Press Release:
Tompkins Financial Corporation ("Tompkins" or the "Company") reported a net loss of $33.4 million for the third quarter of 2023. The quarterly results were negatively impacted by the sale of $429.6 million of available-for-sale debt securities, which resulted in an after-tax loss on the sale of securities of $47.5 million. Though this sale resulted in an operating loss in the third quarter of 2023, the transaction is expected to favorably impact securities revenue in future periods as the securities sold had an average yield of 0.93%, while the proceeds of the sale were largely reinvested into securities with an estimated yield of approximately 5.12%. The weighted average life of the securities purchased and sold was approximately 4.3 years.
Tompkins President and CEO, Stephen Romaine, commented, "During the quarter we elected to proactively reposition the balance sheet which will improve securities revenue and we expect that the improved revenue will exceed the value of the loss recognized in the third quarter through time. We estimate securities revenue to improve by approximately $15.4 million over the next twelve months.
While the economic environment remains challenging for the banking industry, our capital and liquidity levels remain healthy and well positioned to meet the needs of our customers. We continued to see favorable growth trends, with annualized loan growth of 6.0% from the second to third quarter of this year and increased deposit balances over the same periods. We are also pleased to announce our cash dividend, which is reflective of our healthy capital position."
Diluted earnings per share for the third quarter of 2023 were a loss of $2.35, which reflects the impact of the after-tax losses of $3.34 per diluted share related to the sale of available-for-sale debt securities as noted above. Diluted earnings per share for the third quarter of 2022 were $1.48.
For the year-to-date period ended September 30, 2023, net income was a loss of $5.5 million, or a loss of $0.39 per diluted share. Year-to-date results were also negatively impacted by after-tax losses on the sale of securities totaling $52.9 million, or $3.69 loss per diluted share. For the same year-to-date period in 2022, net income was $65.5 million, or $4.53 per diluted share.
SELECTED HIGHLIGHTS FOR THE PERIOD:
Total loans at September 30, 2023 were up $82.5 million, or 1.5% (6.1% on an annualized basis) compared to the immediate prior quarter, and up $226.4 million, or 4.3%, from September 30, 2022.
Total deposits at September 30, 2023 were $6.6 billion, up $168.8 million, or 2.5% (10.4% on an annualized basis) from June 30, 2023, and down $313.3 million, or 4.5%, from September 30, 2022.
Loan to deposit ratio was stable at 82.1%, compared to 82.9% for the immediate prior quarter.
Regulatory Tier 1 capital to average assets was 9.01% at September 30, 2023, compared to 9.57% at June 30, 2023 and 9.14% at September 30, 2022.
Total nonperforming assets at September 30, 2023 represented 0.41% of total assets, which was flat compared to the immediate prior quarter and down from 0.45% at September 30, 2022.NET INTEREST INCOME
Net interest income was $51.0 million for the third quarter of 2023, down from $51.9 million for the second quarter of 2023 and $58.1 million for the third quarter of 2022. Net interest margin was 2.75% for the third quarter of 2023, compared to 2.83% reported for the second quarter of 2023 and 3.04% reported for the third quarter of 2022. The decrease in net interest income and net interest margin during the third quarter, when compared to the second quarter of this year and the same quarter last year, 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 September 30, 2023, net interest income was $157.2 million, down $15.8 million, or 9.2%, when compared to the same period in 2022.
Average loans for the quarter ended September 30, 2023 were up $80.5 million, or 1.5%, from the second quarter of 2023, and were up $200.0 million, or 3.9%, compared to the quarter ended September 30, 2022. The increase in average loans over both prior periods was mainly in the commercial real estate portfolio. The average yield on interest-earning assets for the quarter ended September 30, 2023 was 4.06%, which was up from 3.91% for the quarter ended June 30, 2023, and up from 3.32% for the quarter ended September 30, 2022.
Average total deposits for the third quarter of 2023 were down $20.0 million, or 0.3%, compared to the second quarter of 2023, and down $394.4 million, or 5.8%, compared to the same period in 2022. The decrease as compared to the prior year 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 1.74% for the third quarter of 2023, compared to 1.41% for the second quarter of 2023, and 0.36% for the third quarter of 2022. The cost of interest-bearing deposits for the third quarter of 2023 increased 33 basis points from June 30, 2023. The ratio of average noninterest bearing deposits to average total deposits for the third quarter of 2023 was 31.0% compared to 31.1% for the second quarter of 2023. The average cost of interest-bearing liabilities for the third quarter of 2023 of 1.98%, represents an increase of 34 basis points over the second quarter of 2023, and an increase of 153 basis points over the same period in 2022.
NONINTEREST INCOME
Noninterest income was a loss of $41.6 million for the third quarter of 2023, which represents a decrease in noninterest income of $62.3 million compared to the third quarter of 2022. Year-to-date noninterest income was a loss of $8.6 million, which represents a decrease in noninterest income of $68.2 million compared to the same nine month period in 2022. The decrease in noninterest income in the third quarter of 2023 was largely due to the above noted sale of available-for-sale debt securities, which resulted in the recognition of a pre-tax loss of $62.9 million. Fee-based revenues, including insurance commissions and fees, wealth management fees, service charges on deposit accounts and card services income, for the third quarter of 2023 were collectively up $543,000, or 2.7%, over the same period in 2022.
NONINTEREST EXPENSE
Noninterest expense was $49.9 million for the third quarter of 2023, which was up $264,000, or 0.5%, over the third quarter of 2022. For the year-to-date period, noninterest expense of $152.0 million was up $6.4 million, or 4.4%, from the same period in 2022. The increase in noninterest expense in the nine months ended September 30, 2023 over the same period in 2022 was mainly in other operating expenses which were up $4.1 million and higher personnel-related expenses, which were up $2.7 million. Contributing to the growth in other expenses for the nine months ended September 30, 2023, compared to the same period in 2022 were the following: expenses related to the Company’s retirement plans, up $1.3 million; professional fees, up $699,000, New York State minimum tax, up $623,000; and FDIC insurance, up $777,000. The increase in personnel-related expenses was mainly in health insurance, which is up $1.5 million.
INCOME TAX EXPENSE
The provision for income taxes was a credit of $8.3 million for an effective rate of 20.0% for the third quarter of 2023, compared to tax expense of $6.8 million and an effective rate of 24.1% for the same quarter in 2022. For the first nine months of 2023, the provision for income taxes was a credit of $619,000 for an effective rate of 10.3% compared to tax expense of $20.1 million and an effective rate of 23.4% for the same period in 2022. The decrease in income tax expense between comparable periods reflects the decrease in pre-tax income, due primarily to the realized losses on the sale of certain available-for-sale securities and the anticipated retention of certain New York State tax benefits.
ASSET QUALITY
The allowance for credit losses represented 0.91% of total loans and leases at September 30, 2023, flat as compared to June 30, 2023, and up from 0.86% at September 30, 2022. The ratio of the allowance to total nonperforming loans and leases was 156.96% at September 30, 2023, compared to 154.76% at June 30, 2023 and 128.27% at September 30, 2022.
Provision for credit losses for the third quarter of 2023 was $1.2 million compared to $1.1 million for the same period in 2022. Provision for credit losses for the nine months ended September 30, 2023 was $2.6 million, compared to $1.4 million for the nine months ended September 30, 2022. The increase in provision expense for both the quarter and year-to-date periods was mainly driven by economic forecasts, loan growth, and changes in asset quality. Net charge-offs for the quarter ended September 30, 2023 were $177,000 compared to net charge-offs of $122,000 reported for the same period in 2022.
Nonperforming assets represented 0.41% of total assets at September 30, 2023, down from 0.43% at December 31, 2022 and 0.45% reported at September 30, 2022. At September 30, 2023, nonperforming loans and leases totaled $31.4 million, compared to $32.8 million at December 31, 2022 and $34.9 million at September 30, 2022. The increase in loans past due 30-89 days at quarter-end September 30, 2023, was mainly due to the inclusion of two commercial real estate loans to one relationship totaling $18.6 million. The Company believes that the existing collateral securing the loans is sufficient to cover the exposure as of September 30, 2023.
Special Mention and Substandard loans and leases totaled $122.9 million at September 30, 2023, reflecting an increase from the $98.3 million reported at December 31, 2022, and $106.7 million at September 30, 2022. The increase as compared to 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 in the second quarter of 2023.
CAPITAL POSITION
Capital ratios at September 30, 2023 remained well above the regulatory minimums for well-capitalized institutions. The ratio of total capital to risk-weighted assets was 13.46% at September 30, 2023, compared to 14.42% at December 31, 2022 and 14.26% at September 30, 2022. The ratio of Tier 1 capital to average assets was 9.01% at September 30, 2023, compared to 9.34% at December 31, 2022 and 9.14% at September 30, 2022.
During the third quarter of 2023, the Company repurchased 41,781 common shares at an aggregate cost of $2.3 million. These shares were purchased under the Company's Stock Repurchase Program announced in the third quarter of 2021.
LIQUIDITY POSITION
The Company's liquidity position at September 30, 2023 was stable and consistent with the immediately prior quarter. 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 Federal Home Loan Banks (FHLB) advances. The Company maintains ready access liquidity of $1.2 billion, or 15.1% of total assets at September 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 September 30, 2023 the Company had an available borrowing capacity at the FHLB of $969.4 million. 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 September 30, 2023 the available borrowing capacity with the Federal Reserve Bank was $91.8 million, secured by investment securities. In addition to the available borrowing lines at the FHLB and Federal Reserve Bank, at September 30, 2023, the Company maintained $411.7 million of unencumbered securities which could be pledged to further enhance secured borrowing capacity.
