Tompkins Financial Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Tompkins is a community-focused financial holding company operating banking, insurance, and wealth management businesses across New York and Pennsylvania. Its bank had 56 offices and year-end assets of $7.8 billion.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets, year-end | $7.82 billion | $7.67 billion |
| Net interest income | $209.5 million | $230.3 million |
| Net interest margin | 2.84% | 3.05% |
| Net income | $9.5 million | $85.0 million |
| Diluted EPS | $0.66 | $5.89 |
| Noninterest income | $10.2 million | $78.0 million |
| Noninterest expense | $203.3 million | $195.8 million |
The 2023 results include a $70.0 million pretax ($52.9 million after-tax) loss from sales of $510.5 million of available-for-sale securities. Excluding that loss, management reported non-GAAP adjusted net income of $62.4 million and adjusted diluted EPS of $4.36. These measures are not GAAP results.
Interest income rose 18.3%, but interest expense increased 317.5% as deposit and borrowing costs rose faster than asset yields. Fourth-quarter 2023 net interest margin was 2.82%, up from 2.75% in the third quarter but below 3.02% in fourth-quarter 2022. Return on average assets was 0.12% and return on average equity 1.50%; adjusted non-GAAP figures were 0.82% and 9.83%, respectively.
Loans and leases were $5.61 billion, up 6.4%, led by commercial real estate (CRE). Deposits were $6.40 billion, down 3.1%; core deposits fell 7.0%. Other borrowings rose to $602.1 million, primarily FHLB advances, from $291.3 million. Cash and cash equivalents were $79.5 million. Operating cash flow was $89.0 million; investing activities used $146.3 million and financing activities provided $59.0 million.
Year-end total capital ratio was 13.4% at the holding company and 12.8% at the bank; Tier 1 leverage ratios were 9.1% and 8.7%, respectively. The bank was categorized as well capitalized. The company reported available liquidity sources equal to 18.3% of assets against a 6% policy minimum, and stated established FHLB and Federal Reserve borrowing capacity of approximately $1.7 billion combined.
Material changes and notable items
- The securities repositioning exchanged low-yielding assets for securities with an estimated yield of about 5.1%; management said it supported balance-sheet and interest-rate-risk management. Securities sold averaged about 0.86% yield.
- CRE loans increased 9.1% to $3.11 billion, or 55.5% of loans. Nonperforming loans and leases rose to $62.3 million, or 1.11% of loans, from $32.8 million, or 0.62%. A newly downgraded relationship involving three CRE loans totaled about $33.8 million; management considered collateral sufficient and recorded no specific allowance for those loans.
- The allowance for credit losses increased to $51.6 million, or 0.92% of loans, from $45.9 million, or 0.87%. Nonperforming-asset coverage by the allowance declined to 82.84% from 139.86%.
- Unrealized losses on available-for-sale securities declined to $131.8 million from $236.8 million. Management attributed losses primarily to rates and liquidity, and stated it did not expect to be required to sell the remaining securities before amortized cost recovery.
- Cash dividends were $2.40 per share, up from $2.31; dividends paid were $34.7 million. The reported payout was 364.6% of GAAP net income, reflecting the securities-sale loss, and 55.6% of adjusted non-GAAP net income.
Outlook, risks, and contingencies
The filing provides no specific earnings or revenue guidance. Management’s base-case interest-rate simulation indicated a slightly rising net interest margin over the next 12–18 months. A modeled 200-basis-point rate increase would reduce one-year net interest income by about 5.3%; a 200-basis-point decrease would increase it by about 4.6%. These simulations rely on assumptions and may differ from actual results.
Key risks include deposit competition and outflows, reliance on wholesale funding, interest-rate sensitivity, CRE and commercial credit concentration, deterioration in local economies, securities values, and operational, cyber, regulatory, and legal risks. Uninsured deposits were estimated at $2.9 billion, including $1.6 billion without liquid collateral pledged; insured deposits plus collateralized government deposits represented 75.4% of FDIC-eligible deposits. The company reported no cybersecurity incidents that materially affected it. Management did not expect pending litigation to materially affect consolidated financial position, while noting that period-specific results could be affected. The independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether deposit trends, funding costs, and FHLB borrowing levels stabilize or continue to pressure net interest margin.
- Performance, collateral values, and potential further downgrades among CRE borrowers, particularly the identified $33.8 million relationship.
- How much of reported earnings improvement, if any, reflects recurring operations versus the non-GAAP adjustment for securities-sale losses.
- Whether the securities portfolio’s remaining unrealized losses create any need for additional sales or capital and liquidity actions.
- The sustainability of the dividend relative to GAAP earnings, capital needs, and regulatory limits.