Tompkins Financial Corporation (NYSE American: TMP)

Tompkins Financial Corporation reported diluted earnings per share of $1.45 for the second quarter of 2022, down 5.8% from $1.54 per share in the second quarter of 2021. Net income for the second quarter of 2022 was $20.9 million, down $2.0 million or 8.6% when compared to the $22.8 million reported for the same period in 2021. The decline in net income from the prior year was primarily attributable to a $3.9 million pretax variance in provision for credit losses, which was an expense of $856,000 in 2022, versus a credit of $3.1 million in 2021.

For the year-to-date period ended June 30, 2022, diluted earnings per share were $3.05, down 6.4% from $3.26 for the same year-to-date period in 2021. Year-to-date net income was $44.1 million for the six month period ended June 30, 2022, down $4.3 million or 8.9%, when compared to $48.5 million for the same period in 2021. Similar to the quarterly results, the year-to-date net income variance was primarily attributable to the provision for credit losses, which was an expense of $336,000 in 2022, versus a credit of $4.9 million in 2021, resulting in a pretax variance of $5.2 million.

Tompkins President and CEO Stephen Romaine commented, "Results for the second quarter of 2022 included several favorable trends when compared to the most recent prior quarter, including an improved net interest margin, increased loan balances, and higher revenue. Notably, revenue was up 4.8% from the same quarter last year despite a $1.0 million decline in net deferred loan fees associated with Paycheck Protection Program ("PPP") Loans, as outstanding balances in the SBA administered program continue to decline."

SELECTED HIGHLIGHTS FOR THE PERIOD:

• Total loans at June 30, 2022 were $5.2 billion, up $99.1 million over the immediate prior quarter, reflecting an annualized increase of 7.8% from March 31, 2022.
• PPP loan balances were $3.5 million at June 30, 2022, reflecting a decline of $20.6 million from March 31, 2022. Total loans, exclusive of PPP loan balances, were up approximately 9.7% annualized over March 2022.
• Net interest margin improved to 3.09% for the second quarter of 2022, compared to 3.04% for the first quarter of 2022, and 2.91% for the same period in 2021.
• Nonperforming asset levels declined for the third consecutive quarter and the ratio of nonperforming loans as a percentage of total loans dropped to 0.57%, compared to 0.60% of total loans at March 31, 2022, and 0.61% at December 31, 2021.
• Total revenue for the second quarter of 2022 increased by 4.8% from the same quarter last year, and grew at annualized rate of 3.2% from the first quarter of 2022.

NET INTEREST INCOME

Net interest income was $58.3 million for the second quarter of 2022, up from $56.6 million for the most recent prior quarter, with the improvement largely driven by growth in total loans and higher yields on earning assets. Net interest income for the second quarter of 2022 was up $3.4 million, or 6.2% from the same period in 2021. Net interest income for the current quarter included $873,000 of net deferred loan fees associated with PPP loans, down from net deferred loan fees of $2.0 million for the quarter ended March 31, 2022, and $1.9 million in the second quarter of 2021.

For the year-to-date period ended June 30, 2022, net interest income was $114.9 million, up $5.0 million or 4.5% compared to the year-to-date period ended June 30, 2021. For the year-to-date period in 2022, net deferred loan fees associated with PPP loans were approximately $2.9 million, down from $4.7 million in the same period of 2021.

Average loans for the quarter ended June 30, 2022 were down $155.3 million, or 3.0%, compared to the same period in 2021. The decrease in average loans was mainly in commercial loans and driven by a decrease in PPP loans from $259.0 million for the quarter ended June 30, 2021, compared to $4.0 million in the current quarter. Asset yields for the quarter ended June 30, 2022 were up 5 basis points compared to the same period in 2021.

Average total deposits for the second quarter of 2022 were down $91.3 million, or 1.4% compared to the same period in 2021. Average noninterest bearing deposits for the quarter ended June 30, 2022 were up $107.0 million or 5.1% compared to the quarter ended June 30, 2021. For the second quarter of 2022, the average rate paid on interest-bearing deposits of 0.18% was down 6 basis points from the same period in 2021 and up 1 basis point from the first quarter of 2022. The total cost of interest-bearing liabilities of 0.22% for the second quarter of 2022, represented a decline of 18 basis points versus the same period in 2021, and an increase of 1 basis point over the first quarter of 2022.

NONINTEREST INCOME

Noninterest income of $18.9 million for the second quarter of 2022 and $38.9 million for the year-to-date period were both up slightly from the same periods in 2021. For the second quarter of 2022, total service-related fee categories were up $547,000 or 3.2% over the same quarter prior year, mainly driven by growth in insurance commissions and fees, and service charges on deposit accounts, which were partially offset by lower investment services income. The decline in investment services income is mainly a result of market conditions. Other income was down from the same quarter last year, driven by reduced income on bank owned life insurance and lower gains on sales on residential loans.

NONINTEREST EXPENSE

Noninterest expense was $49.1 million for the second quarter of 2022, up $1.7 million or 3.5% from the second quarter of 2021. For the year-to-date period, noninterest expense of $96.0 million was up $4.0 million or 4.4% from the same period in 2021. The increase in noninterest expense in the second quarter of 2022 over the same quarter last year was mainly in other expense, which was up $2.3 million or 21.4%, and included increases in marketing , technology, legal expense, printing and supplies, and cardholder expense. Contributing to the growth in these expenses for the three months ended and year-to-date period ended June 30, 2022, were one-time expenses of $956,000 and $1.2 million, respectively, related to the consolidation of the Company's four banking charters into one charter, including the related conversion of the core banking system, which was completed in May of this year.

INCOME TAX EXPENSE

The Company's effective tax rate was 23.3% for the second quarter of 2022, compared to 22.3% for the same period in 2021. The effective tax rate for the six months ended June 30, 2022 was 23.1%, compared to 21.3% reported for the same period in 2021. The increase in the effective tax rate for the three and six months ended June 30, 2022, over the same periods in 2021 is largely due to the anticipated loss of certain New York State tax benefits.

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 the benefit is that the consolidated company has qualified average assets of no more than $8.0 billion for the taxable year. The Company expects average assets to exceed the $8.0 billion threshold for the 2022 tax year. As of June 30, 2022, the Company's consolidated average assets, as defined by New York tax law, were slightly under the $8.0 billion threshold. The Company will continue to monitor the consolidated average assets during 2022 to determine future eligibility.

ASSET QUALITY

The allowance for credit losses represented 0.85% of total loans and leases at June 30, 2022, up from 0.83% at March 31, 2022 and down from 0.92% at June 30, 2021. The allowance coverage as a percentage of nonperforming loans and leases improved to 147.95% at June 30, 2022, compared to 139.2% at March 31, 2022 and 88.31% at June 30, 2021.

The provision for credit losses for the second quarter of 2022 was an expense of $856,000, compared to a credit of $3.1 million for the same period in 2021. Provision for credit losses for the six months ended June 30, 2022 was an expense of $336,000, compared to a credit of $4.9 million for the same period in 2021. The increase in provision for credit losses for both the three and six month periods is mainly driven by current economic forecasts coupled with loan growth.

Nonperforming assets represented 0.38% as of June 30, 2022, down from 0.40% at December 31, 2021, and 0.67% at June 30, 2021. At June 30, 2022, nonperforming loans and leases totaled $29.6 million, compared to $31.2 million at December 31, 2021, and $53.8 million at June 30, 2021.

Special Mention and Substandard loans and leases totaled $115.0 million at June 30, 2022, reflecting improvement from $137.6 million at December 31, 2021, and $171.3 million at June 30, 2021. The decrease in Special Mention and Substandard loans, compared to the same period prior year, was mainly due to improved asset quality in the hospitality industry as occupancy rates continue to increase.

As previously announced, the Company implemented a payment deferral program in 2020 to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19. As of June 30, 2022, total loans that continued in a deferral status amounted to approximately $1.8 million, representing 0.04% of total loans compared to 2.5% at June 30, 2021. At June 30, 2021, total loans in deferral status totaled $129.4 million.

The Company funded a total of 5,140 applications for PPP loans totaling $694.1 million in 2020 and 2021. Out of the $694.1 million of PPP loans that the Company funded, approximately $690.8 million have been forgiven by the SBA under the terms of the program as of June 30, 2022, or paid back by the borrower. As of June 30, 2022, there were twenty outstanding PPP loans totaling approximately $3.3 million. Total net deferred fees on the remaining balance of PPP loans amounted to $106,000 at June 30, 2022.

CAPITAL POSITION

Capital ratios at June 30, 2022 remained well above the regulatory minimums for well-capitalized institutions. The ratio of Total Capital to Risk-Weighted Assets was 14.07% at June 30, 2022, compared to 14.23% at December 31, 2021, and 14.62% at June 30, 2021. The ratio of Tier 1 capital to average assets was 9.02% at June 30, 2022, compared to 8.72% at December 31, 2021, and 8.79% at June 30, 2021.

During the second quarter of 2022, the Company repurchased 49,629 common shares at an aggregate cost of $3.8 million. These shares were purchased under the Company's Stock Repurchase Program announced in the third quarter of 2021. For the six month period ended June 30, 2022, the Company repurchased 179,797 common shares at an aggregate cost of $14.1 million.

ABOUT TOMPKINS FINANCIAL CORPORATION

Tompkins Financial Corporation is a banking and financial services company serving the Central, Western, and Hudson Valley regions of New York and the Southeastern region of Pennsylvania. Headquartered in Ithaca, NY, Tompkins Financial is parent to Tompkins Community Bank and Tompkins Insurance Agencies, Inc., and offers wealth management services through Tompkins Financial Advisors. For more information on Tompkins Financial, visit www.tompkinsfinancial.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Forward-looking statements may be identified by use of such words as "may", "will", "estimate", "intend", "continue", "believe", "expect", "plan", or "anticipate", and other similar words. Forward-looking statements are made based on management’s expectations and beliefs concerning future events impacting the Company and are subject to certain uncertainties and factors relating to the Company’s operations and economic environment, all of which are difficult to predict and many of which are beyond the control of the Company, that could cause actual results of the Company to differ materially from those expressed and/or implied by forward-looking statements. The following factors, in addition to those listed as Risk Factors in Item 1A of our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission, are among those that could cause actual results to differ materially from the forward-looking statements; changes in general economic, market and regulatory conditions; estimated GDP growth and inflation trends; the ongoing dynamic nature of the COVID-19 pandemic and its impact; the impact of the interest rate and inflationary environment on the Company's business, financial condition and results of operations; other income or cash flow anticipated from the Company’s operations, investment and/or lending activities; changes in laws and regulations affecting banks, bank holding companies and/or financial holding companies, such as the Dodd-Frank Act, Basel III and the Economic Growth, and state and local government mandates; technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; governmental and public policy changes, including environmental regulation; reliance on large customers; uncertainties arising from national and global events such as the war in the Ukraine, including the potential impact of widespread protests, civil unrest, and political uncertainty on the economy and the financial services industry; and financial resources in the amounts, at the times and on the terms required to support the Company’s future businesses. The Company does not undertake any obligation to update its forward-looking statements.

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