TOMPKINS FINANCIAL CORP

Previous wording

Insurance services include property and casualty insurance, employee benefit consulting, and life, long-term care and disability insurance. Tompkins Insurance is headquartered in Batavia, New York. Over the years, Tompkins Insurance has acquired smaller insurance agencies in the market areas serviced by the Company’s banking subsidiaries and successfully consolidated them into Tompkins Insurance. Tompkins Insurance offers services to customers of Tompkins Community Bank and shares offices in each of the banking markets. In addition to these shared offices, Tompkins Insurance has five stand-alone offices in Western New York, and one stand-alone office in Tompkins County, New York.

Current wording

Insurance services include property and casualty insurance, employee benefit consulting, and life, long-term care and disability insurance. Tompkins Insurance is headquartered in Batavia, New York. Over the years, Tompkins Insurance has acquired smaller insurance agencies in the market areas serviced by the Company’s banking subsidiaries and successfully consolidated them into Tompkins Insurance. Tompkins Insurance offers services to customers of Tompkins Community Bank and shares offices with Tompkins Community Bank in Western New York, Central New York and Pennsylvania. In addition to these shared offices, Tompkins Insurance has four stand-alone offices in Western New York.

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 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.

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 six months ended June 30, 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

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.

Current wording

This Report includes comparisons of the Company’s performance to that of a peer group, which is comprised of the group of 201 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, 2025 (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", 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.

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 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, 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; changes in 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…

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 "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.

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, 2024, for additional information on the Company's methodology for estimating the allowance.

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, 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:

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 was the following:

Previous wording

•Accounting for credit losses - The Company accounts for the allowance for credit losses using the current expected credit loss model. Under this model, the allowance for credit losses represents a valuation account that is deducted from the amortized cost basis of certain financial assets, including loans and leases, to present the net amount expected to be collected at the balance sheet date. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. For certain loan pools that share similar risk characteristics, the Company utilizes statistically developed models to estimate amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers' abilities to repay obligations. Such models consider historical correlations of credit losses with various macroeconomic assumptions including unemployment and gross domestic product. These forecasts may be adjusted for inherent limitations or biases of the models. Subsequent to the forecast period, the Company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. Changes in the circumstances considered when determining management's estimates and assumptions could result in changes in those estimates and assumptions, which could result in adjustment of the allowance for credit losses in future periods. A discussion of facts and circumstances considered by management in determining the allowance for credit losses is included herein in Note 5 - "Allowance for Credit Losses" in the Notes to the Unaudited Consolidated Financial Statements.

Current wording

•Accounting for credit losses - The Company accounts for the allowance for credit losses using the current expected credit loss model. Under this model, the allowance for credit losses represents a valuation account that is deducted from the amortized cost basis of certain financial assets, including loans and leases, to present the net amount expected to be collected at the balance sheet date. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. For certain loan pools that share similar risk characteristics, the Company utilizes statistically developed models to estimate amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers' abilities to repay obligations. Such models consider historical correlations of credit losses with various macroeconomic assumptions including unemployment and gross domestic product. These forecasts may be adjusted for inherent limitations or biases of the models. Subsequent to the forecast period, the Company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. Changes in the circumstances considered when determining management's estimates and assumptions could result in changes in those estimates and assumptions, which could result in adjustment of the allowance for credit losses in future periods. A discussion of facts and circumstances considered by management in determining the allowance for credit losses is included in Note 5 - "Allowance for Credit Losses" in the Notes to the Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Previous 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.

Current wording

Return on average assets ("ROA") for the quarter ended June 30, 2025 was 1.05%, compared to 0.81% for the quarter ended June 30, 2024. Return on average shareholders’ equity ("ROE") for the second quarter of 2025 was 11.48%, compared to 9.51% for the second quarter of 2024. For the year-to-date period ended June 30, 2025, ROA and ROE totaled 1.02% and 11.23%, respectively, compared to 0.84% and 9.85%, for the same periods in 2024.

Previous 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:

Current wording

The following tables show average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each, for the three and six month periods ended June 30, 2025 and 2024 and the three months ended March 31, 2025:

Previous 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.

Current 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.

Previous wording

Net interest margin for the three months ended March 31, 2025 was 2.98% compared to 2.93% for the most recent prior quarter, and 2.73% for the first quarter of 2024. The increase in net interest margin, when compared to the most recent prior quarter, was mainly due to lower funding costs reflecting a decrease in average deposit and borrowing rates. The increase in net interest margin when compared to the prior year period was mainly a result of higher yields on average interest earning assets and higher average loan balances, and lower funding costs resulting from improved funding mix.

Current wording

Net interest margin for the three months ended June 30, 2025 was 3.08% compared to 2.73% for the same period in 2024. Net interest margin for the six months ended June 30, 2025 was 3.03% compared to 2.73% for the same period in 2024. The increase in net interest margin for the three and six months ended June 30, 2025 compared to the same periods in 2024 was due to increased yields on average interest earning assets, higher average loan balances, and lower funding costs resulting from improved funding mix.

Previous wording

Interest income on securities, excluding dividends on FHLB stock, for the three months ended March 31, 2025, was down $883,000 or 8.1% as compared to the same period in 2024, as higher average yields were offset by lower average balances. The average yield on total securities for the first quarter of 2025 increased 3 basis points, while average balances for securities decreased $161.3 million, or 8.7%, from the same period in 2024.

Current wording

Interest income on securities, excluding dividends on FHLB stock, for the three months ended June 30, 2025, was in line with same period in 2024. For the six months ended June 30, 2025, interest income on securities, excluding dividends on FHLB stock, was down $945,000 or 4.4% when compared to the same period in 2024, driven by lower average balances partially offset by higher yields when compared to the prior year. The average yield on total securities for the three and six months ended June 30, 2025, was up 13 and 8 basis points, respectively, over the same periods in 2024, while average balances for securities were down $112.3 million, or 6.2%, and $136.8 million, or 7.5%, respectively, from the same periods in 2024.

Previous 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.

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 second quarter of 2025 was $2.8 million compared to $2.2 million for the second quarter of 2024. Provision for credit losses for the six months ended June 30, 2025 was $8.1 million compared to $3.0 million for the six months ended June 30, 2024. The increase in provision expense for the quarter and year-to-date periods compared to the same periods in 2024 was mainly due to a charge-off on one commercial real estate relationship, and updated economic forecasts. The provision for credit losses for the three and six months ended June 30, 2025 included a credit of $6,000 and an expense of $21,000, respectively, related to off-balance sheet credit exposures compared to an expense of $308,000 and $814,000, respectively, for the same periods in 2024. The change in off-balance sheet reserves was mainly due to changes related to commercial loan pipelines. 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

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.

Current wording

Wealth management fees of $5.0 million in the second quarter of 2025 were up $115,000 or 2.4% compared to the second quarter of 2024. For the first six months of 2025, wealth management fees were up $297,000, or 3.0% compared to the same period in 2024. 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 $2.8 billion at June 30, 2025, down $308.9 million or 9.8% from June 30, 2024, mainly attributable to the sale of certain customer accounts.

Previous wording

Card services income of $2.6 million in the first quarter of 2025 was down $313,000 or 10.6% compared to the same period in 2024. The prior year's results included a one-time $255,000 sign-on bonus associated with renewal of a card services contract.

Current wording

Card services income in the second quarter of 2025 was down $128,000, or 3.9% from the same period in 2024, and down $441,000, or 7.1% for the six months ended June 30, 2025 compared to the same period in 2024. The six month period in 2024 included a one-time $255,000 sign-on bonus associated with renewal of a card services contract.

Previous 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.

Current wording

The provision for income taxes was $6.8 million for an effective rate of 24.0% for the second quarter of 2025, compared to a tax provision of $4.9 million and an effective rate of 23.8% for the same quarter in 2024. For the first six months of 2025, the provision for income taxes was $12.9 million for an effective rate of 23.9% compared to tax provision of $10.1 million and an effective rate of 23.6% for the same period in 2024. 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

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.

Current wording

Total assets were $8.4 billion at June 30, 2025, up $264.7 million, or 3.3%, from December 31, 2024. Total loans were up $152.7 million, or 2.5%, cash and cash equivalents were up $78.2 million, or 58.2%, and total securities were up $43.9 million, or 2.8%, compared to December 31, 2024. Total deposits at June 30, 2025 were up $244.0 million, or 3.8%, and borrowings were down $117.6 million, or 14.9%, from December 31, 2024.

Previous 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:

Current wording

As of June 30, 2025, the Company’s securities portfolio was $1.6 billion, or 19.0% of total assets compared to $1.5 billion, or 19.1% of total assets at year end 2024. The following tables detail the composition of the securities portfolio:

Previous 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.

Current wording

As of June 30, 2025, the available-for-sale debt securities portfolio had net unrealized losses, which reflects the amount that the amortized cost exceeds fair value, of $104.7 million compared to net unrealized losses of $135.6 million at December 31, 2024. 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 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

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.

Current 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.

Previous 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.

Current wording

The Company determined that at June 30, 2025, 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, 2025 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, 2025.

Previous wording

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

Current wording

The below table shows a more detailed break-out of commercial real estate ("CRE") loans as of June 30, 2025 and December 31, 2024:

Previous 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.

Current wording

Total loans and leases of $6.2 billion at June 30, 2025 were up $152.7 million, or 2.5%, from December 31, 2024, mainly in the commercial real estate and commercial and industrial loan portfolios. As of June 30, 2025, total loans and leases represented 73.7% of total assets compared to 74.2% of total assets at December 31, 2024.

Previous 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.

Current 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.

Previous 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.

Current wording

During the first six months of 2025 and 2024, the Company sold residential loans totaling $34.6 million and $8.2 million, respectively, recognizing gains of $1.0 million and $314,000, 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 $1.3 million at June 30, 2025, and $1.1 million at December 31, 2024.

Previous 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.

Current wording

Commercial real estate loans and commercial and industrial loans totaled $3.5 billion and $1.0 billion, respectively, and represented 56.7% and 16.3%, respectively, of total loans and leases as of June 30, 2025. The commercial real estate portfolio was up $120.8 million, or 3.6%, compared to December 31, 2024, while commercial and industrial loans were up $41.5 million, or 4.3%, compared to December 31, 2024.

Previous 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.

Current wording

As of June 30, 2025, agriculturally-related loans totaled $322.6 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. 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.

Previous 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.

Current wording

The below table represents the allowance for credit losses as of June 30, 2025 and December 31, 2024. 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.

Previous 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:

Current wording

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

Previous 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.

Current wording

The provision for credit losses for loans was $2.8 million for the three months ended June 30, 2025, compared to $1.9 million for the same period in 2024. For the six month period ended June 30, 2025, the provision for credit losses for loans was $8.0 million compared to $2.2 million for the same period in 2024. 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 six month periods ended June 30, 2025 was mainly due to the previously discussed charge-off on one commercial real estate relationship and updated economic forecasts.

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 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.

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 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.

Previous wording

Asset quality measures at March 31, 2025 were mixed compared to December 31, 2024. Loans internally-classified Special Mention or Substandard totaled $110.8 million at March 31, 2025, down $316,000 or 0.3% compared to December 31, 2024. Loans past due 30-89 days totaled $12.3 million at March 31, 2025, down $16.5 million from year-end 2024.

Current wording

Asset quality measures at June 30, 2025 were generally favorable when compared with December 31, 2024. Nonperforming loans and leases were up $1.6 million, or 3.2%, compared to year end 2024 and represented 0.85% of total loans at June 30, 2025, unchanged from December 31, 2024. Loans past due 30-89 days totaled $5.9 million at June 30, 2025, down $6.4 million from year-end 2024. Loans internally-classified Special Mention or Substandard were down $14.3 million, or 12.9%, compared to December 31, 2024.

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 $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.

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 $52.6 million at June 30, 2025 were down $12.6 million, or 19.3%, compared to December 31, 2024, and $10.0 million, or 15.9%, compared to June 30, 2024. The decrease in nonperforming assets at June 30, 2025 compared to December 31, 2024 was largely due to one property totaling approximately $14.3 million in other real estate owned that was sold during the first quarter of 2025. Nonperforming assets represented 0.63% of total assets at June 30, 2025, down from 0.80% at December 31, 2024, and 0.79% at June 30, 2024. Our peer group's average ratio of nonperforming assets to total assets was 0.49% at March 31, 2025.

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 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.

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 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.

Previous 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.

Current wording

The Company, through its internal loan review function, identified 14 commercial relationships from the loan portfolio totaling $23.5 million at June 30, 2025, that were potential problem, or Substandard, loans. At December 31, 2024, the Company had identified 16 relationships totaling $41.2 million that were potential problem loans. Of the 14 relationships at June 30, 2025 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 $16.0 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.

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 meet 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 lead to the initiation of 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 as of June 30, 2025, the Company and its subsidiary bank met all capital adequacy requirements to which they are subject.

Previous wording

As of March 31, 2025, the Company’s capital ratios exceeded the minimum required capital ratios plus the fully phased-in capital conservation buffer, and the minimum required capital ratios for well capitalized institutions. The capital levels required to be considered well capitalized, presented in the above table, are based upon prompt corrective action regulations, as amended to reflect the changes under Basel III Capital Rules.

Current wording

As of June 30, 2025, the Company’s capital ratios exceeded the minimum required capital ratios plus the fully phased-in capital conservation buffer, and the minimum required capital ratios for well capitalized institutions. The capital levels required for an institution to be considered well capitalized, presented in the above table, are based upon prompt corrective action regulations, as amended to reflect the changes under Basel III Capital Rules.

Previous 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.

Current wording

31, 2024. Tier 1 capital as a percent of average assets was 9.4% at June 30, 2025, up from 9.3% as of December 31, 2024. Common equity Tier 1 capital was 12.2% at June 30, 2025, up from 12.1% at December 31, 2024.

Previous 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.

Current wording

As of June 30, 2025, 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.

Previous wording

The Company is a participant in the IntraFi Network's IntraFi Cash Service (ICS) and Certificate of Deposit Account Registry Service (CDARS) programs. The Company uses these deposit sweep services to place customer funds from interest-bearing demand accounts, money market accounts, and/or time deposits to be placed with other participating network banks. Customer funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of FDIC insurance. As a program participant, we receive reciprocal amounts of deposits from other participating network banks equal to the amount of our customer funds placed in the IntraFi Network. In addition to the reciprocal funding programs, the Company may utilize both the ICS and CDARS programs to obtain wholesale funding through One-Way Buy transactions. Funds obtained using one-way buy transactions are classified as brokered deposits. At March 31, 2025 the Company held $15.4 million in CDARS one-way buy funds.

Current wording

The Company is a participant in the IntraFi Network's IntraFi Cash Service (ICS) and Certificate of Deposit Account Registry Service (CDARS) programs. The Company uses these deposit sweep services to place customer funds from interest-bearing demand accounts, money market accounts, and/or time deposits to be placed with other participating network banks. Customer funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of FDIC insurance. As a program participant, we receive reciprocal amounts of deposits from other participating network banks equal to the amount of our customer funds placed in the IntraFi Network. In addition to the reciprocal funding programs, the Company may utilize both the ICS and CDARS programs to obtain wholesale funding through One-Way Buy transactions. Funds obtained using One-Way Buy transactions are classified as brokered deposits. At June 30, 2025 the Company held $15.5 million in CDARS One-Way Buy funds.