Tompkins Financial Corporation (NYSE American: TMP)

For the year ended December 31, 2021 Tompkins Financial Corporation (the "Company") reported record diluted earnings per share of $6.05, up 16.4% from December 31, 2020. Net income for 2021 was $89.3 million, an increase of $11.7 million compared to the same period in 2020. Results for 2020 included a $16.8 million provision for credit losses recognized in the first quarter reflecting economic stress due to the COVID-19 pandemic.

The Company reported diluted earnings per share of $1.33 for the fourth quarter of 2021, down 17.4% compared to $1.61 reported in the fourth quarter of 2020. Net income for the fourth quarter of 2021 was $19.5 million, a $4.5 million decrease when compared to the same period in 2020.

Tompkins President and CEO, Stephen Romaine, commented, "We are pleased to report record earnings for the year ended December 31, 2021. Earnings per share for the quarter were down from the same period last year largely due to higher provision for credit losses in the current period, which included the charge-off of a commercial real estate relationship that was heavily impacted by pandemic related economic shut downs. Despite the loss recognized during the quarter, other credit quality metrics showed improvement from the most recent prior quarter, including reductions in nonperforming loans and loans in deferral status."

SELECTED HIGHLIGHTS FOR THE PERIOD:

• Total loans at December 31, 2021 were $5.1 billion compared to $5.3 billion at year-end 2020, which was driven by a decline of $220.0 million in loans under the U.S. Small Business Administration's Paycheck Protection Program ("PPP") at year-end 2021 compared to year-end 2020. Total loans, exclusive of PPP loan balances, were up for the second consecutive quarter.
• Total nonperforming loans at December 31, 2021, declined by $14.6 million compared to December 31, 2020, while the ratio of total nonperforming loans and leases to total loans and leases dropped to 0.61% at year-end 2021 compared to 0.87% at year-end 2020.
• Total noninterest-bearing deposits at December 31, 2021, were up 10.7% compared to December 31, 2020 and represented 31.5% of total deposits as of December 31, 2021.
• Total revenue of $302.6 million for the year ended December 31, 2021, was up 1.2% over the same period last year, benefiting from growth in fee income business lines including insurance, wealth management, and card services.

NET INTEREST INCOME

Net interest income was $57.8 million for both the fourth quarter of 2021 and 2020. Net interest income was $223.8 million for year-to-date 2021, down from $225.3 million reported for the same period in 2020. Net interest income in 2021 included a $1.9 million purchase accounting charge related to the redemption of $15.2 million in trust preferred securities.

Average loans for the year ended December 31, 2021 were in line with average loans for the year ended December 31, 2020. Average loan yields for the year ended December 31, 2021, were down 22 basis points compared to 2020, which reflects the impact of reductions in market interest rates in 2021 and 2020.

Average total deposits for 2021 were up $735.3 million, or 12.0% compared to 2020. Average noninterest bearing deposits for 2021 were up $343.3 million or 19.6% compared to 2020. Average deposit balances benefited from PPP loan originations, the proceeds of which were primarily deposited in Tompkins checking accounts. For 2021, the average rate paid on interest-bearing deposit products decreased by 23 basis points from 2020. The total cost of interest-bearing liabilities for 2021 declined by 25 basis points to 0.35% from 2020.

Net interest margin was 3.01% for the fourth quarter of 2021, up compared to the 2.89% reported for the third quarter of 2021, and down compared to the 3.12% reported for the fourth quarter of 2020. The improvement in fourth quarter 2021 net interest margin compared to the third quarter of 2021 was mainly due to a $1.9 million decrease in wholesale funding costs, driven largely by the redemption of $10.0 million of trust preferred securities and the prepayment of $135.0 million of FHLB borrowings in the third quarter of 2021. The redemption of the trust preferred securities resulted in a $1.2 million purchase accounting charge in the third quarter of 2021. The decline in fourth quarter net interest margin, when compared to the fourth quarter of 2020, was mainly due to a 27 basis point decrease in overall asset yields. The decrease in average asset yields was due to lower securities yields as well as a slight shift in the composition of average earning assets, with a greater mix of lower yielding securities and interest bearing balances, and a decrease in average loan balances reflecting lower PPP loan balances. The decrease in average asset yields was partially offset by lower average funding costs.

NONINTEREST INCOME

Noninterest income represented 24.9% of total revenues in the fourth quarter of 2021, compared to 24.6% in the same period in 2020. Noninterest income of $19.2 million for the fourth quarter of 2021 was up 1.7% compared to the same period in 2020. For the full year, noninterest income of $78.8 million was up 6.8% from 2020. When compared to prior year, 2021 insurance revenue was up $3.3 million, or 10.6%, and benefited from new business growth and rising premium rates for commercial and personal lines policies. Investment services experienced revenue growth of $1.9 million, or 10.7%, benefiting from successful business development efforts as well as increased fees tied to asset values in existing accounts. Card services income was up $1.6 million, or 16.9%, and is largely driven by customer spending activities that have increased with improved economic conditions as pandemic restrictions have eased.

NONINTEREST EXPENSE

Noninterest expense was $48.2 million for the fourth quarter of 2021, up $1.5 million, or 3.3%, over the fourth quarter of 2020. For the full fiscal year, noninterest expense was $190.3 million, up $6.0 million, or 3.2%, over 2020. The year-to-date period in 2021 includes $2.9 million in penalties related to the prepayment of $135.0 million in FHLB fixed rate advances. Also contributing to the increase in noninterest expense for the year ended December 31, 2021 were normal annual increases in salaries and wages, which were up $3.5 million or 3.8% over 2020.

INCOME TAX EXPENSE

The Company's effective tax rate was 21.7% for the fourth quarter of 2021, compared to 20.4% for the same period in 2020. The effective tax rate for the year ended December 31, 2021 was 22.0%, compared to 20.4% reported for 2020. The increase in the effective tax rate for the three months and year ended December 31, 2021 over the same periods in 2020 was due to a higher level of taxable income to total income.

ASSET QUALITY

Improved credit quality and improving macroeconomic trends contributed to a lower allowance for credit losses at December 31, 2021 when compared to December 31, 2020. The allowance for credit losses represented 0.84% of total loans and leases at December 31, 2021, down from 0.91% at September 30, 2021, and 0.98% at December 31, 2020. The ratio of the allowance to total nonperforming loans and leases was 137.49% at December 31, 2021, up compared to 76.15% at September 30, 2021 and 112.87% at December 31, 2020.

The provision for credit loss expense for the fourth quarter of 2021 was $3.9 million compared to a credit of $205,000 for the same period in 2020. Provision expense for the year ended December 31, 2021 was a credit of $2.2 million, compared to an expense of $17.2 million for 2020. The provision for credit losses in 2020 included a provision expense of $16.8 million in the first quarter related to the impact of the economic condition related to COVID-19. Net charge-offs for the fourth quarter of 2021 were $7.0 million compared to net charge-offs of $630,000 reported in the fourth quarter of 2020. The fourth quarter of 2021 included a $7.0 million charge-off of a commercial real estate relationship that had previously been reported in nonperforming loans.

Nonperforming assets represented 0.40% as of December 31, 2021, down from 0.75% at September 30, 2021, and 0.60% at December 31, 2020. At December 31, 2021 nonperforming loans and leases totaled $31.2 million, compared to $60.7 million at September 30, 2021, and $45.8 million at December 31, 2020.

Special Mention and Substandard loans and leases totaled $137.6 million at December 31, 2021, reflecting improvement from $168.5 million at September 30, 2021, and $189.9 million at December 31, 2020.

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 December 31, 2021, total loans that continued in a deferral status amounted to approximately $4.5 million, representing 0.09% of total loans. At December 31, 2020 total loans in deferral status totaled $212.2 million.

The Company began accepting applications for PPP loans on April 3, 2020, and had funded 2,998 loans totaling approximately $465.6 million when the initial program ended. 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 2,142 applications totaling $228.5 million in 2021.

Out of the aggregate $694.1 million of PPP loans that the Company funded, approximately $620.2 million have been forgiven by the SBA under the terms of the program as of December 31, 2021. Total net deferred fees on the remaining balance of PPP loans amounted to $3.0 million at December 31, 2021.

CAPITAL POSITION

Capital ratios at December 31, 2021 remained well above the regulatory minimums for well-capitalized institutions. The ratio of Total Capital to Risk-Weighted Assets was 14.23% at December 31, 2021, compared to 14.21% at September 30, 2021, and 14.39% at December 31, 2020. The ratio of Tier 1 capital to average assets was 8.72% at December 31, 2021, compared to 8.54% at September 30, 2021, and 8.75% at December 31, 2020.

During the fourth quarter of 2021, the Company repurchased 32,203 common shares at an aggregate cost of $2.6 million. These shares were purchased under the Company's Stock Repurchase Program announced in the third quarter of 2021. During 2021, the Company repurchased 304,513 shares at an aggregate cost of $23.8 million.

Mr. Romaine added, "We are excited to report that effective January 1, 2022, our four community banks were combined into a single charter. Though we expect the change to be largely transparent to our customers, it will allow us to better leverage the Tompkins brand in all of our markets. We also anticipate some operating efficiencies from the change and we will be better able to leverage product and technology enhancements for the benefit of customers across our footprint. The combined bank will conduct business under the “Tompkins” brand name, with a legal name of “Tompkins Community Bank."

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, 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, 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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