Tompkins Financial Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing reports annual results, not a standalone fourth-quarter summary. Tompkins is a community-focused financial holding company serving New York and Pennsylvania through banking, insurance and wealth-management businesses.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Net interest income | $223.8 million | $225.3 million |
| Noninterest income | $78.8 million | $73.9 million |
| Net income attributable to Tompkins | $89.3 million | $77.6 million |
| Diluted earnings per share | $6.05 | $5.20 |
| Return on average assets / equity | 1.12% / 12.32% | 1.05% / 11.09% |
| Net interest margin | 2.96% | 3.31% |
| Noninterest expense / total revenue | 62.9% | 61.6% |
| Operating cash flow | $121.2 million | $101.4 million |
Net income rose 15.1% and diluted EPS increased 16.4%. The improvement primarily reflected a $2.2 million credit to provision for credit losses in 2021, versus $17.2 million of provision expense in 2020, and higher fee income. Net interest income edged down as lower asset yields more than offset deposit-cost savings and growth in average earning assets. Net interest margin contracted 35 basis points.
Insurance commissions and fees increased 10.6% to $34.8 million; investment-services income rose 10.7% to $19.4 million. Wealth-management assets under management or custody reached $5.1 billion, up 13.6%. Total noninterest expense increased 3.2% to $190.3 million.
Financial position, credit and liquidity
- Assets and funding: Total assets were $7.82 billion, up 2.6%. Loans and leases, net of unearned fees, were $5.08 billion, down 3.5%; deposits were $6.79 billion, up 5.5%.
- Loan mix and credit: Commercial real estate was $2.65 billion, or 52.3% of loans; commercial and commercial real estate loans together were approximately 69.4%. Nonperforming loans and leases fell to $31.2 million, or 0.61% of loans, from $45.8 million, or 0.87%. The allowance was $42.8 million, 0.84% of loans, versus $51.7 million, 0.98%, in 2020.
- Unusual credit item: Fourth-quarter charge-offs included $7.0 million on a commercial-real-estate hospitality relationship. Net charge-offs were $6.0 million, compared with $1.8 million in 2020.
- Debt: Year-end FHLB advances were $124.0 million; repurchase agreements were $66.8 million. Trust preferred debentures were fully redeemed during 2021, leaving none outstanding at year-end.
- Liquidity and cash: Cash and cash equivalents declined to $63.1 million from $388.5 million, largely alongside investment of excess liquidity in securities. Available unused FHLB borrowing capacity was $2.3 billion. Management stated it had sufficient liquidity sources and had identified no near-term trend expected to materially change liquidity.
- Capital: Consolidated CET1, total risk-based capital and Tier 1 leverage ratios were 13.3%, 14.2% and 8.7%, respectively. Subsidiary banks were categorized as well capitalized.
- Equity and shareholder returns: Total equity was $728.9 million. The company paid $2.19 per share in dividends, up from $2.10, and repurchased $23.8 million of stock. Accumulated other comprehensive loss widened to $56.0 million, primarily reflecting unrealized securities losses associated with market interest rates.
- Cash flows: Investing activities used $583.3 million, principally reflecting securities purchases; financing activities provided $136.8 million.
Material changes and outlook
- Compared with 2020, the credit-loss provision swung from $17.2 million of expense to a $2.2 million credit. Management attributed the improvement to better economic forecasts and credit conditions; the allowance remains dependent on forecasts and assumptions.
- Interest expense fell 39.6%, but interest income fell 5.3%; net interest margin declined to 2.96% from 3.31%.
- PPP loan balances declined to $71.3 million from $291.3 million as loans were forgiven or repaid. Of $694.1 million in PPP originations through January 14, 2022, approximately $620.2 million had been forgiven.
- Effective January 1, 2022, the four bank subsidiaries were combined under the Trust Company, renamed Tompkins Community Bank. Management warned that transition and implementation costs could be significant in 2022. No quantified earnings guidance was provided.
- Reported 2021 results included a $1.9 million purchase-accounting charge from redeeming $15.2 million of trust preferred securities and $2.9 million in penalties for prepaying $135.0 million of FHLB advances. The insurance segment also received $140,000 from an officer life-insurance policy.
- Interest-rate modeling indicated a 3.5% decline in one-year net interest income under a 200-basis-point rate increase and a 1.9% decline under a 100-basis-point decrease, holding the model assumptions constant. The one-year static gap was negative $331.5 million. Management cautioned that actual outcomes may differ and said the balance sheet was liability-sensitive over the near term.
- Key risks include COVID-19 and borrower performance, commercial real estate and business-loan concentration, interest-rate and securities-value changes, regional economic exposure, cybersecurity and third-party service disruption, regulatory change, and the execution costs of bank consolidation. Crossing $10 billion in assets would trigger additional regulatory requirements; year-end assets were $7.82 billion.
The company reported that pending or threatened legal matters were not expected to materially affect consolidated financial position, while noting outcomes could affect a particular period. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; the collective allowance for credit losses was identified as a critical audit matter.
Most important facts for investors to verify
- Whether the 2022 bank consolidation delivers expected operating benefits and how much transition expense is incurred.
- Whether credit quality remains sound after the large 2021 allowance reduction, including performance of commercial real estate, hospitality and other borrower exposures.
- How deposit trends, securities reinvestment and the low year-end cash balance affect liquidity and funding costs.
- Whether margin and earnings respond as modeled to changing rates, given the negative one-year gap and sensitivity assumptions.
- Whether unrealized securities losses, dividends and repurchases affect capital, shareholder returns or flexibility as conditions change.