TOMPKINS FINANCIAL CORP

Previous wording

Banking services consist primarily of attracting deposits from the areas served by Tompkins Community Bank, which has 55 banking offices (39 offices in New York and 16 offices in Pennsylvania) and using those deposits to originate a variety of commercial loans, agricultural loans, consumer loans, real estate loans, and leases. The Company’s lending function is managed within the guidelines of a comprehensive Board-approved lending policy. Reporting systems are in place to provide management with ongoing information related to loan production, loan quality, concentrations of credit, loan delinquencies, and nonperforming and potential problem loans. Banking services also include a full suite of products such as debit cards, credit cards, remote deposit, electronic banking, mobile banking, cash management, and safe deposit services.

Current wording

Banking services consist primarily of attracting deposits from the areas served by Tompkins Community Bank, which has 54 banking offices (38 offices in New York and 16 offices in Pennsylvania) and using those deposits to originate a variety of commercial loans, agricultural loans, consumer loans, real estate loans, and leases. The Company’s lending function is managed within the guidelines of a comprehensive Board-approved lending policy. Reporting systems are in place to provide management with ongoing information related to loan production, loan quality, concentrations of credit, loan delinquencies, and nonperforming and potential problem loans. Banking services also include a full suite of products such as debit cards, credit cards, remote deposit, electronic banking, mobile banking, cash management, and safe deposit services.

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 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.

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 months ended March 31, 2025. 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, 2024, 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 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.

Current wording

In this Report, there are comparisons of the Company’s performance to that of a peer group, which is comprised of 191 domestic bank holding companies with $3 billion to $10 billion in total assets as defined in the Federal Reserve’s "Bank Holding Company Performance Report" for December 31, 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", "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.

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", 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 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 our Annual Report on Form 10-K for the year ended December 31, 2024, 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 public companies, banks, bank holding companies and/or financial holding companies, including the Dodd-Frank Act, and other federal, 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; increased supervisory and regulatory scrutiny of financial institutions; 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 …

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 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.

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 "Financial Condition - 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, 2024.

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 Note 2 - "Basis of Presentation " 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, 2024. Refer to Newly Adopted Accounting Standards" and "Accounting Standards Pending Adoption" in Note 2 - "Basis of Presentation" in the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a discussion of recent accounting standards 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 include 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, 2024. 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 most significant area in which management of the Company applies critical assumptions and estimates includes the following:

Previous 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.

Current wording

Return on average assets ("ROA") for the quarter ended March 31, 2025 was 0.99%, compared to 0.87% for the quarter ended March 31, 2024. Return on average shareholders’ equity ("ROE") for the first quarter of 2025 was 10.96%, compared to 10.18% for the same period in 2024.

Previous 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.

Current wording

Noninterest income of $8.6 million for the three months ended March 31, 2025 was up $1.5 million or 21.6% compared to the same period in 2024. The increase in the three months ended March 31, 2025 from the same period in 2024 included a gain on the sale of other real estate owned ("OREO") of $1.9 million and an increase in loan sales of $381,000. These increases were partially offset by decreases in derivative fee income ($405,000) and card servicing fees ($313,000). Card services income in the first quarter of 2024 included a $255,000 sign-on bonus related to the renewal of a card services contract.

Previous 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:

Current wording

The following tables show average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each, for each of the three month periods ended March 31, 2025 and 2024 and the prior quarter ended December 31, 2024:

Previous wording

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

Current wording

Net interest income is the Company’s largest source of revenue, representing 69.4% of total revenues for the three months ended March 31, 2025, compared to 69.6% for the same period in 2024. 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, for the periods indicated.

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 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.

Current wording

The provision for credit losses represents management’s estimate of the amount necessary to maintain the allowance for credit losses at an appropriate level. The provision for credit losses for the three months ended March 31, 2025 was $5.3 million compared to $854,000 for the same period in 2024. The increase in provision expense for the first quarter of 2025 was largely the result of a specific reserve for one commercial real estate relationship based on an updated appraisal received at the end of the quarter. Included in the provision for credit losses for the first quarters of both 2025 and 2024 were provision expenses of $27,000 and $506,000, respectively, related to off-balance sheet exposures related to the commercial loan pipeline. Net charge-offs for the first quarter of 2025 were $733,000 compared to net charge-offs of $228,000 reported for the same period in 2024. The section captioned "Financial Condition – Allowance for Credit Losses" below has further details on the allowance for credit losses and asset quality metrics.

Previous 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.

Current wording

Wealth management fees of $5.1 million in the first quarter of 2025 were up $182,000 or 3.7% compared to the first quarter of 2024. The increase in investment services income for the three-month period ended March 31, 2025 was mainly a result of an increase in advisory revenue. Wealth management fees include trust services, financial planning, wealth management services, and brokerage related services and are generally based on the market value of assets within an account and are thus impacted by volatility in equity and bond markets. The fair value of assets managed by, or in custody of, Tompkins was $3.1 billion at March 31, 2025, down from $3.2 billion at March 31, 2024.

Previous wording

Noninterest expense of $49.9 million for the third quarter of 2024 was in line with the third quarter of 2023. Noninterest expense of $149.7 million for the first nine months of 2024 was down $2.3 million, or 1.5%, compared to the same period in 2023.

Current wording

Noninterest expense was $50.6 million for the first quarter of 2025, up $750,000 or 1.5% compared to the same period in 2024. Noninterest expense as a percentage of total revenue for the first quarter of 2025 was 61.9% compared to 68.5% for the same period in 2024.

Previous 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.

Current wording

The provision for income taxes was $6.1 million for an effective rate of 23.72% for the first quarter of 2025, compared to tax expense of $5.2 million and an effective rate of 23.52% for the same quarter in 2024. The effective rates differ from the U.S. statutory rate 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

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.

Current wording

Total assets were $8.2 billion at March 31, 2025, up $90.6 million or 1.1% from December 31, 2024. Cash and cash equivalents were up $58.7 million or 43.7%, total loans were up $46.7 million or 0.8% and total securities were up $27.8 million or 1.8% compared to December 31, 2024. Total deposits were up $281.7 million or 4.4% from December 31, 2024, Federal funds purchased and securities sold under agreement to repurchase were up $85.9 million, and total borrowings were down $297.0 million or 37.6% from December 31, 2024.

Previous 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:

Current wording

As of March 31, 2025, the Company’s securities portfolio was $1.6 billion or 19.2% of total assets, compared to $1.5 billion or 19.1% of total assets at year-end 2024. The following table details the composition of the securities portfolio:

Previous 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.

Current wording

The decrease in unrealized losses, which reflects the amount that amortized cost exceeds fair value, related to the available-for-sale debt and held-to-maturity debt portfolios was due primarily to changes in market interest rates during the first three months of 2025. 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 evaluates available-for-sale and held-to-maturity debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is the result of changes in interest rates or reflects a fundamental change in the credit worthiness of the underlying issuer. Any impairment that is not credit related is recognized in other comprehensive income (loss), net of applicable taxes. Credit-related impairment is recognized as an ACL on the Statement of Condition, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the ACL and the adjustment to net income may be reversed if conditions change.

Current wording

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

Previous 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.

Current wording

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.

Previous wording

The below table shows a more detailed break-out of commercial real estate ("CRE") loans as of September 30, 2024 and December 31, 2023:

Current wording

The table below shows a more detailed break-out of CRE loans as of March 31, 2025 and December 31, 2024.

Previous 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.

Current wording

Total loans and leases of $6.1 billion at March 31, 2025 were up $46.7 million or 0.8% from December 31, 2024. The increase was mainly in commercial real estate loans, which were up $46.4 million or 1.4%, to $3.4 billion at March 31, 2025. As of March 31, 2025, total loans and leases represented 74.0% of total assets compared to 74.2% of total assets at December 31, 2024.

Previous wording

The Company may sell residential real estate loans in the secondary market based on interest rate considerations. The Company's Asset/Liability Committee meets regularly and establishes standards for selling and retaining residential real estate mortgage originations. These residential real estate loans are generally sold to Federal Home Loan Mortgage Corporation ("FHLMC") or State of New York Mortgage Agency ("SONYMA") without recourse in accordance with standard secondary market loan sale agreements. These residential real estate loans also are subject to customary representations and warranties made by the Company, including representations and warranties related to gross incompetence and fraud. The Company has not had to repurchase any loans as a result of these representations and warranties.

Current wording

Residential real estate loans, including home equity loans, were $1.6 billion at March 31, 2025, and were in line with December 31, 2024, and comprised 25.9% of total loans and leases at March 31, 2025. Changes in residential loan balances are impacted by the Company’s decision to retain these loans or sell them in the secondary market due to interest rate considerations. The Company’s Asset/Liability Committee meets regularly and establishes standards for selling and retaining residential real estate mortgage originations. 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 or negligence, and fraud. The Company has not had to repurchase any loans as a result of these representations and warranties.

Previous wording

During the first nine months of 2024 and 2023, the Company sold residential loans totaling $29.5 million and $3.2 million, respectively, recognizing gains of $701,000 and $86,000, respectively. These residential real estate loans were sold without recourse in accordance with standard secondary market loan sale agreements. When residential mortgage loans are sold, the Company typically retains all servicing rights, which provides the Company with a source of fee income. Mortgage servicing rights totaled $1.1 million at September 30, 2024, and $927,000 at December 31, 2023.

Current wording

During the first three months of 2025 and 2024, the Company sold residential loans totaling $11.6 million and $1.1 million, respectively, recognizing gains on these sales of $454,000 and $73,000, 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 $1.2 million at March 31, 2025 and $1.1 million December 31, 2024.

Previous wording

Commercial real estate loans and commercial and industrial loans totaled $3.3 billion and $890.2 million, respectively, and represented 56.3% and 15.1%, respectively, of total loans and leases as of September 30, 2024. The commercial real estate portfolio was up $197.8 million, or 6.4%, compared to December 31, 2023, while commercial and industrial loans were up $66.7 million, or 8.1%, compared to December 31, 2023.

Current wording

Commercial real estate loans and commercial and industrial loans totaled $3.4 billion and $970.8 million, respectively, and represented 56.5% and 16.0%, respectively, of total loans at March 31, 2025. The commercial real estate loans and commercial and industrial loans as of March 31, 2025 were up $46.4 million or 1.4% and $5.3 million or 0.5% over year-end 2024, respectively.

Previous wording

As of September 30, 2024, agriculturally-related loans totaled $299.5 million, or 5.1%, of total loans and leases, compared to $322.9 million, or 5.8%, of total loans and leases at December 31, 2023. Agriculturally-related loans include loans to dairy farms and crop farms. Agriculturally-related loans are primarily made based on identified cash flows of the borrower with 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.

Current wording

As of March 31, 2025, agriculturally-related loans totaled $315.3 million or 5.2% of total loans and leases, compared to $327.6 million or 5.4% of total loans and leases at December 31, 2024. 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.

Previous wording

The below table represents the allowance for credit losses as of September 30, 2024 and December 31, 2023. The table provides, as of the dates indicated, an allocation of the allowance for credit losses for inherent loan losses by type. The allocation is neither indicative of the specific amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of future loss trends. The allocation of the allowance for credit losses to each category does not restrict the use of the allowance to absorb losses in any category.

Current wording

The tables below represent the allowance for credit losses as of March 31, 2025, December 31, 2024, and March 31, 2024. The tables provide, 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.

Previous wording

Activity in the Company’s allowance for credit losses during the first nine months of 2024 and 2023 is illustrated in the table below:

Current wording

Activity in the Company’s allowance for credit losses during the first three months of 2025 and 2024 is illustrated in the table below:

Previous wording

The ratio of the allowance to nonperforming loans and leases (loans past due 90 days and accruing, and nonaccrual loans) was 88.51% at September 30, 2024, compared to 82.84% at December 31, 2023, and 156.96% at September 30, 2023. The Company’s nonperforming loans and leases are mostly comprised of collateral dependent loans with limited exposure or loans that require limited specific reserve due to the level of collateral available with respect to these loans and/or previous charge-offs.

Current wording

The ratio of the allowance to nonperforming loans and leases was 85.85% at March 31, 2025, compared to 111.06% at December 31, 2024, and 82.47% at March 31, 2024. The decrease in the ratio compared to year-end 2024 was due to an increase in nonperforming loans and leases. The increase in nonperforming loans at quarter-end March 31, 2025 compared to prior quarter-end was mainly due to the addition of one commercial real estate loan of $17.3 million being moved into nonperforming loans and leases during the first quarter of 2025, which was previously included in loans past due 30-89 days. The Company believes that the existing collateral securing the loans is sufficient to cover the exposure as of March 31, 2025. The Company’s nonperforming loans and leases are mostly comprised of collateral-dependent loans with limited exposure or loans that require limited specific reserve due to the level of collateral available with respect to these loans and/or previous charge-offs.

Previous wording

The provision for credit losses for loans was $3.2 million for the three months ended September 30, 2024, compared to $968,000 for the same period in 2023. For the nine month period ended September 30, 2024, the provision for credit losses for loans was $5.4 million compared to $2.2 million for the same period in 2023. The provision expense for credit losses for loans is based upon the Company's quarterly evaluation of the appropriateness of the allowance for credit losses. The increase in provision for credit losses for both the three and nine month periods ended September 30, 2024 was mainly driven by loan growth, increases in net charge-offs, updates to model assumptions, and reserves for one commercial relationship that was individually evaluated for impairment.

Current wording

The provision expense for credit losses for loans is based upon the Company's quarterly evaluation of the appropriateness of the allowance for credit losses. The provision for credit losses for the first quarter of 2025 was $5.3 million compared to $854,000 for the first quarter of 2024. The increase in provision expense is reflective of the previously discussed specific reserve on one commercial real estate relationship, updated economic forecasts, loan growth, and slight improvement in performance metrics within the commercial real estate portfolio. Net charge-offs for the three months ended March 31, 2025 were $733,000, compared to $857,000 for the fourth quarter of 2024, and $228,000 for the same period in 2024.

Previous wording

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.

Current wording

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

Previous wording

Nonperforming assets include loans past due 90 days and accruing, nonaccrual loans, and foreclosed real estate/other real estate owned. Total nonperforming assets of $62.7 million at September 30, 2024 were up $258,000, or 0.4%, compared to December 31, 2023, and up $31.2 million, or 99.3%, compared to September 30, 2023. The increase in nonperforming assets at September 30, 2024 compared to September 30, 2023 was mainly due to the addition during the fourth quarter of 2023 of one relationship with two commercial real estate properties totaling approximately $33.3 million included in the office space and mixed use properties portion of the commercial real estate portfolio. Nonperforming assets represented 0.78% of total assets at September 30, 2024, down from 0.80% at December 31, 2023, and up from 0.41% at September 30, 2023. Our peer group's average ratio of nonperforming assets to total assets was 0.50% at June 30, 2024.

Current wording

Nonperforming assets include loans past due 90 days and accruing, nonaccrual loans, and foreclosed real estate/other real estate owned. Total nonperforming assets of $71.2 million at March 31, 2025 were up $6.0 million or 9.2% compared to December 31, 2024, and up $8.5 million or 13.5% compared to March 31, 2024. Nonperforming assets represented 0.87% of total assets at March 31, 2025, up from 0.80% at December 31, 2024, and 0.81% at March 31, 2024. Our peer group's average ratio of nonperforming assets to total assets was 0.49% at December 31, 2024. The increase in nonperforming assets at March 31, 2025 compared to year-end 2024 was mainly due to a $17.3 million commercial real estate loan being placed on nonaccrual during the quarter; this loan was previously included in loans past due 30-89 days. The Company believes that the existing collateral securing the loan is sufficient to cover the exposure as of March 31, 2025. The addition of this loan was partially offset by the sale of $14.3 million other real estate owned property during the quarter.

Previous wording

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

Current wording

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.

Previous wording

The Company, through its internal loan review function, identified 14 commercial relationships from the loan portfolio totaling $23.5 million at September 30, 2024, that were potential problem, or Substandard, loans. At December 31, 2023, the Company had identified 17 relationships totaling $26.0 million that were potential problem loans. Of the 14 relationships at September 30, 2024 that were Substandard, there were 3 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $19.6 million, the largest of which was $16.3 million. The Company continues to monitor these potential problem relationships; however, management cannot predict the extent to which changing economic conditions or other factors may further impact borrowers. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and government guarantees. These factors, when considered in the aggregate, give management reason to believe that the current risk exposure on these loans does not warrant accounting for these loans as nonperforming. However, these loans do exhibit certain risk factors, which have the potential to cause them to become nonperforming. Accordingly, management's attention is focused on these credits, which are reviewed on at least a quarterly basis.

Current wording

The Company, through its internal loan review function, identified 15 commercial relationships totaling $23.8 million at March 31, 2025 that were potential problem loans. At December 31, 2024, the Company had identified 16 relationships totaling $41.2 million that were potential problem loans. Of the 15 commercial relationships at March 31, 2025 that were Substandard, there were 3 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $19.8 million, the largest of which was $16.1 million. The potential problem 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.

Previous wording

Accumulated other comprehensive loss decreased from a net loss of $125.0 million at December 31, 2023, to a net loss of $101.2 million at September 30, 2024, reflecting a $23.2 million decrease in unrealized losses on available-for-sale debt securities due to changes in market interest rates; and a $622,000 decrease related to post-retirement benefit plans.

Current wording

Additional paid-in capital decreased from $300.1 million at December 31, 2024 to $299.0 million at March 31, 2025. The decrease was primarily attributable to a $2.0 million payment of deferred stock compensation pursuant to the Company’s Second Amended and Restated Retainer Plan For Eligible Directors, partially offset by $0.9 million related to stock-based compensation expense. Retained earnings increased by $10.7 million from $537.2 million at December 31, 2024 to $547.9 million at March 31, 2025, reflecting net income of $19.7 million less dividends paid of $8.9 million. Accumulated other comprehensive loss decreased from a net loss of $118.5 million at December 31, 2024 to a net loss of $102.2 million at March 31, 2025, reflecting a $16.1 million decrease in unrealized losses on available-for-sale debt securities due to changes in market rates coupled with a $165,000 decrease related to post-retirement benefit plans.

Previous wording

Cash dividends paid in the first nine months of 2024 totaled approximately $26.2 million, or $1.82 per common share, representing 51.2% of year to date 2024 earnings through September 30, 2024, compared to cash dividends of $26.0 million, or $1.80 per common share paid in the first nine months of 2023. Cash dividends per share during the first nine months of 2024 were up 1.1% over the same period in 2023.

Current wording

Cash dividends paid in the first three months of 2025 totaled approximately $8.9 million or $0.62 per common share, representing 45.5% of year to date 2025 earnings through March 31, 2025, and up 3.5% compared to cash dividends of $8.6 million or $0.60 per common share paid in the first three months of 2024.

Previous wording

The Company and its subsidiary bank are subject to various regulatory capital requirements administered by Federal bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s business, results of operation and financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (PCA), banks must meet specific guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classifications of the Company and its subsidiary banks are also subject to qualitative judgments by regulators concerning components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios of common equity Tier 1 capital, Total capital and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that the Company and its subsidiary bank met, as of September 30, 2024, all capital adequacy requirements to which they are subject.

Current wording

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 meet all capital adequacy requirements to which they are subject.

Previous wording

Total capital as a percent of risk weighted assets decreased to 13.2% at September 30, 2024, compared with 13.4% at December 31, 2023. Tier 1 capital as a percent of risk weighted assets declined to 12.2% at September 30, 2024 compared to 12.4% at December 31, 2023. Tier 1 capital as a percent of average assets was 9.2% at September 30, 2024, up from 9.1% as of December 31, 2023. Common equity Tier 1 capital was 12.2% at September 30, 2024, down from 12.4% at December 31, 2023. The decrease in the capital ratios at September 30, 2024, compared to December 31, 2023 was mainly a result of growth in loan portfolio over the period exceeding growth in capital.

Current wording

Total capital as a percentage of risk weighted assets was 13.3% at March 31, 2025, up from 13.1% as of December 31, 2024. Tier 1 capital as a percentage of risk weighted assets was 12.3% as of March 31, 2025, an increase from 12.1% at year-end 2024. Tier 1 capital as a percentage of average assets was 9.3% at March 31, 2025, unchanged from December 31, 2024. Common equity Tier 1 capital was 12.3% at the end of the first quarter of 2025, up from 12.1% at the end of 2024.

Previous wording

As of September 30, 2024, the capital ratios for the Company’s subsidiary bank also exceeded the minimum required capital ratios for well capitalized institutions, plus the fully phased-in capital conservation buffer.

Current wording

As of March 31, 2025, the capital ratios for the Company’s subsidiary bank also exceeded the minimum required capital ratios plus the fully phased-in capital conservation buffer, and the minimum required capital ratios for well capitalized institutions.

Previous wording

The most significant source of funding for the Company is core deposits. The Company defines core deposits as total deposits less time deposits of $250,000 or more, brokered deposits, municipal money market deposits, and reciprocal deposit relationships with municipalities. Core deposits increased by $155.3 million, or 3.0%, from year-end 2023, to $5.3 billion at September 30, 2024. Core deposits at September 30, 2024 were down $81.7 million, or 1.5%, from September 30, 2023. Core deposits represented 81.3% of total deposits at September 30, 2024, compared to 81.1% of total deposits at December 31, 2023 and 81.9% at September 30, 2023.

Current wording

The most significant source of funding for the Company is core deposits. The Company defines core deposits as total deposits less time deposits of $250,000 or more, brokered deposits, and municipal money market deposits and reciprocal deposit relationships with municipalities. Core deposits increased by $82.1 million or 1.6% from year-end 2024, to $5.3 billion at March 31, 2025. Core deposits represented 79.1% of total deposits at March 31, 2025, compared to 81.3% of total deposits at December 31, 2024.