Tompkins Financial Corporation
02/28/2025 | Press release | Distributed by Public on 02/28/2025 14:40
Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following analysis is intended to provide the reader with a further understanding of the consolidated financial condition and results of operations of the Company and its operating subsidiaries for the periods shown. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with other sections of this Report on Form 10-K, including Part I, "Item 1. Business," and Part II, "Item 8. Financial Statements and Supplementary Data." For a comparison of our operating results for the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Part II, Item 7 of the Company's 2023 Annual Report on Form 10-K filed on February 29, 2024.
Overview
The Company is headquartered in Ithaca, New York and is registered as a Financial Holding Company with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. The Company is a locally oriented, community-based financial services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, and insurance services. In January 2022, the Company combined its four wholly-owned banking subsidiaries into one bank, with the Bank of Castile, Mahopac Bank, and VIST Bank merging with and into Tompkins Trust Company (the "Trust Company") with the Trust Company as the surviving institution. Immediately following the merger, the Trust Company changed its name to Tompkins Community Bank. At December 31, 2024, the Company had one wholly-owned banking subsidiary, Tompkins Community Bank, and one wholly-owned insurance agency subsidiary, Tompkins Insurance and Tompkins Financial Advisors, a division of Tompkins Community Bank, which provided a full array of investment services, including investment management, trust and estate, financial and tax planning services. The Company's principal offices are located at 118 E. Seneca Street, Ithaca, NY, 14850, and its telephone number is: (888) 503-5753. The Company's common stock is traded on the NYSE American under the symbol "TMP."
Forward-Looking Statements
This Report on Form 10-K 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 expected increases in interest income attributable to recent sales of available-for-sale debt securities; 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, 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; 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 on large customers and the geographic concentration of our business; the ability to access financial resources in the amounts, at the times, and on the terms required to support the Company's future businesses; and the economic impact, including potential market volatility, of national and global events, including the response to bank failures, war and geopolitical matters (including the war in Israel and surrounding regions and the war in Ukraine), widespread protests, civil unrest, political uncertainty, and pandemics or other public health crises. The Company does not undertake any obligation to update its forward-looking statements.
Critical Accounting Policies
The accounting and reporting policies followed by the Company conform, in all material respects, to U.S. generally accepted accounting principles ("GAAP") and to general practices within the financial services industry. In the course of normal business activity, management must select and apply many accounting policies and methodologies and make estimates and assumptions that lead to the financial results presented in the Company's consolidated financial statements and accompanying notes. There are uncertainties inherent in making these estimates and assumptions, which could materially affect the Company's results of operations and financial position.
Management considers accounting estimates to be critical to reported financial results if (i) the accounting estimates require management to make assumptions about matters that are highly uncertain, and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Company's financial statements. Management considers the accounting policies relating to the allowance for credit losses ("allowance", or "ACL") to be a critical accounting policy because of the uncertainty and subjectivity involved in this policy and the material effect that estimates related to this area can have on the Company's financial condition and results of operations.
The Company's methodology for estimating the allowance considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. Refer to "Allowance for Credit Losses" below, "Note 4 - Allowance for Credit Losses", and "Note 1 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K for additional discussion regarding the allowance.
For information on the Company's significant accounting policies and to gain a greater understanding of how the Company's financial performance is reported, refer to "Note 1 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K.
Critical Accounting Estimates
The Company's significant accounting policies conform with GAAP and are described in "Note 1 - Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements included in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K.. 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 include the following:
•Accounting for credit losses - the Company accounts for the allowance for credit losses using the current expected credit loss model. Under this model, the allowance for credit losses represents a valuation account that is deducted from the amortized cost basis of certain financial assets, including loans and leases, to present the net amount expected to be collected at the balance sheet date. A provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. For certain loan pools that share similar risk characteristics, the Company utilizes statistically developed models to estimate amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers' abilities to repay obligations. Such models consider historical correlations of credit losses with various macroeconomic assumptions including unemployment and gross domestic product. These forecasts may be adjusted for inherent limitations or biases of the models. Subsequent to the forecast period, the Company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. Changes in the circumstances considered when determining management's estimates and assumptions could result in changes in those estimates and assumptions, which could result in adjustment of the allowance for credit losses in future periods. A discussion of facts and circumstances considered by management in determining the allowance for credit losses is included herein in "Note 4 - Allowance for Credit Losses" in the Notes to the Unaudited Consolidated Financial Statements included in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K.
Results of Operations
General
The Company reported diluted earnings per share of $4.97 in 2024, an increase of 653.0% compared to diluted earnings per share of $0.66 in 2023. Net income for the year ended December 31, 2024, was $70.9 million, an increase of 645.4% compared to $9.5 million in 2023. The 2023 results included an after-tax loss of $52.9 million, or a loss of $3.69 per diluted share, related to the sale of $510.5 million of available-for-sale debt securities in 2023. The sale of securities and subsequent reinvestment of the proceeds from the sale in the second and third quarters of 2023 favorably impacted securities revenue in the fourth quarter of 2023 and in 2024 as the securities sold had an average yield of 0.86%, while the proceeds of the sale were largely reinvested into securities with an estimated yield of approximately 5.09%. Earnings performance in 2024 also benefited from increased net interest income, growth in fee-based businesses and lower operating expenses compared to 2023.
Excluding the impact of the realized losses on the sales of investment securities, adjusted net income, a non-GAAP financial measure, was $70.8 million for the year ended December 31, 2024, up $8.4 million, or 13.5%, when compared to the prior year. Earnings per diluted share, adjusted to exclude the impact of realized losses on sales of investment securities ("adjusted diluted earnings per share"), also a non-GAAP financial measure, of $4.96 for the year ended December 31, 2024, increased $0.60 or 13.8% compared to the prior year. Reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures are presented in the "Non-GAAP Disclosure" on page 53.
In addition to earnings per share, key performance measurements for the Company include return on average shareholders' equity (ROE) and return on average assets (ROA). ROE was 10.33% in 2024, compared to 1.50% in 2023, while ROA was 0.90% in 2024 and 0.12% in 2023. Tompkins' 2024 ROE compared favorably with a peer ratio of 9.67%, while ROA trailed by 3 basis points when compared to peer ROA of 0.93%. The peer group data is derived from the FRB's "Bank Holding Company Performance Report", which covers banks and bank holding companies with assets between $3.0 billion and $10.0 billion as of September 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 period numbers. ROA and ROE adjusted to exclude the impact of realized losses on sales of investment securities ("adjusted ROA" and "adjusted ROE", which are non-GAAP financial measures), were 0.90% and 10.33% for the year ended December 31, 2024, compared to 0.82% and 9.83% for the year ended December 31, 2023. Reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures are presented in "Non-GAAP Disclosure" on page 53.
Segment Reporting
The Company operates in three business segments: banking, insurance and wealth management. Insurance is comprised of property and casualty insurance services and employee benefit consulting operated under the Tompkins Insurance subsidiary. Wealth management activities include the results of the Company's trust, financial planning, and wealth management services provided by Tompkins Financial Advisors, a division of Tompkins Community Bank. All other activities are considered banking. For additional financial information on the Company's segments, refer to "Note 21 - Segment and Related Information" in the Notes to Consolidated Financial Statements in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K. The Company adopted ASU No. 2023-07, "Segment Reporting: Improvements to Reportable Segment Disclosures", effective for the Company for fiscal years beginning after December 15, 2024.
Banking Segment
The banking segment reported net income of $59.2 million for the year ended December 31, 2024, up $59.2 million compared to net income of $74,000 for 2023. Results for 2023 included an after-tax loss of $52.9 million related to the sale of $510.5 million of available-for-sale debt securities. Earnings performance in 2024 also benefited from increased interest income, growth in fee-based businesses and lower operating expenses compared to 2023.
The provision for credit loss expense was $6.6 million in 2024, compared to a provision expense of $4.3 million in the prior year. The increase in the provision for credit losses in 2024 over 2023 was mainly driven by loan growth, an increase in net loan charge-offs, and model assumption updates. The ratio of the allowance to total loans at December 31, 2024 was 0.94%, up from 0.92% at December 31, 2023. For additional information, see the section titled "The Allowance for Credit Losses" below.
Noninterest income of $30.0 million in 2024 increased $73.7 million or 168.7% compared to 2023. Noninterest income in 2023 included a pre-tax loss of $70.0 million on the sales of available-for-sale debt securities in the second and third quarters of 2023. The increase in 2024 compared to 2023 also included growth in card services income, service charges on deposit
accounts and other income. For the year ended December 31, 2024, derivative income increased by $1.3 million or 266.9% due mainly to fees collected from new customer interest rate swap arrangements, and bank owned life insurance earnings increased by $1.0 million or 60.3% over 2023 due to a $504,000 adjustment on BOLI policies surrendered in the previous year and settled in 2024.
Noninterest expense of $157.3 million for the year ended December 31, 2024, decreased $5.0 million or 3.1% from 2023 noninterest expense. The decrease was largely due to reductions in technology, marketing, and nonrecurring expenses in 2023, which included $879,000 of expenses related to branch closures; New York State minimum tax expense of $830,000, and approximately $640,000 in expenses related to staff restructuring charges. These decreases were partially offset by increases in salaries and benefits and FDIC insurance expense in 2024.
Insurance Segment
The insurance segment reported net income of $7.8 million for 2024, which was up $1.3 million or 19.6% compared to 2023. A $1.9 million or 5.0% increase in noninterest revenue was partially offset by an increase in noninterest expenses of $213,000 or 0.7%. The increase in revenue was mainly in property and casualty commissions, which were up $747,000 or 2.8% in 2024 over 2023. Contingency revenue was up $952,000 or 27.4% in 2024 compared to 2023. Revenue growth in 2024 benefited from business development efforts and generally higher policy premium levels. The increase in expenses was mainly in salaries and wages as a result of normal annual merit increases along with increases in profit sharing and incentives, which were partially offset by decreases in travel and meetings and other operating expenses.
Wealth Management Segment
The wealth management segment reported net income of $3.8 million for the year ended December 31, 2024, an increase of $906,000 or 31.5% compared to 2023. Revenue of $20.5 million increased $2.2 million or 12.2% compared to 2023, mainly as a result of higher average assets under management, favorable market conditions and gains of $558,000 on the sale of certain customer accounts. Noninterest expenses increased by $1.0 million or 7.1% compared to 2023. The increase was mainly driven by salaries and employee benefits, and technology expense related to the core wealth platform. The fair value of assets under management or in custody at December 31, 2024 totaled $3.1 billion, representing a decrease of $27.5 million or 0.9% compared to $3.1 billion at year-end 2023. While the market performance for the year was favorable, increases in asset values were offset by sales of certain customer accounts totaling about $115.0 million.
Net Interest Income
Net interest income is the Company's largest source of revenue, representing 70.6% of total revenues for the year ended December 31, 2024, and 95.3% of total revenues for the year ended December 31, 2023. The decrease in the ratio of net interest income to revenues in 2024 was largely driven by a pre-tax loss of $70.0 million on the sales of available-for-sale debt securities during 2023. 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. Table 1 - Average Statements of Condition and Net Interest Analysis shows average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each.
Net interest income of $211.1 million for 2024 increased by $1.6 million or 0.8% from 2023. The slight increase was primarily due to increases in both average loan balances and average loan yields, largely offset by higher average funding costs in 2024 compared to 2023.
Net interest margin for 2024 was 2.79%, compared to 2.84% for 2023. The decrease in net interest margin for the year ended December 31, 2024 compared to the year ended December 31, 2023 was due to increases in the average rates paid on interest-bearing liabilities outpacing increases on interest-earning assets yields due to the higher interest rate environment, as well as increases in higher rate average other borrowings.
The net interest margin was 2.93% for the fourth quarter of 2024, up 14 basis points when compared to the immediate prior quarter, and up 11 basis points from 2.82% for the fourth quarter of 2023. The increase in net interest margin, when compared to the most recent prior quarter, was mainly due to lower funding costs resulting from growth in average deposits and lower market rates. The increase in net interest margin when compared to the same period prior year was mainly a result of higher yields on average interest earning assets and higher average loan balances, and was partially offset by higher average funding costs.
Interest income increased $50.2 million or 16.9% in 2024 from 2023, driven by an increase in average interest-earning assets as well as higher interest earning asset yields due to the higher interest rate environment. Average interest-earning assets for the year ended December 31, 2024, increased $190.7 million, or 2.6%, compared to 2023. The growth in average interest-earning
assets was mainly in average loans, partially offset by a decrease in average securities. For the year ended December 31, 2024, the average yield on interest-earning assets increased 56 basis points over 2023.
Interest income on loans for the year ended December 31, 2024, was up $41.5 million, or 15.9% compared to 2023, driven by higher average balances and higher average yields. Average loans and leases increased $410.9 million or 7.7% in 2024 compared to 2023, and represented 75.9% of average earning assets in 2024 compared to 72.3% in 2023. The increase was largely driven by growth in the commercial real estate and commercial and industrial portfolios. The average yield on loans for the year ended December 31, 2024, of 5.25%, was up 37 basis points from 2023. The increase in average loan yields was a result of market-related increases in interest rates on new loans, a significant increase in variable and adjustable rate loan yields driven by rising market interest rates, including the prime rate, and an increase in new loan originations.
Interest income on securities, excluding dividends on FHLB stock, for the year ended December 31, 2024, was up $7.1 million or 20.6% as compared to 2023, as higher average yields more than offset lower average balances. The average yield on total securities for the year ended December 31, 2024, increased 62 basis points, while average balances for securities decreased $234.3 million, or 11.6%, from 2023. The increase in average securities yields was driven by market interest rate increases and the repositioning of the investment portfolio through the sale of approximately $510.5 million of available-for-sale investment securities in the second and third quarters of 2023. The securities sold had an average yield of 0.86%, while the proceeds of the sale were largely reinvested into securities with an estimated average yield of approximately 5.09%. In 2024, the Company used the majority of cash flow from the securities portfolio to support loan growth.
Interest expense for 2024 increased $48.6 million or 55.4% compared to 2023, driven mainly by the increase in average rates paid on interest-bearing liabilities and funding mix, with an increase in average borrowings and average time deposits. The average cost of interest-bearing deposits was 2.27% in 2024, an increase of 69 basis points from 1.58% in 2023, while the average cost of interest-bearing liabilities increased to 2.60% in 2024 from 1.79% in 2023.
Average interest bearing deposits in 2024 increased $80.0 million or 1.8% compared to 2023, with average time deposits up $223.8 million or 28.2% and average interest-bearing checking, savings and money market deposits down $143.8 million or 3.9%. Average noninterest bearing deposit balances in 2024 decreased $156.8 million or 7.9% versus 2023 and represented 28.7% of average total deposits in 2024 compared to 30.8% in 2023.
Average other borrowings increased by $275.2 million or 75.7% in 2024 from 2023. The average rate paid on other borrowings for the year ended December 31, 2024, was up 41 basis points over 2023. The increase in the cost of average borrowings was primarily the result of the greater utilization of comparatively higher rate overnight borrowings to support loan growth.
Table 1 - Average Statements of Condition and Net Interest Analysis
| For the Quarters Ended | |||||||||||||||||||||||||||||
| December 31, 2024 | September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||||
| (dollar amounts in thousands) |
Average Balance (QTD) |
Interest |
Average Yield/Rate |
Average Balance (QTD) |
Interest |
Average Yield/Rate |
Average Balance (QTD) |
Interest |
Average Yield/Rate |
||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||||||
| Interest-earning assets | |||||||||||||||||||||||||||||
| Interest-bearing balances due from banks | $ | 19,065 | $ | 235 | 4.90 | % | $ | 13,189 | $ | 168 | 5.07 | % | $ | 14,351 | $ | 227 | 6.28 | % | |||||||||||
|
Securities1
|
|||||||||||||||||||||||||||||
| U.S. Government securities | 1,619,973 | 9,471 | 2.33 | % | 1,664,611 | 9,740 | 2.33 | % | 1,789,043 | 10,411 | 2.31 | % | |||||||||||||||||
|
State and municipal2
|
86,481 | 557 | 2.56 | % | 87,799 | 560 | 2.54 | % | 90,070 | 574 | 2.53 | % | |||||||||||||||||
|
Other Securities2
|
3,287 | 55 | 6.66 | % | 3,282 | 60 | 7.27 | % | 3,242 | 60 | 7.37 | % | |||||||||||||||||
| Total securities | 1,709,741 | 10,083 | 2.35 | % | 1,755,692 | 10,360 | 2.35 | % | 1,882,355 | 11,045 | 2.33 | % | |||||||||||||||||
| FHLBNY and FRB stock | 30,665 | 894 | 11.60 | % | 38,534 | 888 | 9.17 | % | 24,555 | 584 | 9.44 | % | |||||||||||||||||
|
Total loans and leases, net of unearned income2,3
|
5,931,771 | 79,126 | 5.31 | % | 5,830,899 | 78,040 | 5.32 | % | 5,486,715 | 69,197 | 5.00 | % | |||||||||||||||||
| Total interest-earning assets | 7,691,242 | 90,338 | 4.67 | % | 7,638,314 | 89,456 | 4.66 | % | 7,407,976 | 81,053 | 4.34 | % | |||||||||||||||||
| Other assets | 282,490 | 276,610 | 259,006 | ||||||||||||||||||||||||||
| Total assets | $ | 7,973,732 | $ | 7,914,924 | $ | 7,666,982 | |||||||||||||||||||||||
| LIABILITIES & EQUITY | |||||||||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||||||||
| Interest-bearing deposits | |||||||||||||||||||||||||||||
| Interest bearing checking, savings, & money market | $ | 3,661,006 | $ | 17,223 | 1.87 | % | $ | 3,509,116 | $ | 16,635 | 1.89 | % | $ | 3,643,919 | $ | 14,915 | 1.62 | % | |||||||||||
| Time deposits | 1,076,300 | 10,331 | 3.82 | % | 1,016,949 | 10,076 | 3.94 | % | 925,790 | 8,560 | 3.67 | % | |||||||||||||||||
| Total interest-bearing deposits | 4,737,306 | 27,554 | 2.31 | % | 4,526,065 | 26,711 | 2.35 | % | 4,569,709 | 23,475 | 2.04 | % | |||||||||||||||||
| Federal funds purchased & securities sold under agreements to repurchase | 39,519 | 11 | 0.11 | % | 42,449 | 11 | 0.10 | % | 51,903 | 14 | 0.10 | % | |||||||||||||||||
| Other borrowings | 534,219 | 6,176 | 4.60 | % | 709,474 | 9,214 | 5.17 | % | 398,932 | 4,937 | 4.91 | % | |||||||||||||||||
| Total interest-bearing liabilities | 5,311,044 | 33,741 | 2.53 | % | 5,277,988 | 35,936 | 2.71 | % | 5,020,544 | 28,426 | 2.25 | % | |||||||||||||||||
| Noninterest bearing deposits | 1,844,772 | 1,838,725 | 1,920,510 | ||||||||||||||||||||||||||
| Accrued expenses and other liabilities | 101,370 | 101,679 | 103,648 | ||||||||||||||||||||||||||
| Total liabilities | 7,257,186 | 7,218,392 | 7,044,702 | ||||||||||||||||||||||||||
| Tompkins Financial Corporation Shareholders' equity | 715,299 | 695,057 | 620,789 | ||||||||||||||||||||||||||
| Noncontrolling interest | 1,247 | 1,475 | 1,491 | ||||||||||||||||||||||||||
| Total equity | 716,546 | 696,532 | 622,280 | ||||||||||||||||||||||||||
| Total liabilities and equity | $ | 7,973,732 | $ | 7,914,924 | $ | 7,666,982 | |||||||||||||||||||||||
| Interest rate spread | 2.15 | % | 1.95 | % | 2.09 | % | |||||||||||||||||||||||
| Tax-equivalent net interest income/margin on earning assets | 56,597 | 2.93 | % | 53,520 | 2.79 | % | 52,627 | 2.82 | % | ||||||||||||||||||||
| Tax-equivalent adjustment | (316) | (327) | (268) | ||||||||||||||||||||||||||
| Net interest income | $ | 56,281 | $ | 53,193 | $ | 52,359 | |||||||||||||||||||||||
| For the year ended December 31, | |||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||||||||||||||
| (dollar amounts in thousands) |
Average Balance (YTD) |
Interest |
Average Yield/Rate |
Average Balance (YTD) |
Interest |
Average Yield/Rate |
Average Balance (YTD) |
Interest |
Average Yield/Rate |
||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||||||
| Interest-earning assets | |||||||||||||||||||||||||||||
| Interest-bearing balances due from banks | $ | 14,052 | $ | 741 | 5.27 | % | $ | 13,064 | $ | 674 | 5.16 | % | $ | 85,788 | $ | 371 | 0.43 | % | |||||||||||
|
Securities1
|
|||||||||||||||||||||||||||||
| U.S. Government securities | 1,689,411 | 39,580 | 2.34 | % | 1,920,678 | 32,433 | 1.69 | % | 2,265,226 | 30,587 | 1.35 | % | |||||||||||||||||
|
State and municipal2
|
88,414 | 2,254 | 2.55 | % | 91,407 | 2,338 | 2.56 | % | 97,283 | 2,490 | 2.56 | % | |||||||||||||||||
|
Other securities2
|
3,277 | 235 | 7.17 | % | 3,272 | 229 | 6.99 | % | 3,329 | 135 | 4.06 | % | |||||||||||||||||
| Total securities | 1,781,102 | 42,069 | 2.36 | % | 2,015,357 | 35,000 | 1.74 | % | 2,365,838 | 33,212 | 1.40 | % | |||||||||||||||||
| FHLBNY and FRB stock | 35,369 | 3,203 | 9.06 | % | 22,284 | 1,697 | 7.63 | % | 13,354 | 646 | 4.84 | % | |||||||||||||||||
|
Total loans and leases, net of unearned income2,3
|
5,768,575 | 302,780 | 5.25 | % | 5,357,699 | 261,144 | 4.87 | % | 5,142,098 | 218,494 | 4.25 | % | |||||||||||||||||
| Total interest-earning assets | 7,599,098 | 348,793 | 4.59 | % | 7,408,404 | 298,515 | 4.03 | % | 7,607,078 | 252,723 | 3.32 | % | |||||||||||||||||
| Other assets | 276,241 | 233,268 | 221,442 | ||||||||||||||||||||||||||
| Total assets | $ | 7,875,339 | $ | 7,641,672 | $ | 7,828,520 | |||||||||||||||||||||||
| LIABILITIES & EQUITY | |||||||||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||||||||
| Interest-bearing deposits | |||||||||||||||||||||||||||||
| Interest bearing checking, savings, & money market | $ | 3,553,942 | $ | 64,647 | 1.82 | % | $ | 3,697,780 | $ | 46,820 | 1.27 | % | $ | 4,029,008 | $ | 10,389 | 0.26 | % | |||||||||||
| Time deposits | 1,017,532 | 39,336 | 3.87 | % | 793,709 | 23,988 | 3.02 | % | 611,708 | 5,779 | 0.94 | % | |||||||||||||||||
| Total interest-bearing deposits | 4,571,474 | 103,983 | 2.27 | % | 4,491,489 | 70,808 | 1.58 | % | 4,640,716 | 16,168 | 0.35 | % | |||||||||||||||||
| Federal funds purchased & securities sold under agreements to repurchase | 42,752 | 46 | 0.11 | % | 55,773 | 58 | 0.10 | % | 57,126 | 60 | 0.10 | % | |||||||||||||||||
| Other borrowings | 638,721 | 32,443 | 5.08 | % | 363,530 | 16,978 | 4.67 | % | 195,110 | 4,815 | 2.47 | % | |||||||||||||||||
| Total interest-bearing liabilities | 5,252,947 | 136,472 | 2.60 | % | 4,910,792 | 87,844 | 1.79 | % | 4,892,952 | 21,043 | 0.43 | % | |||||||||||||||||
| Noninterest bearing deposits | 1,838,036 | 1,994,861 | 2,186,720 | ||||||||||||||||||||||||||
| Accrued expenses and other liabilities | 98,542 | 101,287 | 107,122 | ||||||||||||||||||||||||||
| Total liabilities | 7,189,525 | 7,006,940 | 7,186,795 | ||||||||||||||||||||||||||
| Tompkins Financial Corporation Shareholders' equity | 684,417 | 633,267 | 640,258 | ||||||||||||||||||||||||||
| Noncontrolling interest | 1,397 | 1,465 | 1,468 | ||||||||||||||||||||||||||
| Total equity | 685,814 | 634,732 | 641,725 | ||||||||||||||||||||||||||
| Total liabilities and equity | $ | 7,875,339 | $ | 7,641,672 | $ | 7,828,520 | |||||||||||||||||||||||
| Interest rate spread | 1.99 | % | 2.24 | % | 2.89 | % | |||||||||||||||||||||||
| Tax-equivalent net interest income/margin on earning assets | 212,321 | 2.79 | % | 210,671 | 2.84 | % | 231,680 | 3.05 | % | ||||||||||||||||||||
| Tax-equivalent adjustment | (1,219) | (1,157) | (1,399) | ||||||||||||||||||||||||||
| Net interest income | $ | 211,102 | $ | 209,514 | $ | 230,281 | |||||||||||||||||||||||
1 Average balances and yields on available-for-sale debt securities are based on historical amortized cost.
2 Interest income includes the tax effects of tax-equivalent adjustments using the Federal income tax rate of 21.0% in 2024, 2023, and 2022 to increase tax exempt interest income to tax-equivalent basis.
3 Nonaccrual loans are included in the average asset totals presented above. Payments received on nonaccrual loans have been recognized as disclosed in "Note 1 - Summary of Significant Accounting Policies" of the Company's consolidated financial statements included in Part 1 of this Report on Form 10-K.
Table 2 - Analysis of Changes in Net Interest Income
| 2024 vs. 2023 | 2023 vs. 2022 | |||||||||||||||||||
|
Increase (Decrease) Due to Change in Average |
Increase (Decrease) Due to Change in Average |
|||||||||||||||||||
| (In thousands)(taxable equivalent) | Volume | Yield/Rate | Total | Volume | Yield/Rate | Total | ||||||||||||||
| INTEREST INCOME: | ||||||||||||||||||||
| Interest-bearing balances due from bank | $ | 52 | $ | 15 | $ | 67 | $ | (563) | $ | 866 | $ | 303 | ||||||||
|
Investments1
|
||||||||||||||||||||
| Taxable | (4,263) | 11,417 | 7,154 | (5,095) | 7,035 | 1,940 | ||||||||||||||
| Tax-exempt | (76) | (9) | (85) | (150) | (2) | (152) | ||||||||||||||
| FHLB and FRB stock | 1,141 | 365 | 1,506 | 565 | 486 | 1,051 | ||||||||||||||
|
Loans, net1
|
21,989 | 19,647 | 41,636 | 9,754 | 32,896 | 42,650 | ||||||||||||||
| Total interest income | $ | 18,843 | $ | 31,435 | $ | 50,278 | $ | 4,511 | $ | 41,281 | $ | 45,792 | ||||||||
| INTEREST EXPENSE: | ||||||||||||||||||||
| Interest-bearing deposits: | ||||||||||||||||||||
| Interest checking, savings and money market | $ | (1,886) | $ | 19,713 | $ | 17,827 | $ | (923) | $ | 37,354 | $ | 36,431 | ||||||||
| Time | 8,307 | 7,041 | 15,348 | 3,200 | 15,009 | 18,209 | ||||||||||||||
| Federal funds purchased and securities sold under agreements to repurchase | (14) | 2 | (12) | (2) | 0 | (2) | ||||||||||||||
| Other borrowings | 13,861 | 1,604 | 15,465 | 5,980 | 6,183 | 12,163 | ||||||||||||||
| Total interest expense | $ | 20,268 | $ | 28,360 | $ | 48,628 | $ | 8,255 | $ | 58,546 | $ | 66,801 | ||||||||
| Net interest income | $ | (1,425) | $ | 3,075 | $ | 1,650 | $ | (3,744) | $ | (17,265) | $ | (21,009) | ||||||||
1 Interest income includes the tax effects of tax-equivalent adjustments using the Federal income tax rate of 21.0% in 2024, 2023and 2022to increase tax exempt interest income to tax-equivalent basis.
Changes in net interest income occur from a combination of changes in the volume of interest-earning assets and interest-bearing liabilities, and in the rate of interest earned or paid on them. The above table illustrates changes in interest income and interest expense attributable to changes in volume (change in average balance multiplied by prior year rate), changes in rate (change in rate multiplied by prior year volume), and the net change in net interest income. The net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of the change. In 2024, net interest income increased by $1.7 million, resulting from a $50.3 million increase in interest income, partially offset by a $48.6 million increase in interest expense. The increase in interest income largely reflects increases in average loan balances and average loan yields. The increase in interest expense reflects higher rates paid on interest-bearing liabilities, both deposits and other borrowings, and increases in average other borrowings.
Provision for Credit Loss Expense
The provision for credit loss expense represents management's estimate of the expense necessary to maintain the allowance for credit losses at an appropriate level. The ratio of allowance to total loans and leases increased to 0.94% at December 31, 2024 from 0.92% at December 31, 2023. The increase in the ratio of allowance to total loans from year-end December 31, 2023 was mainly a result of changes in qualitative factors relating to loan growth and asset quality, model assumptions changes, and updates to economic forecasts for unemployment and gross domestic product. The increase in allowance for credit losses was partially offset by lower off-balance sheet reserves due to model changes related to utilization rates and a decrease in loan pipeline.The provision for credit loss expense was $6.6 million in 2024, compared to provision expense of $4.3 million in 2023. The provision for credit losses for 2024 included a provision credit of $807,000 related to off-balance sheet credit exposures compared to a provision credit of $526,000 for 2023. The section captioned "Financial Condition - The Allowance for Credit Losses" below has further details on the allowance for credit losses and asset quality metrics.
Noninterest Income
| Year ended December 31, | |||||||||||
| (In thousands) | 2024 | 2023 | 2022 | ||||||||
| Insurance commissions and fees | $ | 39,100 | $ | 37,351 | $ | 36,201 | |||||
| Wealth management fees | 19,589 | 17,951 | 18,091 | ||||||||
| Service charges on deposit accounts | 7,288 | 6,913 | 7,365 | ||||||||
| Card services income | 12,057 | 11,488 | 11,024 | ||||||||
| Other income | 10,061 | 6,511 | 5,925 | ||||||||
| Net gain (loss) on securities transactions | 32 | (69,973) | (634) | ||||||||
| Total | $ | 88,127 | $ | 10,241 | $ | 77,972 | |||||
Noninterest income of $88.1 million for the year-ended December 31, 2024 increased $77.9 million or 760.5% from 2023. Noninterest income represented 29.5% of total revenues in 2024, up from 4.7% in 2023. The increase in noninterest income was largely due to the previously noted sales of available-for-sale debt securities, mainly in the third quarter of 2023, which resulted in the recognition of a pre-tax loss of $70.0 million for the year ended December 31, 2023. Fee-based revenues, including insurance commissions and fees, wealth management fees, service charges on deposit accounts and card services income, for the year ended December 31, 2024, collectively, increased $4.3 million, or 5.9%, over 2023.
Insurance commissions and fees of $39.1 million increased $1.7 million or 4.7% in 2024 compared to $37.4 million for 2023. The increase was mainly in property and casualty commissions, which were up $747,000 or 2.8% in 2024 over 2023, and contingency revenue, which was up $952,000 or 27.4% in 2024 compared to 2023. Revenue growth in 2024 benefited from business development efforts and generally higher policy premium levels as a result of general market conditions.
Wealth management fees of $19.6 million in 2024 increased $1.6 million or 9.1% compared to 2023, reflecting favorable market conditions, and an increase in average assets under management. Wealth management fees include fees from trust services, financial planning, wealth management services, and brokerage related services. The fair value of assets managed by, or in custody of, Tompkins was $3.1 billion at December 31, 2024, a decrease of $27.5 million or 0.9% from $3.1 billion at December 31, 2023. While the market performance for the year was favorable, the increases in asset values were offset by sales of certain customer accounts.
Service charges on deposit accounts of $7.3 million increased $375,000 or 5.4% in 2024 compared to 2023. The increase was primarily in net overdraft fees and service fees on personal and business accounts, reflective of increased transaction activity, resulting in part from new initiatives in 2024.
Card services income increased $569,000 or 5.0% in 2024 over 2023. The primary components of card services income are fees related to interchange income and transaction fees for debit card transactions, credit card transactions and ATM usage. The increase in 2024 included a $255,000 sign-on bonus related to the renewal of a card services contract.
Other income of $10.1 million increased $3.6 million or 54.5% compared to 2023. The increase for 2024 compared to 2023 was mainly due to derivatives related income (up $1.3 million), higher earnings on bank owned life insurance (up $1.0 million), and gains on sale of residential loans (up $905,000). The year ended December 31, 2024 also included gains of $558,000 on the sale of certain customer accounts within the wealth management business.
Noninterest Expense
| Year ended December 31, | |||||||||||
| (In thousands) | 2024 | 2023 | 2022 | ||||||||
| Salaries and wages | $ | 101,150 | $ | 97,370 | $ | 98,261 | |||||
| Other employee benefits | 26,661 | 27,333 | 24,969 | ||||||||
| Net occupancy expense of premises | 12,634 | 13,278 | 13,093 | ||||||||
| Furniture and fixture expense | 7,666 | 8,663 | 8,058 | ||||||||
| FDIC insurance | 5,696 | 4,298 | 2,798 | ||||||||
| Amortization of intangible assets | 332 | 334 | 873 | ||||||||
| Other operating expense | 45,503 | 52,016 | 47,699 | ||||||||
| Total | $ | 199,642 | $ | 203,292 | $ | 195,751 | |||||
Noninterest expense for the year ended 2024 of $199.6 million, decreased $3.7 million, or 1.8% compared to 2023. The decrease in noninterest expense in 2024 over 2023 was mainly driven by lower other expenses (technology, marketing, professional fees, retirement plan expense, and travel and meeting expense), partially offset by higher FDIC insurance expense.
Expenses associated with salaries and wages and employee benefits are the largest component of total noninterest expense. In 2024, these expenses increased $3.1 million or 2.5% compared to 2023. Salaries and wages increased $3.8 million or 3.9% in 2024 over the prior year, driven mainly by annual merit pay increases and incentive related accruals. The number of employees as measured by average full time equivalents (FTEs) for 2024 were 966, compared to 1,014 for 2023. Other employee benefits decreased $672,000 or 2.5% over 2023, mainly in health insurance, which was down $880,000 or 7.7% in 2024 over 2023.
The decreases in net occupancy expense of premises and furniture and fixture expense in 2024 compared to 2023, were mainly due to a $669,000 decrease in furniture, fixtures and equipment depreciation expense and a $492,000 decrease in expenses related to branch closures.
Other operating expenses of $45.5 million decreased by $6.5 million or 12.5% compared to 2023, including decreases in technology, down $1.3 million; marketing, down $1.2 million; professional fees, down $1.0 million; retirement plan expense, down $709,000; and travel and meeting expense, down $667,000. Partially offsetting these decreases, FDIC insurance expense was up $1.4 million or 32.5% year-over-year.
Noncontrolling Interests
Net income attributable to noncontrolling interests represents the portion of net income in consolidated majority-owned subsidiaries that is attributable to the minority owners of a subsidiary. The Company had net income attributable to noncontrolling interests of $123,000 in 2024, in line with 2023. The noncontrolling interests relate to three real estate investment trusts ("REIT"), which were substantially owned by the Company, through the fourth quarter of 2024, as discussed below under "Income Tax Expense".
Income Tax Expense
The provision for income taxes provides for Federal, New York State, Pennsylvania and other miscellaneous state income taxes. The 2024 provision was $22.0 million, which increased $19.5 million or 781.9% compared to the 2023 provision. The increase in income tax expense between comparable periods reflects an increase in pre-tax income, as the prior year reflected realized losses on the sale of certain available-for-sale debt securities. The effective tax rate for the Company was 23.7% in 2024, up from 20.8% in 2023. Contributing to the increase in the effective tax rate in 2024 was the loss of certain New York State tax benefits related to the Company's REIT subsidiaries, discussed below. The effective rates for 2024 and 2023 differed from the U.S. statutory rate of 21.0% during those periods due to the effect of tax-exempt income from loans, securities, and life insurance assets, investments in tax credits, and excess tax benefits of stock-based compensation.
In 2024, the Company's average assets exceeded the $8.0 billion threshold for receiving certain New York State tax benefits associated with the Company's REIT subsidiaries. Therefore, the Company did not recognize any tax benefit in connection with the REITs in 2024. In the fourth quarter of 2024, the Company's bank subsidiary approved the dissolution of the REITs.
Financial Condition
Total assets were $8.1 billion at December 31, 2024, up by 3.7% or $289.3 million from the previous year end. Total loans increased $414.0 million or 7.4% from year-end 2023, while total securities decreased by $185.1 million or 10.7%. Total deposits at year-end 2024 increased $72.0 million or 1.1% from year-end 2023, while total borrowings increased $188.1 million or 31.3%.
Loans and leases were 74.2% of total assets at December 31, 2024, compared to 71.7% of total assets at December 31, 2023. Total loan balances were $6.0 billion at December 31, 2024, an increase of $414.0 million or 7.4% compared to the $5.6 billion reported at year-end 2023. The increase was mainly in commercial real estate loans and commercial and industrial loans. A more detailed discussion of the loan portfolio is provided below in this section under the caption "Loans and Leases".
As of December 31, 2024, total securities comprised 19.1% of total assets, compared to 22.1% of total assets at year-end 2023. Securities decreased $185.1 million or 10.7% at December 31, 2024, compared to December 31, 2023. Contributing to the decrease in securities from year-end 2023 was mainly maturities and principal payments on available-for-sale debt securities and, to a much lesser extent, sales of available-for-sale debt securities. These decreases were partially offset by securities purchases in 2024. A more detailed discussion of the securities portfolio is provided below in this section under the caption "Securities".
Total deposits at year-end 2024 increased by $72.0 million or 1.1% compared to December 31, 2023. At December 31, 2024 time deposit balances increased $70.4 million or 7.1%, checking, savings and money market accounts increased by $74.1 million or 2.1%, and noninterest bearing deposits decreased by $72.5 million or 3.8%, when compared to December 31, 2023. Other borrowings, consisting mainly of short-term advances with the FHLB, increased $188.1 million or 31.3% from December 31, 2023. A more detailed discussion of deposits and borrowings is provided below in this section under the caption "Deposits and Other Liabilities".
Shareholders' Equity
The Consolidated Statements of Changes in Shareholders' Equity included in the Consolidated Financial Statements of the Company contained in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K, detail changes in equity capital over prior year end. Total shareholders' equity increased $43.5 million or 6.5% to $713.4 million at December 31, 2024, from $669.9 million at December 31, 2023. Additional paid-in capital increased by $2.9 million, from $297.2 million at December 31, 2023, to $300.1 million at December 31, 2024. The $2.9 million increase included $3.9 million attributed to stock-based compensation expense, partially offset by $1.2 million of restricted stock activity. Retained earnings increased by $35.6 million, reflecting net income of $70.9 million, less dividends paid of $35.1 million for the year-ended December 31, 2024.
Accumulated other comprehensive loss decreased from $125.0 million at December 31, 2023 to $118.5 million at December 31, 2024, reflecting a $2.2 million increase in unrealized losses on available-for-sale debt securities due to market interest rates and $8.7 million decrease related to employee post-retirement benefit plans. Under regulatory requirements, amounts reported as accumulated other comprehensive income/loss related to net unrealized gain or loss on available-for-sale debt securities and the funded status of the Company's defined benefit post-retirement benefit plans do not increase or reduce regulatory capital and are not included in the calculation of risk-based capital and leverage capital ratios.
Total shareholders' equity decreased $52.5 million or 8.5% to $669.9 million at December 31, 2023, from $617.4 million at December 31, 2022. Additional paid-in capital decreased by $5.6 million, from $302.8 million at December 31, 2022, to $297.2 million at December 31, 2023. The $5.6 million decrease included the following: an $8.7 million aggregate purchase price paid related to the Company's repurchase and retirement of 150,000 shares of its common stock in the first six months of 2023 pursuant to its publicly announced stock repurchase plan; and $1.3 million related to the exercise of stock options and restricted stock activity. These were partially offset by $4.1 million attributed to stock-based compensation expense, and $331,000 related to shares issued for the Company's director deferred compensation plan. Retained earnings decreased by $25.2 million, reflecting net income of $9.5 million, less dividends paid of $34.7 million for the year ended December 31, 2023.
Accumulated other comprehensive loss decreased from $208.7 million at December 31, 2022 to $125.0 million at December 31, 2023, reflecting a $79.3 million decrease in unrealized losses on available-for-sale debt securities due to market interest rates and the aforementioned $70.0 million pre-tax loss on available-for-sale debt securities sales, and $4.4 million related to employee post-retirement benefit plans.
The Company increased cash dividends per share by 1.7% in 2024 over 2023, which followed an increase of 3.9% in 2023 over 2022. Dividends per share were $2.44 in 2024, compared to $2.40 in 2023, and $2.31 in 2022. Cash dividends paid represented 49.6%, 364.6%, and 39.5% of after-tax net income in 2024, 2023, and 2022, respectively.
On October 22, 2021, the Company's Board of Directors authorized a share repurchase plan (the "2021 Repurchase Plan") for the repurchase of up to 400,000 shares of the Company's common stock over the 24 months following adoption of the 2021 Repurchase Plan. Under the 2021 Repurchase Plan, the Company repurchased a total of 380,182 shares at an average cost of $70.14.
On July 20, 2023, the Company's Board of Directors authorized a replacement share repurchase plan (the "2023 Repurchase Plan") under which the Company may repurchase up to 400,000 shares of the Company's common stock over the 24 months following adoption of the plan. Shares may be repurchased from time to time under the 2023 Repurchase Plan in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws, and the repurchase program may be suspended, modified or terminated by the Board of Directors at any time for any reason. As of December 31, 2024, there have been no shares repurchased under the 2023 Repurchase Plan.
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 operations 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 bank 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.
As of December 31, 2024, the capital ratios for the Company's subsidiary bank exceeded the minimum levels required to be considered well capitalized. Additional information on the Company's capital ratios and regulatory requirements is provided in "Note 19 - Regulations and Supervision" in the Notes to Consolidated Financial Statements in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K.
Securities
The Company maintains a portfolio of securities such as U.S. Treasuries, U.S. government sponsored entities securities, U.S. government agencies, non-U.S. Government agencies or sponsored entities mortgage-backed securities, obligations of states and political subdivisions thereof and equity securities. Management typically invests in securities with short to intermediate average lives in order to better match the interest rate sensitivities of its assets and liabilities. Investment decisions are made within policy guidelines established by the Company's Board of Directors. The investment policy established by the Company's Board of Directors is based on the asset/liability management goals of the Company, and is monitored by the Company's Asset/Liability Management Committee and Investment Committee. The intent of the policy is to establish a portfolio of high-quality diversified securities, which optimizes net interest income within safety and liquidity limits deemed acceptable by the Asset/Liability Management Committee.
The Company classifies its securities at date of purchase as available-for-sale, held-to-maturity or trading. Securities are generally classified as available-for-sale. Securities available-for-sale may be used to enhance total return, provide additional liquidity, or reduce interest rate risk. Securities in the held-to-maturity portfolio would consist of obligations of the U.S. Government, U.S. Government sponsored entities and obligations of state and political subdivisions. Securities in the trading portfolio would reflect those securities that the Company elects to account for at fair value, with the adoption of ASC Topic 825, Financial Instruments.
The Company's total securities portfolio at December 31, 2024 was $1.5 billion, compared to $1.7 billion at December 31, 2023. The table below shows the composition of the available-for-sale and held-to-maturity debt securities portfolios as of year-end 2024, 2023 and 2022. The decrease in securities from year-end 2023 was mainly a result of $198.4 million of payments, maturities and calls on available-for-sale debt securities, and $39.9 million of sales of available-for-sale debt securities, partially offset by $55.9 million of securities purchases. Unrealized losses on the available-for-sale debt securities portfolio were $135.6
million at year-end 2024, up from $131.8 million at year-end 2023. The increase in unrealized losses at year end 2024 over prior year end was primarily attributable to market conditions.
Additional information on the securities portfolio is available in "Note 2 - Securities" in the Notes to Consolidated Financial Statements in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K, which details the types of securities held, the carrying and fair values, and the contractual maturities as of December 31, 2024 and 2023.
| As of December 31, | ||||||||||||||||||||
| Available-for-Sale Debt Securities | 2024 | 2023 | 2022 | |||||||||||||||||
| (In thousands) |
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value | ||||||||||||||
| U.S. Treasuries | $ | 75,141 | $ | 71,497 | $ | 114,418 | $ | 109,904 | $ | 190,170 | $ | 167,251 | ||||||||
| Obligations of U.S. Government sponsored entities | 398,648 | 380,280 | 472,286 | 456,458 | 681,192 | 601,167 | ||||||||||||||
| Obligations of U.S. states and political subdivisions | 86,328 | 77,694 | 89,999 | 81,924 | 93,599 | 85,281 | ||||||||||||||
| Mortgage-backed securities-residential, issued by | ||||||||||||||||||||
| U.S. Government agencies | 68,130 | 63,254 | 49,976 | 45,240 | 58,727 | 52,668 | ||||||||||||||
| U.S. Government sponsored entities | 736,376 | 636,360 | 819,303 | 720,830 | 805,603 | 686,222 | ||||||||||||||
| U.S. corporate debt securities | 2,500 | 2,447 | 2,500 | 2,294 | 2,500 | 2,378 | ||||||||||||||
| Total available-for-sale debt securities | $ | 1,367,123 | $ | 1,231,532 | $ | 1,548,482 | $ | 1,416,650 | $ | 1,831,791 | $ | 1,594,967 | ||||||||
| As of December 31, | ||||||||||||||||||||
| Held-to-Maturity Debt Securities | 2024 | 2023 | 2022 | |||||||||||||||||
| (In thousands) |
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value | ||||||||||||||
| U. S. Treasuries | $ | 86,049 | $ | 74,688 | $ | 86,266 | $ | 75,215 | $ | 86,478 | $ | 73,541 | ||||||||
| Obligations of U.S. Government sponsored entities | 226,413 | 192,607 | 226,135 | 192,240 | 225,866 | 188,151 | ||||||||||||||
| Total held-to-maturity debt securities | $ | 312,462 | $ | 267,295 | $ | 312,401 | $ | 267,455 | $ | 312,344 | $ | 261,692 | ||||||||
The Company evaluates available-for-sale debt securities for expected credit losses ("ECL") in unrealized loss positions at each
measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors.
Factors that may be indicative of ECL include, but are not limited to, the following:
•Extent to which the fair value is less than the amortized cost basis.
•Adverse conditions specifically related to the security, an industry, or geographic area (changes in technology, business practice).
•Payment structure of the debt security with respect to underlying issuer or obligor.
•Failure of the issuer to make scheduled payment of principal and/or interest.
•Changes to the rating of a security or issuer by a NRSRO.
•Changes in tax or regulatory guidelines that impact a security or underlying issuer.
For available-for-sale debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis is the result of changes in interest rates or reflects a fundamental change in the creditworthiness of the underlying issuer. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses ("ACL") on the Company's 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.
Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity debt securities from the estimate of credit losses. As of December 31, 2024, the held-to-maturity portfolio consisted of U.S. Treasury securities and securities issued by U.S. government-sponsored enterprises, including Federal National Mortgage Agency, Federal Home Loan Bank, and Federal Farm Credit Banks Funding Corporation. U.S. Treasury securities are backed by the full faith and credit of and/or guaranteed by the U.S. government, and it is expected that the securities will not be settled at prices less than the amortized cost bases of the securities. Securities issued by U.S. government agencies or U.S. government-sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as "risk-free," and have a long history of zero credit loss. As such, the Company did not record an allowance for credit losses for these securities as of December 31, 2024.
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 ("FHLMC"), and U.S. government agencies such as Government National Mortgage Association. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit-related quality of the investment securities. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost.
The Company also holds non-marketable Federal Home Loan Bank New York ("FHLBNY") stock and non-marketable Atlantic Community Bankers Bank ("ACBB") stock, which are required to be held for regulatory purposes and for borrowing availability. The required investment in FHLBNY stock is tied to the Company's borrowing levels with the FHLBNY. Holdings of FHLBNY stock and ACBB stock totaled $42.2 million and $95,000 at December 31, 2024, respectively. These securities are carried at par, which is also cost. During 2024, the FHLBNY continued to pay dividends and repurchase stock. As such, the Company has not recognized any impairment on its holdings of FHLBNY. At December 31, 2023, the Company's holdings of FHLBNY stock and ACBB stock totaled $33.6 million and $95,000, respectively.
Management's policy is to purchase investment grade securities that, on average, have relatively short expected durations. This policy helps mitigate interest rate risk and provides sources of liquidity without significant risk to capital. The contractual maturity distribution of debt securities and mortgage-backed securities as of December 31, 2024, along with the weighted average yield of each category, is presented in Table 3-Maturity Distributionbelow. Balances are shown at amortized cost and weighted average yields are calculated on a fully tax-equivalent basis. Expected maturities may differ from contractual maturities presented in Table 3-Maturity Distributionbelow, because issuers may have the right to call or prepay obligations with or without penalty and mortgage-backed securities may pay throughout the periods prior to contractual maturity.
Table 3 - Maturity Distribution
| As of December 31, 2024 | ||||||||||||||
|
Securities
Available-for-Sale1
|
Securities Held-to-Maturity |
|||||||||||||
| (dollar amounts in thousands) | Amount |
Yield2
|
Amount |
Yield2
|
||||||||||
| U.S. Treasury | ||||||||||||||
| Within 1 year | $ | 19,987 | 0.58 | % | $ | 0 | 0.00 | % | ||||||
| Over 1 to 5 years | 50,270 | 2.56 | % | 76,107 | 1.37 | % | ||||||||
| Over 5 to 10 years | 4,884 | 1.62 | % | 9,942 | 1.34 | % | ||||||||
| $ | 75,141 | 1.97 | % | $ | 86,049 | 1.37 | % | |||||||
| Obligations of U.S. Government sponsored entities | ||||||||||||||
| Within 1 year | $ | 74,946 | 2.53 | % | $ | 0 | 0.00 | % | ||||||
| Over 1 to 5 years | 141,355 | 2.85 | % | 41,176 | 1.22 | % | ||||||||
| Over 5 to 10 years | 162,347 | 3.91 | % | 185,237 | 1.73 | % | ||||||||
| Over 10 years | 20,000 | 2.23 | % | $ | 0 | 0.00 | % | |||||||
| $ | 398,648 | 3.19 | % | $ | 226,413 | 1.64 | % | |||||||
| Obligations of U.S. state and political subdivisions | ||||||||||||||
| Within 1 year | $ | 5,067 | 3.41 | % | $ | 0 | 0.00 | % | ||||||
| Over 1 to 5 years | 33,377 | 2.97 | % | 0 | 0.00 | % | ||||||||
| Over 5 to 10 years | 45,559 | 2.62 | % | 0 | 0.00 | % | ||||||||
| Over 10 years | 2,326 | 2.24 | % | 0 | 0.00 | % | ||||||||
| $ | 86,328 | 2.79 | % | $ | 0 | 0.00 | % | |||||||
| Mortgage-backed securities - residential | ||||||||||||||
| Within 1 year | $ | 189 | 2.97 | % | $ | 0 | 0.00 | % | ||||||
| Over 1 to 5 years | 16,489 | 2.38 | % | 0 | 0.00 | % | ||||||||
| Over 5 to 10 years | 261,565 | 1.90 | % | 0 | 0.00 | % | ||||||||
| Over 10 years | 526,263 | 2.45 | % | 0 | 0.00 | % | ||||||||
| $ | 804,506 | 2.27 | % | $ | 0 | 0.00 | % | |||||||
| Other securities | ||||||||||||||
| Over 1 to 5 years | $ | 2,500 | 7.41 | % | $ | 0 | 0.00 | % | ||||||
| $ | 2,500 | 7.41 | % | $ | 0 | 0.00 | % | |||||||
| Total securities | ||||||||||||||
| Within 1 year | $ | 100,189 | 2.19 | % | $ | 0 | 0.00 | % | ||||||
| Over 1 to 5 years | 243,991 | 2.82 | % | 117,284 | 1.32 | % | ||||||||
| Over 5 to 10 years | 474,354 | 2.66 | % | 195,179 | 1.71 | % | ||||||||
| Over 10 years | 548,589 | 2.44 | % | 0 | 0.00 | % | ||||||||
| $ | 1,367,123 | 2.56 | % | $ | 312,463 | 1.56 | % | |||||||
1 Balances of available-for-sale debt securities are shown at amortized cost.
2 Interest income includes the tax effects of tax-equivalent adjustments using a combined New York State and Federal effective income tax rate of 24.5% to increase tax-exempt interest income to tax-equivalent basis.
The average tax-equivalent yield on the securities portfolio was 2.36% in 2024, 1.74% in 2023 and 1.40% in 2022.
At December 31, 2024, there were no holdings of any one issuer, other than the U.S. Government sponsored entities, in an amount greater than 10% of the Company's shareholders' equity.
Loans and Leases
Table 4 - Composition of Loan and Lease Portfolio
| Loans and Leases | As of December 31, | ||||||||||||||||
| (In thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | ||||||||||||
| Commercial and industrial | |||||||||||||||||
| Agriculture | $ | 110,007 | $ | 101,211 | $ | 85,073 | $ | 99,172 | $ | 94,489 | |||||||
|
Commercial and industrial other1
|
855,568 | 722,294 | 706,456 | 770,381 | 1,084,239 | ||||||||||||
| Subtotal commercial and industrial | 965,575 | 823,505 | 791,529 | 869,553 | 1,178,728 | ||||||||||||
| Commercial real estate | |||||||||||||||||
| Construction | 385,931 | 303,406 | 201,116 | 178,582 | 163,016 | ||||||||||||
| Agriculture | 217,582 | 221,670 | 214,963 | 195,973 | 201,866 | ||||||||||||
| Commercial real estate other | 2,776,304 | 2,587,591 | 2,437,339 | 2,278,599 | 2,204,310 | ||||||||||||
| Subtotal commercial real estate | 3,379,817 | 3,112,667 | 2,853,418 | 2,653,154 | 2,569,192 | ||||||||||||
| Residential real estate | |||||||||||||||||
| Home equity | 204,194 | 188,316 | 188,623 | 182,671 | 200,827 | ||||||||||||
| Mortgages | 1,366,646 | 1,373,275 | 1,346,318 | 1,290,911 | 1,235,160 | ||||||||||||
| Subtotal residential real estate | 1,570,840 | 1,561,591 | 1,534,941 | 1,473,582 | 1,435,987 | ||||||||||||
| Consumer and other | |||||||||||||||||
| Indirect | 229 | 841 | 2,224 | 4,655 | 8,401 | ||||||||||||
| Consumer and other | 96,163 | 96,942 | 75,412 | 67,396 | 61,399 | ||||||||||||
| Subtotal consumer and other | 96,392 | 97,783 | 77,636 | 72,051 | 69,800 | ||||||||||||
| Leases | 12,484 | 15,383 | 16,134 | 13,948 | 14,203 | ||||||||||||
| Total loans and leases | $ | 6,025,108 | $ | 5,610,929 | $ | 5,273,658 | $ | 5,082,288 | $ | 5,267,910 | |||||||
| Less: unearned income and deferred costs and fees | (5,186) | (4,994) | (4,747) | (6,821) | (7,583) | ||||||||||||
| Total loans and leases, net of unearned income and deferred costs and fees | $ | 6,019,922 | $ | 5,605,935 | $ | 5,268,911 | $ | 5,075,467 | $ | 5,260,327 | |||||||
1 Commercial and industrial other includes $159,000, $404,000, $756,000, $71.3 million, and $291.3 million respectively, of Payment Protection Program "PPP" loans as of December 31, 2024, 2023, 2022, 2021, and 2020.
The below table shows a more detailed breakout of commercial real estate ("CRE") loans as of December 31, 2024 and December 31, 2023:
| As of December 31, | ||||||||||||||
| CRE Concentrations | 2024 | 2023 | ||||||||||||
| (In thousands) | Balance | % CRE | Balance | % CRE | ||||||||||
| Construction | $ | 385,931 | 11.40 | % | $ | 303,406 | 9.75 | % | ||||||
| Multi-family/Single family real estate | 677,532 | 20.05 | % | 603,118 | 19.38 | % | ||||||||
| Agriculture | 217,582 | 6.44 | % | 221,670 | 7.12 | % | ||||||||
|
Retail1
|
429,562 | 12.71 | % | 425,871 | 13.68 | % | ||||||||
| Hotels/motels | 182,437 | 5.40 | % | 167,408 | 5.38 | % | ||||||||
|
Office space2
|
232,469 | 6.88 | % | 236,721 | 7.61 | % | ||||||||
|
Industrial3
|
243,616 | 7.21 | % | 215,459 | 6.92 | % | ||||||||
| Mixed Use | 344,708 | 10.20 | % | 349,985 | 11.24 | % | ||||||||
|
Medical4
|
148,009 | 4.38 | % | 138,057 | 4.44 | % | ||||||||
| Other | 517,971 | 15.33 | % | 450,972 | 14.49 | % | ||||||||
| Total | $ | 3,379,817 | 100.00 | % | $ | 3,112,667 | 100.00 | % | ||||||
1 Retail included 2.7% and 2.9%, respectively, of owner occupied real estate at December 31, 2024 and December 31, 2023.
2 Office space included 1.4%, respectively, of owner occupied real estate at both December 31, 2024 and December 31, 2023.
3 Industrial included 2.27% and 2.16%, respectively, of owner occupied real estate at December 31, 2024 and December 31, 2023.
4 Medical included 2.45% and 2.69%, respectively, of owner occupied real estate at December 31, 2024 and December 31, 2023.
Total loans and leases of $6.0 billion at December 31, 2024 increased $414.0 million or 7.4% from December 31, 2023. The increase was mainly in commercial real estate loans and commercial and industrial loans. At December 31, 2024, total loans and leases represented 74.2% of total assets compared to 71.7% of total assets at December 31, 2023.
Residential real estate loans, including home equity loans, were $1.6 billion at December 31, 2024, an increase of $9.2 million or 0.6% compared to $1.6 billion at year-end 2023. Residential real estate loans comprised 26.1% of total loans and leases at December 31, 2024 compared to 27.9% at December 31, 2023. Growth in residential loan balances is 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 or retaining residential real estate mortgage originations.
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") without recourse in accordance with standard secondary market loan sale agreements. These residential real estate loans also are subject to customary representations and warranties made by the Company, including representations and warranties related to gross incompetence and fraud. The Company has not had to repurchase any loans as a result of these representations and warranties.
During 2024, 2023, and 2022, the Company sold residential mortgage loans totaling $40.1 million, $4.5 million, and $8.9 million, respectively, and realized net gains on these sales of $1.0 million, $96,000, and $155,000, respectively. When residential mortgage loans are sold to FHLMC or SONYMA, the Company typically retains all servicing rights, which provides the Company with a source of fee income. In connection with the sales in 2024, 2023, and 2022, the Company recorded mortgage-servicing assets of $299,000, $34,000, and $66,000, respectively.
The Company originates fixed rate and adjustable rate residential mortgage loans. The Company also originates loans that have characteristics of both, such as a 7/6 adjustable rate mortgage, which has a fixed rate for the first seven years and then adjusts semi-annually thereafter. The majority of residential mortgage loans originated over the last several years have been fixed rate loans. Adjustable rate loans increased in 2023 and 2024 as a result of the higher interest rate environment. Adjustable rate residential real estate loans are underwritten based upon the initial rate when the fixed rate period is 5 years or longer. For loans
with an initial fixed rate of less than 5 years, the fully indexed rate is utilized for ability to repay qualifying and underwriting. This underwriting practice matches secondary market guidelines.
Commercial real estate loans totaled $3.4 billion at December 31, 2024, an increase of $267.2 million or 8.6% compared to December 31, 2023, and represented 56.1% of total loans and leases at December 31, 2024, compared to 55.5% at December 31, 2023.
Commercial and industrial loans totaled $965.6 million at December 31, 2024, which was an increase of $142.1 million or 17.3% from December 31, 2023. Commercial and industrial loans represented 16.0% of total loans at December 31, 2024 compared to 14.7% at December 31, 2023.
As of December 31, 2024, agriculturally-related loans totaled $327.6 million or 5.4% 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 cash and vegetable 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.
The consumer loan portfolio includes personal installment loans, indirect automobile financing, and overdraft lines of credit. Consumer and other loans were $96.4 million at December 31, 2024, compared to $97.8 million at December 31, 2023.
The lease portfolio decreased by 18.8% to $12.5 million at December 31, 2024 from $15.4 million at December 31, 2023. As of December 31, 2024, commercial leases and municipal leases represented 100.0% of total leases.
The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures. There were no significant changes to the Company's existing policies, underwriting standards and loan review procedures during 2024. The Company's Board of Directors approves the lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.
The Company's loan and lease customers are located primarily in the New York and Pennsylvania communities served by its subsidiary bank. Although operating in numerous communities in New York and Pennsylvania, the Company is still dependent on the general economic conditions of these states and the local economic conditions of the communities within those states in which the Company does business.
Analysis of Past Due and Nonperforming Loans
| As of December 31, | |||||||||||||||||
| (In thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | ||||||||||||
|
Loans 90 days past due and accruing1
|
|||||||||||||||||
| Commercial and industrial | $ | 0 | $ | 0 | $ | 25 | $ | 0 | $ | 0 | |||||||
| Residential real estate | 9 | 0 | 0 | 0 | 0 | ||||||||||||
| Consumer and other | 314 | 101 | 0 | 0 | 0 | ||||||||||||
| Total loans 90 days past due and accruing | $ | 323 | $ | 101 | $ | 25 | $ | 0 | $ | 0 | |||||||
| Nonaccrual loans | |||||||||||||||||
| Commercial and industrial | $ | 1,542 | $ | 2,273 | $ | 618 | $ | 533 | $ | 1,775 | |||||||
| Commercial real estate | 32,590 | 44,450 | 13,858 | 13,893 | 23,627 | ||||||||||||
| Residential real estate | 16,278 | 15,172 | 13,544 | 11,178 | 13,145 | ||||||||||||
| Consumer and other | 138 | 270 | 269 | 429 | 429 | ||||||||||||
| Total nonaccrual loans and leases | $ | 50,548 | $ | 62,165 | $ | 28,289 | $ | 26,033 | $ | 38,976 | |||||||
| Troubled debt restructurings not included above | 0 | 0 | 4,530 | 5,124 | 6,803 | ||||||||||||
| Total nonperforming loans and leases | $ | 50,871 | $ | 62,266 | $ | 32,844 | $ | 31,157 | $ | 45,779 | |||||||
| Other real estate owned | 14,314 | 131 | 152 | 135 | 88 | ||||||||||||
| Total nonperforming assets | $ | 65,185 | $ | 62,397 | $ | 32,996 | $ | 31,292 | $ | 45,867 | |||||||
| Total nonperforming loans and leases as a percentage of total loans and leases | 0.85 | % | 1.11 | % | 0.62 | % | 0.61 | % | 0.87 | % | |||||||
| Total nonperforming assets as a percentage of total assets | 0.80 | % | 0.80 | % | 0.43 | % | 0.40 | % | 0.60 | % | |||||||
| Allowance as a percentage of nonperforming loans and leases | 111.06 | % | 82.84 | % | 139.86 | % | 137.51 | % | 112.87 | % | |||||||
1The 2020 column in the above table excludes $794,000 of acquired loans that were 90 days past due and accruing interest. These loans were originally recorded at fair value on the acquisition date of August 1, 2012. These loans are considered to be accruing as the Company can reasonably estimate future cash flows on these acquired loans and the Company expects to fully collect the carrying value of these loans. Therefore, the Company is accreting the difference between the carrying value of these loans and their expected cash flows into interest income.
The level of nonperforming assets as of the past five year-ends is illustrated in the table above. The Company's total nonperforming assets as a percentage of total assets was 0.80% at both December 31, 2024 and December 31, 2023, compared to its peer group's most recent ratio of 0.49% at September 30, 2024. The peer data is from the Federal Reserve Board and represents banks or bank holding companies with assets between $3.0 billion and $10.0 billion.
Nonperforming loans and leases totaled $50.9 million at December 31, 2024 and decreased 18.3% from December 31, 2023. Nonperforming loans and leases represented 0.85% of total loans at December 31, 2024, compared to 1.11% of total loans at December 31, 2023, and 0.62% of total loans at December 31, 2022. Nonperforming loans and leases in the commercial real estate portfolio at year-end 2024 decreased by $11.9 million compared to year-end 2023. The decrease in nonperforming loans was mainly due to a $14.3 million decrease related to one commercial property being transferred from commercial real estate loans into other real estate owned ("OREO") during the fourth quarter of 2024.
The Company adopted ASU 2022-02 effective January 1, 2023. This standard eliminated the previous troubled debt restructuring ("TDR") accounting model and replaced it with guidance and disclosure requirements for identifying modifications to loans to borrowers experiencing financial difficulty. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Prior year TDRs are included in the above table within the following categories: "loans 90 days past due and accruing", "nonaccrual loans", or "troubled debt restructurings not included above".
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 called for by regulatory requirements. 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. For additional financial information on the difference between the interest income that would have been recorded if these loans and leases had been paid in accordance with their original terms and the interest income that was recorded, refer to "Note 3 - Loans and Leases" in the Notes to Consolidated Financial Statements in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K.
The Company's recorded investment in loans and leases that are individually evaluated totaled $31.7 million at December 31, 2024, and $44.4 million at December 31, 2023. The decrease from December 31, 2023, was mainly due to the one commercial real estate loan being moved into OREO mentioned above. A loan is individually evaluated when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Individually evaluated loans consist of our non-homogenous nonaccrual loans and loans that are 90 days or more past due. Specific reserves on individually evaluated loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and such impaired amounts are generally charged off.
At December 31, 2024, there were specific reserves of $1.7 million, related to three commercial real estate relationships totaling $7.5 million compared to $1.1 million of specific reserves on one commercial real estate relationship totaling $7.4 million at December 31, 2023. The majority of the individually evaluated loans are collateral dependent loans that have limited exposure or require limited specific reserves because of the amount of collateral support with respect to these loans or the loans have been written down to fair value. Interest payments on individually evaluated loans are typically applied to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash basis. There was no interest income recognized on individually evaluated loans and leases for 2024, 2023 and 2022.
The ratio of the allowance to nonperforming loans was 111.06% at December 31, 2024, compared to 82.84% at December 31, 2023. The increase in the ratio from year-end 2023 to year-end 2024 was mainly due to the decrease in nonperforming loans discussed in more detail above and, to a lesser extent, the increase in the allowance for credit losses. The Company's nonperforming loans are mostly made up of collateral dependent loans requiring little to no specific allowance due to the level of collateral available with respect to these loans and/or previous charge-offs.
Management reviews the loan portfolio for evidence of potential problem loans and leases. Potential problem loans and leases are loans and leases that are currently performing in accordance with contractual terms, but where known information about possible credit problems of the related borrowers causes management to have doubt as to the ability of such borrowers to comply with the present loan payment terms and may result in such loans and leases becoming nonperforming at some time in the future. Management considers loans and leases classified as Substandard, which continue to accrue interest, to be potential problem loans and leases. The Company, through its credit administration function, identified 16 commercial relationships in the loan portfolio totaling $41.2 million at December 31, 2024 that were potential problem loans. At December 31, 2023, there were 17 commercial relationships totaling $26.0 million that were considered potential problem loans. Of the 16 commercial relationships from the portfolio that were classified as potential problem loans at December 31, 2024, there were 4 relationships that individually equaled or exceeded $1.0 million, which in aggregate totaled $37.4 million. The increase in the aggregate amount of potential problem loans at year-end 2024 from year-end 2023 was mainly due to the addition of one commercial real estate loan totaling $17.4 million.
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.
The Allowance for Credit Losses
Management reviews the appropriateness of the ACL on a regular basis. Management considers the accounting policy relating to the ACL to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the ACL required to cover credit losses in the portfolio and the material effect that assumptions could have on the Company's results of operations. The Company has developed a methodology to measure the amount of estimated credit loss exposure inherent in the loan portfolio to assure that an appropriate ACL is maintained. The Company's methodology is based upon guidance provided in SEC Staff Accounting Bulletin No. 119, Measurement of Credit Losses on Financial Instruments ("CECL"), and Financial Instruments - Credit Losses andASC Topic 326, Financial Instruments - Credit Losses.
The Company uses a discounted cash flow ("DCF") method to estimate expected credit losses for all loan segments excluding the leasing segment. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, curtailments, recovery lag, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on internal historical data.
The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loans utilizing the DCF method, management utilizes and forecasts national unemployment and a one year percentage change in national gross domestic product as loss drivers in the model.
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts, and scenario weightings, are also considered by management when developing the forecast metrics.
Due to the size and characteristics of the leasing portfolio, the Company uses the remaining life method, using the historical loss rate of the commercial and industrial segment, to determine the allowance for credit losses.
The combination of adjustments for credit expectations and timing expectations produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce a net present value of expected cash flows ("NPV"). An ACL is established for the difference between the NPV and amortized cost basis.
Loans that do not share similar risk characteristics are evaluated on an individual basis. The ACL for individually evaluated loans is measured using the DCF method based on the loan's contractual interest rate, or at the loan's observable market price, or if the loan is collateral dependent, at the fair value of the collateral, less cost to sell.
Since the methodology is based upon historical experience and trends, current conditions, and reasonable and supportable forecasts, as well as management's judgment, factors may arise that result in different estimates. While management's evaluation of the allowance as of December 31, 2024 considers the allowance to be appropriate, under adversely different conditions or assumptions, the Company would need to increase or decrease the allowance. In addition, various federal regulatory agencies and the NYSDFS, as part of their examination process, review the Company's allowance and may require the Company to recognize additions to the allowance based on their judgments and information available to them at the time of their examinations.
As of December 31, 2024, the ACL was $56.5 million, an increase of $4.9 million or 9.5% from year-end 2023. The increase reflects provision for credit loss expense of $6.6 million, less net loan charge-offs of $2.5 million. The ratio of the allowance for credit losses as a percentage of total loans was 0.94% at year-end 2024 compared to 0.92% at year-end 2023. The allowance coverage to nonperforming loans and leases was 111.06% at December 31, 2024 compared to 82.84% at December 31, 2023.
The increase in the ACL from year-end 2023 reflects loan growth, mainly in commercial real estate and commercial loans; updates to model assumptions, including prepayment speeds, curtailment rates, and recovery lag; as well as updated economic forecasts for unemployment and gross domestic product during the fourth quarter. Reserves totaling approximately $593,000 were added to the allowance during 2024 related to two commercial relationships that were individually evaluated for impairment. The ACL estimate reflects the difference between fair value of collateral less costs to sell and the amortized cost basis of the loans. Qualitative reserves were added to the commercial real estate portfolio at year-end 2024 driven by loan growth and asset quality, including higher than historical levels of past-due and nonaccrual loans.
Total loans were $6.0 billion at December 31, 2024, an increase of $414.0 million or 7.4% from December 31, 2023. The increase from year-end 2023 was mainly in the commercial real estate and commercial and industrial portfolios. Credit quality metrics at December 31, 2024, were mixed when compared to year-end 2023. Nonperforming assets represented 0.80% of total assets at December 31, 2024 and December 31, 2023. Nonperforming loans and leases decreased $11.4 million or 18.3% from year end 2023 and represented 0.85% of total loans at December 31, 2024 compared to 1.11% at December 31, 2023. Loans internally-classified Special Mention or Substandard decreased $14.9 million or 11.9% compared to December 31, 2023. The
decrease in nonperforming loans and loans internally-classified Special Mention or Substandard was mainly due to one commercial relationship totaling $14.3 million being transferred to other real estate owned in 2024. Net loan charge-offs totaled $2.5 million in 2024, compared to net recoveries of $721,000 in 2023. Loans past due 30-89 days and accruing interest totaled $28.8 million at year-end 2024 compared to $4.2 million at year-end 2023. The increase was mainly the inclusion of one commercial real estate loan for $17.4 million becoming past due during the fourth quarter of 2024.
The allocation of the Company's allowance as of December 31, 2024, and each of the previous four years is illustrated in Table 5 - Allocation of the Allowance for Credit Losses, below. The table provides 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. The table shows a fairly consistent allocation of the loan portfolio and allowance over the period with commercial real estate and residential real estate representing the largest proportion of total loans and the allowance.
Table 5 - Allocation of the Allowance for Credit Losses
| As of December 31, | |||||||||||||||||
| (In thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | ||||||||||||
| Total loans outstanding at end of year | $ | 6,019,922 | $ | 5,605,935 | $ | 5,268,911 | $ | 5,075,467 | $ | 5,260,327 | |||||||
| Allocation of the ACL by loan type: | |||||||||||||||||
| Commercial and industrial | $ | 7,684 | $ | 6,667 | $ | 6,039 | $ | 6,335 | $ | 9,239 | |||||||
| Commercial real estate | 35,837 | 31,581 | 27,287 | 24,813 | 30,546 | ||||||||||||
| Residential real estate | 11,345 | 11,700 | 11,154 | 10,139 | 10,257 | ||||||||||||
| Consumer and other | 1,568 | 1,557 | 1,358 | 1,492 | 1,562 | ||||||||||||
| Leases | 62 | 79 | 96 | 64 | 65 | ||||||||||||
| Total | $ | 56,496 | $ | 51,584 | $ | 45,934 | $ | 42,843 | $ | 51,669 | |||||||
| Allocation of the ACL as a percentage of total allowance: | |||||||||||||||||
| Commercial and industrial | 14 | % | 13 | % | 13 | % | 15 | % | 18 | % | |||||||
| Commercial real estate | 63 | % | 61 | % | 60 | % | 58 | % | 59 | % | |||||||
| Residential real estate | 20 | % | 23 | % | 24 | % | 24 | % | 20 | % | |||||||
| Consumer and other | 3 | % | 3 | % | 3 | % | 3 | % | 3 | % | |||||||
| Leases | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | |||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||
| Loan and lease types as a percentage of total loans and leases: | |||||||||||||||||
| Commercial and industrial | 16 | % | 15 | % | 16 | % | 18 | % | 23 | % | |||||||
| Commercial real estate | 56 | % | 55 | % | 54 | % | 52 | % | 49 | % | |||||||
| Residential real estate | 26 | % | 28 | % | 29 | % | 29 | % | 27 | % | |||||||
| Consumer and other | 2 | % | 2 | % | 1 | % | 1 | % | 1 | % | |||||||
| Leases | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | |||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||
Table 6 - Analysis of the Allowance for Credit Lossesshows the activity in the allowance for credit losses over the past five years. The allowance at December 31, 2024 was $56.5 million, an increase of $4.9 million from year-end 2023, reflecting a provision expense of $7.4 million and net charge-offs of $2.5 million for the year-ended December 31, 2024. Net charge-offs / (recoveries) as a percentage of average loans was 0.04% for 2024 compared to (0.01)% in 2023 and 2022.
Table 6 - Analysis of the Allowance for Credit Losses
| As of December 31, | |||||||||||||||||
| (In thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | ||||||||||||
| Average loans outstanding during year | $ | 5,768,575 | $ | 5,357,699 | $ | 5,142,099 | $ | 5,184,492 | $ | 5,228,135 | |||||||
| Balance of allowance at beginning of year | 51,584 | 45,934 | 42,843 | 51,669 | 39,892 | ||||||||||||
| Impact of adopting ASU 2022-02 | 0 | 64 | 0 | 0 | 0 | ||||||||||||
| Impact of adopting ASU 2016-13 | 0 | 0 | 0 | 0 | (2,534) | ||||||||||||
| Loan charge-offs: | |||||||||||||||||
| Commercial and industrial | $ | 293 | $ | 34 | $ | 559 | $ | 274 | $ | 2 | |||||||
| Commercial real estate | 249 | 0 | 50 | 6,957 | 1,903 | ||||||||||||
| Residential real estate | 0 | 20 | 53 | 77 | 84 | ||||||||||||
| Consumer and other | 2,598 | 1,045 | 544 | 438 | 482 | ||||||||||||
| Leases | 0 | 0 | 0 | 0 | 0 | ||||||||||||
| Total loan charge-offs | $ | 3,140 | $ | 1,099 | $ | 1,206 | $ | 7,746 | $ | 2,471 | |||||||
| Recoveries of loans previously charged-off: | |||||||||||||||||
| Commercial and industrial | $ | 40 | $ | 87 | $ | 195 | $ | 118 | $ | 131 | |||||||
| Commercial real estate | 7 | 1,292 | 951 | 1,175 | 58 | ||||||||||||
| Residential real estate | 135 | 186 | 346 | 236 | 194 | ||||||||||||
| Consumer and other | 452 | 255 | 306 | 196 | 248 | ||||||||||||
| Total loan recoveries | $ | 634 | $ | 1,820 | $ | 1,798 | $ | 1,725 | $ | 631 | |||||||
| Net loan charge-offs (recoveries) | 2,506 | (721) | (592) | 6,021 | 1,840 | ||||||||||||
| Additions/(Reductions) to allowance charged to operations | 7,418 | 4,865 | 2,499 | (2,805) | 16,151 | ||||||||||||
| Balance of allowance at end of year | $ | 56,496 | $ | 51,584 | $ | 45,934 | $ | 42,843 | $ | 51,669 | |||||||
| Allowance as a percentage of total loans and leases outstanding | 0.94 | % | 0.92 | % | 0.87 | % | 0.84 | % | 0.98 | % | |||||||
| Net charge-offs (recoveries) as a percentage of average loans and leases outstanding during the year | 0.04 | % | (0.01) | % | (0.01) | % | 0.12 | % | 0.04 | % | |||||||
As a result of the adoption of ASU 2016-13, the Company recorded a net cumulative-effect adjustment reducing the allowance for credit losses by $2.5 million from $39.9 million at December 31, 2019 to $37.4 million at January 1, 2020.
Management believes that, based upon its evaluation as of December 31, 2024, the allowance is appropriate.
Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, and commercial letters of credit. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancellable, through a charge to credit loss expense for off-balance sheet credit exposures included in other noninterest expense in the Company's consolidated statements of income. As of December 31, 2024, the Company's reserve for off-balance sheet credit exposures was $1.5 million, compared to $2.3 million at December 31, 2023.
Deposits and Other Liabilities
Total deposits were $6.5 billion at December 31, 2024, an increase of $72.0 million or 1.1% compared to year-end 2023. The increase from year-end 2023 consisted of savings and money market balances which were up $74.1 million, and time deposits which were up $70.4 million. These increases were partially offset by a $72.5 million decrease in non-interest bearing deposits.
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 $73.2 million or 1.4% to $5.3 billion at year-end 2024 from $5.2 billion at year-end 2023. Core deposits represented 81.3% of total deposits at December 31, 2024, compared to 81.1% of total deposits at December 31, 2023.
Municipal money market accounts and reciprocal deposit relationships with municipalities totaled $426.5 million at year-end 2024, which decreased 21.3% from year-end 2023. In general, there is a seasonal pattern to municipal deposits starting with a low point during July and August. Account balances tend to increase throughout the fall and into the winter months from tax deposits and receive an additional inflow at the end of March from the electronic deposit of state funds.
The Company uses both retail and wholesale repurchase agreements. Retail repurchase agreements are arrangements with local customers of the Company, in which the Company agrees to sell securities to the customer with an agreement to repurchase those securities at a specified later date. Retail repurchase agreements totaled $37.0 million at December 31, 2024, and $51.0 million at December 31, 2023. Management generally views local repurchase agreements as an alternative to large time deposits. Refer to "Note 8 - Federal Funds Purchased and Securities Sold Under Agreements to Repurchase" in the Notes to Consolidated Financial Statements in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K for further details on the Company's repurchase agreements.
The Company's other borrowings totaled $790.2 million at year-end 2024, which were up $188.1 million over prior year end. Loan growth over year-end 2023 contributed to the increase in borrowings year-over-year. The $790.2 million in borrowings at December 31, 2024, included $247.0 million in overnight advances from the FHLB and $543.2 million in term advances from the FHLB. Borrowings of $602.1 million at year-end 2023 represented $477.1 million in overnight borrowings and $125.0 million in FHLB term advances. Of the $543.2 million in FHLB term advances at year-end 2024, $345.0 million are due within three months, $53.2 million are due between six months and one year, and $145.0 million are due in over one year. Refer to "Note 9 - Other Borrowings" in Notes to Consolidated Financial Statements in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K for further details on the Company's term borrowings with the FHLB.
Liquidity Management
The objective of liquidity management is to ensure the availability of adequate funding sources to satisfy the demand for credit, deposit withdrawals, operating expenses, and business investment opportunities. The Company's large, stable core deposit base and strong capital position are the foundation for the Company's liquidity position. The Company uses a variety of resources to meet its liquidity needs, which include deposits, cash and cash equivalents, short-term investments, cash flow from lending and investing activities, repurchase agreements, and borrowings. The Company may also use borrowings as part of a growth strategy. Asset and liability positions are monitored primarily through the Asset/Liability Management Committee of the Company's subsidiary bank. This Committee reviews periodic reports on the liquidity and interest rate sensitivity positions. Comparisons with industry and peer groups are also monitored. The Company's strong reputation in the communities it serves, along with its strong financial condition, provides access to numerous sources of liquidity as described below. Management believes these diverse liquidity sources provide sufficient means to meet all demands on the Company's liquidity that are reasonably likely to occur. Management measures liquidity, including the level of cash, unencumbered securities, and the availability of dependable borrowing sources. The board has set a policy limit stating that reliable sources of liquidity should remain in excess of 6% of total assets. The ratio was 10.3% of total assets at December 31, 2024.
Core deposits, discussed above under "Deposits and Other Liabilities", are a primary and low cost funding source obtained primarily through the Company's branch network. In addition to core deposits, the Company uses non-core funding sources to support asset growth. These non-core funding sources include time deposits of $250,000 or more, municipal money market deposits, brokered deposits, reciprocal deposits, bank borrowings, securities sold under agreements to repurchase and overnight and term advances from the FHLB. Rates and terms are the primary determinants of the mix of these funding sources. Non-core funding sources of $2.0 billion at December 31, 2024 increased $173.0 million, or 9.3% as compared to December 31, 2023. Non-core funding sources, as a percentage of total liabilities, were 27.5% at December 31, 2024, compared to 26.1% at December 31, 2023.
Non-core funding sources may require securities to be pledged against the underlying liability. Securities carried at $904.2 million at December 31, 2024 were either pledged or sold under agreements to repurchase, compared to $1.0 billion at December 31, 2023. Pledged securities or securities sold under agreements to repurchase represented 53.8% of total securities at December 31, 2024, compared to 54.8% of total securities at December 31, 2023.
Cash and cash equivalents totaled $134.4 million as of December 31, 2024 which increased from $79.5 million at December 31, 2023. Short-term investments, consisting of securities due in one year or less, increased from $98.7 million at December 31, 2023, to $99.2 million on December 31, 2024.
Cash flow from the loan and investment portfolios provides a significant source of liquidity. These assets may have stated maturities in excess of one year, but have monthly principal reductions. Total mortgage-backed securities, at fair value, were $699.6 million at December 31, 2024 compared with $766.1 million at December 31, 2023. Outstanding principal balances of residential mortgage loans, consumer loans, and leases totaled approximately $1.7 billion at December 31, 2024, up $5.0 million, or 0.3% compared with December 31, 2023. Aggregate amortization from monthly payments on these assets provides significant additional cash flow to the Company.
Liquidity is enhanced by ready access to national and regional wholesale funding sources including Federal funds purchased, repurchase agreements, brokered certificates of deposit, and FHLB advances. Through its subsidiary bank, the Company has borrowing relationships with the FHLB and correspondent banks, which provide secured and unsecured borrowing capacity. As members of the FHLB, the Company's subsidiary banks can use certain unencumbered mortgage-related assets and securities to secure additional borrowings from the FHLB. At December 31, 2024, the established borrowing capacity with the FHLB was $1.5 billion, or 18.4% of total assets, with available unencumbered mortgage-related assets of $502.8 million. In addition to the $790.2 million of FHLB borrowings outstanding at December 31, 2024, the Company had utilized $200 million of availability at December 31, 2024, to collateralize municipal deposits through several standby letters of credit with the FHLB. Additional assets may also qualify as collateral for FHLB advances upon approval of the FHLB.
Through various programs at the Federal Reserve Bank, the Company has the ability to use certain unencumbered mortgage-related assets and securities to secure borrowings from the Federal Reserve Bank's Discount Window. At December 31, 2024 the available borrowing capacity with the Federal Reserve Bank was $141.4 million, secured by investment securities. In addition to the available borrowing lines at the FHLB and Federal Reserve Bank, the Company maintains $606.1 million of unencumbered securities which could be pledged to further enhance secured borrowing capacity.
The Company has not identified any trends or circumstances that are reasonably likely to result in material increases or decreases in liquidity in the near term.
Table 7 - Loan Maturity
| Remaining maturity of loans | December 31, 2024 | ||||||||||||||||
| (In thousands) | Total | Less than 1 year | After 1 year to 5 years | After 5 years to 15 years | After 15 years | ||||||||||||
| Commercial and industrial | $ | 965,575 | $ | 248,210 | $ | 291,786 | $ | 226,986 | $ | 198,593 | |||||||
| Commercial real estate | 3,379,817 | 181,689 | 661,838 | 1,518,673 | 1,017,617 | ||||||||||||
| Residential real estate | 1,570,840 | 879 | 22,118 | 267,794 | 1,280,049 | ||||||||||||
| Total | $ | 5,916,232 | $ | 430,778 | $ | 975,742 | $ | 2,013,453 | $ | 2,496,259 | |||||||
Of the loan amounts shown above in Table 7 - Loan Maturity, maturing over 1 year, $2.4 billion have fixed rates and $3.1 billion have adjustable rates.
Off-Balance Sheet Arrangements
In the normal course of business, the Company is party to certain financial instruments, which in accordance with accounting principles generally accepted in the United States, are not included in its Consolidated Statements of Condition. These transactions include commitments under standby letters of credit, unused portions of lines of credit, and commitments to fund new loans and are undertaken to accommodate the financing needs of the Company's customers. Loan commitments are agreements by the Company to lend monies at a future date. These loan and letter of credit commitments are subject to the same credit policies and reviews as the Company's loans. Because most of these loan commitments expire within one year from the date of issue, the total amount of these loan commitments as of December 31, 2024, are not necessarily indicative of future cash requirements. Further information on these commitments and contingent liabilities is provided in "Note 16 - Commitments and Contingent Liabilities" in the Notes to Consolidated Financial Statements in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K.
Contractual Obligations
The Company leases land, buildings, and equipment under operating lease arrangements extending to the year 2090. Most leases include options to renew for periods ranging from 5 to 20 years. In addition, the Company has a software contract for its core banking application through June 30, 2030 along with contracts for more specialized software programs through 2029. Further information on the Company's lease arrangements is provided in "Note 6 - Premises and Equipment" in the Notes to Consolidated Financial Statements in Part II, "Item 8. Financial Statements and Supplementary Data" of this Report on Form 10-K. The Company's contractual obligations as of December 31, 2024, are shown in Table 8-Contractual Obligations and Commitments below.
Table 8 - Contractual Obligations and Commitments
| Contractual cash obligations |
At December 31, 2024 Payments due within |
||||||||||||||||
| (In thousands) | Total | 1 year | 1-3 years | 3-5 years | After 5 years | ||||||||||||
| Long-term debt | $ | 559,364 | $ | 408,235 | $ | 126,079 | $ | 25,050 | $ | 0 | |||||||
|
Operating leases 1
|
35,505 | 3,752 | 6,893 | 5,916 | 18,944 | ||||||||||||
| Software contracts | 13,836 | 3,282 | 5,745 | 3,853 | 956 | ||||||||||||
| Total contractual cash obligations | $ | 608,705 | $ | 415,269 | $ | 138,717 | $ | 34,819 | $ | 19,900 | |||||||
1Operating leases include renewals the Company considers reasonably certain to exercise.
Non-GAAP Disclosure
The following table summarizes the Company's results of operations on a GAAP basis and on an operating (non-GAAP) basis for the periods indicated. The non-GAAP financial measures adjust GAAP measures to exclude the effects of non-operating items, such as the effects of the sales of available-for-sale debt securities, and significant nonrecurring income or expense on earnings, equity, and capital. The Company believes the non-GAAP measures provide meaningful comparisons of our underlying operational performance and facilitate management's and investors' assessments of business and performance trends in comparison to others in the financial services industry. These non-GAAP financial measures should not be considered in isolation or as a measure of the Company's profitability or liquidity; they are in addition to, and are not a substitute for, financial measures under GAAP. The non-GAAP financial measures presented herein may be different from non-GAAP financial measures used by other companies, and may not be comparable to similarly titled measures reported by other companies. In the future, the Company may utilize other measures to illustrate performance. Non-GAAP financial measures have limitations since they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP.
| Reconciliation of Net Income Available to Common Shareholders/Diluted Earnings Per Share (GAAP) to Adjusted Net Operating Income Available to Common Shareholders/Adjusted Diluted Earnings Per Share (Non-GAAP); Return on Average Assets and Return on Average Equity to Adjusted Return on Average Assets, Adjusted Return on Average Equity and Adjusted Operating Return on Average Shareholders' Tangible Common Equity (Non-GAAP) | |||||||||||
| For the year ended December 31, | |||||||||||
| (In thousands, except per share data) | 2024 | 2023 | 2022 | ||||||||
| Net income available to common shareholders | $ | 70,850 | $ | 9,505 | $ | 85,030 | |||||
| Less: income attributable to unvested stock-based compensation awards | 0 | (42) | (250) | ||||||||
| Net earnings allocated to common shareholders (GAAP) | 70,850 | 9,463 | 84,780 | ||||||||
| Diluted earnings per share (GAAP) | 4.97 | 0.66 | 5.89 | ||||||||
| Adjustments for non-operating income and expense: | |||||||||||
| (Gain) loss on sale of investment securities | (50) | 70,019 | 634 | ||||||||
| Total adjustments | (50) | 70,019 | 634 | ||||||||
| Tax expense | (12) | 17,155 | 155 | ||||||||
| Total adjustments, net of tax | (38) | 52,864 | 479 | ||||||||
| Adjusted net income (Non-GAAP) | 70,812 | 62,369 | 85,509 | ||||||||
| Net earnings allocated to common shareholders (Non-GAAP) | 70,812 | 62,327 | 85,259 | ||||||||
| Weighted average shares outstanding (basic) | 14,218,106 | 14,254,661 | 14,328,280 | ||||||||
| Weighted average shares outstanding (diluted) | 14,268,443 | 14,301,221 | 14,404,294 | ||||||||
| Adjusted basic earnings per share (Non-GAAP) | 4.98 | 4.37 | 5.95 | ||||||||
| Adjusted diluted earnings per share (Non-GAAP) | 4.96 | 4.36 | 5.92 | ||||||||
| Net income available to common shareholders | 70,850 | 9,505 | 85,030 | ||||||||
| Adjusted net income (Non-GAAP) | 70,812 | 62,369 | 85,509 | ||||||||
| Average total assets | 7,875,339 | 7,641,672 | 7,828,520 | ||||||||
| Return on average assets | 0.90 | % | 0.12 | % | 1.09 | % | |||||
| Adjusted return on average assets (Non-GAAP) | 0.90 | % | 0.82 | % | 1.09 | % | |||||
| Net income available to common shareholders | 70,850 | 9,505 | 85,030 | ||||||||
| Adjusted net income (Non-GAAP) | 70,812 | 62,369 | 85,509 | ||||||||
| Average total equity | 685,814 | 634,732 | 641,725 | ||||||||
| Return on average equity | 10.33 | % | 1.50 | % | 13.25 | % | |||||
| Adjusted return on average equity (Non-GAAP) | 10.33 | % | 9.83 | % | 13.32 | % | |||||
| Net earnings allocated to common shareholders (Non-GAAP) | 70,812 | 62,327 | 85,259 | ||||||||
| Average Tompkins Financial Corporation shareholders' equity (GAAP) | 684,417 | 633,267 | 640,258 | ||||||||
| Amortization of intangibles | 332 | 334 | 873 | ||||||||
| Tax expense | 81 | 82 | 214 | ||||||||
| Amortization of intangibles, net of tax | 251 | 252 | 659 | ||||||||
| Adjusted net operating income available to common shareholders' (Non-GAAP) | 71,063 | 62,579 | 85,918 | ||||||||
| Average Tompkins Financial Corporation shareholders' equity | 684,417 | 633,267 | 640,258 | ||||||||
| Average goodwill and intangibles | 93,844 | 94,169 | 94,677 | ||||||||
| Average Tompkins Financial Corporation shareholders' tangible common equity (Non-GAAP) | $ | 590,573 | $ | 539,098 | $ | 545,581 | |||||
| Adjusted operating return on average shareholders' tangible common equity (Non-GAAP) | 12.03 | % | 11.61 | % | 15.75 | % | |||||