Tompkins Financial Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless otherwise noted. Tompkins is a community-based financial services company with banking, insurance, and wealth-management businesses. Effective January 1, 2022, its four bank subsidiaries were consolidated into Tompkins Community Bank.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net interest income | $58.3m | $54.8m | $114.9m | $109.9m |
| Noninterest income | $18.9m | $18.9m | $38.9m | $38.8m |
| Net income attributable to Tompkins | $20.9m | $22.8m | $44.1m | $48.5m |
| Diluted EPS | $1.45 | $1.54 | $3.05 | $3.26 |
| Net interest margin | 3.09% | 2.91% | 3.06% | 2.96% |
Q2 return on average assets was 1.07% (1.15% prior year) and return on average equity was 13.09% (12.70%). First-half figures were 1.13% and 13.17%, respectively, versus 1.24% and 13.55% a year earlier. Noninterest expense was $49.1m in Q2, up 3.5%, and $96.0m for the first half, up 4.4%. Income tax expense was $6.3m for Q2 and $13.3m year to date; the respective effective tax rates were 23.2% and 23.1%.
For the six months, operating cash flow was $51.5m, investing cash outflow was $139.6m, and financing cash inflow was $105.3m. Cash and cash equivalents increased $17.3m to $80.4m.
Financial condition, liquidity, and capital
- Total assets were $7.84bn, up 0.3% from year-end 2021. Net loans were $5.12bn; loans and leases before the allowance totaled $5.16bn, up $87.0m from year-end. Excluding PPP loans, loan growth was $154.8m, or 3.1%.
- Deposits were $6.77bn, down $21.9m from year-end. Core deposits grew 0.4% to $5.8bn and represented 85.7% of deposits. Other borrowings increased $171.6m to $295.6m, including $235.6m in overnight FHLB advances.
- The allowance for credit losses was $43.8m, or 0.85% of loans, versus $42.8m and 0.84% at year-end. Nonperforming loans and leases were $29.6m, or 0.57% of loans; the allowance covered 147.95% of nonperforming loans and leases.
- Total equity fell $104.6m to $624.3m. Accumulated other comprehensive loss widened to $178.9m, primarily reflecting unrealized losses on available-for-sale securities as market rates rose. Those securities had $183.3m of net unrealized losses at quarter-end; management attributed the declines primarily to interest rates and liquidity, not issuer credit quality, and said it did not expect to need to sell before recovery.
- Regulatory capital ratios exceeded stated minimum and well-capitalized requirements: total capital 14.07%, Tier 1 risk-based capital 13.17%, and Tier 1 leverage 9.02%. Management reported $1.51bn of FHLB borrowing capacity and $1.21bn of available unencumbered mortgage-related collateral.
Material changes and management commentary
- Net income declined 8.6% in Q2 and 8.9% year to date. Management cited provision expense, compared with credit provisions in 2021, and higher noninterest expense. Net interest income improved as funding costs fell and securities yields and balances increased.
- Q2 provision for credit losses was $856,000, versus a $3.1m credit in Q2 2021; first-half provision was $336,000, versus a $4.9m credit. Management cited loan growth and updated economic forecasts.
- Bank-charter consolidation and core-system conversion, completed in May, generated one-time expenses of $956,000 in Q2 and $1.2m year to date. Insurance income improved, while wealth-management Q2 income fell 31.3%, partly due to lower advisory revenue amid market-driven declines in assets under management and higher technology costs.
- Management gave no specific earnings or financial forecast in the supplied filing text. It expects average assets may exceed $8.0bn in 2022, potentially eliminating certain New York State tax benefits; the threshold was not yet exceeded under the relevant calculation at June 30.
Risks, contingencies, and other items
Key risks include interest-rate sensitivity, inflation and economic conditions, borrower credit quality, competition, regulation, technology execution, and reliance on local New York and Pennsylvania markets. The one-year net interest-rate gap was negative $609.9m; simulations indicated net interest income could decline 3.8% under a 200-basis-point rate increase or 1.2% under a 100-basis-point decrease over one year. Management cautioned that actual results may differ from these models. Commercial real estate is a significant loan concentration; the company identified 20 potential problem commercial relationships totaling $29.7m. COVID-related deferred loans were $1.8m, or 0.04% of loans. Management did not expect pending litigation to materially affect consolidated financial position, while noting outcomes could affect results in a particular future period. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether net interest margin and funding costs remain favorable as deposit and borrowing rates adjust.
- Whether the large unrealized securities losses affect capital, liquidity, or the ability to sell or pledge securities.
- Credit trends in commercial real estate and the status of potential problem loans, deferrals, and the allowance.
- Further borrowing needs, deposit trends, and available collateral amid loan growth.
- Actual integration costs and operating effects following the bank consolidation, and the tax impact if average assets exceed $8.0bn.