Executive Summary / Key Takeaways

• Tompkins Financial Corporation (NYSE:TMP) is demonstrating robust financial performance, with net income for the third quarter of 2025 increasing 27.0% year-over-year to $23.7 million, driven by significant net interest margin expansion and strong loan and deposit growth.
• The company's strategic divestiture of Tompkins Insurance Agencies, Inc. for $223 million in cash, generating a pre-tax gain of $183 million, provides substantial financial flexibility to replace earnings and fund future strategic investments, including technological enhancements and potential acquisitions.
• Tompkins maintains a strong capital position, with regulatory ratios well above "well-capitalized" minimums, and robust liquidity, providing a solid foundation for continued growth and shareholder returns, including a recently increased quarterly dividend of $0.65 per share.
• While facing increased competition from larger regional banks and agile fintechs, Tompkins differentiates itself through a community-centric approach, personalized service, and ongoing investments in digital banking capabilities to enhance efficiency and customer experience.
• The company's outlook anticipates continued net interest income expansion over the next 12 to 18 months, supported by a favorable balance sheet repricing dynamic, despite some short-term liability sensitivity in a rising rate environment.

A Legacy of Local Focus Meets Modern Financial Dynamics

Tompkins Financial Corporation, established in 1836 and headquartered in Ithaca, New York, has cultivated a nearly two-century legacy as a locally oriented, community-based financial services organization. This deep-rooted history has shaped its current strategic emphasis on personalized relationships and comprehensive service offerings across commercial and consumer banking, leasing, trust and investment management, financial planning, and wealth management. The company's operational footprint spans 54 banking offices in New York and Pennsylvania, underscoring its commitment to regional economic growth and stability.

In an industry increasingly defined by scale and rapid technological shifts, Tompkins Financial carves out a distinct competitive position. It operates amidst a landscape populated by larger regional players like M&T Bank (MTB) and KeyCorp (KEY), which boast broader geographic reach and extensive resources, as well as agile fintech companies offering specialized digital solutions. Tompkins' core competitive advantage lies in its community-centric model, fostering strong customer loyalty through local expertise and tailored financial solutions. This approach allows it to make prudent lending decisions efficiently, often outpacing larger competitors in responsiveness, without compromising asset quality or profitability.

The company's strategic evolution is evident in its recent actions. While historically benefiting from a diversified structure that included Tompkins Insurance Agencies, Inc. (TIA), a significant strategic pivot occurred on November 3, 2025. Tompkins Financial closed on the sale of TIA to Arthur J. Gallagher & Co. (AJG) for approximately $223 million in cash, realizing a substantial pre-tax gain of $183 million. This divestiture, involving a firm that had grown to be one of the top 100 insurance agencies in the country, is poised to enhance Tompkins' financial flexibility, enabling it to replace the earnings of the sold subsidiary and support future strategic investments in its core banking and wealth management segments.

Technological Edge: Enhancing Community Banking in a Digital Age

In the contemporary financial services landscape, technological differentiation is not merely an advantage but a necessity. Tompkins Financial, while deeply rooted in community banking, recognizes the imperative of digital transformation to maintain its competitive edge and enhance customer experience. The company's core technological strategy revolves around leveraging digital platforms to deliver a strong suite of products and services, accessible to customers through various digital means. This includes robust electronic banking, mobile banking, and cash management solutions, which streamline operations and provide convenience for both individual and commercial clients.

While specific proprietary core technology details are not extensively disclosed, Tompkins' ongoing investments in technology are strategically aimed at improving operational efficiency and customer engagement. The company's focus on digital tools allows for faster processing, more informed decision-making, and personalized customer interactions, crucial aspects in an era where customers expect seamless, 24/7 access to financial services. These digital capabilities are particularly vital in areas like loan processing, fraud detection, and customer service, where AI-powered automation can significantly reduce manual errors and accelerate decision-making.

The strategic intent behind these technological investments is clear: to fortify Tompkins' community-based model with modern efficiencies. By adopting and integrating advanced digital solutions, the company aims to offer personalized financial advice and product recommendations on a larger scale, thereby deepening customer relationships and fostering loyalty. This commitment to digital transformation, while not always involving proprietary "core technology" in the traditional sense, represents a significant differentiator in how Tompkins delivers its services and competes with both larger, more technologically advanced institutions and nimble fintechs.

Financial Strength and Growth Momentum

Tompkins Financial Corporation delivered a strong financial performance for the third quarter and first nine months of 2025, reflecting the effectiveness of its strategic focus and operational execution. Net income for the third quarter of 2025 rose to $23.7 million, a significant 27.0% increase compared to the $18.6 million reported in the third quarter of 2024. Diluted earnings per share followed suit, climbing to $1.65 from $1.30 in the prior-year quarter. For the nine months ended September 30, 2025, net income reached $64.8 million, up 26.6% from $51.2 million in the same period of 2024, with diluted EPS at $4.52, an increase of 25.9% year-over-year.

This robust profitability was primarily fueled by substantial net interest income expansion. Net interest income for the third quarter of 2025 was $63.9 million, a 20.1% increase from $53.2 million in the third quarter of 2024. The net interest margin (NIM) expanded notably to 3.20% in Q3 2025, up 41 basis points from 2.79% in the prior-year quarter and 12 basis points from the immediate prior quarter. This improvement was driven by increased yields on average interest-earning assets, higher average loan balances, and a reduction in average funding costs due to an improved funding mix. Average loan balances for the third quarter of 2025 grew by $385.5 million, or 6.6%, over the same period in 2024, primarily in commercial real estate and commercial and industrial portfolios. Total loans at September 30, 2025, reached $6.29 billion, marking a 6.9% increase year-over-year.

Deposit growth also contributed to the improved funding mix, with total deposits at September 30, 2025, increasing by $475.2 million, or 7.2%, from the prior year to $7.1 billion. Core deposits, a significant and low-cost funding source, rose by $360 million, or 6.8%, from year-end 2024 to $5.60 billion. This allowed for a strategic reduction in higher-cost other borrowings, which decreased by $345.4 million, or 43.7%, from December 31, 2024, to $444.90 million at September 30, 2025.

The banking segment, the largest contributor to net income, reported a 36.3% increase in net income for Q3 2025 compared to Q3 2024, reaching $20.2 million. The wealth management segment, operating under Tompkins Financial Advisors, saw its total revenue increase by 3.4% for the nine months ended September 30, 2025, primarily due to advisory fees and gains on the sale of certain customer accounts. However, its net income for Q3 2025 decreased by 17.1% year-over-year to $626 thousand, largely due to increased affiliate service charges and technology expenses.

Asset quality metrics presented a mixed picture. While nonperforming loans and leases as a percentage of total loans remained stable at 0.84% at September 30, 2025, Special Mention and Substandard loans and leases increased to $144.2 million from $96.8 million at June 30, 2025. This increase was mainly due to two loans totaling $41.2 million being downgraded to Special Mention. However, management believes the existing collateral and pledged investments securing these loans are sufficient to cover the exposure. The allowance for credit losses stood at $59.9 million, representing 0.95% of total loans and leases, reflecting loan growth and updated economic forecasts.

Capital Strength and Liquidity

Tompkins Financial maintains a robust capital position, with all regulatory capital ratios significantly exceeding the minimums for "well-capitalized" institutions. As of September 30, 2025, the Total Capital to risk-weighted assets ratio was 13.27%, and the Tier 1 Capital to average assets ratio was 9.41%. This strong capital base provides a substantial buffer against potential economic downturns and supports future growth initiatives.

Liquidity remains a core strength. The company reported ready access to $1.5 billion in liquidity at June 30, 2025, representing 18.0% of total assets. By September 30, 2025, reliable sources of liquidity, including FHLB and Federal Reserve borrowing capacity plus unencumbered securities, stood at 17.8% of total assets, well above the Board's policy limit of 6%. This ample liquidity, coupled with a growing core deposit base, positions Tompkins favorably to meet anticipated credit demand and deposit withdrawals.

Strategic Outlook and Shareholder Value

The strategic sale of Tompkins Insurance Agencies, Inc. is a pivotal move that reshapes the company's future. While the insurance segment contributed to noninterest income, its divestiture for $223 million in cash, generating a pre-tax gain of $183 million, provides Tompkins with significant financial flexibility. This capital can be deployed to replace the relative earnings of the insurance business in the near term and fund strategic investments over the long term, including further enhancing its digital capabilities and pursuing potential acquisitions within its core banking and wealth management segments.

Management's outlook points to continued positive momentum, with net interest income expected to trend higher over the next 12 to 18 months, assuming stable interest rates. This projection is supported by the ongoing repricing of its asset portfolio into a higher rate environment and stabilizing funding costs. The company's commitment to shareholder returns is evident in its recently approved quarterly cash dividend of $0.65 per share, representing a 4.6% increase over the prior quarter's payment. Additionally, the Board authorized a new share repurchase plan in July 2025, allowing for the repurchase of up to 400,000 shares over 24 months, further signaling confidence in its financial health and commitment to enhancing shareholder value.

Competitive Landscape and Strategic Responses

Tompkins Financial operates in a highly competitive environment, vying for market share against a diverse set of financial institutions. Larger regional banks such as M&T Bank (NYSE:MTB), KeyCorp (NYSE:KEY), and Citizens Financial Group (NYSE:CFG) possess greater scale, broader geographic reach, and often more extensive resources for technological innovation. These competitors can offer a wider array of services and potentially more aggressive pricing, particularly in high-volume lending. For instance, M&T Bank's larger operational scale allows for more robust risk management and broader geographic reach, potentially enabling it to capture larger commercial opportunities.

Against these larger players, Tompkins' community-centric model and personalized service act as a significant differentiator, fostering strong customer relationships and loyalty, particularly in its niche markets in New York and Pennsylvania. While KeyCorp and Citizens Financial Group are investing heavily in digital transformation, offering advanced online platforms and a wider product suite, Tompkins counters by focusing its digital investments on enhancing its personalized approach, aiming for frictionless, 24/7 customer interaction and tailored financial advice.

Another peer, NBT Bancorp (NASDAQ:NBTB), shares a similar community banking focus. While NBT Bancorp may have an edge in certain operational efficiencies, Tompkins differentiates itself through its comprehensive wealth management services and its historical stability. The recent divestiture of the insurance segment, while reducing a diversified revenue stream, strategically positions Tompkins to concentrate capital and resources on strengthening its core banking and wealth management offerings, potentially improving its agility and focus in these competitive segments.

The broader industry trend towards AI-driven banking presents both opportunities and challenges. AI can enhance efficiency in lending, improve risk management, and personalize customer experiences. Tompkins' investments in digital banking and its focus on data utilization are strategic responses to these trends, aiming to leverage technology to deepen customer relationships and streamline operations. However, the smaller scale of Tompkins compared to some rivals means it must be judicious in its technological investments to avoid being outpaced in areas requiring massive capital outlays.

Risks and Considerations

Despite its positive momentum, Tompkins Financial faces several inherent risks. Interest rate risk remains a primary concern, with a simulation analysis indicating that a 200 basis point parallel upward shift in interest rates could lead to a 2.30% decrease in net interest income over one year due to a short-term liability-sensitive balance sheet. Conversely, a similar decline in rates could result in a 2.30% increase. This highlights the sensitivity of its net interest income to market rate fluctuations.

Credit quality, while generally sound, warrants close monitoring. The increase in Special Mention and Substandard loans, particularly the $41.2 million downgrade of two loans in Q3 2025, indicates potential vulnerabilities in certain segments of the loan portfolio. While management asserts that existing collateral is sufficient, any deterioration in real estate markets or specific industries could impact these exposures.

Furthermore, the banking sector is subject to extensive regulatory scrutiny and evolving compliance requirements. Changes in laws, regulations, and supervisory expectations, including those related to cybersecurity and consumer protection, could impose additional costs and operational complexities. The company's geographic concentration in New York and Pennsylvania also exposes it to regional economic conditions, making it susceptible to localized downturns.

Conclusion

Tompkins Financial Corporation stands at a compelling juncture, demonstrating strong financial performance and a clear strategic direction. The company's third-quarter 2025 results, marked by significant net interest margin expansion and robust loan and deposit growth, underscore its operational effectiveness and the resilience of its community-based banking model. The strategic divestiture of its insurance arm, while a notable structural change, provides substantial capital to fuel future growth, enhance technological capabilities, and potentially pursue targeted acquisitions within its core banking and wealth management segments.

While the competitive landscape remains intense, Tompkins' commitment to personalized service, local expertise, and ongoing digital investments positions it to effectively compete against both larger regional banks and emerging fintechs. The company's strong capital and liquidity profiles provide a solid foundation for navigating market dynamics and supporting its growth initiatives. Investors should recognize Tompkins Financial as a stable regional banking entity with a clear strategy for sustainable growth, underpinned by its financial strength and a disciplined approach to capital allocation, even as it adapts to evolving industry trends and manages inherent risks.