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Tompkins Financial
TMP
#5713
Rank
$1.11 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$77.10
Share price
0.84%
Change (1 day)
24.88%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Tompkins Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q2

Tompkins Financial - 10-Q quarterly report FY2022 Q2


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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
 
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2022
 
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
 
For the transition period from _____ to ______
 
Commission File Number 1-12709
 tmp-20220630_g1.jpg 

Tompkins Financial Corporation
(Exact name of registrant as specified in its charter)
New York 16-1482357
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
P.O. Box 460, Ithaca, NY
(Address of principal executive offices)
14851
(Zip Code)
 
Registrant’s telephone number, including area code: (888) 503-5753
Former name, former address, and former fiscal year, if changed since last report: NA
Indicate the number of shares of the Registrant’s Common Stock outstanding as of the latest practicable date:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.10 par valueTMPNYSE American, LLC
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated 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: 14,490,602 shares as of August 02, 2022.



TOMPKINS FINANCIAL CORPORATION
 
FORM 10-Q
 
INDEX
PART I -FINANCIAL INFORMATION
 
   PAGE
 
1
  
2
  
3
  
4
  
6
  
8
 
45
 
64
 
65
 
 
65
 
65
 
66
 
66
 
66
 
66
 
67
68




Item 1. Financial Statements

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share and per share data)As ofAs of
ASSETS06/30/202212/31/2021
 (unaudited)(audited)
Cash and noninterest bearing balances due from banks$20,878 $23,078 
Interest bearing balances due from banks59,514 40,029 
Cash and Cash Equivalents80,392 63,107 
Available-for-sale debt securities, at fair value (amortized cost of $2,075,020 at June 30, 2022 and $2,063,790 at December 31, 2021)
1,891,718 2,044,513 
Held-to-maturity securities, at amortized cost (fair value of $274,660 at June 30, 2022 and $282,288 December 31, 2021)
312,315 284,009 
Equity securities, at fair value (amortized cost $818 at June 30, 2022 and $902 at December 31, 2021)
818 902 
Total loans and leases, net of unearned income and deferred costs and fees5,162,503 5,075,467 
Less: Allowance for credit losses43,793 42,843 
Net Loans and Leases5,118,710 5,032,624 
Federal Home Loan Bank and other stock17,913 10,996 
Bank premises and equipment, net83,661 85,416 
Corporate owned life insurance87,093 86,495 
Goodwill92,447 92,447 
Other intangible assets, net3,124 3,643 
Accrued interest and other assets154,270 115,830 
Total Assets$7,842,461 $7,819,982 
LIABILITIES
Deposits:
Interest bearing:
Checking, savings and money market3,966,965 4,016,025 
Time594,853 639,674 
Noninterest bearing2,207,703 2,135,736 
Total Deposits6,769,521 6,791,435 
Federal funds purchased and securities sold under agreements to repurchase50,075 66,787 
Other borrowings295,600 124,000 
Other liabilities102,947 108,819 
Total Liabilities$7,218,143 $7,091,041 
EQUITY
Tompkins Financial Corporation shareholders' equity:
Common Stock - par value $0.10 per share: Authorized 25,000,000 shares; Issued: 14,540,514 at June 30, 2022; and 14,696,911 at December 31, 2021
1,454 1,470 
Additional paid-in capital303,335 312,538 
Retained earnings502,770 475,262 
Accumulated other comprehensive loss(178,869)(55,950)
Treasury stock, at cost – 123,030 shares at June 30, 2022, and 124,709 shares at December 31, 2021
(5,847)(5,791)
Total Tompkins Financial Corporation Shareholders’ Equity622,843 727,529 
Noncontrolling interests1,475 1,412 
Total Equity$624,318 $728,941 
Total Liabilities and Equity$7,842,461 $7,819,982 
 
See notes to unaudited consolidated financial statements.
1

TOMPKINS FINANCIAL CORPORATION
 CONSOLIDATED STATEMENTS OF INCOME 
Three Months EndedSix Months Ended
(In thousands, except per share data) (Unaudited)06/30/202206/30/202106/30/202206/30/2021
INTEREST AND DIVIDEND INCOME
Loans$52,505 $53,653 $103,636 $107,860 
Due from banks64 45 105 130 
Available-for-sale debt securities7,063 5,626 13,833 10,876 
Held-to-maturity securities1,201 312 2,330 312 
Federal Home Loan Bank and other stock120 199 225 412 
Total Interest and Dividend Income60,953 59,835 120,129 119,590 
INTEREST EXPENSE
Time certificates of deposits of $250,000 or more400 567 826 1,206 
Other deposits1,647 2,235 3,267 4,747 
Federal funds purchased and securities sold under agreements to repurchase15 15 31 31 
Trust preferred debentures0 821 0 996 
Other borrowings629 1,351 1,129 2,727 
Total Interest Expense2,691 4,989 5,253 9,707 
Net Interest Income58,262 54,846 114,876 109,883 
Less: Provision (credit) for credit loss expense856 (3,071)336 (4,901)
Net Interest Income After Credit for Credit Loss Expense57,406 57,917 114,540 114,784 
NONINTEREST INCOME
Insurance commissions and fees8,429 8,054 17,746 17,220 
Investment services income4,596 4,717 9,513 9,390 
Service charges on deposit accounts1,756 1,471 3,535 2,941 
Card services income2,959 2,951 5,502 5,334 
Other income1,241 1,665 2,717 3,639 
Net (loss) gain on securities transactions(37)0 (84)317 
Total Noninterest Income18,944 18,858 38,929 38,841 
NONINTEREST EXPENSE
Salaries and wages24,396 23,992 47,668 46,652 
Other employee benefits6,341 6,626 12,138 12,110 
Net occupancy expense of premises3,131 3,561 6,672 7,023 
Furniture and fixture expense2,004 2,204 3,995 4,154 
Amortization of intangible assets219 329 437 659 
Other operating expense13,029 10,730 25,049 21,355 
Total Noninterest Expenses49,120 47,442 95,959 91,953 
Income Before Income Tax Expense27,230 29,333 57,510 61,672 
Income Tax Expense6,329 6,471 13,305 13,151 
Net Income Attributable to Noncontrolling Interests and Tompkins Financial Corporation20,901 22,862 44,205 48,521 
Less: Net Income Attributable to Noncontrolling Interests32 31 63 64 
Net Income Attributable to Tompkins Financial Corporation$20,869 $22,831 $44,142 $48,457 
Basic Earnings Per Share$1.45 $1.55 $3.06 $3.28 
Diluted Earnings Per Share$1.45 $1.54 $3.05 $3.26 
 
See notes to unaudited consolidated financial statements.

2

TOMPKINS FINANCIAL CORPORATION
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
Three Months Ended
(In thousands) (Unaudited)06/30/202206/30/2021
Net income attributable to noncontrolling interests and Tompkins Financial Corporation$20,901 $22,862 
Other comprehensive (loss) income, net of tax:
Available-for-sale debt securities:
Change in net unrealized gain/(loss) during the period(43,449)8,489 
Reclassification adjustment for net realized gain on sale of available-for-sale debt securities included in net income0 0 
Employee benefit plans:
Amortization of net retirement plan actuarial loss389 537 
Amortization of net retirement plan prior service cost40 42 
Other comprehensive (loss) income(43,020)9,068 
Subtotal comprehensive (loss) income attributable to noncontrolling interests and Tompkins Financial Corporation(22,119)31,930 
Less: Net income attributable to noncontrolling interests(32)(31)
Total comprehensive (loss) income attributable to Tompkins Financial Corporation$(22,151)$31,899 

Six Months Ended
(In thousands) (Unaudited)06/30/202206/30/2021
Net income attributable to noncontrolling interests and Tompkins Financial Corporation$44,205 $48,521 
Other comprehensive income, net of tax:
Available-for-sale debt securities:
Change in net unrealized gain/(loss) during the period(123,854)(16,757)
Reclassification adjustment for net realized gain on sale of available-for-sale debt securities included in net income0 (249)
Employee benefit plans:
Amortization of net retirement plan actuarial loss853 1,114 
Amortization of net retirement plan prior service cost82 84 
Other comprehensive loss(122,919)(15,808)
Subtotal comprehensive (loss) income attributable to noncontrolling interests and Tompkins Financial Corporation(78,714)32,713 
Less: Net income attributable to noncontrolling interests(63)(64)
Total comprehensive (loss) income attributable to Tompkins Financial Corporation$(78,777)$32,649 

See notes to unaudited consolidated financial statements.

3

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
(In thousands) (Unaudited)06/30/202206/30/2021
OPERATING ACTIVITIES
Net income attributable to Tompkins Financial Corporation$44,142 $48,457 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for credit loss expense336 (4,901)
Depreciation and amortization of premises, equipment, and software5,245 5,102 
Amortization of intangible assets437 659 
Earnings from corporate owned life insurance(593)(1,111)
Net amortization on securities3,280 6,869 
Amortization/accretion related to purchase accounting(511)147 
Net loss (gain) on securities transactions84 (317)
Net gain on sale of loans originated for sale(57)(582)
Proceeds from sale of loans originated for sale362 17,379 
Loans originated for sale(1,127)(15,231)
Net gain on sale of bank premises and equipment(41)11 
Net excess tax benefit from stock based compensation29 251 
Stock-based compensation expense1,973 2,434 
Decrease in accrued interest receivable176 4,450 
Decrease in accrued interest payable(86)(316)
Other, net(2,132)(12,808)
Net Cash Provided by Operating Activities51,517 50,493 
INVESTING ACTIVITIES
Proceeds from maturities, calls and principal paydowns of available-for-sale debt securities134,653 257,771 
Proceeds from sales of available-for-sale debt securities0 38,924 
Purchases of available-for-sale debt securities(149,148)(712,688)
Purchases of held-to-maturity securities(28,320)(151,817)
Net (increase) decrease in loans(85,037)85,006 
Proceeds from sale/redemptions of Federal Home Loan Bank stock25,148 3,557 
Purchases of Federal Home Loan Bank and other stock(32,065)(3,166)
Proceeds from sale of bank premises and equipment123 63 
Purchases of bank premises, equipment and software(4,774)(1,955)
Redemption of corporate owned life insurance 0 169 
Other, net(142)124 
Net Cash Used in Investing Activities(139,562)(484,012)
FINANCING ACTIVITIES
Net increase in demand, money market, and savings deposits22,907 435,312 
Net decrease in time deposits(44,583)(35,799)
Net decrease in Federal funds purchased and securities sold under agreements to repurchase(16,712)(13,711)
Increase in other borrowings235,600 0 
Repayment of other borrowings(64,000)(20,000)
Redemption of trust preferred debentures0 (5,150)
Cash dividends(16,634)(16,097)
Repurchase of common stock(14,128)(7,983)
Shares issued for dividend reinvestment plan0 2 
Shares issued for employee stock ownership plan2,951 0 
Net shares issued related to restricted stock awards(29)0 
Net proceeds from exercise of stock options(42)(503)
Net Cash Provided by Financing Activities105,330 336,071 
Net Increase (Decrease) in Cash and Cash Equivalents17,285 (97,448)
Cash and cash equivalents at beginning of period63,107 388,462 
Total Cash and Cash Equivalents at End of Period$80,392 $291,014 
 
See notes to unaudited consolidated financial statements.
4

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended
(In thousands) (Unaudited)06/30/202206/30/2021
Supplemental Information:
Cash paid during the year for - Interest$5,578 $10,288 
Cash paid during the year for - Taxes10,871 19,341 
Transfer of loans to other real estate owned82 0 
Right-of-use assets obtained in exchange for new lease liabilities568 21 
 
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 CapitalRetained
Earnings		Accumulated Other Comprehensive (Loss) IncomeTreasury
Stock		Non-
controlling Interests		Total
Balances at April 1, 2021$1,494 $333,247 $435,990 $(56,950)$(5,288)$1,443 $709,936 
Net income attributable to noncontrolling interests and Tompkins Financial Corporation22,831 31 22,862 
Other comprehensive income9,068 9,068 
Total Comprehensive Income31,930 
Cash dividends ($0.54 per share)
(8,048)(8,048)
Net exercise of stock options (5,377 shares)
1 (352)(351)
Common stock repurchased and returned to unissued status (80,004 shares)
(8)(6,467)(6,475)
Shares issued for dividend reinvestment plan (32 shares)
02 2 
Stock-based compensation expense1,259 1,259 
Directors deferred compensation plan (2,394 shares)
192 (192)0 
Restricted stock activity (2,317 shares)
0 
Balances at June 30, 2021$1,487 $327,881 $450,773 $(47,882)$(5,480)$1,474 $728,253 
Balances at April 1, 2022$1,460 $305,880 $490,200 $(135,849)$(5,642)$1,443 $657,492 
Net income attributable to noncontrolling interests and Tompkins Financial Corporation20,869 32 20,901 
Other comprehensive loss(43,020)(43,020)
Total Comprehensive Income(22,119)
Cash dividends ($0.57 per share)
(8,299)(8,299)
Common stock repurchased and returned to unissued status (49,629 shares)
(5)(3,753)(3,758)
Stock-based compensation expense1,028 1,028 
Directors deferred compensation plan (2,688 shares)
205 (205)0 
Restricted stock activity (7,217 shares)
(1)(25)(26)
Balances at June 30, 2022$1,454 $303,335 $502,770 $(178,869)$(5,847)$1,475 $624,318 
6

(In thousands except share and per share data)(Unaudited)Common
Stock		Additional Paid-in CapitalRetained
Earnings		Accumulated Other Comprehensive (Loss) IncomeTreasury
Stock		Non-
controlling Interests		Total
Balances at January 1, 2021$1,496 $333,976 $418,413 $(32,074)$(5,534)$1,412 $717,689 
Net income attributable to noncontrolling interests and Tompkins Financial Corporation48,457 64 48,521 
Other comprehensive loss(15,808)(15,808)
Total Comprehensive Income32,713 
Cash dividends ($1.08 per share)
(16,097)(16,097)
Net exercise of stock options (8,110 shares)
1 (504)(503)
Common stock repurchased and returned to unissued status (101,535 shares)
(10)(7,973)(7,983)
Shares issued for dividend reinvestment plan (32 shares)
0 2 2 
Stock-based compensation expense2,434 2,434 
Directors deferred compensation plan (4,001 shares)
(54)54 0 
Restricted stock activity (5,213 shares)
0 
Partial repurchase of noncontrolling interest(2)(2)
Balances at June 30, 2021$1,487 $327,881 $450,773 $(47,882)$(5,480)$1,474 $728,253 
Balances at January 1, 2022$1,470 $312,538 $475,262 $(55,950)$(5,791)$1,412 $728,941 
Net income attributable to noncontrolling interests and Tompkins Financial Corporation44,142 63 44,205 
Other comprehensive loss(122,919)(122,919)
Total Comprehensive Loss(78,714)
Cash dividends ($1.14 per share)
(16,634)(16,634)
Net exercise of stock options (630 shares)
(42)(42)
Common stock repurchased and returned to unissued status (179,797 shares)
(18)(14,110)(14,128)
Stock-based compensation expense1,973 1,973 
Shares issued for employee stock ownership plan (37,454 shares)
4 2,947 2,951 
Directors deferred compensation plan ((1,679) shares)
56 (56)0 
Restricted stock activity (14,684 shares)
(2)(27)(29)
Balances at June 30, 2022$1,454 $303,335 $502,770 $(178,869)$(5,847)$1,475 $624,318 
 
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. Effective January 1, 2022, the Company's four wholly-owned banking subsidiaries were combined into one bank, with the Bank of of Castile, Mahopac Bank, and VIST Bank merging with and into Tompkins Trust Company (the "Trust Company") with the Trust Company as the surviving institution. Immediately following the merger, the Trust Company changed its name to Tompkins Community Bank. At June 30, 2022, the Company had one wholly-owned banking subsidiary, Tompkins Community Bank. The Company also has a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. ("Tompkins Insurance"). Tompkins Community Bank provides a full array of trust and investment 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’s principal offices are located at 118 E. Seneca Street, Ithaca, New York, 14850, and its telephone number is (888) 503-5753. The Company’s common stock is traded on the NYSE American under the symbol "TMP."

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

Tompkins Community Bank is subject to examination and comprehensive regulation by various regulatory authorities, including the Federal Deposit Insurance Corporation ("FDIC"), and the New York State Department of Financial Services ("NYSDFS"). Each of these agencies issues regulations and requires the filing of reports describing the activities and financial condition of the entities under its jurisdiction. Likewise, such agencies conduct examinations on a recurring basis to evaluate the safety and soundness of the institutions, and to test compliance with various regulatory requirements, including: consumer protection, privacy, fair lending, the Community Reinvestment Act, the Bank Secrecy Act, sales of non-deposit investments, electronic data processing, and trust department activities. These agencies also examine and regulate the trust business of Tompkins Community Bank.

Tompkins Insurance is subject to examination and regulation by the NYSDFS and the Pennsylvania Insurance Department.

2. Basis of Presentation
 
The unaudited consolidated financial statements included in this quarterly report do not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for a full year presentation and certain disclosures have been condensed or omitted in accordance with rules and regulations of the SEC. In the application of certain accounting policies, management is required to make assumptions regarding the effect of matters that are inherently uncertain. These estimates and assumptions affect the reported amounts of certain assets, liabilities, revenues, and expenses in the unaudited consolidated financial statements. Different amounts could be reported under different conditions, or if different assumptions were used in the application of these accounting policies. The accounting policies that management considers critical in this respect are the determination of the allowance for credit losses and the review of its securities portfolio for other than temporary impairment.
 
In management’s opinion, the unaudited consolidated financial statements reflect all adjustments of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year ended December 31, 2022. 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, 2021.

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.

8

The consolidated financial information included herein combines the results of operations, the assets, liabilities, and shareholders’ equity of the Company and its subsidiaries. Amounts in the prior periods’ unaudited consolidated financial statements are reclassified when necessary to conform to the current periods’ presentation. All significant intercompany balances and transactions are eliminated in consolidation.

3. Securities

Available-for-Sale Debt Securities
The following tables summarize available-for-sale debt securities held by the Company at June 30, 2022 and December 31, 2021:
Available-for-Sale Debt Securities
June 30, 2022Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
(In thousands)
U.S. Treasuries$191,051 $0 $16,949 $174,102 
Obligations of U.S. Government sponsored entities863,235 36 69,778 793,493 
Obligations of U.S. states and political subdivisions95,661 54 7,637 88,078 
Mortgage-backed securities – residential, issued by
 U.S. Government agencies63,185 38 4,109 59,114 
 U.S. Government sponsored entities859,388 18 84,835 774,571 
U.S. corporate debt securities2,500 0 140 2,360 
Total available-for-sale debt securities$2,075,020 $146 $183,448 $1,891,718 
 
Available-for-Sale Debt Securities
December 31, 2021Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
(In thousands)
U.S. Treasuries$160,291 $85 $2,542 $157,834 
Obligations of U.S. Government sponsored entities843,218 4,527 15,372 832,373 
Obligations of U.S. states and political subdivisions102,177 2,092 100 104,169 
Mortgage-backed securities – residential, issued by
U.S. Government agencies76,502 1,187 532 77,157 
U.S. Government sponsored entities879,102 5,735 14,281 870,556 
U.S. corporate debt securities2,500 0 76 2,424 
Total available-for-sale debt securities$2,063,790 $13,626 $32,903 $2,044,513 


9

Held-to-Maturity Debt Securities
The following tables summarize held-to-maturity debt securities held by the Company at June 30, 2022 and December 31, 2021:

Held-to-Maturity Securities
June 30, 2022Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
(In thousands)
U.S. Treasuries$86,582 $0 $9,237 $77,345 
Obligations of U.S. Government sponsored entities225,733 0 28,418 197,315 
Total held-to-maturity debt securities$312,315 $0 $37,655 $274,660 

Held-to-Maturity Securities
December 31, 2021Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
(In thousands)
U.S. Treasuries$86,689 $279 $600 $86,368 
Obligations of U.S. Government sponsored entities197,320 389 1,789 195,920 
Total held-to-maturity debt securities$284,009 $668 $2,389 $282,288 

The Company may from time to time sell debt securities from its available-for-sale portfolio. Realized gains on sales of available-for-sale debt securities were $0 for the three and six months ended June 30, 2022 and $0 and $329,000 for the three and six months ended June 30, 2021. Realized losses on available-for-sale debt securities were $0 for both the three and six months ended June 30, 2022, and for the three and six months ended June 30, 2021. Proceeds from the sale of available-for-sale debt securities were $0 for the three and six months ended June 30, 2022, and $2.2 million and $38.9 million for the three and six months ended June 30, 2021, respectively. Sales of available-for-sale investment securities were the result of general investment portfolio and interest rate risk management. 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 six months ended June 30, 2022 and June 30, 2021. The Company also recognized net losses of $36,700 and $83,700 for the three and six months ended June 30, 2022, and net losses of $0 and $12,000 for the three and six months ended June 30, 2021 on equity securities, reflecting the change in fair value.

The following table summarizes available-for-sale debt securities that had unrealized losses at June 30, 2022, and December 31, 2021:

June 30, 2022Less than 12 Months12 Months or LongerTotal
(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasuries$169,550 $16,547 $4,552 $402 $174,102 $16,949 
Obligations of U.S. Government sponsored entities353,414 23,720 411,422 46,058 764,836 69,778 
Obligations of U.S. states and political subdivisions71,476 6,901 3,123 736 74,599 7,637 
Mortgage-backed securities – residential, issued by
U.S. Government agencies36,509 1,299 21,389 2,810 57,898 4,109 
U.S. Government sponsored entities520,389 35,937 250,441 48,898 770,830 84,835 
U.S. corporate debt securities0 0 2,360 140 2,360 140 
Total available-for-sale debt securities$1,151,338 $84,404 $693,287 $99,044 $1,844,625 $183,448 

10

December 31, 2021Less than 12 Months12 Months or LongerTotal
(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasuries$147,810 $2,542 $0 $0 $147,810 $2,542 
Obligations of U.S. Government sponsored entities362,895 6,694 289,210 8,678 652,105 15,372 
Obligations of U.S. states and political subdivisions9,700 85 1,283 15 10,983 100 
Mortgage-backed securities – residential, issued by
U.S. Government agencies22,074 160 16,846 372 38,920 532 
U.S. Government sponsored entities553,351 11,440 84,537 2,841 637,888 14,281 
U.S. corporate debt securities0 0 2,424 76 2,424 76 
Total available-for-sale debt securities$1,095,830 $20,921 $394,300 $11,982 $1,490,130 $32,903 

The following table summarizes held-to-maturity debt securities that had unrealized losses at June 30, 2022 and December 31, 2021:

June 30, 2022Less than 12 Months12 Months or LongerTotal
(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasuries$77,345 $9,237 $0 $0 $77,345 $9,237 
Obligations of U.S. Government sponsored entities197,315 28,418 $0 $0 $197,315 28,418 
Total held-to-maturity debt securities$274,660 $37,655 $0 $0 $274,660 $37,655 

December 31, 2021Less than 12 Months12 Months or LongerTotal
(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasuries$35,280 $600 $0 $0 $35,280 $600 
Obligations of U.S. Government sponsored entities84,592 1,789 0 0 84,592 1,789 
Total held-to-maturity debt securities$119,872 $2,389 $0 $0 $119,872 $2,389 

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
11

allowance for credit losses ("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 gross unrealized losses reported for residential mortgage-backed securities relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and
U.S. government agencies such as Government National Mortgage Association. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit-related quality of the investment securities. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost.

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity debt securities from the estimate of credit losses. As of June 30, 2022, 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 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 June 30, 2022, or December 31, 2021.

The amortized cost and estimated fair value of debt securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are shown separately since they are not due at a single maturity date.

June 30, 2022
(In thousands)Amortized CostFair Value
Available-for-sale debt securities:
Due in one year or less$61,909 $61,879 
Due after one year through five years534,330 503,095 
Due after five years through ten years505,724 451,324 
Due after ten years50,484 41,735 
Total1,152,447 1,058,033 
Mortgage-backed securities922,573 833,685 
Total available-for-sale debt securities$2,075,020 $1,891,718 

December 31, 2021
(In thousands)Amortized CostFair Value
Available-for-sale debt securities:
Due in one year or less$77,159 $77,892 
Due after one year through five years474,537 471,776 
Due after five years through ten years501,748 492,573 
Due after ten years54,742 54,559 
Total1,108,186 1,096,800 
Mortgage-backed securities955,604 947,713 
Total available-for-sale debt securities$2,063,790 $2,044,513 

12

June 30, 2022
(In thousands)Amortized CostFair Value
Held-to-maturity debt securities:
Due after five years through ten years$312,315 $274,660 
Total held-to-maturity debt securities$312,315 $274,660 

December 31, 2021
(In thousands)Amortized CostFair Value
Held-to-maturity debt securities:
Due after five years through ten years$284,009 $282,288 
Total held-to-maturity debt securities$284,009 $282,288 

The Company also holds non-marketable Federal Home Loan Bank 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. 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 $17.8 million and $95,000, respectively, at June 30, 2022. 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 June 30, 2022, we determined that no impairment write-downs were required.

13

4. Loans and Leases
Loans and leases at June 30, 2022 and December 31, 2021 were as follows:
(In thousands)06/30/202212/31/2021
Commercial and industrial
Agriculture$69,291 $99,172 
Commercial and industrial other717,837 699,121 
PPP loans*3,499 71,260 
Subtotal commercial and industrial790,627 869,553 
Commercial real estate
Construction208,695 178,582 
Agriculture200,089 195,973 
Commercial real estate other2,361,790 2,278,599 
Subtotal commercial real estate2,770,574 2,653,154 
Residential real estate
Home equity181,672 182,671 
Mortgages1,341,663 1,290,911 
Subtotal residential real estate1,523,335 1,473,582 
Consumer and other
Indirect3,196 4,655 
Consumer and other65,033 67,396 
Subtotal consumer and other68,229 72,051 
Leases14,019 13,948 
Total loans and leases5,166,784 5,082,288 
Less: unearned income and deferred costs and fees(4,281)(6,821)
Total loans and leases, net of unearned income and deferred costs and fees$5,162,503 $5,075,467 
*SBA Paycheck Protection Program ("PPP")

The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures. Management reviews these policies and procedures on a regular basis. The Company discussed its lending policies and underwriting guidelines for its various lending portfolios in Note 3 – "Loans and Leases" in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. 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, 2021. The Company’s Board of Directors approves the lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to monitor loan origination, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.
 
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments are due. Generally loans are placed on nonaccrual status if principal or interest payments become 90 days or more past due and/or management deems the collectability of the principal and/or interest to be in question as well as when required by regulatory agencies. When interest accrual is discontinued, all unpaid accrued interest is reversed. Payments received on loans on nonaccrual are generally applied to reduce the principal balance of the loan. Loans are generally returned to accrual status when all the principal and interest amounts due are brought current, the borrower has established a payment history, and future payments are reasonably assured. When management determines that the collection of principal in full is not probable, management will charge-off a partial amount or full amount of the loan balance. Management considers specific facts and circumstances relative to each individual credit in making such a determination. For residential and consumer loans, management uses specific regulatory guidance and thresholds for determining charge-offs.
 

14

The below tables are an age analysis of past due loans, segregated by class of loans, as of June 30, 2022 and December 31, 2021:
 
June 30, 2022
(In thousands)30-59 Days60-89 Days90 Days or MoreTotal Past DueCurrent LoansTotal Loans
Loans and Leases
Commercial and industrial
Agriculture$33 $0 $0 $33 $69,258 $69,291
Commercial and industrial other875 923 92 1,890 715,947 717,837 
PPP loans53 1 0 54 3,445 3,499 
Subtotal commercial and industrial961 924 92 1,977 788,650 790,627 
Commercial real estate
Construction0 0 0 0 208,695 208,695
Agriculture219 0 0 219 199,870 200,089
Commercial real estate other253 5,405 5,762 11,420 2,350,370 2,361,790
Subtotal commercial real estate472 5,405 5,762 11,639 2,758,935 2,770,574 
Residential real estate
Home equity306 0 1,347 1,653 180,019 181,672
Mortgages0 1,506 5,490 6,996 1,334,667 1,341,663
Subtotal residential real estate306 1,506 6,837 8,649 1,514,686 1,523,335 
Consumer and other
Indirect64 23 52 139 3,057 3,196
Consumer and other57 119 89 265 64,768 65,033
Subtotal consumer and other121 142 141 404 67,825 68,229 
Leases0 0 0 0 14,019 14,019 
Total loans and leases1,860 7,977 12,832 22,669 5,144,115 5,166,784 
Less: unearned income and deferred costs and fees0 0 0 0 (4,281)(4,281)
Total loans and leases, net of unearned income and deferred costs and fees$1,860 $7,977 $12,832 $22,669 $5,139,834 $5,162,503 
15

December 31, 2021
(In thousands)30-59 Days60-89 Days90 Days or MoreTotal Past DueCurrent LoansTotal Loans
Loans and Leases
Commercial and industrial
Agriculture$0 $0 $0 $0 $99,172 $99,172 
Commercial and industrial other506 6 88 600 698,521 699,121 
PPP loans0 0 0 0 71,260 71,260 
Subtotal commercial and industrial506 6 88 600 868,953 869,553 
Commercial real estate
Construction0 0 0 0 178,582 178,582 
Agriculture121 0 0 121 195,852 195,973 
Commercial real estate other150 257 3,305 3,712 2,274,887 2,278,599 
Subtotal commercial real estate271 257 3,305 3,833 2,649,321 2,653,154 
Residential real estate
Home equity441 417 798 1,656 181,015 182,671 
Mortgages7 839 3,917 4,763 1,286,148 1,290,911 
Subtotal residential real estate448 1,256 4,715 6,419 1,467,163 1,473,582 
Consumer and other
Indirect77 86 2 165 4,490 4,655 
Consumer and other120 45 45 210 67,186 67,396 
Subtotal consumer and other197 131 47 375 71,676 72,051 
Leases0 0 0 0 13,948 13,948 
Total loans and leases1,422 1,650 8,155 11,227 5,071,061 5,082,288 
Less: unearned income and deferred costs and fees0 0 0 0 (6,821)(6,821)
Total loans and leases, net of unearned income and deferred costs and fees$1,422 $1,650 $8,155 $11,227 $5,064,240 $5,075,467 

























16

The following tables present the amortized cost basis of loans on nonaccrual status and the amortized cost basis of loans on nonaccrual status for which there was no related allowance for credit losses. The below tables are an age analysis of nonaccrual loans segregated by class of loans, as of June 30, 2022 and December 31, 2021:

June 30, 2022
(In thousands)Nonaccrual Loans and Leases with no ACLNonaccrual Loans and LeasesLoans and Leases Past Due Over 89 Days and Accruing
Loans and Leases
Commercial and industrial
Commercial and industrial other$92 $293 $62 
Subtotal commercial and industrial92 293 62 
Commercial real estate
Construction340 0 0 
Commercial real estate other11,354 12,545 0 
Subtotal commercial real estate11,694 12,545 0 
Residential real estate
Home equity419 2,506 0 
Mortgages980 9,030 0 
Subtotal residential real estate1,399 11,536 0 
Consumer and other
Indirect0 175 0 
Consumer and other0 116 0 
Subtotal consumer and other0 291 0 
Total loans and leases$13,185 $24,665 $62 

17

December 31, 2021
(In thousands)Nonaccrual Loans and Leases with no ACLNonaccrual Loans and LeasesLoans and Leases Past Due Over 89 Days and Accruing
Loans and Leases
Commercial and industrial
Commercial and industrial other$502 $533 $0 
Subtotal commercial and industrial502 533 0 
Commercial real estate
Construction671 671 0 
Agriculture348 456 0 
Commercial real estate other12,483 12,766 0 
Subtotal commercial real estate13,502 13,893 0 
Residential real estate
Home equity380 2,459 0 
Mortgages716 8,719 0 
Subtotal residential real estate1,096 11,178 0 
Consumer and other
Indirect1 246 0 
Consumer and other0 183 0 
Subtotal consumer and other1 429 0 
Total loans and leases$15,101 $26,033 $0 

The Company recognized $0 of interest income on nonaccrual loans during the three and six months ended June 30, 2022 and 2021.

5. Allowance for Credit Losses
 
Management reviews the appropriateness of the allowance for credit losses ("allowance" or "ACL") on a regular basis. Management considers the accounting policy relating to the allowance to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that assumptions could have on the Company’s results of operations. The Company has developed a methodology to measure the amount of estimated credit loss exposure inherent in the loan portfolio to assure that an appropriate allowance is maintained. The Company’s methodology is based upon guidance provided in SEC Staff Accounting Bulletin No. 119, Measurement of Credit Losses on Financial Instruments ("CECL"), and Financial Instruments - Credit Losses and ASC Topic 326, Financial Instruments - Credit Losses (ASU 2016-3).

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.

18

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 are also considered by management when developing the forecast metrics.

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 June 30, 2022, 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.

The following table details activity in the allowance for credit losses on loans for the three and six months ended June 30, 2022 and 2021. 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 June 30, 2022
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balance$7,027 $22,982 $10,447 $1,588 $82 $42,126 
Charge-offs0 (23)(51)(82)0 (156)
Recoveries6 764 197 76 0 1,043 
(Credit) provision for credit loss expense781 (496)489 9 (3)780 
Ending Balance$7,814 $23,227 $11,082 $1,591 $79 $43,793 

Three Months Ended June 30, 2021
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balance$7,750 $30,467 $9,470 $1,583 $69 $49,339 
Charge-offs(2)0 (48)(60)0 (110)
Recoveries4 826 125 39 0 994 
(Credit) provision for credit loss expense(639)(2,092)(13)28 (2)(2,718)
Ending Balance$7,113 $29,201 $9,534 $1,590 $67 $47,505 

19

Six Months Ended June 30, 2022
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balance$6,335 $24,813 $10,139 $1,492 $64 $42,843 
Charge-offs(23)(50)(51)(278)0 (402)
Recoveries26 805 307 168 0 1,306 
(Credit) provision for credit loss expense1,476 (2,341)687 209 15 46 
Ending Balance$7,814 $23,227 $11,082 $1,591 $79 $43,793 

Six Months Ended June 30, 2021
(In thousands)Commercial
& Industrial		Commercial
Real Estate		Residential
Real Estate		Consumer
and Other		Finance
Leases		Total
Allowance for credit losses:
Beginning balance$9,239 $30,546 $10,257 $1,562 $65 $51,669 
Charge-offs(118)0 (46)(152)0 (316)
Recoveries101 1,039 158 82 0 1,380 
(Credit) provision for credit loss expense(2,109)(2,384)(835)98 2 (5,228)
Ending Balance$7,113 $29,201 $9,534 $1,590 $67 $47,505 

The following table details activity in the liabilities for off-balance sheet credit exposures for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,
(In thousands)20222021
Liabilities for off-balance sheet credit exposures at beginning of period$2,720 $2,600 
Provision for credit loss expense related to off-balance sheet credit exposures76 (353)
Liabilities for off-balance sheet credit exposures at end of period$2,796 $2,247 

Six Months Ended June 30,
(In thousands)20222021
Liabilities for off-balance sheet credit exposures at beginning of period$2,506 $1,920 
Provision for credit loss expense related to off-balance sheet credit exposures290 327 
Liabilities for off-balance sheet credit exposures at end of period$2,796 $2,247 

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

(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
June 30, 2022
Commercial and Industrial$23 $363 $36 $422 $23 
Commercial Real Estate11,484 0 551 12,035 0 
Commercial Real Estate - Agriculture1,534 0 0 1,534 0 
Total$13,041 $363 $587 $13,991 $23 

20

(In thousands)Real EstateBusiness AssetsOtherTotalACL Allocation
December 31, 2021
Commercial and Industrial$142 $395 $328 $865 $26 
Commercial Real Estate13,334 0 1,931 15,265 40 
Residential Real Estate32 0 0 32 1 
Total$13,508 $395 $2,259 $16,162 $67 

Loans are considered modified in a troubled debt restructuring ("TDR") when, due to a borrower’s financial difficulties, the Company makes concessions to the borrower that it would not otherwise consider. These modifications may include, among others, an extension for the term of the loan, and granting a period when interest-only payments can be made with the principal payments made over the remaining term of the loan or at maturity.

There were no new TDRs in the three and six months ended June 30, 2022 or 2021.
 










































21

The following table presents credit quality indicators by total loans on an amortized cost basis by origination year as of June 30, 2022 and December 31, 2021:

June 30, 2022
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial and Industrial - Other:
Pass$78,886 $106,368 $47,449 $48,848 $38,634 $169,002 $214,034 $2,946 $706,167 
Special Mention0 142 829 298 62 1,483 556 0 3,370 
Substandard0 127 522 66 484 641 6,460 0 8,300 
Total Commercial and Industrial - Other$78,886 $106,637 $48,800 $49,212 $39,180 $171,126 $221,050 $2,946 $717,837 
Commercial and Industrial - PPP:
Pass$0 $3,086 $413 $0 $0 $0 $0 $0 $3,499 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Total Commercial and Industrial - PPP$0 $3,086 $413 $0 $0 $0 $0 $0 $3,499 
Commercial and Industrial - Agriculture:
Pass$8,481 $6,259 $5,925 $4,850 $8,762 $6,290 $24,915 $0 $65,482 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 78 0 0 2,311 1,420 0 3,809 
Total Commercial and Industrial - Agriculture$8,481 $6,259 $6,003 $4,850 $8,762 $8,601 $26,335 $0 $69,291 
Commercial Real Estate
Pass$206,650 $364,170 $293,749 $291,194 $213,218 $857,789 $15,881 $20,735 $2,263,386 
Special Mention0 3,448 1,710 11,618 2,993 48,522 0 0 68,291 
Substandard0 113 0 3,602 2,408 23,635 355 0 30,113 
Total Commercial Real Estate$206,650 $367,731 $295,459 $306,414 $218,619 $929,946 $16,236 $20,735 $2,361,790 
Commercial Real Estate - Agriculture:
Pass$15,796 $22,452 $21,568 $26,406 $38,742 $69,521 $3,202 $1,260 $198,947 
Special Mention0 0 0 219 0 391 0 0 610 
Substandard0 0 0 0 38 494 0 0 532 
Total Commercial Real Estate - Agriculture$15,796 $22,452 $21,568 $26,625 $38,780 $70,406 $3,202 $1,260 $200,089 
Commercial Real Estate - Construction
Pass$5,636 $64,721 $67,810 $26,733 $9,751 $14,156 $19,189 $699 $208,695 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Total Commercial Real Estate - Construction$5,636 $64,721 $67,810 $26,733 $9,751 $14,156 $19,189 $699 $208,695 
22

December 31, 2021
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Commercial and Industrial - Other:
Internal risk grade:
Pass$123,996 $58,432 $54,116 $42,093 $35,725 $239,093 $125,476 $10,039 $688,970 
Special Mention156 770 450 100 201 393 1,417 0 3,487 
Substandard179 584 47 575 0 637 4,642 0 6,664 
Total Commercial and Industrial - Other$124,331 $59,786 $54,613 $42,768 $35,926 $240,123 $131,535 $10,039 $699,121 
Commercial and Industrial - Agriculture:
Pass$8,573 $6,782 $5,700 $10,136 $6,867 $3,186 $53,145 $595 $94,984 
Special Mention00023000 023 
Substandard085110932,316 1,660 04,165 
Total Commercial and Industrial - Agriculture$8,573 $6,867 $5,711 $10,159 $6,960 $5,502 $54,805 $595 $99,172 
Commercial and Industrial - PPP:
Pass$71,260 $0 $0 $0 $0 $0 $0 $0 $71,260 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Total Commercial and Industrial - PPP$71,260 $0 $0 $0 $0 $0 $0 $0 $71,260 
Commercial Real Estate
Pass$325,874 $271,680 $249,266 $201,992 $212,991 $810,713 $44,264 $43,225 $2,160,005 
Special Mention0 1,763 11,772 3,217 2,167 61,723 358 0 81,000 
Substandard3,482 0 2,262 2,518 8,509 20,401 422 0 37,594 
Total Commercial Real Estate$329,356 $273,443 $263,300 $207,727 $223,667 $892,837 $45,044 $43,225 $2,278,599 
Commercial Real Estate - Agriculture:
Pass$23,151 $21,856 $28,943 $41,064 $23,195 $50,809 $1,949 $2,850 $193,817 
Special Mention0 479 0 0 0 350 35 0 864 
Substandard0 0 0 39 0 1,253 0 0 1,292 
Total Commercial Real Estate - Agriculture$23,151 $22,335 $28,943 $41,103 $23,195 $52,412 $1,984 $2,850 $195,973 
Commercial Real Estate - Construction
Pass$12,840 $10,025 $16,325 $7,542 $1,274 $6,559 $112,537 $10,037 $177,139 
Special Mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 643 800 0 1,443 
Total Commercial Real Estate - Construction$12,840 $10,025 $16,325 $7,542 $1,274 $7,202 $113,337 $10,037 $178,582 



23

The following table presents credit quality indicators by total loans on an amortized cost basis by origination year as of June 30, 2022 and December 31, 2021, continued:

June 30, 2022
(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Residential - Home Equity
Performing$1,049 $1,166 $697 $1,117 $887 $4,060 $169,371 $819 $179,166 
Nonperforming0 0 0 15 0 75 2,416 0 2,506 
Total Residential - Home Equity$1,049 $1,166 $697 $1,132 $887 $4,135 $171,787 $819 $181,672 
Residential - Mortgages
Performing$122,172 $276,961 $251,305 $124,191 $70,956 $487,048 $0 $0 $1,332,633 
Nonperforming0 0 246 608 1,112 7,064 0 0 9,030 
Total Residential - Mortgages$122,172 $276,961 $251,551 $124,799 $72,068 $494,112 $0 $0 $1,341,663 
Consumer - Direct
Performing$12,974 $17,506 $8,475 $7,419 $5,113 $8,811 $4,619 $0 $64,917 
Nonperforming0 0 3 23 77 10 3 $0 116 
Total Consumer - Direct$12,974 $17,506 $8,478 $7,442 $5,190 $8,821 $4,622 $0 $65,033 
Consumer - Indirect
Performing$0 $181 $189 $1,549 $915 $187 $0 $0 $3,021 
Nonperforming0 0 0 129 37 9 0 0 175 
Total Consumer - Indirect$0 $181 $189 $1,678 $952 $196 $0 $0 $3,196 

24

December 31, 2021
(In thousands)20212020201920182017PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal Loans
Residential - Home Equity
Performing$2,033 $1,142 $3,041 $1,600 $1,572 $3,144 $161,630 $6,050 $180,212 
Nonperforming0 0 16 0 0 604 1,839 0 2,459 
Total Residential - Home Equity$2,033 $1,142 $3,057 $1,600 $1,572 $3,748 $163,469 $6,050 $182,671 
Residential - Mortgages
Performing$324,967 $282,202 $162,574 $97,778 $124,221 $275,133 $14,112 $1,205 $1,282,192 
Nonperforming0 0 241 702 693 7,060 23 0 8,719 
Total Residential - Mortgages$324,967 $282,202 $162,815 $98,480 $124,914 $282,193 $14,135 $1,205 $1,290,911 
Consumer - Direct
Performing$20,653 $10,735 $9,397 $5,542 $4,849 $10,602 $5,435 $0 $67,213 
Nonperforming0 9 44 117 12 0 1 0 183 
Total Consumer - Direct$20,653 $10,744 $9,441 $5,659 $4,861 $10,602 $5,436 $0 $67,396 
Consumer - Indirect
Performing$1,809 $854 $812 $506 $362 $66 $0 $0 $4,409 
Nonperforming0 2 148 81 1 14 0 0 246 
Total Consumer - Indirect$1,809 $856 $960 $587 $363 $80 $0 $0 $4,655 

6. Earnings Per Share
 
Earnings per share in the table below, for the three and six month periods ended June 30, 2022 and 2021 are calculated under the two-class method as required by ASC Topic 260, Earnings Per Share. ASC 260 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company has issued restricted stock awards that contain such rights and are therefore considered participating securities. Basic earnings per common share are calculated by dividing net income allocable to common stock by the weighted average number of common shares, excluding participating securities, during the period. Diluted earnings per common share include the dilutive effect of participating securities.
 
25

Three Months Ended
(In thousands, except share and per share data)6/30/20226/30/2021
Basic
Net income available to common shareholders$20,869 $22,831 
Less: income attributable to unvested stock-based compensation awards(67)(164)
Net earnings allocated to common shareholders20,802 22,667 
Weighted average shares outstanding, including unvested stock-based compensation awards14,524,975 14,886,687 
Less: average unvested stock-based compensation awards(207,560)(231,913)
Weighted average shares outstanding - Basic14,317,415 14,654,774 
Diluted
Net earnings allocated to common shareholders20,802 22,667 
Weighted average shares outstanding - Basic14,317,415 14,654,774 
Plus: incremental shares from assumed conversion of stock-based compensation awards70,186 82,961 
Weighted average shares outstanding - Diluted14,387,601 14,737,735 
Basic EPS$1.45 $1.55 
Diluted EPS$1.45 $1.54 

Stock-based compensation awards representing 1,848 and 477 of common shares during the three months ended June 30, 2022 and 2021, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been anti-dilutive.

Six Months Ended
(In thousands, except share and per share data)6/30/20226/30/2021
Basic
Net income available to common shareholders$44,142 $48,457 
Less: income attributable to unvested stock-based compensation awards(143)(350)
Net earnings allocated to common shareholders43,999 48,107 
Weighted average shares outstanding, including unvested stock-based compensation awards14,568,102 14,899,524 
Less: unvested stock-based compensation awards(209,633)(234,003)
Weighted average shares outstanding - Basic14,358,469 14,665,521 
Diluted
Net earnings allocated to common shareholders43,999 48,107 
Weighted average shares outstanding - Basic14,358,469 14,665,521 
Plus: incremental shares from assumed conversion of stock-based compensation awards74,183 82,055 
Weighted average shares outstanding - Diluted14,432,652 14,747,576 
Basic EPS$3.06 $3.28 
Diluted EPS$3.05 $3.26 
Stock-based compensation awards representing approximately 6,113 and 8,187 of common shares during the six months ended June 30, 2022 and 2021, respectively were not included in the computations of diluted earnings per common share because the effect on those periods would have been anti-dilutive.
26

7. Other Comprehensive Income (Loss)

The following tables present reclassifications out of accumulated other comprehensive income (loss) for the three and six month periods ended June 30, 2022 and 2021:
Three Months Ended June 30, 2022
(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$(57,544)$14,095 $(43,449)
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income0 0 0 
Net unrealized gains/losses(57,544)14,095 (43,449)
Employee benefit plans:
Amortization of net retirement plan actuarial gain514 (125)389 
Amortization of net retirement plan prior service cost53 (13)40 
Employee benefit plans567 (138)429 
Other comprehensive (loss) income$(56,977)$13,957 $(43,020)
 
Three Months Ended June 30, 2021
(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$11,244 $(2,755)$8,489 
Reclassification adjustment for net realized gain on sale of available-for-sale debt securities included in net income0 0 0 
Net unrealized gains/losses11,244 (2,755)8,489 
Employee benefit plans:
Amortization of net retirement plan actuarial gain712 (175)537 
Amortization of net retirement plan prior service cost55 (13)42 
Employee benefit plans767 (188)579 
Other comprehensive income (loss)$12,011 $(2,943)$9,068 

27

Six Months Ended June 30, 2022
(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$(164,025)$40,171 $(123,854)
Reclassification adjustment for net realized gain on sale of available-for-sale debt securities included in net income0 0 0 
Net unrealized gains/losses(164,025)40,171 (123,854)
Employee benefit plans:
Amortization of net retirement plan actuarial loss1,129 (276)853 
Amortization of net retirement plan prior service cost109 (27)82 
Employee benefit plans1,238 (303)935 
Other comprehensive (loss) income$(162,787)$39,868 $(122,919)

Six Months Ended June 30, 2021
(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$(22,197)$5,440 $(16,757)
Reclassification adjustment for net realized gain on sale of available-for-sale debt securities included in net income(330)81 (249)
Net unrealized gains/losses(22,527)5,521 (17,006)
Employee benefit plans:
Amortization of net retirement plan actuarial loss1,476 (362)1,114 
Amortization of net retirement plan prior service cost111 (27)84 
Employee benefit plans1,587 (389)1,198 
Other comprehensive (loss) income$(20,940)$5,132 $(15,808)

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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 March 31, 2022$(94,965)$(40,884)$(135,849)
Other comprehensive (loss) income before reclassifications(43,449)0 (43,449)
Amounts reclassified from accumulated other comprehensive (loss) income0 429 429 
Net current-period other comprehensive (loss) income(43,449)429 (43,020)
Balance at June 30, 2022$(138,414)$(40,455)$(178,869)
Balance at January 1, 2022$(14,560)$(41,390)$(55,950)
Other comprehensive (loss) income before reclassifications(123,854)0 (123,854)
Amounts reclassified from accumulated other comprehensive (loss) income0 935 935 
Net current-period other comprehensive (loss) income(123,854)935 (122,919)
Balance at June 30, 2022$(138,414)$(40,455)$(178,869)

(In thousands)Available-for-
Sale Debit Securities		Employee
Benefit Plans		Accumulated
Other
Comprehensive
(Loss) Income
Balance at March 31, 2021$(4,886)$(52,064)$(56,950)
Other comprehensive income (loss) before reclassifications8,489 0 8,489 
Amounts reclassified from accumulated other comprehensive (loss) income0 579 579 
Net current-period other comprehensive income (loss)8,489 579 9,068 
Balance at June 30, 2021$3,603 $(51,485)$(47,882)
Balance at January 1, 2021$20,609 $(52,683)$(32,074)
Other comprehensive (loss) income before reclassifications(16,757)0 (16,757)
Amounts reclassified from accumulated other comprehensive (loss) income(249)1,198 949 
Net current-period other comprehensive (loss) income(17,006)1,198 (15,808)
Balance at June 30, 2021$3,603 $(51,485)$(47,882)















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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 six months ended June 30, 2022 and 2021:

Three Months Ended June 30, 2022
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount
Reclassified from
Accumulated
Other
Comprehensive
(Loss) Income1
Affected Line Item in the
Statement Where Net Income is
Presented
Available-for-sale debt securities:
Unrealized gains and losses on available-for-sale debt securities$0 Net (loss) gain on securities transactions
0 Tax expense
0 Net of tax
Employee benefit plans:
Amortization of the following 2
Net retirement plan actuarial loss(514)Other operating expense
Net retirement plan prior service cost(53)Other operating expense
(567)Total before tax
138 Tax benefit
$(429)Net of tax
 
Three Months Ended June 30, 2021
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$0 Net (loss) gain on securities transactions
0 Tax expense
0 Net of tax
Employee benefit plans:
Amortization of the following2
Net retirement plan actuarial loss(711)Other operating expense
Net retirement plan prior service cost(56)Other operating expense
(767)Total before tax
188 Tax benefit
$(579)Net of tax
30

Six Months Ended June 30, 2022
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands)
Amount
Reclassified from
Accumulated
Other
Comprehensive
(Loss) Income1
Affected Line Item in the
Statement Where Net Income is
Presented
Available-for-sale debt securities:
Unrealized gains and losses on available-for-sale debt securities$0 Net (loss) gain on securities transactions
0 Tax expense
0 Net of tax
Employee benefit plans:
Amortization of the following2
Net retirement plan actuarial loss(1,129)Other operating expense
Net retirement plan prior service cost(109)Other operating expense
(1,238)Total before tax
303 Tax benefit
$(935)Net of tax

Six Months Ended June 30, 2021
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$330 Net (loss) gain on securities transactions
(81)Tax expense
249 Net of tax
Employee benefit plans:
Amortization of the following2
Net retirement plan actuarial loss(1,475)Other operating expense
Net retirement plan prior service cost(111)Other operating expense
(1,586)Total before tax
388 Tax benefit
$(1,198)Net of tax
1 Amounts in parentheses indicated debits in income statement.
2 The accumulated other comprehensive (loss) income components are included in the computation of net periodic benefit cost (See Note 8 - "Employee Benefit Plan").
 

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

Components of Net Periodic Benefit Cost
Pension BenefitsLife and HealthSERP Benefits
Three Months EndedThree Months EndedThree Months Ended
(In thousands)6/30/20226/30/20216/30/20226/30/20216/30/20226/30/2021
Service cost$0 $0 $43 $42 $(13)$55 
Interest cost529 327 59 36 206 147 
Expected return on plan assets(1,474)(1,411)0 0 0 0 
Amortization of net retirement plan actuarial loss285 397 46 82 183 233 
Amortization of net retirement plan prior service (credit) cost0 0 (15)(15)68 70 
Net periodic benefit (income) cost$(660)$(687)$133 $145 $444 $505 

Pension BenefitsLife and HealthSERP Benefits
Six Months EndedSix Months EndedSix Months Ended
(In thousands)6/30/20226/30/20216/30/20226/30/20216/30/20226/30/2021
Service cost$0 $0 $87 $93 $39 $115 
Interest cost992 814 111 90 407 346 
Expected return on plan assets(2,942)(2,826)0 0 0 0 
Amortization of net retirement plan actuarial loss608 780 98 156 423 540 
Amortization of net retirement plan prior service cost (credit)0 0 (30)(30)139 141 
Net periodic benefit (income) cost$(1,342)$(1,232)$266 $309 $1,008 $1,142 

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 $934,560 and $1.2 million, net of tax, as amortization of amounts previously recognized in accumulated other comprehensive (loss) income, for the six months ended June 30, 2022 and 2021, 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 six months of 2022 and 2021.

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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 EndedSix Months Ended
(In thousands)6/30/20226/30/20216/30/20226/30/2021
Noninterest Income
Other service charges$669 $710 $1,296 $1,379 
Earnings from corporate owned life insurance171 570 593 1,111 
Net gains on the sales of loans originated for sale53 153 57 582 
Other income348 232 771 567 
Total other income$1,241 $1,665 $2,717 $3,639 
Noninterest Expenses
Marketing expense$1,456 $1,132 $2,513 $1,627 
Professional fees1,719 1,533 3,325 3,427 
Legal fees498 221 708 441 
Technology expense3,690 2,977 7,373 5,905 
Cardholder expense1,280 875 2,422 1,662 
Other expenses4,386 3,992 8,708 8,293 
Total other operating expense$13,029 $10,730 $25,049 $21,355 
 
10. Revenue Recognition

As stated in Note 1 - "Summary of Significant Accounting Policies," in the 2021 Annual Report on Form 10-K, the Company adopted ASU No. 2014-09 "Revenue from Contracts with Customers" (ASC 606) and all subsequent ASUs that modified ASC 606, on January 1, 2018. ASC 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of ASC 606. ASC 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of ASC 606.

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

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.

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

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

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

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

34

The following tables present noninterest income, segregated by revenue streams in-scope and out-of-scope of ASC 606, for the three and six months ended June 30, 2022 and 2021:
Three Months Ended
(In thousands)06/30/202206/30/2021
Noninterest Income
In-scope of Topic 606:
Commissions and Fees$7,872 $7,488 
Installment Billing(46)(52)
Refund of Commissions10 31 
Contract Liabilities/Deferred Revenue(266)(237)
Contingent Commissions859 824 
Subtotal Insurance Revenues8,429 8,054 
Trust and Asset Management3,122 3,334 
Mutual Fund & Investment Income1,474 1,383 
Subtotal Investment Service Income4,596 4,717 
Service Charges on Deposit Accounts1,756 1,471 
Card Services Income2,959 2,951 
Other308 297 
Noninterest Income (in-scope of ASC 606)18,048 17,490 
Noninterest Income (out-of-scope of ASC 606)896 1,368 
Total Noninterest Income$18,944 $18,858 

Six Months Ended
(In thousands)06/30/202206/30/2021
Noninterest Income
In-scope of Topic 606:
Commissions and Fees$15,836 $15,171 
Installment Billing(2)(17)
Refund of Commissions(18)11 
Contract Liabilities/Deferred Revenue(267)(237)
Contingent Commissions2,197 2,292 
Subtotal Insurance Revenues17,746 17,220 
Trust and Asset Management6,625 6,700 
Mutual Fund & Investment Income2,888 2,690 
Subtotal Investment Service Income9,513 9,390 
Service Charges on Deposit Accounts3,535 2,941 
Card Services Income5,502 5,334 
Other624 598 
Noninterest Income (in-scope of ASC 606)36,920 35,483 
Noninterest Income (out-of-scope of ASC 606)2,009 3,358 
Total Noninterest Income$38,929 $38,841 

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
35

which the Company's performance obligations have been fully satisfied. Receivables for the insurance and wealth management services segments amounted to $5.0 million and $2.5 million, respectively, at June 30, 2022, compared to $6.0 million and $2.3 million, respectively, at December 31, 2021. Included in those amounts are contract assets related to contingent income of $1.2 million and $3.0 million, respectively, at June 30, 2022 and December 31, 2021, and contract liabilities of $3.0 million and $1.7 million, respectively at June 30, 2022 and December 31, 2021.

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 June 30, 2022, the Company’s maximum potential obligation under standby letters of credit was $37.5 million compared to $39.8 million at December 31, 2021. Management uses the same credit policies to extend standby letters of credit that it uses for on-balance sheet lending decisions and may require collateral to support standby letters of credit based upon its evaluation of the counterparty. Management does not anticipate any significant losses as a result of these transactions, and has determined that the fair value of standby letters of credit is not significant.
 
12. Segment and Related Information
 
The Company manages its operations through three reportable business segments in accordance with the standards set forth in FASB ASC 280, "Segment Reporting": (i) banking ("Banking"), (ii) insurance ("Tompkins Insurance") and (iii) wealth management ("Tompkins Financial Advisors"). The Company’s insurance services and wealth management services, other than trust services, are managed separately from the Banking segment.
 
Banking
Tompkins Community Bank has thirteen banking offices located in Ithaca, NY and surrounding communities; sixteen banking offices located in the Genesee Valley region of New York State as well as Monroe County; fourteen full-service banking offices located in the counties north of New York City; and twenty banking offices headquartered and operating in the areas surrounding southeastern Pennsylvania.
 
Insurance
The Company provides property and casualty insurance services and employee benefits consulting through Tompkins Insurance Agencies, Inc., a 100% wholly-owned subsidiary of the Company, headquartered in Batavia, New York. Tompkins Insurance is an independent insurance agency, representing many major insurance carriers and provides employee benefit consulting to employers in Western and Central New York and Southeastern Pennsylvania, assisting them with their medical, group life insurance and group disability insurance. Tompkins Insurance has five stand-alone offices in Western New York.
 
Wealth Management
The Wealth Management segment is generally organized under the Tompkins Financial Advisors brand. Tompkins Financial Advisors offers a comprehensive suite of financial services to customers, including trust and estate services, investment management and financial and insurance planning for individuals, corporate executives, small business owners and high net worth individuals. Tompkins Financial Advisors has offices in each of the Company’s regional markets.

Summarized financial information concerning the Company’s reportable segments and the reconciliation to the Company’s consolidated results is shown in the following table. Investment in subsidiaries is netted out of the presentations below. The "Intercompany" column identifies the intercompany activities of revenues, expenses and other assets between the banking, insurance and wealth management services segments. The Company accounts for intercompany fees and services at an estimated fair value according to regulatory requirements for the services provided. Intercompany items relate primarily to the use of human resources, information systems, accounting and marketing services provided by any of the banks and the holding company. All other accounting policies are the same as those described in the summary of significant accounting policies in the 2021 Annual Report on Form 10-K.
 
36

Three months ended June 30, 2022
(In thousands)BankingInsuranceWealth ManagementIntercompanyConsolidated
Interest income$60,953 $1 $0 $(1)$60,953 
Interest expense2,692 0 0 (1)2,691 
Net interest income58,261 1 0 0 58,262 
Provision for credit loss expense856 0 0 0 856 
Noninterest income6,329 8,573 4,598 (556)18,944 
Noninterest expense39,395 6,812 3,469 (556)49,120 
Income before income tax expense24,339 1,762 1,129 0 27,230 
Income tax expense5,465 494 370 0 6,329 
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation18,874 1,268 759 0 20,901 
Less: Net income attributable to noncontrolling interests32 0 0 0 32 
Net Income attributable to Tompkins Financial Corporation$18,842 $1,268 $759 $0 $20,869 
Depreciation and amortization$2,515 $44 $36 $0 $2,595 
Assets7,786,614 47,222 26,915 (18,290)7,842,461 
Goodwill64,500 19,866 8,081 0 92,447 
Other intangibles, net1,236 1,830 58 0 3,124 
Net loans and leases5,118,710 0 0 0 5,118,710 
Deposits6,786,754 0 (847)(16,386)6,769,521 
Total Equity563,994 34,860 25,464 0 624,318 
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Three months ended June 30, 2021
(In thousands)BankingInsuranceWealth
Management		IntercompanyConsolidated
Interest income$59,843 $0 $0 $(8)$59,835 
Interest expense4,997 0 0 (8)4,989 
Net interest income54,846 0 0 0 54,846 
Credit for credit loss expense(3,071)0 0 0 (3,071)
Noninterest income6,447 8,163 4,808 (560)18,858 
Noninterest expense37,879 6,760 3,363 (560)47,442 
Income before income tax expense26,485 1,403 1,445 0 29,333 
Income tax expense5,729 401 341 0 6,471 
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation20,756 1,002 1,104 0 22,862 
Less: Net income attributable to noncontrolling interests31 0 0 0 31 
Net Income attributable to Tompkins Financial Corporation$20,725 $1,002 $1,104 $0 $22,831 
Depreciation and amortization$2,527 $55 $14 $0 $2,596 
Assets7,987,751 46,590 30,435 (76,568)7,988,208 
Goodwill64,370 19,866 8,211 0 92,447 
Other intangibles, net1,994 2,201 79 0 4,274 
Net loans and leases5,127,624 0 0 0 5,127,624 
Deposits6,851,924 0 0 (14,924)6,837,000 
Total Equity667,007 33,101 28,145 0 728,253 

Six months ended June 30, 2022
(In thousands)BankingInsuranceWealth
Management		IntercompanyConsolidated
Interest income$120,129 $2 $0 $(2)$120,129 
Interest expense5,255 0 0 (2)5,253 
Net interest income114,874 2 0 0 114,876 
Provision for credit loss expense336 0 0 0 336 
Noninterest income12,522 18,007 9,532 (1,132)38,929 
Noninterest expense76,584 13,314 7,193 (1,132)95,959 
Income before income tax expense50,476 4,695 2,339 0 57,510 
Income tax expense11,630 1,310 365 0 13,305 
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation38,846 3,385 1,974 0 44,205 
Less: Net income attributable to noncontrolling interests63 0 0 0 63 
Net Income attributable to Tompkins Financial Corporation$38,783 $3,385 $1,974 $0 $44,142 
Depreciation and amortization$5,093 $88 $64 $0 $5,245 

38

Six months ended June 30, 2021
(In thousands)BankingInsuranceWealth
Management		IntercompanyConsolidated
Interest income$119,597 $2 $0 $(9)$119,590 
Interest expense9,716 0 0 (9)9,707 
Net interest income109,881 2 0 0 109,883 
Provision for credit loss expense(4,901)0 0 0 (4,901)
Noninterest income12,759 17,581 9,591 (1,090)38,841 
Noninterest expense73,206 13,197 6,640 (1,090)91,953 
Income before income tax expense54,335 4,386 2,951 0 61,672 
Income tax expense11,243 1,203 705 0 13,151 
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation43,092 3,183 2,246 0 48,521 
Less: Net income attributable to noncontrolling interests64 0 0 0 64 
Net Income attributable to Tompkins Financial Corporation$43,028 $3,183 $2,246 $0 $48,457 
Depreciation and amortization$4,965 $110 $27 $0 $5,102 

13. Fair Value Measurements

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

Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
 
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
 
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The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021, segregated by the level of valuation inputs within the fair value hierarchy used to measure fair value:
 
Recurring Fair Value Measurements
June 30, 2022
(In thousands)Total(Level 1)(Level 2)(Level 3)
Available-for-sale debt securities
U.S. Treasuries$174,102 $0 $174,102 $0 
Obligations of U.S. Government sponsored entities793,493 0 793,493 0 
Obligations of U.S. states and political subdivisions88,078 0 88,078 0 
Mortgage-backed securities – residential, issued by:
U.S. Government agencies59,114 0 59,114 0 
U.S. Government sponsored entities774,571 0 774,571 0 
U.S. corporate debt securities2,360 0 2,360 0 
Total Available-for-sale debt securities$1,891,718 $0 $1,891,718 $0 
Equity securities, at fair value$818 $0 $0 $818 
 
Recurring Fair Value Measurements
December 31, 2021
(In thousands)Total(Level 1)(Level 2)(Level 3)
Available-for-sale debt securities
U.S. Treasuries$157,834 $0 $157,834 $0 
Obligations of U.S. Government sponsored entities832,373 0 832,373 0 
Obligations of U.S. states and political subdivisions104,169 0 104,169 0 
Mortgage-backed securities – residential, issued by:
U.S. Government agencies77,157 0 77,157 0 
U.S. Government sponsored entities870,556 0 870,556 0 
U.S. corporate debt securities2,424 0 2,424 0 
Total Available-for-sale debt securities$2,044,513 $0 $2,044,513 $0 
Equity securities, at fair value$902 $0 $0 $902 
 
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 June 30, 2022 and December 31, 2021, was immaterial.
 
There were no transfers between Levels 1, 2 and 3 for the six months ended June 30, 2022.
 
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.

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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 six months ended June 30, 2022, certain individually evaluated loans were remeasured and reported at fair value through a specific valuation allowance and/or partial charge-offs for credit losses based upon the fair value of the underlying collateral. Collateral values are estimated using Level 3 inputs based upon customized discounting criteria. In addition to collateral dependent evaluated loans, certain other real estate owned were remeasured and reported at fair value based upon the fair value of the underlying collateral. The fair values of other real estate owned are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. In general, the fair values of other real estate owned are based upon appraisals, with discounts made to reflect estimated costs to sell the real estate. Upon initial recognition, fair value write-downs are taken through a charge-off to the allowance for credit losses. Subsequent fair value write-downs on other real estate owned are reported in other noninterest expense.
 
Three months ended June 30, 2022
(In thousands)Fair value measurements at reporting
date using:		Gain (losses)
from fair
value changes
Assets:As of 06/30/2022Quoted prices in
active markets for
identical assets
(Level 1)		Significant other
observable inputs
(Level 2)		Significant
unobservable inputs
(Level 3)		Three months ended 06/30/2022
Individually evaluated loans$814 $0 $0 $814 $59 
Other real estate owned33 0 33 0 0 

Three months ended June 30, 2021
(In thousands)Fair value measurements at reporting
date using:		Gain (losses)
from fair
value changes
Assets:As of 06/30/2021Quoted prices in
active markets for
identical assets
(Level 1)		Significant other
observable inputs
(Level 2)		Significant
unobservable inputs
(Level 3)		Three months ended 06/30/2021
Individually evaluated loans$8,922 $0 $8,922 $0 $0 

Six months ended June 30, 2022
(In thousands)Fair value measurements at reporting
date using:		Gain (losses)
from fair
value changes
Assets:As of 06/30/2022Quoted prices in
active markets for
identical assets
(Level 1)		Significant other
observable inputs
(Level 2)		Significant
unobservable inputs
(Level 3)		Six months ended 06/30/2022
Individually evaluated loans$1,320 $0 $0 $1,320 $59 
Other real estate owned33 0 33 0 22 

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Six months ended June 30, 2021
(In thousands)Fair value measurements at reporting
date using:		Gain (losses)
from fair
value changes
Assets:As of 06/30/2021Quoted prices in
active markets for
identical assets
(Level 1)		Significant other
observable inputs
(Level 2)		Significant
unobservable inputs
(Level 3)		Six months ended 06/30/2021
Individually evaluated loans$31,619 $0 $31,619 $0 $0 

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

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

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at June 30, 2022 and December 31, 2021. The carrying amounts shown in the table are included in the Consolidated Statements of Condition under the indicated captions.
Estimated Fair Value of Financial Instruments
June 30, 2022
(In thousands)Carrying
Amount		Fair Value(Level 1)(Level 2)(Level 3)
Financial Assets:
Cash and cash equivalents$80,392 $80,392 $80,392 $0 $0 
Securities - held-to-maturity312,315 274,660 0 274,660 0 
FHLB and other stock17,913 17,913 0 17,913 0 
Accrued interest receivable22,420 22,420 0 22,420 0 
Loans/leases, net1
5,118,710 4,958,348 0 0 4,958,348 
Financial Liabilities:
Time deposits$594,853 $585,487 $0 $585,487 $0 
Other deposits6,174,668 6,174,668 0 6,174,668 0 
Fed funds purchased and securities sold
under agreements to repurchase50,075 50,075 0 50,075 0 
Other borrowings295,600 294,234 0 294,234 0 
Accrued interest payable815 815 0 815 0 
 
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Estimated Fair Value of Financial Instruments
December 31, 2021
(In thousands)Carrying
Amount		Fair Value(Level 1)(Level 2)(Level 3)
Financial Assets:
Cash and cash equivalents$63,107 $63,107 $63,107 $0 $0 
FHLB and other stock10,996 10,996 0 10,996 0 
Accrued interest receivable22,597 22,597 0 22,597 0 
Loans/leases, net1
5,032,624 5,028,734 0 0 5,028,734 
Financial Liabilities:
Time deposits$639,674 $641,517 $0 $641,517 $0 
Other deposits6,151,761 6,151,761 0 6,151,761 0 
Fed funds purchased and securities
sold under agreements to repurchase66,787 66,787 0 66,787 0 
Other borrowings124,000 125,700 0 125,700 0 
Accrued interest payable901 901 0 901 0 
1 Lease receivables, although excluded from the scope of ASC Topic 825, are included in the estimated fair value amounts at their carrying value.
 
The following methods and assumptions were used in estimating fair value disclosures for financial instruments:
 
Cash and Cash Equivalents: The carrying amounts reported in the Consolidated Statements of Condition for cash, noninterest-bearing deposits, money market funds, and Federal funds sold approximate the fair value of those assets.

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

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
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amount, sources, and duration of its assets and liabilities. The Company’s existing credit derivatives result from participation in loan participation arrangements, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities.

Non-designated Hedges

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

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated statements of condition as of June 30, 2022 and December 31, 2021. The Company began entering into derivative transactions in the second quarter of 2022.

 Derivative Liabilities
June 30, 2022
NotionalBalance SheetFair
(In thousands)AmountLocationValue
Derivatives not designated as hedging instruments
Interest Rate Products$0  Other Liabilities $0 
Other Contracts7,499  Other Liabilities 37 
Total derivatives not designated as hedging instruments $37 

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

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

Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20 Location of Gain or (Loss) Recognized in Income on DerivativeAmount of Gain or (Loss) Recognized in Income on Derivative
(In thousands)June 30, 2022
Interest Rate ProductsOther income / (expense)$0 
Other ContractsOther income / (expense)41 
Total$41 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

BUSINESS
 
Corporate Overview and Strategic Initiatives
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. Effective January 1, 2022, the Company's four wholly-owned banking subsidiaries were combined into one bank, with the Bank of of Castile, Mahopac Bank, and VIST Bank merging with and into Tompkins Trust Company (the "Trust Company") with the Trust Company as the surviving institution. Immediately following the merger, the Trust Company changed its name to Tompkins Community Bank. At June 30, 2022, the Company had one wholly-owned banking subsidiary, Tompkins Community Bank. The Company also has a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. ("Tompkins Insurance"). The trust division of the Trust Company provides a full array of investment services, including investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. The Company’s principal offices are located at 118 E. Seneca Street, Ithaca, NY, 14850, and its telephone number is (888) 503-5753. The Company’s common stock is traded on the NYSE American under the Symbol "TMP."

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

Business Segments
Banking services consist primarily of attracting deposits from the areas served by the Company’s one banking subsidiary’s 63 banking offices (43 offices in New York and 20 offices in Pennsylvania) and using those deposits to originate a variety of commercial loans, consumer loans, real estate loans (including commercial loans collateralized by real estate), 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 by Tompkins Community Bank 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.
 
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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.
 
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 each of the Company’s subsidiary banks 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, Pennsylvania Department of Banking and Securities, 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 six months ended June 30, 2022. 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, 2021, and the Unaudited Consolidated Financial Statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.
 
In this Report, there are comparisons of the Company’s performance to that of a peer group, which is comprised of the group of 146 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 March 31, 2022 (the most recent report available). Although the peer group data is presented based upon financial information that is one fiscal quarter behind the financial information included in this report, the Company believes that it is relevant to include certain peer group information for comparison to current quarter numbers.

Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The statements contained in this Report that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements may be identified by use of such words as "may", "will", "estimate", "intend", "continue", "believe", "expect", "plan", or "anticipate", and other similar words. Examples of forward-looking statements may include statements regarding the asset quality of the Company's loan portfolios; the level of the Company's allowance for credit losses; whether, when and how borrowers will repay deferred amounts and resume scheduled payments; the sufficiency of liquidity sources; the Company's exposure to changes in interest rates, and to new, changed, or extended government/regulatory expectations; the 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. The following factors, in addition to those listed as Risk Factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, are among those that could cause actual results to differ
46

materially from the forward-looking statements: changes in general economic, market and regulatory conditions; GDP growth and inflation trends; the ongoing dynamic nature of the COVID-19 pandemic and its impact; the impact of the interest rate and inflationary environment on the Company' 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, such as the Dodd-Frank Act and Basel III and the Economic Growth, Regulatory Relief, and Consumer Protection Act; 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; legislative and regulatory changes in response to COVID-19 with which we and our subsidiaries must comply, including the CARES Act and the Consolidated Appropriations Act, 2021, and the rules and regulations promulgated thereunder, and federal, state and local government mandates; technological developments and changes; 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; uncertainties arising from national and global events, including the war in Ukraine, as well as the potential impact of widespread protests, civil unrest, and political uncertainty on the economy and the financial services industry; and financial resources in the amounts, at the times and on the terms required to support the Company’s future businesses.

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

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

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, 2021. Refer to "Recently Issued Accounting Standards" in Management's Discussion and Analysis in this Quarterly Report on Form 10-Q for a discussion of recent accounting updates.

Critical Accounting Estimates

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

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•Accounting for credit losses - The Company accounts for the allowance for credit losses using the current expected credit loss model. Under this accounting guidance, the allowance for credit losses represents a valuation account that is deducted from the amortized cost basis of certain financial assets, including loans and leases, to present the net amount expected to be collected at the balance sheet date. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. In estimating expected 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 future periods. A discussion of facts and circumstances considered by management in determining the allowance for credit losses is included herein in Note 4 of Notes to Financial Statements.

COVID-19 Pandemic and Recent Events

The COVID-19 global pandemic continued to present health and economic challenges in the second quarter of 2022, but conditions were generally improved from 2021. The Company's hybrid work environment for most noncustomer facing employees is in place and travel restrictions eliminated. On March 17, 2022, the NY State Department of Labor announced that the department ended the designation of COVID-19 as an airborne infectious disease that presents a serious risk of harm to public health under the HERO Act and our protocols have been updated accordingly.

The Company's payment deferral program that was implemented in 2020 to provide assistance to its customers that were experiencing financial hardship due to the COVID-19 pandemic has been reduced as customers return to repayment status. As of June 30, 2022, total loans that continued in a deferral status amounted to approximately $1.8 million, representing 0.04% of total loans, and of those loans approximately 4.1% were past due. In accordance with the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") and the interagency guidance, the Company elected to adopt the provisions to not report qualified loan modifications as troubled debt restructurings ("TDRs"). The relief related to TDRs under the CARES Act was extended by the Consolidated Appropriations Act, 2021. Under the Consolidated Appropriations Act, relief under the CARES Act was extended until the earlier of (i) 60 days after the date the COVID-19 national emergency comes to an end or (ii) January 1, 2022. Management continues to monitor credit conditions carefully at the individual borrower level, as well as by industry segment, in order to be responsive to changing credit conditions.

The Company funded a total of 5,140 applications for Paycheck Protection Plan ("PPP") loans totaling $694.1 million in 2020 and 2021. Out of the $694.1 million of PPP loans that the Company funded, approximately $690.8 million have been forgiven by the SBA under the terms of the program as of June 30, 2022, or paid back by the borrower. As of June 30, 2022, there were twenty outstanding PPP loans totaling approximately $3.3 million. Total net deferred fees on the remaining balance of PPP loans amounted to $106,000 at June 30, 2022.

RESULTS OF OPERATION
 
Performance Summary
Net income for the second quarter of 2022 was $20.9 million or $1.45 diluted earnings per share, compared to $22.8 million or $1.54 diluted earnings per share for the same period in 2021. Net income for the first six months of 2022 was $44.1 million or $3.05 diluted earnings per share compared to $48.5 million or $3.26 diluted earnings per share for the first six months of 2021. Net income for the second quarter of 2022 was down $2.0 million or 8.6% when compared to the same quarter in 2021. For the year to date period ending June 30, 2022, net income decreased by $4.3 million or 8.9%. The decrease in net income for both the three and six month periods in 2022 compared to the same periods in 2021 was mainly a result of the recording of a provision expense as well as increases in noninterest expense.

Return on average assets ("ROA") for the quarter ended June 30, 2022 was 1.07%, compared to 1.15% for the quarter ended June 30, 2021. Return on average shareholders’ equity ("ROE") for the second quarter of 2022 was 13.09%, compared to 12.70% for the same period in 2021. For the year-to-date period ended June 30, 2022, ROA and ROE totaled 1.13% and 13.17%, respectively, compared to 1.24% and 13.55%, for the same period in 2021.


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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 $18.8 million for the second quarter of 2022, a decrease of $1.9 million or 9.1% from net income of $20.7 million for the same period in 2021. For the six months ended June 30, 2022, the banking segment reported net income of $38.8 million, a decrease of $4.2 million or 9.9% from the same period in 2021. The year-to-date decrease in net income was mainly due to a $5.2 million increase in provision expense over prior year, partially offset by increased net interest income.
 
Net interest income of $58.3 million for the second quarter of 2022 was up $3.4 million or 6.2% from the same period in 2021. For the six months ended June 30, 2022, net interest income of $114.9 million was up $5.0 million or 4.5% compared to the first six months of 2021, with the improvement largely driven by lower funding costs and higher yields on earning assets. Net interest income for the three and six months ended June 30, 2022 included net deferred loan fees associated with PPP loans of $873,000 and $2.9 million, respectively, compared to net deferred loan fees of $1.9 million and $4.7 million for the three and six months ended June 30, 2021, respectively.

The provision for credit losses was an expense of $856,000 for the three months ended June 30, 2022, compared to a credit of $3.1 million for the same period in 2021. For the six month period ended June 30, 2022, the provision for credit losses was an expense of $336,000 compared to a credit of $4.9 million for the same period in 2021. The increase in provision for credit losses for both the three and six month periods is mainly driven by current economic forecasts coupled with loan growth. For additional information, see the section titled "The Allowance for Credit Losses" below.

Noninterest income of $6.3 million for the three months ended June 30, 2022 was down $118,000 or 1.8% compared to the same period in 2021. The decrease was mainly driven by reduced income on bank owned life insurance and lower gains on sales of residential loans, which were down $399,000 and $100,000, respectively, from the same quarter in 2021. Service charges on deposit accounts were up $285,000 in the second quarter of 2022 over the second quarter of 2021. For the six months ended June 30, 2022, noninterest income of $12.5 million was down $237,000 or 1.9% compared to the six months ended June 30, 2021. The decrease was mainly driven by the reduced income on bank owned life insurance and lower gains on sales of residential loans, which were down $518,000 and $525,000, respectively, from the same period in 2021. These were partially offset by growth in service charges on deposit accounts and card services income, which were up $594,000 and $168,000, respectively, in 2022 over 2021.

Noninterest expense of $39.4 million and $76.6 million for the three and six months ended June 30, 2022, respectively, was up $1.5 million or 4.0% and $3.4 million or 4.6%, respectively, over the same periods in 2021. Included in the quarter and year-to-date periods of 2022 were one-time expenses of $956,000 and $1.2 million, respectively, related to the consolidation of the Company's four banking charters into one charter, including the related conversion of the core banking system, which was completed in May of this year. The other drivers were marketing expenses being up $324,000 and $886,000, and cardholder expenses being up $405,000 and $760,000, for the three and six months ended respectively.

Insurance Segment
The insurance segment reported net income of $1.3 million for the three months ended June 30, 2022, which was up $264,000 or 26.3% compared to the second quarter of 2021. Total noninterest revenue was up $410,000 or 5.0% for the second quarter of 2022 compared to the same quarter in the prior year, primarily due to growth in both commercial and personal lines property and casualty commissions. The growth in property and casualty commission revenue is attributed to new business, growth within the existing client base, and premium increases related to change in general market conditions.

For the six months ended June 30, 2022, net income was up $202,000 or 6.3% compared to the same period in the prior year. Total revenue was up $426,000 or 2.4% compared to the same period in the prior year. The increase in revenues and net income for the six months ended June 30, 2022 compared to the prior year is mainly due to growth in overall commission revenue of $652,000 or 4.3%, primarily in commercial and personal lines, which were up 6.4% and 5.3% respectively.

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Noninterest expenses for the three months ended June 30, 2022 were up $51,000 or 0.8% compared to the three months ended June 30, 2021. Year-to-date noninterest expenses were up $117,000 or 0.9% compared to the six months ended June 30, 2021. The increases in noninterest expenses for the three and six months ended June 30, 2022 were mainly the result of increases in wages and new business commissions along with related tax and benefit expenses tied to the increase in commission revenue.

Wealth Management Segment
The wealth management segment reported net income of $759,000 for the three months ended June 30, 2022, which was down $345,000 or 31.3% compared to the second quarter of 2021. The lower net income was a result of lower revenues and increased expenses. Revenue for the second quarter of 2022 was down $210,000 or 4.4% compared to the second quarter of 2021. The decrease for the three months ended June 30, 2022 was mainly in advisory revenues related to a decrease in assets under management, largely a result of market conditions. Total expense for the second quarter of 2022 was up $106,000 or 3.1% compared to the second quarter of 2021. The increase in expense was mainly attributable to technology costs, mainly related to implementation of a new core platform. For the six months ended June 30, 2022, net income of $2.0 million was down $272,000 or 12.1% compared to the prior year, mainly due to an increase in expenses mentioned above. Revenues for the six months ended June 30, 2022, were down $59,000 or 0.6% from the same period in 2021.

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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 each for the three and six month periods ended June 30, 2022 and 2021:

Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Quarter EndedQuarter Ended
June 30, 2022June 30, 2021
AverageAverage
BalanceAverageBalanceAverage
(Dollar amounts in thousands)(QTD)InterestYield/Rate(QTD)InterestYield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks$88,094 $64 0.29 %$216,679 $45 0.08 %
Securities (1)
U.S. Government securities2,305,102 7,746 1.35 %1,987,541 5,338 1.08 %
State and municipal (2)97,481 619 2.55 %114,221 727 2.55 %
Other securities (2)3,337 28 3.40 %3,418 23 2.70 %
Total securities2,405,920 8,393 1.40 %2,105,180 6,088 1.16 %
FHLBNY and FRB stock12,234 120 3.92 %17,285 199 4.62 %
Total loans and leases, net of unearned income (2)(3)5,115,340 52,733 4.14 %5,270,648 53,909 4.10 %
Total interest-earning assets7,621,588 61,310 3.23 %7,609,792 60,241 3.18 %
Other assets209,057 340,154 
Total assets$7,830,645 $7,949,946 
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market4,073,279 890 0.09 %3,966,472 943 0.10 %
Time deposits603,791 1,157 0.77 %726,258 1,859 1.03 %
Total interest-bearing deposits4,677,070 2,047 0.18 %4,692,730 2,802 0.24 %
Federal funds purchased & securities sold under agreements to repurchase54,885 15 0.11 %52,099 15 0.11 %
Other borrowings169,390 629 1.49 %272,993 1,351 1.98 %
Trust preferred debentures0 0 0.00 %12,978 821 25.39 %
Total interest-bearing liabilities4,901,345 2,691 0.22 %5,030,800 4,989 0.40 %
Noninterest bearing deposits2,189,132 2,082,149 
Accrued expenses and other liabilities100,813 115,661 
Total liabilities7,191,290 7,228,610 
Tompkins Financial Corporation Shareholders’ equity637,896 719,880 
Noncontrolling interest1,459 1,456 
Total equity639,355 721,336 
Total liabilities and equity$7,830,645 $7,949,946 
Interest rate spread3.01 %2.78 %
Net interest income/margin on earning assets58,619 3.09 %55,252 2.91 %
Tax Equivalent Adjustment(357)(406)
Net interest income per consolidated financial statements$58,262 $54,846 


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Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Year to Date Period EndedYear to Date Period Ended
June 30, 2022June 30, 2021
AverageAverage
BalanceAverageBalanceAverage
(Dollar amounts in thousands)(YTD)InterestYield/Rate(YTD)InterestYield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks$110,984 $105 0.19 %$312,130 $130 0.08 %
Securities (1)
U.S. Government securities2,299,389 15,108 1.32 %1,812,315 9,950 1.11 %
State and municipal (2)99,602 1,267 2.57 %117,571 1,502 2.58 %
Other securities (2)3,363 51 3.06 %3,422 46 2.72 %
Total securities2,402,354 16,426 1.38 %1,933,308 11,498 1.20 %
FHLBNY and FRB stock11,172 225 4.06 %16,836 412 4.93 %
Total loans and leases, net of unearned income (2)(3)5,085,808 104,088 4.13 %5,280,914 108,365 4.14 %
Total interest-earning assets7,610,318 120,844 3.20 %7,543,188 120,405 3.22 %
Other assets259,809 345,461 
Total assets$7,870,127 $7,888,649 
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market4,116,870 1,638 0.08 %3,957,936 2,036 0.10 %
Time deposits617,616 2,455 0.80 %737,729 3,917 1.07 %
Total interest-bearing deposits4,734,486 4,093 0.17 %4,695,665 5,953 0.26 %
Federal funds purchased & securities sold under agreements to repurchase59,536 31 0.11 %55,821 31 0.11 %
Other borrowings147,466 1,129 1.54 %269,019 2,727 2.04 %
Trust preferred debentures0 0 0.00 %13,105 996 15.33 %
Total interest-bearing liabilities4,941,488 5,253 0.21 %5,033,610 9,707 0.39 %
Noninterest bearing deposits2,149,201 2,016,262 
Accrued expenses and other liabilities103,451 117,749 
Total liabilities7,194,140 7,167,621 
Tompkins Financial Corporation Shareholders’ equity674,545 719,586 
Noncontrolling interest1,442 1,442 
Total equity675,987 721,028 
Total liabilities and equity$7,870,127 $7,888,649 
Interest rate spread2.99 %2.83 %
Net interest income/margin on earning assets115,591 3.06 %110,698 2.96 %
Tax Equivalent Adjustment(715)(815)
Net interest income per consolidated financial statements$114,876 $109,883 
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 2022 and 2021 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, 2021.

Net Interest Income 
Net interest income is the Company’s largest source of revenue, representing 75.5% and 74.7%, respectively, of total revenues for the three and six months ended June 30, 2022, compared to 74.4% and 73.9% for the same periods in 2021. Net interest income is dependent on the volume and composition of interest earning assets and interest-bearing liabilities and the level of market interest rates. The above table shows average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each.
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Taxable-equivalent net interest income for the three months ended June 30, 2022 increased $3.4 million or 6.1% from the same period in the prior year. The increase resulted mainly from an 18 basis point decrease in the average rate paid on interest bearing liabilities and a 5 basis point increase in the average yield on interest earning assets. Taxable-equivalent net interest income for the six month period ended June 30, 2022 increased $4.9 million or 4.4% from the six month period ended June 30, 2021. Net interest income in the first six months of 2022 benefited from the growth in average securities balances and average yields on securities, which were up 24.3% and 18 basis points over the same six month period in 2021, and an 18 basis point decrease in the average rate paid on interest bearing liabilities.

Net interest margin for the three months ended June 30, 2022 was 3.09% compared to 2.91% in 2021. Net interest margin for the six months ended June 30, 2022 was 3.06% compared to 2.96% for the same period in 2021. The increase in net interest margin for the three and six months ended June 30, 2022 compared to the same periods in 2021 was mainly due to an increase in higher yielding securities along with lower average funding costs.
 
Taxable-equivalent interest income for the three and six months ended June 30, 2022, was $61.3 million and $120.8 million, up 1.8% and 0.4%, respectively, compared to the same periods in 2021. The growth in the three month period reflects higher average asset yields and growth in average earning assets, while the year-to-date growth reflects growth in average earning assets. Average asset yields for the three months ended June 30, 2022 were up 5 basis points compared to the same period in 2021 driven by growth in higher yielding securities as excess liquidity was invested in securities and loans. For the three months ended June 30, 2022, the average yield on securities was up 24 basis points and the average yield on loans was up 4 basis points over the same period in 2021. Yields in 2022 also benefited from increases in market interest rates. Average asset yields for the six months ended June 30, 2022 were down 2 basis points compared to the same period in 2021, resulting from a 1 basis point decrease in the average yield on loans, partially offset by an 18 basis point increase in the average yield on securities. As a result of its participation in the SBA's PPP, the Company recorded net deferred loan fees of $873,000 and $2.9 million, respectively, in the three and six months ended June 30, 2022, compared to $1.9 million and $4.7 million, respectively, for the three and six months ended June 30, 2021. These net deferred loan fees are included in interest income.

For the three and six months ended June 30, 2022, average earning assets were up $11.8 million or 0.2% and $67.1 million or 0.9%, respectively, over the same periods in 2021 with the majority of growth in securities. Average loan balances for the three months ended June 30, 2022, were down $155.3 million or 3.0% from the three months ended June 30, 2021. Average balances for the six months ended June 30, 2022 were down $195.1 million or 3.7% from the six months ended June 30, 2021. The decrease in average loans was primarily due to a decline in average PPP loans. Average securities balances for the three and six months ended June 30, 2022, were up $300.7 million or 14.3% and $469.0 million or 24.3%, respectively. Average interest bearing balances for the three and six months ended June 30, 2022, were down $128.6 million and $201.1 million, respectively, over the same periods in 2021.
 
Interest expense for the three and six months ended June 30, 2022, decreased by $2.3 million or 46.1% and $4.5 million or 45.9%, respectively, compared to the same periods in 2021. The average cost of interest-bearing deposits during the three and six months ended June 30, 2022 was 0.18% and 0.17%, respectively, down 6 basis points and 8 basis points, respectively, compared to the same periods in 2021. Average interest-bearing deposits were down $15.7 million or 0.3% but were up $38.8 million or 0.8%, respectively, for the same three and six months ended 2021. Average noninterest bearing deposits were up $107.0 million or 5.14% for the three months ended June 30, 2022 when compared to the second quarter of 2021, and for the six months ended June 30, 2022 were up $133.0 million or 6.6% compared to the same period in 2021. Average other borrowings for the three and six months ended June 30, 2022 were down $103.6 million or 38.0% and $121.6 million or 45.2%, respectively, compared to the same periods in 2021, mainly due to decreases in term borrowings with the FHLB.

Provision for Credit Losses 
The provision for credit losses represents management’s estimate of the amount necessary to maintain the allowance for credit losses ("ACL") at an appropriate level. Provision for credit losses in the second quarter of 2022 was $856,000 compared to a credit of $3.1 million for the second quarter of 2021. Provision for credit losses for the six months ended June 30, 2022 was $336,000 compared to a credit of $4.9 million for the same period in 2021. The provision for credit losses for the three and six months ended June 30, 2022 included a provision expense of $76,000 and $290,000, respectively, related to off-balance sheet credit exposures compared to a credit to provision of $353,000 and a provision expense of $327,000, respectively, for the same periods in 2021. The increase in provision for credit losses for both the three and six month periods is mainly driven by current economic forecasts coupled with loan growth. The section captioned "Financial Condition – The Allowance for Credit Losses" below has further details on the allowance for credit losses and asset quality metrics.
 
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Noninterest Income 
Noninterest income was $18.9 million for the second quarter of 2022, which was in line compared to the second quarter of 2021, and was $38.9 million for the first six months of 2022, which was also in line with the same period prior year. Noninterest income represented 24.5% of total revenue for the second quarter of 2022 and 25.3% for the six months ended June 30, 2022, compared to 25.6% and 26.1%, respectively, for the same periods in 2021.
 
Insurance commissions and fees, the largest component of noninterest income, were $8.4 million for the second quarter of 2022, an increase of 4.7% from the same period prior year. The increase in insurance commissions and fees in the second quarter of 2022 over the same period in 2021 was mainly commercial lines and personal lines property and casualty commissions which grew by 9% and 6%, respectively. For the first six months of 2022, insurance commissions and fees were up $526,000 or 3.1% compared to the same period in 2021. The increase in revenues for the six months ended June 30, 2022, compared to the prior year was primarily due to growth in commercial lines and personal lines revenue attributable to increased new business, growth within the existing client base, and premium increases related to changes in general market conditions and exposures for certain business sectors.
 
Investment services income of $4.6 million in the second quarter of 2022 was down $121,000 or 2.6% compared to the second quarter of 2021. For the first six months of 2022, investment services income was up $123,000 or 1.3% compared to the same period in 2021. Investment services income includes trust services, financial planning, wealth management services, and brokerage related services. The fair value of assets managed by, or in custody of, Tompkins was $2.8 billion at June 30, 2022. The fair value of assets managed by, or in custody of, Tompkins was $5.0 billion at June 30, 2021, which included $1.5 billion of Company-owned securities where Tompkins is custodian. The decline in assets from prior year resulted in part from the outsourcing of the management of the Tompkins Retirement Account ($95.0 million) and custody of Company-owned securities where Tompkins was custodian ($1.5 billion); however, as these were inter-company related items, these have had little to no impact to total income, overall.
 
Service charges on deposit accounts were $1.8 million and $3.5 million for the three and six months ended June 30, 2022, up $285,000 or 19.4% and $594,000 or 20.2%, respectively, over the same periods in 2021. The increase was in net overdraft fees and service fees on personal and business accounts, reflective of increased transaction activity.

Card services income in the second quarter of 2022 was in line with the same three month period end of 2021, while the six months ended June 30, 2022, was up $168,000 or 3.2% compared to the same period in 2021. Debit card income, the largest component of card services income, was in line with both the three and six month period ended June 30, 2021. Interchange income related to credit card services was up $67,000 and $130,000, respectively, compared to the same three and six month periods in 2021.

Other income of $1.2 million in the second quarter of 2022 was down $424,000 or 25.5% compared to the same period in 2021. For the first six months of 2022, other income of $2.7 million was down $922,000 or 25.3% compared to the same period in 2021. The decrease for the three and six months ended June 30, 2022 compared to the same periods in 2021, was mainly due to lower earnings on bank owned life insurance and lower gains on sales of residential loans. Earnings on bank owned life insurance were down $399,000 and $562,000, respectively, and gains on sales of residential loans were down $100,000 and $525,000, respectively, for the three and six months ended June 30, 2022, compared to the same periods in the prior year.

Noninterest Expense 
Noninterest expense of $49.1 million for the second quarter of 2022 and $96.0 million for the first six months of 2022, was up 3.5% and 4.4%, respectively, compared to the same periods in 2021.
 
Expenses associated with compensation and benefits comprise the largest component of noninterest expense, representing 62.6% and 62.3% of total noninterest expense for the three and six months ended June 30, 2022. Salaries and wages expense for the three and six months ended June 30, 2022 increased by $404,000 or 1.7%, and $1.0 million or 2.2%, respectively, compared to the same periods in 2021. The increases were mainly due to normal merit adjustments. Employee benefits for the three months ended June 30, 2022 decreased by $285,000 or 4.3%, from the same three month period end in 2021, mainly as a result of lower health care expense. Employee benefits for the six months ended June 30, 2022, was in line with the same six month period end in 2021.

Other expense categories, not related to compensation and benefits, for the three and six months ended June 30, 2022 were up $1.6 million or 9.3% and $3.0 million or 8.9%, respectively. For the three and six months ended June 30, 2022, compared to the same periods in 2021, marketing expenses were up $324,000 or 28.6% and $886,000 or 54.4%, respectively, cardholder expense was up $405,000 or 46.3% and $760,000 or 45.7%, respectively, printing and supplies were up $210,000 or 238.5% and $277,000 or 160.4%, respectively, and technology expense was up $713,000 or 23.9% and $1.5 million or 24.9%,
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respectively. Contributing to the growth in these expenses for the three months ended and year-to-date periods ended June 30, 2022, were one-time expenses of $956,000 and $1.2 million, respectively, related to the consolidation of the Company's four banking charters into one charter, including the related conversion of the core banking system, which was completed in May of this year.

Income Tax Expense 
The provision for income taxes was $6.3 million for an effective rate of 23.2% for the second quarter of 2022, compared to tax expense of $6.5 million and an effective rate of 22.1% for the same quarter in 2021. For the first six months of 2022, the provision for income taxes was $13.3 million for an effective rate of 23.1% compared to tax expense of $13.2 million and an effective rate of 21.3% for the same period in 2021. 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 increase in the effective tax rate for the three and six months ended June 30, 2022, over the same period in 2021, is largely due to the anticipated loss of certain New York State tax benefits due to the expectation that average assets will exceed $8.0 billion for the 2022 tax year.

The Company's banking subsidiary has an investment in a real estate investment trust that provides certain benefits on its New York State tax return for qualifying entities. A condition to claim the benefit is that the consolidated company has 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 2022 tax year. As of June 30, 2022, the Company's consolidated average assets, as defined by New York tax law, were slightly under the $8.0 billion threshold. The Company will continue to monitor the consolidated average assets during 2022 to determine future eligibility.

FINANCIAL CONDITION
 
Total assets were $7.8 billion at June 30, 2022, up $22.5 million or 0.3% from December 31, 2021. The increase in total assets over year-end 2021 was mainly due to loan growth, which increased $87.0 million or 1.7% compared to December 31, 2021. Total securities were $2.2 billion at June 30, 2022, down $124.6 million or 5.4% compared to the $2.3 billion reported at year-end 2021. The decrease was the result of an increase in unrealized losses on the available-for-sale portfolio from $19.3 million at year-end 2021 to $183.3 million at June 30, 2022, as a result of the increase in market interest rates in 2022. Total cash and cash equivalents were down $17.3 million or 27.4% compared to December 31, 2021. Total deposits at June 30, 2022 were down $21.9 million or 0.3% from December 31, 2021. Other borrowings at June 30, 2022 increased $171.6 million or 138.4% from December 31, 2021, as loan growth outpaced deposit growth.

Securities
As of June 30, 2022, the Company’s securities portfolio was $2.2 billion or 28.1% of total assets, compared to $2.3 billion or 29.8% of total assets at year end 2021. The following table details the composition of the securities portfolio:

Available-for-Sale Debt Securities
June 30, 2022December 31, 2021
(In thousands)Amortized CostFair ValueAmortized CostFair Value
U.S. Treasuries$191,051 $174,102 $160,291 $157,834 
Obligations of U.S. Government sponsored entities863,235 793,493 843,218 832,373 
Obligations of U.S. states and political subdivisions95,661 88,078 102,177 104,169 
Mortgage-backed securities - residential, issued by
U.S. Government agencies63,185 59,114 76,502 77,157 
U.S. Government sponsored entities859,388 774,571 879,102 870,556 
U.S. corporate debt securities2,500 2,360 2,500 2,424 
Total available-for-sale debt securities$2,075,020 $1,891,718 $2,063,790 $2,044,513 
 
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Held-to-Maturity Debt Securities
June 30, 2022December 31, 2021
(In thousands)Amortized CostFair ValueAmortized CostFair Value
U.S. Treasuries$86,582 $77,345 $86,689 $86,368 
Obligations of U.S. Government sponsored entities225,733 197,315 197,320 195,920 
Total held-to-maturity debt securities$312,315 $274,660 $284,009 $282,288 

As of June 30, 2022, the available-for-sale debt securities portfolio had net unrealized losses of $183.3 million compared to net unrealized losses of $19.3 million at December 31, 2021. The increase in unrealized losses related to the available-for-sale debt securities portfolio, which reflects the amount that the amortized cost exceeds fair value, was due primarily to increases in market interest rates during the first six months of 2022. 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, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses ("ACL") on the balance sheet, 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 June 30, 2022, all impaired available-for-sale and held-to-maturity debt securities 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 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 June 30, 2022 and there was no credit loss expense recognized by the Company with respect to the securities portfolio during the three and six months ended June 30, 2022.

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Loans and Leases
Loans and leases as of the end of the second quarter and prior year-end period were as follows:
(In thousands)06/30/202212/31/2021
Commercial and industrial
Agriculture$69,291 $99,172 
Commercial and industrial other717,837 699,121 
PPP loans3,499 71,260 
Subtotal commercial and industrial790,627 869,553 
Commercial real estate
Construction208,695 178,582 
Agriculture200,089 195,973 
Commercial real estate other2,361,790 2,278,599 
Subtotal commercial real estate2,770,574 2,653,154 
Residential real estate
Home equity181,672 182,671 
Mortgages1,341,663 1,290,911 
Subtotal residential real estate1,523,335 1,473,582 
Consumer and other
Indirect3,196 4,655 
Consumer and other65,033 67,396 
Subtotal consumer and other68,229 72,051 
Leases14,019 13,948 
Total loans and leases5,166,784 5,082,288 
Less: unearned income and deferred costs and fees(4,281)(6,821)
Total loans and leases, net of unearned income and deferred costs and fees$5,162,503 $5,075,467 
 
Total loans and leases of $5.2 billion at June 30, 2022 were up $87.0 million or 1.7% from December 31, 2021, mainly in the commercial real estate and residential real estate portfolios, and partially offset by the decline in PPP loan balances. PPP loans decreased $67.8 million from $71.3 million at year-end 2021, to $3.5 million at June 30, 2022. Excluding PPP loans, total loans at June 30, 2022 were up $154.8 million or 3.1% from December 31, 2021. As of June 30, 2022, total loans and leases represented 65.8% of total assets compared to 64.9% of total assets at December 31, 2021.

Residential real estate loans, including home equity loans, were $1.5 billion at June 30, 2022, up $49.8 million or 3.4% compared to December 31, 2021, and comprised 29.5% of total loans and leases at June 30, 2022. Changes in residential loan balances reflect the Company’s decision to retain these loans or sell them in the secondary market due to interest rate considerations. The Company’s Asset/Liability Committee meets regularly and establishes standards for selling and retaining residential real estate mortgage originations.
 
The Company may sell residential real estate loans in the secondary market based on interest rate considerations. 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 six months of 2022 and 2021, the Company sold residential loans totaling $305,000 and $16.8 million, respectively, recognizing gains of $57,000 and $582,000, respectively. These residential real estate loans were sold without recourse in accordance with standard secondary market loan sale agreements. When residential mortgage loans are sold, the Company typically retains all servicing rights, which provides the Company with a source of fee income. Mortgage servicing rights totaled $1.0 million at June 30, 2022 and $1.0 million at December 31, 2021. 

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Commercial real estate loans and commercial and industrial loans totaled $2.8 billion and $790.6 million, respectively, and represented 53.7% and 15.3%, respectively, of total loans and leases as of June 30, 2022. The commercial real estate portfolio was up $117.4 million or 4.4% over year-end 2021, while commercial and industrial loans were down $78.9 million or 9.1%. The decrease in commercial and industrial loans over year-end 2021 was mainly in PPP loans, which were down $67.8 million or 95.1% to $3.5 million at June 30, 2022.

As of June 30, 2022, agriculturally-related loans totaled $269.4 million or 5.2% of total loans and leases, compared to $295.1 million or 5.8% of total loans and leases at December 31, 2021. Agriculturally-related loans include loans to dairy farms and crop farms. Agricultural-related loans are primarily made based on identified cash flows of the borrower with consideration given to underlying collateral, personal guarantees, and government related guarantees. Agriculturally-related loans are generally secured by the assets or property being financed or other business assets such as accounts receivable, livestock, equipment or commodities/crops.

The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures. Management reviews these policies and procedures on a regular basis. The Company discussed its lending policies and underwriting guidelines for its various lending portfolios in Note 4 – "Loans and Leases" in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes in these policies and guidelines since the date of that report. The Company’s Board of Directors approves the lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans. 

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

The Allowance for Credit Losses
The below table represents the allowance for credit losses as of June 30, 2022 and December 31, 2021. 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)6/30/202212/31/2021
Allowance for credit losses
Commercial and industrial$7,814 $6,335 
Commercial real estate23,227 24,813 
Residential real estate11,082 10,139 
Consumer and other1,591 1,492 
Finance leases79 64 
Total$43,793 $42,843 
 
As of June 30, 2022, the total allowance for credit losses was $43.8 million, up $950,000 or 2.2% compared to December 31, 2021. The ACL as a percentage of total loans measured 0.85% at June 30, 2022, compared to 0.84% at December 31, 2021.

The increase in the ACL from year-end 2021 reflects updated gross domestic product ("GDP") forecasts coupled with loan growth, mainly in the real estate portfolios. Forecasts related to GDP have slowed and are more in line with historical levels. Qualitative reserves established as a result of the COVID-19 pandemic to address specific portfolios with increased risk characteristics, including loans in our hotel portfolio, and loans in our deferral program, continue to move lower as a result of improved conditions in the hotel industry and payment performance of loans coming out of the deferral program. Although we have seen improved occupancy rates in the hospitality industry in recent months, we continue to closely monitor this industry.

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Asset quality measures at June 30, 2022 were generally favorable compared with December 31, 2021. Loans internally-classified Special Mention or Substandard were down $22.6 million or 16.4% compared to December 31, 2021. Nonperforming loans and leases were down $1.6 million or 5.1% from year end 2021 and represented 0.57% of total loans at June 30, 2022 compared to 0.61% at December 31, 2021. The allowance for credit losses covered 147.95% of nonperforming loans and leases as of June 30, 2022, compared to 137.51% at December 31, 2021.

Activity in the Company’s allowance for credit losses during the six months of 2022 and 2021 is illustrated in the table below:
Analysis of the Allowance for Credit Losses
(In thousands)6/30/20226/30/2021
Average loans outstanding during period$5,085,808 $5,280,914 
Allowance at beginning of year, prior to adoption of ASU 2016-1342,843 51,669 
LOANS CHARGED-OFF:
Commercial and industrial23 118 
Commercial real estate50 0 
Residential real estate51 46 
Consumer and other278 152 
Finance leases0 0 
Total loans charged-off$402 $316 
RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:
Commercial and industrial26 101 
Commercial real estate805 1,039 
Residential real estate307 158 
Consumer and other168 82 
Finance Leases0 0 
Total loans recovered$1,306 $1,380 
Net loans recovered(904)(1,064)
Provision (credit) for credit losses related to loans46 (5,228)
Balance of allowance at end of period$43,793 $47,505 
Allowance for credit losses as a percentage of total loans and leases0.85 %0.92 %
Annualized net (recoveries) charge-offs on loans to average total loans and leases during the period(0.04)%(0.04)%

The provision for credit losses for loans was $780,000 for the three months ended June 30, 2022, compared to a credit of $2.7 million for the same period in 2021. For the six month period ended June 30, 2022, the provision for credit losses was $46,000 compared to credit of $5.2 million for the same period in 2021. The provision expense for credit losses for loans is based upon the Company's quarterly evaluation of the appropriateness of the allowance for credit losses. As discussed above, the ACL model estimated higher reserves at June 30, 2022 due to lower GDP forecasts coupled with loan growth. Net loan and lease recoveries for the six months ended June 30, 2022 were $904,000 compared to net recoveries of $1.1 million for the same period in 2021.

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 June 30, 2022, the provision for credit losses for off-balance sheet credit exposures was $76,000 compared to a credit of $353,000 for the same period in 2021. For the six month period ended June 30, 2022, the provision for credit losses for off-balance sheet credit exposures was $290,000 compared to $327,000 for the same six month period in 2021. The provision in 2022 was driven by an increase in off-balance sheet exposures, specifically commercial real estate loan commitments.

Analysis of Past Due and Nonperforming Loans  
(In thousands)6/30/202212/31/20216/30/2021
Loans 90 days past due and accruing
Commercial and industrial$62 $0 $0 
Total loans 90 days past due and accruing$62 $0 $0 
Nonaccrual loans
Commercial and industrial$293 $533 $708 
Commercial real estate12,545 13,893 35,401 
Residential real estate11,536 11,178 11,556 
Consumer and other291 429 354 
Total nonaccrual loans$24,665 $26,033 $48,019 
Troubled debt restructurings not included above4,872 5,124 5,776 
Total nonperforming loans and leases$29,599 $31,157 $53,795 
Other real estate owned122 135 88 
Total nonperforming assets$29,721 $31,292 $53,883 
Allowance as a percentage of nonperforming loans and leases147.95 %137.51 %88.31 %
Total nonperforming loans and leases as percentage of total loans and leases0.57 %0.61 %1.04 %
Total nonperforming assets as percentage of total assets0.38 %0.40 %0.67 %

Nonperforming assets include loans past due 90 days and accruing, nonaccrual loans, TDRs, and foreclosed real estate/other real estate owned. Total nonperforming assets of $29.7 million at June 30, 2022 were down $1.6 million or 5.0% compared to December 31, 2021, and $24.2 million or 44.8% compared to June 30, 2021. The decrease in nonperforming assets from June 30, 2021, was mainly in the commercial real estate portfolio and included the payoff of one relationship totaling $11.8 million in the hospitality industry and a $7.0 million charge-off of another relationship that included two loans in the hospitality industry during the fourth quarter of 2021. Nonperforming assets represented 0.38% of total assets at June 30, 2022, down from 0.40% at December 31, 2021, and 0.67% reported for June 30, 2021. The Company's ratio of nonperforming assets to total assets is well below the peer groups's most recent percentile ranking for March 31, 2022.

Loans are considered modified in a TDR when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider and the borrower could not obtain elsewhere. These modifications may include, among others, an extension of the term of the loan, and granting a period when interest-only payments can be made, with the principal payments made over the remaining term of the loan or at maturity. TDRs are included in the above table within the following categories: "loans 90 days past due and accruing", "nonaccrual loans", or "troubled debt restructurings not included above". Loans in the latter category include loans that meet the definition of a TDR but are performing in accordance with the modified terms and therefore classified as accruing loans. At June 30, 2022, the Company had $6.1 million in TDRs, and of that total $1.2 million was reported as nonaccrual and $4.9 million was considered performing and included in the table above.

In general, the Company places a loan on nonaccrual status if principal or interest payments become 90 days or more past due and/or management deems the collectability of the principal and/or interest to be in question, as well as when required by applicable regulations. Although in nonaccrual status, the Company may continue to receive payments on these loans. These payments are generally recorded as a reduction to principal, and interest income is recorded only after principal recovery is reasonably assured. 

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The ratio of the allowance to nonperforming loans and leases (loans past due 90 days and accruing, nonaccrual loans and restructured troubled debt) was 147.95% at June 30, 2022, compared to 137.51% at December 31, 2021, and 88.31% at June 30, 2021. The Company’s nonperforming loans and leases are mostly made up of individually evaluated loans with limited exposure or loans that require limited specific reserves due to the level of collateral available with respect to these loans and/or previous charge-offs.
 
The Company, through its internal loan review function, identified 20 commercial relationships from the loan portfolio totaling $29.7 million at June 30, 2022, that were potential problem loans. At December 31, 2021, the Company had identified 25 relationships totaling $36.5 million that were potential problem loans. Of the 20 relationships at June 30, 2022, that were Substandard, there were 8 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $25.8 million, the largest of which was $7.4 million. The Company continues to monitor these potential problem relationships; however, management cannot predict the extent to which continued weak economic conditions or other factors may further impact borrowers. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and personal or government guarantees. These factors, when considered in the aggregate, give management reason to believe that the current risk exposure on these loans does not warrant accounting for these loans as nonperforming. However, these loans do exhibit certain risk factors, which have the potential to cause them to become nonperforming. Accordingly, management's attention is focused on these credits, which are reviewed on at least a quarterly basis.

Capital
Total equity was $624.3 million at June 30, 2022, a decrease of $104.6 million or 14.4% from December 31, 2021. The decrease was the result of an increase in unrealized losses on the available-for-sale portfolio from $19.3 million at year-end 2021 to $183.3 million at June 30, 2022, as a result of the increase in market interest rates in 2022. The decrease was partially offset by an increase in retained earnings.
 
Additional paid-in capital decreased by $9.2 million, from $312.5 million at December 31, 2021, to $303.3 million at June 30, 2022. The decrease was primarily attributable to a $14.1 million aggregate purchase price related to the Company's repurchase and retirement of 179,797 shares of its common stock during the first six months of 2022 pursuant to its publicly announced stock repurchase plan; partially offset by $2.9 million related shares issued for the employee stock ownership program and $1.9 million attributed to stock-based compensation.

Retained earnings increased by $27.5 million or 5.8% from $475.3 million at December 31, 2021, to $502.8 million at June 30, 2022, mainly reflecting net income of $44.1 million for the year-to-date period, less dividends of $16.6 million.

Accumulated other comprehensive loss increased from a net loss of $56.0 million at December 31, 2021, to a net loss of $178.9 million at June 30, 2022, reflecting a $122.9 million increase in unrealized losses on available-for-sale debt securities mainly due to changes in market rates, partially offset by a $900,000 decrease related to post-retirement benefit plan losses.

Cash dividends paid in the first six months of 2022 totaled approximately $16.6 million or $1.14 per common share, representing 37.7% of year to date 2022 earnings through June 30, 2022, compared to cash dividends of $16.1 million or $1.08 per common share paid in the first six months of 2021. Cash dividends per share during the first six months of 2022 were up 5.6% over the same period in 2021.
 
The Company and its subsidiary bank are subject to various regulatory capital requirements administered by Federal bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s business, results of operation and financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (PCA), banks must meet specific guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classifications of the Company and its subsidiary banks are also subject to qualitative judgments by regulators concerning components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios of common equity Tier 1 capital, Total capital and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that the Company and its subsidiary bank meets all capital adequacy requirements to which they are subject.



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The following table provides a summary of the Company’s capital ratios as of June 30, 2022: 
Regulatory Capital Analysis
June 30, 2022ActualMinimum Capital Required - Basel III Fully Phased-InWell Capitalized Requirement
(dollar amounts in thousands)AmountRatioAmountRatioAmountRatio
Total Capital (to risk weighted assets)$755,159 14.07 %$563,544 10.50 %$536,709 10.00 %
Tier 1 Capital (to risk weighted assets)$707,095 13.17 %$456,203 8.50 %$429,367 8.00 %
Tier 1 Common Equity (to risk weighted assets)$707,095 13.17 %$375,696 7.00 %$348,861 6.50 %
Tier 1 Capital (to average assets)$707,095 9.02 %$313,597 4.00 %$391,996 5.00 %
 
As of June 30, 2022, 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 14.1% at June 30, 2022, compared with 14.2% as of December 31, 2021. Tier 1 capital as a percent of risk weighted assets decreased from 13.3% at the end of 2021 to 13.2% as of June 30, 2022. Tier 1 capital as a percent of average assets was 9.0% at June 30, 2022, up from 8.8% as of December 31, 2021. Common equity Tier 1 capital was 13.2% at the end of the second quarter of 2022, down from 13.3% at the end of 2021.

As of June 30, 2022, the capital ratios for the Company’s subsidiary bank also exceeded the minimum required capital ratios for well capitalized institutions, plus the fully phased-in capital conservation buffer.

In the first quarter of 2020, U.S. Federal regulatory authorities issued an interim final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition.
 
Deposits and Other Liabilities
Total deposits of $6.8 billion at June 30, 2022 were down $21.9 million or 0.3% from December 31, 2021. The decrease from year-end 2021 was primarily in checking, money market and savings balances, which collectively were down $49.1 million or 1.2%, and time deposits, which were down $44.8 million or 7.0%. Noninterest bearing deposits were up $72.0 million or 3.4% , from year-end 2021.

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 grew by $22.0 million or 0.4% from year-end 2021, to $5.8 billion at June 30, 2022. Core deposits represented 85.7% of total deposits at June 30, 2022, compared to 85.1% of total deposits at December 31, 2021.
 
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 $50.1 million at June 30, 2022, and $66.8 million at December 31, 2021. Management generally views retail repurchase agreements as an alternative to large time deposits.
 
The Company’s other borrowings totaled $295.6 million at June 30, 2022, up $171.6 million or 138.4% from $124.0 million at December 31, 2021. Borrowings at June 30, 2022 consisted of $235.6 million in overnight FHLB advances and $60.0 million of FHLB term advances, compared to $14.0 million in FHLB overnight advances and $110.0 million of FHLB term advances at year end 2021. Of the $60.0 million in FHLB term advances at June 30, 2022, $10 million is due to mature in less than one year and $50 million are due to mature in over one year.



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Liquidity
The objective of liquidity management is to ensure the availability of adequate funding sources to satisfy the demand for credit, deposit withdrawals, and business investment opportunities. The Company’s large, stable core deposit base and strong capital position are the foundation for the Company’s liquidity position. The Company uses a variety of resources to meet its liquidity needs, which include deposits, cash and cash equivalents, short-term investments, cash flow from lending and investing activities, repurchase agreements, and borrowings. The Company’s Asset/Liability Management Committee monitors asset and liability positions of the Company’s subsidiary banks individually and on a combined basis. The Committee reviews periodic reports on liquidity and interest rate sensitivity positions. Comparisons with industry and peer groups are also monitored. The Company’s strong reputation in the communities it serves, along with its strong financial condition, provides access to numerous sources of liquidity as described below. Management believes these diverse liquidity sources provide sufficient means to meet all demands on the Company’s liquidity that are reasonably likely to occur.
 
Core deposits, discussed above under "Deposits and Other Liabilities", are a primary and low cost funding source obtained primarily through the Company’s branch network. In addition to core deposits, the Company uses non-core funding sources to support asset growth. These non-core funding sources include time deposits of $250,000 or more, brokered time deposits, 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 $1.3 billion at June 30, 2022 increased $111.1 million or 9.2% as compared to year-end 2021. Non-core funding sources, as a percentage of total liabilities, were 18.2% at June 30, 2022, compared to 17.0% at December 31, 2021. 
 
Non-core funding sources may require securities to be pledged against the underlying liability. Securities held at fair value were $1.5 billion at June 30, 2022 and $1.4 billion at December 31, 2021, and were either pledged or sold under agreements to repurchase. Pledged securities represented 63.7% of total securities at June 30, 2022, compared to 59.4% of total securities at December 31, 2021.
 
Cash and cash equivalents totaled $80.4 million as of June 30, 2022 which increased from $63.1 million at December 31, 2021. Short-term investments, consisting of securities due in one year or less, decreased from $77.9 million at December 31, 2021, to $61.9 million on June 30, 2022.
 
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 $833.7 million at June 30, 2022 compared with $947.7 million at December 31, 2021. Outstanding principal balances of residential mortgage loans, consumer loans, and leases totaled approximately $1.6 billion at June 30, 2022, up $46.0 million or 2.9% compared with year-end 2021. 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 June 30, 2022, the established borrowing capacity with the FHLB was $1.51 billion, with available unencumbered mortgage-related assets of $1.21 billion. Additional assets may also qualify as collateral for FHLB advances, upon approval of the FHLB.

Accounting Standards Pending Adoption

ASU No. 2020-06, "Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." The amendments in this update provides clarification on guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and provides new disclosure requirements for equity securities subject to contractual sale restrictions, that are measured at fair value. ASU 2022-06 is effective December 15, 2023 and is not expected to have a significant impact on our consolidated financial statements.

ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying U.S. generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of
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March 12, 2020 through December 31, 2022. Tompkins is currently evaluating the potential impact of ASU 2020-04 on our consolidated financial statements.

ASU 2022-01, "Derivatives and Hedging (Topic 815)" ("ASU 2022-01") clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended guidance established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible and renamed that method the “portfolio layer” method. ASU 2022-01 is effective January 1, 2023 and is not expected to have a significant impact on our consolidated financial statements.

ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2022-02") eliminates the guidance on troubled debt restructurings and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. ASU 2022-02 is effective January 1, 2023, with early adoption permitted. Tompkins is currently assessing the impact that ASU 2022-02 will have on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk
 
Interest rate risk is the primary market risk category associated with the Company’s operations. Interest rate risk refers to the volatility of earnings caused by changes in interest rates. The Company manages interest rate risk using income simulation to measure interest rate risk inherent in its on-balance sheet and off-balance sheet financial instruments at a given point in time. The simulation models are used to estimate the potential effect of interest rate shifts on net interest income for future periods. Each quarter, the Company’s Asset/Liability Management Committee reviews the simulation results to determine whether the exposure of net interest income to changes in interest rates remains within levels approved by the Company’s Board of Directors. The Committee also considers strategies to manage this exposure and incorporates these strategies into the investment and funding decisions of the Company. The Company does not currently use derivatives, such as interest rate swaps, to manage its interest rate risk exposure, but may consider such instruments in the future.
The Company’s Board of Directors has set a policy that interest rate risk exposure will remain within a range whereby net interest income will not decline by more than 10% in one year as a result of a 100 basis point parallel change in rates. Based upon the simulation analysis performed as of May 31, 2022, the base case scenario, which assumes interest rates are unchanged from the date of the simulation, reflects an improvement in net interest income over the next 12 to 18 months. The same simulation shows that a 200 basis point parallel increase 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 3.8%, while a 100 basis point parallel decline in interest rates over a one-year period would result in a one year decrease in net interest income of 1.2% from the base case. The simulation assumes no balance sheet growth 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 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, net interest income is expected to trend upwards.

The down 100 rate scenario decreases net interest income slightly in the first year based on the Company's assets repricing downward to a greater degree than the rates on the Company's interest-bearing liabilities, mainly deposits and overnight borrowings. Rates on savings and money market accounts are at or near historically low levels allowing for minimal interest expense relief in the first year of a declining rate scenario. In addition, 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.

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, 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 June 30, 2022. The Company’s one-year net interest rate gap was a negative $609.9 million or 7.78% of total assets at June 30, 2022, compared with a negative $331.5 million or 4.24% of total assets at December 31, 2021. A negative gap position exists when the amount of interest-bearing liabilities maturing or repricing exceeds the amount of interest-earning assets maturing or repricing within a particular time period. This analysis suggests that the Company’s net interest income contains a higher degree of risk in a rising rate environment over the next 12 months. An interest rate gap measure could be significantly affected by external factors such as a rise or decline in interest rates, loan or securities prepayments, and deposit withdrawals.

Condensed Static Gap - June 30, 2022Repricing Interval 
(In thousands)Total0-3 months3-6 months6-12 monthsCumulative 12 months
Interest-earning assets1
$7,628,083 $1,021,698 $371,565 $574,865 $1,968,128 
Interest-bearing liabilities4,907,493 2,279,914 120,705 177,406 2,578,025 
Net gap position$(1,258,216)$250,860 $397,459 $(609,897)
Net gap position as a percentage of total assets(16.04)%3.20 %5.07 %(7.78)%
 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 June 30, 2022.

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 June 30, 2022, 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 June 30, 2022, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company or its subsidiaries will be material to the Company's consolidated financial position. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with such legal proceedings. Although the Company does not believe that the outcome of pending litigation will be material to the Company's consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.
 
Item 1A. Risk Factors
 
There have been no material changes in the risk factors previously disclosed under Item 1A. of the Company’s Annual Report on Form 10-K, for the fiscal year ended December 31, 2021.
 
65

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
Issuer Purchases of Equity Securities
Total Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
(a)(b)(c)(d)
April 1, 2022 through April 30, 202239,640 $77.11 37,629 200,000 
May 1, 2022 through May 31, 2022677 72.79 0 200,000 
June 1, 2022 through June 30, 202212,335 71.67 12,000 188,000 
Total52,652 $75.78 49,629 188,000 

Included in the table above are 2,011 shares purchased in April 2022, at an average cost of $77.45, and 677 shares purchased in May 2022, at an average cost of $72.79, by the trustee of the rabbi trust established by the Company under the Company’s Stock Retainer Plan For Eligible Directors of Tompkins Financial Corporation and Participating Subsidiaries, which were part of the director deferred compensation under that plan. In addition, the table includes 335 shares delivered to the Company in June 2022 at an average cost of $78.65 to satisfy mandatory tax withholding requirements upon vesting of restricted stock under the Company's 2009 and 2019 Equity Plans.

On October 22, 2021, the Company’s Board of Directors authorized a share repurchase plan (the "2021 Repurchase Plan") for the repurchase of up to 400,000 shares of the Company’s common stock over the 24 months following adoption of the 2021 Repurchase Plan. Shares may be repurchased from time to time under the 2021 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. Under the 2021 Repurchase Plan, the Company had repurchased 212,000 shares through June 30, 2022, at an average cost of $78.89.

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

Item 4. Mine Safety Disclosures
 
Not applicable

Item 5. Other Information
 
None        
66

Item 6.     Exhibits
 
EXHIBIT INDEX
 
Exhibit NumberDescription
3.1
Amended and Restated Certificate of Incorporation of the Company, incorporated herein by reference to Exhibit 3(i) to the Company’s Form 10-Q, filed with the Commission on August 11, 2008.
3.2
Second Amended and Restated Bylaws of the Company, incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 31, 2011.
31.1
Certification of Principal Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2
Certification of Principal Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1
Certification of Principal 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.C. Section 1350
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 
101 INS**The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
101 SCH**Inline XBRL Taxonomy Extension Schema Document
101 CAL**Inline XBRL Taxonomy Extension Calculation Linkbase Document
101 DEF**Inline XBRL Taxonomy Extension Definition Linkbase Document
101 LAB**Inline XBRL Taxonomy Extension Label Linkbase Document
101 PRE**Inline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File - the cover page interactive data file does not appear in the interactive date file because its XBRL tags are embedded with the inline XBRL document.
** Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Condition as of June 30, 2022 and December 31, 2021; (ii) Consolidated Statements of Income for the three and six months ended June 30, 2022 and 2021; (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021; (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021; (v) Consolidated Statements of Changes in Shareholders' Equity for the three and six months ended June 30, 2022 and 2021; and (vi Notes to Unaudited Consolidated Financial Statements.

67

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: August 08, 2022
 
TOMPKINS FINANCIAL CORPORATION
 
By:/s/ Stephen S. Romaine 
 Stephen S. Romaine 
 President and Chief Executive Officer 
 (Principal Executive Officer) 
 
By:/s/ Francis M. Fetsko 
 Francis M. Fetsko 
 Executive Vice President, Chief Financial Officer, and Chief Operating Officer
 (Principal Financial Officer) 
(Principal Accounting Officer) 
 

68

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