Tompkins Financial Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY2021. The filing is an annual report, not a standalone Q4 earnings report. Tompkins is a community-focused financial services company operating in New York and Pennsylvania across banking, insurance and wealth management. Effective January 1, 2022, its four banking subsidiaries merged into Tompkins Community Bank.
Financial performance and condition
| Metric | FY2022 / year-end | Prior comparable period |
|---|---|---|
| Net income attributable to Tompkins | $85.0 million | $89.3 million in 2021; down 4.7% |
| Diluted EPS | $5.89 | $6.05 in 2021; down 2.6% |
| Total revenue (net interest income plus noninterest income) | $308.3 million | $302.6 million in 2021 |
| Net interest income / net interest margin | $230.3 million / 3.05% tax-equivalent margin | $223.8 million / 2.96% in 2021 |
| Noninterest income / expense | $78.0 million / $195.8 million | $78.8 million / $190.3 million in 2021 |
| Cash flow from operating activities | $103.3 million | $121.2 million in 2021 |
| Total assets | $7.67 billion | $7.82 billion at year-end 2021 |
| Loans and deposits | $5.27 billion / $6.60 billion | Loans up 3.8%; deposits down 2.8% year over year |
| Borrowings | $347.6 million, including $291.3 million in other borrowings and $56.3 million in repurchase agreements | About $190.8 million combined at year-end 2021 |
| Shareholders’ equity | $617.4 million | $728.9 million at year-end 2021 |
Revenue growth reflected higher interest income and a 9 basis-point increase in annual net interest margin, partly offset by higher funding costs and lower PPP loan fees. The efficiency ratio, reported as noninterest expense divided by total revenue, was 63.5%, versus 62.9% in 2021. Return on average assets was 1.09% (1.12% in 2021); return on average equity was 13.25% (12.32% in 2021).
Net cash increased by $14.7 million to $77.8 million. Financing activities used $80.2 million of cash, including $33.6 million of dividends and $15.4 million of stock repurchases. The company reported reliable liquidity sources equal to 21.6% of assets, against a board policy minimum of 6%, and $1.3 billion of unused established FHLB borrowing capacity. Regulatory capital ratios exceeded minimums for well-capitalized status; the bank’s CET1 ratio was 12.7% and total capital ratio was 13.6%.
Material changes and notable items
- Commercial real estate loans increased 7.5% to $2.85 billion and represented 54.2% of loans; commercial and commercial real estate lending together were 69.2% of the loan portfolio.
- Core deposits declined 3.5%. Higher-rate alternatives and tighter monetary policy contributed to deposit outflows; FHLB borrowings rose as deposits fell and lending grew.
- The available-for-sale securities portfolio had $236.8 million of gross unrealized losses at year-end, versus $32.9 million a year earlier, primarily reflecting rising interest rates. Accumulated other comprehensive loss reached $208.7 million, contributing materially to the decline in equity. Management said it did not intend to sell the remaining securities and did not expect to be required to sell before recovery of amortized cost.
- In Q4, Tompkins sold $147.9 million of available-for-sale securities, recording an $11.9 million pretax loss, and sold its Visa Class B shares for an $11.4 million pretax gain. Proceeds were used to reduce overnight FHLB borrowings.
- Credit provision shifted to a $2.8 million expense in 2022 from a $2.2 million credit in 2021. The allowance was $45.9 million, or 0.87% of loans. Nonperforming loans were 0.62% of loans, versus 0.61% in 2021; net recoveries were $592,000.
- Wealth management net income fell 40.8% to $3.0 million, principally due to lower market-related advisory revenue and higher technology costs. Insurance net income rose 4.6% to $6.5 million.
- Noninterest expense rose 2.9%; costs included $1.2 million of nonrecurring bank charter consolidation and core-system conversion expenses. FY2021 included $2.9 million of penalties on prepaid FHLB advances and a $1.9 million purchase-accounting charge tied to trust preferred securities redemption.
Outlook, risks and contingencies
The filing provides no specific earnings, revenue, margin or loan-growth guidance. Management described the base-case interest-rate simulation as showing a slightly increasing net interest margin over the next 12–18 months, but cautioned that actual outcomes may differ. A 200-basis-point rate increase was modeled to reduce one-year net interest income by approximately 4.0%; a 200-basis-point decrease was modeled to increase it by 1.9%. The company’s negative one-year interest-rate gap indicates moderate near-term sensitivity to rising rates.
Management cited weakening GDP forecasts and deteriorating unemployment forecasts in its credit-loss assessment, while noting improved conditions in some pandemic-affected portfolios. Key risks include commercial real estate concentration and borrower cash flow, local economic conditions, interest-rate and securities valuation exposure, deposit competition and liquidity access, cybersecurity and third-party service providers, regulatory changes, and potential climate-related impacts. The company said pending or threatened litigation was not expected to materially affect consolidated financial position, while acknowledging a particular-period operating-results impact cannot be ruled out. Off-balance-sheet loan commitments, unused credit lines and standby letters of credit totaled $1.17 billion; these are contractual maximums, not expected funding needs.
The filing reports unqualified audit opinions on the financial statements and internal control over financial reporting. No material changes to internal controls were reported. Management announced that executive Gregory J. Hartz planned to retire in Q2 2023.
Investor facts to verify
- Whether deposit trends, deposit pricing and FHLB funding costs stabilize, and how they affect future net interest margin.
- Whether unrealized securities losses remain manageable without forced sales, and the effect of any further rate changes on capital and liquidity.
- Credit performance in commercial real estate, agricultural and residential portfolios, including nonperforming loans, criticized loans and allowance adequacy.
- Whether the $11.4 million Visa gain and $11.9 million securities loss, along with merger-related costs, affect comparisons of recurring earnings.
- Whether wealth management revenue and assets under management recover, and whether technology and integration costs moderate.
- Regulatory capital and liquidity headroom, dividend capacity, and progress toward the $10 billion enhanced-supervision threshold.