Tompkins Financial Corporation (NYSE American: TMP)

Tompkins Financial Corporation (the "Company") reported diluted earnings per share of $1.60 for the first quarter of 2022, down 7.0% from the diluted earnings per share of $1.72 reported in the first quarter of 2021. Reduced income from Paycheck Protection Program loans ("PPP loans") and a smaller recapture to the provision for credit losses in the current quarter were the primary contributors to the reduced earnings when compared to the same quarter last year. Net income for the first quarter of 2022 was $23.3 million, a decrease of 9.2% from $25.6 million for the same period in 2021.

Tompkins President and CEO, Stephen Romaine, commented, "On January 1, 2022 the Company consolidated the four banks under one charter and the banking affiliate in now know as Tompkins Community Bank. Results for the first quarter of 2022 included several favorable trends when compared to the most recent prior quarter and the same quarter last year. These included an improved net interest margin, higher fee-based revenue, and lower past due and nonperforming loan balances. Though net income for the first quarter of 2022 was below the same quarter last year, it exceeded the net income reported in each of the three most recent prior quarters."

SELECTED HIGHLIGHTS FOR THE PERIOD:

• Total loans at March 31, 2022 were $5.1 billion, down $12.0 million from December 31, 2021. The decrease was driven by a $47.2 million decline in PPP loans, compared to year-end 2021. Total loans, exclusive of PPP loan balances, were higher than the prior quarter for the third consecutive quarter.

• Provision for credit losses was a recapture of $520,000 for the first quarter of 2022, compared to a recapture of $1.8 million for the first quarter of 2021.

• Total nonperforming loans totaled $30.3 million, or 0.60% of total loans, at March 31,2022, compared to $31.2 million, or 0.61% of total loans, at December 31, 2021, and $47.7 million, or 0.90% of total loans, at March 31, 2021.

• Total deposits of $7.0 billion at March 31, 2022 were up $225.3 million, or 3.3%, over December 31, 2021 and up $70.2 million, or 1.0%, over March 31, 2021.

NET INTEREST INCOME

Net interest margin was 3.04% for the first quarter of 2022, compared to 3.01% reported for both the same period in 2021 and the fourth quarter of 2021.

Net interest income was $56.6 million for the first quarter of 2022, an increase of $1.6 million from $55.0 million for the same period in 2021. Net interest income for the current quarter included $2.0 million of net deferred loan fees associated with PPP loans, compared to net deferred loan fees of $2.8 million in the first quarter of 2021.

Net interest income for the first quarter of 2022 was down $1.2 million from the immediate prior quarter, driven by a decline in net deferred loan fees associated with PPP loans, which totaled $2.0 million in the current quarter, compared to net deferred loan fees of $3.2 million in the fourth quarter of 2021.

Average loans for the quarter ended March 31, 2022 were down $235.3 million, or 4.5%, compared to the same period in 2021. The decrease in average loans was mainly in commercial loans and driven by a decrease in average PPP loans. Asset yields for the quarter ended March 31, 2022 were down 8 basis points compared to the same period in 2021, and up 2 basis points compared to quarter ended December 31, 2021.

Average total deposits for the first quarter of 2022 were up $253.1 million, or 3.8% compared to the same period in 2021. Average noninterest bearing deposits for the quarter ended March 31, 2022 were up $159.2 million or 8.2% compared to the quarter ended March 31, 2021. For the first quarter of 2022, the average rate paid on interest-bearing deposits of 0.17%, was down 10 basis points from the same period in 2021. The total cost of interest-bearing liabilities of 0.21% for the first quarter of 2022, represented a decline of 17 basis points versus the same period in 2021.

NONINTEREST INCOME

Noninterest income of $20.0 million for the first quarter of 2022 was in line with the same period in 2021, and represented 26.1% of total revenues. For the first quarter of 2022, all service-related fee categories showed improvement when compared to the same period prior year: Insurance commissions and fees (up 1.7%), Investment services income (up 5.2%), Service charges on deposit accounts (up 21.0%), and Card services income (up 6.7%). Offsetting improved service related fees was a loss of $47,000 on securities transactions, compared to a gain of $317,000 in the first quarter of 2021, and lower gains on sales on residential loans that were down $425,000 compared to the same quarter in 2021.

NONINTEREST EXPENSE

Noninterest expense was $46.8 million for the first quarter of 2022, up $2.3 million or 5.2% from the first quarter of 2021. Salaries and employee benefits were up 3.3% compared to the same period in 2021, mainly due to normal annual merit increases and an increase in health insurance expense. Other expense for the first quarter of 2022 increased by 13.1%, with the increase mainly due to higher marketing expense and technology expense when compared to the quarter ended March 31, 2021.

INCOME TAX EXPENSE

The Company's effective tax rate was 23.1% for the first quarter of 2022, compared to 20.7% for the same period in 2021. The increase in the effective tax rate for the three months ended March 31, 2022, over the same period in 2021 is largely due to the anticipated loss of certain New York State tax benefits due to the expectation that average assets will exceed $8.0 billion for the 2022 tax year.

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 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 March 31, 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

Improved credit quality and improving macroeconomic trends contributed to a lower allowance for credit losses at March 31, 2022, when compared to March 31, 2021. The allowance for credit losses represented 0.83% of total loans and leases at March 31, 2022, down from 0.84% at December 31, 2021, and 0.93% at March 31, 2021. The ratio of the allowance to total nonperforming loans and leases was 139.20% at March 31, 2022, up from 137.51% at December 31, 2021 and 103.38% at March 31, 2021.

Provision for credit losses for the first quarter of 2022 was a credit of $520,000 compared to a credit of $1.8 million for the same period in 2021. Net recoveries for the quarter ended March 31, 2022 were $17,000 compared to net recoveries of $180,000 reported for the same period in 2021.

Nonperforming assets represented 0.38% as of March 31, 2022, down from 0.40% at December 31, 2021, and 0.59% at March 31, 2021. At March 31, 2022, nonperforming loans and leases totaled $30.3 million, compared to $31.2 million at December 31, 2021, and $47.7 million at March 31, 2021.

Special Mention and Substandard loans and leases totaled $135.1 million at March 31, 2022, reflecting improvement from $137.6 million at December 31, 2021, and $185.2 million at March 31, 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 show improvement.

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 March 31, 2022, total loans that continued in a deferral status amounted to approximately $2.6 million, representing 0.05% of total loans. At March 31, 2021 total loans in deferral status totaled $195.6 million.

The Company began accepting applications for PPP loans on April 3, 2020, and continued through the initial program end date in 2020. On January 19, 2021, the Company began accepting both first draw and second draw applications for the reopening of the PPP program. The 2021 PPP program funding closed for new applications on May 12, 2021. The Company funded a total of 5,140 applications totaling $694.1 million in 2020 and 2021.

Out of the $694.1 million of PPP loans that the Company funded, approximately $663.9 million have been forgiven by the SBA under the terms of the program as of March 31, 2022. Total net deferred fees on the remaining balance of PPP loans amounted to $1.0 million at March 31, 2022.

CAPITAL POSITION

Capital ratios at March 31, 2022 remained well above the regulatory minimums for well-capitalized institutions. The ratio of Total Capital to Risk-Weighted Assets was 14.23% at March 31, 2022, compared to 14.23% at December 31, 2021, and 14.62% at March 31, 2021. The ratio of Tier 1 capital to average assets was 8.89% at March 31, 2022, compared to 8.72% at December 31, 2021, and 8.89% at March 31, 2021.

During the first quarter of 2022, the Company repurchased 130,168 common shares at an aggregate cost of $10.4 million. These shares were purchased under the Company's Stock Repurchase Program announced in the third quarter of 2021.

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; the ongoing dynamic nature of the COVID-19 pandemic and the impact of COVID-19 (including governments’ responses thereto), including the development and proliferation of variants such as Delta and Omicron, on economic and financial markets, potential regulatory actions, and modifications to our operations, products, and services relating thereto; disruptions in our and our customers’ operations and loss of revenue due to pandemics, epidemics, widespread health emergencies, government-imposed travel/business restrictions, or outbreaks of infectious diseases such as the coronavirus, and the associated adverse impact on our financial position, liquidity, and our customers’ abilities to repay their obligations to us or willingness to obtain financial services products from the Company; the development of an interest rate environment that may adversely affect the Company’s interest rate spread, 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, Regulatory Relief, and Consumer Protection Act; legislative and regulatory changes in response to COVID-19 with which we and our subsidiaries must comply, including the CARES Act and the Consolidated Appropriations Act, 2021 and the rules and regulations promulgated thereunder, 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.

Tompkins Financial Corporation - Summary Financial Data (Unaudited)

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