Tompkins Financial Corporation Reports Second Quarter Earnings

Tompkins Financial Corporation (“Tompkins” or the “Company”) reported diluted earnings per share of $0.59 for the second quarter of 2023, down 56.3% from the immediate prior quarter, and down 59.3% from diluted earnings per share of $1.45 reported in the second quarter of 2022. Net income for the second quarter of 2023 was $8.5 million, down $12.4 million, or 59.4%, when compared to the $20.9 million reported for the same period in 2022.

Results for the current quarter were negatively affected by the sale of $80.9 million of available-for-sale securities. Though the sale resulted in a $7.1 million pre-tax loss on securities transactions during the quarter (or $0.37 per share), the transaction is expected to have a positive impact on future earnings. The available-for-sale securities sold in the second quarter of 2023 had an average yield of 0.48%, with a remaining average life of 2.3 years. Approximately $15.0 million of the proceeds from sale were reinvested in available-for-sale securities with an average yield of approximately 4.30%, while the remaining proceeds were used to pay down approximately $65.0 million of overnight borrowings with the Federal Home Loan Bank (“FHLB”).

For the year-to-date period ended June 30, 2023, diluted earnings per share were $1.94, down 36.4% from $3.05 for the same year-to-date period in 2022. Year-to-date net income was $27.9 million for the six month period ended June 30, 2023, down $16.3 million, or 36.9%, when compared to $44.1 million for the same period in 2022. Year-to-date results were also negatively impacted by the loss on securities transactions described above.

Tompkins President and CEO, Stephen Romaine, commented, “The economic environment remains challenging for the banking industry. Despite these challenges, which continue to negatively affect our net interest income, we saw some positive trends during the second quarter and first half of 2023. These included annualized loan growth of 6.0% from the immediate prior quarter, stable non-interest bearing deposit balances when compared to the first quarter this year, and year-to-date annualized fee income growth of 1.3% over that same period in 2022.”

SELECTED HIGHLIGHTS FOR THE PERIOD:

• Total loans at June 30, 2023 were $5.4 billion, up 6.0% annualized compared to the immediate prior quarter, and up $189.9 million, or 3.7%, from June 30, 2022.
• Total deposits at June 30, 2023 were $6.5 billion, down $54.4 million, or 0.84%, from March 31, 2023 and down $314.9 million, or 4.65%, from June 30, 2022. The year-over-year pace of decline of total deposits slowed in the second quarter, when compared to the year-over-year decline of 7.2% over the twelve month period ended March 31, 2023.
• Loan to deposit ratio remains stable at 83% as compared to 81% for the prior quarter
• Regulatory Tier 1 capital to average assets was 9.57% at June 30, 2023, compared to 9.63% at March 31, 2023 and 9.02% at June 30, 2022.
• Total nonperforming assets at June 30, 2023 represented 0.41% of total assets, an increase of 10.8% from the immediate prior quarter.

NET INTEREST INCOME:

Net interest income was $51.9 million for the second quarter of 2023, down from $54.2 million for the first quarter of 2023 and $58.3 million for the second quarter of 2022. Net interest margin was 2.83% for the second quarter of 2023, compared to 2.99% reported for the first quarter of 2023 and 3.09% reported for the second quarter of 2022. The decrease in net interest income and net interest margin from the first quarter of 2023 and the second quarter of 2022 was due primarily to the increase in interest rates on interest-bearing liabilities outpacing increases on interest earning asset yields due to the higher interest rate environment.

For the year-to-date period ended June 30, 2023, net interest income was $106.1 million, down $8.7 million or 7.6% when compared to the same period in 2022.

Average loans for the quarter ended June 30, 2023 were up $53.4 million, or 1.0%, from the first quarter of 2023, and $189.4 million, or 3.7%, compared to the same period in 2022. The increase in average loans was mainly in the commercial real estate portfolio compared to the first quarter of 2023, and the quarter ended June 30, 2022. The average yield on interest-earning assets for the quarter ended June 30, 2023 was 3.91%, up 10 basis points compared to the quarter ended March 31, 2023, and up 68 basis points compared to the quarter ended June 30, 2022.
Average total deposits for the second quarter of 2023 were down $121.4 million, or 1.8%, compared to the first quarter of 2023, and down $414.4 million, or 6.0%, compared to the same period in 2022. The decrease was largely driven by a decline in stimulus funding and a tightening monetary policy that has led to a declining trend in bank deposits on a national level, as reported by the Federal Reserve. The cost of interest-bearing deposits increased to 1.41% for the second quarter of 2023, compared to 1.10% for the first quarter of 2023, and 0.18% for the second quarter of 2022. The cost of interest-bearing deposits for the second quarter of 2023 increased 31 basis points from March 31, 2023, which is down from the 41 basis point increase in the cost of interest-bearing deposits for the first quarter of 2023, compared to the fourth quarter of 2022. Non-interest bearing deposits to total deposits at June 30, 2023, were 31.4% compared to 30.9% at March 31, 2023. The average cost of interest-bearing liabilities for the second quarter of 2023 of 1.64%, represents an increase of 38 basis points over the first quarter of 2023, and an increase of 142 basis points over the same period in 2022.

NON-INTEREST INCOME:

Non-interest income of $12.6 million for the second quarter of 2023 was down $6.3 million, or 33.4%, compared to the second quarter of 2022. Year-to-date non-interest income of $33.0 million was down $5.9 million, or 15.2%, compared to the same six month period in 2022. Non-interest income represented 19.6% of total revenue for the quarter ended June 30, 2023, compared to 24.5% for the quarter ended June 30, 2022. The decrease in non-interest income in the second quarter of 2023 was largely due to the sale of available-for-sale securities, which resulted in the recognition of a pre-tax loss of $7.1 million. Partially offsetting the decreases in non-interest income in the second quarter of 2023 compared to the prior year quarter were increases in fee income of $337,000 and an increase in income on bank-owned life insurance of $383,000.

NON-INTEREST EXPENSE:

Non-interest expense was $52.0 million for the second quarter of 2023, which was up $2.8 million, or 5.8%, over the second quarter of 2022. For the year-to-date period, non-interest expense of $102.1 million was up $6.2 million, or 6.4%, from the same period in 2022. The increase in non-interest expense in the second quarter of 2023 over the same quarter last year was mainly in higher personnel-related expenses, up $1.2 million. The increase in personnel-related expenses was mainly in salaries and wages and reflects annual merit adjustments. Significant components that increased in other expenses were professional fees which were up $405,000, other losses which were up $517,000, and marketing which was up $232,000, in each case as compared to the second quarter of 2022.

INCOME TAX EXPENSE:

The Company’s effective tax rate was 17.3% for the second quarter of 2023, compared to 23.2% for the same period in 2022. The effective tax rate for the six months ended June 30, 2023 was 21.6%, compared to 23.1% reported for the same period in 2022.

The decrease in the effective tax rate for the three and six months ended June 30, 2023, compared to the same periods in 2022 is largely due to the anticipated retention of certain New York State tax benefits. 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 qualified average assets of no more than $8.0 billion for the taxable year. Based on current estimates of average assets during 2023, the Company expects to retain the benefits in 2023.

ASSET QUALITY:

The allowance for credit losses represented 0.91% of total loans and leases at June 30, 2023, up from 0.87% at March 31, 2023, and up from 0.85% at June 30, 2022. The ratio of the allowance to total nonperforming loans and leases was 154.76% for the second quarter of 2023, compared to 162.11% at March 31, 2023 and 147.95% at June 30, 2022.

Provision for credit losses for the second quarter of 2023 was $2.3 million compared to $856,000 for the same period in 2022. Provision for credit losses for the six months ended June 30, 2023 was $1.4 million, compared to $336,000 for the six months ended June 30, 2022. The increase in provision expense for both the quarter and year-to-date periods was mainly driven by weaker economic forecasts, loan growth, and changes in asset quality. Net recoveries for the quarter ended June 30, 2023 were $27,000 compared to net recoveries of $887,000 reported for the same period in 2022.

Nonperforming assets represented 0.41% of total assets at June 30, 2023, down from 0.43% at December 31, 2022 and up from the 0.38% reported at June 30, 2022. At June 30, 2023, nonperforming loans and leases totaled $31.4 million, compared to $32.8 million at December 31, 2022 and $29.6 million at June 30, 2022. The increase in loans past due 30-89 days at quarter end June 30, 2023 was mainly due to the inclusion of a $15.3 million commercial real estate loan.

Special Mention and Substandard loans and leases totaled $118.1 million at June 30, 2023, reflecting an increase from the $98.3 million reported at December 31, 2022, and $115.0 million at June 30, 2022. The increase over year-end in Special Mention and Substandard was mainly a result of the downgrade of one commercial real estate loan added to Special Mention during the second quarter of 2023 and the downgrade of one commercial real estate loan previously reported as Special Mention.

CAPITAL POSITION:

Capital ratios at June 30, 2023 remained well above the regulatory minimums for well-capitalized institutions. The ratio of total capital to risk-weighted assets was 14.48% at June 30, 2023, compared to 14.42% at December 31, 2022 and 14.07% at June 30, 2022. The ratio of Tier 1 capital to average assets was 9.57% at June 30, 2023, compared to 9.34% at December 31, 2022 and 9.02% at June 30, 2022.

During the second quarter of 2023, the Company repurchased 108,219 common shares at an aggregate cost of $6.3 million. These shares were purchased under the Company’s Stock Repurchase Program announced in the third quarter of 2021.

The Company announced today that its Board of Directors has authorized a new Stock Repurchase Program to repurchase up to 400,000 shares of the Company’s outstanding common stock, par value $0.10 per share, from time to time, over the next 24 months.

LIQUIDITY POSITION:

The Company’s liquidity position remained stable from the first quarter of 2023. Liquidity is enhanced by ready access to national and regional wholesale funding sources including Federal funds purchased, repurchase agreements, brokered deposits, Federal Reserve Bank Discount Window advances and FHLB advances. The Company maintains ready access liquidity of $1.7 billion, or 22.3% of total assets at June 30, 2023. As members of the FHLB, the Company can use certain unencumbered mortgage-related assets and securities to secure borrowings from the FHLB. At June 30, 2023 the Company had an available borrowing capacity at the FHLB of $1.3 billion, unchanged from the first quarter of 2023. Through various programs at the Federal Reserve Bank, the Company has the ability to use certain unencumbered mortgage-related assets and securities to secure borrowings from the Federal Reserve Bank’s Discount Window. At June 30, 2023 the available borrowing capacity with the Federal Reserve Bank was $245.7 million, secured by investment securities. In addition to the available borrowing lines at the FHLB and Federal Reserve Bank, at June 30, 2023, the Company maintained $137.7 million of unencumbered securities which could be pledged to further enhance secured borrowing capacity.

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ABOUT TOMPKINS FINANCIAL CORPORATION

Tompkins Financial Corporation is a banking and financial services company serving the Central, Western, and Hudson Valley regions of New York and the Southeastern region of Pennsylvania. Headquartered in Ithaca, NY, Tompkins Financial is parent to Tompkins Community Bank, Tompkins Insurance Agencies, Inc., and offers wealth management services through Tompkins Financial Advisors. For more information on Tompkins Financial, visit www.tompkinsfinancial.com.