Press Release:
Tompkins Financial Corporation ("Tompkins" or the "Company") reported diluted earnings per share of $1.05 for the fourth quarter of 2023, down 22.8% compared to the fourth quarter of 2022. Net income for the fourth quarter of 2023 was $15.0 million, down $4.5 million or 23.3% compared to the $19.5 million reported for the fourth quarter of 2022. Contributing to the lower quarterly results were increased funding costs and increased operating expenses, which included costs related to three branch closures during the fourth quarter of 2023 as well as personnel-related charges.
For the year ended December 31, 2023, diluted earnings per share of $0.66 were down 88.8% compared to the year ended December 31, 2022. Net income for 2023 was $9.5 million, a decrease of $75.5 million compared to the year ended December 31, 2022. Significant contributors to the year-over-year decrease in net income included a previously announced after-tax loss of $52.9 million, or $3.69 loss per diluted share, related to the sale of $510.5 million of available-for-sale debt securities, increased funding costs and an increase in operating expenses. The sale of securities and subsequent reinvestment in the second and third quarters of 2023 is favorably impacting securities revenue as the securities sold had an average yield of 0.86%, while the proceeds of the sale were largely reinvested into securities with an estimated yield of approximately 5.09%. Average yields on securities for the fourth quarter of 2023 were 2.33%, compared to 1.59% for the third quarter of 2023, and 1.44% for the fourth quarter of 2022.
Tompkins President and CEO, Stephen Romaine, commented, "In the fourth quarter we continued to execute on strategic initiatives and are pleased to announce our expanded presence in Syracuse with the grand opening of our City Center office. For the quarter we saw positive momentum with our net interest margin expanding, strong quarterly loan growth driving full-year loan growth of 6.4%, signs of stabilization in our deposit base, and growth in our noninterest-related revenue. During the quarter we also recognized non-recurring expenses relating to three branch closures and other personnel-related expenses intended to help offset future expense growth. While the economic environment remains challenging for the industry we look forward to 2024 with our strong capital and liquidity position to continue to drive growth of quality customer relationships."
SELECTED HIGHLIGHTS FOR THE PERIOD:
Net interest margin for the fourth quarter of 2023 expanded to 2.82%, compared to 2.75% for the third quarter of 2023.
Total loans at December 31, 2023, were up $171.1 million, or 3.2% (12.6% on an annualized basis), compared to the immediate prior quarter, and up $337.0 million, or 6.4%, from December 31, 2022.
Total deposits at December 31, 2023 were $6.4 billion, down $223.6 million, or 3.4% (13.5% on an annualized basis), from September 30, 2023, and down $202.5 million, or 3.1%, from December 31, 2022.
Loan to deposit ratio was 87.6%, compared to 82.1% for the immediate prior quarter.
Regulatory Tier 1 capital to average assets was 9.08% at December 31, 2023, compared to 9.01% at September 30, 2023 and 9.34% at December 31, 2022.
NET INTEREST INCOME
Net interest income was $52.4 million for the fourth quarter of 2023, up from $51.0 million for the third quarter of 2023 and down from $57.3 million for the fourth quarter of 2022. Net interest margin was 2.82% for the fourth quarter of 2023, compared to 2.75% reported for the third quarter of 2023 and 3.02% reported for the fourth quarter of 2022. The increase in net interest income and net interest margin during the fourth quarter of this year compared to the third quarter of 2023 was primarily due to securities purchased in the second and third quarters of 2023 yielding higher interest rates compared to securities sold during the same periods. The increase in securities yields was partially offset by the reversal of $1.0 million of accrued interest during the fourth quarter related to loans that moved to nonaccrual status during the quarter, as described further below under the heading Asset Quality. The decreases in net interest income and net interest margin compared to the fourth quarter of last year were primarily attributable to increased interest costs on interest-bearing liabilities outpacing increased interest income on interest-earning assets due to the higher interest rate environment.
For the year ended December 31, 2023, net interest income was $209.5 million, down $20.8 million, or 9.0%, when compared to the same period in 2022.
Average loans for the quarter ended December 31, 2023, were up $101.5 million, or 1.9%, from the third quarter of 2023, and were up $277.0 million, or 5.3%, compared to the quarter ended December 31, 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 December 31, 2023, was 4.3%, which was up from 4.1% for the quarter ended September 30, 2023, and up from 3.6% for the quarter ended December 31, 2022.
Average total deposits for the fourth quarter of 2023 were up $58.4 million, or 0.9%, compared to the third quarter of 2023, while period-end balances were down $223.6 million compared to the third quarter of 2023 driven by seasonal deposit trends. Average deposits for the quarter were down $227.8 million, or 3.4%, compared to the same period in 2022. The decrease compared to the prior year was largely driven by inflation and persistent rate competition for deposits due to the current interest rate environment and tightening monetary policy. The cost of interest-bearing deposits increased to 2.04% for the fourth quarter of 2023, compared to 1.74% for the third quarter of 2023, and 0.69% for the fourth quarter of 2022. The cost of interest-bearing deposits for the fourth quarter of 2023 increased 135 basis points compared to the fourth quarter of 2022, and 123 basis points for the year ended December 31, 2023 compared to the same period in 2022. The ratio of average noninterest bearing deposits to average total deposits for the fourth quarter of 2023 was 29.6% compared to 31.0% for the third quarter of 2023, and 30.8% for the year ended December 31, 2023. The average cost of interest-bearing liabilities for the fourth quarter of 2023 of 2.25% represents an increase of 27 basis points over the third quarter of 2023, and an increase of 141 basis points over the same period in 2022.
NONINTEREST INCOME
Noninterest income of $18.9 million for the fourth quarter of 2023 was up 2.7% compared to the same period in 2022. The increase was mainly due to gains on securities transactions of $46,000 compared to losses on securities transactions of $455,000, and increases in fee-based revenues which include insurance commissions and fees, up $143,000, wealth management fees, up $181,000 and card services income, up $68,000.
Noninterest income for the year ended December 31, 2023, was $10.2 million, which represents a decrease in noninterest income of $67.7 million compared to the same period in 2022. The decrease in noninterest income was largely due to the previously noted sales of available-for-sale debt securities, mainly in the third quarter of 2023, which resulted in the recognition of a pre-tax loss of $70.0 million for the year ended December 31, 2023. Fee-based revenues, including insurance commissions and fees, wealth management fees, service charges on deposit accounts, and card services income, for the year ended December 31, 2023, were collectively up $1.0 million, or 1.4%, over the same period in 2022.
NONINTEREST EXPENSE
Noninterest expense was $51.3 million for the fourth quarter of 2023, which was up $1.1 million, or 2.2%, over the fourth quarter of 2022. The increases were mainly in premises and furniture and fixtures, up $799,000, and other operating expenses, up $1.7 million; partially offset by lower salaries and wages. The increase in premises and furniture and fixtures was mainly due to $720,000 of expenses related to branch closures. Contributing to the increase in other operating expenses were: FDIC expenses, up $723,000; technology, up $434,000; expenses related to the Company's retirement plans, up $428,000; charitable contributions and donations, up $315,000; and accrual for New York State minimum tax, up $207,000. Salaries and wages included $638,000 of personnel-related charges, which were more than offset by lower incentive-related accruals.
For the year-to-date period, noninterest expense of $203.3 million was up $7.5 million, or 3.9%, from the same period in 2022. The increase in noninterest expense for the year ended December 31, 2023, over the same period in 2022 was mainly in employee benefits and other noninterest expenses. The increase in employee benefits was mainly in health insurance, which was up $1.8 million. Salaries and wages were down as annual merit increases were offset by lower incentive-related accruals. Contributing to the increases in other expenses were the following: FDIC insurance, up $1.5 million; New York State minimum tax expense, up $830,000; professional fees, up $604,000; and charitable donations, up $317,000. Premises and furniture and fixtures expenses were up over the prior year mainly as a result of expenses related to branch closures of $879,000.
INCOME TAX EXPENSE
The provision for income tax expense of $3.1 million for an effective rate of 17.2% for the fourth quarter of 2023, compared to tax expense of $4.5 million and an effective rate of 18.6% for the same quarter in 2022. The fourth quarter of 2023 included the impact of surrendering certain separate account BOLI policies, which added $1.8 million to tax expense for the quarter. For the year-ended 2023, the provision for income tax expense of $2.5 million for an effective rate of 20.6% compared to tax expense of $24.6 million and an effective rate of 22.4% 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.
ASSET QUALITY
The allowance for credit losses represented 0.92% of total loans and leases at December 31, 2023, up from 0.91% at September 30, 2023, and up from 0.87% at December 31, 2022. The ratio of the allowance to total nonperforming loans and leases was 82.84% at December 31, 2023, compared to 156.96% at September 30, 2023, and 139.86% at December 31, 2022. The decrease in the ratio compared to prior periods was due to the increase in nonperforming loans and leases discussed in more detail below.
Provision for credit losses for the fourth quarter of 2023 was $1.8 million compared to $1.4 million for the same period in 2022. Provision for credit losses for the year ended December 31, 2023, was $4.3 million, compared to $2.8 million for the year ended December 31, 2022. The increase in provision expense for both the quarter and year-to-date periods was mainly driven by loan growth, economic forecasts, and changes in asset quality. Net charge-offs for the fourth quarter of 2023 were $410,000 compared to net charge-offs of $190,000 reported for the same period in 2022.
Nonperforming assets represented 0.80% of total assets at December 31, 2023, up from 0.41% reported at September 30, 2023, and 0.43% at December 31, 2022. At December 31, 2023, nonperforming loans and leases totaled $62.3 million, compared to $31.4 million at September 30, 2023, and $32.8 million at December 31, 2022. The increase in nonperforming loans at quarter-end December 31, 2023, was mainly due to the addition of one relationship with two commercial real estate properties in the hospitality portfolio totaling approximately $33.8 million. The Company believes that the existing collateral securing the loans is sufficient to cover the exposure as of December 31, 2023. These loans were included in loans past due 30-89 days and accruing at the end of the third quarter of 2023. Loans past due 30-89 days and accruing as a percentage of total loans decreased from 0.75% at the end of the third quarter of 2023 to 0.08% at the end of the fourth quarter of 2023.
Special Mention and Substandard loans and leases totaled $123.1 million at December 31, 2023, reflecting an increase from the $122.9 million reported at September 30, 2023, and $98.3 million reported at December 31, 2022.
CAPITAL POSITION
Capital ratios at December 31, 2023, remained well above the regulatory minimums for well-capitalized institutions. The ratio of total capital to risk-weighted assets was 13.36% at December 31, 2023, compared to 13.46% at September 30, 2023, and 14.42% at December 31, 2022. The ratio of Tier 1 capital to average assets was 9.08% at December 31, 2023, compared to 9.01% at September 30, 2023, and 9.34% at December 31, 2022.
LIQUIDITY POSITION
The Company's liquidity position at December 31, 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 $1.4 billion, or 18.3% of total assets as of December 31, 2023. As a member of the FHLB, the Company can use certain unencumbered mortgage-related assets and securities to secure borrowings from the FHLB. At December 31, 2023, the Company had an available borrowing capacity at the FHLB of $642 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 December 31, 2023, the available borrowing capacity with the Federal Reserve Bank was $92.6 million, secured by investment securities. In addition to the available borrowing lines at the FHLB and Federal Reserve Bank, at December 31, 2023, the Company maintained $687.0 million of unencumbered securities which could be pledged to further enhance secured borrowing capacity.
