Tompkins Financial Corporation Reports Record First Quarter Earnings

Tompkins Financial Corporation (NYSE American: TMP)

Tompkins Financial Corporation reported net income of $21.0 million for the first quarter of 2019, an increase of 3.0% from the $20.4 million reported for the same period in 2018. Diluted earnings per share were $1.37 for the first quarter of 2019, a 3.0% increase from $1.33 reported for the first quarter of 2018.

President and CEO, Stephen S. Romaine said, “We are excited to start 2019 with the best first quarter in our Company's history. Growth in loans and deposits, higher fee income, and improved credit quality all contributed to the improved results in 2019. During the quarter we celebrated the grand opening of our office in Amherst, NY. This is our first office in the Buffalo market and provides banking, wealth management and insurance services."

Selected highlights for first quarter:

• Diluted earnings per share of $1.37 represent the best first quarter in Company history, and are up 3.0% over the same period in 2018
• Total loans of $4.8 billion were up 1.8% over the same period in 2018
• Total deposits of $5.0 billion reflect an increase of 1.2% over the same period last year
• Total nonperforming loans were down 8.9% compared to the same period last year, and down 13.6% from December 31, 2018
• Tangible book value per share is up 14.4% from the first quarter of 2018 and reflects the fifth consecutive quarterly increase

NET INTEREST INCOME

The net interest margin was 3.34% for the first quarter of 2019, flat compared to the fourth quarter of 2018, and is down from 3.42% for the first quarter of 2018. The net interest margin in the prior year benefited from reduced interest expense associated with accelerated accretion of purchase accounting related to certain acquired deposits.

Net interest income of $51.9 million for the first quarter of 2019 decreased by 1.5% compared to the same period in 2018, and was down 2.5% compared to the fourth quarter of 2018. The decrease in net interest income over prior year was mainly due to higher cost on interest-bearing deposits, which was largely driven by the higher market interest rate environment.

NONINTEREST INCOME

Noninterest income represented 27.2% of total revenues in the first quarter of 2019, compared to 25.3% in the same period in 2018, and 23.9% for the most recent prior quarter. Noninterest income of $19.4 million was up 8.8% compared to the same period last year, and down 2.3% compared to the fourth quarter of 2018. Insurance revenue was the largest contributor to noninterest income and reflected an increase of 8.8% over the same period last year. Noninterest income also included a one-time incentive payment of $500,000 (pre-tax) related to our card services business in the first quarter of 2019.

NONINTEREST EXPENSE

Noninterest expense was $44.2 million for the first quarter of 2019, which was up 1.1% from the same period in 2018, and down 6.4% compared to the fourth quarter of 2018. The increase in noninterest expense from the same period last year was mainly related to higher salaries and wages in the first quarter of 2019. The decline from the most recent prior quarter was primarily due to higher cost in the fourth quarter of 2018 for professional fees, primarily related to investments in strengthening the Company’s compliance and information security infrastructure.

INCOME TAX EXPENSE

The Company’s effective tax rate was 21.0% in the first quarter of 2019, compared to 22.0% for the same period in 2018.

ASSET QUALITY

Asset quality trends remained strong in the first quarter of 2019. Nonperforming assets represented 0.36% of total assets at March 31, 2019, down from 0.42% at December 31, 2018. Nonperforming asset levels continue to be below the most recent Federal Reserve Board Peer Group Average¹ of 0.59%.

Provision for loan and lease losses was $445,000 for the first quarter of 2019, down from $567,000 reported for the first quarter of 2018, and $1.6 million reported for the fourth quarter of 2018. Net charge-offs for the first quarter of 2019 were $3.5 million compared to $127,000 reported in the first quarter of 2018. The first quarter of 2019 included a write-down on one large credit in the commercial real estate portfolio, the credit did have an impairment reserve at December 31, 2018.

The Company’s allowance for originated loan and lease losses totaled $40.2 million at March 31, 2019, and represented 0.89% of total originated loans and leases at March 31, 2019, compared to 0.91% at March 31, 2018, and 0.95% at December 31, 2018. The total allowance coverage of nonperforming loans and leases increased to 175.50% at March 31, 2019, up from 159.34% at March 31, 2018, and 163.25% at December 31, 2018.

CAPITAL POSITION

Capital ratios remain well above the regulatory well capitalized minimums. The ratio of tangible common equity to tangible assets was 8.24% at March 31, 2019, improved from the 7.81% reported for the most recent prior quarter ended December 31, 2018, and 7.29% at March 31, 2018.

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.

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

This press release may include forward-looking statements with respect to revenue sources, growth, market risk, and corporate objectives. The Company assumes no duty, and specifically disclaims any obligation, to update forward-looking statements, and cautions that these statements are subject to numerous assumptions, risks, and uncertainties, all of which could change over time. Actual results could differ materially from forward-looking statements.

The statements made herein shall not confer upon any person any rights or remedies of any nature, and shall not be construed to establish, amend, or modify any benefit plan, program, agreement, or arrangement, nor to alter any existing at-will employment relationship between the Company and its employees.

TOMPKINS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except share and per share data)			As of					As of
ASSETS			03/31/2019					12/31/2018
Cash and noninterest bearing balances due from banks			$	68,531				$	78,524
Interest bearing balances due from banks			2,043					1,865
Cash and Cash Equivalents			70,574					80,389
Available-for-sale securities, at fair value (amortized cost of $1,359,102 at March 31, 2019 and $1,363,902 at December 31, 2018)			1,343,610					1,332,658
Held-to-maturity securities, at amortized cost (fair value of $140,422 at March 31, 2019 and $139,377 at December 31, 2018)			139,642					140,579
Equity securities, at fair value (amortized cost $1,000 at March 31, 2019 and $1,000 at December 31, 2018)			899					887
Originated loans and leases, net of unearned income and deferred costs and fees			4,532,803					4,568,741
Acquired loans			256,897					265,198
Less: Allowance for loan and lease losses			40,328					43,410
Net Loans and Leases			4,749,372					4,790,529
Federal Home Loan Bank and other stock			45,088					52,262
Bank premises and equipment, net			96,864					97,202
Corporate owned life insurance			82,571					81,928
Goodwill			92,283					92,283
Other intangible assets, net			7,266					7,628
Accrued interest and other assets			110,550					82,091
Total Assets			$	6,738,719				$	6,758,436
LIABILITIES
Deposits:
Interest bearing:
Checking, savings and money market			2,977,593					2,853,190
Time			661,712					637,295
Noninterest bearing			1,350,620					1,398,474
Total Deposits			4,989,925					4,888,959
Federal funds purchased and securities sold under agreements to repurchase			66,918					81,842
Other borrowings			923,427					1,076,075
Trust preferred debentures			16,906					16,863
Other liabilities			94,276					73,826
Total Liabilities			$	6,091,452				$	6,137,565
EQUITY
Tompkins Financial Corporation shareholders' equity:
Common Stock - par value $.10 per share: Authorized 25,000,000 shares; Issued: 15,349,988 at March 31, 2019; and 15,348,287 at December 31, 2018			1,535					1,535
Additional paid-in capital			367,245					366,595
Retained earnings			332,779					319,396
Accumulated other comprehensive loss			(50,950		)			(63,165		)
Treasury stock, at cost – 117,757 shares at March 31, 2019, and 122,227 shares at December 31, 2018			(4,786		)			(4,902		)
Total Tompkins Financial Corporation Shareholders’ Equity			645,823					619,459
Noncontrolling interests			1,444					1,412
Total Equity			$	647,267				$	620,871
Total Liabilities and Equity			$	6,738,719				$	6,758,436

TOMPKINS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except per share data) (Unaudited)			Three Months Ended
			03/31/2019				03/31/2018
INTEREST AND DIVIDEND INCOME
Loans			$	55,324			$	50,894
Due from banks			10				7
Available-for-sale securities			7,858				7,644
Held-to-maturity securities			858				858
Federal Home Loan Bank and other stock			878				737
Total Interest and Dividend Income			64,928				60,140
INTEREST EXPENSE
Time certificates of deposits of $250,000 or more			586				(14		)
Other deposits			6,011				2,783
Federal funds purchased and securities sold under agreements to repurchase			44				46
Trust preferred debentures			329				279
Other borrowings			6,044				4,359
Total Interest Expense			13,014				7,453
Net Interest Income			51,914				52,687
Less: Provision for loan and lease losses			445				567
Net Interest Income After Provision for Loan and Lease Losses			51,469				52,120
NONINTEREST INCOME
Insurance commissions and fees			8,045				7,394
Investment services income			4,084				4,246
Service charges on deposit accounts			1,998				2,132
Card services income			2,790				2,146
Other income			2,478				1,788
Net gain on securities transactions			12				124
Total Noninterest Income			19,407				17,830
NONINTEREST EXPENSE
Salaries and wages			21,101				20,998
Other employee benefits			5,611				5,376
Net occupancy expense of premises			3,601				3,646
Furniture and fixture expense			1,979				1,975
FDIC insurance			582				667
Amortization of intangible assets			412				451
Other operating expense			10,923				10,608
Total Noninterest Expenses			44,209				43,721
Income Before Income Tax Expense			26,667				26,229
Income Tax Expense			5,595				5,761
Net Income Attributable to Noncontrolling Interests and Tompkins Financial Corporation			21,072				20,468
Less: Net Income Attributable to Noncontrolling Interests			32				32
Net Income Attributable to Tompkins Financial Corporation			$	21,040			$	20,436
Basic Earnings Per Share			$	1.37			$	1.34
Diluted Earnings Per Share			$	1.37			$	1.33

Average Consolidated Statements of Condition and Net Interest Analysis (Unaudited)
				YTD Period Ended											YTD Period Ended
						March 31, 2019										March 31, 2018
						Average										Average
						Balance							Average			Balance							Average
(Dollar amounts in thousands)						(YTD)			Interest				Yield/ Rate			(YTD)			Interest				Yield/ Rate
ASSETS
Interest-earning assets
	Interest-bearing balances due from banks			$		2,334			$	10			1.74%		$	2,565			$	7			1.11%
	Securities (4)
		U.S. Government securities				1,409,305			8,172				2.35%			1,454,229			7,954				2.22%
		State and municipal (5)				94,609			626				2.68%			99,766			643				2.61%
		Other securities (5)				3,415			41				4.87%			3,571			35				3.97%
		Total securities				1,507,329			8,839				2.38%			1,557,566			8,632				2.25%
	FHLBNY and FRB stock					48,055			878				7.41%			49,509			737				6.04%
	Total loans and leases, net of unearned income (5)(6)					4,792,607			55,614				4.71%			4,688,087			51,229				4.43%
	Total interest-earning assets					6,350,325			65,341				4.17%			6,297,727			60,605				3.90%
Other assets						393,035										355,036
	Total assets			$		6,743,360									$	6,652,763
LIABILITIES & EQUITY
Deposits
	Interest-bearing deposits
		Interest bearing checking, savings & money market		$		2,940,416			4,470				0.62%		$	2,796,197			1,646				0.24%
		Time deposits				645,144			2,127				1.34%			717,617			1,123				0.63%
		Total interest-bearing deposits				3,585,560			6,597				0.75%			3,513,814			2,769				0.32%
Federal funds purchased & securities sold under
		agreements to repurchase				72,664			44				0.25%			75,167			46				0.25%
Other borrowings						993,773			6,044				2.47%			1,053,311			4,359				1.68%
Trust preferred debentures						16,878			329				7.90%			16,706			279				6.77%
	Total interest-bearing liabilities					4,668,875			13,014				1.13%			4,658,998			7,453				0.65%
Non-interest bearing deposits						1,338,623										1,351,307
Accrued expenses and other liabilities						105,131										67,495
	Total liabilities					6,112,629										6,077,800
Tompkins Financial Corporation Shareholders’ equity						629,305										573,536
Noncontrolling interest						1,426										1,427
	Total equity					630,731										574,963
	Total liabilities and equity			$		6,743,360									$	6,652,763
Interest rate spread													3.04%										3.25%
	Net interest income/margin on earning assets								52,327				3.34%						53,152				3.42%
Tax equivalent adjustments									(413)										(465)
	Net interest income per consolidated financial statements								$	51,914									$	52,687

Tompkins Financial Corporation - Summary Financial Data (Unaudited)

(In thousands, except per share data)
		Quarter-Ended															Year-Ended
Period End Balance Sheet		Mar-19			Dec-18			Sep-18				Jun-18			Mar-18			Dec-18
Securities		$	1,484,151		$	1,474,124			$1,452,788		$	1,483,991		$	1,510,795		$	1,474,124
Originated loans and leases, net of unearned income and deferred costs and fees (2)			4,532,803			4,568,741			4,531,241			4,507,006			4,408,081			4,568,741
Acquired loans and leases (3)			256,897			265,198			271,468			284,187			296,765			265,198
Allowance for loan and lease losses			40,328			43,410			41,358			41,225			40,211			43,410
Total assets			6,738,719			6,758,436			6,746,960			6,745,800			6,648,128			6,758,436
Total deposits			4,989,925			4,888,959			5,025,082			4,792,229			4,929,903			4,888,959
Federal funds purchased and securities sold under agreements to repurchase			66,918			81,842			52,875			52,042			69,131			81,842
Other borrowings			923,427			1,076,075			988,515			1,229,956			995,074			1,076,075
Trust preferred debentures			16,906			16,863			16,820			16,777			16,734			16,863
Total common equity			645,823			619,459			597,636			589,173			577,967			619,459
Total equity			647,267			620,871			599,144			590,649			579,411			620,871
Average Balance Sheet
Average earning assets		$	6,350,325		$	6,364,113		$	6,356,781		$	6,348,562		$	6,297,727		$	6,342,019
Average assets			6,743,360			6,710,944			6,716,452			6,689,649			6,652,763			6,692,678
Average interest-bearing liabilities			4,668,875			4,606,536			4,644,533			4,709,122			4,658,998			4,654,625
Average equity			630,731			606,238			597,211			584,951			574,963			590,944
Share data
Weighted average shares outstanding (basic)			15,060,175			15,057,673			15,047,405			15,038,061			15,013,478			15,039,229
Weighted average shares outstanding (diluted)			15,136,523			15,135,750			15,144,491			15,135,970			15,112,518			15,132,257
Period-end shares outstanding			15,314,078			15,312,377			15,277,915			15,278,430			15,285,335			15,312,377
Common equity book value per share		$	42.17		$	40.45		$	39.12		$	38.56		$	37.81		$	40.45
Tangible book value per share (Non-GAAP)		$	35.73		$	33.98		$	32.60		$	32.02		$	31.24		$	33.98
Income Statement
Net interest income		$	51,914		$	53,236		$	53,163		$	52,714		$	52,687		$	211,800
Provision for loan/lease losses			445			2,058			272			1,045			567			3,942
Noninterest income			19,407			19,858			18,603			21,158			17,830			77,449
Noninterest expense			44,209			47,228			45,133			44,985			43,721			181,067
Income tax expense			5,595			4,866			5,427			5,751			5,761			21,805
Net income attributable to Tompkins Financial Corporation			21,040			18,911			20,902			22,059			20,436			82,308
Noncontrolling interests			32			31			32			32			32			127
Basic earnings per share (8)		$	1.37		$	1.24		$	1.37		$	1.44		$	1.34		$	5.39
Diluted earnings per share (8)		$	1.37		$	1.23		$	1.36		$	1.43		$	1.33		$	5.35
Nonperforming Assets
Originated nonaccrual loans and leases		$	15,165		$	19,340		$	17,518		$	19,082		$	18,429		$	19,340
Acquired nonaccrual loans and leases			2,579			2,856			2,659			2,673			3,352			2,856
Originated loans and leases 90 days past due and accruing			0			0			0			0			0			0
Troubled debt restructurings not included above			5,234			4,395			4,295			4,324			3,455			4,395
Total nonperforming loans and leases			22,978			26,591			24,472			26,079			25,236			26,591
OREO			1,595			1,595			1,870			2,233			2,047			1,595
Total nonperforming assets		$	24,573		$	28,186		$	26,342		$	28,312		$	27,283		$	28,186

Tompkins Financial Corporation - Summary Financial Data (Unaudited) – continued

			Quarter-Ended																			Year-Ended
Delinquency - Originated loan and lease portfolio			Mar-19				Dec-18				Sep-18				Jun-18				Mar-18				Dec-18
Loans and leases 30-89 days past due and
accruing (2)		$	4,193			$	7,838			$	6,454			$	5,875			$	6,513			$	7,838
Loans and leases 90 days past due and accruing (2)			0				0				0				0				0				0
Total originated loans and leases past due and accruing (2)			4,193				7,838				6,454				5,875				6,513				7,838
Delinquency - Acquired loan and lease portfolio
Loans 30-89 days past due and accruing (3)(7)		$	474			$	67			$	1,109			$	1,108			$	823			$	67
Loans 90 days or more past due			1,218				1,316				1,420				1,110				1,077				1,316
Total acquired loans and leases past due and accruing			1,692				1,383				2,529				2,218				1,900				1,383
Total loans and leases past due and accruing		$	5,885			$	9,221			$	8,983			$	8,093			$	8,413			$	9,221
Allowance for Loan Losses - Originated loan and lease portfolio
Balance at beginning of period		$	43,321			$	41,289			$	41,111			$	40,107			$	39,686			$	39,686
Provision for loan and lease losses			480				2,046				208				1,035				608				3,897
Net loan and lease (recoveries) charge-offs			3,556				14				30				31				187				262
Allowance for loan and lease losses (originated
loan portfolio) - balance at end of period		$	40,245			$	43,321			$	41,289			$	41,111			$	40,107			$	43,321
Allowance for Loan Losses - Acquired loan and lease portfolio
Balance at beginning of period		$	89			$	69			$	114			$	104			$	85			$	85
Provision (credit) for loan and lease losses			(35	)			12				64				10				(41	)			45
Net loan and lease (recoveries) charge-offs			(29	)			(8	)			109				0				(60	)			41
Allowance for loan and lease losses (acquired
loan portfolio) - balance at end of period			83				89				69				114				104				89
Total allowance for loan and lease losses			40,328			$	43,410			$	41,358			$	41,225			$	40,211			$	43,410
Loan Classification - Originated Portfolio
Special Mention		$	33,689			$	28,074			$	34,245			$	44,068			$	34,546			$	28,074
Substandard			35,895				43,963				49,597				41,572				35,746				43,963
Loan Classification - Acquired Portfolio
Special Mention			270				452				465				469				476				452
Substandard			2,830				2,914				3,041				3,180				3,468				2,914
Loan Classifications – Total Portfolio
Special Mention			33,959				28,526				34,710				44,537				35,022				28,526
Substandard			2,830				2,914				3,041				3,180				3,468				2,914
Ratio Analysis
Credit Quality
Nonperforming loans and leases/total loans and leases (7)			0.48%				0.55%				0.51%				0.54%				0.54%				0.55%
Nonperforming assets/total assets			0.36%				0.42%				0.39%				0.42%				0.41%				0.42%
Allowance for originated loan and lease losses/total originated loans and leases			0.89%				0.95%				0.91%				0.91%				0.91%				0.95%
Allowance/nonperforming loans and leases			175.51%				163.25%				169.00%				158.11%				159.34%				163.25%
Net loan and lease losses annualized/total average loans and leases			0.30%				0.00%				0.01%				0.00%				0.01%				0.01%

Tompkins Financial Corporation - Summary Financial Data (Unaudited) - continued

													Year-Ended
Capital Adequacy (period-end)			Mar-19		Dec-18		Sep-18		Jun-18		Mar-18		Dec-18
Tangible common equity/tangible assets			8.24%		7.81%		7.49%		7.36%		7.29%		7.81%
Profitability
Return on average assets *			1.27%		1.12%		1.23%		1.32%		1.25%		1.23%
Return on average equity *			13.53%		12.38%		13.89%		15.13%		14.41%		13.93%
Net interest margin (TE) *			3.34%		3.34%		3.35%		3.36%		3.42%		3.37%
* Quarterly ratios have been annualized

Non-GAAP Measures

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP). Where non-GAAP disclosures are used in this press release, the comparable GAAP measure, as well as reconciliation to the comparable GAAP measure, is provided in the accompanying tables. Management believes that these non-GAAP measures provide useful information. Non-GAAP measures should not be considered a substitute for financial measures determined in accordance with GAAP and investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. See "Tompkins Financial Corporation - Summary Financial Data (Unaudited)" tables for Non-GAAP related calculations.

Non-GAAP Disclosure - Adjusted Diluted Earnings Per Share
			Quarter-Ended														Year-Ended
			Mar-19			Dec-18			Sep-18			Jun-18			Mar-18			Dec-18
Net income available to common shareholders		$	21,040		$	18,911		$	20,902		$	22,059		$	20,436		$	82,308
Income attributable to unvested stock-based compensation awards			349			291			318			359			347			1,315
Net earnings allocated to common shareholders			20,691			18,620			20,584			21,700			20,089			80,993
Remeasurement of net deferred taxes			0			0			0			0			0			0
Gain on sale of real estate, net of tax			0			0			0			2,227			0			2,227
Write-down of impaired leases, net of tax			0			0			(388)			(1,527)			0			(1,915)
Net income (Non-GAAP)			20,691			18,620			20,972			21,000			20,089			80,681
Weighted average shares outstanding (diluted)		15,136,523			15,135,750			15,144,491			15,135,970			15,112,518			15,132,257
Adjusted diluted earnings per share (Non-GAAP)		$	1.37		$	1.23		$	1.38		$	1.39		$	1.33		$	5.33
Non-GAAP Disclosure - Tangible Book Value Per Share
Total common equity		$	645,823		$	619,459		$	597,636		$	589,173		$	577,967		$	619,459
Less: Goodwill and intangibles (9)			98,694			99,106			99,543			99,983			100,436			99,106
Tangible common equity			547,129			520,353			498,093			489,190			477,531			520,353
Ending shares outstanding		15,314,078			15,312,377			15,277,915			15,278,430			15,285,335			15,312,377
Tangible book value per share (Non-GAAP)		$	35.73		$	33.98		$	32.60		$	32.02		$	31.24		$	33.98

(1) Federal Reserve peer ratio as of December 31, 2018, includes banks and bank holding companies with consolidated assets between $3 billion and $10 billion.
(2) "Originated" equals loans and leases not included by definition in "acquired loans".
(3) "Acquired Loans and Leases" equals loans and leases acquired at fair value, accounted for in accordance with FASB ASC Topic 805.
(4) Average balances and yields on available-for-sale securities are based on historical amortized cost.
(5) Interest income includes the tax effects of taxable-equivalent basis.
(6) Nonaccrual loans are included in the average asset totals presented above. Payments received on nonaccrual loans have been recognized as disclosed in Note 1 of the Company's consolidated financial statements included in Part I of the Company's annual report on Form 10-K for the fiscal year ended December 31, 2018.
(7) Certain acquired loans and leases that are past due are not on nonaccrual and are not included in nonperforming loans. The risk of credit loss on these loans has been considered by virtue of the Corporation's estimate of acquisition-date fair value and these loans are considered accruing as the Corporation primarily recognizes interest income through accretion of the difference between the carrying value of these loans and their expected cash flows.
(8)Earnings per share year-to-date may not equal the sum of the quarterly earnings per share as a result of rounding of average shares
(9) "Goodwill and intangibles" equal Total Intangible Assets less Mortgage Servicing Rights in the above tables.

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