Tompkins Financial Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. Financial statements are unaudited. Tompkins is a community-focused financial services company operating banking, insurance, and wealth management businesses, primarily in New York and Pennsylvania.
Financial performance
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Net interest income | $50.7 million | $54.2 million; down 6.6% |
| Noninterest income | $22.1 million | $20.4 million; up 8.5% |
| Total revenue (net interest income plus noninterest income) | $72.8 million | $74.6 million; down about 2.5% |
| Provision for credit losses | $854,000 expense | $825,000 credit |
| Noninterest expense | $49.9 million | $50.2 million; down 0.6% |
| Net income attributable to Tompkins | $16.9 million | $19.4 million |
| Diluted EPS | $1.18 | $1.35 |
| Net interest margin | 2.73% | 2.99%; 2.82% in Q4 2023 |
| Return on average assets / equity | 0.87% / 10.18% | 1.03% / 12.45% |
Noninterest expense was 68.5% of total revenue, versus 67.2% a year earlier. Income tax expense was $5.2 million, at an effective rate of 23.52%. Cash dividends were $0.60 per common share.
Financial position, funding and cash flow
- Total assets were $7.78 billion, down $41.7 million (0.5%) from year-end. Total loans and leases were $5.64 billion, up $34.6 million (0.6%).
- Deposits were $6.45 billion, up $49.8 million (0.8%) from year-end. Core deposits were $5.2 billion, or 80.1% of deposits, down from 81.1% at year-end.
- Other borrowings were $522.6 million, down $79.5 million (13.2%); this included $407.6 million of overnight and $115.0 million of term FHLB advances. Repurchase agreements were $43.7 million.
- Cash and cash equivalents were $57.1 million, down from $79.5 million. Reliable liquidity sources were 19.3% of assets, above the Board’s 6% policy floor. Available borrowing capacity was reported at $1.6 billion with the FHLB and $138.0 million with the Federal Reserve Bank; the company also had $579.6 million of unencumbered securities.
- Q1 operating cash flow was $23.2 million; investing cash flow used $0.3 million and financing activities used $45.3 million. Cash declined $22.4 million during the quarter.
- Total equity was $669.3 million. Regulatory capital ratios exceeded stated minimums and well-capitalized thresholds: total capital 13.43%, Tier 1 risk-based 12.45%, and Tier 1 leverage 9.08%.
Material changes and asset quality
- Higher funding costs were the principal pressure on earnings: interest expense more than doubled year over year, while net interest income and margin declined. Average interest-bearing liability costs rose 125 basis points year over year, compared with a 66-basis-point increase in earning-asset yield.
- Noninterest income grew, led by insurance commissions and wealth-management fees. Q1 also included a $255,000 card-services contract renewal bonus and a $135,000 building-sale gain in the insurance segment. Wealth-management assets managed or in custody were $3.2 billion, up from $3.1 billion a year earlier.
- The allowance for loan and lease losses was $51.7 million, or 0.92% of loans, essentially unchanged from year-end. Net charge-offs were $228,000, compared with net recoveries of $1.3 million in Q1 2023.
- Nonperforming loans and leases were $62.7 million, or 1.11% of loans, broadly unchanged from year-end but up from $28.4 million a year earlier. The increase versus Q1 2023 mainly reflects a commercial real estate relationship with two properties totaling approximately $33.8 million, added in Q4 2023. Management said collateral was sufficient to cover the exposure. The allowance covered 82.47% of nonperforming loans and leases.
- Commercial real estate made up $3.15 billion, or 55.8% of loans. Seventeen commercial relationships totaling $25.6 million were identified as potential problem loans; they remained performing.
- Available-for-sale securities had $150.9 million of gross unrealized losses at March 31, versus $141.2 million at year-end; held-to-maturity securities had $47.3 million of unrealized losses versus $44.9 million. Management attributed losses primarily to interest rates and liquidity, reported no Q1 credit impairment charge, and said it did not expect to be required to sell the securities before recovery of amortized cost. Accumulated other comprehensive loss increased to $134.8 million, largely reflecting securities valuation changes.
Outlook, risks and other notable items
The filing provides no formal earnings or revenue guidance. Management’s interest-rate simulation, based on February 29, 2024 assumptions, estimated that a parallel 200-basis-point rise would reduce one-year net interest income about 5.8%, while a 200-basis-point decline would increase it about 5.8%. The model assumes no balance-sheet growth, mix changes, or management action; actual results may differ. Its base case projected net interest income growth of approximately 12% year over year in the 12-to-24-month period. Management also reported a negative one-year net interest-rate gap of $799.5 million, indicating sensitivity to rising rates.
Key risks discussed include deposit and liquidity competition, interest-rate and funding-cost movements, credit quality—particularly commercial real estate—economic conditions in the company’s markets, securities valuation, regulation, cybersecurity, and the potential effects of inflation and geopolitical events. Management stated that it believes liquidity is sufficient and regulatory capital requirements are met. Pending legal matters were not expected to materially affect consolidated financial position, although a material impact on a particular future reporting period cannot be ruled out. No material changes to previously disclosed risk factors were reported.
Other notable items: the company adopted ASU 2023-02 for tax-credit investments, with no significant overall financial-statement effect and a $71,000 reduction to retained earnings on adoption. A branch closure resulted in $386,000 of occupancy and equipment costs. Disclosure controls were assessed as effective, with no material internal-control changes reported.
Important facts for investors to verify
- Whether deposit mix, deposit pricing and wholesale borrowing costs stabilize enough to support net interest margin and earnings.
- Developments in the $33.8 million CRE relationship, other nonperforming loans, and the $25.6 million potential-problem-loan portfolio.
- Changes in unrealized securities losses, liquidity sources, pledged collateral and the ability to avoid selling securities at a loss.
- Whether the modeled interest-rate sensitivity and projected 12-to-24-month net interest income trend remain valid as rates, funding mix and balance-sheet composition change.
- Effects of the expected loss of certain New York State tax benefits if average assets exceed the $8.0 billion threshold.