Press Release:
Tompkins Financial Corporation ("Tompkins" or the "Company") reported diluted earnings per share of $1.35 for the first quarter of 2023, in line with the immediate prior quarter, and down 15.6% from diluted earnings per share of $1.60 reported in the first quarter of 2022. The first quarter results in the prior year included $2.0 million, pre-tax, ($0.10 per diluted share) in net fees related to the SBA's Paycheck Protection Program loans ("PPP"), compared to net fees of $2,000 in the current period.
Net income for the first quarter of 2023 was $19.4 million, a decrease of 16.7% from the $23.3 million reported for the same period in 2022. Increased funding costs coupled with increases in operating expense were the main drivers for the year-over-year decreases in net income.
Tompkins President and CEO, Stephen Romaine, commented, "The first quarter of 2023 was a tumultuous quarter for the banking industry. In times like these, our business model - built on strong customer relationships and sustainable financial performance - has helped differentiate Tompkins from companies with less tenable business models. Though we are not immune to certain headwinds facing our industry - as evident from reduced earnings in the first quarter - we are pleased to report an increase in our common equity for the second consecutive quarter, a strong liquidity position, while at the same time delivering an annualized return on equity of 12.45% in the first quarter of 2023."
SELECTED HIGHLIGHTS FOR THE PERIOD:
- Key profitability measures remained healthy in the first quarter, with a return on average assets of 1.03% (up from 1.00% last quarter); net interest margin of 2.99% (down from 3.02% last quarter); and return on equity of 12.45% (down from 13.36% last quarter).
- Regulatory Tier 1 capital to average assets improved for the sixth consecutive quarter, ending the first quarter of 2023 at 9.63%.
- Total loans at March 31 were $5.3 billion, in line with the immediate prior quarter, and up $210.2 million, or 4.2% from March 31, 2022. Excluding PPP loans, total loans at March 31 were up 4.6% over the first quarter of 2022.
- Total nonperforming assets at March 31 represented 0.37% of total assets and declined 13.7% from the most recent prior quarter.
Total deposits at March 31 were $6.5 billion, reflecting a 1.4% decrease compared to year-end 2022 and a decline of 7.2% when compared to same period last year.
NET INTEREST INCOME
Net interest margin was 2.99% for the first quarter of 2023, compared to 3.02% reported for the fourth quarter of 2022, and 3.04% at March 31, 2022. The decrease in margin from the fourth 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.
Net interest income was $54.2 million for the first quarter of 2023, down from $57.3 million for the fourth quarter of 2022, and $56.6 million for the first quarter of 2022. Net interest income for the quarter ended March 31 was impacted by increases in interest expense, which totaled $15.0 million for the first quarter of 2023 compared to $2.6 million for the same period in 2022, partially offset by increased interest and dividend income, which increased by $10.1 million when compared to March 31, 2022.
Average loans for the quarter ended March 31, 2023 were up $41.6 million or 0.8% from the fourth quarter of 2022, and $195.3 million or 3.9% compared to the same period in 2022. The increase in average loans was mainly in the residential and commercial real estate portfolios compared to the quarter ended March 31, 2022. Asset yields for the quarter ended March 31, 2023 were up 25 basis points compared to the quarter ended December 31, 2022, and up 63 basis points compared to the same period in 2022.
Average total deposits for the first quarter of 2023 were down $144.9 million, or 2.2% compared to the fourth quarter of 2022, and down $328.2 million, or 4.8% 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. Average deposit balances at March 31 are $1.3 billion or 23.9% higher than pre-pandemic levels reported at December 31, 2019. The cost of interest-bearing deposits increased to 1.10% for the first quarter of 2023, compared to 0.69% for the fourth quarter of 2022, and 0.17% for the first quarter last year. The increase was mainly driven by higher market interest rates as a result of the target federal funds rate increasing 450 basis points over the prior twelve months.
The total cost of interest-bearing liabilities of 1.26% for the first quarter of 2023 represented an increase of 42 basis points over the fourth quarter of 2022, and an increase of 105 basis points over the same period in 2022. At March 31, the Company estimates total uninsured deposits of $2.6 billion, which is unchanged from December 31, 2022. The uninsured deposit balance of $2.6 billion at March 31 is made up of $1.1 billion of collateralized government deposits and $1.5 billion of uninsured customer deposits without liquid collateral pledged. Total insured deposits and collateralized government deposits represent 76.9% of the Company's total deposits of $6.5 billion at March 31.
NONINTEREST INCOME
Noninterest income of $20.4 million for the first quarter of 2023 was up $2.0 million, or 11.2% compared to the most recent prior quarter, and up $415,000, or 2.1% compared to the prior year quarter in 2022. Noninterest income represented 27.3% of total revenue at March 31, compared to 24.3% at December 31, 2022, and 26.1% at March 31, 2022. Increases in insurance and card service fees in the first quarter of 2023 compared to the prior year quarter were partially offset by lower wealth management fees, primarily due to market conditions.
NONINTEREST EXPENSE
Noninterest expense was $50.2 million for the first quarter of 2023, which was in line with the fourth quarter of 2022, and up $3.3 million, or 7.1% over the first quarter of 2022, with the increase largely driven by higher personnel-related costs. Increases in FDIC insurance rates, as well as increased spending on marketing and technology also contributed to expense growth in the first quarter of 2023 compared to the first quarter of 2022.
INCOME TAX EXPENSE
The Company's effective tax rate was 23.3% for the first quarter of 2023, compared to 23.0% for the same period in 2022.
ASSET QUALITY
The allowance for credit losses represented 0.87% of total loans and leases at March 31, 2023, unchanged from the prior quarter, and up from 0.83% at March 31, 2022. The ratio of the allowance to total nonperforming loans and leases improved to 162.11% for the first quarter of 2023, compared to 139.86% at December 31, 2022 and 139.20% at March 31, 2022.
Provision for credit losses for the first quarter of 2023 was a credit of $825,000 compared to a credit of $520,000 for the same period in 2022. Net recoveries for the quarter ended March 31 were $1.3 million compared to net recoveries of $17,000 reported for the same period in 2022.
Nonperforming assets represented 0.37% of total assets at March 31, down from 0.43% at December 31, 2022 and 0.38% at March 31, 2022. At March 31, nonperforming loans and leases totaled $28.4 million, compared to $32.8 million at December 31, 2022 and $30.3 million at March 31, 2022.
Special Mention and substandard loans and leases totaled $85.6 million at March 31, reflecting improvement from the $98.3 million reported for December 31, 2022 and the $135.1 million at March 31, 2022. The improvement over prior quarter was mainly a result of upgrades on two large commercial real estate loans previously reported as Special Mention.
CAPITAL POSITION
Capital ratios at March 31, remained well above the regulatory minimums for well-capitalized institutions. The ratio of total capital to risk-weighted assets was 14.62% at March 31, compared to 14.42% at December 31, 2022 and 14.23% at March 31, 2022. The ratio of Tier 1 capital to average assets was 9.63% at March 31, compared to 9.34% at December 31, 2022 and 8.89% at March 31, 2022.
LIQUIDITY POSITION
The Company's liquidity is well positioned and remains stable from the fourth quarter of 2022. 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 22.5% of assets. 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 the Company had an available borrowing capacity at the FHLB of $1.3 billion as compared to $1.3 billion in the fourth quarter of 2022. 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 March 31 the available borrowing capacity with the Federal Reserve Bank was $157.0 million, secured by investment securities. In addition to the available borrowing lines at the FHLB and Federal Reserve Bank, at March 31, the Company maintained $265.3 million of unencumbered securities which could be pledged to further enhance secured borrowing capacity.
