TOMPKINS FINANCIAL CORP

Previous wording

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.

Current wording

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.

Previous wording

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, 2024. It should be read in conjunction with the Company’s Audited Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and the Unaudited Consolidated Financial Statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.

Current wording

The following discussion is intended to provide an understanding of the consolidated financial condition and results of operations of the Company for the three and nine months ended September 30, 2024. It should be read in conjunction with the Company’s Audited Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and the Unaudited Consolidated Financial Statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.

Previous wording

This Report includes comparisons of the Company’s performance to that of a peer group, which is comprised of the group of 193 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, 2024 (the most recent report available). Although the peer group data is presented based upon financial information that is one fiscal quarter behind the financial information included in this report, the Company believes that it is relevant to include certain peer group information for comparison to current quarter numbers.

Current wording

This Report includes comparisons of the Company’s performance to that of a peer group, which is comprised of the group of 190 domestic bank holding companies with $3 billion to $10 billion in total assets as defined in the Federal Reserve’s "Bank Holding Company Performance Report" for June 30, 2024 (the most recent report available). Although the peer group data is presented based upon financial information that is one fiscal quarter behind the financial information included in this report, the Company believes that it is relevant to include certain peer group information for comparison to current quarter numbers.

Previous wording

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

Excerpt shortened here; the source contains the full paragraph.

Current wording

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

Excerpt shortened here; the source contains the full paragraph.

Previous wording

The Company’s methodology for estimating the allowance considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. Refer to "Allowance for Credit Losses" below, Note 5 - "Allowance for Credit Losses", and Note 1 – "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

The Company’s methodology for estimating the allowance considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. Refer to "Allowance for Credit Losses" below and to Note 5 - "Allowance for Credit Losses", and Note 1 – "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, for additional information on the Company's methodology for estimating the allowance.

Previous wording

For information on the Company's significant accounting policies and to gain a greater understanding of how the Company’s financial performance is reported, refer to Note 1 – "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Refer to "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.

Current wording

For information on the Company's significant accounting policies and to gain a greater understanding of how the Company’s financial performance is reported, refer to Note 1 – "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Refer to Note 2 - "Basis of Presentation " in this Quarterly Report on Form 10-Q for a discussion of recent accounting updates.

Previous wording

The Company's significant accounting policies conform with GAAP and are described in Note 1 "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. In applying those accounting policies, management of the Company is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company's reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. The more significant areas in which management of the Company applies critical assumptions and estimates includes the following:

Current wording

The Company's significant accounting policies conform with GAAP and are described in Note 1 "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. In applying those accounting policies, management of the Company is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company's reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. The more significant areas in which management of the Company applies critical assumptions and estimates include the following:

Previous wording

Net income for the second quarter of 2024 was $15.7 million, or $1.10 diluted earnings per share, compared to $8.5 million, or $0.59 diluted earnings per share for the second quarter of 2023. Net income for the first six months of 2024 was $32.6 million, or $2.29 diluted earnings per share compared to $27.9 million, or $1.94 diluted earnings per share for the first six months of 2023. The increase in net income and diluted earnings per share for both the three and six month periods in 2024 as compared to the same periods in 2023 was primarily due to the Company's sale of $80.9 million available-for-sale debt securities during the second quarter of 2023, which resulted in a pre-tax loss of $7.1 million, or $0.37 per share.

Current wording

Net income for the third quarter of 2024 was $18.6 million, or $1.30 diluted earnings per share, compared to a net loss of $33.4 million, or $(2.35) diluted (loss) per share for the third quarter of 2023. Net income for the first nine months of 2024 was $51.2 million, or $3.59 diluted earnings per share, compared to a net loss of $5.5 million, or $(0.39) diluted (loss) per share for the first nine months of 2023. The increase in net income and diluted earnings per share for the three and nine months ended September 30, 2024 compared to the same periods in 2023 largely reflects the Company's sale of $510.5 million of available-for-sale debt securities in the second and third quarters of 2023, which resulted in a pre-tax loss of $62.9 million (or $3.34 per share) and $70.0 million (or $3.69 per share) for the three and nine months ended September 30, 2023, respectively.

Previous wording

Return on average assets ("ROA") for the quarter ended June 30, 2024 was 0.81%, compared to 0.45% for the quarter ended June 30, 2023. Return on average shareholders’ equity ("ROE") for the second quarter of 2024 was 9.51%, compared to 5.22% for the second quarter of 2023. For the year-to-date period ended June 30, 2024, ROA and ROE totaled 0.84% and 9.85%, respectively, compared to 0.74% and 8.76%, for the same period in 2023.

Current wording

Return on average assets ("ROA") for the quarter ended September 30, 2024 was 0.94%, compared to (1.73)% for the quarter ended September 30, 2023. Return on average shareholders’ equity ("ROE") for the third quarter of 2024 was 10.65%, compared to (20.84)% for the third quarter of 2023. For the year-to-date period ended September 30, 2024, ROA and ROE totaled 0.87% and 10.12%, respectively, compared to (0.10)% and (1.15)%, for the same period in 2023.

Previous wording

Net interest income of $51.0 million for the second quarter of 2024 was down $943,000, or 1.8% from the same period in 2023. For the six months ended June 30, 2024, net interest income of $101.6 million was down $4.5 million, or 4.3% compared to the first six months of 2023. The decrease in net interest income compared to prior year was due primarily to the increase in average interest rates on interest-bearing liabilities outpacing increases on interest earning asset yields. The average yield on interest-earning assets benefited from higher market interest rates as well as a shift in the composition of average earning assets with growth in average loan balances and changes to the mix of securities. The increase in funding costs reflects the impact of higher market interest rates as well as the mix of funding sources, with an increase in average time deposits and other borrowings.

Current wording

Net interest income of $53.2 million for the third quarter of 2024 was up $2.2 million, or 4.3%, from the same period in 2023. The increase in net interest income compared to the third quarter of 2023 resulted primarily from the increase in average loan balances and the average yield on those loan balances, partially offset by the increase in cost of deposits. For the nine months ended September 30, 2024, net interest income of $154.8 million was down $2.3 million, or 1.5%, compared to the first nine months of 2023. The decrease in net interest income for the first nine months on 2024 compared to the same period in 2023 was due primarily to the increase in average interest rates on interest-bearing liabilities outpacing increases on interest earning asset yields. The average yield on interest-earning assets benefited from higher market interest rates as well as a shift in the composition of average earning assets with growth in average loan balances and changes to the mix of securities. The increase in funding costs reflects the impact of higher market interest rates as well as the mix of funding sources, with an increase in average time deposits and other borrowings.

Previous wording

The provision for credit losses was $2.2 million for the three months ended June 30, 2024, compared to $2.3 million for the same period in 2023. For the six months ended June 30, 2024, the provision for credit losses was $3.0 million compared to $1.4 million for the same period in 2023. The increase in provision for credit losses for the six month period is mainly driven by loan growth, as well as additional reserves for off-balance sheet credit exposures resulting from an increase in the commercial pipeline. For additional information, see the section titled "The Allowance for Credit Losses" below.

Current wording

The provision for credit losses was $2.2 million for the three months ended September 30, 2024, compared to $1.2 million for the same period in 2023. For the nine months ended September 30, 2024, the provision for credit losses was $5.2 million compared to $2.6 million for the same period in 2023. The increase in provision expense for the quarter and year-to-date periods compared to the same periods in 2023 was mainly driven by loan growth which was up $119.4 million, or 2.1%, and $446.4 million, or 8.2%, respectively, and the increase in net charge-offs in 2024 over 2023. Net charge-offs for three and nine months ended September 30, 2024 were $912,000 and $1.6 million, respectively, compared to net charge-offs of $177,000 andnet recoveries of $1.1 million for the same periods in 2023.. For additional information, see the section titled "The Allowance for Credit Losses" below.

Previous wording

Noninterest income was $7.8 million for the three months ended June 30, 2024, compared to noninterest loss of $378,000 for the same period in 2023. For the six months ended June 30, 2024, noninterest income was $14.9 million compared to noninterest income of $6.3 million for the six months ended June 30, 2023. The increase in quarterly and year-to-date noninterest income compared to the same periods in 2023 was mainly due to a $7.1 million loss on the sale of available-for-sale debt securities noted above. For the three and six months ended June 30, 2024, card services income was up $191,000, or 6.2% and $448,000, or 7.8%, respectively, over the same periods in 2023, and service charges on deposit accounts were up $126,000, or 7.7% and $176,000, or 5.2%, respectively, over the same periods in 2023. Other income also benefited from increases in earnings on bank owned life insurance, (up $673,000 and $608,000), derivatives related income (up $142,000 and $496,000) and gains on sales of residential mortgage loans (up $213,000 and $249,000) for the three and six months ended June 30, 204 over the same periods in 2023.

Current wording

Noninterest income was $7.5 million for the three months ended September 30, 2024, compared to noninterest loss of $57.0 million for the same period in 2023. For the nine months ended September 30, 2024, noninterest income was $22.4 million compared to noninterest income loss of $50.7 million for the nine months ended September 30, 2023. The increase in quarterly and year-to-date noninterest income compared to the same periods in 2023 was mainly due to the $62.9 million and $70.0 million, respectively of pre-tax loss on the sale of available-for-sale debt securities in 2023 as noted above. For the three and nine months ended September 30, 2024, card services income was up $61,000, or 2.1%, and $509,000, or 5.9%, respectively, over the same periods in 2023, and service charges on deposit accounts were up $118,000, or 6.7%, and $294,000, or 5.7%, respectively, over the same periods in 2023. Other income also benefited from increases in earnings on bank owned life insurance (up $515,000 and $1.1 million), derivatives related income (up $448,000 and $944,000) and gains on sales of residential mortgage loans (up $366,000 and $615,000) for the three and nine months, respectively, ended September 30, 2024 over the same periods in 2023.

Previous wording

The insurance segment reported net income of $1.6 million for the three months ended June 30, 2024, which was up $392,000, or 33.8% compared to the second quarter of 2023. Total noninterest revenue was up $422,000, or 4.8% for the second quarter of 2024 compared to the same quarter in the prior year, primarily due to growth in personal lines and commercial lines. The growth in property and casualty commission revenue is attributed to new business and premium increases related to change in general market conditions.

Current wording

The insurance segment reported net income of $3.1 million for the three months ended September 30, 2024, which was down $141,000, or 4.4%, compared to the third quarter of 2023. Total noninterest revenue was down $115,000, or 1.0%, for the third quarter of 2024 compared to the same quarter in the prior year, primarily due to a decrease in insurance commissions and fees in the third quarter of 2024 over the same period in 2023. The decrease in insurance commissions and fees was mainly due to a reduction in commission rates for certain personal lines carriers and lower than average commercial lines retention.

Previous wording

For the six months ended June 30, 2024, net income was up $1.0 million or 35.7% from the same period in the prior year. Total revenue for the year-to-date period ended June 30, 2024 was up $1.3 million, or 7.1% compared to the same period in the prior year. The increase in total revenues for the six months ended June 30, 2024 compared to the prior year period includes growth in overall commission revenue of $807,000, or 4.9%, with increases in personal lines (up $295,000, or 5.8%), and commercial lines (up $581,000, or 7.8%); as well as contingency revenues, which were up $374,500 or 20.2%. Revenue growth was driven by new business along with rate increases related to current market conditions.

Current wording

For the nine months ended September 30, 2024, net income was up $897,000, or 14.7%, from the same period in the prior year. Total noninterest revenue for the year-to-date period ended September 30, 2024 was up $1.2 million, or 4.0%, compared to the same period in the prior year. The increase in total noninterest revenue for the nine months ended September 30, 2024 compared to the prior year period includes growth in overall commission revenue of $603,000, or 2.2%, with increases in personal lines (up $455,000, or 5.7%), and commercial lines (up $214,000, or 1.7%); as well as growth in contingency revenues, which were up $455,000, or 15.9%. These increases were attributable to growth in all product lines from new business, rate increases related to current market conditions and improved ratios as they relate to carrier profit sharing calculations.

Previous wording

Noninterest expenses for the three months ended June 30, 2024 were down $115,000, or 1.6% compared to the three months ended June 30, 2023. Year-to-date noninterest expenses were down $104,000, or 0.7% compared to the six months ended June 30, 2023. The decrease in noninterest expenses for the three and six months ended June 30, 2024, respectively, was mainly due to decreases in travel and business meetings along with other marketing expenses. Increases in salaries and wages reflecting annual merit increases were partially offset by decreases in commission and incentive accruals.

Current wording

Noninterest expenses for the three months ended September 30, 2024 were up $84,000, or 1.2%, compared to the three months ended September 30, 2023. Year-to-date noninterest expenses were down $20,000, or 0.1%, compared to the nine months ended September 30, 2023. The increase in noninterest expenses for the three months ended September 30, 2024 was primarily driven by increases in salaries and employee benefits and legal expense, partially offset by decreases in intercompany expense and premises expense. For the nine months ended September 30, 2024, the slight decrease was mainly attributable to decreases in travel and meetings expense, intercompany expense, and marketing expense, which were partially offset by increases in salaries and employee benefits, and legal expenses.

Previous wording

The wealth management segment reported net income of $1.2 million for the three months ended June 30, 2024, which was up $544,000, or 88.6% compared to the second quarter of 2023. Revenue for the three months ended June 30, 2024 was up $525,000, or 11.1% compared to the three months ended June 30, 2023, primarily due to a gain of $322,000 on the sale of certain customer accounts, as well as higher assets under management and favorable market conditions during the second quarter of 2024. Total expense for the three months ended June 30, 2024 was down $201,000, or 5.1% compared to the same period in 2023, which was primarily attributable to a decrease in salaries and employee benefits.

Current wording

The wealth management segment reported net income of $755,000 for the three months ended September 30, 2024, which was up $193,000, or 34.3%, compared to the third quarter of 2023. Revenue for the three months ended September 30, 2024 was up $605,000, or 13.7%, compared to the three months ended September 30, 2023, primarily due to higher assets under management and due to positive market conditions and new business production. Noninterest expense for the three months ended September 30, 2024 was up $349,000, or 9.5%, compared to the same period in 2023, which was primarily attributable to an increase in salaries and employee benefits.

Previous wording

For the six months ended June 30, 2024, net income of $2.1 million was up $740,000, or 55.0% compared to the same period in the prior year. Total revenue for the six months ended June 30, 2024 was up $943,000, or 10.1% compared to the same period in the prior year, due to gains on sales of certain customer accounts as well as higher assets under management and favorable market conditions in 2024. Noninterest expense for the six months ended June 30, 2024 was in line compared to the same period in the prior year. Increases in technology expenses were offset by decreases in professional fees and travel and meetings expense.

Current wording

For the nine months ended September 30, 2024, net income of $2.8 million was up $932,000, or 48.9%, compared to the same period in the prior year. Total revenue for the nine months ended September 30, 2024 was up $1.5 million, or 11.2%, compared to the same period in the prior year, due to higher assets under management and favorable market conditions in 2024, and a one time gain on sales of certain customer accounts. Noninterest expense for the nine months ended September 30, 2024 was up $304,000, or 2.7%, compared to the same period prior year. Increases in salaries and employee benefits and technology expense were slightly offset by decreases in travel, marketing and education expense.

Previous wording

The following tables show average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with the prior quarter of 2023 and for each of the three and six month periods ended June 30, 2024 and 2023:

Current wording

The following tables show average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with the second quarter of 2024 and for each of the three and nine month periods ended September 30, 2024 and 2023:

Previous wording

Net interest margin for the three months ended June 30, 2024 was 2.73% compared to 2.83% for the same period in 2023. Net interest margin for the six months ended June 30, 2024 was 2.73% compared to 2.90% for the same period in 2023. The decrease in net interest margin for the three and six months ended June 30, 2024 compared to the same periods in 2023 was due to the impact of higher interest rates on funding, including customer migration to higher yielding deposit products, as well as higher average borrowings, partially offset by higher yields on average interest-earning assets and higher average loan balances.

Current wording

Net interest margin for the three months ended September 30, 2024 was 2.79% compared to 2.75% for the same period in 2023. The increase in net interest margin for the three months ended September 30, 2024 compared to the same period in 2023 was driven by higher yields on interest earning assets and higher average loan balances, and was partially offset by higher funding costs. Net interest margin for the nine months ended September 30, 2024 was 2.75% compared to 2.85% for the same period in 2023. The decrease in net interest margin for the nine months ended September 30, 2024 was primarily driven by higher average funding costs, which were up 99 basis points, outpacing higher average yields on interest-earning assets, which were up 64 basis points.

Previous wording

The quarterly net interest margin of 2.73% for the second quarter of 2024 was unchanged from the quarterly net interest margin for the first quarter of 2024. The average cost of interest-bearing liabilities for the second quarter of 2024 was 2.64% compared to 2.51% for the first quarter of 2024, while the average yield on interest-earning assets was 4.56% and 4.47%, respectively, for the same periods in 2023.

Current wording

The quarterly net interest margin of 2.79% for the third quarter of 2024 was up 6 basis points from the second quarter of 2024, driven by higher yields on interest earning assets and higher average loan balances, and was partially offset by higher funding costs. The average yield on interest-earning assets for the third quarter of 2024 was 4.66%, up 10 basis points compared to 4.56% for the second quarter of 2024, while the average cost of interest-bearing liabilities for the third quarter of 2024 was 2.71% compared to 2.64% for the second quarter of 2024.

Previous wording

Interest income for the three and six months ended June 30, 2024 was $51.0 million and $101.6 million, down 1.8% and 4.3%, respectively, compared to the same periods in 2023. For both the three and six months ended June 30, 2024 average yield on interest-earning assets increased 65 basis points over the same periods in 2023. Average interest-earning assets for the three and six months ended June 30, 2024, increased $138.0 million, or 1.9% and $122.6 million, or 1.7%, respectively, compared to the same periods in 2023.

Current wording

Interest income for the three and nine months ended September 30, 2024 was $89.1 million and $257.6 million, up 18.1% and 18.9%, respectively, compared to the same periods in 2023. For the three and nine months ended September 30, 2024, the average yield on interest-earning assets increased 60 and 64 basis points, respectively, over the same periods in 2023. Average interest-earning assets for the three and nine months ended September 30, 2024, increased $232.9 million, or 3.1%, and $159.6 million, or 2.2%, respectively, compared to the same periods in 2023.

Previous wording

Interest income on loans for the three and six months ended June 30, 2024, was up $10.1 million, or 15.9%, and $20.9 million, or 16.7% compared to the same periods in 2023, driven by higher average yields and higher average balances. The average yields on loans for the three and six months ended June 30, 2024 of 5.22% and 5.18% respectively, were up 40 and 41 basis points from the same periods in 2023. The increase in loan yields was a result of market-related increases in interest rates on new loans, a significant increase in variable and adjustable rate loan yields driven by rising market interest rates, including the prime rate, and new loan originations. For the three and six months ended June 30, 2024 average loan balances were up $382.8 million, or 7.2% and $376.4 million, or 7.1%, respectively, over the same periods of 2023.

Current wording

Interest income on loans for the three and nine months ended September 30, 2024, was up $10.8 million, or 16.1%, and $31.7 million, or 16.5%, compared to the same periods in 2023, driven by higher average yields and higher average loan balances. The average yields on loans for the three and nine months ended September 30, 2024 of 5.32% and 5.23% respectively, were up 37 and 40 basis points from the same periods in 2023. The increase in loan yields was a result of market-related increases in interest rates on new loans, an increase in variable and adjustable rate loan yields driven by rising market interest rates, including the prime rate, and new loan originations. For the three and nine months ended September 30, 2024 average loan balances were up $445.7 million, or 8.3%, and $399.6 million, or 7.5%, respectively, over the same periods of 2023.

Previous wording

Interest income on securities for the three and six months ended June 30, 2024, was up $2.8 million, or 35.1%, and $5.6 million or 35.6%, respectively, as compared to the same periods in 2023. The average yield on total securities for both the three and six months ended June 30, 2024, was up 84 basis points, respectively, over the same periods in 2023, while average balances for securities were down $257.4 million, or 12.4% and $268.8 million, or 12.8%, respectively, over the same periods in 2023. The increase in securities yields was driven by market interest rate increases and the repositioning of the investment portfolio through the sale of approximately $510.5 million of available-for-sale investment securities in the second and third quarters of 2023. The securities sold had an average yield of 0.86%, while the proceeds of the sale were largely reinvested into securities with an estimated average yield of approximately 5.09%.

Current wording

Interest income on securities for the three and nine months ended September 30, 2024, was up $2.4 million, or 31.2%, and $8.1 million or 34.2%, respectively, as compared to the same periods in 2023. The average yield on total securities for the three and nine months ended September 30, 2024, was up 76 and 82 basis points, respectively, over the same periods in 2023, while average balances for securities were down $228.5 million, or 11.5%, and $255.1 million, or 12.4%, respectively, over the same periods in 2023. The increase in securities yields was driven by market interest rate increases and the repositioning of the investment portfolio through the sale of approximately $510.5 million of available-for-sale investment securities in the second and third quarters of 2023. The securities sold had an average yield of 0.86%, while the proceeds of the sale were largely reinvested into securities with an estimated average yield of approximately 5.09%.

Previous wording

Interest expense for the three months ended June 30, 2024 increased $14.3 million, or 71.7%, and increased $31.8 million, or 91.0% for the six month period ended June 30, 2024 compared to the same periods in 2023. The increase reflects higher average costs of funds and a shift in funding mix. The average cost of interest-bearing deposits for the three and six months ended June 30, 2024 was 2.27% and 2.22%, respectively, up 86 and 97 basis points, respectively, as compared to the same periods in 2023. Average interest-bearing deposits for the three and six months ended June 30, 2024, were up $38.9 million, or 0.9%, and $33.4 million, or 0.8%, respectively, from the same periods in 2023. Average noninterest bearing deposits were down $167.2 million, or 8.3% for the three months ended June 30, 2024 compared to the same period in 2023, and for the six months ended June 30, 2024 were down $200.7 million, or 9.9% compared to the same period in 2023. The average rate paid on other borrowings for the three and six months ended June 30, 2024 was up 69 basis points and 82 basis points, respectively, over the same periods in 2023. The increase in the cost of average borrowings was primarily the result of the greater utilization of comparatively higher rate overnight borrowings to support loan growth. Average other borrowings for the three and six months ended June 30, 2024 were up $308.9 million, or 81.3%, and up $330.7 million, or 101.8%, respectively, compared to the same periods in 2023.

Current wording

Interest expense for the three and nine months ended September 30, 2024 increased $11.5 million, or 47.0%, and $43.3 million, or 72.9%, compared to the same periods in 2023. The increases reflect higher average costs of funds and a shift in funding mix. The average cost of interest-bearing deposits for the three and nine months ended September 30, 2024 was 2.35% and 2.26%, respectively, up 61 and 84 basis points, respectively, as compared to the same periods in 2023. Average interest-bearing deposits for the three and nine months ended September 30, 2024, were up $84.6 million, or 1.9%, and $50.7 million, or 1.1%, respectively, from the same periods in 2023. Average noninterest bearing deposits were down $151.6 million, or 7.6%, for the three months ended September 30, 2024 compared to the same period in 2023, and for the nine months ended September 30, 2024 were down $184.1 million, or 9.1%, compared to the same period in 2023. Average other borrowings for the three and nine months ended September 30, 2024 were up $305.6 million, or 75.7%, and up $322.2 million, or 91.6%, respectively, compared to the same periods in 2023. The average rate paid on other borrowings for the three and nine months ended September 30, 2024 were up 33 basis points and 63 basis points, respectively, over the same periods in 2023. The increase in the cost of average borrowings was primarily the result of the greater utilization of comparatively higher rate overnight borrowings to support loan growth.

Previous wording

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 2024 was $2.2 million compared to $2.3 million for the second quarter of 2023. Provision for credit losses for the six months ended June 30, 2024 was $3.0 million compared to $1.4 million for the six months ended June 30, 2023. The provision for credit losses for the three and six months ended June 30, 2024 included a provision expense of $308,000 and $814,000, respectively, related to off-balance sheet credit exposures compared to a credit of $166,000 and an expense of $189,000, respectively, for the same periods in 2023. The increase in provision for credit losses for the six month period is mainly driven by loan growth, and increases in off-balance sheet reserves as a result of increase in commercial loan pipeline. The section captioned "Financial Condition – The Allowance for Credit Losses" below has further details on the allowance for credit losses and asset quality metrics.

Current wording

The provision for credit losses represents management’s estimate of the amount necessary to maintain the allowance for credit losses ("ACL") at an appropriate level. Provision for credit losses for the third quarter of 2024 was $2.2 million compared to $1.2 million for the third quarter of 2023. Provision for credit losses for the nine months ended September 30, 2024 was $5.2 million compared to $2.6 million for the nine months ended September 30, 2023. The increase in provision for credit losses for the nine month period ended September 30, 2024 was mainly driven by loan growth and the increase in net charge-offs in 2024 over 2023. The provision for credit losses for the three and nine months ended September 30, 2024 included a credit of $1.1 million and $249,000, respectively, related to off-balance sheet credit exposures compared to an expense of $182,000 and $371,000, respectively, for the same periods in 2023. The decrease in off-balance sheet reserves was mainly due to model changes related to utilization rates and a decrease in the loan pipeline. The section captioned "Financial Condition – The Allowance for Credit Losses" below has further details on the allowance for credit losses and asset quality metrics.

Previous wording

Insurance commissions and fees, the largest component of noninterest income, were $9.1 million for the second quarter of 2024, an increase of 4.8% from the same period for the prior year. The increase in insurance commissions and fees in the second quarter of 2024 over the same period in 2023 was mainly due to property and casualty commission revenue attributed to new business, along with premium increases related to the change in general market conditions. For the first six months of 2024, insurance commissions and fees were up $1.2 million, or 6.4% compared to the same period in 2023. The increase in revenues for the six months ended June 30, 2024 compared to the same period in 2023 was mainly in personal lines, commercial lines, and contingency revenue driven by new business rate increases related to current market conditions and improved ratios as they relate to carrier profit sharing calculations.

Current wording

Insurance commissions and fees, the largest component of noninterest income, were $11.3 million for the third quarter of 2024, a decrease of 1.0% from the same period for the prior year. The decrease in insurance commissions and fees in the third quarter of 2024 over the same period in 2023 was mainly due to a reduction in commission rates for certain personal lines carriers and lower than average commercial lines retention. For the first nine months of 2024, insurance commissions and fees were up $1.1 million, or 3.6%, compared to the same period in 2023. The increase in revenues for the nine months ended September 30, 2024 compared to the same period in 2023 was due to growth in all product lines from new business, rate increases related to current market conditions and improved ratios as they relate to carrier profit sharing calculations.

Previous wording

Wealth management fees of $4.8 million in the second quarter of 2024 were up $171,000 or 3.7% compared to the second quarter of 2023. For the first six months of 2024, wealth management fees were up $599,000, or 6.5% compared to the same period in 2023. Wealth management fees include trust services, financial planning, wealth management services, and brokerage related services. The fair value of assets managed by, or in custody of, Tompkins was $3.1 billion at June 30, 2024, up $61.4 million or 2.0% from June 30, 2023. The increase in assets from prior year was mainly a result of positive market performance.

Current wording

Wealth management fees of $4.9 million in the third quarter of 2024 were up $583,000, or 13.4%, compared to the third quarter of 2023. For the first nine months of 2024, wealth management fees were up $1.2 million, or 8.7%, compared to the same period in 2023. Wealth management fees include trust services, financial planning, wealth management services, and brokerage related services. The fair value of assets managed by, or in custody of, Tompkins was $3.2 billion at September 30, 2024, up $281.0 million, or 9.6%, from September 30, 2023. The increase in assets from prior year was mainly a result of positive market performance.

Previous wording

Service charges on deposits accounts for the three and six months ended June 30, 2024 are up $126,000 or 7.7% and $176,000 or 5.2% over the same periods in 2023. The increase was in service fees on personal and business accounts and net overdraft fees.

Current wording

Service charges on deposits accounts for the three and nine months ended September 30, 2024 were up $118,000, or 6.7%, and $294,000, or 5.7%, respectively, over the same periods in 2023. The increase was mainly in service fees on business accounts and net overdraft fees.

Previous wording

Card services income in the second quarter of 2024 was up $191,000, or 6.2% over the same three month period in 2023, and up $448,000, or 7.8% for the six months ended June 30, 2024 compared to the same period in 2023. The increase in the first six months of 2024 included a $255,000 sign-on bonus related to the renewal of a card services contract.

Current wording

Card services income in the third quarter of 2024 was up $61,000, or 2.1%, over the same three month period in 2023, and up $509,000, or 5.9%, for the nine months ended September 30, 2024 compared to the same period in 2023. The increase in the first nine months of 2024 included a $255,000 sign-on bonus related to the renewal of a card services contract.

Previous wording

Other income of $2.8 million in the second quarter of 2024 was up $1.2 million or 74.8% compared to the same period in 2023. For the first six months of 2024, other income of $5.0 million was up $1.5 million, or 41.7% compared to the same period in 2023. The increase for the three and six months ended June 30, 2024 compared to the same period in 2023 was mainly due to higher earnings on bank owned life insurance (up $673,000 and $608,000), derivatives related income (up $142,000 and $496,000), and gains on sale of residential loans (up $213,000 and $249,000). The three and six months ended June 30, 2024 also included gains of $322,000 and $352,000, respectively, on the sale of certain customer accounts within the wealth management business.

Current wording

Other income of $2.3 million in the third quarter of 2024 was up $1.3 million, or 132.2%, compared to the same period in 2023. For the first nine months of 2024, other income of $7.3 million was up $2.8 million, or 61.5%, compared to the same period in 2023. The increase for the three and nine months ended September 30, 2024 compared to the same period in 2023 was mainly due to higher earnings on bank owned life insurance (up $515,000 and $1.1 million), derivatives related income (up $448,000 and $944,000), and gains on sale of residential loans (up $366,000 and $615,000). The nine months ended September 30, 2024 also included gains of $357,000 on the sale of certain customer accounts within the wealth management business.

Previous wording

Expenses associated with compensation and benefits comprise the largest component of noninterest expense, representing 63.0% and 62.7% of total noninterest expense for the three and six months ended June 30, 2024, respectively. Total salaries, wages and benefits for the three and six months ended June 30, 2024, were down $520,000, or 1.6% and $665,000 or 1.1% from the same periods in 2023. The decrease was driven by a decrease in average full time equivalents as well as decreases in healthcare and incentive expense in the second quarter of 2024, partially offset by normal merit adjustments.

Current wording

Expenses associated with compensation and benefits comprise the largest component of noninterest expense, representing 64.0% and 63.1% of total noninterest expense for the three and nine months ended September 30, 2024, respectively. Total salaries, wages and benefits for the three months ended September 30, 2024, were up $810,000, or 2.6%, over the same three month period in 2023, and for the nine months ended September 30, 2024 were in line with the same period in 2023. For both the three and nine months ended September 30, 2024, increases in salaries and wages, including incentive accruals, were largely offset by decreases in healthcare expense.

Previous wording

Other expense categories, not related to compensation and benefits, for the three and six months ended June 30, 2024 were down $1.5 million, or 7.5%, and $1.7 million, or 4.3%, respectively, from the same periods in 2023. Contributing to the decrease in other operating expenses for the three and six months ended June 30, 2024, compared to the same period in 2023 were the following: legal, down $308,000 or 48.5% and $504,000 or 47.8% respectively, travel and meetings, down $220,000 or 46.3% and $374,000 or 45.8% respectively; marketing expenses, down $594,000 or 35.2% and $723,000 or 25.9% respectively; and professional fees and consulting down $457,000 or 21.5% and $561,000 or 14.3% when compared to 2023. Offset by increases in FDIC insurance expense up $716,000 or 91.9% and $1.1 million or 58.4% respectively over the same period in 2023, driven by an increase in assessment rates.

Current wording

Other expense categories, not related to compensation and benefits, for the three and nine months ended September 30, 2024 were down $799,000, or 4.3%, and $2.5 million, or 4.3%, respectively, from the same periods in 2023. Contributing to the decrease in other operating expenses for the three and nine months ended September 30, 2024, compared to the same periods in 2023 were the following: travel and meetings down $164,000, or 40.5%, and $538,000, or 44.0%; professional fees and consulting down $217,000, or 12.3%, and $779,000, or 13.7%; expenses related to the Company’s retirement plans down $174,000, or 52.7%, and $531,000 or 53.6%; legal up $20,000, or 6.8%, and down $484,000, or 35.9%; technology down

Previous wording

The provision for income taxes was $4.9 million for an effective rate of 23.8% for the second quarter of 2024, compared to tax expense of $1.8 million and an effective rate of 17.3% for the same quarter in 2023. For the first six months of 2024, the provision for income taxes was $10.1 million for an effective rate of 23.6% compared to tax expense of $7.7 million and an effective rate of 21.6% for the same period in 2023. The increase in the effective tax rate for the three and six months ended June 30, 2024, compared to the same periods in 2023 is largely due to an increase in pre-tax income, driven primarily by the realized losses on the sale of certain available-for-sale debt securities recognized in the second quarter of 2023 and the anticipated retention of certain New York State tax benefits in 2023. The effective rates differ from the U.S. and state statutory rates primarily due to the effect of tax-exempt income from loans, securities and life insurance assets, and the income tax effects associated with stock based compensation.

Current wording

The provision for income taxes was $5.9 million for an effective rate of 23.9% for the third quarter of 2024, compared to a tax benefit of $8.3 million and an effective rate of 20.0% for the same quarter in 2023. For the first nine months of 2024, the provision for income taxes was $16.0 million for an effective rate of 23.7% compared to tax benefit of $619,000 and an effective rate of 10.3% for the same period in 2023. The increase in the effective tax rate for the three and nine months ended September 30, 2024, compared to the same periods in 2023 is largely due to an increase in pre-tax income, driven primarily by the realized losses on the sale of certain available-for-sale debt securities recognized in the second and third quarters of 2023. The effective rates differ from the U.S. and state statutory rates primarily due to the effect of tax-exempt income from loans, securities and life insurance assets, and the income tax effects associated with stock-based compensation.

Previous wording

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 2024 tax year. The Company will continue to monitor the consolidated average assets during 2024 to determine future eligibility.

Current wording

The Company's banking subsidiary has an investment in real estate investment trusts that provide certain benefits on its New York State tax return for qualifying entities. A condition to claim the benefit is that the consolidated company has average assets of no more than $8.0 billion for the taxable year. The Company expects average assets to exceed the $8.0 billion threshold for the 2024 tax year. The Company will continue to monitor the consolidated average assets to determine future eligibility.

Previous wording

Total assets were $7.9 billion at June 30, 2024, up $49.8 million, or 0.6% from December 31, 2023. Total loans were up $155.9 million, or 2.8%, cash and cash equivalents were down $8.6 million, or 10.8% and total securities were down $99.2 million or 5.7% compared to December 31, 2023. Total deposits at June 30, 2024 were down $114.0 million, or 1.8% from December 31, 2023.

Current wording

Total assets were $8.0 billion at September 30, 2024, up $186.7 million, or 2.4%, from December 31, 2023. Total loans were up $275.3 million, or 4.9%, cash and cash equivalents were up $52.8 million, or 66.4%, and total securities were down $107.3 million, or 6.2%, compared to December 31, 2023. Total deposits at September 30, 2024 were up $178.0 million, or 2.8%, and borrowings were down $62.8 million, or 10.4%, from December 31, 2023.

Previous wording

As of June 30, 2024, the Company’s securities portfolio was $1.6 billion, or 20.7% of total assets compared to $1.7 billion, or 22.1% of total assets at year end 2023. The decrease in total securities was mainly due to principal runoff and maturities of debt securities during the first six months of 2024. The following tables detail the composition of the securities portfolio:

Current wording

As of September 30, 2024, the Company’s securities portfolio was $1.6 billion, or 20.3%, of total assets compared to $1.7 billion, or 22.1%, of total assets at year end 2023. The decrease in total securities was mainly due to principal runoff and maturities of debt securities during the first nine months of 2024, as cash flow was used to support loan growth. The following tables detail the composition of the securities portfolio:

Previous wording

As of June 30, 2024, the available-for-sale debt securities portfolio had net unrealized losses, which reflects the amount that the amortized cost exceeds fair value, of $146.5 million compared to net unrealized losses of $131.8 million at December 31, 2023. The increase in unrealized losses related to the available-for-sale debt securities portfolio reflects interest rate volatility in the market, the volume and rates associated with the securities purchases and maturities in 2024. Management’s policy is to purchase investment grade securities that on average have relatively short duration, which helps mitigate interest rate risk and provides sources of liquidity without significant risk to capital.

Current wording

As of September 30, 2024, the available-for-sale debt securities portfolio had net unrealized losses, which reflects the amount that the amortized cost exceeds fair value, of $101.1 million compared to net unrealized losses of $131.8 million at December 31, 2023. The decrease in unrealized losses related to the available-for-sale debt securities portfolio reflects interest rate volatility in the market, the volume and rates associated with securities purchases, and maturities in 2024. Management’s policy is to purchase investment grade securities that on average have relatively short duration, which helps mitigate interest rate risk and provides sources of liquidity without significant risk to capital.

Previous wording

The Company determined that at June 30, 2024, all impaired available-for-sale and held-to-maturity debt securities were impaired because of changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit worthiness of the underlying issuers. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost. Therefore, the Company carried no ACL at June 30, 2024 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, 2024.

Current wording

The Company determined that at September 30, 2024, all impaired available-for-sale and held-to-maturity debt securities were impaired because of changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit worthiness of the underlying issuers. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost. Therefore, the Company carried no ACL at September 30, 2024 and there was no credit loss expense recognized by the Company with respect to the securities portfolio during the three and nine months ended September 30, 2024.

Previous wording

Total loans and leases of $5.8 billion at June 30, 2024 were up $155.9 million, or 2.8% from December 31, 2023, mainly in the commercial real estate and commercial and industrial loan portfolios. As of June 30, 2024, total loans and leases represented 73.2% of total assets compared to 71.7% of total assets at December 31, 2023.

Current wording

Total loans and leases of $5.9 billion at September 30, 2024 were up $275.3 million, or 4.9%, from December 31, 2023, mainly in the commercial real estate and commercial and industrial loan portfolios. As of September 30, 2024, total loans and leases represented 73.5% of total assets compared to 71.7% of total assets at December 31, 2023.

Previous wording

Residential real estate loans, including home equity loans, were $1.6 billion at June 30, 2024, up $9.9 million, or 0.6% compared to December 31, 2023, and comprised 27.3% of total loans and leases at June 30, 2024.

Current wording

Residential real estate loans, including home equity loans, were $1.6 billion at September 30, 2024, up $10.5 million, or 0.7%, compared to December 31, 2023, and comprised 26.7% of total loans and leases at September 30, 2024.