024 were up 1.1% over the same period in 2023.
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 met, as of September 30, 2024, all capital adequacy requirements to which they are subject.
The following table provides a summary of the Company's capital ratios as of September 30, 2024:
Regulatory Capital Analysis
September 30, 2024 Actual Minimum Capital Required - Basel III Fully Phased-In Well Capitalized Requirement
(dollar amounts in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 786,195 13.21 % $ 624,857 10.50 % $ 595,102 10.00 %
Tier 1 Capital (to risk weighted assets) 727,296 12.22 % 505,836 8.50 % 476,081 8.00 %
Tier 1 Common Equity (to risk weighted assets) 727,296 12.22 % 416,571 7.00 % 386,816 6.50 %
Tier 1 Capital (to average assets) 727,296 9.19 % 316,428 4.00 % 395,535 5.00 %
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As of September 30, 2024, the Company's capital ratios exceeded the minimum required capital ratios plus the fully phased-in capital conservation buffer, and the minimum required capital ratios for well capitalized institutions. The capital levels required to be considered well capitalized, presented in the above table, are based upon prompt corrective action regulations, as amended to reflect the changes under Basel III Capital Rules.
Total capital as a percent of risk weighted assets decreased to 13.2% at September 30, 2024, compared with 13.4% at December 31, 2023. Tier 1 capital as a percent of risk weighted assets declined to 12.2% at September 30, 2024 compared to 12.4% at December 31, 2023. Tier 1 capital as a percent of average assets was 9.2% at September 30, 2024, up from 9.1% as of December 31, 2023. Common equity Tier 1 capital was 12.2% at September 30, 2024, down from 12.4% at December 31, 2023. The decrease in the capital ratios at September 30, 2024, compared to December 31, 2023 was mainly a result of growth in loan portfolio over the period exceeding growth in capital.
As of September 30, 2024, the capital ratios for the Company's subsidiary bank also exceeded the minimum required capital ratios for well capitalized institutions, plus the fully phased-in capital conservation buffer.
In 2020, U.S. Federal regulatory authorities issued an interim final rule that provides banking organizations that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition.
Deposits and Other Liabilities
Total deposits of $6.6 billion at September 30, 2024 were up $178.0 million, or 2.8%, compared to December 31, 2023,and were down $45.5 million, or 0.7%, compared to September 30, 2023. The increase from year-end 2023 was in checking, money market and savings, which were up $170.2 million, or 4.9%, and time deposits, which were up $44.0 million, or 4.4%. The increase was mainly in municipal deposits and reflects seasonal inflows related to collection of tax receipts.
The most significant source of funding for the Company is core deposits. The Company defines core deposits as total deposits less time deposits of $250,000 or more, brokered deposits, municipal money market deposits, and reciprocal deposit relationships with municipalities. Core deposits increased by $155.3 million, or 3.0%, from year-end 2023, to $5.3 billion at September 30, 2024. Core deposits at September 30, 2024 were down $81.7 million, or 1.5%, from September 30, 2023. Core deposits represented 81.3% of total deposits at September 30, 2024, compared to 81.1% of total deposits at December 31, 2023 and 81.9% at September 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 $67.5 million at September 30, 2024, and $51.0 million at December 31, 2023. Management generally views retail repurchase agreements as an alternative to large time deposits.
The Company's other borrowings totaled $539.3 million at September 30, 2024, down $62.8 million, or 10.4%, from $602.1 million at December 31, 2023. The decrease in other borrowings was mainly due to increased deposit balances. Borrowings at September 30, 2024 consisted of $300.0 million in overnight FHLB advances and $239.3 million of FHLB term advances, compared to $477.1 million in FHLB overnight advances and $125.0 million of FHLB term advances at year end 2023. Of the $239.3 million in FHLB term advances at September 30, 2024, $94.3 million was due to mature in less than one year and $145.0 million was due to mature in over one year.
Liquidity
The objective of liquidity management is to ensure the availability of adequate funding sources to satisfy anticipated demand for credit, deposit withdrawals, and business investment opportunities. The Company's large, stable core deposit base and strong capital position are the foundation for the Company's liquidity position. The Company uses a variety of resources to meet its liquidity needs, which include deposits, cash and cash equivalents, short-term investments, cash flow from lending and investing activities, repurchase agreements, and borrowings. The Company's Asset/Liability Management Committee monitors asset and liability positions of the Company's subsidiary bank 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
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has set a policy limit stating that reliable sources of liquidity should remain in excess of 6% of total assets. The ratio was 18.0% at September 30, 2024 compared to 18.3% of assets at December 31, 2023.
Core deposits, discussed above under "Deposits and Other Liabilities", are a primary and low cost funding source obtained primarily through the Bank's branch network. In addition to core deposits, the Company uses non-core funding sources to support asset growth. These non-core funding sources include time deposits of $250,000 or more, municipal money market deposits, reciprocal deposits, bank borrowings, securities sold under agreements to repurchase and overnight and term advances from the FHLB. Rates and terms are the primary determinants of the mix of these funding sources. Non-core funding sources of $1.8 billion at September 30, 2024 decreased $23.5 million, or 1.3%, as compared to December 31, 2023. Non-core funding sources, as a percentage of total liabilities, were 25.3% at September 30, 2024, compared to 26.1% at December 31, 2023.
Non-core funding sources may require securities to be pledged against the underlying liability. Securities held with a carrying value of $1.1 billion at September 30, 2024 and $1.0 billion at December 31, 2023, were either pledged or sold under agreements to repurchase. Pledged securities represented 63.5% of total securities at September 30, 2024, compared to 54.8% of total securities at December 31, 2023.
Cash and cash equivalents totaled $132.3 million as of September 30, 2024 which increased from $79.5 million at December 31, 2023. Short-term investments, consisting of securities due in one year or less, increased from $98.7 million at December 31, 2023, to $108.6 million at September 30, 2024.
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 $745.1 million at September 30, 2024 compared with $766.1 million at December 31, 2023. Outstanding principal balances of residential mortgage loans, consumer loans, and leases totaled approximately $1.7 billion at September 30, 2024, up $11.1 million, or 0.7% compared with December 31, 2023. Aggregate amortization from monthly payments on these assets provides significant additional cash flow to the Company.
The Company's liquidity is enhanced by ready access to national and regional wholesale funding sources including Federal funds purchased, repurchase agreements, brokered deposits, and FHLB advances. Through its subsidiary bank, the Company has borrowing relationships with the FHLB and correspondent banks, which provide secured and unsecured borrowing capacity. As members of the FHLB, the Company can use certain unencumbered mortgage-related assets and securities to secure borrowings from the FHLB. At September 30, 2024, the established borrowing capacity with the FHLB was $1.4 billion, or 18.0% of total assets, with available unencumbered mortgage-related assets of $769.5 million. Additional assets may also qualify as collateral for FHLB advances, upon approval of the FHLB. Through various programs at the Federal Reserve Bank, the Company has the ability to use certain unencumbered mortgage-related assets and securities to secure borrowings from the Federal Reserve Bank's Discount Window. At September 30, 2024 the available borrowing capacity with the Federal Reserve Bank was $142.1 million, secured by loans. In addition to the available borrowing lines at the FHLB and Federal Reserve Bank, the Company maintains $508.7 million of unencumbered securities which could be pledged to further enhance secured borrowing capacity.
Non-GAAP Disclosure
The tables below disclose non-GAAP financial measures. The Company believes the non-GAAP measures provide meaningful comparisons of our underlying operational performance and facilitate management's and investors' assessments of business and performance trends. These non-GAAP financial measures should not be considered in isolation or as a measure of the Company's profitability or liquidity; they are in addition to, and are not a substitute for, financial measures under GAAP. The non-GAAP financial measures presented herein may be different from non-GAAP financial measures used by other companies, and may not be comparable to similarly titled measures reported by other companies. Non-GAAP financial measures have limitations since they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP.
The following table summarizes the Company's results of operations on a GAAP basis and on an operating (non-GAAP) basis for the periods indicated by excluding the effects of sales of available-for-sale debt securities at a loss during the three and nine months ended September 30, 2023.
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Reconciliation of Net Income Available to Common Shareholders/Diluted Earnings Per Share (GAAP) to Net Operating Income Available to Common Shareholders/Adjusted Diluted Earnings Per Share (Non-GAAP); Return on Average Assets and Return on Average Equity (GAAP) to Adjusted Return on Average Assets, Adjusted Return on Average Equity, and Adjusted Operating Return on Average Tangible Common Equity (Non-GAAP)
Three Months Ended Nine Months Ended
(In thousands, except per share data) 9/30/2024 9/30/2023 9/30/2024 9/30/2023
Net income
Net income (loss) (GAAP) $ 18,638 $ (33,354) $ 51,192 $ (5,498)
(Gain) loss on sale of investment securities (85) 62,967 (65) 70,019
Less: Tax effect of gain (loss) on sale of investment securities (21) 15,427 (16) 17,155
Adjusted net income (non-GAAP) 18,574 14,186 51,143 47,366
Basic earnings per share
Net income (loss) (GAAP) $ 18,638 $ (33,354) $ 51,192 $ (5,498)
Adjusted net income (non-GAAP) 18,574 14,186 51,143 47,366
Loss attributable to unvested stock based compensation awards 0 (8) 0 (34)
Weighted average basic shares 14,215,607 14,185,763 14,214,012 14,274,929
Basic earnings per share $ 1.31 $ (2.35) $ 3.60 $ (0.39)
Adjusted basic earnings per share (non-GAAP) $ 1.31 $ 1.00 $ 3.60 $ 3.32
Diluted earnings per share
Net income (loss) (GAAP) $ 18,638 $ (33,354) $ 51,192 $ (5,498)
Adjusted net income (non-GAAP) 18,574 14,186 51,143 47,366
Loss attributable to unvested stock based compensation awards 0 (8) 0 (34)
Weighted average diluted shares 14,283,255 14,224,748 14,253,728 14,319,835
Diluted earnings per share $ 1.30 $ (2.35) $ 3.59 $ (0.39)
Adjusted diluted earnings per share (non-GAAP) $ 1.30 $ 1.00 $ 3.59 $ 3.31
Return on average assets
Net income (loss) (GAAP) $ 18,638 $ (33,354) $ 51,192 $ (5,498)
Adjusted net income (non-GAAP) 18,574 14,186 51,143 47,366
Average total assets 7,914,924 7,629,876 7,842,303 7,633,142
Return on average assets (GAAP) 0.94 % (1.73) % 0.87 % (0.10) %
Adjusted return on average assets (non-GAAP) 0.93 % 0.74 % 0.87 % 0.83 %
Return on average equity
Net income (loss) (GAAP) $ 18,638 $ (33,354) $ 51,192 $ (5,498)
Adjusted net income (non-GAAP) 18,574 14,186 51,143 47,366
Average total equity 696,532 634,980 675,495 638,928
Return on average equity (GAAP) 10.65 % (20.84) % 10.12 % (1.15) %
Adjusted return on average equity (non-GAAP) 10.61 % 8.86 % 10.11 % 9.91 %
The table below shows a reconciliation of common equity book value per share to tangible common equity. Tangible common equity, a non-GAAP financial measure, is total stockholders' equity less intangible assets. Tangible book value per share, a non-GAAP financial measure, is tangible common equity divided by total shares issued and outstanding. These measures adjust common equity per share to exclude the effects of goodwill and intangible amortization expense on earnings, equity, and capital.
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Reconciliation of Tangible Book Value Per Share (non-GAAP) to Common Equity Book Value Per Share (GAAP)
Quarter-Ended Year-ended
(In thousands, except share and per share data) 9/30/2024 12/31/2023
Total common equity (GAAP) $ 719,855 $ 668,522
Less: Goodwill and intangibles 93,760 94,003
Tangible common equity (Non-GAAP) 626,095 574,519
Ending shares outstanding 14,394,255 14,405,920
Common equity per share (GAAP) $ 50.01 $ 46.41
Tangible book value per share (Non-GAAP) $ 43.50 $ 39.88
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. The Committee also considers strategies to manage this exposure and incorporates these strategies into the investment and funding decisions of the Company. The Company uses derivatives to manage various risks and to accommodate the business requirements of its customers. Additional information on derivatives is available in "Note 14 Derivatives and Hedging Activities" in the Notes to Consolidated Financial Statements in Part I, "Financial Statements" of this Report on Form 10-Q.
The Company's Board of Directors has set a policy that interest rate risk exposure will remain within a range whereby net interest income will not decline by more than 10% in one year as a result of a 100 basis point parallel change in rates. Based upon the most recent simulation analysis performed as of August 31, 2024, 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 4.2%, 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 4.1% 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 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 net interest income trending higher over the next 24 months, with a 10% increase in net interest income in year two of the simulation as compared to year one.
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 September 30, 2024. The Company's one-year net interest rate gap was a negative $557.4 million, or 6.96%, of total assets at September 30, 2024, compared with a negative $836.6 million, or 10.70%, of total assets at December 31, 2023. A negative gap position exists when the amount of interest-bearing liabilities maturing or repricing exceeds the amount of interest-earning assets maturing or repricing within a particular time period. This analysis suggests that the Company's net interest income contains a higher degree of risk in a rising rate environment over the next 12 months. An interest rate gap measure could be affected by external factors such as a rise or decline in interest rates, loan or securities prepayments, and deposit withdrawals.
Condensed Static Gap - September 30, 2024 Repricing Interval
(In thousands) Total 0-3 months 3-6 months 6-12 months Cumulative 12 months
Interest-earning assets1
$ 7,657,795 $ 1,320,987 $ 365,171 $ 585,489 $ 2,271,647
Interest-bearing liabilities 5,303,882 2,186,357 335,146 307,562 2,829,065
Net gap position $ (865,370) $ 30,025 $ 277,927 $ (557,418)
Net gap position as a percentage of total assets (10.81) % 0.38 % 3.47 % (6.96) %
1 Balances of available securities are shown at amortized cost
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2024.
Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Report on Form 10-Q, the Company's disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2024, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various claims and legal actions that arise in the ordinary course of conducting business. As of September 30, 2024, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company or its subsidiaries will be material to the Company's consolidated financial position. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with such legal proceedings. Although the Company does not believe that the outcome of pending litigation will be material to the Company's consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.
Item 1A. Risk Factors
There have been no material changes in the risk factors previously disclosed under Item 1A. in the Company's Annual Report on Form 10-K, for the fiscal year ended December 31, 2023.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
(a) (b) (c) (d)
July 1, 2024 through July 31, 2024 3,159 $ 48.53 0 400,000
August 1, 2024 through August 31, 2024 2,629 58.85 0 400,000
September 1, 2024 through September 30, 2024 0 0.00 0 400,000
Total 5,788 $ 53.21 0 400,000
Included in the table above are 3,159 shares purchased in July 2024, at an average cost of $48.53, and 992 shares purchased in August 2024, at an average cost of $58.84, 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 (the "Director Retainer Plan"), which were part of the director deferred compensation under that plan. In addition, the table includes 1,637 shares delivered to the Company in August 2024 at an average cost of $58.85 to satisfy mandatory tax withholding requirements upon vesting of restricted stock under the Company's 2019 Equity Plan.
On July 20, 2023, the Company's Board of Directors authorized a share repurchase plan (the "2023 Repurchase Plan") under which the Company may repurchase up to 400,000 shares of the Company's common stock over the 24 months following adoption of the plan. Shares may be repurchased from time to time under the 2023 Repurchase Plan in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws, and the repurchase program may be suspended, modified or terminated by the Board of Directors at any time for any reason. As of September 30, 2024, no shares have been repurchased under the 2023 Repurchase Plan.
Recent Sales of Unregistered Securities
On July 5, 2024, we issued an aggregate of 1,253 shares of our common stock to non-employee members of our Board of Directors who elected to receive all or a portion of their quarterly director retainer fees in Company stock pursuant to the Director Retainer Plan. These shares were valued based on the closing market price per share of our common stock of $46.27 on July 5, 2024, for an aggregate value of $57,976. The shares were issued to our non-employee directors in private transactions exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
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Item 5. Other Information
(a)
None
(b)
None
(c)
None
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Item 6. Exhibits
EXHIBIT INDEX
Exhibit Number Description
3.1
3.2
4.1 Form of Specimen Common Stock Certificate of the Company, incorporated herein by reference to Exhibit 4 to the Company's Registration Statement on Form 8-A (No. 0-27514), filed with the Commission on December 29, 1995.
31.1
Certification of Principal Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).
31.2
Certification of Principal Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).
32.1
Certification of Principal Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350 (filed herewith).
32.2
Certification of Principal Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350 (filed herewith).
101 INS** The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
101 SCH** Inline XBRL Taxonomy Extension Schema Document
101 CAL** Inline XBRL Taxonomy Extension Calculation Linkbase Document
101 DEF** Inline XBRL Taxonomy Extension Definition Linkbase Document
101 LAB** Inline XBRL Taxonomy Extension Label Linkbase Document
101 PRE** Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File - the cover page interactive data file does not appear in the interactive date file because its XBRL tags are embedded with the inline XBRL document.
** 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, 2024 and December 31, 2023; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023; (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023; (v) Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2024 and 2023; 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: November 06, 2024
TOMPKINS FINANCIAL CORPORATION
By: /s/ Stephen S. Romaine
Stephen S. Romaine
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Matthew D. Tomazin
Matthew D. Tomazin
Executive Vice President, Chief Financial Officer, and Treasurer
(Principal Financial Officer)
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