Tompkins Financial Corporation reported diluted earnings per share of $1.61 for the fourth quarter of 2020, up 15.0% compared to $1.40 reported in the fourth quarter of 2019. Net income for the fourth quarter of 2020 was $24.0 million, a $2.9 million increase over net income reported for the same period in 2019.

For the fiscal year ended December 31, 2020, diluted earnings per share were $5.20, down 3.2% from 2019. 2020 net income was $77.6 million, down from $81.7 million, for 2019. Results for 2020 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, "2020 was a challenging year on many fronts, which makes it particularly rewarding that earnings for the fourth quarter reflect the best fourth quarter results in our Company's history. Favorable results were largely driven by improved net interest income, insurance commissions and wealth management fees, all of which were up from the fourth quarter of 2019. Despite the positive earnings trends for the quarter, our results for the full year were negatively impacted by the pandemic and related economic restrictions, which have continued to negatively impact customers. We continue to support our customers through our loan payment deferral program and funding of loans under the Paycheck Protection Program. At year end, we believe that we had adequately reserved for potential credit losses in the loan portfolio, though a great deal of uncertainty remains.”

SELECTED HIGHLIGHTS FOR THE YEAR-END 2020:

• Total loans of $5.3 billion at December 31, 2020 were up $342.8 million, or 7.0% over December 31, 2019. The increase over the prior year-end included an outstanding principle balance of $291.3 million of PPP loans that were funded during the second quarter of 2020.
• Total deposits of $6.4 billion was an increase of $1.2 billion, or 23.5% over December 31, 2019.
• The ratio of Total Capital to Risk-Weighted Assets improved to 14.39%, up from 14.26% at September 30, 2020, and 13.53% at December 31, 2019.

NET INTEREST INCOME

Net interest income was $57.8 million for the fourth quarter of 2020, compared to $53.2 million reported for the same period in 2019. For the full fiscal year, net interest income was $225.3 million, an increase of $14.7 million or 7.0% from 2019.

Average loans for the year ended December 31, 2020 were up $398.0 million, or 8.2% compared to 2019. The increase in average loans includes $465.6 million in loans originated under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") in the second quarter of 2020. Asset yields for the year ended December 31, 2020, were down 47 basis points compared to 2019, which reflects the impact of reductions in market interest rates in 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 5.7% from 2019) and commercial real estate (up 5.6% from 2019), also contributed to the growth in 2020 average loan balances.

Average total deposits for 2020 were up $1.0 billion, or 20.1% versus 2019. Average noninterest bearing deposits were up $349.9 million or 24.9% compared to 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. For 2020, the average rate paid on interest-bearing deposit products decreased by 38 basis points from 2019. The total cost of interest-bearing liabilities for 2020 declined by 52 basis points to 0.60% from 2019.

Net interest margin was 3.12% for the fourth quarter of 2020, down compared to the 3.44% reported for the fourth quarter of 2019, and 3.26% for the third quarter of 2020. The decline in net interest margin during the fourth quarter, when compared to the third quarter of 2020, was mainly due to a 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 net interest margin was partially offset by lower average funding costs.

As a result of its participation in the SBA's PPP, in the fourth quarter of 2020, the Company recorded net deferred loan fees of $4.5 million, which are included in interest income. For the fiscal year, net deferred loan fees from PPP loan originations were $9.2 million.

NONINTEREST INCOME

Noninterest income represented 24.6% of total revenues in the fourth quarter of 2020, compared to 25.2% in the same period in 2019. Noninterest income of $18.8 million for the fourth quarter of 2020 was up 4.8% compared to the same period in 2019. For the full fiscal year, noninterest income of $73.9 million was down 2.1% from 2019. Total fee based services for the year ended December 31, 2020 were $64.6 million, a decrease of 2.7% compared to 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.

NONINTEREST EXPENSE

Noninterest expense was $46.4 million for the fourth quarter of 2020, up $505,000, or 1.1%, over the fourth quarter of 2019. For the full fiscal year, noninterest expense was $185.4 million, up $3.5 million, or 2.0%, over 2019. The increase in noninterest expense for the year ended December 31, 2020 was primarily attributable to normal annual increases in salaries and wages, which were up $4.4 million or 3.9% over 2019.

INCOME TAX EXPENSE

The Company's effective tax rate was 20.4% for the fourth quarter of 2020, compared to 19.8% for the same period in 2019. The effective tax rate for the year ended December 31, 2020 was 20.4%, compared to 20.5% reported for 2019.

ASSET QUALITY

Provision for credit losses for the fourth quarter of 2020 was $6,000 compared to a negative $1.0 million for the same period in 2019. Provision expense for the year ended December 31, 2020 was $16.2 million, compared to $1.4 million for 2019. The first quarter of 2020 included provision expense of $16.3 million related to the impact of the economic conditions related to COVID-19 on economic forecasts and other model assumptions relied upon by management in determining the allowance. Net charge-offs for the fourth quarter of 2020 were $630,000 compared to net charge-offs of $479,000 reported in the fourth quarter of 2019.

The allowance for credit losses represented 0.98% of total loans and leases at December 31, 2020, up from 0.97% at September 30, 2020, and 0.81% at December 31, 2019. Nonperforming loans and leases totaled $45.8 million at December 31, 2020, compared to $33.8 million at September 30, 2020 and $31.4 million at December 31, 2019. The ratio of the allowance to total nonperforming loans and leases was 112.87% at December 31, 2020, down compared to 154.68% at September 30, 2020 and 126.90% at December 31, 2019. Nonperforming assets represented 0.60% of total assets at December 31, 2020, up from 0.44% at September 30, 2020, and up from 0.47% at December 31, 2019.

Special Mention loans totaled $121.3 million at the end of the fourth quarter of 2020, in line with the quarter ended September 30, 2020, and up compared to the $29.8 million reported for the fourth quarter of 2019. Total Substandard loans increased during the quarter to $68.6 million at December 31, 2020, compared to $45.4 million at September 30, 2020, and $60.5 million at December 31, 2019. The increases in nonperforming loans and leases and Substandard loans were mainly related to the downgrades of credit in the loan portfolio related to the hospitality industry. Included in the nonperforming and Substandard loans and leases are 17 loans totaling $17.8 million, that are currently in deferral status.

During 2020, overall credit quality was supported by several plans initiated by the Company in response to the COVID-19 pandemic. As previously announced, Tompkins 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 December were down 98.5% from peak levels the Company experienced in late March. As of December 31, 2020, total loans that continued in a deferral status amounted to approximately $212.2 million, representing 4.0% of total loans. Of loans that had come out of the deferral program as of December 31, 2020, about 94.4% had made at least one payment and only 0.13% were more than 30 days delinquent.

As previously noted, the Company participated in the PPP, which 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 when the initial program ended. As of December 31, 2020, approximately 1,484 PPP loans originated by the Company, totaling $244.0 million, had been submitted to the SBA for forgiveness under the terms of the PPP program, of which approximately 1,212 loans totaling $171.1 million had been forgiven by the SBA as of December 31, 2020.

Mr. Romaine added, "Our deferral program and our participation in the PPP program are examples of how Tompkins has remained committed to supporting our clients and communities during these challenging times. Through year end, we had supported approximately 6,800 customers with these programs. We are also pleased to be participating in the latest round of PPP financing and as of January 28, 2021 had submitted 1,007 PPP loan applications totaling $143.9 million to the SBA for approval."

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 14.39% at December 31, 2020, up from 14.26% at September 30, 2020, and 13.53% at December 31, 2019. The ratio of Tier 1 capital to average assets was 8.75% at December 31, 2020, compared to 8.85% at September 30, 2020, and 9.61% at December 31, 2019. The December 31, 2020 Tier 1 capital to average assets ratio was negatively impacted by balance sheet growth associated with the PPP loans originated in the second quarter of 2020.

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.