TOMPKINS FINANCIAL CORP – 10-Q – Management’s Discussion and Analysis of Financial Condition and Results of Operations BUSINESS

Overview

Tompkins Financial Corporation ("Tompkins" or the "Company") is headquartered in
Ithaca, New York and is registered as a Financial Holding Company with the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended.
The Company is a locally oriented, community-based financial services
organization that offers a full array of products and services, including
commercial and consumer banking, leasing, trust and investment management,
financial planning and wealth management, and insurance services. At March 31,
2022, the Company had one wholly-owned banking subsidiary, Tompkins Community
Bank. The Company also has a wholly-owned insurance agency subsidiary, Tompkins
Insurance Agencies, Inc. ("Tompkins Insurance"). Tompkins Community Bank
provides a full array of investment services, including investment management,
trust and estate, financial and tax planning as well as life, disability and
long-term care insurance services. The Company's principal offices are located
at 118 E. Seneca Street, P.O. Box 460, Ithaca, NY, 14850, and its telephone
number is (888) 503-5753. The Company's common stock is traded on the NYSE
American under the Symbol "TMP."

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

Business Segments
Banking services consist primarily of attracting deposits from the areas served
by Tompkins Community Bank, which has 63 banking offices (43 offices in New York
and 20 offices in Pennsylvania) and using those deposits to originate a variety
of commercial loans, agricultural loans, consumer loans, real estate loans, and
leases. The Company's lending function is managed within the guidelines of a
comprehensive Board-approved lending policy. Reporting systems are in place to
provide management with ongoing information related to loan production, loan
quality, concentrations of credit, loan delinquencies, and nonperforming and
potential problem loans. Banking services also include a full suite of products
such as debit cards, credit cards, remote deposit, electronic banking, mobile
banking, cash management, and safe deposit services.

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

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

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

Competition

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

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

Regulation

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

OTHER IMPORTANT INFORMATION

The following discussion is intended to provide an understanding of the
consolidated financial condition and results of operations of the Company for
the three months ended March 31, 2022. It should be read in conjunction with the
Company's Audited Consolidated Financial Statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2021, and the Unaudited Consolidated Financial Statements and notes thereto
included in Part I of this Quarterly Report on Form 10-Q.

In this Report, there are comparisons of the Company's performance to that of a
peer group, which is comprised of the group of 152 domestic bank holding
companies with $3 billion to $10 billion in total assets as defined in the
Federal Reserve's "Bank Holding Company Performance Report" for December 31,
2021 (the most recent report available). Although the peer group data is
presented based upon financial information that is one fiscal quarter behind the
financial information included in this report, the Company believes that it is
relevant to include certain peer group information for comparison to current
quarter numbers.

Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The
statements contained in this Report that are not statements of historical fact
may include forward-looking statements that involve a number of risks and
uncertainties. Forward-looking statements may be identified by use of such words
as "may", "will", "estimate", "intend", "continue", "believe", "expect", "plan",
or "anticipate", and other similar words. Examples of forward-looking statements
may include statements regarding the asset quality of the Company's loan
portfolios; the level of the Company's allowance for credit losses; whether,
when and how borrowers will repay deferred amounts and resume scheduled
payments; the sufficiency of liquidity sources; the Company's exposure to
changes in interest rates, and to new, changed, or extended
government/regulatory expectations; the impact of changes in accounting
standards; and trends, plans, prospects, growth and strategies. Forward-looking
statements are made based on management's expectations and beliefs concerning
future events impacting the Company and are subject to certain uncertainties and
factors relating to the Company's operations and economic environment, all of
which are difficult to predict and many of which are beyond the control of the
Company, that could cause actual results of the Company to differ materially
from those expressed and/or implied by forward-looking statements. The following
factors, in addition to those listed as Risk Factors in Item 1A of our Annual
Report on Form 10-K for the year ended December 31, 2021, are among those that
could cause actual results to differ materially from the forward-looking
statements: changes in general economic, market and regulatory conditions; the
severity and duration of the COVID-19 outbreak and the impact of the outbreak
(including the government's response to the outbreak) on economic and financial
markets, potential regulatory actions, and modifications to our operations,
products, and services relating thereto; disruptions in our and our customers'
operations and loss of revenue due to pandemics, epidemics, widespread health
emergencies, government-imposed travel/business restrictions, or outbreaks of
infectious diseases such as the COVID-19, and the associated adverse impact on
our financial position, liquidity, and our customers' abilities or willingness
to repay their obligations to us or willingness to obtain financial services
products from the Company; a decision to amend or modify the terms under which
our customers are obligated to repay amounts owed to us; the development of an
interest rate environment that may adversely affect the Company's interest rate
spread, other income or cash flow anticipated from the
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Company's operations, investment and/or lending activities; changes in laws and
regulations affecting banks, bank holding companies and/or financial holding
companies, such as the Dodd-Frank Act and Basel III and the Economic Growth,
Regulatory Relief, and Consumer Protection Act; legislative and regulatory
changes in response to COVID-19 with which we and our subsidiaries must comply,
including the CARES Act and the Consolidated Appropriations Act, 2021, and the
rules and regulations promulgated thereunder, and federal, state and local
government mandates; technological developments and changes; the ability to
continue to introduce competitive new products and services on a timely,
cost-effective basis; governmental and public policy changes, including
environmental regulation; reliance on large customers; uncertainties arising
from national and global events, including the war in Ukraine, as well as the
potential impact of widespread protests, civil unrest, and political uncertainty
on the economy and the financial services industry; and financial resources in
the amounts, at the times and on the terms required to support the Company's
future businesses.

Critical Accounting Policies
The accounting and reporting policies followed by the Company conform, in all
material respects, to U.S. generally accepted accounting principles ("GAAP") and
to general practices within the financial services industry. In the course of
normal business activity, management must select and apply many accounting
policies and methodologies and make estimates and assumptions that lead to the
financial results presented in the Company's consolidated financial statements
and accompanying notes. There are uncertainties inherent in making these
estimates and assumptions, which could materially affect the Company's results
of operations and financial position.

Management considers accounting estimates to be critical to reported financial
results if (i) the accounting estimates require management to make assumptions
about matters that are highly uncertain, and (ii) different estimates that
management reasonably could have used for the accounting estimate in the current
period, or changes in the accounting estimate that are reasonably likely to
occur from period to period, could have a material impact on the Company's
financial statements. Management considers the accounting policies relating to
the allowance for credit losses ("allowance", or "ACL"), and the review of the
securities portfolio for other-than-temporary impairment to be critical
accounting policies because of the uncertainty and subjectivity involved in
these policies and the material effect that estimates related to these areas can
have on the Company's results of operations.

For information on the Company's significant accounting policies and to gain a
greater understanding of how the Company's financial performance is reported,
refer to Note 1 - "Summary of Significant Accounting Policies" in the Notes to
Consolidated Financial Statements contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 2021. Refer to "Recently Issued
Accounting Standards" in Management's Discussion and Analysis in this Quarterly
Report on Form 10-Q for a discussion of recent accounting updates.

Critical Accounting Estimates

The Company's significant accounting policies conform with U.S. generally
accepted accounting principles ("GAAP") and are described in Note 1 of Notes to
Financial Statements. In applying those accounting policies, management of the
Company is required to exercise judgment in determining many of the
methodologies, assumptions and estimates to be utilized. Certain critical
accounting estimates are more dependent on such judgment and in some cases may
contribute to volatility in the Company's reported financial performance should
the assumptions and estimates used change over time due to changes in
circumstances. The more significant area in which management of the Company
applies critical assumptions and estimates includes the following:

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•Accounting for credit losses - Effective January 1, 2020 the Company adopted
amended accounting guidance that impacts how the allowance for credit losses is
determined. Under this accounting guidance, the allowance for credit losses
represents a valuation account that is deducted from the amortized cost basis of
certain financial assets, including loans and leases, to present the net amount
expected to be collected at the balance sheet date. A provision for credit
losses is recorded to adjust the level of the allowance as deemed necessary by
management. In estimating expected losses in the loan and lease portfolio,
borrower-specific financial data and macro-economic assumptions are utilized to
project losses over a reasonable and supportable forecast period. For certain
loan pools that share similar risk characteristics, the Company utilizes
statistically developed models to estimate amounts and timing of expected future
cash flows, collateral values and other factors used to determine the borrowers'
abilities to repay obligations. Such models consider historical correlations of
credit losses with various macroeconomic assumptions including unemployment and
gross domestic product. These forecasts may be adjusted for inherent limitations
or biases of the models. Subsequent to the forecast period, the Company utilizes
longer-term historical loss experience to estimate losses over the remaining
contractual life of the loans. Changes in the circumstances considered when
determining management's estimates and assumptions could result in changes in
those estimates and assumptions, which could result in adjustment of the
allowance for credit losses in future periods. A discussion of facts and
circumstances considered by management in determining the allowance for credit
losses is included herein in Note 4 of Notes to Financial Statements.

COVID-19 Pandemic and Recent Events

The COVID-19 global pandemic continued to present health and economic challenges
in the first quarter of 2022, but conditions were generally improved from 2021.
The Company's hybrid work environment for most noncustomer facing employees is
in place and travel restrictions eliminated. On March 17, 2022, the NY State
Department of Labor announced that the department ended the designation of
COVID-19 as an airborne infectious disease that presents a serious risk of harm
to public health under the HERO Act and our protocols have been updated
accordingly.

The Company's payment deferral program that was implemented in 2020 to provide
assistance to its customers that were experiencing financial hardship due to the
COVID-19 pandemic has been reduced as customers return to repayment status. As
of March 31, 2022, total loans that continued in a deferral status amounted to
approximately $2.6 million, representing 0.05% of total loans, and of those
loans approximately 0.47% were past due. In accordance with the Coronavirus Aid,
Relief and Economic Security Act (the "CARES Act") and the interagency guidance,
the Company elected to adopt the provisions to not report qualified loan
modifications as troubled debt restructurings ("TDRs"). The relief related to
TDRs under the CARES Act was extended by the Consolidated Appropriations Act,
2021. Under the Consolidated Appropriations Act, relief under the CARES Act was
extended until the earlier of (i) 60 days after the date the COVID-19 national
emergency comes to an end or (ii) January 1, 2022. Management continues to
monitor credit conditions carefully at the individual borrower level, as well as
by industry segment, in order to be responsive to changing credit conditions.

In 2020 and 2021, the Company also participated in the U.S. Small Business
Administration ("SBA") Paycheck Protection Program ("PPP"). The Company began
accepting applications for PPP loans on April 3, 2020, and continued through the
program end date in 2020. On January 19, 2021, the Company began accepting both
first draw and second draw applications for the reopening of the PPP program.
The 2021 PPP program funding closed on May 12, 2021. The Company funded over
5,100 applications totaling about $694.0 million in 2020 and 2021. Of the $694.0
million of PPP loans that the Company funded, approximately $664.0 million have
been forgiven by the SBA under the terms of the program. Total net deferred fees
on the remaining balance of PPP loans amounted to $1.0 million at March 31,
2022.

RESULTS OF OPERATION

Performance Summary
Net income for the first quarter of 2022 was $23.3 million or $1.60 diluted
earnings per share, compared to $25.6 million or $1.72 diluted earnings per
share for the same period in 2021. The decrease in net income for the first
quarter of 2022 compared to the first quarter of 2021 was mainly a result of a
decrease in the credit to the provision for credit loss expense, a decrease in
PPP fees and an increase in noninterest expenses.

Return on average assets ("ROA") for the quarter ended March 31, 2022 was 1.19%,
compared to 1.33% for the quarter ended March 31, 2021. Return on average
shareholders' equity ("ROE") for the first quarter of 2022 was 13.24%, compared
to 14.42% for the same period in 2021.

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

Banking Segment
The banking segment reported net income of $20.3 million for the first quarter
of 2022, down $2.0 million or 8.9% from net income of $22.3 million for the same
period in 2021.

Net interest income of $56.6 million for the first quarter of 2022 was up $1.6
million or 2.9% from the same period in 2021. The increase in net interest
income was mainly a result of a decrease in interest expense. Interest expense
benefited from growth in average deposit balances and a decrease in average
borrowings. Interest income was down in the first quarter of 2022 compared to
the first quarter of 2021 as lower yields offset growth in average earning
assets. The first quarter of 2022 included $2.0 million of net deferred loan
fees associated with PPP loans, compared to net deferred loan fees of $2.8
million in the first quarter of 2021.

The provision for credit losses was a credit of $520,000 for the three months
ended March 31, 2022, compared to a credit of $1.8 million for the same period
in 2021. For additional information, see the section titled "The Allowance for
Credit Losses" below.

Noninterest income of $6.2 million for the three months ended March 31, 2022 was
down $125,000 or 2.0% compared to the same period in 2021. The decrease in the
three months ended March 31, 2022 from the same period in 2021 was mainly in
lower gains on security transactions and lower gains on sales of residential
loans in the first quarter of 2022. These decreases were slightly offset by
service charges on deposit accounts and card services income both being higher
than the first quarter 2021.

Noninterest expense of $37.2 million for the first quarter of 2022 was up $1.9
million or 5.3% from the same period in 2021. Salaries and employee benefits
were up compared to the same period in 2021 mainly due to yearly merit increases
and higher healthcare expense. Also contributing to increases in noninterest
expense were higher marketing and technology expenses in the first quarter of
2022 compared to same period in 2021.

Insurance Segment
The insurance segment reported net income of $2.1 million for the three months
ended March 31, 2022, which was down $58,000 or 2.7% compared to the first
quarter of 2021. Noninterest income in the first quarter of 2022 was flat
compared to the same period in 2021. Insurance commissions were up $271,000 or
3.5% while contingency revenue was $130,000 less than the first quarter of 2021.
Noninterest income for the first quarter of 2021 also included gains on life
insurance proceeds of $140,000.

Noninterest expenses were up $66,000 or 1.0% compared to the first quarter of
2021. The increase was mainly in salaries and healthcare expenses partially
offset by decreases in other employee benefits.

Wealth Management Segment
The wealth management segment reported net income of $840,000 for the three
months ended March 31, 2022, which was down $301,000 or 26.4% compared to the
first quarter of 2021. The decrease in net income for the three month period
ended March 31, 2022, was mainly attributable to an increase in expenses.
Noninterest expense for the first quarter of 2022 was up $447,000 or 13.6%
compared to the same period in 2021. The increase was mainly attributable to an
increase in salaries and employee benefits, mainly incentives and healthcare,
and an increase in technology expenses associated with system upgrades.

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Net Interest Income
The following table shows average interest-earning assets and interest-bearing
liabilities, and the corresponding yield or cost associated with each for the
three month periods ended March 31, 2022 and 2021:

Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
                                                              Quarter Ended                                 Quarter Ended
                                                             March 31, 2022                                March 31, 2021
                                                 Average                                       Average
                                                 Balance                      Average          Balance                      Average
(Dollar amounts in thousands)                     (QTD)       Interest       Yield/Rate         (QTD)       Interest       Yield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks      $   134,129    $     41               0.12  % $   408,642    $     85               0.08  %
Securities (1)
U.S. Government securities                      2,293,611       7,362               1.30  %   1,635,143       4,612               1.14  %

State and municipal (2)                           101,746         649               2.59  %     120,959         775               2.60  %
Other securities (2)                                3,390          23               2.73  %       3,425          23               2.75  %
Total securities                                2,398,747       8,034               1.36  %   1,759,527       5,410               1.25  %
FHLBNY and FRB stock                               10,098         105               4.23  %      16,382         213               5.27  %
Total loans and leases, net of unearned
income (2)(3)                                   5,055,948      51,355               4.12  %   5,291,295      54,454               4.17  %
Total interest-earning assets                   7,598,922      59,535               3.18  %   7,475,846      60,162               3.26  %
Other assets                                      311,125                                       350,826
Total assets                                  $ 7,910,047                                   $ 7,826,672
LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money
market                                          4,160,946         750               0.07  %   3,949,304       1,093               0.11  %
Time deposits                                     631,594       1,296               0.83  %     749,328       2,057               1.11  %
Total interest-bearing deposits                 4,792,540       2,046               0.17  %   4,698,632       3,150               0.27  %
Federal funds purchased & securities sold
under agreements to repurchase                     64,237          16               0.10  %      59,584          16               0.11  %
Other borrowings                                  125,298         500               1.62  %     265,001       1,376               2.11  %
Trust preferred debentures                              0           0               0.00  %      13,234         175               5.35  %
Total interest-bearing liabilities              4,982,075       2,562               0.21  %   5,036,451       4,717               0.38  %
Noninterest bearing deposits                    2,108,825                                     1,949,643
Accrued expenses and other liabilities            106,120                                       119,860
Total liabilities                               7,197,020                                     7,105,954
Tompkins Financial Corporation Shareholders'
equity                                            711,601                                       719,290
Noncontrolling interest                             1,426                                         1,428
Total equity                                      713,027                                       720,718
Total liabilities and equity                  $ 7,910,047                                   $ 7,826,672
Interest rate spread                                                                2.97  %                                       2.88  %
Net interest income/margin on earning assets                   56,973               3.04  %                  55,445               3.01  %

Tax Equivalent Adjustment                                        (359)                                         (408)

Net interest income per consolidated
financial statements                                         $ 56,614                                      $ 55,037


1 Average balances and yields on available-for-sale debt securities are based on
historical amortized cost
2 Interest income includes the tax effects of taxable-equivalent adjustments
using an effective income tax rate of 21% in 2022 and 2021 to increase tax
exempt interest income to taxable-equivalent basis.
3 Nonaccrual loans are included in the average asset totals presented
above. Payments received on nonaccrual loans have been recognized as disclosed
in Note 1 of the Company's consolidated financial statements included in Part 1
of the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2021.
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Net Interest Income
Net interest income is the Company's largest source of revenue, representing
73.9% of total revenues for the three months ended March 31, 2022, compared to
73.4% for the same period in 2021. Net interest income is dependent on the
volume and composition of interest-earning assets and interest-bearing
liabilities and the level of market interest rates. The above table shows
average interest-earning assets and interest-bearing liabilities, and the
corresponding yield or cost associated with each.

Taxable-equivalent net interest income for the three months ended March 31,
2022, was up $1.5 million or 2.8% over the same period in 2021. The increase was
due to lower interest expense in the first quarter of March 31, 2022 compared to
the same period in 2021, driven by deposit growth, including average noninterest
bearing deposits and lower average borrowings. For the three months ended
March 31, 2022, average total deposits represented 95.9% of average total
liabilities compared to 93.6% for the same period in 2021, while total average
borrowings represented 1.7% of average total liabilities in 2022 compared to
3.7% in 2021. Average earnings assets for the three months ended March 31, 2022
were up $123.1 million or 1.7% over the same period in 2021, while average asset
yields for the first quarter of 2022 were down 8 basis points from the first
quarter of 2021.

Net interest margin for the three months ended March 31, 2022 was 3.04% compared
to 3.01% for the same period in 2021. The increase in net interest margin for
2022 compared to 2021 was mainly a result of a decrease in funding costs, mainly
due to the mix of funding sources, and higher yields and balances of securities
for the first quarter of 2022 compared to the first quarter of 2021.

Taxable-equivalent interest income for the three months ended March 31, 2022,
was $59.5 million, down 1.0% compared to the same period in 2021, as the yield
on average interest-earning assets decreased 8 basis points, while average
interest earning assets increased $123.1 million or 1.7%, primarily in the
investment portfolio as excess liquidity was invested in securities and loans.
The decrease in taxable-equivalent interest income was in interest and fees on
loans, driven by lower yields and lower average balances for the three months
ended March 31, 2022, compared to the same period in 2021. Average loan balances
for the first quarter of 2022 were down $235.3 million or 4.5% from the first
quarter of 2021, while the average yield on loans of 4.12% for the first quarter
of 2022 was down 5 basis points from the average loan yield in the first quarter
of 2021. The decrease in average loan balances was mainly in PPP loans. Interest
income in the first quarter of 2022 included $2.0 million of net deferred loan
fees related to PPP loans compared to net deferred loan fees of $2.8 million in
the first quarter of 2021. For the three months ended March 31, 2022, average
balances for securities were up $639.2 million or 36.3% over the first quarter
of 2021, while the average yield on securities of 1.36% for the first quarter of
2022 was up 11 basis points. Average interest bearing balances for the three
months ended March 31, 2022 were down $274.5 million or 67.2% from the same
period in 2021.

Interest expense for the three months ended March 31, 2022 decreased by $2.2
million or 45.7% compared to the same period in 2021, as the cost of interest
bearing liabilities for the first quarter of 2022 decreased 17 basis points from
the first quarter of 2021. Funding costs benefited from a decrease in average
other borrowings, which were down as a result of the increase in average deposit
balances. Average interest bearing deposits for the first quarter of 2022 were
up $93.9 million or 2.0% compared to the same period in 2021. Average other
borrowings for the three months ended March 31, 2022 were down $139.7 million or
52.7% compared to the same period in 2021. The average cost of interest bearing
deposits was 0.17% for the first quarter of 2022, compared to 0.27% for the
first quarter of 2021.

Provision for Credit Losses
The provision for credit losses represents management's estimate of the amount
necessary to maintain the allowance for credit losses at an appropriate level.
The provision for credit losses for the three months ended March 31, 2022 was a
credit of $520,000 compared to a credit of $2.5 million for the same period in
2021. Included in the provision credits for the first quarter of 2022 and 2021
were provision expenses of $214,000 and $680,000, respectively, related to
off-balance sheet credit exposures. The provision credit in the first quarter of
2022 was mainly driven by improvement in the macroeconomic factor assumptions
utilized in the calculation as well as was improved credit quality. The section
captioned "Financial Condition - The Allowance for Credit Losses" below has
further details on the allowance for credit losses and asset quality metrics.

Noninterest Income
Noninterest income was $20.0 million for the first quarter of 2022, which was in
line with the same period prior year. Noninterest income represented 26.1% of
total revenue for the three months ended March 31, 2022, compared to 26.6% for
the same period in 2021.

Insurance commissions and fees of $9.3 million in the first quarter of 2022 was
up $151,000 or 1.7% compared to the same period prior year. Insurance
commissions were up $271,000 or 3.5% while contingency revenue was down $130,000
compared to the first quarter of 2021.

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Investment services income of $4.9 million in the first quarter of 2022 was up
$244,000 or 5.2% compared to the first quarter of 2021, mainly due to an
increase in investment management services. Investment services income includes
investment management, trust and estate, financial and tax planning, and
brokerage related services. The fair value of assets managed by, or in custody
of, Tompkins was $4.4 billion at March 31, 2022, compared to $4.8 billion at
March 31, 2021. The fair value of assets in custody at March 31, 2022 includes
$1.3 billion of Company-owned securities where Tompkins Trust Company is
custodian.

Card services income of $2.5 million in the first quarter of 2022 was up
$160,000 or 6.7% compared to the same period in 2021. Debit card income was up
$70,000 or 4.0% in the first quarter of 2022 compared to the same period in
2021, driven by higher transaction volume in 2022 compared to the same period in
2021.

Other income of $1.5 million in the first quarter of 2022 was down $498,000 or
25.2% compared to the same period in 2021. The decrease in the first quarter of
2022 was mainly attributable to a decrease in gains on sales of residential
loans of $425,000, compared to the first quarter of 2021.

Noninterest Expense
Noninterest expense was $46.8 million for the first quarter of 2022, up 5.2%
compared to the same period in 2021. Noninterest expense as a percentage of
total revenue for the first quarter of 2022 was 61.2% compared to 60.2% for the
same period in 2021.

Expenses associated with salaries and wages and employee benefits are the
largest component of noninterest expense, representing 62.1% of total
noninterest expense for the three months ended March 31, 2022 and 62.3% for the
three months ended March 31, 2021. Salaries and wages and employee benefit
expense for the three months ended March 31, 2022 were up $925,000 or 3.3% for
same period in 2021 resulting from normal merit adjustments and an increase in
healthcare expense in the first quarter of 2022 over the same period prior year.

Other expense categories not related to compensation and benefits, such as
marketing, technology, and professional fee expenses, for the three months ended
March 31, 2022, were up $1.4 million or 13.1% compared to the same period in
2021. Marketing expenses for the three months ended March 31, 2022 were up
$562,000 or 113.7% from the same period in 2021, partly due to the consolidation
of the Company's four banking subsidiaries. Technology expenses for the first
quarter of 2022 were up $756,000 or 25.8% over the same period in 2021, driven
largely by software related conversion expenses. Business related travel and
entertainment expenses for the first quarter of 2022 were up $102,000 or 147.4%
from the same period in 2021 due to increased travel and entertainment
activities as compared to the prior period as the economy continued to open
following the most recent peak of the pandemic.

Income Tax Expense
The provision for income taxes was $7.0 million for an effective rate of 23.0%
for the first quarter of 2022, compared to tax expense of $6.7 million and an
effective rate of 20.7% for the same quarter in 2021. The effective rates differ
from the U.S. statutory rate primarily due to the effect of tax-exempt income
from loans, securities and life insurance assets, and the income tax effects
associated with stock based compensation. The increase in the effective tax rate
for the three months ended March 31, 2022, over the same period in 2021, is
largely due to the anticipated loss of certain New York State tax benefits due
to the expectation that average assets will exceed $8.0 billion for the 2022 tax
year.

The Company's banking subsidiary has an investment in a real estate investment
trust that provides certain benefits on its New York State tax return for
qualifying entities. A condition to claim the benefit is that the consolidated
company has average assets of no more than $8 billion for the taxable year. The
Company expects average assets to exceed the $8.0 billion threshold for the 2022
tax year. As of March 31, 2022, the Company's consolidated average assets, as
defined by New York tax law, were slightly under the $8.0 billion threshold. The
Company will continue to monitor the consolidated average assets during 2022 to
determine future eligibility.

FINANCIAL CONDITION

Total assets were $7.9 billion at March 31, 2022, up $71.1 million or 0.9% from
December 31, 2021. The increase in total assets was mainly in cash and cash
equivalents balances, which were up $112.0 million or 177.4%. Total securities
were down $43.9 million or 1.9% compared to December 31, 2021. The decrease was
the result of an increase in unrealized losses on the available-for-sale
portfolio from $19.3 million at year-end 2021 to $125.8 million at March 31,
2022, as a result of the increase in market interest rates in the first quarter
of 2022. Total loan balances of $5.1 billion at March 31, 2022 were in line with
year-end 2021. Total deposits were up $225.3 million or 3.3% from December 31,
2021. The increase in deposits at March 31, 2022 was mainly in checking, savings
and money market accounts.
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Securities

As of March 31, 2022, the Company's securities portfolio was $2.3 billion or
29.0% of total assets, compared to $2.3 billion or 29.8% of total assets at
year-end 2021. The following table details the composition of the securities
portfolio:


Available-for-Sale Debt Securities

                                                                March 31, 2022                   December 31, 2021
(In thousands)                                           Amortized Cost     

Fair Value Amortized Cost Fair Value

U.S. Treasuries                                        $       190,997    $   178,903              $160,291       $157,834
Obligations of U.S. Government sponsored entities              852,733        802,107            843,218        832,373

Obligations of U.S. states and political subdivisions 100,287

    95,661            102,177        104,169

Mortgage-backed securities – residential, issued by
U.S. Government agencies

                                        68,435         66,277             76,502         77,157
U.S. Government sponsored entities                             891,954        835,773            879,102        870,556

U.S. corporate debt securities                                   2,500          2,427              2,500          2,424
Total available-for-sale debt securities               $     2,106,906    $ 

1,981,148 $ 2,063,790 $ 2,044,513

Held-to-Maturity Debt Securities

                                                                  March 31, 2022                 December 31, 2021
(In thousands)                                             Amortized Cost    Fair Value     Amortized Cost    Fair Value
U.S. Treasuries                                                     $86,635       $80,633            $86,689       $86,368
Obligations of U.S. Government sponsored entities                216,889       200,284            197,320       195,920

Total held-to-maturity debt securities                   $       303,524    

$ 280,917 $ 284,009 $ 282,288


The increase in unrealized losses, which reflects the amount that amortized cost
exceeds fair value, related to the available-for-sale debt portfolio was due
primarily to changes in market interest rates during the first three months of
2022. Management's policy is to purchase investment grade securities that on
average have relatively short duration, which helps mitigate interest rate risk
and provides sources of liquidity without significant risk to capital.

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

The gross unrealized losses reported for residential mortgage-backed securities
relate to investment securities issued by U.S. government sponsored entities
such as Federal National Mortgage Association, Federal Home Loan Mortgage
Corporation, and U.S. government agencies such as Government National Mortgage
Association. The total gross unrealized losses, shown in the tables above, were
primarily attributable to changes in interest rates and levels of market
liquidity, relative to when the investment securities were purchased, and not
due to the credit-related quality of the investment securities. The Company does
not have the intent to sell these securities and does not believe it is more
likely than not that the Company will be required to sell these securities
before a recovery of amortized cost.

Management measures expected credit losses on held-to-maturity debt securities
on a collective basis by major security type with each type sharing similar risk
characteristics and considers historical credit loss information that is
adjusted for current conditions and reasonable and supportable forecasts.
Management has made the accounting policy election to exclude accrued interest
receivable on held-to-maturity debt securities from the estimate of credit
losses. As of March 31, 2022, the held-to-
                                       45
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maturity portfolio consisted of U.S. Treasury securities and securities issued
by U.S. government-sponsored enterprises, including The Federal National
Mortgage Agency and the Federal Farm Credit Banks Funding Corporation. U.S.
Treasury securities are backed by the full faith and credit of and/or guaranteed
by the U.S. government, and it is expected that the securities will not be
settled at prices less than the amortized cost bases of the securities.
Securities issued by U.S. government agencies or U.S. government-sponsored
enterprises carry the explicit and/or implicit guarantee of the U.S. government,
are widely recognized as "risk-free," and have a long history of zero credit
loss. As such, the Company did not record an allowance for credit losses for
these securities as of March 31, 2022.

The Company did not recognize any net credit impairment charge to earnings on
investment securities in the first quarter of 2022.

Loans and Leases
Loans and leases as of the end of the first quarter and prior year-end periods were as follows:

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



Total loans and leases of $5.1 billion at March 31, 2022 were down $12.0 million
or 0.2% from December 31, 2021. The decrease was mainly in PPP loans, which were
down $47.2 million to $24.1 million at March 31, 2022, from $71.3 million at
December 31, 2021. Excluding PPP loans, total loans at March 31, 2022 were up
$35.1 million or 0.7% from December 31, 2021. As of March 31, 2022, total loans
and leases represented 64.2% of total assets compared to 64.9% of total assets
at December 31, 2021.

Residential real estate loans, including home equity loans were $1.5 billion at
March 31, 2022, up $19.1 million or 1.3% compared to December 31, 2021, and
comprised 29.5% of total loans and leases at March 31, 2022. Changes in
residential loan balances are impacted by the Company's decision to retain these
loans or sell them in the secondary market due to interest rate considerations.
The Company's Asset/Liability Committee meets regularly and establishes
standards for selling and retaining residential real estate mortgage
originations.

                                       46
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The Company may sell residential real estate loans in the secondary market based
on interest rate considerations. These residential real estate loans are
generally sold to Federal Home Loan Mortgage Corporation ("FHLMC") or State of
New York Mortgage Agency ("SONYMA") without recourse in accordance with standard
secondary market loan sale agreements. These residential real estate loans also
are subject to customary representations and warranties made by the Company,
including representations and warranties related to gross incompetence and
fraud. The Company has not had to repurchase any loans as a result of these
representations and warranties.

During the first three months of 2022 and 2021, the Company sold residential
loans totaling $135,000 and $10.5 million, respectively, recognizing gains on
these sales of $4,000 and $429,000, respectively. These residential real estate
loans were sold without recourse in accordance with standard secondary market
loan sale agreements. When residential mortgage loans are sold, the Company
typically retains all servicing rights, which provides the Company with a source
of fee income. Mortgage servicing rights totaled $1.0 million at both March 31,
2022 and December 31, 2021.

Commercial real estate loans and commercial and industrial loans totaled $2.7
billion and $814.0 million, respectively, and represented 52.9% and 16.1%,
respectively of total loans as of March 31, 2022. The commercial real estate
portfolio was up $24.1 million or 0.9% over year-end 2021, while commercial and
industrial loans were down $55.6 million or 6.4% from year-end 2021. The
decrease in commercial and industrial loans over year-end 2021 was mainly in PPP
loans, which were down $47.2 million or 66.2% to $24.1 million at March 31,
2022.

As of March 31, 2022, agriculturally-related loans totaled $280.9 million or
5.5% of total loans and leases, compared to $295.1 million or 5.8% of total
loans and leases at December 31, 2021. Agriculturally-related loans include
loans to dairy farms and crop farms. Agricultural-related loans are primarily
made based on identified cash flows of the borrower with consideration given to
underlying collateral, personal guarantees, and government related guarantees.
Agriculturally-related loans are generally secured by the assets or property
being financed or other business assets such as accounts receivable, livestock,
equipment or commodities/crops.
The Company has adopted comprehensive lending policies, underwriting standards
and loan review procedures. Management reviews these policies and procedures on
a regular basis. The Company discussed its lending policies and underwriting
guidelines for its various lending portfolios in Note 4 - "Loans and Leases" in
the Notes to Consolidated Financial Statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 2021. There have been no
significant changes in these policies and guidelines since the date of that
report. The Company's Board of Directors approves the lending policies at least
annually. The Company recognizes that exceptions to policy guidelines may
occasionally occur and has established procedures for approving exceptions to
these policy guidelines. Management has also implemented reporting systems to
monitor loan originations, loan quality, concentrations of credit, loan
delinquencies and nonperforming loans and potential problem loans.

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

Allowance for Credit Losses

The below tables represents the allowance for credit losses as of March 31, 2022
and December 31, 2021. The tables provide, as of the dates indicated, an
allocation of the allowance for credit losses for inherent loan losses by type.
The allocation is neither indicative of the specific amounts or the loan
categories in which future charge-offs may occur, nor is it an indicator of
future loss trends. The allocation of the allowance for credit losses to each
category does not restrict the use of the allowance to absorb losses in any
category.

                                       47
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(In thousands)                 3/31/2022   12/31/2021
Allowance for credit losses
Commercial and industrial     $   7,027   $     6,335
Commercial real estate           22,982        24,813
Residential real estate          10,447        10,139
Consumer and other                1,588         1,492
Finance leases                       82            64
Total                         $  42,126   $    42,843



As of March 31, 2022, the total allowance for credit losses for loans was $42.1
million, down $717,000 or 1.7% compared to December 31, 2021. The ACL as a
percentage of total loans measured 0.83% at March 31, 2022, compared to 0.84% at
December 31, 2021.

The decrease in the ACL from year-end 2021 was driven by continued improvements
in unemployment forecasts and decreases in qualitative adjustments used in our
model, offset by an increase due to lower forecasted GDP growth. Qualitative
reserves established in 2020 and 2021 as a result of the COVID-19 pandemic to
address specific portfolios with increased risk characteristics, including loans
in our hotel portfolio, and loans in our deferral program, continue to move
lower as a result of improved conditions in the hotel industry and payment
performance of loans coming out of the deferral program. Although we have seen
improved occupancy rates in the hospitality industry in recent months, resulting
in a decrease of qualitative reserves, we continue to closely monitor this
industry.

Asset quality measures at March 31, 2022 were generally favorable compared to
December 31, 2021. Loans internally-classified Special Mention or Substandard
were down $2.5 million or 1.8% compared to December 31, 2021. Nonperforming
loans and leases were down $893,000 or 2.9% from year end 2021 and represented
0.60% of total loans at March 31, 2022 compared to 0.61% at December 31, 2021.
The allowance for credit losses covered 139.20% of nonperforming loans and
leases as of March 31, 2022, compared to 137.51% at December 31, 2021. The
Company had net recoveries of $17,000 in the first quarter of 2022, compared to
net recoveries of $180,000 for the same period in 2021.

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Activity in the Company’s allowance for credit losses during the first three
months of 2022 and 2021 is illustrated in the table below:

Analysis of the Allowance for Credit Losses
(In thousands)                                               3/31/2022      

3/31/2021

Average loans outstanding during period                  $     5,055,948    $     5,291,295
Balance of allowance at beginning of year                         42,843             51,669
LOANS CHARGED-OFF:
Commercial and industrial                                             23                116
Commercial real estate                                                27                  0

Consumer and other                                                   196                 91

Total loans charged-off                                  $           246    $           207
RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:
Commercial and industrial                                             20                 97
Commercial real estate                                                42                213
Residential real estate                                              109                 34
Consumer and other                                                    92                 43

Total loans recovered                                    $           263    $           387
Net loans recovered                                                  (17)              (180)
Credit for credit losses related to loans                           (734)   

(2,510)

Balance of allowance at end of period                    $        42,126    

$ 49,339
Allowance for credit losses as a percentage of total
loans and leases

                                                    0.83  %            0.93  %

Annualized net (recoveries) charge-offs on loans to
average total loans and leases during the period

                    0.00  % 

(0.01) %


The provision for credit losses for loans was a credit of $734,000 for the three
months ended March 31, 2022, compared to a credit of $2.5 million for the same
period in 2021. The provision expense for credit losses related to loans is
based upon the Company's quarterly evaluation of the appropriateness of the
allowance for credit losses. As discussed above, the ACL model estimated lower
reserves at Q1 2022 compared to year-end 2021, mainly driven by improving
macroeconomic conditions, the need for lower qualitative reserves related to
risks related to COVID-19 and improving asset quality metrics. As such, the
provision for credit losses for loans for the first three months of 2022 was a
credit of $734,000.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

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

For the three months ended March 31, 2022, the provision for credit losses for
off-balance sheet credit exposures was $214,000 compared to $680,000 for the
same period in 2021. The provision in 2022 was driven by an increase in
off-balance sheet exposures, specifically commercial real estate loan
commitments.


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Analysis of Past Due and Nonperforming Loans
(In thousands)                                                  3/31/2022    12/31/2021    3/31/2021
Loans 90 days past due and accruing
Commercial real estate                                       $       0    $        0    $       0
Consumer and other                                                   0             0            0
Total loans 90 days past due and accruing                    $       0    $        0    $       0
Nonaccrual loans
Commercial and industrial                                          806           533          768
Commercial real estate                                          13,623        13,893       27,847
Residential real estate                                         10,200        11,178       12,745
Consumer and other                                                 571           429          296
Total nonaccrual loans                                       $  25,200    $   26,033    $  41,656
Troubled debt restructurings not included above                  5,064         5,124        6,069
Total nonperforming loans and leases                         $  30,264    $   31,157    $  47,725
Other real estate owned                                             88           135           88
Total nonperforming assets                                   $  30,352    $   31,292    $  47,813
Allowance as a percentage of nonperforming loans and leases     139.20  %   

137.51 % 103.38 %
Total nonperforming loans and leases as percentage of total
loans and leases

                                                  0.60  %       0.61  %      0.90  %
Total nonperforming assets as percentage of total assets          0.38  %   

0.40 % 0.59 %


Nonperforming assets include nonaccrual loans, TDR, and foreclosed real
estate/other real estate owned. Total nonperforming assets of $30.4 million at
March 31, 2022 were down $940,000 or 3.0% compared to December 31, 2021, and
down $17.5 million or 36.5% compared to March 31, 2021. The decrease in
nonperforming assets from March 31, 2021, was mainly in the commercial real
estate and residential real estate portfolios. The decrease in commercial real
estate loans from March 31, 2021, was due to the payoff of one relationship
totaling $11.8 million in the hospitality industry and a $6.0 million charge-off
of another relationship that included two loans in the hospitality industry
during the fourth quarter of 2021. Nonperforming assets represented 0.38% of
total assets at March 31, 2022, down from 0.40% at December 31, 2021, and from
0.59% at March 31, 2021. The Company's ratio of nonperforming assets to total
assets is in line with our peer group's most recent ratio of 0.41% at December
31, 2021.

Loans are considered modified in a TDR when, due to a borrower's financial
difficulties, the Company makes a concession(s) to the borrower that it would
not otherwise consider and the borrower could not obtain elsewhere. These
modifications may include, among others, an extension of the term of the loan,
and granting a period when interest-only payments can be made, with the
principal payments made over the remaining term of the loan or at maturity. TDRs
are included in the above table within the following categories: "loans 90 days
past due and accruing", "nonaccrual loans", or "troubled debt restructurings not
included above". Loans in the latter category include loans that meet the
definition of a TDR but are performing in accordance with the modified terms and
have shown a satisfactory period of repayment (generally six consecutive months)
and where full collection of all is reasonably assured. At March 31, 2022, the
Company had $6.3 million in TDRs, and of that total $1.2 million were reported
as nonaccrual and $5.1 million were considered performing and included in the
table above.

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

The ratio of the allowance to nonperforming loans and leases (loans past due 90
days and accruing, nonaccrual loans and restructured troubled debt) was 139.20%
at March 31, 2022, compared to 137.51% at December 31, 2021, and 103.38% at
March 31, 2021. The Company's nonperforming loans and leases are mostly
comprised of collateral dependent impaired loans with limited exposure or loans
that require limited specific reserve due to the level of collateral available
with respect to these loans and/or previous charge-offs.

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The Company, through its internal loan review function, identified 21 commercial
relationships totaling $27.5 million at March 31, 2022 that were potential
problem loans. At December 31, 2021, the Company had identified 25 relationships
totaling $36.5 million that were potential problem loans. Of the 21 commercial
relationships at March 31, 2022 that were Substandard, there were 7
relationships that equaled or exceeded $1.0 million, which in aggregate totaled
$23.2 million, the largest of which was $7.4 million. The potential problem
loans remain in a performing status due to a variety of factors, including
payment history, the value of collateral supporting the credits, and personal or
government guarantees. These factors, when considered in the aggregate, give
management reason to believe that the current risk exposure on these loans does
not warrant accounting for these loans as nonperforming. However, these loans do
exhibit certain risk factors, which have the potential to cause them to become
nonperforming. Accordingly, management's attention is focused on these credits,
which are reviewed on at least a quarterly basis.

Capital

Total equity was $657.5 million at March 31, 2022, a decrease of $71.4 million
or 9.8% from December 31, 2021. The decrease was mainly a result of the increase
in accumulated other comprehensive loss, reflecting the change in unrealized
gains/loss on available-for-sale securities from an unrealized loss of $14.6
million at December 31, 2021 to an unrealized loss of $95.0 million at March 31,
2022. The decrease was partially offset by an increase in retained earnings.

Additional paid-in capital decreased from $312.5 million at December 31, 2021,
to $305.9 million at March 31, 2022. The decrease was primarily attributable to
a $10.4 million aggregate purchase price related to the Company's repurchase and
retirement of 130,168 shares of its common stock during the first quarter of
2022 pursuant to its publicly announced stock repurchase plan, partially offset
by $2.9 million related to shares issued for the employee stock ownership
program and $945,000 related to stock based compensation. Retained earnings
increased by $14.9 million from $475.3 million at December 31, 2021, to $490.2
million at March 31, 2022, reflecting net income of $23.3 million less dividends
of $8.3 million. Accumulated other comprehensive loss increased from a net loss
of $56.0 million at December 31, 2021, to a net loss of $135.8 million at
March 31, 2022, reflecting a $80.4 million increase in unrealized losses on
available-for-sale debt securities due to changes in market rates coupled with a
$506,000 decrease related to post-retirement benefit plans.

Cash dividends paid in the first three months of 2022 totaled approximately $8.3
million or $0.57 per common share, representing 35.8% of year to date 2022
earnings through March 31, 2022, and were up 5.6% over cash dividends of $8.0
million or $0.54 per common share paid in the first three months of 2021.

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

In addition to setting higher minimum capital ratios, the Basel III Capital
Rules introduced a 2.5% capital conservation buffer, which has been fully phased
in and must be added to each of the minimum capital ratios and is designed to
absorb losses during periods of economic stress.

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The following table provides a summary of the Company’s capital ratios as of
March 31, 2022:

Regulatory Capital Analysis

                                                                       Minimum Capital Required - Basel
March 31, 2022                                       Actual                 

III Fully Phased-In Well Capitalized Requirement
(dollar amounts in thousands)

                Amount         Ratio           Amount            Ratio          Amount          Ratio
Total Capital (to risk weighted assets)   $ 743,353           14.23  % $      548,588           10.50  % $   522,464           10.00  %
Tier 1 Capital (to risk weighted assets)    697,063           13.34  %        444,095            8.50  %     417,971            8.00  %
Tier 1 Common Equity (to risk weighted
assets)                                     697,063           13.34  %        365,725            7.00  %     339,602            6.50  %
Tier 1 Capital (to average assets)          697,063            8.89  %        313,543            4.00  %     391,928            5.00  %



As of March 31, 2022, the Company's capital ratios exceeded the minimum required
capital ratios plus the fully phased-in capital conservation buffer, and the
minimum required capital ratios for well capitalized institutions. The capital
levels required to be considered well capitalized, presented in the above table,
are based upon prompt corrective action regulations, as amended to reflect the
changes under Basel III Capital Rules.

Total capital as a percent of risk weighted assets increased to 14.2% at
March 31, 2022, compared with 14.2% as of December 31, 2021. Tier 1 capital as a
percent of risk weighted assets remained unchanged from 13.3% at the end of 2021
to 13.3% as of March 31, 2022. Tier 1 capital as a percent of average assets was
8.9% at March 31, 2022, which is up from 8.7% at December 31, 2021. Common
equity Tier 1 capital was 13.3% at the end of the first quarter of 2022,
unchanged from 13.3% at the end of 2021.

As of March 31, 2022, the capital ratios for the Company's subsidiary banks also
exceeded the minimum required capital ratios plus the fully phased-in capital
conservation buffer, and the minimum required capital ratios for well
capitalized institutions.

In the first quarter of 2020, U.S. Federal regulatory authorities issued an
interim final rule that provides banking organizations that adopt CECL during
the 2020 calendar year with the option to delay for two years the estimated
impact of CECL on regulatory capital relative to regulatory capital determined
under the prior incurred loss methodology, followed by a three-year transition
period to phase out the aggregate amount of the capital benefit provided during
the initial two-year delay (i.e., a five-year transition in total). In
connection with our adoption of CECL on January 1, 2020, we have elected to
utilize the five-year CECL transition.

Deposits and Other Liabilities

Total deposits of $7.0 billion at March 31, 2022 were up $225.3 million or 3.3%
from December 31, 2021. The increase from year-end was primarily in checking,
money market and savings balances, which collectively were up $247.4 million or
6.2% from year end 2021. The majority of the increase was in money market
deposit balances and reflects growth in municipal deposits. Noninterest bearing
deposits were flat compared to year-end 2021 and time deposits were down $23.7
million or 3.7%, respectively, from year-end 2021.

The most significant source of funding for the Company is core deposits. The
Company defines core deposits as total deposits less time deposits of $250,000
or more, brokered deposits and municipal money market deposits and reciprocal
deposit relationships with municipalities. Core deposits were up by $110.6
million or 1.9% from year-end 2021, to $5.9 billion at March 31, 2022. Core
deposits represented 84.0% of total deposits at March 31, 2022, compared to
85.1% of total deposits at December 31, 2021.

The Company uses both retail and wholesale repurchase agreements. Retail
repurchase agreements are arrangements with local customers of the Company, in
which the Company agrees to sell securities to the customer with an agreement to
repurchase those securities at a specified later date. Retail repurchase
agreements totaled $57.1 million at March 31, 2022, and $66.8 million at
December 31, 2021. Management generally views local repurchase agreements as an
alternative to large time deposits.

The Company's other borrowings totaled $60.0 million at March 31, 2022, compared
to $124.0 at December 31, 2021. The decrease in borrowings was primarily due to
the prepayment of $50.0 million of FHLB term advances, with no prepayment
penalties. Borrowings at March 31, 2022 represented $60.0 million of FHLB term
advances. The $124.0 million in borrowings at December 31, 2021, represented
$14.0 million in overnight advances from the FHLB and $110.0 million in term
advances from the FHLB. Of the $60.0 million in FHLB term advances at March 31,
2022, $50.0 million was due in over one year.
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Liquidity

As of March 31, 2022, the Company had not experienced any significant impact to
our liquidity or funding capabilities as a result of the COVID-19 pandemic. The
Company is participating in the PPP under the CARES Act and at March 31, 2022,
PPP loans totaled $24.1 million. The Company has a long-standing liquidity plan
in place that is designed to ensure that appropriate liquidity resources are
available to fund the balance sheet. Additionally, given the uncertainties
related to the impact of the COVID-19 crisis on liquidity, the Company has
confirmed the availability of funds at the FHLB of NY and confirmed availability
of Federal Fund lines with correspondent bank partners.

The objective of liquidity management is to ensure the availability of adequate
funding sources to satisfy the demand for credit, deposit withdrawals, and
business investment opportunities. The Company's large, stable core deposit base
and strong capital position are the foundation for the Company's liquidity
position. The Company uses a variety of resources to meet its liquidity needs,
which include deposits, cash and cash equivalents, short-term investments, cash
flow from lending and investing activities, repurchase agreements, and
borrowings. The Committee reviews periodic reports on liquidity and interest
rate sensitivity positions. Comparisons with industry and peer groups are also
monitored. The Company's strong reputation in the communities it serves, along
with its strong financial condition, provides access to numerous sources of
liquidity as described below. Management believes these diverse liquidity
sources provide sufficient means to meet all demands on the Company's liquidity
that are reasonably likely to occur.

Core deposits, discussed above under "Deposits and Other Liabilities", are a
primary and low-cost funding source obtained primarily through the Company's
branch network. In addition to core deposits, the Company uses non-core funding
sources to support asset growth. These non-core funding sources include time
deposits of $250,000 or more, brokered deposits, municipal money market
deposits, reciprocal deposits, bank borrowings, securities sold under agreements
to repurchase, overnight and term advances from the FHLB and other funding
sources. Rates and terms are the primary determinants of the mix of these
funding sources. Non-core funding sources of $1.2 billion at March 31, 2022
increased $41.1 million or 3.4% as compared to year end 2021. Non-core funding
sources, as a percentage of total liabilities, were 17.2% at March 31, 2022,
compared to 17.0% at December 31, 2021.

Non-core funding sources may require securities to be pledged against the
underlying liability. Securities carried at $1.6 billion at March 31, 2022 and
at $1.4 billion at December 31, 2021, were either pledged or sold under
agreements to repurchase. Pledged securities represented 66.7% of total
securities at March 31, 2022, compared to 59.4% of total securities at December
31, 2021.

Cash and cash equivalents totaled $175.1 million as of March 31, 2022 which
increased from $63.1 million at December 31, 2021. Short-term investments,
consisting of securities due in one year or less, decreased from $77.9 million
at December 31, 2021, to $58.9 million at March 31, 2022.

Cash flow from the loan and investment portfolios provides a significant source
of liquidity. These assets may have stated maturities in excess of one year, but
have monthly principal reductions. Total mortgage-backed securities, at fair
value, were $902.1 million at March 31, 2022 compared with $947.7 million at
December 31, 2021. Outstanding principal balances of residential mortgage loans,
consumer loans, and leases totaled approximately $1.6 billion at March 31, 2022,
up $17.5 million or 1.1% compared with year end 2021. Aggregate amortization
from monthly payments on these assets provides significant additional cash flow
to the Company.

The Company's liquidity is enhanced by ready access to national and regional
wholesale funding sources including Federal funds purchased, repurchase
agreements, brokered deposits, and FHLB advances. Through its subsidiary bank,
the Company has borrowing relationships with the FHLB and correspondent banks,
which provide secured and unsecured borrowing capacity. As members of the FHLB,
the Company can use certain unencumbered mortgage-related assets and securities
to secure borrowings from the FHLB. At March 31, 2022, the established borrowing
capacity with the FHLB was $1.47 billion, with available unencumbered
mortgage-related assets of $1.41 billion. Additional assets may also qualify as
collateral for FHLB advances, upon approval of the FHLB.


Accounting Standards Pending Adoption

ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects
of Reference Rate Reform on Financial Reporting." The amendments in this update
provide optional guidance for a limited period of time to ease the potential
burden in accounting for (or recognizing the effects of) reference rate reform
on financial reporting. It provides optional expedients and
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exceptions for applying generally accepted accounting principles to contracts,
hedging relationships, and other transactions affected by reference rate reform
if certain criteria are met. The amendments in this update are effective for all
entities as of March 12, 2020 through December 31, 2022. Tompkins is currently
evaluating the potential impact of ASU 2020-04 on our consolidated financial
statements.

Accounting Standard Update ("ASU") ASU 2022-01, "Derivatives and Hedging (Topic
815)" ("ASU 2022-01") clarifies the guidance in ASC 815 on fair value hedge
accounting of interest rate risk for portfolios and financial assets. Among
other things, the amended guidance established the "last-of-layer" method for
making the fair value hedge accounting for these portfolios more accessible and
renamed that method the "portfolio layer" method. ASU 2022-01 is effective
January 1, 2023 and is not expected to have a significant impact on our
consolidated financial statements.

ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2022-02")
eliminates the guidance on troubled debt restructurings and requires entities to
evaluate all loan modifications to determine if they result in a new loan or a
continuation of the existing loan. ASU 2022-02 also requires that entities
disclose current-period gross charge-offs by year of origination for loans and
leases. ASU 2022-02 is effective January 1, 2023, with early adoption permitted.
Tompkins is currently assessing the impact that ASU 2022-02 will have on our
consolidated financial statements.

TOMPKINS FINANCIAL CORP – 10-Q – Management's Discussion and Analysis of Financial Condition and Resultsof OperationsBUSINESS