Press Release:
Tompkins Financial Corporation ("Tompkins" or the "Company") reported diluted earnings per share of $1.18 for the first quarter of 2024, up 12.4% compared to the immediate prior quarter, and down 12.6% from diluted earnings per share of $1.35 reported in the first quarter of 2023.
Net income for the first quarter of 2024 was $16.9 million, up 12.5% compared to the immediate prior quarter, and down 13.0% from the $19.4 million reported for the same period in 2023. The decrease in net income from the first quarter of 2023 was mainly a result of lower net interest income, driven by increased funding costs and increased provision for credit loss expense. Decreases in net income were partially offset by growth in fee-based revenues and lower operating expenses year-over-year.
Tompkins President and CEO, Stephen Romaine, commented, "In the first quarter we saw positive earnings momentum and continue to be well positioned with strong capital and liquidity. For the quarter we saw continued loan growth with a year-over-year increase of 7.0%, moderation in deposit cost increases, and 8.5% growth in noninterest income. We remain focused on noninterest expenses, which were lower in the first quarter compared to prior year. As the industry challenges continue in light of the current economic environment, we plan to leverage the strength of our balance sheet and drive growth through quality customer relationships."
SELECTED HIGHLIGHTS FOR THE PERIOD:
- Net interest margin for the first quarter of 2024 was 2.73%, compared to 2.82% for the fourth quarter of 2023, and 2.99% for the first quarter of 2023.
- Average cost of deposits were up 11 basis points compared to the fourth quarter 2023, down from a 23 basis point increase from the third quarter to the fourth quarter 2023.
- Fee-based services (insurance, wealth management, service charges on deposit accounts and cards) revenues for the first quarter of 2024 were up $3.1 million or 18.4% compared to the fourth quarter of 2023, and $1.5 million or 8.1% over the first quarter of 2023.
- Total operating expenses of $49.9 million for the first quarter of 2024 were down $1.4 million or 2.8% compared to the compared to the fourth quarter of 2023, and $301,000 or 0.6% from the first quarter of 2023.
- Total loans at March 31 were up $34.6 million, or 0.6% (2.5% on an annualized basis), compared to the immediate prior quarter, and up $366.9 million, or 7.0%, from March 31, 2023.
- Total deposits at March 31 were $6.4 billion, up $49.8 million, or 0.8% (3.1% on an annualized basis), from December 31, 2023, and down $59.4 million, or 0.9%, from March 31, 2023.
- Loan to deposit ratio was 87.5%, compared to 87.6% for the immediate prior quarter.
- Regulatory Tier 1 capital to average assets was 9.08% at March 31 unchanged from December 31, 2023, and down compared to 9.63% at March 31, 2023.
NET INTEREST INCOME
Net interest income was $50.7 million for the first quarter of 2024, down from $52.4 million for the fourth quarter of 2023, and $54.2 million for the first quarter of 2023. Net interest income for the quarter ended March 31 was impacted by increases in interest expense, which totaled $32.5 million for the first quarter of 2024 compared to $15.0 million for the same period in 2023, partially offset by increased interest and dividend income, which increased by $13.9 million when compared to the first quarter of 2023.
Net interest margin was 2.73% for the first quarter of 2024, compared to 2.82% reported for the fourth quarter of 2023, and 2.99% for the first quarter of 2023. The decrease in margin from the fourth quarter of 2023 was due to higher funding costs, driven by market rates and higher borrowings due to seasonal deposit changes outpacing increases on interest earning asset yields and growth in average loan balances.
Average loans for the quarter ended March 31 were up $134.9 million, or 2.5%, from the fourth quarter of 2023, and were up $370.3 million, or 7.1%, compared to the quarter ended March 31, 2023. 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 March 31 was 4.47%, which was up from 4.34% for the quarter ended December 31, 2023, and up from 3.81% for the quarter ended March 31, 2023.
Average total deposits for the first quarter of 2024 were down $123.9 million, or 1.9%, compared to the fourth quarter of 2023, while period end balances were up $49.8 million or 0.8% compared to the fourth quarter of 2023 driven by seasonal deposit trends. Average deposits for the quarter were down $206.8 million, or 3.1%, compared to the same period in 2023. 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 of 2.17% for the first quarter of 2024, was up 13 basis points from 2.04% for the fourth quarter of 2023, and up 107 basis points from 1.10% for the first quarter of 2023. The ratio of average noninterest bearing deposits to average total deposits for the first quarter of 2024 was 28.8% compared to 29.6% for the fourth quarter of 2023, and 31.4% for the quarter ended March 31, 2023. The average cost of interest-bearing liabilities for the first quarter of 2024 of 2.51% represents an increase of 26 basis points over the fourth quarter of 2023, and an increase of 125 basis points over the same period in 2023.
NONINTEREST INCOME
Noninterest income of $22.1 million for the first quarter of 2024 was up $1.7 million or 8.5% compared to the same period in 2023. The increase was mainly due to increases in fee-based revenues which included insurance commissions and fees, up $750,000, wealth management fees, up $428,000 and card services income, up $257,000. Noninterest income represented 30.4% of total revenue at March 31, compared to 26.5% at December 31, 2023, and 27.3% at March 31, 2023.
NONINTEREST EXPENSE
Noninterest expense was $49.9 million for the first quarter of 2024, which was down $301,000 or 0.6% compared to the first quarter of 2023. The decrease was mainly driven by lower other expenses (legal fees, marketing expense, and travel and meeting expense) and lower salaries, wages and other employee benefits in the first quarter of 2024 compared to the same period in 2023.
INCOME TAX EXPENSE
The provision for income tax expense of $5.2 million for an effective rate of 23.5% for the first quarter of 2024, compared to tax expense of $3.1 million and an effective rate of 17.2% for the fourth quarter of 2023, and $5.9 million and an effective rate of 23.3% for the same quarter in 2023.
ASSET QUALITY
The allowance for credit losses represented 0.92% of total loans and leases at March 31, in line with December 31, 2023, and up from 0.87% at March 31, 2023. The ratio of the allowance to total nonperforming loans and leases was 82.47% at March 31, compared to 82.84% at December 31, 2023 and 162.11% at March 31, 2023. The decrease in the ratio compared to the same prior year period was due to the increase in nonperforming loans and leases discussed in more detail below.
Provision for credit losses for the first quarter of 2024 was $854,000 compared to a credit of $825,000 for the same period in 2023. The increase in provision expense for the first quarter of 2024 was mainly driven by increased off-balance sheet exposures related to growth in commercial loan pipeline, loan growth, and changes in asset quality. The provision credit in the first quarter of 2023 was largely driven by significant net recoveries. Net charge-offs for the first quarter of 2024 were $228,000 compared to net recoveries of $1.3 million reported for the same period in 2023.
Nonperforming assets represented 0.81% of total assets at March 31, up from 0.80% reported at December 31, 2023 and 0.37% at March 31, 2023. At March 31 nonperforming loans and leases totaled $62.7 million, compared to $62.3 million at December 31, 2023 and $28.4 million at March 31, 2023. The increase in nonperforming loans at March 31 compared to the same period in 2023, was mainly due to the addition of one relationship with two commercial real estate properties totaling approximately $33.8 million included in the office space and mixed use properties portion of the commercial real estate portfolio during the fourth quarter of 2023. The Company believes that the existing collateral securing the loans is sufficient to cover the exposure as of March 31.
Special Mention and Substandard loans and leases totaled $118.7 million at March 31, compared to $123.1 million reported at December 31, 2023, and $85.6 million reported at March 31, 2023.
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 13.43% at March 31, compared to 13.36% at December 31, 2023, and 14.62% at March 31, 2023. The ratio of Tier 1 capital to average assets was 9.08% at March 31, unchanged from the most recent prior quarter, and down compared to 9.63% at March 31, 2023.
LIQUIDITY POSITION
The Company's liquidity position at March 31 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 $1.5 billion, or 19.3% of total assets at March 31. As a member 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 $773.4 million. Through various programs at the Federal Reserve Bank, the Company has the ability to use certain loans 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 $138 million, secured by loans. In addition to the available borrowing lines at the FHLB and Federal Reserve Bank, at March 31, the Company maintained $579.6 million of unencumbered securities which could be pledged to further enhance secured borrowing capacity.
