Tompkins Financial Corporation (NYSE: TMP) is a locally oriented, community-based financial services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, and insurance services. With a strong presence in New York and Pennsylvania, the company has demonstrated its ability to navigate challenging economic environments and deliver consistent financial performance for its shareholders.
Business Overview
Tompkins Financial Corporation operates through three main business segments: Banking, Insurance, and Wealth Management. The Banking segment, which accounts for the majority of the company's revenue and earnings, provides a comprehensive suite of commercial and consumer banking services, including lending, deposit-taking, and cash management solutions. The Insurance segment, operated through the Tompkins Insurance Agencies subsidiary, offers property and casualty insurance, as well as employee benefits consulting services. The Wealth Management segment, organized under the Tompkins Financial Advisors brand, provides trust, investment management, and financial planning services to individuals, corporate executives, small business owners, and high net worth clients.Financials
Tompkins Financial Corporation has a track record of delivering solid financial results. In the fiscal year 2023, the company reported annual net income of $95.05 million, up from $92.41 million in the prior year. Annual revenue for the same period was $297.36 million, compared to $289.12 million in the previous year. The company's annual operating cash flow was $89.00 million, and its annual free cash flow was $82.24 million.For the first quarter of 2024, the company reported net income of $16.9 million, or $1.18 per diluted share, compared to $19.4 million, or $1.35 per diluted share, in the same period of 2023. The decrease in net income was primarily due to higher funding costs and an increased provision for credit loss expense, partially offset by an increase in noninterest income and a decrease in noninterest expenses.
Net interest income for the first quarter of 2024 was $50.7 million, down 6.6% from the same period in 2023, reflecting the impact of higher market interest rates on the company's funding costs. The net interest margin for the quarter was 2.73%, down from 2.99% in the first quarter of 2023.
Noninterest income for the first quarter of 2024 was $22.1 million, up 8.5% compared to the same period in 2023. The increase was driven by higher insurance commissions and fees, wealth management fees, and card services income, as well as an increase in other income, including derivatives-related income.
Noninterest expense for the first quarter of 2024 was $49.9 million, down 0.6% compared to the same period in 2023. The decrease was primarily due to lower salaries and wages, as well as decreases in legal, marketing, and travel and meetings expenses, partially offset by an increase in FDIC insurance expense.
Segment Performance
The Banking segment reported net income of $13.6 million for the first quarter of 2024, a decrease of 19.8% from the same period in 2023. The decrease was primarily due to higher funding costs and an increased provision for credit loss expense, partially offset by an increase in noninterest income and a decrease in noninterest expense.The Insurance segment reported net income of $2.4 million for the first quarter of 2024, an increase of 36.9% compared to the same period in 2023. The increase was driven by higher insurance commissions, contingency income, and other income, including a gain on the sale of a building.
The Wealth Management segment reported net income of $927,000 for the first quarter of 2024, an increase of 26.6% compared to the same period in 2023. The increase was mainly attributable to an increase in revenue, driven by growth in assets under management.
Geographical Breakdown
Tompkins Financial Corporation has a strong presence in New York and Pennsylvania, with 55 banking offices located in these two states. The company's banking operations are organized into four regional markets: Tompkins/Cayuga/Cortland/Schuyler Counties in New York, Wyoming/Livingston/Genesee/Orleans/Monroe Counties in New York, Putnam/Dutchess/Westchester Counties in New York, and Berks/Montgomery/Philadelphia/Delaware/Schuylkill Counties in Pennsylvania.The company's insurance and wealth management services are also primarily focused on these regional markets, with Tompkins Insurance Agencies having four stand-alone offices in Western New York and Tompkins Financial Advisors having offices in each of the banking markets.
Liquidity
Tompkins Financial Corporation maintains a strong liquidity position, with cash and cash equivalents totaling $57.1 million as of March 31, 2024. The company's ratio of reliable sources of liquidity to total assets was 19.3% at the end of the first quarter, well above the company's policy limit of 6%.The company's capital position is also robust, with a total capital ratio of 13.4% and a Tier 1 capital ratio of 12.5% as of March 31, 2024. These ratios exceed the minimum required capital ratios plus the fully phased-in capital conservation buffer, as well as the minimum required capital ratios for well-capitalized institutions.
Risks and Challenges
While Tompkins Financial Corporation has demonstrated its ability to navigate challenging economic environments, the company faces several risks and challenges that investors should be aware of. These include interest rate risk, credit risk, regulatory changes, and competition from larger financial institutions and non-bank competitors.The company's exposure to interest rate risk is managed through the use of asset-liability management strategies, including the use of derivative instruments. However, significant changes in market interest rates could still impact the company's net interest income and net interest margin.
Credit risk is another key concern, as the company's loan portfolio is exposed to potential losses from borrower defaults. The company's allowance for credit losses, which stood at $51.7 million as of March 31, 2024, is designed to mitigate this risk, but a significant deterioration in asset quality could still impact the company's financial performance.
Regulatory changes, such as those related to capital requirements, consumer protection, and data security, could also affect the company's operations and profitability. Additionally, the highly competitive nature of the financial services industry, particularly in the company's regional markets, could put pressure on the company's pricing and market share.
Outlook
Tompkins Financial Corporation has not provided specific financial guidance for the remainder of 2024. However, the company's management has expressed cautious optimism about the company's ability to navigate the current economic environment and continue delivering solid financial performance.The company's diversified business model, strong liquidity and capital position, and focus on serving the needs of its local communities are expected to be key drivers of its future success. Additionally, the company's ongoing investments in technology and digital capabilities are aimed at enhancing the customer experience and improving operational efficiency.