Tompkins Financial Corp: Form 10-Q/A for the period ended Sep 30, 2025

BUSINESS

Tompkins Financial Corporation ("Tompkins" or the "Company") is headquartered in Ithaca, New York and is registered as a Financial Holding Company with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. The Company is a locally-oriented, community-based financial services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, and insurance services. At September 30, 2025, the Company had one wholly-owned banking subsidiary, Tompkins Community Bank. Tompkins Community Bank provides a full array of wealth management services under the Tompkins Financial Advisors brand, including investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. The Company also has a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. ("Tompkins Insurance"). The Company’s principal offices are located at 118 E. Seneca Street, P.O. Box 460, 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."

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

Business Segments

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

Wealth management services consist of investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. Wealth management services are provided under the trade name Tompkins Financial Advisors. Tompkins Financial Advisors offers services to customers of Tompkins Community Bank and shares offices in each of the banking markets.

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

The Company’s principal expenses are interest on deposits, interest on borrowings, and operating and general administrative expenses, as well as provisions for credit losses. Funding sources, other than deposits, include borrowings, securities sold under agreements to repurchase, and cash flow from lending and investing activities.

Competition

Competition for commercial banking and other financial services is strong in the Company’s market areas. In one or more aspects of its business, the Company’s subsidiaries compete with other commercial banks, savings and loan associations, credit unions, finance companies, Internet-based financial services companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Some of these competitors have substantially greater resources and lending capabilities and may offer services that the Company does not currently provide. In addition, many of the Company’s non-bank competitors are not subject to the same extensive Federal regulations that govern financial holding companies and Federally-insured banks.

Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges, the quality and scope of the services rendered, the convenience of facilities and services, and, in the case of loans to commercial borrowers, relative lending limits. Management believes that a community-based financial organization is better positioned to establish personalized financial relationships with both commercial customers and individual households. The Company’s community commitment and involvement in its primary market areas, as well as its commitment to quality and personalized financial services, are factors that contribute to the Company’s competitiveness. Management believes that the Company’s subsidiary bank can compete successfully in its primary market areas by making prudent lending decisions quickly and more efficiently than its competitors, without compromising asset quality or profitability. In addition, the Company focuses on providing unparalleled customer service, which includes offering a strong suite of products and services, including products that are accessible to our customers through digital means. Although management feels that this business model has caused the Company to grow its customer base in recent years and allows it to compete effectively in the markets it serves, we cannot assure you that such factors will result in future success.

Regulation

Banking, insurance services and wealth management are highly regulated. As a financial holding company including a community bank, a registered investment adviser, and an insurance agency subsidiary, the Company and its subsidiaries are subject to examination and regulation by the Federal Reserve Board ("FRB"), Securities and Exchange Commission ("SEC"), the Federal Deposit Insurance Corporation ("FDIC"), the New York State Department of Financial Services, the Financial Industry Regulatory Authority, and the Pennsylvania Insurance Department.

OTHER IMPORTANT INFORMATION

The following discussion is intended to provide an understanding of the consolidated financial condition and results of operations of the Company for the three and nine months ended September 30, 2025. It should be read in conjunction with the Company’s Audited Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, and the Unaudited Consolidated Financial Statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.

This Report includes comparisons of the Company’s performance to that of a peer group, which is comprised of the group of 201 domestic bank holding companies with $3 billion to $10 billion in total assets as defined in the Federal Reserve’s "Bank Holding Company Performance Report" for June 30, 2025 (the most recent report available). Although the peer group data is presented based upon financial information that is one fiscal quarter behind the financial information included in this report, the Company believes that it is relevant to include certain peer group information for comparison to current quarter numbers.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The statements contained in this Report that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements may be identified by use of such words as "may", "will", "estimate", "intend", "continue", "believe", "expect", "plan", "commit", or "anticipate", as well as the negative and other variations of these terms, and other similar words. Examples of forward-looking statements may include statements regarding the asset quality of the Company's loan portfolios; the level of the Company's allowance for credit losses; the sufficiency of collateral to cover exposure related to special mention and substandard loans; the sufficiency of liquidity sources; the Company's exposure to changes in interest rates, and to new, changed, or extended government/regulatory expectations; the need to sell securities before recovery of amortized cost; the impact of changes in accounting standards; and trends, plans, prospects, growth and strategies. Forward-looking statements are made based on management’s expectations and beliefs concerning future events impacting the Company and are subject to uncertainties and factors relating to the Company’s operations and economic environment, all of which are difficult to predict and many of which are beyond the control of the Company, that could cause actual results of the Company to differ materially from those expressed and/or implied by forward-looking statements and historical performance. The following factors, in addition to those listed as Risk Factors in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2024, are among those that could cause actual results to differ materially from the forward-looking statements and historical performance: changes in general economic, market and regulatory conditions; our ability to attract and retain deposits and other sources of liquidity; gross domestic product growth and inflation trends; the impact of the interest rate and inflationary environment on the Company's business, financial condition and results of operations; other income or cash flow anticipated from the Company's operations, investment and/or lending activities; changes in laws and regulations affecting public companies, banks, bank holding companies and/or financial holding companies, including the Dodd-Frank Act, and other federal, state and local government mandates; the impact of any change in the FDIC insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount; changes in supervisory and regulatory scrutiny of financial institutions, technological developments and changes; cybersecurity incidents and threats; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; governmental and public policy changes, including environmental regulation; reliance on large customers; 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 continuing or increasing hostilities in the Middle East and the war in Ukraine), tariffs and trade wars, widespread protests, civil unrest, political uncertainty, and pandemics or other public health crises; and the related financial stress on borrowers and changes to customer behavior and credit risk as a result of any of the foregoing. 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 policy 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 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 and to Note 5 - "Allowance for Credit Losses", and Note 1 – "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, for additional information on the Company's methodology for estimating the allowance.

For information on the Company's significant accounting policies and to gain a greater understanding of how the Company’s financial performance is reported, refer to Note 1 – "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. Refer to Newly Adopted Accounting Standards" and "Accounting Standards Pending Adoption" in Note 2 - "Basis of Presentation" in the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a discussion of recent accounting standards updates.

Critical Accounting Estimates

The Company's significant accounting policies conform with GAAP and are described in Note 1 "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. In applying those accounting policies, management of the Company is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company's reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. The most significant area in which management of the Company applies critical assumptions and estimates was the following:

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

Changes in the circumstances considered when determining management's estimates and assumptions could result in changes in those estimates and assumptions, which could result in adjustment of the allowance for credit losses in future periods. A discussion of facts and circumstances considered by management in determining the allowance for credit losses is included in Note 5 - "Allowance for Credit Losses" in the Notes to the Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

Performance Summary

Net income for the third quarter of 2025 was $23.7 million, or $1.65 diluted earnings per share, compared to $18.6 million, or $1.30 diluted earnings per share for the third quarter of 2024. Net income for the nine months ended September 30, 2025 was $64.8 million, or $4.52 diluted earnings per share, compared to $51.2 million, or $3.59 diluted earnings per share for the same period in 2024. The increase in net income and diluted earnings per share for the three and nine months ended September 30, 2025 compared to the same periods in 2024 largely reflects increases in our net interest margin as well as continued loan growth.

Return on average assets ("ROA") for the quarter ended September 30, 2025 was 1.13%, compared to 0.94% for the quarter ended September 30, 2024. Return on average shareholders’ equity ("ROE") for the third quarter of 2025 was 12.17%, compared to 10.65% for the third quarter of 2024. For the year-to-date period ended September 30, 2025, ROA and ROE totaled 1.06% and 11.56%, respectively, compared to 0.87% and 10.12%, for the same periods in 2024.

Segment Reporting

The Company operates in the following three business segments: banking, insurance, and wealth management. Insurance is comprised of property and casualty insurance services and employee benefit consulting operated under the Tompkins Insurance Agencies, Inc. subsidiary. Wealth management activities include the results of the Company’s trust, financial planning, and wealth management services, organized under the Tompkins Financial Advisors brand. All other activities are considered banking.

Banking Segment

The banking segment reported net income of $20.2 million for the third quarter of 2025, an increase of $5.4 million, or 36.3%, compared to $14.8 million for the third quarter of 2024. For the nine months ended September 30, 2025, the banking segment reported net income of $54.6 million, up $13.2 million, or 32.0%, from the same period in 2024. The increase in net income for the three and nine months ended September 30, 2025 compared to the same periods in 2024 was mainly due to an increase in net interest income.

Net interest income of $63.9 million for the third quarter of 2025 was up $10.7 million, or 20.1%, from the same period in 2024. For the nine months ended September 30, 2025, net interest income of $180.7 million was up $25.9 million, or 16.7%, from the same period in 2024. The increase in net interest income for the three and nine months ended September 30, 2025 compared to the same periods in 2024 was primarily due to an increase in average loan balances, increases in average loan yields and a reduction in average funding costs due to improved funding mix.

The provision for credit losses was $2.5 million for the three months ended September 30, 2025, compared to $2.2 million for the same period in 2024. For the nine months ended September 30, 2025, the provision for credit losses was $10.6 million compared to $5.2 million for the same period in 2024. Net charge-offs for the three and nine months ended September 30, 2025 were $1.1 million and $7.1 million, respectively, compared to net charge-offs of $912,000 and $1.6 million for the same periods in 2024. For additional information, see the section titled "The Allowance for Credit Losses" below.

Noninterest income was $7.7 million for the three months ended September 30, 2025, compared to $7.5 million for the same period in 2024. The increase in noninterest income for the three months ended September 30, 2025 was mainly attributable to an increase in gains on sales of residential loans. For the nine months ended September 30, 2025, noninterest income was $23.9 million compared to $22.4 million for the nine months ended September 30, 2024. The increase in year-to-date noninterest income compared to the same period in 2024 was mainly attributable to a $1.9 million gain on the sale of other real estate owned ("OREO"), and an increase in gains on sales of residential loans, up $933,000, partially offset by decreases in derivatives related income, down $472,000, card services income, down $471,000, and income related to bank owned life insurance, down $389,000.

Noninterest expense of $42.7 million for the three months ended September 30, 2025, increased by $3.5 million or 9.0% compared to the same period in 2024. The increase was primarily driven by professional fees, up $1.7 million, and salaries and employee benefits, up $1.4 million. For the nine months ended September 30, 2025 noninterest expense of $122.8 million was up $4.6 million, or 3.9% compared to the same period in 2024. The increase was primarily driven by salaries and employee benefits, up $3.5 million, and professional fees, up $1.9 million. These increases were partially offset by a decrease in technology expense, down $1.2 million.

Insurance Segment

The insurance segment reported net income of $2.9 million for the three months ended September 30, 2025, which was down $213,000, or 6.9%, compared to the third quarter of 2024. Total noninterest revenue of $11.4 million for the three months ended September 30, 2025 was in line with the same period prior year. Insurance commissions and fees increased by $155,000 or 1.5% for the three months ended September 30, 2025, compared to the same period of 2024, and contingency revenue increased by $116,000 or 10.6%.

For the nine months ended September 30, 2025, net income of $7.6 million was up $633,000, or 9.0%, from the same period in the prior year. Total noninterest revenue for the year-to-date period ended September 30, 2025 was up $1.9 million, or 6.0%, compared to the same period in the prior year. The increase in total noninterest revenue for the nine months ended September 30, 2025 compared to the prior year period included growth in overall commission revenue of $746,000, or 2.7%, with increases in personal lines (up $347,000, or 4.1%), and commercial lines (up $523,000, or 4.0%); as well as growth in contingency revenues, which were up $1.2 million, or 34.7%. These increases were attributable to growth in personal and commercial lines from new business, rate increases related to current market conditions and improved ratios as they relate to carrier profit sharing calculations.

Noninterest expense for the three months ended September 30, 2025 was up $294,000, or 4.1%, compared to the three months ended September 30, 2024. Year-to-date noninterest expense was up $1.0 million, or 4.8%, compared to the nine months ended September 30, 2024. The increase in noninterest expense for the three and nine months ended September 30, 2025 was primarily driven by increases in salaries, incentives and employee benefits.

Wealth Management Segment

The wealth management segment reported net income of $626,000 for the three months ended September 30, 2025, which was down $129,000 or 17.1% compared to the third quarter of 2024. Revenue for the three months ended September 30, 2025 was up $66,000 or 1.3%, compared to the three months ended September 30, 2024, primarily due to an increase in advisory fees. Noninterest expense for the three months ended September 30, 2025 was up $233,000 or 5.8%, compared to the same period in 2024, which was primarily due to an increase in affiliate service charges and technology expense.

For the nine months ended September 30, 2025, net income of $2.6 million was down $235,000, or 8.3%, compared to the same period in the prior year. Total revenue of $15.8 million for the nine months ended September 30, 2025 was up $522,000, or 3.4%, compared to the same period in the prior year, mainly due to an increase in advisory fees and gains on the sale of certain customer accounts. Noninterest expense of $12.4 million for the nine months ended September 30, 2025 was up $823,000, or 7.1%, compared to the same period prior year, mainly attributable to salaries and employee benefits, affiliate service charges and technology expense.

Net Interest Income

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

(dollar amounts in thousands)

45

Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)

(Dollar amounts in thousands)

1 Average balances and yields on available-for-sale debt securities are based on historical amortized cost.

2 Interest income includes the tax effects of taxable-equivalent adjustments using an effective income tax rate of 21% in 2025 and 2024 to increase tax exempt interest income to taxable-equivalent basis.

3 Nonaccrual loans are included in the average asset totals presented above. Payments received on nonaccrual loans have been recognized as disclosed in Note 1 of the Company’s consolidated financial statements included in Part 1 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Net Interest Income

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

Net interest income was $63.9 million and $180.7 million, respectively, for the three and nine months ended September 30, 2025, up $10.7 million, or 20.1%, and $25.8 million, or 16.7%, respectively, from the same periods in 2024.

Net interest margin for the three months ended September 30, 2025 was 3.20% compared to 2.79% for the same period in 2024. Net interest margin for the nine months ended September 30, 2025 was 3.09% compared to 2.75% for the same period in 2024. The increase in net interest margin for the three and nine months ended September 30, 2025 compared to the same periods in 2024 was due to increased yields on average interest earning assets, higher average loan balances, and lower funding costs resulting from improved funding mix.

The quarterly net interest margin of 3.20% for the third quarter of 2025 was up 12 basis points over the net interest margin of 3.08% for the second quarter of 2025. The increase in net interest margin, when compared to the most recent prior quarter, was mainly due to increased yields on average interest earning assets and higher average loan balances.

Interest income for the three and nine months ended September 30, 2025 was $98.1 million and $281.2 million, up 10.0% and 9.2%, respectively, compared to the same periods in 2024. The average yield on interest-earning assets increased 24 and 23 basis points for the three and nine months ended September 30, 2025, compared to the same periods in 2024. Average interest-earning assets for the three and nine months ended September 30, 2025, increased $329.4 million, or 4.3%, and $300.9 million, or 4.0%, respectively, compared to the same periods in 2024.

Interest income on loans for the three and nine months ended September 30, 2025, was up $8.5 million, or 10.9%, and $24.2 million, or 10.8%, respectively, compared to the same periods in 2024, driven by higher average yields and higher average loan balances. The average yields on loans for the three and nine months ended September 30, 2025 of 5.52% and 5.40% respectively, were up 20 and 18 basis points from the same periods in 2024. For the three and nine months ended September 30, 2025 average loan balances were up $385.5 million, or 6.6%, and $410.7 million, or 7.2%, respectively, over the same periods of 2024.

Interest income on securities, excluding dividends on FHLB stock, for the three months ended September 30, 2025, was up $703,000 or 6.9% over the same period in 2024, driven by higher average yields, partially offset by lower average balances. For the nine months ended September 30, 2025, interest income on securities, excluding dividends on FHLB stock, was down $239,000 or 0.8% when compared to the same period in 2024, driven by lower average balances, partially offset by higher yields. The average yield on total securities for the three and nine months ended September 30, 2025, was up 23 and 13 basis points, respectively, over the same periods in 2024, while average balances for securities were down $53.9 million, or 3.1%, and $108.9 million, or 6.0%, respectively, from the same periods in 2024.

Interest expense for the three and nine months ended September 30, 2025 decreased $1.8 million, or 4.9%, and $2.2 million or 2.2%, compared to the same periods in 2024. The decrease reflects lower average costs of interest-bearing liabilities, largely a result of improved funding mix and lower borrowing rates. For the three and nine months ended September 30, 2025, the average cost of interest-bearing liabilities was down 26 basis points and 17 basis points, respectively, from the same periods in 2024, while average interest-bearing liabilities were up $252.6 million or 4.8% and $261.9 million or 5.0%, respectively. The growth in average interest-bearing liabilities was primarily in average deposits, partially offset by decreases in average borrowings.

The average cost of interest-bearing deposits for the three and nine months ended September 30, 2025 was 2.26% and 2.25%, respectively, down 9 basis points compared to the three month period ended September 30, 2024, and down 1 basis point compared to the same nine month period in 2024. Average interest-bearing deposits for the three and nine months ended September 30, 2025, were up $427.6 million, or 9.4%, and $386.6 million, or 8.6%, respectively, from the same periods in 2024. Average time deposits for the three and nine months ended September 30, 2025 were up $211.9 million or 20.8% and $208.5 million or 20.9%, respectively, compared to the same periods in 2024. Average interest-bearing checking, savings and money market deposits for the three and nine months ended September 30, 2025 were up $215.8 million or 6.2% and $178.1 million or 5.1%, respectively, over the same periods in 2024.

Average other borrowings for the three and nine months ended September 30, 2025 were down $174.1 million, or 24.5%, and $124.6 million, or 18.5%, respectively, compared to the same periods in 2024. The average rate paid on other borrowings for the three and nine months ended September 30, 2025 was down 81 basis points and 84 basis points, respectively, from the same periods in 2024.

Provision for Credit Losses

The provision for credit losses represents management’s estimate of the amount necessary to maintain the allowance for credit losses ("ACL") at an appropriate level. Provision for credit losses for the third quarter of 2025 was $2.5 million compared to $2.2 million for the third quarter of 2024. Provision for credit losses for the nine months ended September 30, 2025 was $10.6 million compared to $5.2 million for the nine months ended September 30, 2024. The increase in provision expense for the year-to-date period compared to the same period in 2024 was mainly due to the partial charge-off of $4.7 million related to one commercial real estate relationship totaling $18.1 million, during the second quarter of 2025. The provision for credit losses for the three and nine months ended September 30, 2025 included expenses of $36,000 and of $57,000, respectively, related to off-balance sheet credit exposures compared to credits of $1.1 million and $249,000, respectively, for the same periods in 2024. The change in off-balance sheet reserves was mainly a result of model changes related to utilization rates during the third quarter of 2024 which resulted in a credit to provision expense, and changes related to the commercial loan pipeline during the current quarter. 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

Noninterest income of $23.6 million for the three months ended September 30, 2025, was in line with the three months ended September 30, 2024, and noninterest income of $71.1 million was up $3.8 million, or 5.7%, from the nine months ended September 30, 2024. The increase in year-to-date noninterest income compared to the nine months ended September 30, 2024, was mainly attributable to a $1.9 million gain on the sale of OREO.

Insurance commissions and fees, the largest component of noninterest income, were $11.3 million for the third quarter of 2025, in line with the same period for the prior year. For the first nine months of 2025, insurance commissions and fees were up $1.9 million, or 6.1%, compared to the same period in 2024. The increase in revenues for the nine months ended September 30, 2025 compared to the same period in 2024 was due to growth in commercial and personal lines revenue from new business and rate increases related to market conditions, along with an increase in contingency revenue based on premium growth and improved ratios related to carrier profit sharing calculations.

Wealth management fees of $5.0 million in the third quarter of 2025 were in line with the third quarter of 2024. For the first nine months of 2025, wealth management fees were up $351,000, or 2.4% compared to the same period in 2024. Wealth management fees include trust services, financial planning, wealth management services, and brokerage related services. The fair value of assets managed by, or in custody of, Tompkins was $3.0 billion at September 30, 2025, down $228.7 million or 7.1% from September 30, 2024, mainly attributable to the sale of certain customer accounts. Excluding the sale of customer accounts fair value of assets managed by, or in custody of Tompkins would be flat compared to the same period prior year.

Card services income in the third quarter of 2025 was down $30,000, or 1.0% from the same period in 2024, and for the nine months ended September 30, 2025 was down $471,000, or 5.2% compared to the same period in 2024. The nine month period in 2024 included a one-time $255,000 sign-on bonus associated with renewal of a card services contract.

Other income of $2.6 million in the third quarter of 2025 was up $258,000, or 11.2%, compared to the same period in 2024. For the first nine months of 2025, other income of $9.4 million was up $2.1 million, or 28.7%, compared to the same period in 2024. The increase for the three months ended September 30, 2025 compared to the same period in 2024 was mainly due to gains on sales of residential loans, which were up $202,000. The increase for the nine months ended September 30, 2025 compared to the same period in 2024 was mainly attributable to a $1.9 million gain on the sale of OREO and gains on sales of residential loans, which were up $933,000, partially offset by decreases in derivatives related income, down $473,000 and income related to bank owned life insurance, down $388,000.

Noninterest Expense

Noninterest expense of $53.8 million for the third quarter of 2025 was up $4.0 million or 8.0% over the third quarter of 2024. Noninterest expense of $156.1 million for the first nine months of 2025 was up $6.4 million, or 4.3%, compared to the same period in 2024. The increases in noninterest expense for the three and nine month periods were driven primarily by increased expenses associated with compensation and benefits.

Expenses associated with compensation and benefits comprise the largest component of noninterest expense. Total salaries, wages and benefits for the three months ended September 30, 2025, were up $1.7 million, or 5.4%, over the same period in 2024, and for the nine months ended September 30, 2025 were up $4.7 million or 5.0% over the same period in 2024. For both the three and nine months ended September 30, 2025, increases were driven largely by annual merit increases and increases in health insurance expense.

Other operating expenses for the three and nine months ended September 30, 2025 were up $2.1 million, or 16.2%, and $1.7 million, or 4.3%, respectively, from the same periods in 2024. Other operating expense for the third quarter and year-to-date period included an increase in professional fees of $1.6 million and $1.8 million, respectively, primarily related to investments to support future growth, and an increase in marketing expense of $768,000 and $821,000, respectively.

Income Tax Expense

The provision for income taxes was $7.4 million for an effective rate of 23.9% for the third quarter of 2025, compared to a tax provision of $5.9 million and an effective rate of 23.9% for the same quarter in 2024. For the first nine months of 2025, the provision for income taxes was $20.3 million for an effective rate of 23.9% compared to tax provision of $16.0 million and an effective rate of 23.7% for the same period in 2024. The effective rates differ from the U.S. and state statutory rates primarily due to the effect of tax-exempt income from loans, securities and life insurance assets, and the income tax effects associated with stock-based compensation.

On July 4, 2025, HR.1 - One Big Beautiful Bill Act was signed into federal law and, among other things, enacted amendments to the federal tax laws. The Company does not expect the bill to have a material impact on our consolidated financial statements.

FINANCIAL CONDITION

Total assets were $8.5 billion at September 30, 2025, up $359.7 million, or 4.4%, from December 31, 2024. Total loans were up $268.1 million, or 4.5%, cash and cash equivalents were up $59.1 million, or 44.0%, and total securities were up $59.6 million, or 3.9%, compared to December 31, 2024. Total deposits at September 30, 2025 were up $581.3 million, or 9.0%, while other borrowings at September 30, 2025 were down $345.4 million, or 43.7%, from December 31, 2024.

Securities

As of September 30, 2025, the Company’s securities portfolio was $1.6 billion, or 18.9% of total assets compared to $1.5 billion, or 19.1% of total assets at year end 2024. The following tables detail the composition of the securities portfolio:

(In thousands)

(In thousands)

As of September 30, 2025, the available-for-sale debt securities portfolio had net unrealized losses, which reflects the amount that the amortized cost exceeds fair value, of $89.7 million compared to net unrealized losses of $135.6 million at December 31, 2024. The decrease in unrealized losses related to the available-for-sale debt securities portfolio reflects interest rate volatility in the market, the volume and rates associated with securities purchases, and maturities in 2025. Management’s policy is to purchase investment grade securities that on average have relatively short duration, which helps mitigate interest rate risk and provides sources of liquidity without significant risk to capital.

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

The Company determined that at September 30, 2025, all impaired available-for-sale and held-to-maturity debt securities were impaired because of changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit worthiness of the underlying issuers. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost. Therefore, the Company carried no ACL at September 30, 2025 and there was no credit loss expense recognized by the Company with respect to the securities portfolio during the three and nine months ended September 30, 2025.

Loans and Leases

Loans and leases as of the end of the third quarter and prior year-end were as follows:

(In thousands)

50

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

(In thousands)

Total loans and leases of $6.3 billion at September 30, 2025 were up $268.1 million, or 4.5%, from December 31, 2024, mainly in the commercial real estate and commercial and industrial loan portfolios. As of September 30, 2025, total loans and leases represented 74.3% of total assets compared to 74.2% of total assets at December 31, 2024.

Residential real estate loans, including home equity loans, were $1.6 billion at September 30, 2025, in line with December 31, 2024, and comprised 25.1% of total loans and leases at September 30, 2025.

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

During the first nine months of 2025 and 2024, the Company sold residential loans totaling $63.3 million and $29.5 million, respectively, recognizing gains of $1.6 million and $701,000, respectively. These residential real estate loans were sold without recourse in accordance with standard secondary market loan sale agreements. When residential mortgage loans are sold, the Company typically retains all servicing rights, which provides the Company with a source of fee income. Mortgage servicing rights totaled $1.5 million at September 30, 2025, and $1.1 million at December 31, 2024.

Commercial real estate loans and commercial and industrial loans totaled $3.6 billion and $1.0 billion, respectively, and represented 56.8% and 16.6%, respectively, of total loans and leases as of September 30, 2025. The commercial real estate portfolio was up $192.8 million, or 5.7%, compared to December 31, 2024, while commercial and industrial loans were up $74.8 million, or 7.7%, compared to December 31, 2024.

As of September 30, 2025, agriculturally-related loans totaled $328.5 million, or 5.2%, of total loans and leases, compared to $327.6 million, or 5.4%, of total loans and leases at December 31, 2024. Agriculturally-related loans include loans to dairy farms and crop farms. Agriculturally-related loans are primarily made based on identified cash flows of the borrower with consideration given to underlying collateral, personal guarantees, and government related guarantees. Agriculturally-related loans are generally secured by the assets or property being financed or other business assets such as accounts receivable, livestock, equipment or commodities/crops.

The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures. Management reviews these policies and procedures on a regular basis. The Company discussed its lending policies and underwriting guidelines for its various lending portfolios in Note 4 – "Loans and Leases" in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. There have been no significant changes in these policies and guidelines since the date of that report. The Company’s Board of Directors approves the lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.

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

The Allowance for Credit Losses

The below table represents the allowance for credit losses as of September 30, 2025 and December 31, 2024. The table provides, as of the dates indicated, an allocation of the allowance for credit losses for inherent loan losses by type. The allocation is neither indicative of the specific amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of future loss trends. The allocation of the allowance for credit losses to each category does not restrict the use of the allowance to absorb losses in any category.

(In thousands)

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

Analysis of the Allowance for Credit Losses

(In thousands)

As of September 30, 2025, the allowance for credit losses was $59.9 million, representing 0.95% of total loans and leases, compared to $56.5 million and 0.94% of total loans and leases at December 31, 2024 and $55.4 million and 0.94% of total loans and leases at September 30, 2024. The increase in the allowance for credit losses from year-end 2024 reflects loan growth, mainly in commercial real estate and commercial loans, and a one basis point increase in the coverage ratio. The increase in the coverage ratio was mainly driven by higher reserves for individually evaluated loans, and increased reserves for large loans and quantitative reserves resulting from loan growth, updated model assumptions based on the annual model review, and updated economic forecasts for unemployment and gross domestic product for the quarter. These increases were partially offset by lower qualitative reserves, which were added at year end and largely related to asset quality metrics.

The provision for credit losses for loans was $2.5 million for the three months ended September 30, 2025, compared to $3.2 million for the same period in 2024. For the nine month period ended September 30, 2025, the provision for credit losses for loans was $10.5 million compared to $5.4 million for the same period in 2024. The provision expense for credit losses for loans is based upon the Company's quarterly evaluation of the appropriateness of the allowance for credit losses. The increase in provision expense for the year-to-date period compared to the same period in 2024 was mainly due to the partial charge-off of $4.7 million related to one commercial real estate relationship totaling $18.1 million, during the second quarter of 2025.

Net loan and lease charge-offs for the three and nine months ended September 30, 2025 were $1.1 million and $7.1 million, respectively, compared to net charge-offs of $912,000 and $1.6 million, respectively, for the same periods in 2024. The increase in net charge-offs for the nine months ended September 30, 2025 compared to the prior year period was largely related to one commercial real estate relationship as discussed above.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

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

For the three months ended September 30, 2025, the provision for credit losses for off-balance sheet credit exposures was $36,000 compared to a credit of $1.1 million for the same period in 2024. For the nine month period ended September 30, 2025, the provision for credit losses for off-balance sheet credit exposures was $57,000 compared to a credit of $249,000 for the same period in 2024. The increase for both periods in 2025 over 2024 was mainly driven by updates to model assumptions related to average utilization rates for lines of credit.

(In thousands)

Asset quality measures at September 30, 2025 were mixed when compared with December 31, 2024. Nonperforming loans and leases were up $2.1 million, or 4.1%, compared to year end 2024 and represented 0.84% of total loans at September 30, 2025, down 1 basis point compared to December 31, 2024. Loans past due 30-89 days totaled $7.8 million at September 30, 2025, down $21.0 million from year-end 2024. Loans internally-classified Special Mention or Substandard were up $33.1 million, or 29.8%, compared to December 31, 2024. The increase was mainly a result of two loans totaling $41.2 million being downgraded to Special Mention during the third quarter of 2025. The two loans include one commercial real estate loan for $21.1 million that is secured by real estate and pledged securities, and one commercial loan for $20.1 million that is secured by all business assets. The Company believes that the existing collateral securing the loans is sufficient to cover the exposure.

Nonperforming assets include loans past due 90 days and accruing, nonaccrual loans, and foreclosed real estate/other real estate owned. Total nonperforming assets of $53.0 million at September 30, 2025 were down $12.2 million, or 18.7%, compared to December 31, 2024, and $9.7 million, or 15.5%, compared to September 30, 2024. The decrease in nonperforming assets at September 30, 2025 compared to December 31, 2024 was largely due to one property totaling approximately $14.3 million in other real estate owned that was sold during the first quarter of 2025. Nonperforming assets represented 0.63% of total assets at September 30, 2025, down from 0.80% at December 31, 2024, and 0.78% at September 30, 2024. Our peer group's average ratio of nonperforming assets to total assets was 0.60% at June 30, 2025.

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

The Company, through its internal loan review function, identified 13 commercial relationships from the loan portfolio totaling $22.6 million at September 30, 2025, that were potential problem Substandard loans. At December 31, 2024, the Company had identified 16 relationships totaling $41.2 million that were potential problem loans. Of the 13 relationships at September 30, 2025 that were Substandard, there were 3 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $19.2 million, the largest of which was $15.9 million. The Company continues to monitor these potential problem relationships; however, management cannot predict the extent to which changing economic conditions or other factors may further impact borrowers. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and government guarantees. These factors, when considered in the aggregate, give management reason to believe that the current risk exposure on these loans does not warrant accounting for these loans as nonperforming. However, these loans do exhibit certain risk factors, which have the potential to cause them to become nonperforming. Accordingly, management's attention is focused on these credits, which are reviewed on at least a quarterly basis.

Capital

Total equity was $788.8 million at September 30, 2025, an increase of $75.4 million, or 10.6%, from December 31, 2024. The increase was driven by net income generation of $64.8 million for the nine months ended September 30, 2025, partially offset by dividends declared of $26.9 million and a $34.7 million increase in accumulated other comprehensive income due primarily to the change in the fair value of securities available for sale.

The Company and its subsidiary bank are subject to various regulatory capital requirements administered by Federal bank regulatory agencies. Failure to meet minimum capital requirements can lead to the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s business, results of operation and financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (PCA), banks must meet specific guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classifications of the Company and its subsidiary banks are also subject to qualitative judgments by regulators concerning components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios of common equity Tier 1 capital, Total capital and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that as of September 30, 2025, the Company and its subsidiary bank met all capital adequacy requirements to which they are subject.

The following table provides a summary of the Company’s capital ratios as of September 30, 2025:

Regulatory Capital Analysis

(dollar amounts in thousands)

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

Total capital as a percent of risk weighted assets increased to 13.3% at September 30, 2025, compared with 13.1% at December 31, 2024. Tier 1 capital as a percent of risk weighted assets increased to 12.3% at September 30, 2025 compared to 12.1% at December 31, 2024. Tier 1 capital as a percent of average assets was 9.4% at September 30, 2025, up from 9.3% as of December 31, 2024. Common equity Tier 1 capital was 12.3% at September 30, 2025, up from 12.1% at December 31, 2024.

As of September 30, 2025, the capital ratios for the Company’s subsidiary bank also exceeded the minimum required capital ratios for well capitalized institutions, plus the fully phased-in capital conservation buffer.

Deposits and Other Liabilities

Total deposits of $7.1 billion at September 30, 2025 were up $581.3 million, or 9.0%, compared to December 31, 2024, and were up $475.2 million, or 7.2%, compared to September 30, 2024. The increase from year-end 2024 was primarily in checking, money market and savings accounts, which were up $345.9 million, or 9.7%, and time deposits, which were up $173.7 million, or 16.3%. The increase includes the seasonal inflow of municipal deposits reflecting the collection of tax receipts. The increase in time deposits included a $132.7 million increase in brokered time deposits.

At September 30, 2025, the Company estimated total uninsured deposits of $2.9 billion. These uninsured deposit balances of $2.9 billion included $1.1 billion of collateralized government deposits, and $1.8 billion of uninsured deposits without liquid collateral pledged.

The Company is a participant in the IntraFi Network's IntraFi Cash Service (ICS) and Certificate of Deposit Account Registry Service (CDARS) programs. The Company uses these deposit sweep services to place customer funds from interest-bearing demand accounts, money market accounts, and/or time deposits to be placed with other participating network banks. Customer funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of FDIC insurance. As a program participant, we receive reciprocal amounts of deposits from other participating network banks equal to the amount of our customer funds placed in the IntraFi Network. In addition to the reciprocal funding programs, the Company may utilize both the ICS and CDARS programs to obtain wholesale funding through One-Way Buy transactions. Funds obtained using One-Way Buy transactions are classified as brokered deposits. At September 30, 2025 the Company held $15.5 million in CDARS One-Way Buy funds and $12.5 million of ICS One-Way Buy funds.

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 $360.0 million, or 6.8%, from year-end 2024, to $5.6 billion at September 30, 2025. Core deposits at September 30, 2025 were up $277.8 million, or 5.2% from September 30, 2024. Core deposits represented 79.7% of total deposits at September 30, 2025, compared to 81.3% of total deposits at December 31, 2024 and 81.3% at September 30, 2024.

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 $44.8 million at September 30, 2025, and $37.0 million at December 31, 2024. Management generally views retail repurchase agreements as an alternative to large time deposits.

The Company has established several unsecured Federal funds purchased lines through various correspondent bank relationships, totaling $149.0 million. Federal funds purchased from correspondent banks totaled $36.0 million as of September 30, 2025 compared to $0 at December 31, 2024.

The Company’s other borrowings totaled $444.9 million at September 30, 2025, down $345.4 million, or 43.7%, from $790.2 million at December 31, 2024. The decrease in other borrowings was mainly due to increased deposit balances. Borrowings at September 30, 2025 consisted of $271.5 million in FHLB overnight advances and $173.4 million of FHLB term advances, compared to $247.0 million FHLB overnight advances and $543.2 million of FHLB term advances at year end 2024. Of the $173.4 million in FHLB term advances at September 30, 2025, $98.4 million was due to mature in less than one year and $75.0 million was due to mature in over one year.

Liquidity

The objective of liquidity management is to ensure the availability of adequate funding sources to satisfy anticipated demand for credit, deposit withdrawals, and business investment opportunities. The Company’s large, stable core deposit base and strong capital position are the foundation for the Company’s liquidity position. The Company uses a variety of resources to meet its liquidity needs, which include deposits, cash and cash equivalents, short-term investments, cash flow from lending and investing activities, repurchase agreements, and borrowings. The Company’s Asset/Liability Management Committee monitors asset and liability positions of the Company’s subsidiary bank individually and on a combined basis. The Committee reviews periodic reports on liquidity and interest rate sensitivity positions. Comparisons with industry and peer groups are also monitored. The Company’s strong reputation in the communities it serves, along with its strong financial condition, provides access to numerous sources of liquidity as described below. Management believes these diverse liquidity sources provide sufficient means to meet all demands on the Company’s liquidity that are reasonably likely to occur. 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 14.9% at September 30, 2025, and 14.7% at December 31, 2024. In addition, the Company maintains access to the Federal Reserve Bank borrowing facility, which improved the reliable sources of liquidity ratio by an additional 2.9% at September 30, 2025, and 1.7% at December 31, 2024, to 17.8% and 16.4%, respectively. The Company also maintains board policy limits requiring that on-balance sheet liquidity, which includes liquid assets including cash, overnight funds sold, short-term investments, fair value of encumbered investment securities, and the guaranteed portion of government and agency loans, remain above 3% of total assets. As of the end of the third quarter of 2025, this ratio was 9.8%.

Core deposits, discussed above under "Deposits and Other Liabilities", are a primary and low-cost funding source obtained primarily through the Bank'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, 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 September 30, 2025 decreased $80.3 million, or 3.9%, as compared to December 31, 2024. Non-core funding sources, as a percentage of total liabilities, were 25.5% at September 30, 2025, compared to 27.5% at December 31, 2024.

Non-core funding sources may require securities to be pledged against the underlying liability. Securities held with a carrying value of $985.8 million at September 30, 2025 and $904.2 million at December 31, 2024, were either pledged or sold under agreements to repurchase. Pledged securities represented 58.2% of total securities at September 30, 2025, compared to 53.8% of total securities at December 31, 2024.

Cash and cash equivalents totaled $193.5 million as of September 30, 2025 which increased from $134.4 million at December 31, 2024. Short-term investments, consisting of securities due in one year or less, decreased from $99.2 million at December 31, 2024, to $69.4 million at September 30, 2025.

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 $801.9 million at September 30, 2025 compared with $699.6 million at December 31, 2024. Outstanding principal balances of residential mortgage loans, consumer loans, and leases totaled approximately $1.7 billion at September 30, 2025, in line with December 31, 2024. Aggregate amortization from monthly payments on these assets provides significant additional cash flow to the Company.

The Company's liquidity is enhanced by ready access to national and regional wholesale funding sources including Federal funds purchased, repurchase agreements, brokered deposits, and FHLB advances. Through its subsidiary bank, the Company has borrowing relationships with the FHLB and correspondent banks, which provide secured and unsecured borrowing capacity. As a member of the FHLB, the Company can use certain unencumbered mortgage-related assets and securities to secure borrowings from the FHLB. At September 30, 2025, the established borrowing capacity with the FHLB was $1.3 billion, or 15.9% of total assets, with available unencumbered mortgage-related assets of $550.7 million. Additional assets may also qualify as collateral for FHLB advances, upon approval of the FHLB. Additionally, through various programs at the Federal Reserve Bank, the Company has the ability to use certain unencumbered loans and securities to secure borrowings from the Federal Reserve Bank's Discount Window. At September 30, 2025 the Company's available borrowing capacity with the Federal Reserve Bank was $242.7 million, all of which was secured by loans. In addition to the available borrowing lines at the FHLB and Federal Reserve Bank, as of September 30, 2025, the Company maintained $598.9 million of unencumbered securities which could be pledged to further enhance secured borrowing capacity.

Non-GAAP Disclosure

The following table includes disclosure of non-GAAP financial measures. Tangible common equity, a non-GAAP financial measure, is total stockholders' equity less intangible assets. Tangible book value per share is tangible equity divided by total shares issued and outstanding. These measures adjust common equity per share to exclude the effects of goodwill and intangible amortization 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 should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP. Tangible common equity and tangible book value per share as 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. Further, the Company may utilize other measures to illustrate performance in the future. 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 Tangible Book Value Per Share (non-GAAP) to Common Equity Book Value Per Share (GAAP)

(In thousands, except share and per share data)

57

Interest rate risk is the primary market risk category associated with the Company’s operations. Interest rate risk refers to the volatility of earnings caused by changes in interest rates. The Company manages interest rate risk using income simulation to measure interest rate risk inherent in its on-balance sheet and off-balance sheet financial instruments at a given point in time. The simulation models are used to estimate the potential effect of interest rate shifts on net interest income for future periods. Each quarter the Company’s Asset/Liability Management Committee reviews the simulation results to determine whether the exposure of net interest income to changes in interest rates remains within Board-approved levels. The Committee also considers strategies to manage this exposure and incorporates these strategies into the investment and funding decisions of the Company. The Company uses derivatives to manage various risks and to accommodate the business requirements of its customers. Additional information on derivatives is available in "Note 11 - Derivatives and Hedging Activities" in the Notes to Consolidated Financial Statements in Part I, Item 1, "Financial Statements" of this Report on Form 10-Q.

The Company’s Board of Directors has set a policy that interest rate risk exposure will remain within a range whereby net interest income will not decline by more than 10% in one year as a result of a 100 basis point parallel change in rates. Based upon the most recent simulation analysis performed as of August 31, 2025, a 200 basis point parallel upward change in interest rates over a one-year time frame would result in a one-year decrease in net interest income from the base case of approximately 2.3%, while a 200 basis point parallel decline in interest rates over a one-year period would result in a one year increase in net interest income of 2.3% from the base case. This simulation assumes no balance sheet growth, no changes in balance sheet mix, deposit rates move in a manner that reflects the historical relationship between deposit rate movement and changes in Federal funds rate, and no management action to address balance sheet mismatches.

The decrease in net interest income in the rising rate scenario is a result of the balance sheet showing a more liability sensitive position over a one-year time horizon. As such, in the short-term net interest income is expected to trend slightly below the base assumption, as upward adjustments to rate sensitive deposits and short-term funding outpace increases to asset yields which are concentrated in intermediate to longer-term products. As intermediate and longer-term assets continue to reprice/adjust into higher rate environment and funding costs stabilize, the simulation shows net interest income is expected to trend upwards.

The down 200 basis point scenario increases net income in the first year as a result of the Company's assets repricing downward to a lesser degree than the rates on the Company's interest-bearing liabilities, mainly deposits and overnight borrowings. The model assumes that prepayments accelerate in the down interest rate environment resulting in additional pressure on asset yields as proceeds are reinvested at lower rates.

The most recent simulation of a base case scenario, which in addition to the above assumptions, also assumes interest rates remain unchanged from the date of the simulation, reflects net interest income trending higher over the next 12 to 18 months.

Although the simulation model is useful in identifying potential exposure to interest rate movements, actual results may differ from those modeled as the repricing, maturity, balance sheet mix, and prepayment characteristics of financial instruments may change to a different degree than modeled. In addition, the model does not reflect actions that management may employ to manage the Company's interest rate risk exposure. The Company’s current liquidity profile, capital position, and growth prospects offer a level of flexibility for management to take actions that could offset some of the negative effects of unfavorable movements in interest rates. Management believes the current exposure to changes in interest rates is not significant in relation to the earnings and capital strength of the Company.

In addition to the simulation analysis, management uses an interest rate gap measure. The table below is a Condensed Static Gap Report, which illustrates the anticipated repricing intervals of assets and liabilities as of September 30, 2025. The Company’s one-year net interest rate gap was a negative $107.4 million, or 1.27% of total assets at September 30, 2025, compared with a negative $565.8 million, or 6.98% of total assets at December 31, 2024. A negative gap position exists when the amount of interest-bearing liabilities maturing or repricing exceeds the amount of interest-earning assets maturing or repricing within a particular time period. This analysis suggests that the Company’s net interest income contains a higher degree of risk in a rising rate environment over the next 12 months. An interest rate gap measure could be affected by external factors such as a rise or decline in interest rates, loan or securities prepayments, and deposit withdrawals.

(In thousands)

1 Balances of available securities are shown at amortized cost

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2025.

Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Report on Form 10-Q, the Company's disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2025, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

There have been no material changes in the risk factors previously disclosed under Item 1A. in the Company's Annual Report on Form 10-K, for the fiscal year ended December 31, 2024.