TOMPKINS FINANCIAL CORPORATION BUSINESS
Corporate Overview and Strategic InitiativesTompkins Financial Corporation ("Tompkins" or the "Company") is headquartered inIthaca, New York and is registered as aFinancial Holding Company with theFederal 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. AtSeptember 30, 2021 , the Company had four wholly-owned banking subsidiaries:Tompkins Trust Company (the "Trust Company "), TheBank of Castile (DBA Tompkins Bank of Castile ),Mahopac Bank (DBA Tompkins Mahopac Bank ), andVIST Bank (DBA Tompkins VIST Bank ). The Company's banks have announced plans for a rebranding effort, pursuant to which the Company's four wholly-owned banking subsidiaries will be combined into one bank, with TheBank of Castile ,Mahopac Bank , andVIST Bank merging with and intoTompkins Trust Company . The Company has received all applicable regulatory approvals, and the combined bank will conduct business under the "Tompkins" brand name, with a legal name of "Tompkins Community Bank ." The re-branding and combination is anticipated to take effect inJanuary 2022 . The Company also has a wholly-owned insurance agency subsidiary,Tompkins Insurance Agencies, Inc. ("Tompkins Insurance "). The trust division of theTrust Company 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 at118 E. Seneca Street ,Ithaca, NY , 14850, and its telephone number is (888) 503-5753. The Company's common stock is traded on the NYSE American under the Symbol "TMP." TheTompkins 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 the Company's four banking subsidiaries' 63 banking offices (43 offices inNew York and 20 offices inPennsylvania ) and using those deposits to originate a variety of commercial loans, consumer loans, real estate loans (including commercial loans collateralized by real estate), 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 by theTrust Company under the trade nameTompkins Financial Advisors .Tompkins Financial Advisors has office locations, and services are available to customers, at the Company's four subsidiary banks. Insurance services include property and casualty insurance, employee benefit consulting, and life, long-term care and disability insurance.Tompkins Insurance is headquartered inBatavia, 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 intoTompkins Insurance .Tompkins Insurance offers services to customers of the Company's banking subsidiaries by sharing offices with TheBank of Castile ,Trust Company , andVIST Bank . In addition to these shared offices,Tompkins Insurance has five stand-alone offices inWestern New York , and one stand-alone office inTompkins 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.
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--------------------------------------------------------------------------------Competition
Competition for commercial banking and other financial services is strong in the Company's market areas. In one or more aspects of its business, the Company's subsidiaries compete with other commercial banks, savings and loan associations, credit unions, finance companies, Internet-based financial services companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Some of these competitors have substantially greater resources and lending capabilities and may offer services that the Company does not currently provide. In addition, many of the Company's non-bank competitors are not subject to the same extensive Federal regulations that govern financial holding companies and Federally-insured banks. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges, the quality and scope of the services rendered, the convenience of facilities and services, and, in the case of loans to commercial borrowers, relative lending limits. Management believes that a community-based financial organization is better positioned to establish personalized financial relationships with both commercial customers and individual households. The Company's community commitment and involvement in its primary market areas, as well as its commitment to quality and personalized financial services, are factors that contribute to the Company's competitiveness. Management believes that each of the Company's subsidiary banks 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 with four community banks, a registered investment adviser, and an insurance agency subsidiary, the Company and its subsidiaries are subject to examination and regulation by theFederal Reserve Board ("FRB"),Securities and Exchange Commission ("SEC"), theFederal Deposit Insurance Corporation ("FDIC"), theNew York State Department of Financial Services ,Pennsylvania Department of Banking and Securities , theFinancial Industry Regulatory Authority , and thePennsylvania Insurance Department .
OTHER IMPORTANT INFORMATION
The following discussion is intended to provide an understanding of the consolidated financial condition and results of operations of the Company for the three and nine months endedSeptember 30, 2021 . 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 endedDecember 31, 2020 , 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 146 domestic bank holding companies with$3 billion to$10 billion in total assets as defined in theFederal Reserve's "Bank Holding Company Performance Report" forJune 30, 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 endedDecember 31, 2020 , are among those that could cause actual results to differ 46 -------------------------------------------------------------------------------- materially from the forward-looking statements: changes in general economic, market and regulatory conditions; the severity and duration of the COVID-19 pandemic and the impact of the pandemic (including governments' responses to the pandemic) 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 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 Coronavirus Aid, Relief, and Economic Security Act (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 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, toU.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. OnJanuary 1, 2020 , the Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments," which resulted in changes to the Company's existing critical accounting policy that existed atDecember 31, 2019 . 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 endedDecember 31, 2020 . 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.
COVID-19 Pandemic and Recent Events
The COVID-19 global pandemic continued to present health and economic challenges during the third quarter of 2021. During the third quarter, the Company continued to focus on the health and well-being of its workforce, meeting its clients' needs, and supporting its communities. The Company has designated a Pandemic Planning Committee, which includes key individuals across the Company as well as members of Senior Management, to oversee the Company's response to COVID-19, and has implemented a number of risk mitigation measures designed to protect our employees and customers while maintaining services for our customers and community. These measures included restrictions on business travel, establishment of a remote work environment for most non-customer facing employees, and social distancing restrictions for those employees working at our offices and branch locations. InJuly 2020 , we began initiating the reopening of our offices and reinstatement of branch services, and the return of our workforce, but as ofSeptember 30, 2021 , approximately 85% of our noncustomer facing employees continued to work remotely. AsNew York State has eased COVID-19 restrictions, we have lifted our own restrictions including opening our facilities to employees and customers, lifting travel restrictions, and discontinuing other 47 -------------------------------------------------------------------------------- guidelines put in place as a result of the COVID-19 pandemic. However, on-site employees who have not provided proof of vaccination are required to wear masks and follow distancing requirements consistent withCDC guidelines.Tompkins continues to offer, on a limited basis, assistance to its customers affected by the COVID-19 pandemic by implementing a payment deferral program to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19. Our standard program allowed for the deferral of loan payments for up to 90 days; in certain cases we extended additional deferrals or other accommodations. As part of this program, the Company deferred approximately 3,843 loans totaling$1.6 billion . As ofSeptember 30, 2021 , 3,791 loans totaling approximately$1.4 billion had moved out of the deferral status, of those loans 1.3% were more than 30 days past due. As ofSeptember 30, 2021 , total loans that continued in a deferral status amounted to approximately$12.8 million , representing 0.25% of total loans. We expect that loans in the deferral program will continue to accrue interest during the deferral period unless otherwise classified as nonperforming. The provisions of the CARES Act and the interagency guidance issued by Federal banking regulators provided clarification related to modifications and deferral programs to assist borrowers who are 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 troubled debt restructuring ("TDR"). In accordance with the CARES Act and the interagency guidance, the Company elected to adopt the provisions to not report qualified loan modifications as 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 will continue 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. It is difficult to assess whether a customer that continues to experience COVID-19 related financial hardship will be able to perform under the original terms of the loan once the deferral period ends. Any such inability to perform may result in increases in past due and nonperforming loans. The balance of loans in deferral as ofSeptember 30, 2021 reflects a continued decrease, resulting in immaterial industry concentrations as a percentage of each loan segment. The Company also participated in theU.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP"). This program provides borrower guarantees for lenders, and envisions a certain amount of loan forgiveness for loan recipients who properly utilize funds, all in accordance with the rules and regulations established by the SBA for the PPP. The Company began accepting applications for PPP loans onApril 3, 2020 , and had funded 2,998 loans totaling about$465.6 million when the initial program ended. OnJanuary 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 for new applications onMay 12, 2021 . The Company funded 2,142 PPP loan applications totaling$228.5 million in 2021. Out of the total$694.1 million of PPP loans that the Company had funded throughOctober 12, 2021 , approximately$552.0 million had been forgiven by the SBA under the terms of the program. Total net deferred fees on the remaining balance of PPP loans amounted to$6.2 million atSeptember 30, 2021 . As ofSeptember 30, 2021 , the Company's nonperforming assets represented 0.75% of total assets, up from 0.60% atDecember 31, 2020 . Despite relatively stable trends in nonperforming assets and other delinquency, some customers have experienced continued cash flow stress related to the pandemic, resulting in an increase in loans rated Substandard, which totaled$70.2 million atSeptember 30, 2021 , up from$68.6 million atDecember 31, 2020 , and up from$45.4 million atSeptember 30, 2020 . The downgrades to Substandard were primarily due to one commercial real estate loan totaling$7.5 million , which continues to accrue interest. AtSeptember 30, 2021 , loans rated Special Mention declined to$98.3 million from$122.7 million atSeptember 30, 2020 . As mentioned above, the Company is working with its customers who are dealing with hardships caused by the pandemic, and as part of those efforts, the Company implemented a loan payment deferral program inMarch 2020 and participates in the PPP. As ofSeptember 30, 2021 , the Company had not experienced any significant impact to our liquidity or funding capabilities as a result of COVID-19. The Company's participation as a lender in the PPP has been a use of liquidity; however, theFederal Reserve Bank has provided a lending facility that may be used by banks to obtain funding specifically for PPP loans. PPP loans would be pledged as collateral on a bank's borrowings under theFederal Reserve Bank's designated PPP lending facility. As ofSeptember 30, 2021 , the Company has not accessed this Federal Reserve Bank PPP lending facility.
RESULTS OF OPERATION
Performance Summary Net income for the third quarter of 2021 was$21.3 million or$1.45 diluted earnings per share, compared to$24.2 million or$1.63 diluted earnings per share for the same period in 2020. Net income for the first nine months of 2021 was$69.8 million or$4.72 diluted earnings per share compared to$53.6 million or$3.59 diluted earnings per share for the first nine months of 2020. 48 -------------------------------------------------------------------------------- Net income for the third quarter of 2021 was down$2.9 million or 11.9% when compared to the same quarter in 2020. For the year to date period endingSeptember 30, 2021 , net income increased by$16.2 million or 30.1%. Results for the third quarter of 2021 were negatively impacted by approximately$4.1 million ($0.21 per share) of nonrecurring expenses related to the prepayment of borrowings and the redemption of trust preferred securities. Though these transactions had a negative impact on earnings during the third quarter of 2021, management expects that they will have a favorable impact on future earnings by way of reduced interest expense. The increase in net income for the nine months endedSeptember 30, 2021 over the same period in 2020 was mainly a result of lower provisions for credit losses and higher noninterest revenues, partially offset by higher noninterest expenses which included penalties of$2.9 million related to the prepayment of FHLB advances, and a higher effective tax rate. Return on average assets ("ROA") for the quarter endedSeptember 30, 2021 was 1.05%, compared to 1.27% for the quarter endedSeptember 30, 2020 . Return on average shareholders' equity ("ROE") for the third quarter of 2021 was 11.55%, compared to 13.59% for the same period in 2020. For the year-to-date period endedSeptember 30, 2021 , ROA and ROE totaled 1.17% and 12.87%, respectively, compared to 0.99% and 10.33%, for the same period in 2020. 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 theTompkins 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$17.8 million for the third quarter of 2021, a decrease of$3.8 million or 17.8% from net income of$21.6 million for the same period in 2020. For the nine months endedSeptember 30, 2021 , the banking segment reported net income of$60.8 million , an increase of$13.3 million or 28.0% from the same period in 2020. Net interest income of$56.1 million for the third quarter of 2021 was down$2.2 million or 3.7% from the same period in 2020. For the nine months endedSeptember 30, 2021 , net interest income of$166.0 million was down$1.6 million or 1.0% compared to the first nine months of 2020. The decrease in net interest income for the three and nine month period endedSeptember 30, 2021 over the same periods in 2020 was mainly driven by the decrease in average asset yields offsetting the favorable impact of an increase in average earning assets and lower funding costs. Net interest income for the three and nine months endedSeptember 30, 2021 included net deferred loan fees associated with PPP loans of$3.3 million and$8.0 million , respectively, compared to net deferred loan fees of$2.4 million and$4.8 million for the three and nine months endedSeptember 30, 2020 , respectively. Interest expense for the three and nine months endedSeptember 30, 2021 , respectively, was negatively impacted by an accelerated non-cash purchase accounting discount of$1.2 million and$1.9 million , respectively, related to the redemption of trust preferred securities. The provision for credit losses was a credit of$1.2 million for the three months endedSeptember 30, 2021 , compared to a credit of$218,000 for the same period in 2020. For the nine month period endedSeptember 30, 2021 , the provision for credit losses was a credit of$6.1 million compared to a provision of$17.4 million for the same period in 2020. The first quarter of 2020 included a provision expense of$16.8 million related to the impact of the economic conditions due to COVID-19 on economic forecasts and other model assumptions relied upon by management in determining the allowance for credit losses, and reflects the calculation of the allowance for credit losses in accordance with ASU 2016-13. For additional information, see the section titled "The Allowance for Credit Losses" below. Noninterest income of$6.4 million for the three months endedSeptember 30, 2021 was up$440,000 or 7.4% compared to the same period in 2020. The increase was mainly in card services income and service charges on deposits accounts, which were up$298,000 or 12.3% and$194,000 or 13.4%, respectively, over the same quarter in 2020. For the nine months endedSeptember 30, 2021 , noninterest income of$19.2 million was down$42,000 or 0.2% compared to the nine months endedSeptember 30, 2020 . Noninterest expense of$40.6 million and$113.8 million , respectively, for the three and nine months endedSeptember 30, 2021 , was up$3.2 million or 8.5% and$3.7 million or 3.3%, respectively, from the same periods in 2020. Included in the quarter and year-to-date periods of 2021 were penalties of$2.9 million related to the prepayment of$135.0 million in FHLB fixed rate advances. The advances, which were paid off inSeptember 2021 , carried a weighted average interest rate of 2.26% and had a weighted average maturity of 1.25 years. 49 -------------------------------------------------------------------------------- Insurance Segment The insurance segment reported net income of$2.3 million for the three months endedSeptember 30, 2021 , which was up$462,000 or 25.7% compared to the third quarter of 2020. Total noninterest revenue was up$927,000 or 10.3% for the third quarter of 2021 compared to the same quarter in the prior year, primarily due to growth in commercial lines revenue. The growth in commercial lines revenue is attributed to increased new business, growth within the existing client base, and premium increases related to change in general market conditions. For the nine months endedSeptember 30, 2021 , net income was up$1.7 million or 47.2% compared to the same period in the prior year. Total revenue was up$3.0 million or 12.2% compared to the same period in the prior year. The increase in revenues and net income for the nine months endedSeptember 30, 2021 compared to the prior year is mainly due to growth in overall commission revenue of$1.5 million or 6.8%, primarily in commercial lines, and contingency income, which was up$890,000 or 39.7%. In addition, revenue for the prior year was reduced by an increase in reserves for cancellations and policy changes as a result of economic uncertainties related to COVID-19. Noninterest expenses for the three months endedSeptember 30, 2021 were up$287,000 or 4.4% compared to the three months endedSeptember 30, 2020 . Year-to-date noninterest expenses were up$565,000 or 2.9% compared to the nine months endedSeptember 30, 2020 . The increases in noninterest expenses for the three and nine months endedSeptember 30, 2021 were mainly the result of increases in wages and new business commissions along with related taxes and benefits tied to the increase in commission revenue. Certain expenses continue to be below average as a result of pandemic-related travel and business restrictions. Wealth Management Segment The wealth management segment reported net income of$1.3 million for the three months endedSeptember 30, 2021 , which was up$494,000 or 60.0% compared to the third quarter of 2020. Revenue for the third quarter of 2021 was up$614,000 or 13.8% compared to the third quarter of 2020. The increase for the three months endedSeptember 30, 2021 was mainly due to an increase in advisory fee income resulting from the growth in assets under management. Total expense for the third quarter of 2021 was in line with the third quarter of 2020. For the nine months endedSeptember 30, 2021 , net income of$3.6 million was up$1.2 million or 47.8% compared to the prior year, mainly due to an increase in advisory fee income over the same period prior year, for the same reason as the quarterly increase. Noninterest expense for the nine months endedSeptember 30, 2021 , was up 2.1% over the same period in 2020, driven mainly by increases in salaries and wages. Net Interest Income The following tables show average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each for the three and nine month periods endedSeptember 30, 2021 and 2020. 50 -------------------------------------------------------------------------------- Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited) Quarter Ended Quarter Ended September 30, 2021 September 30, 2020 Average Average Balance Average Balance Average (Dollar amounts in thousands) (QTD) Interest Yield/Rate (QTD) Interest Yield/Rate ASSETS Interest-earning assets Interest-bearing balances due from banks$ 376,341 $ 136 0.14 %$ 326,908 $ 83 0.10 % Securities (1) U.S. Government securities 2,133,984 6,467 1.20 % 1,332,240 5,362 1.60 % State and municipal (2) 109,375 697 2.53 % 122,932 816 2.64 % Other securities (2) 3,417 23 2.64 % 3,433 25 2.88 % Total securities 2,246,776 7,187 1.27 % 1,458,605 6,203 1.69 % FHLBNY and FRB stock 15,330 196 5.07 % 18,319 307 6.66 % Total loans and leases, net of unearned income (2)(3) 5,115,253 53,989 4.19 % 5,400,217 58,507 4.31 % Total interest-earning assets 7,753,700 61,508 3.15 % 7,204,049 65,100 3.59 % Other assets 348,370 377,960 Total assets$ 8,102,070 $ 7,582,009 LIABILITIES & EQUITY Deposits Interest-bearing deposits Interest bearing checking, savings, & money market 4,090,840 906 0.09 % 3,796,615 1,671 0.18 % Time deposits 707,212 1,700 0.95 % 697,026 2,534 1.45 % Total interest-bearing deposits 4,798,052 2,606 0.22 % 4,493,641 4,205 0.37 % Federal funds purchased & securities sold under agreements to repurchase 60,798 17 0.11 % 47,527 19 0.16 % Other borrowings 224,459 1,156 2.04 % 303,587 1,623 2.13 % Trust preferred debentures 3,444 1,237 142.50 % 17,135 216 5.02 % Total interest-bearing liabilities 5,086,753 5,016 0.39 % 4,861,890 6,063 0.50 % Noninterest bearing deposits 2,165,537 1,897,999 Accrued expenses and other liabilities 116,663 112,636 Total liabilities 7,368,953 6,872,525 Tompkins Financial Corporation Shareholders' equity 731,629 707,996 Noncontrolling interest 1,488 1,488 Total equity 733,117 709,484 Total liabilities and equity$ 8,102,070 $ 7,582,009 Interest rate spread 2.76 % 3.10 % Net interest income/margin on earning assets 56,492 2.89 % 59,037 3.26 % Tax Equivalent Adjustment (394) (784) Net interest income per consolidated financial statements$ 56,098 $ 58,253 51
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Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
Year to Date Period Ended Year to Date Period Ended
September 30, 2021 September 30, 2020
Average Average
Balance Average Balance Average
(Dollar amounts in thousands) (YTD) Interest Yield/Rate (YTD) Interest Yield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks
0.11 % $ 111,775 $ 90 0.11 %
Securities (1) U.S. Government securities 1,920,717 16,417 1.14 % 1,242,659 18,236
1.96 %
State and municipal (2) 114,809 2,200 2.56 % 110,058 2,225 2.70 % Other securities (2) 3,420 69 2.70 % 3,429 93 3.61 % Total securities 2,038,946 18,686 1.23 % 1,356,146 20,554 2.02 % FHLBNY and FRB stock 16,328 608 4.98 % 22,175 1,130 6.81
%
Total loans and leases, net of unearned income (2)(3) 5,225,087 162,355 4.15 % 5,197,757 170,853 4.40 % Total interest-earning assets 7,614,130 181,915 3.19 % 6,687,853 192,627 3.85 % Other assets 346,441 536,424 Total assets$ 7,960,571 $ 7,224,278 LIABILITIES & EQUITY Deposits Interest-bearing deposits Interest bearing checking, savings, & money market 4,002,724 2,943 0.10 % 3,557,326 7,973 0.30 % Time deposits 727,445 5,616 1.03 % 693,922 8,208 1.58 % Total interest-bearing deposits 4,730,169 8,559 0.24 % 4,251,248 16,181 0.51 % Federal funds purchased & securities sold under agreements to repurchase 57,498 48 0.11 % 54,481 76 0.19 % Other borrowings 254,002 3,883 2.04 % 397,511 6,357 2.14 % Trust preferred debentures 9,849 2,233 30.32 % 17,093 758 5.93 % Total interest-bearing liabilities 5,051,518 14,723 0.39 % 4,720,332 23,372 0.66 % Noninterest bearing deposits 2,066,567 1,699,317 Accrued expenses and other liabilities 117,383 111,643 Total liabilities 7,235,468 6,531,292 Tompkins Financial Corporation Shareholders' equity 723,645 691,530 Noncontrolling interest 1,458 1,456 Total equity 725,103 692,986 Total liabilities and equity$ 7,960,571 $ 7,224,278 Interest rate spread 2.80 % 3.19 % Net interest income/margin on earning assets 167,192 2.94 % 169,255
3.38 %
Tax Equivalent Adjustment (1,211) (1,667) Net interest income per consolidated financial statements$ 165,981 $ 167,588 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 2021 and 2020 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 endedDecember 31, 2020 . Net Interest Income Net interest income is the Company's largest source of revenue, representing 72.9% and 73.5%, respectively, of total revenues for the three and nine months endedSeptember 30, 2021 , compared to 75.5% and 75.3% for the same periods in 2020. 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. 52 -------------------------------------------------------------------------------- Taxable-equivalent net interest income for the three months endedSeptember 30, 2021 decreased$2.2 million or 3.7% from the same period in the prior year. The decrease resulted mainly from the decrease in average asset yields more than offsetting lower average funding costs and the growth in average interest-earning assets. Taxable-equivalent net interest income for the nine month period endedSeptember 30, 2021 decreased$1.6 million or 1.0% from the nine month period endedSeptember 30, 2020 . Net interest income in the first nine months of 2021 benefited from the growth in average earning assets, which were up 13.9% over the same nine month period in 2020, and lower average funding costs. The growth in average earning assets and lower average funding costs were more than offset by the decrease in average asset yields resulting from lower market interest rates over the trailing twelve month period as well as a greater percentage of earning assets being comprised of lower yielding securities and interest bearing balances due from banks, when compared to the same period in 2020. Net interest margin for the three months endedSeptember 30, 2021 was 2.89% compared to 3.26% in 2020. Net interest margin for the nine months endedSeptember 30, 2021 was 2.94% compared to 3.38% for the same period in 2020. The decrease in net interest margin for the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020 was mainly due to the effect of declining market interest rates on earning asset yields and a shift in composition of average earning assets, with a greater mix of lower yielding average earning assets, mainly securities and interest bearing balances, partially offset by lower funding costs. Taxable-equivalent interest income for the three and nine months endedSeptember 30, 2021 , was$61.5 million and$181.9 million , respectively, down 5.5% and 5.6%, respectively, compared to the same periods in 2020. Both the quarter-over-quarter and year-over-year decrease in taxable-equivalent interest income was mainly a result of lower average asset yields, partially offset by growth in average earning assets. Average asset yields for the three and nine months endedSeptember 30, 2021 were down 44 and 66 basis points, respectively, compared to the same periods in 2020, mainly driven by the decrease in market interest rates as well as the growth in lower yielding securities and interest bearing balances. For the three and nine months endedSeptember 30, 2021 , average earning assets were up$549.7 million or 7.6% and$926.3 million or 13.9%, respectively, over the same periods in 2020, with the majority of growth in securities and interest bearing balances due from banks. Average loan balances for the three months endedSeptember 30, 2021 , were$285.0 million or 5.3% below the three months endedSeptember 30, 2020 , and for the nine months endedSeptember 30, 2021 were in line with the nine months endedSeptember 30, 2020 , while the average yield on loans decreased 12 and 25 basis points, respectively, for the three and nine months endedSeptember 30, 2021 , compared to the same periods in 2020. The decrease in average loans was primarily due to a decline in average PPP loans from the third quarter of 2020 to the third quarter of 2021. As a result of its participation in the SBA's PPP, the Company recorded net deferred loan fees of$3.3 million and$8.0 million , respectively, in the three and nine months endedSeptember 30, 2021 , compared to$2.4 million and$4.8 million , respectively, for the three and nine months endedSeptember 30, 2020 . These net deferred loan fees are included in interest income. Average securities balances for the three and nine months endedSeptember 30, 2021 , were up$788.2 million or 54.0% and$682.8 million or 50.4%, respectively, and the average yield on securities was down 42 basis points and down 79 basis points, respectively, compared to the same periods in 2020. Average interest bearing balances for the three and nine months endedSeptember 30, 2021 , were up$49.4 million and$222.0 million , respectively, over the same periods in 2020. Interest expense for the three and nine months endedSeptember 30, 2021 , decreased by$1.0 million or 17.3% and$8.6 million or 37.0%, respectively, compared to the same periods in 2020, driven mainly by decreases in rates paid on deposits and borrowings as a result of lower market interest rates, and a decrease in average borrowings. Interest expense for the three and nine months endedSeptember 30, 2021 was negatively impacted by an accelerated non-cash purchase accounting discount related to the redemption of trust preferred securities of$1.2 million and$1.9 million , respectively. Growth in average deposit balances contributed to a decrease in higher cost borrowings. The average cost of interest-bearing deposits during the three and nine months endedSeptember 30, 2021 was 0.22% and 0.24%, respectively, down 16 basis points and 27 basis points, respectively, compared to the same periods in 2020. Average interest-bearing deposits for the third quarter of 2021 were up$304.4 million or 6.8% compared to the same period in 2020, while year-to-date average interest-bearing deposits were up$478.9 million or 11.3% compared to the same period in 2020. Average noninterest bearing deposits were up$267.5 million or 14.1% for the three months endedSeptember 30, 2021 when compared to the third quarter of 2020, and for the nine months endedSeptember 30, 2021 were up$367.3 million or 21.6% compared to the same period in 2020. Average deposit balances continue to benefit from the PPP loan program, as the majority of the proceeds of the PPP loans funded byTompkins during 2020 and the first half of 2021 were deposited inTompkins checking accounts. Additionally, consumer deposit balances benefited from other government stimulus programs. Average other borrowings for the three and nine months endedSeptember 30, 2021 were down$79.1 million or 26.1% and$143.5 million or 36.1%, respectively, compared to the same periods in 2020, mainly due to decreases in term borrowings with the FHLB as a result of deposit growth. InSeptember 2021 , the Company prepaid$135.0 million of fixed rate FHLB advances, incurring prepayment penalties of$2.9 million . The advances carried a weighted average rate of 2.26% and had a weighted average maturity of 1.25 years. 53 -------------------------------------------------------------------------------- Provision for Credit Losses The provision for credit losses represents management's estimate of the amount necessary to maintain the allowance for credit losses ("ACL") at an appropriate level. Provision for credit losses in the third quarter of 2021 was a credit of$1.2 million , compared to a credit of$218,000 for the third quarter of 2020. Provision for credit losses for the nine months endedSeptember 30, 2021 was a credit of$6.1 million , compared to an expense of$17.4 million for the same period in 2020. The provision for credit losses for the three and nine months endedSeptember 30, 2021 included a credit to provision of$55,000 and a provision expense of$273,000 related to off-balance sheet credit exposures compared to a credit to provision of$417,000 and a provision expense of$1.3 million , respectively, for the periods in 2020. The changes compared to prior year were mainly due to improvement in the macroeconomic factor assumptions utilized in the calculation which resulted in a negative provision expense for the three months endedSeptember 30, 2021 due to the improving economic conditions. The first quarter of 2020 included a provision expense of$16.8 million related to the impact of COVID-19 on economic forecasts and other model assumptions relied upon by management in determining the allowance, and reflects the calculation of the allowance for credit losses in accordance with ASU 2016-13. 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$20.9 million for the third quarter of 2021, which was up 10.4% compared to the third quarter of 2020, and was$59.7 million for the first nine months of 2021, up 8.5% from the same period prior year. Noninterest income represented 27.1% of total revenue for the third quarter of 2021 and 26.5% for the nine months endedSeptember 30, 2021 , compared to 24.5% and 24.7%, respectively, for the same periods in 2020. Insurance commissions and fees, the largest component of noninterest income, were$9.8 million for the third quarter of 2021, an increase of 10.3% from the same period prior year. The increase in insurance commissions and fees in the third quarter of 2021 over the same period in 2020, was mainly in commercial property and casualty commissions and contingency income. For the first nine months of 2021, insurance commissions and fees were up$2.8 million or 11.7% compared to the same period in 2020. The increase in revenues for the nine months endedSeptember 30, 2021 , compared to the prior year, primarily due to growth in commercial lines revenue, attributable to increased new business, growth within the existing client base, and premium increases related to change in general market conditions and exposures for certain business sectors. In addition, revenues for the prior year were reduced by an increase in reserves for cancellations and policy changes as a result of economic uncertainties related to the COVID-19 pandemic. Investment services income of$5.0 million in the third quarter of 2021 was up$665,000 or 15.5% compared to the third quarter of 2020. For the first nine months of 2021, investment services income was up$1.9 million or 15.6% compared to the same period in 2020. The increase for both the three and nine month periods in 2021 was mainly due to an increase in advisory fee income resulting from the growth in assets under management, driven by new business and an increase in fair value due to favorable market conditions. Investment services income includes trust services, financial planning, wealth management services, and brokerage related services. The fair value of assets managed by, or in custody of,Tompkins was$5.3 billion atSeptember 30, 2021 , which included$1.7 billion of Company-owned securities whereTompkins Trust Company is custodian. The fair value of assets managed by, or in custody of,Tompkins was$4.3 billion atSeptember 30, 2020 . Card services income for the three and nine months endedSeptember 30, 2021 , was up$298,000 or 12.3%, and$1.2 million or 17.0%, respectively, compared to the same periods in 2020. Debit card income, the largest component of card services income, was up$199,000 or 11.4% compared to the same quarter in the prior year, and up$971,000 or 19.7% from the first nine months of 2020. Contributing to the increase in debit card income were higher transaction volumes in 2021 when compared to 2020 levels, which had been lower due to the COVID-19 pandemic. Other income of$1.8 million in the third quarter of 2021 was down$49,000 or 2.7% compared to the same period in 2020. For the first nine months of 2021, other income of$5.4 million was down$980,000 or 15.3% compared to the same period in 2020. The decrease for the nine months endedSeptember 30, 2021 compared to the same period in 2020, was mainly due to lower gains on sales of residential mortgage loans, which were down$367,000 or 29.5%, and lower earnings on corporate owned life insurance, which were down$123,000 or 7.5%. Noninterest Expense Noninterest expense of$50.2 million for the third quarter of 2021 and$142.1 million for the first nine months of 2021, was up 7.3% and 3.2%, respectively, compared to the same periods in 2020.
Expenses associated with compensation and benefits comprise the largest
component of noninterest expense, representing 61.0% and 62.9% of total
noninterest expense for the three and nine months ended
54
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respectively, compared to the same periods in 2020. The increases were mainly
due to normal merit adjustments and increases in incentive-related compensation.
Employee benefits for the three and nine months ended September 30, 2021 ,
decreased by $913,000 or 13.7%, and $373,000 or 2.0%, respectively, over the
same periods in 2020, mainly as a result of lower health care expense for the
three and nine month periods ended September 30, 2021 compared to the same
periods in 2020.
Other expense categories, not related to compensation and benefits, for the
three months ended September 30, 2021 were up $3.5 million or 21.4% for the
three months ended September 30, 2020 , and up $2.8 million or 5.6% for the same
nine month period in 2020. Expenses for three and nine months ended September
30, 2021 , included a nonrecurring expense of $2.9 million representing the
prepayment penalty related to prepayment of $135.0 million in FHLB fixed rate
advances. The advances, which were paid off in September 2021 , carried a
weighted average interest rate of 2.26% and had a weighted average maturity of
1.25 years. This transaction had a negative impact on current period earnings,
but management expect it to have a favorable impact on future earnings by way of
reduced interest expense. Marketing expenses for the three months ended
September 30, 2021 were up $244,000 or 26.3%, and for the first nine months of
2021 were flat when compared to the same period in 2020. Professional fees
expense for the three and nine months ended September 30, 2021 were up $456,000
or 32.6% and $626,000 or 13.5%, respectively, when compared to the same periods
in 2020.
Income Tax Expense
The provision for income taxes was $6.6 million for an effective rate of 23.7%
for the third quarter of 2021, compared to tax expense of $6.3 million and an
effective rate of 20.7% for the same quarter in 2020. For the first nine months
of 2021, the provision for income taxes was $19.8 million for an effective rate
of 22.1% compared to tax expense of $13.8 million and an effective rate of 20.4%
for the same period in 2020. The effective rates differ from the U.S. and state
statutory rates primarily due to the effect of tax-exempt income from loans,
securities and life insurance assets, and the income tax effects associated with
stock based compensation. The increase in the effective tax rate for the three
and nine months ended September 30, 2021 over the same periods in 2020 was due
to a higher level of taxable income to total income.
The Company's three New York based banking subsidiaries each have 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. As of September 30, 2021 , the Company's consolidated average
assets, as defined by New York tax law, were under the $8.0 billion . The Company
will continue to monitor the consolidated average assets through year-end 2021
to determine future eligibility.
FINANCIAL CONDITION
Total assets were$8.1 billion atSeptember 30, 2021 , up$490.9 million or 6.4% fromDecember 31, 2020 . The increase in total assets over year-end 2020 was mainly in securities balances, which increased$709.0 million or 43.6% compared toDecember 31, 2020 . Total loan balances were$5.1 billion atSeptember 30, 2021 , down$163.5 million or 3.1% compared to the$5.3 billion reported at year-end 2020. Total cash and cash equivalents were down$55.0 million or 14.2% compared toDecember 31, 2020 . Total deposits atSeptember 30, 2021 were up$653.1 million or 10.2% fromDecember 31, 2020 . Other borrowings atSeptember 30, 2021 decreased$155.0 million or 58.5% fromDecember 31, 2020 , as deposit growth was used to reduce borrowings. 55 --------------------------------------------------------------------------------
Securities
As ofSeptember 30, 2021 , the Company's securities portfolio was$2.3 billion or 28.8% of total assets, compared to$1.6 billion or 21.4% of total assets at year end 2020. The increase in securities from year-end 2020 was largely due to the investment of excess cash driven by deposit growth and PPP loan forgiveness, into the securities portfolio. The following table details the composition of the securities portfolio.
September 30, 2021 December 31, 2020
(In thousands) Amortized Cost Fair Value Amortized Cost Fair Value
U.S. Treasuries $ 140,373 $ 138,928 $ 0 $ 0
Obligations of U.S. Government sponsored entities 813,833 810,343 599,652 607,480
Obligations of
109,911 126,642 129,746
Mortgage-backed securities - residential, issued by
88,135 89,320 179,538 182,108
U.S. Government sponsored entities 919,745 916,004 691,562 705,480
U.S. corporate debt securities 2,500 2,421 2,500 2,379
Total available-for-sale debt securities $ 2,072,498 $
2,066,927
September 30, 2021 December 31, 2020
(In thousands) Amortized Cost Fair Value Amortized Cost Fair Value
U.S. Treasuries $ 86,740 $ 86,431 $ 0 $ 0
Obligations of U.S. Government sponsored entities 182,528 181,852 0 0
Total held-to-maturity debt securities $ 269,268 $ 268,283 $ 0 $ 0
As ofSeptember 30, 2021 , the available-for-sale debt securities portfolio had net unrealized losses of$5.6 million compared to net unrealized gains of$29.5 million atDecember 31, 2020 . The decrease in unrealized gains related to the available-for-sale debt securities portfolio, which reflects the amount that the amortized cost exceeds fair value, was due primarily to decreases in market interest rates during the first nine months of 2021. Management's policy is to purchase investment grade securities that on average have relatively short duration, which helps mitigate interest rate risk and provides sources of liquidity without significant risk to capital. The Company evaluates available-for-sale and held-to-maturity debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is the result of changes in interest rates or reflects a fundamental change in the credit worthiness of the underlying issuer. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses ("ACL") on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the ACL and the adjustment to net income may be reversed if conditions change. The Company determined that atSeptember 30, 2021 , all impaired available-for-sale and held-to-maturity debt securities 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 worthiness of the underlying issuers. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost. Therefore, the Company carried no ACL atSeptember 30, 2021 and there was no credit loss expense recognized by the Company with respect to the securities portfolio during the three and nine months endedSeptember 30, 2021 . 56 -------------------------------------------------------------------------------- Loans and Leases Loans and leases as of the end of the third quarter and prior year-end period were as follows: (In thousands) 9/30/2021 12/31/2020 Commercial and industrial Agriculture$ 78,335 $ 94,489 Commercial and industrial other 727,944 792,987 PPP loans 141,930 291,252 Subtotal commercial and industrial 948,209 1,178,728 Commercial real estate Construction 170,646 163,016 Agriculture 192,183 201,866 Commercial real estate other 2,253,190 2,204,310 Subtotal commercial real estate 2,616,019 2,569,192 Residential real estate Home equity 185,625 200,827 Mortgages 1,270,005 1,235,160 Subtotal residential real estate 1,455,630 1,435,987 Consumer and other Indirect 5,595 8,401 Consumer and other 66,694 61,399 Subtotal consumer and other 72,289 69,800 Leases 14,337 14,203 Total loans and leases 5,106,484 5,267,910 Less: unearned income and deferred costs and fees (9,706) (7,583) Total loans and leases, net of unearned income and deferred costs and fees$ 5,096,778 $ 5,260,327 Total loans and leases of$5.1 billion atSeptember 30, 2021 were down$163.5 million or 3.1% fromDecember 31, 2020 , mainly in the commercial portfolio and largely due to a net decline in PPP loans. PPP loans decreased$149.4 million from$291.3 million at year-end 2020 to$141.9 million atSeptember 30, 2021 . As ofSeptember 30, 2021 , total loans and leases represented 62.8% of total assets compared to 69.0% of total assets atDecember 31, 2020 . The decrease in total loans and leases as a percentage of total assets reflects growth in the securities portfolio driven by deposit growth and PPP loan forgiveness sinceDecember 31, 2020 . Residential real estate loans, including home equity loans, were$1.5 billion atSeptember 30, 2021 , up$19.6 million or 1.4% compared toDecember 31, 2020 , and comprised 28.6% of total loans and leases atSeptember 30, 2021 . Changes in residential loan balances reflect 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. 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") orState of New York Mortgage Agency ("SONYMA") without recourse in accordance with standard secondary market loan sale agreements. These residential real estate loans also are subject to customary representations and warranties made by the Company, including representations and warranties related to gross incompetence and fraud. The Company has not had to repurchase any loans as a result of these representations and warranties. During the first nine months of 2021 and 2020, the Company sold residential loans totaling$27.7 million and$35.3 million , respectively, recognizing gains of$878,000 and$1.2 million , respectively. These residential real estate loans were sold without recourse in accordance with standard secondary market loan sale agreements. When residential mortgage loans are sold, the Company typically retains all servicing rights, which provides the Company with a source of fee income. Mortgage servicing rights totaled$1.1 million atSeptember 30, 2021 and$981,000 atDecember 31, 2020 . 57 -------------------------------------------------------------------------------- Commercial real estate loans and commercial and industrial loans totaled$2.6 billion and$948.2 million , respectively, and represented 51.3% and 18.6%, respectively of total loans and leases as ofSeptember 30, 2021 . The commercial real estate portfolio was up$46.8 million or 1.8% over year-end 2020, while commercial and industrial loans were down$230.5 million or 19.6%. The decrease in commercial and industrial loans over year-end included a net decline of$149.3 million of PPP loans that had been forgiven by the SBA under the terms of the program. As ofSeptember 30, 2021 , agriculturally-related loans totaled$270.5 million or 5.3% of total loans and leases, compared to$296.4 million or 5.6% of total loans and leases atDecember 31, 2020 . Agriculturally-related loans include loans to dairy farms and crop farms. Agriculturally-related loans are primarily made based on identified cash flows of the borrower with consideration given to underlying collateral, personal guarantees, and government related guarantees. Agriculturally-related loans are generally secured by the assets or property being financed (commercial real estate) or other business assets such as accounts receivable, livestock, equipment or commodities/crops (commercial). 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 endedDecember 31, 2020 . There have been no significant changes in these policies and guidelines since the date of that report. Therefore, both new originations as well as those balances held atDecember 31, 2020 , reflect these policies and guidelines. 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 theNew York andPennsylvania communities served by its four subsidiary banks. Although operating in numerous communities inNew York State andPennsylvania , the Company is still dependent on the general economic conditions of these states and the local economic conditions of the communities within those states in which the Company does business. The suspension of business activities in our market area related to the COVID-19 pandemic led to a significant increase in unemployment rates in 2020 as compared to pre-pandemic levels and has had a negative effect on our customers. AlthoughNew York andPennsylvania unemployment rates have improved since their peak in the second quarter of 2020, there continues to be uncertainty regarding how long those conditions will continue to exist and whether continued restrictions will cause an increase in unemployment rates or other worsening of economic conditions. As a result, the economic consequences of the pandemic on our market area generally and on the Company in particular continue to be difficult to quantify. The Allowance for Credit Losses The below table represents the allowance for credit losses as ofSeptember 30, 2021 andDecember 31, 2020 . The table provides, as of the dates indicated, an allocation of the allowance for credit losses for inherent loan losses by type. The allocation is neither indicative of the specific amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of future loss trends. The allocation of the allowance for credit losses to each category does not restrict the use of the allowance to absorb losses in any category. (In thousands) 9/30/2021 12/31/2020 Allowance for credit losses Commercial and industrial$ 6,198 $ 9,239 Commercial real estate 29,084 30,546 Residential real estate 9,415 10,257 Consumer and other 1,496 1,562 Finance leases 66 65 Total$ 46,259 $ 51,669
As of
The decrease in the ACL from year-end 2020 reflects lower estimated reserves
driven primarily by improvements in forecasts for unemployment and the gross
domestic product used in the model relied upon by management in the third
quarter of 2021 compared to the forecasts at year-end 2020. The decrease in the
ACL resulting from favorable economic forecasts was partially
58
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offset by increases in reserves for specific loans within the hospitality
industry that have an elevated level of risk due to the adverse economic impact
of the COVID-19 pandemic. Although we have seen improved occupancy rates in the
hospitality industry in recent months, we continue to closely monitor this
industry.
During the third quarter of 2021, we continued to see a decrease in the number
and balances of loans in our pandemic-related payment deferral program compared
to prior periods, as loans returned to repayment status. Loans in our payment
deferral program totaled $12.8 million at September 30, 2021 , down from $129.4
million at June 30, 2021 and $212.2 million at December 31, 2020 . At
September 30, 2021 , the delinquency rate for customers who returned to repayment
status remained low, at 1.31%. We continue to have qualitative reserves for
loans that were in the payment deferral program, based on a period of
performance. Estimates of future delinquency and credit loss performance is
extremely difficult given the uncertainties centering around the evolution of
the virus, including the spread of the Delta variant, the efficacy of
vaccination programs, the related pace of the full resumption of business
activities, and the strength of the economic recovery as government assistance
programs are phased out. The qualitative reserves were added to all portfolio
segments, with the majority in commercial real estate, followed by residential
real estate and commercial and industrial. The Company had net recoveries of
$995,000 in the first nine months of 2021, compared to net charge-offs of $1.2
million for the same period in 2020.
The ratio of ACL to total loans is also impacted by the inclusion of PPP loans
in our loan portfolio. Since PPP loans are guaranteed by the SBA, there are no
reserves allocated to these loans. Excluding PPP loans from total loans results
in an ACL to total loan ratio of 0.93% at September 30, 2021 , down from 1.04% at
December 31, 2020 .
Asset quality measures at September 30, 2021 were mixed compared with December
31, 2020 . Loans internally-classified Special Mention or Substandard were down
$21.4 million or 11.3% compared to December 31, 2020 . Nonperforming loans and
leases were up $15.0 million or 32.7% from year end 2020 and represented 1.19%
of total loans at September 30, 2021 compared to 0.87% at December 31, 2020 . The
increase in nonperforming loans and leases compared to year-end 2020 was mainly
related to two commercial real estate relationships, one with a principal
balance of $9.1 million , which was placed on nonaccrual in the second quarter of
2021, and one with a principal balance of $7.5 million , which moved into the 90
days past due category during the third quarter of 2021, but continues to accrue
interest. The allowance for credit losses covered 76.15% of nonperforming loans
and leases as of September 30, 2021 , compared to 112.87% at December 31, 2020 .
59
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Analysis of the Allowance for Credit Losses
(In thousands) 9/30/2021 9/30/2020
Average loans outstanding during period $ 5,225,087 $ 5,197,757
Allowance at beginning of year, prior to adoption of ASU 2016-13 51,669 39,892
Impact of adopting ASU 2016-13 0 (2,534)
Balance of allowance at beginning of year 51,669 37,358
LOANS CHARGED-OFF:
Commercial and industrial 274 1
Commercial real estate 0 1,305
Residential real estate 51 33
Consumer and other 218 409
Finance leases 0 0
Total loans charged-off $ 543 $ 1,748
RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:
Commercial and industrial 116 125
Commercial real estate 1,040 40
Residential real estate 229 178
Consumer and other 153 195
Finance Leases 0 0
Total loans recovered $ 1,538 $ 538
Net loans (recovered) charged-off (995) 1,210
(Credit) provision for credit losses related to loans (6,405) 16,145
Balance of allowance at end of period $
46,259
0.91 % 0.97 % Annualized net (recoveries) charge-offs on loans to average total loans and leases during the period
(0.01) % 0.00 %
Analysis of Off-Balance Sheet Reserves (In thousands)
$ 1,920 $ 477 Impact of Adopting ASU 2016-13 0 381
Provision for credit losses related to off-balance sheet credit exposures
272 1,273
Liabilities for off-balance sheet credit exposures at end of period
Net loan and lease recoveries for the nine months endedSeptember 30, 2021 were$995,000 compared to net charge-offs of$1.2 million for the same period in 2020. The first quarter of 2020 included a write-down on one credit in the commercial real estate portfolio for$1.2 million . Annualized net recoveries as a percentage of average loans and leases were (0.01)% atSeptember 30, 2021 , compared to annualized net charge-offs of 0.00% atSeptember 30, 2020 . The provision for credit losses was a credit of$1.2 million for the three months endedSeptember 30, 2021 , compared to a credit of$218,000 for the same period in 2020. For the nine month period endedSeptember 30, 2021 , the provision for credit losses was a credit of$6.1 million compared to provision expense of$17.4 million for the same period in 2020. The provision for credit losses for the three and nine months endedSeptember 30, 2021 included a$54,000 provision credit and a provision expense of$272,000 related to off-balance sheet credit exposures compared to a provision credit of$417,000 and provision expense of$1.3 million , respectively, for the same periods in 2020. The provision expense for credit losses is based upon the Company's quarterly evaluation of the appropriateness of the allowance for credit losses. The larger than normal provision expense of$17.4 million for the nine months endedSeptember 30, 2020 was mainly a result of the economic forecasts and other model assumptions impacted by the COVID-19 pandemic. The 60 -------------------------------------------------------------------------------- provision credit of$6.1 million for the first nine months ofSeptember 30, 2021 reflects lower estimated reserves driven by improvements in forecasts for unemployment and the gross domestic product used in our model, partially offset by increased reserves for individually analyzed loans, qualitative reserves for loans within the hospitality and certain other industries that may have an elevated level of risk due to the adverse economic impact of the COVID-19 pandemic, as well as loans that were in the Company's payment deferral program implemented in response to the COVID-19 pandemic. Analysis of Past Due and Nonperforming Loans (In thousands) 9/30/2021 12/31/2020 9/30/2020 Loans 90 days past due and accruing Commercial real estate$ 7,463 $
0
Total loans 90 days past due and accruing$ 7,463 $ 0 $ 0 Nonaccrual loans Commercial and industrial$ 543 $ 1,775 $ 1,636 Commercial real estate 35,022 23,627 12,777 Residential real estate 11,965 13,145 12,203 Consumer and other 411 429 328 Total nonaccrual loans$ 47,941 $ 38,976 $ 26,944 Troubled debt restructurings not included above 5,343 6,803 6,864 Total nonperforming loans and leases$ 60,747 $ 45,779 $ 33,808 Other real estate owned 135 88 196 Total nonperforming assets$ 60,882 $ 45,867 $ 34,004 Allowance as a percentage of nonperforming loans and leases 76.15 %
112.87 % 154.68 % Total nonperforming loans and leases as percentage of total loans and leases
1.19 % 0.87 % 0.63 %
Total nonperforming assets as percentage of total assets 0.75 % 0.60 % 0.44 %
Nonperforming assets include loans past due 90 days and accruing, nonaccrual loans, TDRs, and foreclosed real estate/other real estate owned. Total nonperforming assets of$60.9 million atSeptember 30, 2021 were up$15.0 million or 32.7% compared toDecember 31, 2020 , and up$26.9 million or 79.0% compared toSeptember 30, 2020 . The increase in nonperforming assets fromSeptember 30, 2020 , was mainly in the commercial real estate portfolio, as a result of unfavorable economic conditions related to the COVID-19 pandemic. In the first nine months of 2021, two commercial real estate relationships totaling$16.6 million were added to nonperforming loans. Included in the$16.6 million was one relationship in the hospitality industry with an outstanding balance of$9.1 million , which was moved into nonaccrual during the second quarter of 2021, and one relationship with an outstanding balance of$7.5 million , which moved into the 90 days past due and accruing category during the third quarter of 2021 and continues to accrue interest. Nonperforming assets represented 0.75% of total assets atSeptember 30, 2021 , up from 0.60% atDecember 31, 2020 , and 0.44% atSeptember 30, 2020 . The Company's ratio of nonperforming assets to total assets of 0.75% compared to our peer group's most recent ratio of 0.54% atJune 30, 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 therefore classified as accruing loans. AtSeptember 30, 2021 , the Company had$7.2 million in TDRs, and of that total$1.9 million was reported as nonaccrual and$5.3 million was considered performing and included in the table above. The provisions of the CARES Act guidance issued by Federal banking regulators provided guidance and clarification related to modifications and deferral programs to assist borrowers who are 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 qualified loan modifications as TDRs. 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 61 -------------------------------------------------------------------------------- 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 76.15% atSeptember 30, 2021 , compared to 112.87% atDecember 31, 2020 , and 154.68% atSeptember 30, 2020 . The Company's nonperforming loans and leases are mostly made up of individually evaluated loans with limited exposure or loans that require limited specific reserves due to the level of collateral available with respect to these loans and/or previous charge-offs. The Company, through its internal loan review function, identified 31 commercial relationships from the loan portfolio totaling$36.7 million atSeptember 30, 2021 , that were potential problem loans. AtDecember 31, 2020 , the Company had identified 35 relationships totaling$40.8 million that were potential problem loans. Of the 31 relationships atSeptember 30, 2021 , that were Substandard, there were 8 relationships that equaled or exceeded$1.0 million , which in aggregate totaled$31.5 million , the largest of which was$11.8 million . The Company continues to monitor these potential problem relationships; however, management cannot predict the extent to which continued weak economic conditions or other factors may further impact borrowers. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and 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$722.4 million atSeptember 30, 2021 , an increase of$4.7 million or 0.7% fromDecember 31, 2020 . The increase reflects growth in retained earnings; partially offset by an increase in accumulated other comprehensive losses and a decline in additional paid-in capital. Additional paid-in capital decreased by$18.0 million , from$334.0 million atDecember 31, 2020 , to$316.0 million atSeptember 30, 2021 . The decrease was primarily attributable to a$21.2 million aggregate purchase price related to the Company's repurchase and retirement of 272,310 shares of its common stock during the first nine months of 2021 pursuant to its publicly announced stock repurchase plan,$694,000 related to the exercise of stock options and$122,000 related to restricted stock activity. These amounts were partially offset by$3.8 million attributed to stock-based compensation and$100,000 related to director deferred compensation. Retained earnings increased by$45.7 million or 10.9% from$418.4 million atDecember 31, 2020 , to$464.2 million atSeptember 30, 2021 , mainly reflecting net income of$69.8 million for the year-to-date period, less dividends paid of$24.1 million . Accumulated other comprehensive loss increased from a net loss of$32.1 million atDecember 31, 2020 , to a net loss of$55.1 million atSeptember 30, 2021 , reflecting a$24.8 million increase in unrealized losses on available-for-sale debt securities mainly due to changes in market rates, partially offset by a$1.8 million decrease related to post-retirement benefit plan losses. Cash dividends paid in the first nine months of 2021 totaled approximately$24.1 million or$1.62 per common share, representing 34.5% of year to date 2021 earnings throughSeptember 30, 2021 , compared to cash dividends of$23.3 million or$1.56 per common share paid in the first nine months of 2020. Cash dividends per share during the first nine months of 2021 were up 3.9% over the same period in 2020. The Company and its subsidiary banks 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 banks meet all capital adequacy requirements to which they are subject. 62 -------------------------------------------------------------------------------- In addition to setting higher minimum capital ratios, theBasel III Capital Rules introduced a capital conservation buffer, which must be added to each of the minimum capital ratios and is designed to absorb losses during periods of economic stress. The capital conservation buffer was phased-in over a three year period that began onJanuary 1, 2016 , and was fully phased-in onJanuary 1, 2019 at 2.5%. The following table provides a summary of the Company's capital ratios as ofSeptember 30, 2021 : Regulatory Capital Analysis Minimum Capital Required - BaselSeptember 30, 2021 Actual
III Fully Phased-In Well Capitalized Requirement (dollar amounts in thousands)
Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 731,074 14.21 % $ 540,235 10.50 % $ 514,510 10.00 %
Tier 1 Capital (to risk weighted
assets) $ 681,442 13.24 % $ 437,333 8.50 % $ 411,608 8.00 %
Tier 1 Common Equity (to risk weighted
assets) $ 681,442 13.24 % $ 360,157 7.00 % $ 334,431 6.50 %
Tier 1 Capital (to average assets) $ 681,442 8.54 % $ 319,363 4.00 % $ 399,203 5.00 %
As of September 30, 2021 , 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 decreased to 14.2% at
September 30, 2021 , compared with 14.4% as of December 31, 2020 . Tier 1 capital
as a percent of risk weighted assets decreased from 13.3% at the end of 2020 to
13.2% as of September 30, 2021 . Tier 1 capital as a percent of average assets
was 8.5% at September 30, 2021 , down from 8.8% as of December 31, 2020 . Common
equity Tier 1 capital was 13.2% at the end of the third quarter of 2021, up from
13.1% at the end of 2020.
As of
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 onJanuary 1, 2020 , we elected to utilize the five-year CECL transition. Deposits and Other Liabilities Total deposits of$7.1 billion atSeptember 30, 2021 were up$653.1 million or 10.1% fromDecember 31, 2020 . The increase from year-end 2020 was primarily in checking, money market and savings balances, which collectively were up$449.8 million or 12.0%. The increase in money market deposit balances reflect growth in municipal, non-personal and personal deposits. Noninterest bearing deposits were up$274.1 million or 14.2% and time deposits declined$70.7 million or 9.5%, respectively from year-end 2020. Deposit balances have benefited from PPP loan originations and government stimulus payments related to COVID-19. The majority of the Company's PPP loan originations were deposited inTompkins checking accounts. The most significant source of funding for the Company is core deposits. The Company defines core deposits as total deposits less time deposits of$250,000 or more, brokered deposits, municipal money market deposits, and reciprocal deposit relationships with municipalities. Core deposits grew by$916.8 million or 17.8% from year-end 2020, to$6.1 billion atSeptember 30, 2021 . Core deposits represented 85.6% of total deposits atSeptember 30, 2021 , compared to 80.1% of total deposits atDecember 31, 2020 . 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$72.5 million atSeptember 30, 2021 , and$65.8 million atDecember 31, 2020 . Management generally views retail repurchase agreements as an alternative to large time deposits. 63 -------------------------------------------------------------------------------- The Company's other borrowings totaled$110.0 million atSeptember 30, 2021 , down$155.0 million or 58.5% from$265.0 million atDecember 31, 2020 . In the third quarter of 2021, the Company prepaid$135.0 million of FHLB fixed rate advances and incurred prepayment penalties of$2.9 million , recorded in noninterest expense. The advances, which were paid off inSeptember 2021 , carried a weighted average rate of 2.26% and had a weighted average maturity of 1.25 years. Borrowings atSeptember 30, 2021 consisted of$110.0 million of FHLB term advances compared to$265.0 million of FHLB term advances at year end 2020. All$110.0 million in FHLB term advances atSeptember 30, 2021 , are due to mature in over one year. During the three and nine months endedSeptember 30, 2021 , the Company redeemed trust preferred securities with par values of$10.0 million and$15.2 million , respectively, and recognized accelerated non-cash purchase accounting discounts of$650,000 and$1.9 million , respectively, for the three and nine months endedSeptember 30, 2021 . The$15.2 million in redeemed trust preferred securities carried a weighted average interest rate of 5.26% at the time they were redeemed and had a weighted average final maturity of slightly more than 11 years.
Liquidity
As ofSeptember 30, 2021 , 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 as a lender in the PPP under the CARES Act. TheFederal Reserve Bank has provided a lending facility that may be used by banks to obtain funding specifically for PPP loans. PPP loans would be pledged as collateral on any of the Bank's borrowings under theFederal Reserve Bank's PPP lending facility. 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, and as ofSeptember 30, 2021 had not accessed theFederal Reserve's PPP lending facility. 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 FHLB ofPittsburgh , completed actions required to activate participation in the Federal Reserve Bank PPP lending facility, and confirmed availability ofFederal 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 Company's Asset/Liability Management Committee monitors asset and liability positions of the Company's subsidiary banks individually and on a combined basis. The Committee reviews periodic reports on liquidity and interest rate sensitivity positions. Comparisons with industry and peer groups are also monitored. The Company's strong reputation in the communities it serves, along with its strong financial condition, provides access to numerous sources of liquidity as described below. Management believes these diverse liquidity sources provide sufficient means to meet all demands on the Company's liquidity that are reasonably likely to occur. 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 time deposits, municipal money market deposits, reciprocal deposits, bank borrowings, securities sold under agreements to repurchase and overnight and term advances from the FHLB. Rates and terms are the primary determinants of the mix of these funding sources. Non-core funding sources of$1.2 billion atSeptember 30, 2021 decreased$412.0 million or 25.5% as compared to year-end 2020. The decrease was driven mainly by the repayment of$200.0 million of brokered time deposits that matured during the second quarter of 2021 and the prepayment of$135.0 million of FHLB term borrowings during the third quarter of 2021. Non-core funding sources, as a percentage of total liabilities, were 16.3% atSeptember 30, 2021 , compared to 23.4% atDecember 31, 2020 .
Non-core funding sources may require securities to be pledged against the
underlying liability. Securities held at fair value were
Cash and cash equivalents totaled$333.5 million as ofSeptember 30, 2021 which decreased from$388.5 million atDecember 31, 2020 . The decrease in cash from year-end was mainly due to the investment of excess cash into higher-yielding securities. Short-term investments, consisting of securities due in one year or less, increased from$55.0 million atDecember 31, 2020 , to$57.6 million onSeptember 30, 2021 . 64 -------------------------------------------------------------------------------- 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$1.0 billion atSeptember 30, 2021 compared with$887.6 million atDecember 31, 2020 . Outstanding principal balances of residential mortgage loans, consumer loans, and leases totaled approximately$1.5 billion atSeptember 30, 2021 , flat compared with year-end 2020. 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 certificates of deposit, and FHLB advances. Through its subsidiary banks, the Company has borrowing relationships with the FHLB and correspondent banks, which provide secured and unsecured borrowing capacity. AtSeptember 30, 2021 , the unused borrowing capacity on established lines with the FHLB was$2.3 billion .
As members of the FHLB, the Company's subsidiary banks can use certain
unencumbered mortgage-related assets and securities to secure additional
borrowings from the FHLB. At
Newly Adopted Accounting Standards
ASU No 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles. ASU 2019-12 became effective for the Company onJanuary 1, 2021 , and did not have a significant impact on our consolidated financial statements.
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 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 ofMarch 12, 2020 throughDecember 31, 2022 .Tompkins is currently evaluating the potential impact of ASU 2020-04 on our consolidated financial statements.
The Company reviewed new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company's financial statements.
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