Tompkins Financial Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are to December 31, 2020 unless stated otherwise. Tompkins is a community-focused financial services company operating banking, insurance, and wealth-management businesses, primarily in New York and Pennsylvania.
Key financial results
| Metric | Q1 2021 | Comparable period / change |
|---|---|---|
| Total assets | $8.10 billion | Up 6.2% from year-end 2020 |
| Total loans and leases | $5.29 billion | Up 0.6% from year-end 2020 |
| Total deposits | $6.95 billion | Up 7.9% from year-end 2020 |
| Net interest income | $55.0 million | Up 3.9% from Q1 2020 |
| Noninterest income | $20.0 million | Up 5.4% from Q1 2020 |
| Net income attributable to Tompkins | $25.6 million | Compared with $7.9 million in Q1 2020 |
| Diluted earnings per share | $1.72 | Compared with $0.53 in Q1 2020 |
| Net interest margin | 3.01% | Compared with 3.44% in Q1 2020 |
| Operating cash flow | $30.3 million provided | Compared with $24.1 million in Q1 2020 |
Net interest income plus noninterest income totaled approximately $75.0 million. Noninterest expense was $45.2 million, down 1.2% year over year; it equaled 60.2% of total revenue versus 63.6% in Q1 2020. The effective tax rate was 20.7%.
Cash and cash equivalents were $518.4 million at quarter-end. Investing activities used $381.2 million, principally reflecting purchases of available-for-sale securities; financing activities provided $480.9 million, largely from deposit growth. Other borrowings were $265.0 million, trust preferred debentures were $13.3 million, and repurchase agreements were $47.5 million. The company reported $2.1 billion of unused FHLB borrowing capacity.
Total equity was $709.9 million, down 1.1% from year-end, mainly due to a $24.9 million other comprehensive loss. The company reported a 14.62% total capital ratio and a 13.32% Tier 1 common equity ratio, above stated regulatory requirements.
Material changes and performance drivers
- Net income rose substantially from Q1 2020, when the company recorded $16.3 million of credit-loss provision expense amid COVID-19 uncertainty. Q1 2021 included a $2.5 million provision credit, reflecting improved economic forecasts and lower-than-expected net credit losses, partly offset by targeted qualitative reserves.
- Net interest income benefited from lower funding costs and deposit growth. Interest expense fell 53.9% year over year, while lower asset yields reduced net interest margin.
- Deposit growth and excess liquidity supported a 18.9% increase in securities from year-end. Available-for-sale securities had $29.0 million of gross unrealized losses at quarter-end, attributed primarily to interest-rate and liquidity conditions; management reported no credit-related allowance for those securities.
- Net loan and lease balances grew modestly. PPP loans reached $370.0 million, up $78.8 million from year-end, reflecting new originations partly offset by forgiveness.
- Insurance and wealth-management segment income increased year over year, supported by insurance commissions, contingent income, advisory fees, and improved markets.
Outlook, risks, and unusual items
- No specific earnings or financial guidance is provided. Management’s base-case interest-rate simulation indicated a slightly declining net interest margin over the next 12 to 18 months; modeled rate scenarios and actual results may differ.
- COVID-19 remains a credit risk. Approximately $195.6 million of loans, or 3.7% of total loans, remained in deferral status at March 31, 2021. Hotels and motels had $113.8 million in deferrals, equal to 55.4% of that portfolio. Management cautioned that borrower performance after deferrals remains uncertain.
- Nonperforming loans and leases were $47.7 million, or 0.90% of loans, versus 0.87% at year-end. Special Mention loans were $185.2 million, down from $189.9 million at year-end but above $90.0 million a year earlier. Management identified 31 potential problem commercial relationships totaling $36.6 million.
- The allowance for credit losses was $49.3 million, or 0.93% of loans, versus $51.7 million and 0.98% at year-end. The allowance-to-nonperforming-loans ratio was 103.38%, down from 112.87% at year-end.
- The company plans to combine its four bank subsidiaries under Tompkins Community Bank, subject to regulatory approval; applications were expected in Q2 2021, with the combination anticipated later in 2021.
- Management said liquidity was not significantly affected by the pandemic and believes available funding sources are adequate. Key risks include economic conditions, COVID-19 effects on borrowers, interest-rate sensitivity, regulation, and competition. Pending litigation was not expected to materially affect financial position, though management could not rule out material effects on a future period’s results.
Important facts for investors to verify
- Whether COVID-related deferrals, especially in hospitality, result in increased delinquencies, nonperforming loans, or credit-loss provisions.
- Whether the allowance remains adequate as economic forecasts, PPP forgiveness, and loan performance evolve.
- How deposit growth and reinvestment of liquidity affect future net interest margin, earnings, and funding costs.
- Regulatory approval, timing, and costs of the planned bank combination and rebranding.
- Whether unrealized securities losses and other comprehensive income movements materially affect reported equity or capital.