ITHACA, NY - Tompkins Financial Corporation (NYSE American: TMP)

Tompkins Financial Corporation reported diluted earnings per share of $1.63 for the third quarter of 2020, up 21.6% compared to $1.34 reported in the third quarter of 2019. Net income for the third quarter of 2020 was $24.2 million, an increase over the $20.2 million reported for the same period in 2019.

For the year-to-date period ended September 30, 2020, diluted earnings per share were $3.59, down 9.6% from the same period in 2019. Year-to-date net income was $53.6 million, down from $60.6 million, for the same period in 2019. Results for the 2020 year-to-date period were negatively impacted by economic stress resulting from the COVID-19 pandemic, which contributed to the $16.3 million provision for credit losses recognized during the first quarter of 2020.

President and CEO, Mr. Stephen Romaine commented, "We are pleased to report record earnings per share in the third quarter of 2020. When compared to the second quarter of 2020, we saw higher levels of net interest income and noninterest income, while expenses remained relatively stable. We are encouraged by these favorable trends, though the impact of the pandemic-related economic shut down continues to leave much uncertainty, especially in terms of the longer term credit outlook. While we have several customers who continue to be negatively impacted by the current economic environment, our nonperforming assets as a percentage of total assets were lower at September 30, 2020 than they were at the same time last year. We have also seen a declining trend of customers who are in a deferred payment status.”

SELECTED HIGHLIGHTS FOR THE THIRD QUARTER:

• Total loans of $5.4 billion were up $541.2 million, or 11.1% over September 30, 2019. The increase over the prior period included $465.6 million of PPP loans funded during the second quarter of 2020.
• Total deposits of $6.6 billion increased by $1.2 billion, or 22.9% over September 30, 2019.

The ratio of Total Capital to Risk-Weighted Assets improved to 14.26%, up from 13.95% at June 30, 2020, and 13.53% at December 31, 2019.

NET INTEREST INCOME 

Net interest income was $58.3 million for the third quarter of 2020, compared to $53.2 million reported for the third quarter of 2019. For the year-to-date period, net interest income was $167.6 million, an increase of $10.2 million or 6.5% from the same nine-month period in 2019.

Net interest income benefited from growth in average loans and average deposits. Average loans were up $381.6 million, or 7.9% in the nine months ended September 30, 2020, compared to the same nine month period in 2019. The increase in average loans includes the benefit of $465.6 million of loans originated under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") in the second quarter of 2020. Asset yields were down 36 basis points compared to the first nine months of 2019, which reflects the impact of reductions in market interest rates during the first nine months of 2020, and the addition of the lower yielding PPP loans originated in the second quarter. While PPP loans were a significant contributor to average loan growth for the year, increases in residential real estate loans (up 5.8% from 2019) and commercial real estate (up 6.0% from 2019), also contributed to the growth in year-to-date average loan balances.

Average total deposits were up $937.4 million, or 18.7% in the first nine months of 2020, versus the same period in 2019. Average noninterest deposits were up $318.9 million or 23.1% in the first nine months of 2020, compared to the same period in 2019. Average deposit balances benefited from $465.6 million of PPP loan originations during the second quarter of 2020, the majority of which were deposited in Tompkins checking accounts. The average rate paid on interest-bearing deposit products in the first nine months of 2020 decreased by 32 basis points from the same period in 2019. The total cost of interest-bearing liabilities declined by 49 basis points to 0.66% from the same period last year.

Net interest margin was 3.26% for the third quarter of 2020, down compared to the 3.43% reported for the third quarter of 2019, and 3.45% for the second quarter of 2020. The decline in net interest margin during the third quarter, when compared to the second quarter of 2020, was driven in part by a shift from noninterest-bearing cash balances to interest-bearing cash balances and securities. This shift from noninterest-bearing balances to earning assets resulted in an increase in interest income during the third quarter of 2020, but a 15 basis point decline in net interest margin, when compared to the immediate prior quarter. Net interest margin for the quarter was also negatively impacted by lower rates on interest earning assets, which were partially offset by lower funding costs.

As a result of its participation in the SBA's PPP, in the third quarter the Company recorded net deferred loan fees of $2.4 million, which are included in interest income. For the year-to-date period, net deferred loan fees from PPP loan originations were $4.8 million.

NONINTEREST INCOME 

Noninterest income represented 24.7% of total revenues in the first nine months of 2020, as compared to 26.7% in the same period in 2019. Noninterest income of $18.9 million for the third quarter of 2020 was down 3.3% compared to the same period in 2019. For the year-to-date period, noninterest income of $55.0 million was down 4.2% from the same period in 2019. Total fee based services in the third quarter of 2020 were $17.1 million, down 2.1% compared to the same period in 2019. The reduction in fee based income in 2020, when compared to 2019, is largely related to the pandemic-related travel and business restrictions, which reduced card services fees and service charges on deposit accounts. It is noteworthy that card services fees and deposit fees in the third quarter of 2020 were up over the second quarter of 2020, by 6.0% and 15.7% respectively.

NONINTEREST EXPENSE

Noninterest expense was $46.3 million for the third quarter of 2020, up $694,000, or 1.5%, over the third quarter of 2019. For the year-to-date period, noninterest expense was $139.0 million, up $3.0 million, or 2.2%, from the same period in 2019. The increase in noninterest expense for both the third quarter and year-to-date periods was primarily attributable to normal annual increases in salaries and wages. Other expense for the third quarter and year-to-date periods of 2020 included a credit of $417,000 and an expense of $1.3 million, respectively, related to the allowance for credit losses for off-balance sheet exposures.

INCOME TAX EXPENSE

The Company's effective tax rate was 20.7% for the third quarter of 2020, compared to 21.3% for the same period in 2019. The effective tax rate for the nine months ended September 30, 2020 was 20.4%, compared to 20.7% reported for the same period in 2019.

ASSET QUALITY

Provision for credit losses in the third quarter of 2020 was $199,000 compared to $1.3 million for the same period in 2019. Provision expense for the nine months ended September 30, 2020 was $16.1 million, compared to $2.4 million for the same period in 2019. The first quarter of 2020 included provision expense of $16.3 million related to the impact of the economic shutdown related to COVID-19 on economic forecasts and other model assumptions relied upon by management in determining the allowance. Net recoveries for the third quarter of 2020 were $12,000 compared to net charge-offs of $739,000 reported in the third quarter of 2019.

The allowance for credit losses represented 0.97% of total loans and leases at September 30, 2020, up from 0.96% at June 30, 2020, 0.81% at December 31, 2019, and 0.85% at September 30, 2019. The ratio of the allowance to total nonperforming loans and leases was 154.68% at September 30, 2020, improved from 126.90% at December 31, 2019, and 137.46% at September 30, 2019.

Nonperforming assets represented 0.44% of total assets at September 30, 2020, down from 0.47% at December 31, 2019. Nonperforming asset levels continue to be below the most recent Federal Reserve Board Peer Group Average1 of 0.58%.

Despite relatively stable trends in nonperforming assets and other delinquency, some customers have experienced continued cash flow stress related to the pandemic related shut-down, resulting in an increase in loans rated as Special Mention. Total Special Mention loans totaled $122.7 million at the end of the third quarter, up from $44.7 million at June 30, 2020. Even so, the more severely rated Substandard credits declined during the quarter to $45.4 million at September 30, 2020, down from $48.0 million at June 30, 2020.

Overall credit quality has been supported by several initiatives initiated by the Company in response to the pandemic. As previously announced, Tompkins has initiated and participated in a number of credit initiatives to support customers who have been impacted by the economic conditions associated with the COVID-19 pandemic. The Company implemented a payment deferral program to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19. Weekly deferral requests for the month of September were down 96.8% from peak levels the Company experienced in late March. As of September 30, 2020, total loans that continue in a deferral status amounted to approximately $120.0 million, representing 2.2% of total loans. Of loans that have come out of the deferral program as of September 30, 2020, about 85.0% had made a payment and 0.18% were more than 30 days delinquent.

As previously noted, the Company participated in the U.S. Small Business Administration (SBA) Paycheck Protection Program (“PPP”). This program provides borrower guarantees for lenders, as well as loan forgiveness incentives for borrowers that utilize the loan proceeds to cover employee compensation-related expenses and certain other eligible business operating costs, all in accordance with the rules and regulations established by the SBA. The Company began accepting applications for PPP loans on April 3, 2020, and had funded approximately 2,998 loans totaling about $465.6 million as of September 30, 2020. As of September 30, 2020 approximately 295 loans totaling $51.9 million have been submitted to the SBA for forgiveness under the terms of the PPP program.

CAPITAL POSITION

Capital ratios remained well above the regulatory minimums for well capitalized institutions. The ratio of Total Capital to Risk-Weighted Assets improved to 14.26% at September 30, 2020, up from 13.95% at June 30, 2020, and 13.53% at December 31, 2019. The ratio of Tier 1 capital to average assets was 8.85% at September 30, 2020, up from 8.79% at June 30, 2020, and down from 9.61% at December 31, 2019. The current period Tier 1 capital to average assets was negatively impacted by balance sheet growth associated with the PPP loans originated in the second quarter of 2020. In April of this year, the Company announced that it had temporarily suspended its share repurchase program. Management has not yet determined when it will resume repurchases under the share repurchase program. Any such decision will be based on, among other factors, the Company's financial and capital position.

ABOUT TOMPKINS FINANCIAL CORPORATION

Tompkins Financial Corporation is a 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 Trust Company, Tompkins Bank of Castile, Tompkins Mahopac Bank, Tompkins VIST Bank, Tompkins Insurance Agencies, Inc., and offers wealth management services through Tompkins Financial Advisors. For more information on Tompkins Financial, visit www.tompkinsfinancial.com.