Tompkins Financial Corporation reported record 2018 full year diluted earnings per share of $5.35, an increase of 56.0% compared to the $3.43 per share reported for the period ending December 31, 2017. For the fourth quarter of 2018, diluted earnings per share of $1.23 were up from the $0.16 per share reported in the same quarter last year.
As more fully disclosed in the Non-GAAP disclosure tables included in this press release, it is helpful to view comparisons to prior periods on an adjusted basis to exclude the impact of certain significant non-recurring items. Most notably, earnings per share and net income in the fourth quarter and year-to-date periods of 2017 were impacted by a one-time non-cash write-down of net deferred tax assets in the amount of $14.9 million as a result of the Tax Cuts and Jobs Act of 2017. On an adjusted basis, year-to-date diluted earnings per share for 2018 would have been $5.33, an increase of 20.6% over the adjusted diluted earnings per share of $4.42 reported for the year ending December 31, 2017. For the fourth quarter of 2018, adjusted diluted earnings per share of $1.23 reflecting an increase of 7.0% over the $1.15 adjusted diluted earnings per share reported in the same quarter last year. Refer to Non-GAAP Disclosure tables for additional details.
Due to changes in the Federal tax rates between periods, it is also helpful to view the current period and prior period earnings performance on a pre-tax basis. Income before tax expense was $104.2 million for the year ended December 31, 2018, and $23.8 million in the fourth quarter of 2018, reflecting an increase of 9.4% and 13.5%, respectively, over the same periods in 2017.
President and CEO, Stephen S. Romaine said “We are pleased to once again report record earnings for both the full year and quarterly periods. The results are especially rewarding in today’s environment of uncertain economic conditions. During the quarter, our net interest margin remained relatively stable as growth in average noninterest-bearing deposits helped soften the impact of rising market interest rates. Our diversified revenue sources have served us well in volatile markets, as fees from insurance, wealth management, and banking related services provide a revenue mix that is less dependent on interest rates. During 2018, each of these fee-based business lines reflected growth over the prior year."
SELECTED HIGHLIGHTS FOR YEAR AND FOURTH QUARTER:
- Return on equity was 13.93% for the year ended December 31, 2018, compared to 9.09% for the full year ended December 31, 2017.
- Net interest income for the fourth quarter of 2018 increased over the third quarter of 2018, which represents the 15th consecutive quarterly increase in net interest income.
- Net interest income for the full year was up 5.2% over 2017.
- Total loans of $4.8 billion at December 31, 2018, were up 3.5% over December 31, 2017, while total deposits of $4.9 billion were up 1.1% from the prior year-end.
- Nonperforming assets remain near historically low levels and compare favorably to our industry peers, with nonperforming assets representing 0.42% of total assets at year-end 2018, compared to 0.38% at year-end 2017.
NET INTEREST INCOME
Net interest income of $53.2 million for the fourth quarter of 2018 was up 2.4% over the same period in 2017. For the full year, net interest income was $211.8 million, up $10.5 million, or 5.2% from the same period in 2017.
Growth in net interest income for the year ended December 31, 2018, was largely driven by $356.4 million of growth in average loans during the year, an increase of 8.1% over the prior period. Average deposits for the year ended December 31, 2018, increased $89.7 million, or 1.9% compared to the same period in 2017. Included in the growth of average deposits during 2018 was a $103.5 million increase in average noninterest-bearing deposits, up 8.1% from the prior year average.
Net interest margin for 2018 was 3.37%, down slightly from the 3.41% reported for 2017. The decline in margin during the year was largely due to increases in market interest rates, which has resulted in funding costs rising at a faster pace than asset yields.
Noninterest income represented 26.8% of total revenues in 2018, compared to 25.6% in 2017. For the full year, noninterest income of $77.4 million was up $8.2 million, or 11.9%, when compared to 2017. Noninterest income was $19.9 million for the fourth quarter of 2018 and was up $2.5 million or 14.7% compared to the same period in 2017. Fee income business related to investment services, service charges on deposit accounts, and card services income all contributed to the increase over the fourth quarter of 2017. Declines in the stock market during the fourth quarter of 2018 resulted in lower investment services fees tied to assets under management, though the impact was offset by higher than normal fees associated with trust and estate activities.
Other income in the fourth quarter of 2018 included $2.5 million related to the collection of fees and nonaccrual interest for a credit that was charged off in 2010. Other income for the full year included a $2.9 million gain on the sale of two properties. The sale of these properties was related to the move of the Company’s headquarters in the second quarter of 2018.
Noninterest expense was $47.2 million for the fourth quarter of 2018, up $0.9 million, or 2.0%, over the fourth quarter of 2017. For the full year of 2018, noninterest expense was $181.1 million, up $10.0 million, or 5.8%, from the same period in 2017. Noninterest expense increases for both the full year and fourth quarter of 2018 included normal annual increases in salaries and wages. The higher noninterest expense in 2018 included lease write-downs of $2.0 million in the second quarter and $514,000 in the third quarter related to leases on recently vacated space. Results for the quarter and full year periods also include an increase of $1.5 million and $2.8 million, respectively, in 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 20.9% for the year ended December 31, 2018, compared to 44.8% for the same period in 2017. The decrease is a direct result of the $14.9 million non-cash write-down of net deferred tax assets recorded in the fourth quarter of 2017, which was caused by the decline in the Federal statutory tax rate from 35% in 2017, to 21% in 2018 as a result of the Tax Cuts and Jobs Act of 2017.
Asset quality trends remained strong in the fourth quarter of 2018. Nonperforming assets represented 0.42% of total assets at December 31, 2018, compared to 0.38% at December 31, 2017. Nonperforming asset levels continue to compare favorably to the most recent Federal Reserve Board Peer Group Average1 of 0.61%.
Provision for loan and lease losses was $2.1 million for the fourth quarter of 2018, compared to $2.0 million for the fourth quarter of 2017. Net charge-offs for the fourth quarter of 2018 were $6,000 compared to net charge-offs of $281,000 in the fourth quarter of 2017.
The Company’s allowance for originated loan and lease losses totaled $43.3 million at December 31, 2018, and represented 0.95% of total originated loans and leases at December 31, 2018. At December 31, 2017, the allowance was $39.7 million and represented 0.91% of total originated loans and leases. Contributing to the $2.1 million increase in the allowance over the level reported at September 30, 2018, was an impairment reserve related to a single credit that was downgraded during the fourth quarter of 2018. The total allowance represented 163.25% of total nonperforming loans and leases at December 31, 2018, compared to 172.84% at December 31, 2017.
Capital ratios remain well above the regulatory well capitalized minimums. The ratio of tangible common equity to tangible assets was 7.81% at December 31, 2018, improved from the 7.49% reported at September 30, 2018, and the 7.24% reported at December 31, 2017.