Press release:
Tompkins Financial Corporation ("Tompkins" or the "Company") reported diluted earnings per share of $1.36 for the fourth quarter of 2022, up 2.3% compared to $1.33 reported in the fourth quarter of 2021. Net income for the fourth quarter of 2022 was $19.5 million, which was unchanged when compared to the same period in 2021.
For the year ended December 31, 2022, diluted earnings per share of $5.89 were down 2.6% compared to the year ended December 31, 2021. Net income for 2022 was $85.0 million, a decrease of $4.2 million compared to the year ended December 31, 2021. Significant contributors to the negative variance in annual net income included a reduction in net deferred loan fees associated with PPP loans from $11.2 million in 2021 to $3.0 million in 2022, as well as an increase in provision for credit loss expense, which was a credit of $2.2 million in 2021 versus an expense of $2.8 million in 2022.
During the fourth quarter of 2022, the Company sold its VISA Class B common shares, recognizing a pre-tax gain of $11.4 million. Also in the fourth quarter of 2022, the Company sold $147.9 million of available-for-sale securities, recognizing a pre-tax loss on the sale of $11.9 million. The available-for-sale securities sold during the quarter had an average yield of 0.41% and remaining life of 2.1 years. Proceeds from the sale of the VISA Class B shares and the available-for-sale securities were used to pay down overnight borrowings with the FHLB.
Tompkins President and CEO, Stephen Romaine, commented, "We are pleased to report earnings growth in the fourth quarter of 2022, when compared to the same quarter last year. The quality of our balance sheet remains a strength, as we had net credit recoveries for the year and nonperforming loans remain near historic lows. Our performance metrics remain strong as we begin a new year facing economic uncertainty and a challenging interest rate environment. We remain focused on growth that is built on quality customer relationships and on improving the overall efficiency of our Company."
SELECTED HIGHLIGHTS FOR THE PERIOD:
- Total loans at December 31, 2022 were $5.3 billion, up $60.5 million over the immediate prior quarter, reflecting an annualized increase of 4.7% from September 30, 2022, and up $193.4 million or 3.8% from December 31, 2021. Excluding PPP loans, total loans at December 31, 2022 were up 5.3% over year-end 2021.
- Total deposits at December 31, 2022 were $6.6 billion, down $189.1 million or 2.8% from December 31, 2021, while noninterest bearing deposits of $2.2 billion were up $14.4 million or 0.7% over the same time period.
- Net interest margin of 3.02% for the quarter ended December 31, 2022 was down from 3.04% for the quarter ended September 30, 2022, and up from 3.01% for the quarter ended December 31, 2021.
- Return on average equity for the year ended December 31, 2022 of 13.25% was higher than any of the previous three years.
NET INTEREST INCOME
Net interest margin was 3.02% for the fourth quarter of 2022, down compared to the 3.04% reported for the third quarter of 2022, and up compared to the 3.01% reported for the fourth quarter of 2021. The decrease in margin from the third quarter of 2022 was due primarily to the increase in interest expense on interest-bearing deposits and short-term borrowings, partially offset by higher yields on loan, securities and cash, reflective of the higher interest rate environment.
Net interest income was $57.3 million for the fourth quarter of 2022, down from $58.1 million for the third quarter of 2022 and $57.8 million for the fourth quarter of 2021. Full year net interest income was $230.3 million for the year ended December 31, 2022, up from $223.8 million reported for the year ended December 31, 2021.
Comparisons to prior periods are impacted by net fees on PPP loans, which have largely paid down during 2022. Net interest income in the current quarter included $5,000 of net deferred loan fees associated with PPP loans, down from $88,000 of net deferred PPP loan fees for the third quarter of 2022, and $3.2 million of net deferred PPP loan fees for the fourth quarter of 2021. Full year net interest income for 2021 included net deferred loan fees associated with PPP loans of $11.2 million and a $1.9 million purchase accounting charge related to the redemption of $15.2 million in trust preferred securities; full year net deferred loan fees on PPP loans in 2022 were $3.0 million.Average loans for the quarter ended December 31, 2022 increased $145.7 million, or 2.9%, compared to the same period in 2021, and were in line with average loans for the third quarter of 2022. The increase in average loans as compared to the same period in the prior year was mainly in commercial and residential real estate loans, which were up 7.9% and 4.9%, respectively. Commercial and industrial loans were down 14.6%, mainly driven by lower PPP loan balances. Average loan yields for the quarter ended December 31, 2022 were up 27 basis points from the third quarter of 2022 and up 32 basis points compared to the same period in 2021.
Average loans for the year ended December 31, 2022 were in line with average loans for the year ended December 31, 2021. Average loan yields for the year ended December 31, 2022, were up 9 basis points compared to 2021, which reflects the impact of rising market interest rates in 2022.
Average total deposits for the fourth quarter of 2022 were down $261.8 million, or 3.8%, compared to the same period in 2021 and were down $108.1 million, or 1.6%, compared to average deposits for the third quarter of 2022. The decrease was largely driven by inflation and higher rate alternatives due to current interest rate environment and tighter monetary policy. The total cost of interest-bearing liabilities of 0.84% for the fourth quarter of 2022 represented an increase of 39 basis points over the third quarter of 2022, and an increase of 62 basis points over the same period in 2021.
Average total deposits for 2022 were flat compared to 2021. Average noninterest bearing deposits for 2022 were up $90.2 million, or 4.3%, compared to 2021. The total cost of interest-bearing liabilities for full year ended December 31, 2022 increased by 8 basis points to 0.43% from the same period in 2021.
NONINTEREST INCOME
Noninterest income of $18.4 million for the fourth quarter of 2022 was down 4.2% compared to the same period in 2021. Negatively impacting noninterest income during the quarter were lower wealth management fees, primarily due to market conditions, as well as a net loss on sale of securities of $455,000.For the full year 2022, noninterest income of $78.0 million was down 1.1% from 2021. Year to date 2022 noninterest income reflected higher revenue from insurance commissions, deposit fees and card services fees, which were offset by lower wealth management fees and net losses of $634,000 on securities transactions.
NONINTEREST EXPENSE
Noninterest expense was $50.2 million for the fourth quarter of 2022, up $2.0 million, or 4.2%, over the fourth quarter of 2021, with the increase largely driven by higher personnel related costs. Increased spending on marketing and technology also contributed to expense growth in the fourth quarter of 2022 compared to the same period in 2021.For the full year 2022, noninterest expense was $195.8 million, up $5.5 million, or 2.9%, over 2021. The growth in noninterest expense for the year-to-date period was primarily driven by increases in salaries, wages and benefits and other noninterest expense. Contributing to the growth in these expense items were nonrecurring expenses of $1.2 million, related to the consolidation and rebranding of the Company's four banking charters The year-to-date period in 2021 included $2.9 million in penalties related to the prepayment of $135.0 million in FHLB fixed rate advances.
INCOME TAX EXPENSE
The Company's effective tax rate was 18.6% for the fourth quarter of 2022, compared to 21.7% for the same period in 2021. The effective tax rate for the year ended December 31, 2022 was 22.4%, compared to 22.0% reported for 2021.
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 these benefits is that the consolidated company has qualified assets of no more than $8.0 billion for the taxable year. Prior to the fourth quarter of 2022, the Company expected to exceed the asset threshold and its effective tax rate reflected the anticipated loss of these tax benefits. With the decrease in total assets between September 30, 2022 and December 31, 2022, the Company retained the tax benefits, and as a result, adjusted its tax rate in the fourth quarter of 2022 to reflect the retention of the benefits. The Company will continue to monitor consolidated average assets to determine future eligibility.ASSET QUALITY
The allowance for credit losses represented 0.87% of total loans and leases at December 31, 2022, up from 0.86% at September 30, 2022 and 0.84% at December 31, 2021. The ratio of the allowance to total nonperforming loans and leases improved to 139.85% at December 31, 2022, up compared to 128.27% at September 30, 2022 and 137.51% at December 31, 2021.The provision for credit loss expense for the fourth quarter of 2022 was $1.4 million compared to $3.9 million for the same period in 2021. Provision expense for the year ended December 31, 2022 was an expense of $2.8 million, compared to a credit of $2.2 million for 2021. The increase in the provision for credit losses for the year-ended December 31, 2022 is mainly driven by current economic forecasts coupled with loan growth.
Nonperforming assets represented 0.43% of total assets at December 31, 2022, down from 0.45% at September 30, 2022, and up from 0.40% at December 31, 2021. At December 31, 2022, nonperforming loans and leases totaled $32.8 million, compared to $34.9 million at September 30, 2022 and $31.2 million at December 31, 2021.
Special Mention and Substandard loans and leases totaled $98.3 million at December 31, 2022, reflecting improvement from $106.7 million at September 30, 2022, and $137.6 million at December 31, 2021.
CAPITAL POSITION
Capital ratios at December 31, 2022 remained well above the regulatory minimums for well-capitalized institutions. The ratio of Total Capital to Risk-Weighted Assets was 14.42% at December 31, 2022, compared to 14.26% at September 30, 2022 and 14.23% at December 31, 2021. The ratio of Tier 1 capital to average assets was 9.34% at December 31, 2022, compared to 9.14% at September 30, 2022 and 8.72% at December 31, 2021.
