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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ______
Commission File Number 1-12709
Tompkins Financial Corporation
(Exact name of registrant as specified in its charter)

New York |  | 16-1482357
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

P.O. Box 460, Ithaca, NY
(Address of principal executive offices)
14851
(Zip Code)
Registrant’s telephone number, including area code: (888) 503-5753
Former name, former address, and former fiscal year, if changed since last report: NA
Indicate the number of shares of the Registrant’s Common Stock outstanding as of the latest practicable date:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, $0.10 par value | TMP | NYSE American, LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer | ☒ |  | Accelerated Filer | ☐
Non-Accelerated Filer | ☐ |  | Smaller Reporting Company | ☐
|  |  | Emerging Growth Company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒.
Indicate the number of shares of the Registrant's Common Stock outstanding as of the latest practicable date: 14,523,821 shares as of April 26, 2022.

TOMPKINS FINANCIAL CORPORATION
FORM 10-Q
INDEX

PART I -FINANCIAL INFORMATION |
|  |  | PAGE
| Item 1 – | Financial Statements Consolidated Statements of Condition as of March 31, 2022 (Unaudited) and December 31, 2021 (Audited) | 1
|  | Consolidated Statements of Income for the three months ended March 31, 2022 and 2021 (Unaudited) | 2
|  | Consolidated Statements of Comprehensive Income for the three months ended March 31, 202 2 and 2021 (Unaudited) | 3
|  | Consolidated Statements of Cash Flows for the three months ended March 31, 202 2 and 202 1 (Unaudited) | 4
|  | Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 202 2 and 202 1 (Unaudited) | 6
|  | Notes to Unaudited Consolidated Financial Statements | 7
| Item 2 - | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 37
| Item 3 - | Quantitative and Qualitative Disclosures About Market Risk | 54
| Item 4 - | Controls and Procedures | 56
PART II - OTHER INFORMATION |
| Item 1 – | Legal Proceedings | 56
| Item 1A – Risk Factors | 56
| Item 2 – | Unregistered Sales of Equity Securities and Use of Proceeds | 56
| Item 3 - | Defaults Upon Senior Securities | 57
| Item 4 - | Mine Safety Disclosures | 57
| Item 5 - | Other Information | 57
| Item 6 - | Exhibits | 57
SIGNATURES | 59

Item 1. Financial Statements
TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION

(In thousands, except share and per share data) | As of | As of
ASSETS | 03/31/2022 | 12/31/2021
| (unaudited) | (audited)
Cash and noninterest bearing balances due from banks | $ | 19,750 |  | $ | 23,078 |
Interest bearing balances due from banks | 155,325 |  | 40,029 |
Cash and Cash Equivalents | 175,075 |  | 63,107 |
Available-for-sale debt securities, at fair value (amortized cost of $2,106,906 at March 31, 2022 and $2,063,790 at December 31, 2021) | 1,981,148 |  | 2,044,513 |
Held-to-maturity securities, at amortized cost (fair value of $280,917 at March 31, 2022 and $282,288 at December 31, 2021) | 303,524 |  | 284,009 |
Equity securities, at fair value (amortized cost $855 at March 31, 2022 and $902 at December 31, 2021) | 855 |  | 902 |
Total loans and leases, net of unearned income and deferred costs and fees | 5,063,451 |  | 5,075,467 |
Less: Allowance for credit losses | 42,126 |  | 42,843 |
Net Loans and Leases | 5,021,325 |  | 5,032,624 |
Federal Home Loan Bank and other stock | 7,115 |  | 10,996 |
Bank premises and equipment, net | 83,502 |  | 85,416 |
Corporate owned life insurance | 86,922 |  | 86,495 |
Goodwill | 92,447 |  | 92,447 |
Other intangible assets, net | 3,382 |  | 3,643 |
Accrued interest and other assets | 135,816 |  | 115,830 |
Total Assets | $ | 7,891,111 |  | $ | 7,819,982 |
LIABILITIES |  |
Deposits: |  |
Interest bearing: |  |
Checking, savings and money market | 4,263,413 |  | 4,016,025 |
Time | 615,936 |  | 639,674 |
Noninterest bearing | 2,137,390 |  | 2,135,736 |
Total Deposits | 7,016,739 |  | 6,791,435 |
Federal funds purchased and securities sold under agreements to repurchase | 57,115 |  | 66,787 |
Other borrowings | 60,000 |  | 124,000 |
Other liabilities | 99,765 |  | 108,819 |
Total Liabilities | $ | 7,233,619 |  | $ | 7,091,041 |
EQUITY |  |
Tompkins Financial Corporation shareholders' equity: |  |
Common Stock - par value $0.10 per share: Authorized 25,000,000 shares; Issued: 14,597,360 at March 31, 2022; and 14,696,911 at December 31, 2021 | 1,460 |  | 1,470 |
Additional paid-in capital | 305,880 |  | 312,538 |
Retained earnings | 490,200 |  | 475,262 |
Accumulated other comprehensive loss | (135,849) |  | (55,950) |
Treasury stock, at cost – 120,342 shares at March 31, 2022, and 124,709 shares at December 31, 2021 | (5,642) |  | (5,791) |
Total Tompkins Financial Corporation Shareholders’ Equity | 656,049 |  | 727,529 |
Noncontrolling interests | 1,443 |  | 1,412 |
Total Equity | $ | 657,492 |  | $ | 728,941 |
Total Liabilities and Equity | $ | 7,891,111 |  | $ | 7,819,982 |

See notes to unaudited consolidated financial statements.
1

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

| Three Months Ended |  |  |
(In thousands, except per share data) (Unaudited) | 03/31/2022 | 03/31/2021 |  |  |  |  |  |
INTEREST AND DIVIDEND INCOME |  |  |  |  |  |  |  |
Loans | $ | 51,131 |  | $ | 54,206 |  |  |  |  |  |  |
Due from banks | 41 |  | 85 |  |  |  |  |  |  |
Available-for-sale debt securities | 6,770 |  | 5,250 |  |  |  |  |  |  |
Held-to-maturity securities | 1,129 |  | 0 |  |  |  |  |  |  |
Federal Home Loan Bank and other stock | 105 |  | 213 |  |  |  |  |  |  |
Total Interest and Dividend Income | 59,176 |  | 59,754 |  |  |  |  |  |  |
INTEREST EXPENSE |  |  |  |  |  |  |  |
Time certificates of deposits of $250,000 or more | 426 |  | 639 |  |  |  |  |  |  |
Other deposits | 1,620 |  | 2,511 |  |  |  |  |  |  |
Federal funds purchased and securities sold under agreements to repurchase | 16 |  | 16 |  |  |  |  |  |  |
Trust preferred debentures | 0 |  | 175 |  |  |  |  |  |  |
Other borrowings | 500 |  | 1,376 |  |  |  |  |  |  |
Total Interest Expense | 2,562 |  | 4,717 |  |  |  |  |  |  |
Net Interest Income | 56,614 |  | 55,037 |  |  |  |  |  |  |
Less: Credit for credit loss expense | (520) |  | (1,830) |  |  |  |  |  |  |
Net Interest Income After Credit for Credit Loss Expense | 57,134 |  | 56,867 |  |  |  |  |  |  |
NONINTEREST INCOME |  |  |  |  |  |  |  |
Insurance commissions and fees | 9,317 |  | 9,166 |  |  |  |  |  |  |
Investment services income | 4,917 |  | 4,673 |  |  |  |  |  |  |
Service charges on deposit accounts | 1,779 |  | 1,470 |  |  |  |  |  |  |
Card services income | 2,543 |  | 2,383 |  |  |  |  |  |  |
Other income | 1,476 |  | 1,974 |  |  |  |  |  |  |
Net (loss) gain on securities transactions | (47) |  | 317 |  |  |  |  |  |  |
Total Noninterest Income | 19,985 |  | 19,983 |  |  |  |  |  |  |
NONINTEREST EXPENSE |  |  |  |  |  |  |  |
Salaries and wages | 23,272 |  | 22,660 |  |  |  |  |  |  |
Other employee benefits | 5,797 |  | 5,484 |  |  |  |  |  |  |
Net occupancy expense of premises | 3,541 |  | 3,462 |  |  |  |  |  |  |
Furniture and fixture expense | 1,991 |  | 1,950 |  |  |  |  |  |  |
Amortization of intangible assets | 218 |  | 330 |  |  |  |  |  |  |
Other operating expense | 12,020 |  | 10,625 |  |  |  |  |  |  |
Total Noninterest Expenses | 46,839 |  | 44,511 |  |  |  |  |  |  |
Income Before Income Tax Expense | 30,280 |  | 32,339 |  |  |  |  |  |  |
Income Tax Expense | 6,976 |  | 6,680 |  |  |  |  |  |  |
Net Income Attributable to Noncontrolling Interests and Tompkins Financial Corporation | 23,304 |  | 25,659 |  |  |  |  |  |  |
Less: Net Income Attributable to Noncontrolling Interests | 31 |  | 33 |  |  |  |  |  |  |
Net Income Attributable to Tompkins Financial Corporation | $ | 23,273 |  | $ | 25,626 |  |  |  |  |  |  |
Basic Earnings Per Share | $ | 1.61 |  | $ | 1.73 |  |  |  |  |  |  |
Diluted Earnings Per Share | $ | 1.60 |  | $ | 1.72 |  |  |  |  |  |  |

See notes to unaudited consolidated financial statements.
2

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

| Three Months Ended
(In thousands) (Unaudited) | 03/31/2022 | 03/31/2021
Net income attributable to noncontrolling interests and Tompkins Financial Corporation | $ | 23,304 |  | $ | 25,659 |
Other comprehensive (loss) income, net of tax: |  |
Available-for-sale debt securities: |  |
Change in net unrealized gain/(loss) during the period | (80,405) |  | (25,246) |
Reclassification adjustment for net realized gain on sale of available-for-sale debt securities included in net income | 0 |  | (249) |
Employee benefit plans: |  |
Amortization of net retirement plan actuarial loss | 464 |  | 577 |
Amortization of net retirement plan prior service cost | 42 |  | 42 |
Other comprehensive loss | (79,899) |  | (24,876) |
Subtotal comprehensive (loss) income attributable to noncontrolling interests and Tompkins Financial Corporation | (56,595) |  | 783 |
Less: Net income attributable to noncontrolling interests | (31) |  | (33) |
Total comprehensive (loss) income attributable to Tompkins Financial Corporation | $ | (56,626) |  | $ | 750 |

See notes to unaudited consolidated financial statements.
3

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

| Three Months Ended
(In thousands) (Unaudited) | 03/31/2022 | 03/31/2021
OPERATING ACTIVITIES |  |
Net income attributable to Tompkins Financial Corporation | $ | 23,273 |  | $ | 25,626 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |
Credit for credit loss expense | (520) |  | (1,830) |
Depreciation and amortization of premises, equipment, and software | 2,650 |  | 2,506 |
Amortization of intangible assets | 218 |  | 330 |
Earnings from corporate owned life insurance | (423) |  | (541) |
Net amortization on securities | 1,819 |  | 3,481 |
Amortization/accretion related to purchase accounting | (191) |  | (299) |
Net loss (gain) on securities transactions | 47 |  | (317) |
Net gain on sale of loans originated for sale | (4) |  | (429) |
Proceeds from sale of loans originated for sale | 139 |  | 10,897 |
Loans originated for sale | (685) |  | (6,425) |
Net gain on sale of bank premises and equipment | (17) |  | 0 |
Net excess tax benefit from stock based compensation | 21 |  | 85 |
Stock-based compensation expense | 945 |  | 1,175 |
Decrease in accrued interest receivable | 1,047 |  | 559 |
Decrease in accrued interest payable | (106) |  | (121) |
Other, net | (4,295) |  | (4,441) |
Net Cash Provided by Operating Activities | 23,918 |  | 30,256 |
INVESTING ACTIVITIES |  |
Proceeds from maturities, calls and principal paydowns of available-for-sale debt securities | 79,753 |  | 36,723 |
Proceeds from sales of available-for-sale debt securities | 0 |  | 132,203 |
Purchases of available-for-sale debt securities | (124,668) |  | (513,468) |
Purchases of held-to-maturity securities | (19,534) |  | 0 |
Net decrease (increase) in loans | 12,662 |  | (36,139) |
Proceeds from sale/redemptions of Federal Home Loan Bank stock | 12,751 |  | 0 |
Purchases of Federal Home Loan Bank and other stock | (8,870) |  | 0 |
Proceeds from sale of bank premises and equipment | 42 |  | 31 |
Purchases of bank premises, equipment and software | (27) |  | (811) |
Redemption of corporate owned life insurance | 0 |  | 168 |
Other, net | 0 |  | 124 |
Net Cash Used in Investing Activities | (47,891) |  | (381,169) |
FINANCING ACTIVITIES |  |
Net increase in demand, money market, and savings deposits | 249,042 |  | 505,231 |
Net (decrease) increase in time deposits | (23,630) |  | 3,703 |
Net decrease in Federal funds purchased and securities sold under agreements to repurchase | (9,672) |  | (18,349) |
Repayment of other borrowings | (64,000) |  | 0 |
Cash dividends | (8,335) |  | (8,049) |
Repurchase of common stock | (10,370) |  | (1,508) |
Shares issued for employee stock ownership plan | 2,951 |  | 0 |
Net shares issued related to restricted stock awards | (3) |  | 0 |
Net proceeds from exercise of stock options | (42) |  | (152) |
Net Cash Provided by Financing Activities | 135,941 |  | 480,876 |
Net Increase in Cash and Cash Equivalents | 111,968 |  | 129,963 |
Cash and cash equivalents at beginning of period | 63,107 |  | 388,462 |
Total Cash and Cash Equivalents at End of Period | $ | 175,075 |  | $ | 518,425 |

See notes to unaudited consolidated financial statements.
4

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

| Three Months Ended
(In thousands) (Unaudited) | 03/31/2022 | 03/31/2021
Supplemental Information: |  |
Cash paid during the year for - Interest | $ | 2,775 |  | $ | 4,984 |
Cash paid during the year for - Taxes | 1,396 |  | 933 |
Transfer of loans to other real estate owned | 49 |  | 0 |
Initial recognition of operating lease right-of-use assets | 0 | 0 |
Initial recognition of operating lease liabilities | 0 | 0 |
Right-of-use assets obtained in exchange for new lease liabilities | 552 |  | 21 |

See notes to unaudited consolidated financial statements.
5

TOMPKINS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands except share and per share data)(Unaudited) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Treasury Stock | Non- controlling Interests | Total
Balances at January 1, 2021 | $ | 1,496 |  | $ | 333,976 |  | $ | 418,413 |  | $ | (32,074) |  | $ | (5,534) |  | $ | 1,412 |  | $ | 717,689 |
Net income attributable to noncontrolling interests and Tompkins Financial Corporation |  |  | 25,626 |  |  |  | 33 |  | 25,659 |
Other comprehensive loss |  |  |  | (24,876) |  |  |  | (24,876) |
Total Comprehensive Income |  |  |  |  |  |  | 783 |
Cash dividends ($0.54 per share) |  |  | (8,049) |  |  |  |  | (8,049) |
Net exercise of stock options (2,733 shares) |  | (152) |  |  |  |  |  | (152) |
Common stock repurchased and returned to unissued status (21,531 shares) | (2) |  | (1,506) |  |  |  |  |  | (1,508) |
Stock-based compensation expense |  | 1,175 |  |  |  |  |  | 1,175 |
Directors deferred compensation plan (6,395 shares) |  | (246) |  |  |  | 246 |  |  | 0 |
Restricted stock activity (2,896 shares) |  | 0 |  |  |  |  |  | 0 |
Partial repurchase of noncontrolling interest |  |  |  |  |  | (2) |  | (2) |
Balances at March 31, 2021 | $ | 1,494 |  | $ | 333,247 |  | $ | 435,990 |  | $ | (56,950) |  | $ | (5,288) |  | $ | 1,443 |  | $ | 709,936 |
Balances at January 1, 2022 | $ | 1,470 |  | $ | 312,538 |  | $ | 475,262 |  | $ | (55,950) |  | $ | (5,791) |  | $ | 1,412 |  | $ | 728,941 |
Net income attributable to noncontrolling interests and Tompkins Financial Corporation |  |  | 23,273 |  |  |  | 31 |  | 23,304 |
Other comprehensive loss |  |  |  | (79,899) |  |  |  | (79,899) |
Total Comprehensive Loss |  |  |  |  |  |  | (56,595) |
Cash dividends ($0.57 per share) |  |  | (8,335) |  |  |  |  | (8,335) |
Net exercise of stock options (630 shares) |  | (42) |  |  |  |  |  | (42) |
Common stock repurchased and returned to unissued status (130,168 shares) | (13) |  | (10,357) |  |  |  |  |  | (10,370) |
Stock-based compensation expense |  | 945 |  |  |  |  |  | 945 |
Shares issued for employee stock ownership plan (37,454 shares) | 4 |  | 2,947 |  |  |  |  |  | 2,951 |
Directors deferred compensation plan (4,367 shares) |  | (149) |  |  |  | 149 |  |  | 0 |
Restricted stock activity (7,467 shares) | (1) |  | (2) |  |  |  |  |  | (3) |
Balances at March 31, 2022 | $ | 1,460 |  | $ | 305,880 |  | $ | 490,200 |  | $ | (135,849) |  | $ | (5,642) |  | $ | 1,443 |  | $ | 657,492 |

See notes to unaudited consolidated financial statements.
6

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. 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. Effective January 1, 2022, the Company's four wholly-owned banking subsidiaries were combined into one bank, with the Bank of 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 March 31, 2022, the Company had one wholly-owned banking subsidiary, Tompkins Community Bank. The Company also has a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. ("Tompkins Insurance"). Tompkins Community Bank provides a full array of trust and 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’s principal offices are located at 118 E. Seneca Street, Ithaca, New York, 14850, and its telephone number is (888) 503-5753. The Company’s common stock is traded on the NYSE American under the symbol "TMP."
As a registered financial holding company, the Company is regulated under the Bank Holding Company Act of 1956 ("BHC Act"), as amended and is subject to examination and comprehensive regulation by the Federal Reserve Board ("FRB"). The Company is also subject to the jurisdiction of the Securities and Exchange Commission ("SEC") and is subject to disclosure and regulatory requirements under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The Company is subject to the rules of the NYSE American for listed companies.
Tompkins Community Bank is subject to examination and comprehensive regulation by various regulatory authorities, including the Federal Deposit Insurance Corporation ("FDIC"), and the New York State Department of Financial Services ("NYSDFS"). Each of these agencies issues regulations and requires the filing of reports describing the activities and financial condition of the entities under its jurisdiction. Likewise, such agencies conduct examinations on a recurring basis to evaluate the safety and soundness of the institutions, and to test compliance with various regulatory requirements, including: consumer protection, privacy, fair lending, the Community Reinvestment Act, the Bank Secrecy Act, sales of non-deposit investments, electronic data processing, and trust department activities. These agencies also examine and regulate the trust business of Tompkins Community Bank.
Tompkins Insurance is subject to examination and regulation by the NYSDFS and the Pennsylvania Insurance Department.
2. Basis of Presentation
The unaudited consolidated financial statements included in this quarterly report do not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for a full year presentation and certain disclosures have been condensed or omitted in accordance with rules and regulations of the SEC. In the application of certain accounting policies, management is required to make assumptions regarding the effect of matters that are inherently uncertain. These estimates and assumptions affect the reported amounts of certain assets, liabilities, revenues, and expenses in the unaudited consolidated financial statements. Different amounts could be reported under different conditions, or if different assumptions were used in the application of these accounting policies. The accounting policies that management considers critical in this respect are the determination of the allowance for credit losses and the review of its securities portfolio for other than temporary impairment.
In management’s opinion, the unaudited consolidated financial statements reflect all adjustments of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year ended December 31, 2022. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Cash and cash equivalents in the consolidated statements of cash flow include cash and noninterest bearing balances due from banks, interest-bearing balances due from banks, and money market funds. Management regularly evaluates the credit risk associated with the counterparties to these transactions and believes that the Company is not exposed to any significant credit risk on cash and cash equivalents.
7

The Company has evaluated subsequent events for potential recognition and/or disclosure, and determined that no further disclosures were required.
The consolidated financial information included herein combines the results of operations, the assets, liabilities, and shareholders’ equity of the Company and its subsidiaries. Amounts in the prior periods’ unaudited consolidated financial statements are reclassified when necessary to conform to the current periods’ presentation. All significant intercompany balances and transactions are eliminated in consolidation.
3. Securities
Available-for-Sale Debt Securities
The following table summarizes available-for-sale debt securities held by the Company at March 31, 2022:

| Available-for-Sale Debt Securities
March 31, 2022 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value
(In thousands) |  |  |  |
U.S. Treasuries | $ | 190,997 |  | $ | 0 |  | $ | 12,094 |  | $ | 178,903 |
Obligations of U.S. Government sponsored entities | 852,733 |  | 898 |  | 51,524 |  | 802,107 |
Obligations of U.S. states and political subdivisions | 100,287 |  | 152 |  | 4,778 |  | 95,661 |
Mortgage-backed securities – residential, issued by |  |  |  |
U.S. Government agencies | 68,435 |  | 157 |  | 2,315 |  | 66,277 |
U.S. Government sponsored entities | 891,954 |  | 83 |  | 56,264 |  | 835,773 |
U.S. corporate debt securities | 2,500 |  | 0 |  | 73 |  | 2,427 |
Total available-for-sale debt securities | $ | 2,106,906 |  | $ | 1,290 |  | $ | 127,048 |  | $ | 1,981,148 |

The following table summarizes available-for-sale debt securities held by the Company at December 31, 2021:

| Available-for-Sale Debt Securities
December 31, 2021 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value
(In thousands) |  |  |  |
U.S. Treasuries | $ | 160,291 |  | $ | 85 |  | $ | 2,542 |  | $ | 157,834 |
Obligations of U.S. Government sponsored entities | 843,218 |  | 4,527 |  | 15,372 |  | 832,373 |
Obligations of U.S. states and political subdivisions | 102,177 |  | 2,092 |  | 100 |  | 104,169 |
Mortgage-backed securities – residential, issued by |  |  |  |
U.S. Government agencies | 76,502 |  | 1,187 |  | 532 |  | 77,157 |
U.S. Government sponsored entities | 879,102 |  | 5,735 |  | 14,281 |  | 870,556 |
U.S. corporate debt securities | 2,500 |  | 0 |  | 76 |  | 2,424 |
Total available-for-sale debt securities | $ | 2,063,790 |  | $ | 13,626 |  | $ | 32,903 |  | $ | 2,044,513 |

8

Held-to-Maturity Debt Securities
The following table summarizes held-to-maturity debt securities held by the Company at March 31, 2022:

| Held-to-Maturity Securities
March 31, 2022 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value
(In thousands) |  |  |  |
U.S. Treasuries | $ | 86,635 |  | $ | 0 |  | $ | 6,002 |  | $ | 80,633 |
Obligations of U.S. Government sponsored entities | 216,889 |  | 0 |  | 16,605 |  | 200,284 |
Total held-to-maturity debt securities | $ | 303,524 |  | $ | 0 |  | $ | 22,607 |  | $ | 280,917 |

The following table summarizes held-to-maturity debt securities held by the Company at December 31, 2021:

| Held-to-Maturity Securities
December 31, 2021 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value
(In thousands) |  |  |  |
U.S. Treasuries | $ | 86,689 |  | $ | 279 |  | $ | 600 |  | $ | 86,368 |
Obligations of U.S. Government sponsored entities | $ | 197,320 |  | $ | 389 |  | $ | 1,789 |  | $ | 195,920 |
Total held-to-maturity debt securities | $ | 284,009 |  | $ | 668 |  | $ | 2,389 |  | $ | 282,288 |

The Company may from time to time sell debt securities from its available-for-sale portfolio. There were no sales of available-for-sale debt securities for the three months ended March 31, 2022. Realized gains on sales of available-for-sale debt securities were $329,000 for the three months ended March 31, 2021 and we recorded $0 in realized gains (losses), for the same period during 2021. The sales of available-for-sale investment securities were the result of general investment portfolio and interest rate risk management. The Company's available-for-sale portfolio includes callable securities that may be called prior to maturity. Realized gains on called available-for-sale debt securities were $0 for the three months ended March 31, 2022 and $0 for the same period during 2021. The Company also recognized losses on equity securities of $47,000 for the three months ended March 31, 2022 and losses of $12,000 for the same period during 2021, reflecting the change in fair value.
The following table summarizes available-for-sale debt securities that had unrealized losses at March 31, 2022:

| Less than 12 Months | 12 Months or Longer | Total
(In thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses
U.S. Treasuries | $ | 174,290 |  | $ | 11,756 |  | $ | 4,613 |  | $ | 338 |  | $ | 178,903 |  | $ | 12,094 |
Obligations of U.S. Government sponsored entities | 269,829 |  | 18,755 |  | 394,741 |  | 32,769 |  | 664,570 |  | 51,524 |
Obligations of U.S. states and political subdivisions | 65,155 |  | 4,291 |  | 3,378 |  | 487 |  | 68,533 |  | 4,778 |
Mortgage-backed securities – residential, issued by |  |  |  |  |  |
U.S. Government agencies | 30,557 |  | 996 |  | 17,796 |  | 1,319 |  | 48,353 |  | 2,315 |
U.S. Government sponsored entities | 542,511 |  | 25,160 |  | 275,733 |  | 31,104 |  | 818,244 |  | 56,264 |
U.S. corporate debt securities | 0 |  | 0 |  | 2,427 |  | 73 |  | 2,427 |  | 73 |
Total available-for-sale debt securities | $ | 1,082,342 |  | $ | 60,958 |  | $ | 698,688 |  | $ | 66,090 |  | $ | 1,781,030 |  | $ | 127,048 |

9

The following table summarizes available-for-sale debt securities that had unrealized losses at December 31, 2021:

| Less than 12 Months | 12 Months or Longer | Total
(In thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses
U.S. Treasuries | $ | 147,810 |  | $ | 2,542 |  | $ | 0 |  | $ | 0 |  | $ | 147,810 |  | $ | 2,542 |
Obligations of U.S. Government sponsored entities | 362,895 |  | 6,694 |  | 289,210 |  | 8,678 |  | 652,105 |  | 15,372 |
Obligations of U.S. states and political subdivisions | 9,700 |  | 85 |  | 1,283 |  | 15 |  | 10,983 |  | 100 |
Mortgage-backed securities – residential, issued by |  |  |  |  |  |
U.S. Government agencies | 22,074 |  | 160 |  | 16,846 |  | 372 |  | 38,920 |  | 532 |
U.S. Government sponsored entities | 553,351 |  | 11,440 |  | 84,537 |  | 2,841 |  | 637,888 |  | 14,281 |
U.S. corporate debt securities | 0 |  | 0 |  | 2,424 |  | 76 |  | 2,424 |  | 76 |
Total available-for-sale debt securities | $ | 1,095,830 |  | $ | 20,921 |  | $ | 394,300 |  | $ | 11,982 |  | $ | 1,490,130 |  | $ | 32,903 |

The following table summarizes held-to-maturity debt securities that had unrealized losses at March 31, 2022:

| Less than 12 Months | 12 Months or Longer | Total
(In thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses
U.S. Treasuries | $ | 80,633 |  | $ | 6,002 |  | $ | 0 |  | $ | 0 |  | $ | 80,633 |  | $ | 6,002 |
Obligations of U.S. Government sponsored entities | $ | 200,284 |  | $ | 16,605 |  | $ | 0 |  | $ | 0 |  | $ | 200,284 |  | $ | 16,605 |
Total held-to-maturity debt securities | $ | 280,917 |  | $ | 22,607 |  | $ | 0 |  | $ | 0 |  | $ | 280,917 |  | $ | 22,607 |

The following table summarizes held-to-maturity debt securities that had unrealized losses at December 31, 2021:

| Less than 12 Months | 12 Months or Longer | Total
(In thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses
U.S. Treasuries | $ | 35,280 |  | $ | 600 |  | $ | 0 |  | $ | 0 |  | $ | 35,280 |  | $ | 600 |
Obligations of U.S. Government sponsored entities | $ | 84,592 |  | $ | 1,789 |  | $ | 0 |  | $ | 0 |  | $ | 84,592 |  | $ | 1,789 |
Total held-to-maturity debt securities | $ | 119,872 |  | $ | 2,389 |  | $ | 0 |  | $ | 0 |  | $ | 119,872 |  | $ | 2,389 |

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 nationally recognized statistical rating organization.
• Changes in tax or regulatory guidelines that impact a security or underlying issuer.
10

For available-for-sale debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (technical impairment) is the result of changes in interest rates or reflects a fundamental change in the credit worthiness of the underlying issuer. Any impairment that is not credit related is recognized in other comprehensive income (loss), net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses ("ACL") on the 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 gross unrealized losses reported for residential mortgage-backed securities relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and U.S. government agencies such as Government National Mortgage Association. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit-related quality of the investment securities. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost.
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 March 31, 2022, the held-to- maturity portfolio consisted of U.S. Treasury securities and securities issued by U.S. government-sponsored enterprises, including The Federal National Mortgage Agency and the 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 March 31, 2022.
The Company did not recognize any net credit impairment charge to earnings on investment securities in the first quarter of 2022.
The amortized cost and estimated fair value of debt securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are shown separately since they are not due at a single maturity date.

March 31, 2022 |  |
(In thousands) | Amortized Cost | Fair Value
Available-for-sale debt securities: |  |
Due in one year or less | $ | 58,553 |  | $ | 58,888 |
Due after one year through five years | 525,430 |  | 501,283 |
Due after five years through ten years | 508,112 |  | 470,234 |
Due after ten years | 54,422 |  | 48,693 |
Total | 1,146,517 |  | 1,079,098 |
Mortgage-backed securities | 960,389 |  | 902,050 |
Total available-for-sale debt securities | $ | 2,106,906 |  | $ | 1,981,148 |

11

December 31, 2021 |  |
(In thousands) | Amortized Cost | Fair Value
Available-for-sale debt securities: |  |
Due in one year or less | $ | 77,159 |  | $ | 77,892 |
Due after one year through five years | 474,537 |  | 471,776 |
Due after five years through ten years | 501,748 |  | 492,573 |
Due after ten years | 54,742 |  | 54,559 |
Total | 1,108,186 |  | 1,096,800 |
Mortgage-backed securities | 955,604 |  | 947,713 |
Total available-for-sale debt securities | $ | 2,063,790 |  | $ | 2,044,513 |

March 31, 2022 |  |
(In thousands) | Amortized Cost | Fair Value
Held-to-maturity debt securities: |  |
Due after five years through ten years | $ | 303,524 |  | $ | 280,917 |
Total held-to-maturity debt securities | $ | 303,524 |  | $ | 280,917 |

December 31, 2021 |  |
(In thousands) | Amortized Cost | Fair Value
Held-to-maturity debt securities: |  |
Due after five years through ten years | $ | 284,009 |  | $ | 282,288 |
Total held-to-maturity debt securities | $ | 284,009 |  | $ | 282,288 |

The Company also holds non-marketable Federal Home Loan Bank New York ("FHLBNY") stock and non-marketable Atlantic Community Bankers Bank ("ACBB") stock, all of which are required to be held for regulatory purposes and for borrowing availability. The required investment in FHLB stock is tied to the Company’s borrowing levels with the FHLB. Holdings of FHLBNY stock and ACBB stock totaled $7.0 million and $95,000, respectively, at March 31, 2022. These securities are carried at par, which is also cost. The FHLBNY continues to pay dividends and repurchase stock. Quarterly, we evaluate our investment in the FHLB for impairment. We evaluate recent and long-term operating performance, liquidity, funding and capital positions, stock repurchase history, dividend history and impact of legislative and regulatory changes. Based on our most recent evaluation, as of March 31, 2022, we determined that no impairment write-downs were required.
12

4. Loans and Leases
Loans and Leases at March 31, 2022 and December 31, 2021 were as follows:

(In thousands) | 03/31/2022 | 12/31/2021
Commercial and industrial |  |
Agriculture | $ | 81,269 |  | $ | 99,172 |
Commercial and industrial other | 708,626 |  | 699,121 |
PPP loans* | 24,095 |  | 71,260 |
Subtotal commercial and industrial | 813,990 |  | 869,553 |
Commercial real estate |  |
Construction | 185,503 |  | 178,582 |
Agriculture | 199,652 |  | 195,973 |
Commercial real estate other | 2,292,099 |  | 2,278,599 |
Subtotal commercial real estate | 2,677,254 |  | 2,653,154 |
Residential real estate |  |
Home equity | 179,798 |  | 182,671 |
Mortgages | 1,312,913 |  | 1,290,911 |
Subtotal residential real estate | 1,492,711 |  | 1,473,582 |
Consumer and other |  |
Indirect | 3,857 |  | 4,655 |
Consumer and other | 66,601 |  | 67,396 |
Subtotal consumer and other | 70,458 |  | 72,051 |
Leases | 13,881 |  | 13,948 |
Total loans and leases | 5,068,294 |  | 5,082,288 |
Less: unearned income and deferred costs and fees | (4,843) |  | (6,821) |
Total loans and leases, net of unearned income and deferred costs and fees | $ | 5,063,451 |  | $ | 5,075,467 |
*SBA Paycheck Protection Program ("PPP") |  |

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 3 – "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, 2021. 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 origination, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments are due. Generally loans are placed on nonaccrual status if principal or interest payments become 90 days or more contractually past due and/or management deems the collectability of the principal and/or interest to be in question as well as when required by regulatory agencies. When interest accrual is discontinued, all unpaid accrued interest is reversed. Payments received on loans on nonaccrual are generally applied to reduce the principal balance of the loan. Loans are generally returned to accrual status when all the principal and interest amounts contractually due are brought current, the borrower has established a payment history, and future payments are reasonably assured. When management determines that the collection of principal in full is not probable, management will charge-off a partial amount or full amount of the loan balance. Management considers specific facts and circumstances relative to each individual credit in making such a determination. For residential and consumer loans, management uses specific regulatory guidance and thresholds for determining charge-offs.
13

The below tables are an age analysis of past due loans, segregated by class of loans as of March 31, 2022 and December 31, 2021:

March 31, 2022 |
(In thousands) | 30-59 Days | 60-89 Days | 90 Days or More | Total Past Due | Current Loans | Total Loans
Loans and Leases |  |  |  |  |  |
Commercial and industrial |  |  |  |  |  |
Agriculture | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 81,269 |  | $ | 81,269
Commercial and industrial other | 6 |  | 4 |  | 370 |  | 380 |  | 708,246 |  | 708,626 |
PPP loans | 24 |  | 0 |  | 0 |  | 24 |  | 24,095 |  | 24,095 |
Subtotal commercial and industrial | 30 |  | 4 |  | 370 |  | 404 |  | 813,610 |  | 813,990 |
Commercial real estate |  |  |  |  |  |
Construction | 0 |  | 0 |  | 318 |  | 318 |  | 185,185 |  | 185,503
Agriculture | 118 |  | 0 |  | 0 |  | 118 |  | 199,534 |  | 199,652
Commercial real estate other | 284 |  | 0 |  | 6,606 |  | 6,890 |  | 2,285,209 |  | 2,292,099
Subtotal commercial real estate | 402 |  | 0 |  | 6,924 |  | 7,326 |  | 2,669,928 |  | 2,677,254 |
Residential real estate |  |  |  |  |  |
Home equity | 134 |  | 129 |  | 1,150 |  | 1,413 |  | 178,385 |  | 179,798
Mortgages | 540 |  | 346 |  | 4,151 |  | 5,037 |  | 1,307,876 |  | 1,312,913
Subtotal residential real estate | 674 |  | 475 |  | 5,301 |  | 6,450 |  | 1,486,261 |  | 1,492,711 |
Consumer and other |  |  |  |  |  |
Indirect | 30 |  | 0 |  | 116 |  | 146 |  | 3,711 |  | 3,857
Consumer and other | 104 |  | 16 |  | 268 |  | 388 |  | 66,213 |  | 66,601
Subtotal consumer and other | 134 |  | 16 |  | 384 |  | 534 |  | 69,924 |  | 70,458 |
Leases | 0 |  | 0 |  | 0 |  | 0 |  | 13,881 |  | 13,881 |
Total loans and leases | 1,240 |  | 495 |  | 12,979 |  | 14,714 |  | 5,053,604 |  | 5,068,294 |
Less: unearned income and deferred costs and fees | 0 |  | 0 |  | 0 |  | 0 |  | (4,843) |  | (4,843) |
Total loans and leases, net of unearned income and deferred costs and fees | $ | 1,240 |  | $ | 495 |  | $ | 12,979 |  | $ | 14,714 |  | $ | 5,048,761 |  | $ | 5,063,451 |

14

December 31, 2021
(In thousands) | 30-59 Days | 60-89 Days | 90 Days or More | Total Past Due | Current Loans | Total Loans
Loans and Leases |  |  |  |  |  |
Commercial and industrial |  |  |  |  |  |
Agriculture | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 99,172 |  | $ | 99,172 |
Commercial and industrial other | 506 |  | 6 |  | 88 |  | 600 |  | 698,521 |  | 699,121 |
PPP loans | 0 |  | 0 |  | 0 |  | 0 |  | 71,260 |  | 71,260 |
Subtotal commercial and industrial | 506 |  | 6 |  | 88 |  | 600 |  | 868,953 |  | 869,553 |
Commercial real estate |  |  |  |  |  |
Construction | 0 |  | 0 |  | 0 |  | 0 |  | 178,582 |  | 178,582 |
Agriculture | 121 |  | 0 |  | 0 |  | 121 |  | 195,852 |  | 195,973 |
Commercial real estate other | 150 |  | 257 |  | 3,305 |  | 3,712 |  | 2,274,887 |  | 2,278,599 |
Subtotal commercial real estate | 271 |  | 257 |  | 3,305 |  | 3,833 |  | 2,649,321 |  | 2,653,154 |
Residential real estate |  |  |  |  |  |
Home equity | 441 |  | 417 |  | 798 |  | 1,656 |  | 181,015 |  | 182,671 |
Mortgages | 7 |  | 839 |  | 3,917 |  | 4,763 |  | 1,286,148 |  | 1,290,911 |
Subtotal residential real estate | 448 |  | 1,256 |  | 4,715 |  | 6,419 |  | 1,467,163 |  | 1,473,582 |
Consumer and other |  |  |  |  |  |
Indirect | 77 |  | 86 |  | 2 |  | 165 |  | 4,490 |  | 4,655 |
Consumer and other | 120 |  | 45 |  | 45 |  | 210 |  | 67,186 |  | 67,396 |
Subtotal consumer and other | 197 |  | 131 |  | 47 |  | 375 |  | 71,676 |  | 72,051 |
Leases | 0 |  | 0 |  | 0 |  | 0 |  | 13,948 |  | 13,948 |
Total loans and leases | 1,422 |  | 1,650 |  | 8,155 |  | 11,227 |  | 5,071,061 |  | 5,082,288 |
Less: unearned income and deferred costs and fees | 0 |  | 0 |  | 0 |  | 0 |  | (6,821) |  | (6,821) |
Total loans and leases, net of unearned income and deferred costs and fees | $ | 1,422 |  | $ | 1,650 |  | $ | 8,155 |  | $ | 11,227 |  | $ | 5,064,240 |  | $ | 5,075,467 |

The following tables present the amortized cost basis of loans on nonaccrual status and the amortized cost basis of loans on nonaccrual status for which there was no related allowance for credit losses. The below tables are an age analysis of nonaccrual loans segregated by class of loans, as of March 31, 2022 and December 31, 2021:
15

March 31, 2022
(In thousands) | Nonaccrual Loans and Leases with no ACL | Nonaccrual Loans and Leases | Loans and Leases Past Due Over 89 Days and Accruing
Loans and Leases |  |  |
Commercial and industrial |  |  |
Commercial and industrial other | $ | 454 |  | $ | 806 |  | $ | 0 |
Subtotal commercial and industrial | 454 |  | 806 |  | 0 |
Commercial real estate |  |  |
Construction | 658 |  | 318 |  | 0 |
Commercial real estate other | 11,846 |  | 13,305 |  | 0 |
Subtotal commercial real estate | 12,504 |  | 13,623 |  | 0 |
Residential real estate |  |  |
Home equity | 574 |  | 2,215 |  | 0 |
Mortgages | 1,256 |  | 7,985 |  | 0 |
Subtotal residential real estate | 1,830 |  | 10,200 |  | 0 |
Consumer and other |  |  |
Indirect | 0 |  | 255 |  | 0 |
Consumer and other | 0 |  | 316 |  | 0 |
Subtotal consumer and other | 0 |  | 571 |  | 0 |
Total loans and leases | $ | 14,788 |  | $ | 25,200 |  | $ | 0 |

December 31, 2021 |  |  |
(In thousands) | Nonaccrual Loans and Leases with no ACL | Nonaccrual Loans and Leases | Loans and Leases Past Due Over 89 Days and Accruing
Loans and Leases |  |  |
Commercial and industrial |  |  |
Commercial and industrial other | $ | 502 |  | $ | 533 |  | $ | 0 |
Subtotal commercial and industrial | 502 |  | 533 |  | 0 |
Commercial real estate |  |  |
Construction | 671 |  | 671 |  | 0 |
Agriculture | 348 |  | 456 |  | 0 |
Commercial real estate other | 12,483 |  | 12,766 |  | 0 |
Subtotal commercial real estate | 13,502 |  | 13,893 |  | 0 |
Residential real estate |  |  |
Home equity | 380 |  | 2,459 |  | 0 |
Mortgages | 716 |  | 8,719 |  | 0 |
Subtotal residential real estate | 1,096 |  | 11,178 |  | 0 |
Consumer and other |  |  |
Indirect | 1 |  | 246 |  | 0 |
Consumer and other | 0 |  | 183 |  | 0 |
Subtotal consumer and other | 1 |  | 429 |  | 0 |
Total loans and leases | $ | 15,101 |  | $ | 26,033 |  | $ | 0 |

The Company recognized $0 of interest income on nonaccrual loans during the three months ended March 31, 2022.
16

5. Allowance for Credit Losses
Management reviews the appropriateness of the allowance for credit losses ("allowance" or "ACL") on a regular basis. Management considers the accounting policy relating to the allowance to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance 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 allowance 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 and ASC 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 speed, 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 forecasts of 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.
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.
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 March 31, 2022, considers the allowance to be appropriate, under different conditions or assumptions, the Company would need to increase or decrease the allowance. In addition, various federal and State regulatory agencies, 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 judgements and information available to them at the time of their examinations.
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 cancelable, through a charge to credit loss expense for off-balance sheet credit exposures included in provision for credit loss expense in the Company's consolidated statements of income.
The following table details activity in the allowance for credit losses on loans and leases for the three months ended March 31, 2022 and 2021. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
17

Three Months Ended March 31, 2022 |  |  |  |
(In thousands) | Commercial & Industrial | Commercial Real Estate | Residential Real Estate | Consumer and Other | Finance Leases | Total
Allowance for credit losses:
Beginning balance | $ | 6,335 |  | $ | 24,813 |  | $ | 10,139 |  | $ | 1,492 |  | $ | 64 |  | $ | 42,843 |
Charge-offs | (23) |  | (27) |  | 0 |  | (196) |  | 0 |  | (246) |
Recoveries | 20 |  | 42 |  | 109 |  | 92 |  | 0 |  | 263 |
(Credit) provision for credit loss expense | 695 |  | (1,846) |  | 199 |  | 200 |  | 18 |  | (734) |
Ending Balance | $ | 7,027 |  | $ | 22,982 |  | $ | 10,447 |  | $ | 1,588 |  | $ | 82 |  | $ | 42,126 |

Three Months Ended March 31, 2021 |  |  |  |
(In thousands) | Commercial & Industrial | Commercial Real Estate | Residential Real Estate | Consumer and Other | Finance Leases | Total
Allowance for credit losses: |  |  |  |  |
Beginning balance | $ | 9,239 |  | $ | 30,546 |  | $ | 10,257 |  | $ | 1,562 |  | $ | 65 |  | 51,669 |
Charge-offs | (116) |  | 0 |  | 0 |  | (91) |  | 0 |  | (207) |
Recoveries | 97 |  | 213 |  | 34 |  | 43 |  | 0 |  | 387 |
(Credit) provision for credit loss expense | (1,470) |  | (292) |  | (821) |  | 69 |  | 4 |  | (2,510) |
Ending Balance | $ | 7,750 |  | $ | 30,467 |  | $ | 9,470 |  | $ | 1,583 |  | $ | 69 |  | $ | 49,339 |

The following table details activity in the Liabilities for off-balance sheet credit exposures for the three months ended March 31, 2022 and 2021:

(In thousands) | 2022 | 2021
Liabilities for off-balance sheet credit exposures at beginning of period | $ | 2,507 |  | $ | 1,920 |
Provision for credit loss expense related to off-balance sheet credit exposures | 214 |  | 680 |
Liabilities for off-balance sheet credit exposures at end of period | $ | 2,721 |  | $ | 2,600 |

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses allocated to these loans:

March 31, 2022 |  |  |  |  |
(In thousands) | Real Estate | Business Assets | Other | Total | ACL Allocation
Commercial and Industrial | $ | 374 |  | $ | 425 |  | $ | 668 |  | $ | 1,467 |  | $ | 24 |
Commercial Real Estate | 12,130 |  | 0 |  | 0 |  | 12,130 |  | 40 |
Commercial Real Estate - Agriculture | 1,544 |  | 0 |  | 0 |  | 1,544 |  | 0 |
Total | $ | 14,048 |  | $ | 425 |  | $ | 668 |  | $ | 15,141 |  | $ | 64 |

December 31, 2021 |  |  |  |  |
(In thousands) | Real Estate | Business Assets | Other | Total | ACL Allocation
Commercial and Industrial | $ | 142 |  | $ | 395 |  | $ | 328 |  | $ | 865 |  | $ | 26 |
Commercial Real Estate | 13,334 |  | 0 |  | 1,931 |  | 15,265 |  | 40 |
Commercial Real Estate - Agriculture | 0 |  | 0 |  | 0 |  | 0 |  | 0 |
Residential Real Estate | 32 |  | 0 |  | 0 |  | 32 |  | 1 |
Total | $ | 13,508 |  | $ | 395 |  | $ | 2,259 |  | $ | 16,162 |  | $ | 67 |

18

Loans are considered modified in a troubled debt restructuring ("TDR") when, due to a borrower’s financial difficulties, the Company makes concessions to the borrower that it would not otherwise consider. These modifications may include, among others, an extension for the term of the loan, and granting a period when interest-only payments can be made with the principal payments made over the remaining term of the loan or at maturity.
There were no new TDRs in the first quarter of 2022 or 2021.
In 2020, the Company implemented a loan payment deferral program to assist both consumer and business borrowers that were experiencing financial hardship due to COVID-19. The Company's program allowed for deferral of payments of principal and interest. The Coronavirus Aid, Relief and Economic Security Act ("CARES Act") and interagency guidance issued by Federal banking regulators provided guidance and clarification related to modifications and deferral programs to assist borrowers who were negatively impacted by the COVID-19 national emergency. The guidance and clarifications detail certain provisions whereby banks are permitted to make deferrals and modifications to the terms of a loan which would not require the loan to be reported as a TDR. In accordance with the CARES Act and the interagency guidance, the Company elected to adopt the provisions to not report eligible loan modifications as TDRs.
The relief related to TDRs under the CARES Act was extended by the Consolidated Appropriations Act, 2021 ("CAA Act"). Under the CAA Act, the relief under the CARES Act continued until the January 1, 2022.
19

The following tables present credit quality indicators by total loans on an amortized cost basis by origination year as of March 31, 2022 and December 31, 2021:

March 31, 2022 |  |  |  |  |  |  |  |  |
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total Loans
Commercial and Industrial - Other: |  |  |  |  |  |
Internal risk grade: |  |  |  |  |  |  |  |  |
Pass | $ | 59,972 |  | $ | 109,152 |  | $ | 52,407 |  | $ | 52,415 |  | $ | 41,753 |  | $ | 176,794 |  | $ | 204,489 |  | $ | 1,054 |  | $ | 698,036 |
Special Mention | 0 |  | 149 |  | 424 |  | 402 |  | 81 |  | 1,531 |  | 1,591 |  | 0 |  | 4,178 |
Substandard | 0 |  | 0 |  | 870 |  | 44 |  | 521 |  | 977 |  | 4,000 |  | 0 |  | 6,412 |
Total Commercial and Industrial - Other | $ | 59,972 |  | $ | 109,301 |  | $ | 53,701 |  | $ | 52,861 |  | $ | 42,355 |  | $ | 179,302 |  | $ | 210,080 |  | $ | 1,054 |  | $ | 708,626 |
Commercial and Industrial - PPP: |  |  |  |  |  |
Pass | $ | 0 |  | $ | 23,429 |  | $ | 666 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 24,095 |
Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
Total Commercial and Industrial - PPP | $ | 0 |  | $ | 23,429 |  | $ | 666 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 24,095 |
Commercial and Industrial - Agriculture: |  |  |  |  |  |
Pass | $ | 2,444 |  | $ | 7,892 |  | $ | 6,357 |  | $ | 5,294 |  | $ | 9,470 |  | $ | 9,049 |  | $ | 36,632 |  | $ | 0 |  | $ | 77,138 |
Special Mention | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |
Substandard | 0 |  | 0 |  | 82 |  | 4 |  | 0 |  | 2,383 |  | 1,662 |  | 0 |  | 4,131 |
Total Commercial and Industrial - Agriculture | $ | 2,444 |  | $ | 7,892 |  | $ | 6,439 |  | $ | 5,298 |  | $ | 9,470 |  | $ | 11,432 |  | $ | 38,294 |  | $ | 0 |  | $ | 81,269 |
Commercial Real Estate |  |  |  |  |  |
Pass | $ | 60,779 |  | $ | 372,476 |  | $ | 296,469 |  | $ | 293,389 |  | $ | 217,355 |  | $ | 889,454 |  | $ | 25,526 |  | $ | 18,938 |  | $ | 2,174,386 |
Special Mention | 0 |  | 3,468 |  | 1,752 |  | 11,694 |  | 3,186 |  | 67,476 |  | 0 |  | 0 |  | 87,576 |
Substandard | 0 |  | 0 |  | 0 |  | 3,166 |  | 2,396 |  | 24,177 |  | 398 |  | 0 |  | 30,137 |
Total Commercial Real Estate | $ | 60,779 |  | $ | 375,944 |  | $ | 298,221 |  | 308,249 |  | 222,937 |  | 981,107 |  | $ | 25,924 |  | $ | 18,938 |  | $ | 2,292,099 |
Commercial Real Estate - Agriculture: |  |  |  |  |  |
Pass | $ | 5,642 |  | $ | 22,989 |  | $ | 22,129 |  | $ | 28,086 |  | $ | 40,827 |  | $ | 73,318 |  | $ | 4,633 |  | $ | 147 |  | $ | 197,771 |
Special Mention | 0 |  | 0 |  | 0 |  | 219 |  | 0 |  | 407 |  | 0 |  | 0 |  | 626 |
Substandard | 0 |  | 0 |  | 0 |  | 0 |  | 39 |  | 1,216 |  | 0 |  | 0 |  | 1,255 |
Total Commercial Real Estate - Agriculture | $ | 5,642 |  | $ | 22,989 |  | $ | 22,129 |  | $ | 28,305 |  | $ | 40,866 |  | $ | 74,941 |  | $ | 4,633 |  | $ | 147 |  | $ | 199,652 |
Commercial Real Estate - Construction |  |  |  |  |  |
Pass | $ | 4,103 |  | $ | 47,620 |  | $ | 72,993 |  | $ | 29,262 |  | $ | 8,940 |  | $ | 14,312 |  | $ | 5,841 |  | $ | 1,648 |  | $ | 184,719 |
Special Mention | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | 0 |  | 0 |  | 0 |  | 0 |
Substandard | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 784 |  | $ | 0 |  | 0 |  | 0 |  | 0 |  | 784 |
Total Commercial Real Estate - Construction | $ | 4,103 |  | $ | 47,620 |  | $ | 72,993 |  | $ | 30,046 |  | $ | 8,940 |  | $ | 14,312 |  | $ | 5,841 |  | $ | 1,648 |  | $ | 185,503 |

20

December 31, 2021 |  |  |  |  |  |  |  |  |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total Loans
Commercial and Industrial - Other: |  |  |  |  |  |
Internal risk grade: |  |  |  |  |  |  |  |  |
Pass | $ | 123,996 |  | $ | 58,432 |  | $ | 54,116 |  | $ | 42,093 |  | $ | 35,725 |  | $ | 239,093 |  | $ | 125,476 |  | $ | 10,039 |  | $ | 688,970 |
Special Mention | 156 |  | 770 |  | 450 |  | 100 |  | 201 |  | 393 |  | 1,417 |  | 0 |  | 3,487 |
Substandard | 179 |  | 584 |  | 47 |  | 575 |  | 0 |  | 637 |  | 4,642 |  | 0 |  | 6,664 |
Total Commercial and Industrial - Other | $ | 124,331 |  | $ | 59,786 |  | $ | 54,613 |  | $ | 42,768 |  | $ | 35,926 |  | $ | 240,123 |  | $ | 131,535 |  | $ | 10,039 |  | $ | 699,121 |
Commercial and Industrial - Agriculture: |  |  |  |  |  |
Pass | $ | 8,573 |  | $ | 6,782 |  | $ | 5,700 |  | $ | 10,136 |  | $ | 6,867 |  | $ | 3,186 |  | $ | 53,145 |  | $ | 595 |  | $ | 94,984 |
Special Mention | 0 | 0 | 0 | 23 | 0 | 0 | 0 | 0 | 23
Substandard | 0 | 85 | 11 | 0 | 93 | 2316 | 1660 | 0 | 4165
Total Commercial and Industrial - Agriculture | $ | 8,573 |  | $ | 6,867 |  | $ | 5,711 |  | $ | 10,159 |  | $ | 6,960 |  | $ | 5,502 |  | $ | 54,805 |  | $ | 595 |  | $ | 99,172 |
Commercial and Industrial - PPP: |  |  |  |  |  |
Pass | $ | 71,260 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 71,260 |
Special Mention | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |
Substandard | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |
Total Commercial and Industrial - PPP | $ | 71,260 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 71,260 |
Commercial Real Estate |  |  |  |  |  |
Pass | $ | 325,874 |  | $ | 271,680 |  | $ | 249,266 |  | $ | 201,992 |  | $ | 212,991 |  | $ | 810,713 |  | $ | 44,264 |  | $ | 43,225 |  | $ | 2,160,005 |
Special Mention | 0 |  | 1,763 |  | 11,772 |  | 3,217 |  | 2,167 |  | 61,723 |  | 358 |  | 0 |  | 81,000 |
Substandard | 3,482 |  | 0 |  | 2,262 |  | 2,518 |  | 8,509 |  | 20,401 |  | 422 |  | 0 |  | 37,594 |
Total Commercial Real Estate | $ | 329,356 |  | $ | 273,443 |  | $ | 263,300 |  | $ | 207,727 |  | $ | 223,667 |  | $ | 892,837 |  | $ | 45,044 |  | $ | 43,225 |  | $ | 2,278,599 |
Commercial Real Estate - Agriculture: |  |  |  |  |  |
Pass | $ | 23,151 |  | $ | 21,856 |  | $ | 28,943 |  | $ | 41,064 |  | $ | 23,195 |  | $ | 50,809 |  | $ | 1,949 |  | $ | 2,850 |  | $ | 193,817 |
Special Mention | 0 |  | 479 |  | 0 |  | 0 |  | 0 |  | 350 |  | 35 |  | 0 |  | 864 |
Substandard | 0 |  | 0 |  | 0 |  | 39 |  | 0 |  | 1,253 |  | 0 |  | 0 |  | 1,292 |
Total Commercial Real Estate - Agriculture | $ | 23,151 |  | $ | 22,335 |  | $ | 28,943 |  | $ | 41,103 |  | $ | 23,195 |  | $ | 52,412 |  | $ | 1,984 |  | $ | 2,850 |  | $ | 195,973 |
Commercial Real Estate - Construction |  |  |  |  |  |
Pass | $ | 12,840 |  | $ | 10,025 |  | $ | 16,325 |  | $ | 7,542 |  | $ | 1,274 |  | $ | 6,559 |  | $ | 112,537 |  | $ | 10,037 |  | $ | 177,139 |
Special Mention | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 0 |
Substandard | 0 |  | 0 |  | 0 |  | 0 |  | 0 |  | 643 |  | 800 |  | 0 |  | 1,443 |
Total Commercial Real Estate - Construction | $ | 12,840 |  | $ | 10,025 |  | $ | 16,325 |  | $ | 7,542 |  | $ | 1,274 |  | $ | 7,202 |  | $ | 113,337 |  | $ | 10,037 |  | $ | 178,582 |

21

The following tables present credit quality indicators by total loans on an amortized cost basis by origination year as of March 31, 2022 and December 31, 2021, continued:

March 31, 2022 |  |  |  |  |  |  |  |  |
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total Loans
Residential - Home Equity |  |  |  |  |  |  |
Performing | $ | 216 |  | $ | 1,255 |  | $ | 726 |  | $ | 1,154 |  | $ | 893 |  | $ | 4,260 |  | $ | 168,403 |  | $ | 676 |  | $ | 177,583 |
Nonperforming | 0 |  | 0 |  | 0 |  | 15 |  | 0 |  | 75 |  | 2,125 |  | 0 |  | 2,215 |
Total Residential - Home Equity | $ | 216 |  | $ | 1,255 |  | $ | 726 |  | $ | 1,169 |  | $ | 893 |  | $ | 4,335 |  | $ | 170,528 |  | $ | 676 |  | $ | 179,798 |
Residential - Mortgages |  |  |  |  |  |  |
Performing | $ | 59,751 |  | $ | 280,315 |  | $ | 256,287 |  | $ | 128,140 |  | $ | 73,586 |  | $ | 506,849 |  | $ | 0 |  | $ | 0 |  | $ | 1,304,928 |
Nonperforming | 0 |  | 0 |  | 0 |  | 236 |  | 773 |  | 6,976 |  | 0 |  | 0 |  | 7,985 |
Total Residential - Mortgages | $ | 59,751 |  | $ | 280,315 |  | $ | 256,287 |  | $ | 128,376 |  | $ | 74,359 |  | $ | 513,825 |  | $ | 0 |  | $ | 0 |  | $ | 1,312,913 |
Consumer - Direct |  |  |  |  |  |  |
Performing | $ | 8,374 |  | $ | 19,893 |  | $ | 9,903 |  | $ | 7,929 |  | $ | 5,515 |  | $ | 9,365 |  | $ | 5,306 |  | $ | 0 |  | $ | 66,285 |
Nonperforming | 0 |  | 0 |  | 4 |  | 25 |  | 104 |  | 11 |  | 172 |  | 0 |  | 316 |
Total Consumer - Direct | $ | 8,374 |  | $ | 19,893 |  | $ | 9,907 |  | $ | 7,954 |  | $ | 5,619 |  | $ | 9,376 |  | $ | 5,478 |  | $ | 0 |  | $ | 66,601 |
Consumer - Indirect |  |  |  |  |  |  |
Performing | $ | 0 |  | $ | 194 |  | $ | 245 |  | $ | 1,813 |  | $ | 1,070 |  | $ | 280 |  | $ | 0 |  | $ | 0 |  | $ | 3,602 |
Nonperforming | $ | 0 |  | $ | 0 |  | $ | 0 |  | $ | 196 |  | $ | 47 |  | $ | 12 |  | 0 |  | 0 |  | 255 |
Total Consumer - Indirect | $ | 0 |  | $ | 194 |  | $ | 245 |  | $ | 2,009 |  | $ | 1,117 |  | $ | 292 |  | $ | 0 |  | $ | 0 |  | $ | 3,857 |

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December 31, 2021 |  |  |  |  |  |  |  |  |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total Loans
Residential - Home Equity |  |  |  |  |  |  |
Performing | $ | 2,033 |  | $ | 1,142 |  | $ | 3,041 |  | $ | 1,600 |  | $ | 1,572 |  | $ | 3,144 |  | $ | 161,630 |  | $ | 6,050 |  | $ | 180,212 |
Nonperforming | 0 |  | 0 |  | 16 |  | 0 |  | 0 |  | 604 |  | 1,839 |  | 0 |  | 2,459 |
Total Residential - Home Equity | $ | 2,033 |  | $ | 1,142 |  | $ | 3,057 |  | $ | 1,600 |  | $ | 1,572 |  | $ | 3,748 |  | $ | 163,469 |  | $ | 6,050 |  | $ | 182,671 |
Residential - Mortgages |  |  |  |  |  |  |
Performing | $ | 324,967 |  | $ | 282,202 |  | $ | 162,574 |  | $ | 97,778 |  | $ | 124,221 |  | $ | 275,133 |  | $ | 14,112 |  | $ | 1,205 |  | $ | 1,282,192 |
Nonperforming | 0 |  | 0 |  | 241 |  | 702 |  | 693 |  | 7,060 |  | 23 |  | 0 |  | 8,719 |
Total Residential - Mortgages | $ | 324,967 |  | $ | 282,202 |  | $ | 162,815 |  | $ | 98,480 |  | $ | 124,914 |  | $ | 282,193 |  | $ | 14,135 |  | $ | 1,205 |  | $ | 1,290,911 |
Consumer - Direct |  |  |  |  |  |  |
Performing | $ | 20,653 |  | $ | 10,735 |  | $ | 9,397 |  | $ | 5,542 |  | $ | 4,849 |  | $ | 10,602 |  | $ | 5,435 |  | $ | 0 |  | $ | 67,213 |
Nonperforming | 0 |  | 9 |  | 44 |  | 117 |  | 12 |  | 0 |  | 1 |  | 0 |  | 183 |
Total Consumer - Direct | $ | 20,653 |  | $ | 10,744 |  | $ | 9,441 |  | $ | 5,659 |  | $ | 4,861 |  | $ | 10,602 |  | $ | 5,436 |  | $ | 0 |  | $ | 67,396 |
Consumer - Indirect |  |  |  |  |  |  |
Performing | $ | 1,809 |  | $ | 854 |  | $ | 812 |  | $ | 506 |  | $ | 362 |  | $ | 66 |  | $ | 0 |  | $ | 0 |  | $ | 4,409 |
Nonperforming | 0 |  | 2 |  | 148 |  | 81 |  | 1 |  | 14 |  | 0 |  | 0 |  | 246 |
Total Consumer - Indirect | $ | 1,809 |  | $ | 856 |  | $ | 960 |  | $ | 587 |  | $ | 363 |  | $ | 80 |  | $ | 0 |  | $ | 0 |  | $ | 4,655 |

6. Earnings Per Share
Earnings per share in the table below, for the three month periods ended March 31, 2022 and 2021 are calculated under the two-class method as required by ASC Topic 260, Earnings Per Share (ASC 260). ASC 260 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company has issued restricted stock awards that contain such rights and are therefore considered participating securities. Basic earnings per common share are calculated by dividing net income allocable to common stock by the weighted average number of common shares, excluding participating securities, during the period. Diluted earnings per common share include the dilutive effect of participating securities.
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| Three Months Ended
(In thousands, except share and per share data) | 3/31/2022 | 3/31/2021
Basic |  |
Net income available to common shareholders | $ | 23,273 |  | $ | 25,626 |
Less: income attributable to unvested stock-based compensation awards | (76) |  | (186) |
Net earnings allocated to common shareholders | 23,197 |  | 25,440 |
Weighted average shares outstanding, including unvested stock-based compensation awards | 14,611,709 |  | 14,912,502 |
Less: average unvested stock-based compensation awards | (211,706) |  | (236,092) |
Weighted average shares outstanding - Basic | 14,400,003 |  | 14,676,410 |
Diluted |  |
Net earnings allocated to common shareholders | 23,197 |  | 25,440 |
Weighted average shares outstanding - Basic | 14,400,003 |  | 14,676,410 |
Plus: incremental shares from assumed conversion of stock-based compensation awards | 78,180 |  | 81,148 |
Weighted average shares outstanding - Diluted | 14,478,183 |  | 14,757,558 |
Basic EPS | $ | 1.61 |  | $ | 1.73 |
Diluted EPS | $ | 1.60 |  | $ | 1.72 |

Stock-based compensation awards representing 1,848 and 15,983 of common shares during the three months ended March 31, 2022 and 2021, respectively, were not included in the computations of diluted earnings per common share because the effect on those periods would have been anti-dilutive.
7. Other Comprehensive Income (Loss)
The following tables present reclassifications out of the accumulated other comprehensive income (loss) for the three month periods ended March 31, 2022 and 2021:

| Three Months Ended March 31, 2022
(In thousands) | Before-Tax Amount | Tax (Expense) Benefit | Net of Tax
Available-for-sale debt securities: |  |  |
Change in net unrealized gain/loss during the period | $ | (106,481) |  | $ | 26,076 |  | $ | (80,405) |
Reclassification adjustment for net realized loss on sale of available-for-sale debt securities included in net income | 0 |  | 0 |  | 0 |
Net unrealized gains/losses | (106,481) |  | 26,076 |  | (80,405) |
Employee benefit plans: |  |  |
Amortization of net retirement plan actuarial gain | 615 |  | (151) |  | 464 |
Amortization of net retirement plan prior service cost | 56 |  | (14) |  | 42 |
Employee benefit plans | 671 |  | (165) |  | 506 |
Other comprehensive (loss) income | $ | (105,810) |  | $ | 25,911 |  | $ | (79,899) |

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| Three Months Ended March 31, 2021
(In thousands) | Before-Tax Amount | Tax (Expense) Benefit | Net of Tax
Available-for-sale debt securities: |  |  |
Change in net unrealized gain/loss during the period | $ | (33,439) |  | $ | 8,193 |  | $ | (25,246) |
Reclassification adjustment for net realized gain on sale of available-for-sale debt securities included in net income | (329) |  | 80 |  | (249) |
Net unrealized gains/losses | (33,768) |  | 8,273 |  | (25,495) |
Employee benefit plans: |  |  |
Amortization of net retirement plan actuarial gain | 764 |  | (187) |  | 577 |
Amortization of net retirement plan prior service cost | 56 |  | (14) |  | 42 |
Employee benefit plans | 820 |  | (201) |  | 619 |
Other comprehensive (loss) income | $ | (32,948) |  | $ | 8,072 |  | $ | (24,876) |

The following table presents the activity in our accumulated other comprehensive income (loss) for the periods indicated:

(In thousands) | Available-for- Sale Debt Securities | Employee Benefit Plans | Accumulated Other Comprehensive (Loss) Income
Balance at January 1, 2022 | $ | (14,560) |  | $ | (41,390) |  | $ | (55,950) |
Other comprehensive (loss) income before reclassifications | (80,405) |  | 0 |  | (80,405) |
Amounts reclassified from accumulated other comprehensive (loss) income | 0 |  | 506 |  | 506 |
Net current-period other comprehensive (loss) income | (80,405) |  | 506 |  | (79,899) |
Balance at March 31, 2022 | $ | (94,965) |  | $ | (40,884) |  | $ | (135,849) |
Balance at January 1, 2021 | $ | 20,609 |  | $ | (52,683) |  | $ | (32,074) |
Other comprehensive (loss) income before reclassifications | (25,246) |  | 0 |  | (25,246) |
Amounts reclassified from accumulated other comprehensive (loss) income | (249) |  | 619 |  | 370 |
Net current-period other comprehensive (loss) income | (25,495) |  | 619 |  | (24,876) |
March 31, 2021 | $ | (4,886) |  | $ | (52,064) |  | $ | (56,950) |

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The following tables present the amounts reclassified out of each component of accumulated other comprehensive (loss) income for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31, 2022 |  |
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands) | Amount Reclassified from Accumulated Other Comprehensive (Loss) Income 1 | Affected Line Item in the Statement Where Net Income is Presented
Available-for-sale debt securities: |  |
Unrealized gains and losses on available-for-sale debt securities | $ | 0 |  | Net (loss) gain on securities transactions
| 0 |  | Tax expense
| 0 |  | Net of tax
Employee benefit plans: |  |
Amortization of the following 2 |  |
Net retirement plan actuarial loss | (615) |  | Other operating expense
Net retirement plan prior service cost | (56) |  | Other operating expense
| (671) |  | Total before tax
| 165 |  | Tax benefit
| $ | (506) |  | Net of tax

Three Months Ended March 31, 2021 |  |
Details about Accumulated other Comprehensive Income (Loss) Components (In thousands) | Amount Reclassified from Accumulated Other Comprehensive (Loss) Income 1 | Affected Line Item in the Statement Where Net Income is Presented
Available-for-sale debt securities: |  |
Unrealized gains and losses on available-for-sale debt securities | $ | 329 |  | Net (loss) gain on securities transactions
| (80) |  | Tax expense
| 249 |  | Net of tax
Employee benefit plans: |  |
Amortization of the following 2 |  |
Net retirement plan actuarial loss | (764) |  | Other operating expense
Net retirement plan prior service cost | (56) |  | Other operating expense
| (820) |  | Total before tax
| 201 |  | Tax benefit
| $ | (619) |  | Net of tax

1 Amounts in parentheses indicated debits in income statement.
2 The accumulated other comprehensive (loss) income components are included in the computation of net periodic benefit cost (See Note 8 - "Employee Benefit Plan").
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8. Employee Benefit Plan
The following table sets forth the amount of the net periodic benefit cost recognized by the Company for the Company’s pension plan, post-retirement plan (Life and Health), and supplemental employee retirement plans ("SERP") including the following components: service cost, interest cost, expected return on plan assets for the period, amortization of net retirement plan actuarial loss, and prior service cost recognized.
Components of Net Periodic Benefit Cost:

| Pension Benefits Three Months Ended | Life and Health Three Months Ended | SERP Benefits Three Months Ended
(In thousands) | 3/31/2022 | 3/31/2021 | 3/31/2022 | 3/31/2021 | 3/31/2022 | 3/31/2021
Service cost | $ | 0 |  | $ | 0 |  | $ | 44 |  | $ | 52 |  | $ | 52 |  | $ | 60 |
Interest cost | 463 |  | 487 |  | 52 |  | 54 |  | 201 |  | 199 |
Expected return on plan assets | (1,468) |  | (1,415) |  | 0 |  | 0 |  | 0 |  | 0 |
Amortization of net retirement plan actuarial loss | 323 |  | 383 |  | 52 |  | 74 |  | 240 |  | 307 |
Amortization of net retirement plan prior service (credit) cost | 0 |  | 0 |  | (15) |  | (15) |  | 71 |  | 71 |
Net periodic benefit (income) cost | $ | (682) |  | $ | (545) |  | $ | 133 |  | $ | 165 |  | $ | 564 |  | $ | 637 |

The service component of net periodic benefit cost for the Company's benefit plans is recorded as a part of salaries and wages in the consolidated statements of income. All other components are recorded as part of other operating expenses in the consolidated statements of income.
The Company realized approximately $506,000 and $619,000, net of tax, as amortization of amounts previously recognized in accumulated other comprehensive (loss) income, for the three months ended March 31, 2022 and 2021, respectively.
The Company is not required to contribute to the pension plan in 2022, but it may make voluntary contributions. The Company did not contribute to the pension plan in the first three months of 2022 and 2021.
9. Other Income and Operating Expense
Other income and operating expense totals are presented in the table below. Components of these totals exceeding 1% of the aggregate of total noninterest income and total noninterest expenses for any periods presented below are stated separately.

| Three Months Ended
(In thousands) | 3/31/2022 | 3/31/2021
Noninterest Income |  |
Other service charges | $ | 627 |  | $ | 720 |
Earnings from corporate owned life insurance | 423 |  | 541 |
Net gains on the sales of loans originated for sale | 4 |  | 429 |
Other income | 422 |  | 284 |
Total other income | $ | 1,476 |  | $ | 1,974 |
Noninterest Expenses |  |
Marketing expense | $ | 1,056 |  | $ | 494 |
Professional fees | 1,606 |  | 1,894 |
Legal fees | 210 |  | 220 |
Technology expense | 3,683 |  | 2,927 |
Cardholder expense | 1,141 |  | 787 |
Other expenses | 4,324 |  | 4,303 |
Total other operating expense | $ | 12,020 |  | $ | 10,625 |

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10. Revenue Recognition
As stated in Note 1 - "Summary of Significant Accounting Policies," in the 2021 Annual Report on Form 10-K, the Company adopted ASU No. 2014-09 "Revenue from Contracts with Customers" (ASC 606) and all subsequent ASUs that modified ASC 606, on January 1, 2018. ASC 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of ASC 606. ASC 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of ASC 606.
Insurance Commissions and Fees
Insurance commissions and fees from insurance product sales are typically earned upon the effective date of bound coverage, as no significant performance obligation remains after coverage is bound. Commission revenue on policies billed in installments is now accrued based upon the completion of the performance obligation creating a current asset for the unbilled revenue until such time as an invoice is generated, typically not to exceed twelve months. The impact of these changes was not significant, but it will result in slight variances from quarter to quarter. Contingent commissions are estimated based upon management’s expectations for the year with an appropriate constraint applied and accrued relative to the recognition of the corresponding core commissions.
Trust & Asset Management
Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.
Mutual Fund & Investment Income
Mutual fund and investment income consists of other recurring revenue streams such as commissions from sales of mutual funds and other investments, investment advisory fees from the Company’s Strategic Asset Management Services (SAM) wealth management product. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value, recorded over time, usually monthly or quarterly, as net asset value is determined. Investment advisor fees from the wealth management product is earned over time and based on an annual percentage rate of the net asset value. The investment advisor fees are charged to the customer’s account in advance on the first month of the quarter, and the revenue is recognized over the following three-month period. The Company does engage a third party, LPL Financial, LLC (LPL), to satisfy part of this performance obligation, and therefore this income is reported net of any corresponding expenses paid to LPL.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
Card Services Income
Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as MasterCard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. The Company’s performance obligation for fees and exchange are largely satisfied,
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and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Other
Other service charges include revenue from processing wire and ACH transfers, lock box service and safe deposit box rental. Payment on these revenue streams is received primarily through a direct charge to the customer’s account, immediately or in the following month, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time.
The following table presents noninterest income, segregated by revenue streams, for the three months ended March 31, 2022 and 2021:

| Three Months Ended
(In thousands) | 03/31/2022 | 03/31/2021
Noninterest Income |  |
In-scope of Topic 606: |  |
Commissions and Fees | $ | 7,964 |  | $ | 7,684 |
Installment Billing | 44 |  | 35 |
Refund of Commissions | (28) |  | (20) |
Contract Liabilities/Deferred Revenue | (1) |  | (1) |
Contingent Commissions | 1,338 |  | 1,468 |
Subtotal Insurance Revenues | 9,317 |  | 9,166 |
Trust and Asset Management | 3,503 |  | 3,366 |
Mutual Fund & Investment Income | 1,414 |  | 1,307 |
Subtotal Investment Service Income | 4,917 |  | 4,673 |
Service Charges on Deposit Accounts | 1,779 |  | 1,470 |
Card Services Income | 2,543 |  | 2,383 |
Other | 316 |  | 300 |
Noninterest Income (in-scope of ASC 606) | 18,872 |  | 17,992 |
Noninterest Income (out-of-scope of ASC 606) | 1,113 |  | 1,991 |
Total Noninterest Income | $ | 19,985 |  | $ | 19,983 |

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Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration or before payment is due, which would result in contract receivables or assets, respectively. A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment or for which payment is due from the customer. The Company’s noninterest revenue streams, excluding some insurance commissions and fees, are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Receivables primarily consist of amounts due for insurance and wealth management services performed for which the Company's performance obligations have been fully satisfied. Receivables for the insurance and wealth management services amounted to $5.2 million and $2.8 million, respectively, at March 31, 2022, compared to $6.0 million and $2.3 million, respectively, at December 31, 2021. Additionally, the Company had contract assets related to contingent income of $700,000 and $3.0 million, respectively, at March 31, 2022 and December 31, 2021, and contract liabilities of $1.0 million and $1.7 million, respectively at March 31, 2022 and December 31, 2021.
Contract Acquisition Costs
In connection with the adoption of ASC 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of ASC 606, the Company did not capitalize any contract acquisition costs.
11. Financial Guarantees
The Company currently does not issue any guarantees that would require liability recognition or disclosure, other than standby letters of credit. The Company extends standby letters of credit to its customers in the normal course of business. The standby letters of credit are generally short-term. As of March 31, 2022, the Company’s maximum potential obligation under standby letters of credit was $38.9 million compared to $39.8 million at December 31, 2021. Management uses the same credit policies to extend standby letters of credit that it uses for on-balance sheet lending decisions and may require collateral to support standby letters of credit based upon its evaluation of the counterparty. Management does not anticipate any significant losses as a result of these transactions, and has determined that the fair value of standby letters of credit is not significant.
12. Segment and Related Information
The Company manages its operations through three reportable business segments in accordance with the standards set forth in FASB ASC 280, "Segment Reporting": (i) banking ("Banking"), (ii) insurance ("Tompkins Insurance") and (iii) wealth management ("Tompkins Financial Advisors"). The Company’s insurance services and wealth management services, other than trust services, are managed separately from the Banking segment.
Banking
Tompkins Community Bank has thirteen banking offices located in Ithaca, NY and surrounding communities; sixteen banking offices located in the Genesee Valley region of New York State as well as Monroe County; fourteen banking offices located in the counties north of New York City; and twenty banking offices headquartered and operating in the areas surrounding southeastern Pennsylvania.
Insurance
The Company provides property and casualty insurance services and employee benefits consulting through Tompkins Insurance Agencies, Inc., a 100% wholly-owned subsidiary of the Company, headquartered in Batavia, New York. Tompkins Insurance is an independent insurance agency, representing many major insurance carriers and provides employee benefit consulting to employers in Western and Central New York and Southeastern Pennsylvania, assisting them with their medical, group life insurance and group disability insurance. Tompkins Insurance has five stand-alone offices in Western New York.
Wealth Management
The Wealth Management segment is generally organized under the Tompkins Financial Advisors brand. Tompkins Financial Advisors offers a comprehensive suite of financial services to customers, including trust and estate services, investment management and financial and insurance planning for individuals, corporate executives, small business owners and high net worth individuals. Tompkins Financial Advisors has offices in each of the Company’s regional markets.
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Summarized financial information concerning the Company’s reportable segments and the reconciliation to the Company’s consolidated results is shown in the following table. Investment in subsidiaries is netted out of the presentations below. The “Intercompany” column identifies the intercompany activities of revenues, expenses and other assets between the banking, insurance and wealth management services segments. The Company accounts for intercompany fees and services at an estimated fair value according to regulatory requirements for the services provided. Intercompany items relate primarily to the use of human resources, information systems, accounting and marketing services provided by the bank and the holding company. All other accounting policies are the same as those described in the summary of significant accounting policies in the Company's 2021 Annual Report on Form 10-K.

Three months ended March 31, 2022
(In thousands) | Banking | Insurance | Wealth Management | Intercompany | Consolidated
Interest income | $ | 59,176 |  | $ | 1 |  | $ | 0 |  | $ | (1) |  | $ | 59,176 |
Interest expense | 2,563 |  | 0 |  | 0 |  | (1) |  | 2,562 |
Net interest income | 56,613 |  | 1 |  | 0 |  | 0 |  | 56,614 |
Credit for credit loss expense | (520) |  | 0 |  | 0 |  | 0 |  | (520) |
Noninterest income | 6,193 |  | 9,434 |  | 4,934 |  | (576) |  | 19,985 |
Noninterest expense | 37,190 |  | 6,501 |  | 3,724 |  | (576) |  | 46,839 |
Income before income tax expense | 26,136 |  | 2,934 |  | 1,210 |  | 0 |  | 30,280 |
Income tax expense | 5,791 |  | 815 |  | 370 |  | 0 |  | 6,976 |
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation | 20,345 |  | 2,119 |  | 840 |  | 0 |  | 23,304 |
Less: Net income attributable to noncontrolling interests | 31 |  | 0 |  | 0 |  | 0 |  | 31 |
Net Income attributable to Tompkins Financial Corporation | $ | 20,314 |  | $ | 2,119 |  | $ | 840 |  | $ | 0 |  | $ | 23,273 |
Depreciation and amortization | $ | 2,578 |  | $ | 44 |  | $ | 28 |  | $ | 0 |  | $ | 2,650 |
Assets | 7,835,767 |  | 44,247 |  | 26,684 |  | (15,587) |  | 7,891,111 |
Goodwill | 64,500 |  | 19,866 |  | 8,081 |  | 0 |  | 92,447 |
Other intangibles, net | 1,402 |  | 1,917 |  | 63 |  | 0 |  | 3,382 |
Net loans and leases | 5,021,325 |  | 0 |  | 0 |  | 0 |  | 5,021,325 |
Deposits | 7,031,223 |  | 0 |  | (10) |  | (14,474) |  | 7,016,739 |
Total Equity | $ | 598,707 |  | $ | 34,128 |  | $ | 24,657 |  | $ | 0 |  | $ | 657,492 |

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Three months ended March 31, 2021
(In thousands) | Banking | Insurance | Wealth Management | Intercompany | Consolidated
Interest income | $ | 59,755 |  | $ | 0 |  | $ | 0 |  | $ | (1) |  | $ | 59,754 |
Interest expense | 4,718 |  | 0 |  | 0 |  | (1) |  | 4,717 |
Net interest income | 55,037 |  | 0 |  | 0 |  | 0 |  | 55,037 |
Credit for credit loss expense | (1,830) |  | 0 |  | 0 |  | 0 |  | (1,830) |
Noninterest income | 6,318 |  | 9,413 |  | 4,782 |  | (530) |  | 19,983 |
Noninterest expense | 35,329 |  | 6,435 |  | 3,277 |  | (530) |  | 44,511 |
Income before income tax expense | 27,856 |  | 2,978 |  | 1,505 |  | 0 |  | 32,339 |
Income tax expense | 5,515 |  | 801 |  | 364 |  | 0 |  | 6,680 |
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation | 22,341 |  | 2,177 |  | 1,141 |  | 0 |  | 25,659 |
Less: Net income attributable to noncontrolling interests | 33 |  | 0 |  | 0 |  | 0 |  | 33 |
Net Income attributable to Tompkins Financial Corporation | $ | 22,308 |  | $ | 2,177 |  | $ | 1,141 |  | $ | 0 |  | $ | 25,626 |
Depreciation and amortization | $ | 2,436 |  | $ | 56 |  | $ | 14 |  | $ | 0 |  | $ | 2,506 |
Assets | 8,038,864 |  | 43,084 |  | 29,091 |  | (15,697) |  | 8,095,342 |
Goodwill | 64,370 |  | 19,866 |  | 8,211 |  | 0 |  | 92,447 |
Other intangibles, net | 2,218 |  | 2,299 |  | 84 |  | 0 |  | 4,601 |
Net loans and leases | 5,243,454 |  | 0 |  | 0 |  | 0 |  | 5,243,454 |
Deposits | 6,961,266 |  | 0 |  | 0 |  | (14,725) |  | 6,946,541 |
Total Equity | $ | 650,326 |  | $ | 32,569 |  | $ | 27,041 |  | $ | 0 |  | $ | 709,936 |

13. Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FASB ASC Topic 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Transfers between levels, when determined to be appropriate, are recognized at the end of each reporting period.
The three levels of the fair value hierarchy under FASB ASC Topic 820 are:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
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The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, segregated by the level of valuation inputs within the fair value hierarchy used to measure fair value:

Recurring Fair Value Measurements |  |  |  |
March 31, 2022 |  |  |  |
(In thousands) | Total | (Level 1) | (Level 2) | (Level 3)
Available-for-sale debt securities |  |  |  |
U.S. Treasuries | $ | 178,903 |  | $ | 0 |  | $ | 178,903 |  | $ | 0 |
Obligations of U.S. Government sponsored entities | 802,107 |  | 0 |  | 802,107 |  | 0 |
Obligations of U.S. states and political subdivisions | 95,661 |  | 0 |  | 95,661 |  | 0 |
Mortgage-backed securities – residential, issued by: |  |  |  |
U.S. Government agencies | 66,277 |  | 0 |  | 66,277 |  | 0 |
U.S. Government sponsored entities | 835,773 |  | 0 |  | 835,773 |  | 0 |
U.S. corporate debt securities | 2,427 |  | 0 |  | 2,427 |  | 0 |
Total Available-for-sale debt securities | $ | 1,981,148 |  | $ | 0 |  | $ | 1,981,148 |  | $ | 0 |
Equity securities, at fair value | $ | 855 |  | $ | 0 |  | $ | 0 |  | $ | 855 |

Recurring Fair Value Measurements |  |  |  |
December 31, 2021 |  |  |  |
(In thousands) | Total | (Level 1) | (Level 2) | (Level 3)
Available-for-sale debt securities |  |  |  |
U.S. Treasuries | $ | 157,834 |  | $ | 0 |  | $ | 157,834 |  | $ | 0 |
Obligations of U.S. Government sponsored entities | 832,373 |  | 0 |  | 832,373 |  | 0 |
Obligations of U.S. states and political subdivisions | 104,169 |  | 0 |  | 104,169 |  | 0 |
Mortgage-backed securities – residential, issued by: |  |  |  |
U.S. Government agencies | 77,157 |  | 0 |  | 77,157 |  | 0 |
U.S. Government sponsored entities | 870,556 |  | 0 |  | 870,556 |  | 0 |
U.S. corporate debt securities | 2,424 |  | 0 |  | 2,424 |  | 0 |
Total Available-for-sale debt securities | $ | 2,044,513 |  | $ | 0 |  | $ | 2,044,513 |  | $ | 0 |
Equity securities, at fair value | $ | 902 |  | $ | 0 |  | $ | 0 |  | $ | 902 |

Securities: Fair values for U.S. Treasury securities are based on quoted market prices. Fair values for obligations of U.S. government sponsored entities, mortgage-backed securities-residential, obligations of U.S. states and political subdivisions, and U.S. corporate debt securities are based on quoted market prices, where available, as provided by third party pricing vendors. If quoted market prices were not available, fair values are based on quoted market prices of comparable instruments in active markets and/or based upon a matrix pricing methodology, which uses comprehensive interest rate tables to determine market price, movement and yield relationships. These securities are reviewed periodically to determine if there are any events or changes in circumstances that would adversely affect their value.
The change in the fair value of equity securities valued using significant unobservable inputs (level 3), between December 31, 2021 and March 31, 2022, was immaterial.
There were no transfers between Levels 1, 2 and 3 for the three months ended March 31, 2022.
The Company determines fair value for its available-for-sale debt securities using an independent bond pricing service for identical assets or very similar securities. The Company determines fair value for its equity securities based on the underlying equity fund’s pricing and valuation procedures which consider recent sales price, market quotations from a pricing service, or market quotes from an independent broker-dealer. The Company has reviewed the pricing sources, including methodologies used, and finds them to be fairly stated.
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Certain assets are measured at fair value on a nonrecurring basis. For the Company, these include loans held for sale, collateral dependent individually evaluated loans, and other real estate owned ("OREO"). As of March 31, 2022 and 2021, certain collateral dependent evaluated loans were remeasured and reported at fair value through a specific valuation allowance and/or partial charge-offs for credit losses based upon the fair value of the underlying collateral. Collateral values are estimated using Level 3 inputs. Upon initial recognition, fair value write-downs are taken through a charge-off to the allowance for credit losses. Subsequent fair value write-downs on other real estate owned are reported in other noninterest expense.
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at March 31, 2022 and December 31, 2021. The carrying amounts shown in the table are included in the Consolidated Statements of Condition under the indicated captions:

Three months ended March 31, 2022
(In thousands) |  | Fair value measurements at reporting date using: | Gain (losses) from fair value changes
Assets: | As of 03/31/2022 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Three months ended 03/31/2022
Individually evaluated loans | $ | 1,624 |  | $ | 0 |  | $ | 0 |  | $ | 1,624 |  | $ | 0 |
Other real estate owned | 0 |  | 0 |  | 0 |  | 0 |  | 22 |

Three months ended March 31, 2021
(In thousands) |  | Fair value measurements at reporting date using: | Gain (losses) from fair value changes
Assets: | As of 03/31/2021 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Three months ended 03/31/2021
Individually evaluated loans | $ | 4,537 |  | $ | 0 |  | $ | 4,537 |  | $ | 0 |  | $ | 0 |

The fair value estimates, methods and assumptions set forth below for the Company's financial instruments, including those financial instruments carried at cost, are made solely to comply with disclosures required by U.S. GAAP and should be read in conjunction with the financial statements and notes included herein.
For loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. For real estate loans, fair value of the loan’s collateral is determined by third party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Company reviews the third party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 5% to 8% of the appraised value. For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business.
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Estimated Fair Value of Financial Instruments |
March 31, 2022 |  |  |  |  |
(In thousands) | Carrying Amount | Fair Value | (Level 1) | (Level 2) | (Level 3)
Financial Assets: |  |  |  |  |
Cash and cash equivalents | $ | 175,075 |  | $ | 175,075 |  | $ | 175,075 |  | $ | 0 |  | $ | 0 |
Securities - held-to-maturity | 303,524 |  | 280,917 |  | 0 |  | 280,917 |  | 0 |
FHLB and other stock | 7,115 |  | 7,115 |  | 0 |  | 7,115 |  | 0 |
Accrued interest receivable | 21,550 |  | 21,550 |  | 0 |  | 21,550 |  | 0 |
Loans/leases, net 1 | 5,021,325 |  | 4,958,348 |  | 0 |  | 0 |  | 4,958,348 |
Financial Liabilities: |  |  |  |  |
Time deposits | $ | 615,936 |  | $ | 609,446 |  | $ | 0 |  | $ | 609,446 |  | $ | 0 |
Other deposits | 6,400,803 |  | 6,400,803 |  | 0 |  | 6,400,803 |  | 0 |
Fed funds purchased and securities sold |  |  |  |  |
under agreements to repurchase | 57,115 |  | 57,115 |  | 0 |  | 57,115 |  | 0 |
Other borrowings | 60,000 |  | 59,260 |  | 0 |  | 59,260 |  | 0 |
Accrued interest payable | 795 |  | 795 |  | 0 |  | 795 |  | 0 |

Estimated Fair Value of Financial Instruments
December 31, 2021 |  |  |  |  |
(In thousands) | Carrying Amount | Fair Value | (Level 1) | (Level 2) | (Level 3)
Financial Assets: |  |  |  |  |
Cash and cash equivalents | $ | 63,107 |  | $ | 63,107 |  | $ | 63,107 |  | $ | 0 |  | $ | 0 |
Securities - held to maturity | 284,009 |  | 282,288 |  | 0 |  | 282,288 |  | 0 |
FHLB and other stock | 10,996 |  | 10,996 |  | 0 |  | 10,996 |  | 0 |
Accrued interest receivable | 22,597 |  | 22,597 |  | 0 |  | 22,597 |  | 0 |
Loans/leases, net 1 | 5,032,624 |  | 5,028,734 |  | 0 |  | 0 |  | 5,028,734 |
Financial Liabilities: |  |  |  |  |
Time deposits | $ | 639,674 |  | $ | 641,517 |  | $ | 0 |  | $ | 641,517 |  | $ | 0 |
Other deposits | 6,151,761 |  | 6,151,761 |  | 0 |  | 6,151,761 |  | 0 |
Fed funds purchased and securities |  |  |  |  |
sold under agreements to repurchase | 66,787 |  | 66,787 |  | 0 |  | 66,787 |  | 0 |
Other borrowings | 124,000 |  | 125,700 |  | 0 |  | 125,700 |  | 0 |
Accrued interest payable | 901 |  | 901 |  | 0 |  | 901 |  | 0 |

1 Lease receivables, although excluded from the scope of ASC Topic 825, are included in the estimated fair value amounts at their carrying value.
The following methods and assumptions were used in estimating fair value disclosures for financial instruments.
Cash and Cash Equivalents: The carrying amounts reported in the Consolidated Statements of Condition for cash, noninterest-bearing deposits, money market funds, and Federal funds sold approximate the fair value of those assets.
FHLB Stock: The carrying amount of FHLB stock approximates fair value. If the stock is redeemed, the Company will receive an amount equal to the par value of the stock. For other stock reported above, carrying value is cost.
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Loans and Leases: Fair value for loans are calculated using an exit price notion. The Company's valuation methodology takes into account factors such as estimated cash flows, including contractual cash flow and assumptions for prepayments; liquidity risk; and credit risk. The fair values of residential loans were estimated using discounted cash flow analyses, based upon available market benchmarks for rates and prepayment assumptions. The fair values of commercial and consumer loans were estimated using discounted cash flow analyses, based upon interest rates currently offered for loans and leases with similar terms and credit quality. The fair values of loans held for sale were determined based upon contractual prices for loans with similar characteristics.
Accrued Interest Receivable and Accrued Interest Payable: The carrying amount of these short term instruments approximate fair value.
Deposits: The fair values disclosed for noninterest bearing accounts and accounts with no stated maturities are equal to the amount payable on demand at the reporting date. The fair value of time deposits is based upon discounted cash flow analyses using rates offered for FHLB advances, which is the Company’s primary alternative source of funds.
Other borrowings: The fair value of other borrowings is based upon discounted cash flow analyses using current rates offered for FHLB advances, with similar terms.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS
Overview
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 March 31, 2022, the Company had one wholly-owned banking subsidiary, Tompkins Community Bank. The Company also has a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. ("Tompkins Insurance"). Tompkins Community Bank provides a full array of investment services, including investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. 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."
The Tompkins strategy centers around our core values and a commitment to delivering long-term value to our clients, communities, and shareholders. A key strategic initiative for the Company is a focus on responsible and sustainable growth, including initiatives to grow organically through our current businesses, as well as through possible acquisitions of financial institutions, branches, and financial services businesses. As such, the Company has acquired, and from time to time considers acquiring, banks, thrift institutions, branch offices of banks or thrift institutions, or other businesses that would complement the Company’s business or its geographic reach. The Company generally targets merger or acquisition partners that are culturally similar and have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale and expanded services.
Business Segments
Banking services consist primarily of attracting deposits from the areas served by Tompkins Community Bank, which has 63 banking offices (43 offices in New York and 20 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 in each of the banking markets. In addition to these shared offices, Tompkins Insurance has five stand-alone offices in Western New York, and one stand-alone office in Tompkins County, New York.
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.
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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 months ended March 31, 2022. 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, 2021, and the Unaudited Consolidated Financial Statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.
In this Report, there are comparisons of the Company’s performance to that of a peer group, which is comprised of the group of 152 domestic bank holding companies with $3 billion to $10 billion in total assets as defined in the Federal Reserve’s "Bank Holding Company Performance Report" for December 31, 2021 (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", or "anticipate", and other similar words. Examples of forward-looking statements may include statements regarding the asset quality of the Company's loan portfolios; the level of the Company's allowance for credit losses; whether, when and how borrowers will repay deferred amounts and resume scheduled payments; the sufficiency of liquidity sources; the Company's exposure to changes in interest rates, and to new, changed, or extended government/regulatory expectations; the impact of changes in accounting standards; and trends, plans, prospects, growth and strategies. Forward-looking statements are made based on management’s expectations and beliefs concerning future events impacting the Company and are subject to certain uncertainties and factors relating to the Company’s operations and economic environment, all of which are difficult to predict and many of which are beyond the control of the Company, that could cause actual results of the Company to differ materially from those expressed and/or implied by forward-looking statements. The following factors, in addition to those listed as Risk Factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, are among those that could cause actual results to differ materially from the forward-looking statements: changes in general economic, market and regulatory conditions; the severity and duration of the COVID-19 outbreak and the impact of the outbreak (including the government’s response to the outbreak) on economic and financial markets, potential regulatory actions, and modifications to our operations, products, and services relating thereto; disruptions in our and our customers’ operations and loss of revenue due to pandemics, epidemics, widespread health emergencies, government-imposed travel/business restrictions, or outbreaks of infectious diseases such as the COVID-19, and the associated adverse impact on our financial position, liquidity, and our customers’ abilities or willingness to repay their obligations to us or willingness to obtain financial services products from the Company; a decision to amend or modify the terms under which our customers are obligated to repay amounts owed to us; the development of an interest rate environment that may adversely affect the Company’s interest rate spread, other income or cash flow anticipated from the
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Company’s operations, investment and/or lending activities; changes in laws and regulations affecting banks, bank holding companies and/or financial holding companies, such as the Dodd-Frank Act and Basel III and the Economic Growth, Regulatory Relief, and Consumer Protection Act; legislative and regulatory changes in response to COVID-19 with which we and our subsidiaries must comply, including the CARES Act and the Consolidated Appropriations Act, 2021, and the rules and regulations promulgated thereunder, and federal, state and local government mandates; technological developments and changes; 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; uncertainties arising from national and global events, including the war in Ukraine, as well as the potential impact of widespread protests, civil unrest, and political uncertainty on the economy and the financial services industry; and financial resources in the amounts, at the times and on the terms required to support the Company’s future businesses.
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"), and the review of the securities portfolio for other-than-temporary impairment to be critical accounting policies because of the uncertainty and subjectivity involved in these policies and the material effect that estimates related to these areas can have on the Company’s results of operations.
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, 2021. Refer to "Recently Issued Accounting Standards" in Management's Discussion and Analysis in this Quarterly Report on Form 10-Q for a discussion of recent accounting updates.
Critical Accounting Estimates
The Company's significant accounting policies conform with U.S. generally accepted accounting principles ("GAAP") and are described in Note 1 of Notes to Financial Statements. In applying those accounting policies, management of the Company is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company's reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. The more significant area in which management of the Company applies critical assumptions and estimates includes the following:
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•Accounting for credit losses - Effective January 1, 2020 the Company adopted amended accounting guidance that impacts how the allowance for credit losses is determined. Under this accounting guidance, 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 of Notes to Financial Statements.
COVID-19 Pandemic and Recent Events
The COVID-19 global pandemic continued to present health and economic challenges in the first quarter of 2022, but conditions were generally improved from 2021. The Company's hybrid work environment for most noncustomer facing employees is in place and travel restrictions eliminated. On March 17, 2022, the NY State Department of Labor announced that the department ended the designation of COVID-19 as an airborne infectious disease that presents a serious risk of harm to public health under the HERO Act and our protocols have been updated accordingly.
The Company's payment deferral program that was implemented in 2020 to provide assistance to its customers that were experiencing financial hardship due to the COVID-19 pandemic has been reduced as customers return to repayment status. As of March 31, 2022, total loans that continued in a deferral status amounted to approximately $2.6 million, representing 0.05% of total loans, and of those loans approximately 0.47% were past due. In accordance with the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") and the interagency guidance, the Company elected to adopt the provisions to not report qualified loan modifications as troubled debt restructurings ("TDRs"). The relief related to TDRs under the CARES Act was extended by the Consolidated Appropriations Act, 2021. Under the Consolidated Appropriations Act, relief under the CARES Act was extended until the earlier of (i) 60 days after the date the COVID-19 national emergency comes to an end or (ii) January 1, 2022. Management continues to monitor credit conditions carefully at the individual borrower level, as well as by industry segment, in order to be responsive to changing credit conditions.
In 2020 and 2021, the Company also participated in the U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP"). The Company began accepting applications for PPP loans on April 3, 2020, and continued through the program end date in 2020. On January 19, 2021, the Company began accepting both first draw and second draw applications for the reopening of the PPP program. The 2021 PPP program funding closed on May 12, 2021. The Company funded over 5,100 applications totaling about $694.0 million in 2020 and 2021. Of the $694.0 million of PPP loans that the Company funded, approximately $664.0 million have been forgiven by the SBA under the terms of the program. Total net deferred fees on the remaining balance of PPP loans amounted to $1.0 million at March 31, 2022.
RESULTS OF OPERATION
Performance Summary
Net income for the first quarter of 2022 was $23.3 million or $1.60 diluted earnings per share, compared to $25.6 million or $1.72 diluted earnings per share for the same period in 2021. The decrease in net income for the first quarter of 2022 compared to the first quarter of 2021 was mainly a result of a decrease in the credit to the provision for credit loss expense, a decrease in PPP fees and an increase in noninterest expenses.
Return on average assets ("ROA") for the quarter ended March 31, 2022 was 1.19%, compared to 1.33% for the quarter ended March 31, 2021. Return on average shareholders’ equity ("ROE") for the first quarter of 2022 was 13.24%, compared to 14.42% for the same period in 2021.
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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 $20.3 million for the first quarter of 2022, down $2.0 million or 8.9% from net income of $22.3 million for the same period in 2021.
Net interest income of $56.6 million for the first quarter of 2022 was up $1.6 million or 2.9% from the same period in 2021. The increase in net interest income was mainly a result of a decrease in interest expense. Interest expense benefited from growth in average deposit balances and a decrease in average borrowings. Interest income was down in the first quarter of 2022 compared to the first quarter of 2021 as lower yields offset growth in average earning assets. The first quarter of 2022 included $2.0 million of net deferred loan fees associated with PPP loans, compared to net deferred loan fees of $2.8 million in the first quarter of 2021.
The provision for credit losses was a credit of $520,000 for the three months ended March 31, 2022, compared to a credit of $1.8 million for the same period in 2021. For additional information, see the section titled "The Allowance for Credit Losses" below.
Noninterest income of $6.2 million for the three months ended March 31, 2022 was down $125,000 or 2.0% compared to the same period in 2021. The decrease in the three months ended March 31, 2022 from the same period in 2021 was mainly in lower gains on security transactions and lower gains on sales of residential loans in the first quarter of 2022. These decreases were slightly offset by service charges on deposit accounts and card services income both being higher than the first quarter 2021.
Noninterest expense of $37.2 million for the first quarter of 2022 was up $1.9 million or 5.3% from the same period in 2021. Salaries and employee benefits were up compared to the same period in 2021 mainly due to yearly merit increases and higher healthcare expense. Also contributing to increases in noninterest expense were higher marketing and technology expenses in the first quarter of 2022 compared to same period in 2021.
Insurance Segment
The insurance segment reported net income of $2.1 million for the three months ended March 31, 2022, which was down $58,000 or 2.7% compared to the first quarter of 2021. Noninterest income in the first quarter of 2022 was flat compared to the same period in 2021. Insurance commissions were up $271,000 or 3.5% while contingency revenue was $130,000 less than the first quarter of 2021. Noninterest income for the first quarter of 2021 also included gains on life insurance proceeds of $140,000.
Noninterest expenses were up $66,000 or 1.0% compared to the first quarter of 2021. The increase was mainly in salaries and healthcare expenses partially offset by decreases in other employee benefits.
Wealth Management Segment
The wealth management segment reported net income of $840,000 for the three months ended March 31, 2022, which was down $301,000 or 26.4% compared to the first quarter of 2021. The decrease in net income for the three month period ended March 31, 2022, was mainly attributable to an increase in expenses. Noninterest expense for the first quarter of 2022 was up $447,000 or 13.6% compared to the same period in 2021. The increase was mainly attributable to an increase in salaries and employee benefits, mainly incentives and healthcare, and an increase in technology expenses associated with system upgrades.
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Net Interest Income
The following table shows average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each for the three month periods ended March 31, 2022 and 2021:

Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
| Quarter Ended | Quarter Ended
| March 31, 2022 | March 31, 2021
| Average |  |  | Average |  |
| Balance |  | Average | Balance |  | Average
(Dollar amounts in thousands) | (QTD) | Interest | Yield/Rate | (QTD) | Interest | Yield/Rate
ASSETS |  |  |  |  |  |
Interest-earning assets |  |  |  |  |  |
Interest-bearing balances due from banks | $ | 134,129 |  | $ | 41 |  | 0.12 | % | $ | 408,642 |  | $ | 85 |  | 0.08 | %
Securities (1) |  |  |  |  |  |
U.S. Government securities | 2,293,611 |  | 7,362 |  | 1.30 | % | 1,635,143 |  | 4,612 |  | 1.14 | %
State and municipal (2) | 101,746 |  | 649 |  | 2.59 | % | 120,959 |  | 775 |  | 2.60 | %
Other securities (2) | 3,390 |  | 23 |  | 2.73 | % | 3,425 |  | 23 |  | 2.75 | %
Total securities | 2,398,747 |  | 8,034 |  | 1.36 | % | 1,759,527 |  | 5,410 |  | 1.25 | %
FHLBNY and FRB stock | 10,098 |  | 105 |  | 4.23 | % | 16,382 |  | 213 |  | 5.27 | %
Total loans and leases, net of unearned income (2)(3) | 5,055,948 |  | 51,355 |  | 4.12 | % | 5,291,295 |  | 54,454 |  | 4.17 | %
Total interest-earning assets | 7,598,922 |  | 59,535 |  | 3.18 | % | 7,475,846 |  | 60,162 |  | 3.26 | %
Other assets | 311,125 |  |  |  | 350,826 |  |  |
Total assets | $ | 7,910,047 |  |  |  | $ | 7,826,672 |  |  |
LIABILITIES & EQUITY |  |  |  |  |  |
Deposits |  |  |  |  |  |
Interest-bearing deposits |  |  |  |  |  |
Interest bearing checking, savings, & money market | 4,160,946 |  | 750 |  | 0.07 | % | 3,949,304 |  | 1,093 |  | 0.11 | %
Time deposits | 631,594 |  | 1,296 |  | 0.83 | % | 749,328 |  | 2,057 |  | 1.11 | %
Total interest-bearing deposits | 4,792,540 |  | 2,046 |  | 0.17 | % | 4,698,632 |  | 3,150 |  | 0.27 | %
Federal funds purchased & securities sold under agreements to repurchase | 64,237 |  | 16 |  | 0.10 | % | 59,584 |  | 16 |  | 0.11 | %
Other borrowings | 125,298 |  | 500 |  | 1.62 | % | 265,001 |  | 1,376 |  | 2.11 | %
Trust preferred debentures | 0 |  | 0 |  | 0.00 | % | 13,234 |  | 175 |  | 5.35 | %
Total interest-bearing liabilities | 4,982,075 |  | 2,562 |  | 0.21 | % | 5,036,451 |  | 4,717 |  | 0.38 | %
Noninterest bearing deposits | 2,108,825 |  |  |  | 1,949,643 |  |  |
Accrued expenses and other liabilities | 106,120 |  |  |  | 119,860 |  |  |
Total liabilities | 7,197,020 |  |  |  | 7,105,954 |  |  |
Tompkins Financial Corporation Shareholders’ equity | 711,601 |  |  |  | 719,290 |  |  |
Noncontrolling interest | 1,426 |  |  |  | 1,428 |  |  |
Total equity | 713,027 |  |  |  | 720,718 |  |  |
Total liabilities and equity | $ | 7,910,047 |  |  |  | $ | 7,826,672 |  |  |
Interest rate spread |  |  | 2.97 | % |  |  | 2.88 | %
Net interest income/margin on earning assets |  | 56,973 |  | 3.04 | % |  | 55,445 |  | 3.01 | %
Tax Equivalent Adjustment |  | (359) |  |  |  | (408) |  |
Net interest income per consolidated financial statements |  | $ | 56,614 |  |  |  | $ | 55,037 |  |

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 2022 and 2021 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, 2021.
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Net Interest Income
Net interest income is the Company’s largest source of revenue, representing 73.9% of total revenues for the three months ended March 31, 2022, compared to 73.4% for the same period in 2021. Net interest income is dependent on the volume and composition of interest-earning assets and interest-bearing liabilities and the level of market interest rates. The above table shows average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each.
Taxable-equivalent net interest income for the three months ended March 31, 2022, was up $1.5 million or 2.8% over the same period in 2021. The increase was due to lower interest expense in the first quarter of March 31, 2022 compared to the same period in 2021, driven by deposit growth, including average noninterest bearing deposits and lower average borrowings. For the three months ended March 31, 2022, average total deposits represented 95.9% of average total liabilities compared to 93.6% for the same period in 2021, while total average borrowings represented 1.7% of average total liabilities in 2022 compared to 3.7% in 2021. Average earnings assets for the three months ended March 31, 2022 were up $123.1 million or 1.7% over the same period in 2021, while average asset yields for the first quarter of 2022 were down 8 basis points from the first quarter of 2021.
Net interest margin for the three months ended March 31, 2022 was 3.04% compared to 3.01% for the same period in 2021. The increase in net interest margin for 2022 compared to 2021 was mainly a result of a decrease in funding costs, mainly due to the mix of funding sources, and higher yields and balances of securities for the first quarter of 2022 compared to the first quarter of 2021.
Taxable-equivalent interest income for the three months ended March 31, 2022, was $59.5 million, down 1.0% compared to the same period in 2021, as the yield on average interest-earning assets decreased 8 basis points, while average interest earning assets increased $123.1 million or 1.7%, primarily in the investment portfolio as excess liquidity was invested in securities and loans. The decrease in taxable-equivalent interest income was in interest and fees on loans, driven by lower yields and lower average balances for the three months ended March 31, 2022, compared to the same period in 2021. Average loan balances for the first quarter of 2022 were down $235.3 million or 4.5% from the first quarter of 2021, while the average yield on loans of 4.12% for the first quarter of 2022 was down 5 basis points from the average loan yield in the first quarter of 2021. The decrease in average loan balances was mainly in PPP loans. Interest income in the first quarter of 2022 included $2.0 million of net deferred loan fees related to PPP loans compared to net deferred loan fees of $2.8 million in the first quarter of 2021. For the three months ended March 31, 2022, average balances for securities were up $639.2 million or 36.3% over the first quarter of 2021, while the average yield on securities of 1.36% for the first quarter of 2022 was up 11 basis points. Average interest bearing balances for the three months ended March 31, 2022 were down $274.5 million or 67.2% from the same period in 2021.
Interest expense for the three months ended March 31, 2022 decreased by $2.2 million or 45.7% compared to the same period in 2021, as the cost of interest bearing liabilities for the first quarter of 2022 decreased 17 basis points from the first quarter of 2021. Funding costs benefited from a decrease in average other borrowings, which were down as a result of the increase in average deposit balances. Average interest bearing deposits for the first quarter of 2022 were up $93.9 million or 2.0% compared to the same period in 2021. Average other borrowings for the three months ended March 31, 2022 were down $139.7 million or 52.7% compared to the same period in 2021. The average cost of interest bearing deposits was 0.17% for the first quarter of 2022, compared to 0.27% for the first quarter of 2021.
Provision for Credit Losses
The provision for credit losses represents management’s estimate of the amount necessary to maintain the allowance for credit losses at an appropriate level. The provision for credit losses for the three months ended March 31, 2022 was a credit of $520,000 compared to a credit of $2.5 million for the same period in 2021. Included in the provision credits for the first quarter of 2022 and 2021 were provision expenses of $214,000 and $680,000, respectively, related to off-balance sheet credit exposures. The provision credit in the first quarter of 2022 was mainly driven by improvement in the macroeconomic factor assumptions utilized in the calculation as well as was improved credit quality. 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 was $20.0 million for the first quarter of 2022, which was in line with the same period prior year. Noninterest income represented 26.1% of total revenue for the three months ended March 31, 2022, compared to 26.6% for the same period in 2021.
Insurance commissions and fees of $9.3 million in the first quarter of 2022 was up $151,000 or 1.7% compared to the same period prior year. Insurance commissions were up $271,000 or 3.5% while contingency revenue was down $130,000 compared to the first quarter of 2021.
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Investment services income of $4.9 million in the first quarter of 2022 was up $244,000 or 5.2% compared to the first quarter of 2021, mainly due to an increase in investment management services. Investment services income includes investment management, trust and estate, financial and tax planning, and brokerage related services. The fair value of assets managed by, or in custody of, Tompkins was $4.4 billion at March 31, 2022, compared to $4.8 billion at March 31, 2021. The fair value of assets in custody at March 31, 2022 includes $1.3 billion of Company-owned securities where Tompkins Trust Company is custodian.
Card services income of $2.5 million in the first quarter of 2022 was up $160,000 or 6.7% compared to the same period in 2021. Debit card income was up $70,000 or 4.0% in the first quarter of 2022 compared to the same period in 2021, driven by higher transaction volume in 2022 compared to the same period in 2021.
Other income of $1.5 million in the first quarter of 2022 was down $498,000 or 25.2% compared to the same period in 2021. The decrease in the first quarter of 2022 was mainly attributable to a decrease in gains on sales of residential loans of $425,000, compared to the first quarter of 2021.
Noninterest Expense
Noninterest expense was $46.8 million for the first quarter of 2022, up 5.2% compared t o the same period in 2021. Noninterest expense as a percentage of total revenue for the first quarter of 2022 was 61.2% compared to 60.2% f or the same period in 2021.
Expenses associated with salaries and wages and employee benefits are the largest component of noninterest expense, representing 62.1% of total noninterest expense for the three months ended March 31, 2022 and 62.3% for the three months ended March 31, 2021. Salaries and wages and employee benefit expense for the three months ended March 31, 2022 were up $925,000 or 3.3% for same period in 2021 resulting from normal merit adjustments and an increase in healthcare expense in the first quarter of 2022 over the same period prior year.
Other expense categories not related to compensation and benefits, such as marketing, technology, and professional fee expenses, for the three months ended March 31, 2022, were up $1.4 million or 13.1% compared to the same period in 2021. Marketing expenses for the three months ended March 31, 2022 were up $562,000 or 113.7% from the same period in 2021, partly due to the consolidation of the Company's four banking subsidiaries. Technology expenses for the first quarter of 2022 were up $756,000 or 25.8% over the same period in 2021, driven largely by software related conversion expenses. Business related travel and entertainment expenses for the first quarter of 2022 were up $102,000 or 147.4% from the same period in 2021 due to increased travel and entertainment activities as compared to the prior period as the economy continued to open following the most recent peak of the pandemic.
Income Tax Expense
The provision for income taxes was $7.0 million for an effective rate of 23.0% for the first quarter of 2022, compared to tax expense of $6.7 million and an effective rate of 20.7% for the same quarter in 2021. The effective rates differ from the U.S. statutory rate primarily due to the effect of tax-exempt income from loans, securities and life insurance assets, and the income tax effects associated with stock based compensation. The increase in the effective tax rate for the three months ended March 31, 2022, over the same period in 2021, is largely due to the anticipated loss of certain New York State tax benefits due to the expectation that average assets will exceed $8.0 billion for the 2022 tax year.
The Company's banking subsidiary has an investment in a real estate investment trust that provides certain benefits on its New York State tax return for qualifying entities. A condition to claim the benefit is that the consolidated company has average assets of no more than $8 billion for the taxable year. The Company expects average assets to exceed the $8.0 billion threshold for the 2022 tax year. As of March 31, 2022, the Company's consolidated average assets, as defined by New York tax law, were slightly under the $8.0 billion threshold. The Company will continue to monitor the consolidated average assets during 2022 to determine future eligibility.
FINANCIAL CONDITION
Total assets were $7.9 billion at March 31, 2022, up $71.1 million or 0.9% from December 31, 2021. The increase in total assets was mainly in cash and cash equivalents balances, which were up $112.0 million or 177.4%. Total securities were down $43.9 million or 1.9% compared to December 31, 2021. The decrease was the result of an increase in unrealized losses on the available-for-sale portfolio from $19.3 million at year-end 2021 to $125.8 million at March 31, 2022, as a result of the increase in market interest rates in the first quarter of 2022. Total loan balances of $5.1 billion at March 31, 2022 were in line with year-end 2021. Total deposits were up $225.3 million or 3.3% from December 31, 2021. The increase in deposits at March 31, 2022 was mainly in checking, savings and money market accounts.
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Securities
As of March 31, 2022, the Company’s securities portfolio was $2.3 billion or 29.0% of total assets, compared to $2.3 billion or 29.8% of total assets at year-end 2021. The following table details the composition of the securities portfolio:

Available-for-Sale Debt Securities |  |
| March 31, 2022 | December 31, 2021
(In thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value
U.S. Treasuries | $ | 190,997 |  | $ | 178,903 |  | $160,291 | $157,834
Obligations of U.S. Government sponsored entities | 852,733 |  | 802,107 |  | 843,218 |  | 832,373 |
Obligations of U.S. states and political subdivisions | 100,287 |  | 95,661 |  | 102,177 |  | 104,169 |
Mortgage-backed securities - residential, issued by |  |  |  |
U.S. Government agencies | 68,435 |  | 66,277 |  | 76,502 |  | 77,157 |
U.S. Government sponsored entities | 891,954 |  | 835,773 |  | 879,102 |  | 870,556 |
U.S. corporate debt securities | 2,500 |  | 2,427 |  | 2,500 |  | 2,424 |
Total available-for-sale debt securities | $ | 2,106,906 |  | $ | 1,981,148 |  | $ | 2,063,790 |  | $ | 2,044,513 |

Held-to-Maturity Debt Securities |  |
| March 31, 2022 | December 31, 2021
(In thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value
U.S. Treasuries | $86,635 | $80,633 | $86,689 | $86,368
Obligations of U.S. Government sponsored entities | 216,889 |  | 200,284 |  | 197,320 |  | 195,920 |
Total held-to-maturity debt securities | $ | 303,524 |  | $ | 280,917 |  | $ | 284,009 |  | $ | 282,288 |

The increase in unrealized losses, which reflects the amount that amortized cost exceeds fair value, related to the available-for-sale debt portfolio was due primarily to changes in market interest rates during the first three months of 2022. 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.
For available-for-sale debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (technical impairment) is the result of changes in interest rates or reflects a fundamental change in the credit worthiness of the underlying issuer. Any impairment that is not credit related is recognized in other comprehensive income (loss), net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses ("ACL") on the Statements of Condition, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the ACL and the adjustment to net income may be reversed if conditions change.
The gross unrealized losses reported for residential mortgage-backed securities relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and U.S. government agencies such as Government National Mortgage Association. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit-related quality of the investment securities. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost.
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 March 31, 2022, the held-to-
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maturity portfolio consisted of U.S. Treasury securities and securities issued by U.S. government-sponsored enterprises, including The Federal National Mortgage Agency and the 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 March 31, 2022.
The Company did not recognize any net credit impairment charge to earnings on investment securities in the first quarter of 2022.

Loans and Leases
Loans and leases as of the end of the first quarter and prior year-end periods were as follows:
(In thousands) | 03/31/2022 | 12/31/2021
Commercial and industrial |  |
Agriculture | $ | 81,269 |  | $ | 99,172 |
Commercial and industrial other | 708,626 |  | 699,121 |
PPP loans | 24,095 |  | 71,260 |
Subtotal commercial and industrial | 813,990 |  | 869,553 |
Commercial real estate |  |
Construction | 185,503 |  | 178,582 |
Agriculture | 199,652 |  | 195,973 |
Commercial real estate other | 2,292,099 |  | 2,278,599 |
Subtotal commercial real estate | 2,677,254 |  | 2,653,154 |
Residential real estate |  |
Home equity | 179,798 |  | 182,671 |
Mortgages | 1,312,913 |  | 1,290,911 |
Subtotal residential real estate | 1,492,711 |  | 1,473,582 |
Consumer and other |  |
Indirect | 3,857 |  | 4,655 |
Consumer and other | 66,601 |  | 67,396 |
Subtotal consumer and other | 70,458 |  | 72,051 |
Leases | 13,881 |  | 13,948 |
Total loans and leases | 5,068,294 |  | 5,082,288 |
Less: unearned income and deferred costs and fees | (4,843) |  | (6,821) |
Total loans and leases, net of unearned income and deferred costs and fees | $ | 5,063,451 |  | $ | 5,075,467 |

Total loans and leases of $5.1 billion at March 31, 2022 were down $12.0 million or 0.2% from December 31, 2021. The decrease was mainly in PPP loans, which were down $47.2 million to $24.1 million at March 31, 2022, from $71.3 million at December 31, 2021. Excluding PPP loans, total loans at March 31, 2022 were up $35.1 million or 0.7% from December 31, 2021. As of March 31, 2022, total loans and leases represented 64.2% of total assets compared to 64.9% of total assets at December 31, 2021.
Residential real estate loans, including home equity loans were $1.5 billion at March 31, 2022, up $19.1 million or 1.3% compared to December 31, 2021, and comprised 29.5% of total loans and leases at March 31, 2022. Changes in residential loan balances are impacted by the Company’s decision to retain these loans or sell them in the secondary market due to interest rate considerations. The Company’s Asset/Liability Committee meets regularly and establishes standards for selling and retaining residential real estate mortgage originations.
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The Company may sell residential real estate loans in the secondary market based on interest rate considerations. 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 three months of 2022 and 2021, the Company sold residential loans totaling $135,000 and $10.5 million, respectively, recognizing gains on these sales of $4,000 and $429,000, 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 $1.0 million at both March 31, 2022 and December 31, 2021.
Commercial real estate loans and commercial and industrial loans totaled $2.7 billion and $814.0 million, respectively, and represented 52.9% and 16.1%, respectively of total loans as of March 31, 2022. The commercial real estate portfolio was up $24.1 million or 0.9% over year-end 2021, while commercial and industrial loans were down $55.6 million or 6.4% from year-end 2021. The decrease in commercial and industrial loans over year-end 2021 was mainly in PPP loans, which were down $47.2 million or 66.2% to $24.1 million at March 31, 2022.
As of March 31, 2022, agriculturally-related loans totaled $280.9 million or 5.5% of total loans and leases, compared to $295.1 million or 5.8% of total loans and leases at December 31, 2021. Agriculturally-related loans include loans to dairy farms and crop farms. Agricultural-related loans are primarily made based on identified cash flows of the borrower with consideration given to underlying collateral, personal guarantees, and government related guarantees. Agriculturally-related loans are generally secured by the assets or property being financed or other business assets such as accounts receivable, livestock, equipment or commodities/crops.
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, 2021. 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 State 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.
Allowance for Credit Losses
The below tables represents the allowance for credit losses as of March 31, 2022 and December 31, 2021. The tables provide, as of the dates indicated, an allocation of the allowance for credit losses for inherent loan losses by type. The allocation is neither indicative of the specific amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of future loss trends. The allocation of the allowance for credit losses to each category does not restrict the use of the allowance to absorb losses in any category.
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(In thousands) | 3/31/2022 | 12/31/2021
Allowance for credit losses |  |
Commercial and industrial | $ | 7,027 |  | $ | 6,335 |
Commercial real estate | 22,982 |  | 24,813 |
Residential real estate | 10,447 |  | 10,139 |
Consumer and other | 1,588 |  | 1,492 |
Finance leases | 82 |  | 64 |
Total | $ | 42,126 |  | $ | 42,843 |

As of March 31, 2022, the total allowance for credit losses for loans was $42.1 million, down $717,000 or 1.7% compared to December 31, 2021. The ACL as a percentage of total loans measured 0.83% at March 31, 2022, compared to 0.84% at December 31, 2021.
The decrease in the ACL from year-end 2021 was driven by continued improvements in unemployment forecasts and decreases in qualitative adjustments used in our model, offset by an increase due to lower forecasted GDP growth. Qualitative reserves established in 2020 and 2021 as a result of the COVID-19 pandemic to address specific portfolios with increased risk characteristics, including loans in our hotel portfolio, and loans in our deferral program, continue to move lower as a result of improved conditions in the hotel industry and payment performance of loans coming out of the deferral program. Although we have seen improved occupancy rates in the hospitality industry in recent months, resulting in a decrease of qualitative reserves, we continue to closely monitor this industry.
Asset quality measures at March 31, 2022 were generally favorable compared to December 31, 2021. Loans internally-classified Special Mention or Substandard were down $2.5 million or 1.8% compared to December 31, 2021. Nonperforming loans and leases were down $893,000 or 2.9% from year end 2021 and represented 0.60% of total loans at March 31, 2022 compared to 0.61% at December 31, 2021. The allowance for credit losses covered 139.20% of nonperforming loans and leases as of March 31, 2022, compared to 137.51% at December 31, 2021. The Company had net recoveries of $17,000 in the first quarter of 2022, compared to net recoveries of $180,000 for the same period in 2021.
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Activity in the Company’s allowance for credit losses during the first three months of 2022 and 2021 is illustrated in the table below:

Analysis of the Allowance for Credit Losses
(In thousands) | 3/31/2022 | 3/31/2021
Average loans outstanding during period | $ | 5,055,948 |  | $ | 5,291,295 |
Balance of allowance at beginning of year | 42,843 |  | 51,669 |
LOANS CHARGED-OFF: |  |
Commercial and industrial | 23 |  | 116 |
Commercial real estate | 27 |  | 0 |
Consumer and other | 196 |  | 91 |
Total loans charged-off | $ | 246 |  | $ | 207 |
RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF: |  |
Commercial and industrial | 20 |  | 97 |
Commercial real estate | 42 |  | 213 |
Residential real estate | 109 |  | 34 |
Consumer and other | 92 |  | 43 |
Total loans recovered | $ | 263 |  | $ | 387 |
Net loans recovered | (17) |  | (180) |
Credit for credit losses related to loans | (734) |  | (2,510) |
Balance of allowance at end of period | $ | 42,126 |  | $ | 49,339 |
Allowance for credit losses as a percentage of total loans and leases | 0.83 | % | 0.93 | %
Annualized net (recoveries) charge-offs on loans to average total loans and leases during the period | 0.00 | % | (0.01) | %

The provision for credit losses for loans was a credit of $734,000 for the three months ended March 31, 2022, compared to a credit of $2.5 million for the same period in 2021. The provision expense for credit losses related to loans is based upon the Company's quarterly evaluation of the appropriateness of the allowance for credit losses. As discussed above, the ACL model estimated lower reserves at Q1 2022 compared to year-end 2021, mainly driven by improving macroeconomic conditions, the need for lower qualitative reserves related to risks related to COVID-19 and improving asset quality metrics. As such, the provision for credit losses for loans for the first three months of 2022 was a credit of $734,000.
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 cancelable, through a charge to credit loss expense for off-balance sheet credit exposures included in provision for credit loss expense in the Company's consolidated statements of income.
For the three months ended March 31, 2022, the provision for credit losses for off-balance sheet credit exposures was $214,000 compared to $680,000 for the same period in 2021. The provision in 2022 was driven by an increase in off-balance sheet exposures, specifically commercial real estate loan commitments.
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Analysis of Past Due and Nonperforming Loans |  |  |
(In thousands) | 3/31/2022 | 12/31/2021 | 3/31/2021
Loans 90 days past due and accruing |  |  |
Commercial real estate | $ | 0 |  | $ | 0 |  | $ | 0 |
Consumer and other | 0 |  | 0 |  | 0 |
Total loans 90 days past due and accruing | $ | 0 |  | $ | 0 |  | $ | 0 |
Nonaccrual loans |  |  |
Commercial and industrial | 806 |  | 533 |  | 768 |
Commercial real estate | 13,623 |  | 13,893 |  | 27,847 |
Residential real estate | 10,200 |  | 11,178 |  | 12,745 |
Consumer and other | 571 |  | 429 |  | 296 |
Total nonaccrual loans | $ | 25,200 |  | $ | 26,033 |  | $ | 41,656 |
Troubled debt restructurings not included above | 5,064 |  | 5,124 |  | 6,069 |
Total nonperforming loans and leases | $ | 30,264 |  | $ | 31,157 |  | $ | 47,725 |
Other real estate owned | 88 |  | 135 |  | 88 |
Total nonperforming assets | $ | 30,352 |  | $ | 31,292 |  | $ | 47,813 |
Allowance as a percentage of nonperforming loans and leases | 139.20 | % | 137.51 | % | 103.38 | %
Total nonperforming loans and leases as percentage of total loans and leases | 0.60 | % | 0.61 | % | 0.90 | %
Total nonperforming assets as percentage of total assets | 0.38 | % | 0.40 | % | 0.59 | %

Nonperforming assets include nonaccrual loans, TDR, and foreclosed real estate/other real estate owned. Total nonperforming assets of $30.4 million at March 31, 2022 were down $940,000 or 3.0% compared to December 31, 2021, and down $17.5 million or 36.5% compared to March 31, 2021. The decrease in nonperforming assets from March 31, 2021, was mainly in the commercial real estate and residential real estate portfolios. The decrease in commercial real estate loans from March 31, 2021, was due to the payoff of one relationship totaling $11.8 million in the hospitality industry and a $6.0 million charge-off of another relationship that included two loans in the hospitality industry during the fourth quarter of 2021. Nonperforming assets represented 0.38% of total assets at March 31, 2022, down from 0.40% at December 31, 2021, and from 0.59% at March 31, 2021. The Company’s ratio of nonperforming assets to total assets is in line with our peer group’s most recent ratio of 0.41% at December 31, 2021.
Loans are considered modified in a TDR when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider and the borrower could not obtain elsewhere. These modifications may include, among others, an extension of the term of the loan, and granting a period when interest-only payments can be made, with the principal payments made over the remaining term of the loan or at maturity. 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". Loans in the latter category include loans that meet the definition of a TDR but are performing in accordance with the modified terms and have shown a satisfactory period of repayment (generally six consecutive months) and where full collection of all is reasonably assured. At March 31, 2022, the Company had $6.3 million in TDRs, and of that total $1.2 million were reported as nonaccrual and $5.1 million were considered performing and included in the table 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 required by applicable regulations. Although in nonaccrual status, the Company may continue to receive payments on these loans. These payments are generally recorded as a reduction to principal, and interest income is recorded only after principal recovery is reasonably assured.
The ratio of the allowance to nonperforming loans and leases (loans past due 90 days and accruing, nonaccrual loans and restructured troubled debt) was 139.20% at March 31, 2022, compared to 137.51% at December 31, 2021, and 103.38% at March 31, 2021. The Company’s nonperforming loans and leases are mostly comprised of collateral dependent impaired loans with limited exposure or loans that require limited specific reserve due to the level of collateral available with respect to these loans and/or previous charge-offs.
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The Company, through its internal loan review function, identified 21 commercial relationships totaling $27.5 million at March 31, 2022 that were potential problem loans. At December 31, 2021, the Company had identified 25 relationships totaling $36.5 million that were potential problem loans. Of the 21 commercial relationships at March 31, 2022 that were Substandard, there were 7 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $23.2 million, the largest of which was $7.4 million. The potential problem loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and personal or government guarantees. These factors, when considered in the aggregate, give management reason to believe that the current risk exposure on these loans does not warrant accounting for these loans as nonperforming. However, these loans do exhibit certain risk factors, which have the potential to cause them to become nonperforming. Accordingly, management’s attention is focused on these credits, which are reviewed on at least a quarterly basis.
Capital
Total equity was $657.5 million at March 31, 2022, a decrease of $71.4 million or 9.8% from December 31, 2021. The decrease was mainly a result of the increase in accumulated other comprehensive loss, reflecting the change in unrealized gains/loss on available-for-sale securities from an unrealized loss of $14.6 million at December 31, 2021 to an unrealized loss of $95.0 million at March 31, 2022. The decrease was partially offset by an increase in retained earnings.
Additional paid-in capital decreased from $312.5 million at December 31, 2021, to $305.9 million at March 31, 2022. The decrease was primarily attributable to a $10.4 million aggregate purchase price related to the Company's repurchase and retirement of 130,168 shares of its common stock during the first quarter of 2022 pursuant to its publicly announced stock repurchase plan, partially offset by $2.9 million related to shares issued for the employee stock ownership program and $945,000 related to stock based compensation. Retained earnings increased by $14.9 million from $475.3 million at December 31, 2021, to $490.2 million at March 31, 2022, reflecting net income of $23.3 million less dividends of $8.3 million. Accumulated other comprehensive loss increased from a net loss of $56.0 million at December 31, 2021, to a net loss of $135.8 million at March 31, 2022, reflecting a $80.4 million increase in unrealized losses on available-for-sale debt securities due to changes in market rates coupled with a $506,000 decrease related to post-retirement benefit plans.
Cash dividends paid in the first three months of 2022 totaled approximately $8.3 million or $0.57 per common share, representing 35.8% of year to date 2022 earnings through March 31, 2022, and were up 5.6% over cash dividends of $8.0 million or $0.54 per common share paid in the first three months of 2021.
The Company and its subsidiary bank are subject to various regulatory capital requirements administered by Federal bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s business, results of operation and financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (PCA), banks must meet specific guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classifications of the Company and its subsidiary banks are also subject to qualitative judgments by regulators concerning components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios of common equity Tier 1 capital, Total capital and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that the Company and its subsidiary bank meet all capital adequacy requirements to which they are subject.
In addition to setting higher minimum capital ratios, the Basel III Capital Rules introduced a 2.5% capital conservation buffer, which has been fully phased in and must be added to each of the minimum capital ratios and is designed to absorb losses during periods of economic stress.
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The following table provides a summary of the Company’s capital ratios as of March 31, 2022:

Regulatory Capital Analysis
March 31, 2022 | Actual | Minimum Capital Required - Basel III Fully Phased-In | Well Capitalized Requirement
(dollar amounts in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio
Total Capital (to risk weighted assets) | $ | 743,353 |  | 14.23 | % | $ | 548,588 |  | 10.50 | % | $ | 522,464 |  | 10.00 | %
Tier 1 Capital (to risk weighted assets) | 697,063 |  | 13.34 | % | 444,095 |  | 8.50 | % | 417,971 |  | 8.00 | %
Tier 1 Common Equity (to risk weighted assets) | 697,063 |  | 13.34 | % | 365,725 |  | 7.00 | % | 339,602 |  | 6.50 | %
Tier 1 Capital (to average assets) | 697,063 |  | 8.89 | % | 313,543 |  | 4.00 | % | 391,928 |  | 5.00 | %

As of March 31, 2022, the Company’s capital ratios exceeded the minimum required capital ratios plus the fully phased-in capital conservation buffer, and the minimum required capital ratios for well capitalized institutions. The capital levels required to be considered well capitalized, presented in the above table, are based upon prompt corrective action regulations, as amended to reflect the changes under Basel III Capital Rules.
Total capital as a percent of risk weighted assets increased to 14.2% at March 31, 2022, compared with 14.2% as of December 31, 2021. Tier 1 capital as a percent of risk weighted assets remained unchanged from 13.3% at the end of 2021 to 13.3% as of March 31, 2022. Tier 1 capital as a percent of average assets was 8.9% at March 31, 2022, which is up from 8.7% at December 31, 2021. Common equity Tier 1 capital was 13.3% at the end of the first quarter of 2022, unchanged from 13.3% at the end of 2021.
As of March 31, 2022, the capital ratios for the Company’s subsidiary banks also exceeded the minimum required capital ratios plus the fully phased-in capital conservation buffer, and the minimum required capital ratios for well capitalized institutions.
In the first quarter of 2020, U.S. Federal regulatory authorities issued an interim final rule that provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we have elected to utilize the five-year CECL transition.
Deposits and Other Liabilities
Total deposits of $7.0 billion at March 31, 2022 were up $225.3 million or 3.3% from December 31, 2021. The increase from year-end was primarily in checking, money market and savings balances, which collectively were up $247.4 million or 6.2% from year end 2021. The majority of the increase was in money market deposit balances and reflects growth in municipal deposits. Noninterest bearing deposits were flat compared to year-end 2021 and time deposits were down $23.7 million or 3.7%, respectively, from year-end 2021.
The most significant source of funding for the Company is core deposits. The Company defines core deposits as total deposits less time deposits of $250,000 or more, brokered deposits and municipal money market deposits and reciprocal deposit relationships with municipalities. Core deposits were up by $110.6 million or 1.9% from year-end 2021, to $5.9 billion at March 31, 2022. Core deposits represented 84.0% of total deposits at March 31, 2022, compared to 85.1% of total deposits at December 31, 2021.
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 $57.1 million at March 31, 2022, and $66.8 million at December 31, 2021. Management generally views local repurchase agreements as an alternative to large time deposits.
The Company’s other borrowings totaled $60.0 million at March 31, 2022, compared to $124.0 at December 31, 2021. The decrease in borrowings was primarily due to the prepayment of $50.0 million of FHLB term advances, with no prepayment penalties. Borrowings at March 31, 2022 represented $60.0 million of FHLB term advances. The $124.0 million in borrowings at December 31, 2021, represented $14.0 million in overnight advances from the FHLB and $110.0 million in term advances from the FHLB. Of the $60.0 million in FHLB term advances at March 31, 2022, $50.0 million was due in over one year.
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Liquidity
As of March 31, 2022, the Company had not experienced any significant impact to our liquidity or funding capabilities as a result of the COVID-19 pandemic. The Company is participating in the PPP under the CARES Act and at March 31, 2022, PPP loans totaled $24.1 million. The Company has a long-standing liquidity plan in place that is designed to ensure that appropriate liquidity resources are available to fund the balance sheet. Additionally, given the uncertainties related to the impact of the COVID-19 crisis on liquidity, the Company has confirmed the availability of funds at the FHLB of NY and confirmed availability of Federal Fund lines with correspondent bank partners.
The objective of liquidity management is to ensure the availability of adequate funding sources to satisfy the 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 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.
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, brokered deposits, municipal money market deposits, reciprocal deposits, bank borrowings, securities sold under agreements to repurchase, overnight and term advances from the FHLB and other funding sources. Rates and terms are the primary determinants of the mix of these funding sources. Non-core funding sources of $1.2 billion at March 31, 2022 increased $41.1 million or 3.4% as compared to year end 2021. Non-core funding sources, as a percentage of total liabilities, were 17.2% at March 31, 2022, compared to 17.0% at December 31, 2021.
Non-core funding sources may require securities to be pledged against the underlying liability. Securities carried at $1.6 billion at March 31, 2022 and at $1.4 billion at December 31, 2021, were either pledged or sold under agreements to repurchase. Pledged securities represented 66.7% of total securities at March 31, 2022, compared to 59.4% of total securities at December 31, 2021.
Cash and cash equivalents totaled $175.1 million as of March 31, 2022 which increased from $63.1 million at December 31, 2021. Short-term investments, consisting of securities due in one year or less, decreased from $77.9 million at December 31, 2021, to $58.9 million at March 31, 2022.
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 $902.1 million at March 31, 2022 compared with $947.7 million at December 31, 2021. Outstanding principal balances of residential mortgage loans, consumer loans, and leases totaled approximately $1.6 billion at March 31, 2022, up $17.5 million or 1.1% compared with year end 2021. 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 members of the FHLB, the Company can use certain unencumbered mortgage-related assets and securities to secure borrowings from the FHLB. At March 31, 2022, the established borrowing capacity with the FHLB was $1.47 billion, with available unencumbered mortgage-related assets of $1.41 billion. Additional assets may also qualify as collateral for FHLB advances, upon approval of the FHLB.
Accounting Standards Pending Adoption
ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and
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exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. Tompkins is currently evaluating the potential impact of ASU 2020-04 on our consolidated financial statements.
Accounting Standard Update ("ASU") ASU 2022-01, "Derivatives and Hedging (Topic 815)" ("ASU 2022-01") clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended guidance established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible and renamed that method the “portfolio layer” method. ASU 2022-01 is effective January 1, 2023 and is not expected to have a significant impact on our consolidated financial statements.
ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2022-02") eliminates the guidance on troubled debt restructurings and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. ASU 2022-02 is effective January 1, 2023, with early adoption permitted. Tompkins is currently assessing the impact that ASU 2022-02 will have on our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
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 levels approved by the Company’s Board of Directors. The Committee also considers strategies to manage this exposure and incorporates these strategies into the investment and funding decisions of the Company. The Company does not currently use derivatives, such as interest rate swaps, to manage its interest rate risk exposure, but may consider such instruments in the future.
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 simulation analysis performed as of February 28, 2022, 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 3.2%, while a 100 basis point parallel decline in interest rates over a one-year period would result in a one year decrease in net interest income of 1.3% from the base case. The simulation assumes no balance sheet growth 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 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, net interest income is expected to trend upwards.
The down 100 rate scenario increases net interest income slightly 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. Rates on savings and money market accounts have moved down and are at or near historically low levels allowing for minimal interest expense relief in the first year of a declining rate scenario. In addition, 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 assumes interest rates remain unchanged from the date of the simulation, reflects a net interest margin that is declining slightly over the next 12 to 18 months.
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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, 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 March 31, 2022. The Company’s one-year net interest rate gap was a negative $352.8 million or 4.5% of total assets at March 31, 2022, compared with a negative $331.5 million or 4.24% of total assets at December 31, 2021. 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 significantly affected by external factors such as a rise or decline in interest rates, loan or securities prepayments, and deposit withdrawals.

Condensed Static Gap - March 31, 2022 |  |  | Repricing Interval |
(In thousands) | Total | 0-3 months | 3-6 months | 6-12 months | Cumulative 12 months
Interest-earning assets 1 | $ | 7,637,321 |  | $ | 1,214,966 |  | $ | 331,799 |  | $ | 630,689 |  | $ | 2,177,454 |
Interest-bearing liabilities | 4,996,464 |  | 2,173,252 |  | 148,776 |  | 208,194 |  | 2,530,222 |
Net gap position |  | (958,286) |  | 183,023 |  | 422,495 |  | (352,768) |
Net gap position as a percentage of total assets |  | (12.14) | % | 2.32 | % | 5.35 | % | (4.47) | %

1 Balances of available securities are shown at amortized cost
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Item 4. Controls and Procedures
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 March 31, 2022.
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 Reportin g
There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various claims and legal actions that arise in the ordinary course of conducting business. As of March 31, 2022, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against the Company or its subsidiaries will be material to the Company's consolidated financial position. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with such legal proceedings. Although the Company does not believe that the outcome of pending litigation will be material to the Company's consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.
Item 1A. Risk Factors
There have been no material changes in the risk factors previously disclosed under Item 1A. of the Company’s Annual Report on Form 10-K, for the fiscal year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities

| Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
| (a) | (b) | (c) | (d)
January 1, 2022 through January 31, 2022 | 26,765 |  | $ | 82.16 |  | 24,885 |  | 342,912 |
February 1, 2022 through February 28, 2022 | 46,805 |  | 79.12 |  | 46,141 |  | 296,771 |
March 1, 2022 through March 31, 2022 | 59,142 |  | 79.08 |  | 59,142 |  | 237,629 |
Total | 132,712 |  | $ | 79.71 |  | 130,168 |  | 237,629 |

Included above are 1,880 shares purchased in January 2022, at an average cost of $83.18, and 638 shares purchased in February 2022, at an average cost of $80.94, by the trustee of the rabbi trust established by the Company under the Company’s Stock Retainer Plan For Eligible Directors of Tompkins Financial Corporation and Participating Subsidiaries, which were part of the director deferred compensation under that plan. In addition, the table includes 26 shares delivered to the Company in February 2022 at an average cost of $80.26 to satisfy mandatory tax withholding requirements upon vesting of restricted stock under the Company's 2009 Equity Plan.
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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 plan. Shares may be repurchased from time to time under the 2021 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. Under the 2021 Repurchase Plan, the Company had repurchased 162,371 shares through March 31, 2022, at an average cost of $79.85.
Recent Sales of Unregistered Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
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Item 6. Exhibits
EXHIBIT INDEX

Exhibit Number | Description
3.1 | Amended and Restated Certificate of Incorporation of the Company, incorporated herein by reference to Exhibit 3(i) to the Company’s Form 10-Q, filed with the Commission on August 11, 2008.
3.2 | Second Amended and Restated Bylaws of the Company, incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 31, 2011.
4.1 | Form of Specimen Common Stock Certificate of the Company, incorporated herein by reference to Exhibit 4 to the Company’s Registration Statement on Form 8-A (No. 0-27514), filed with the Commission on December 29, 1995.
31.1 | Certification of Principal Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2 | Certification of Principal Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1 | Certification of Principal Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350
32.2 | Certification of Principal Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350
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101 PRE** | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the interactive date file because its XBRL tags are embedded with the inline XBRL document.

** Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Condition as of March 31, 2022 and December 31, 2021; (ii) Consolidated Statements of Income for the three months ended March 31, 2022 and 2021; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021; (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021; (v) Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2022 and 2021; and (vi) Notes to Unaudited Consolidated Financial Statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 9, 2022
TOMPKINS FINANCIAL CORPORATION

By: | /s/ Stephen S. Romaine |
| Stephen S. Romaine |
| President and Chief Executive Officer |
| (Principal Executive Officer) |

By: | /s/ Francis M. Fetsko |
| Francis M. Fetsko |
| Executive Vice President, Chief Financial Officer, and Chief Operating Officer
| (Principal Financial Officer) |
| (Principal Accounting Officer) |

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