Tompkins Financial Corporation — FY2015 Form 10-K
Business context and reporting period
Tompkins Financial is a community-focused financial holding company operating in New York and Pennsylvania. Its businesses are banking, insurance and wealth management. This filing covers the fiscal year ended December 31, 2015; fourth-quarter results are also summarized below.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Total assets, year-end | $5.690 billion | $5.270 billion |
| Total loans and leases, year-end | $3.772 billion | $3.393 billion |
| Deposits, year-end | $4.395 billion | $4.169 billion |
| Net interest income | $168.4 million | $163.8 million |
| Noninterest income | $71.9 million | $70.8 million |
| Net income attributable to Tompkins | $58.4 million | $52.0 million |
| Diluted EPS | $3.87 | $3.48 |
| Return on average assets / equity | 1.07% / 11.51% | 1.03% / 10.76% |
- Net interest margin was 3.38%, down from 3.57%; the efficiency ratio was 60.5%, versus 63.9%. The 2015 efficiency ratio benefited from the pension-plan curtailment gain; excluding it, the filing gives ratios of 64.0% on a taxable-equivalent basis and 62.9% without the tax-equivalent adjustments.
- Net cash provided by operating activities was $82.4 million; investing activities used $452.9 million and financing activities provided $372.7 million. Cash and cash equivalents ended the year at $58.3 million.
- Year-end other borrowings were $536.3 million; repurchase agreements and federal funds purchased were $136.5 million, and trust preferred debentures were $37.5 million. Total equity was $516.5 million.
- Loan-loss provision was $2.9 million, up from $2.3 million. Allowance for loan and lease losses was $32.0 million. Nonperforming loans and leases were 0.58% of loans, compared with 0.67%; nonperforming assets were 0.43% of assets.
- Capital ratios were above regulatory well-capitalized thresholds: consolidated total risk-based capital was 13.0%, CET1 was 11.3%, and Tier 1 leverage was 8.8%. Management said the company and subsidiary banks met applicable capital requirements.
Material changes versus the prior comparable period
- Assets grew 8.0%, loans 11.2%, and deposits 5.4%. Management attributed loan growth mainly to organic expansion. Originated loans increased 16.6%.
- Net interest income rose 2.8%, as loan and earning-asset growth and lower funding costs offset lower asset yields and margin compression. Average earning assets increased 8.7%; the average yield on earning assets fell 23 basis points.
- Net income increased 12.3%, but included a $3.6 million after-tax, one-time pension curtailment gain. Excluding that gain, reported net income was $54.8 million and diluted EPS was $3.63, compared with $52.0 million and $3.48 in 2014.
- Noninterest income increased 1.7%, including $1.1 million of securities gains versus $0.4 million in 2014. Noninterest expense declined 3.1%, primarily reflecting a $6.0 million pretax pension curtailment gain and lower other operating costs.
- Banking segment net income was $51.6 million, up 12.1%; insurance net income was $3.6 million, up 18.4%; wealth-management net income was $3.1 million, up 8.4%. Wealth-management assets under management or custody rose 2.4% to $3.9 billion.
- Cash dividends increased to $1.70 per share from $1.62. The company repurchased 67,481 shares during 2015 for $3.5 million.
Guidance, outlook, risks and unusual items
- The filing provides no formal earnings or revenue guidance. Management said its base interest-rate simulation indicated a relatively stable net interest margin over the next 12–18 months and that available liquidity was adequate in the normal course of business.
- Interest-rate risk is material: the one-year static gap was negative $423.8 million, or 7.45% of assets. A modeled 200-basis-point rate increase reduced one-year net interest income by approximately 1.9%; a 100-basis-point decline reduced it by approximately 1.1%. The model assumes no balance-sheet growth or management response.
- Credit exposure is concentrated in commercial lending: commercial and commercial real estate loans represented 68.7% of total loans. Agricultural loans were $177.3 million, or 4.7% of loans. Management noted borrower cash-flow, collateral-value, economic and agricultural risks.
- Funding reliance increased: other borrowings rose 50.4% year over year, largely due to FHLB advances. Non-core funding was $1.5 billion, or 29.9% of liabilities, and 81.2% of securities were pledged or sold under repurchase agreements. The company reported $1.1 billion of unused FHLB borrowing capacity.
- Available-for-sale securities were largely mortgage-backed; management reported no 2015 credit impairment charges and did not consider unrealized losses other-than-temporary. Market-rate movements could nevertheless affect fair values and accumulated comprehensive income.
- The defined-benefit pension plan that had been accruing benefits was frozen effective July 31, 2015, and active participants moved to a defined-contribution plan. The change generated a $6.0 million pretax curtailment gain. Goodwill and other intangible assets totaled $104.2 million; no impairment was identified in 2015.
- Off-balance-sheet loan commitments, unused credit lines and standby letters of credit totaled $978.2 million. Management did not expect ordinary-course legal proceedings to have a material effect. Cybersecurity, regulation, competition, acquisitions and local economic conditions remain disclosed risks.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor concluded controls were effective at year-end.
Important facts for investors to verify
- How much future earnings growth depends on loan growth versus margin recovery, and whether the pension gain is excluded from comparisons.
- Credit quality trends behind rapid loan growth, particularly commercial real estate, agricultural lending, criticized loans and the allowance methodology.
- Whether the higher use of FHLB advances and other non-core funding remains manageable as deposits and loans evolve.
- Interest-rate exposure under alternative deposit repricing, prepayment and balance-sheet growth assumptions.
- The durability of fee income, securities gains, and insurance and wealth-management performance, as well as any updates to dividend or capital plans.