Tompkins Financial Corporation Demonstrates Resilience in Q1 2025 Amid Economic Uncertainties

Tompkins Financial Corporation (TMP) delivered solid first-quarter 2025 results, showcasing financial resilience through a mix of disciplined growth and proactive risk management. Despite a stagnant quarter-over-quarter EPS of $1.37, the year-over-year jump of 16.1% underscores the bank’s ability to navigate rising credit costs while expanding core revenue streams. Net interest margin improved to 2.98%, fueled by lower funding costs and strong loan growth, while deposits surged to $6.8 billion, reinforcing its liquidity position. However, rising provisions for credit losses and lingering economic uncertainties add nuance to the outlook.

Net Interest Margin Expansion Drives Momentum
The bank’s net interest margin (NIM) rose 5 basis points (bps) sequentially to 2.98%, a 25-bps increase from Q1 2024. This reflects successful management of funding costs, with the cost of interest-bearing deposits dropping to 2.23%—down 8 bps from the prior quarter. Meanwhile, loan yields benefited from rate-sensitive commercial real estate and commercial and industrial (C&I) portfolios, which grew by $403.8 million (7.2%) year-over-year. Average loans now total $6.76 billion, with the loan-to-deposit ratio improving to 89.8%, signaling balanced asset-liability management.

Noninterest Income Growth and Operational Leverage
Noninterest income rose 13.1% year-over-year to $25.0 million, driven by strategic gains and fee-based services. A $1.9 million gain from the sale of other real estate owned (OREO), alongside higher insurance commissions (+$1.3 million) and wealth management fees (+$182,000), offset declines in card services revenue. Notably, these gains were partially organic, as the absence of a one-time $255,000 card services bonus from Q1 2024 tempered results.

On the expense side, noninterest costs increased only 1.5% to $50.6 million, as controlled occupancy costs (-$325,000) offset rising salaries and benefits. This moderation supports the bank’s efficiency, with the efficiency ratio likely remaining favorable compared to peers.

Asset Quality: Prudent Reserves, Modest NPA Rise
The quarter saw Tompkins increase its allowance for credit losses to 1.01% of total loans, up from 0.94% in Q4 2024, due to a $17.3 million nonperforming commercial real estate loan. Nonperforming assets (NPAs) rose to $71.2 million (0.87% of total assets), reflecting heightened caution in an uncertain macroeconomic environment. While NPAs are rising, the provision for credit losses—now $5.3 million—suggests management is prioritizing capital preservation.

Capital and Liquidity: A Strong Foundation
Regulatory capital ratios remain robust, with Tier 1 capital to average assets at 9.31%, well above the 6% "well-capitalized" threshold. Liquidity remains ample, with $1.5 billion in accessible funds (18.6% of total assets), bolstered by wholesale funding. This positions Tompkins to weather potential economic shocks while pursuing organic loan growth.

Management Perspective: Steadfast in Community Banking
CEO Stephen Romaine emphasized the bank’s focus on its regional footprint, with operations concentrated in Central, Western New York, and Southeastern Pennsylvania. The commentary highlights Tompkins’ commitment to community-focused lending—a strategy that has historically insulated it from broader sector volatility.

Conclusion: A Balanced Outlook for Growth and Caution
Tompkins Financial’s Q1 2025 results affirm its status as a well-managed regional bank with strong fundamentals. Key positives include:
- Margin Expansion: The 25-bps NIM improvement year-over-year signals effective balance sheet management.
- Deposit Growth: A 4.7% year-over-year deposit increase to $6.8 billion strengthens liquidity and funding stability.
- Fee Income Diversification: Noninterest income growth, excluding one-time gains, reflects progress in cross-selling insurance and wealth management services.

However, risks persist. The elevated provision for credit losses and rising NPAs suggest potential headwinds from commercial real estate exposures. Geopolitical risks (noted in the press release) and slowing regional economic activity could test profitability.

Investors should weigh these factors against Tompkins’ solid capital ratios, consistent earnings growth (16% YoY EPS), and a disciplined approach to credit. With a P/B ratio of 1.6x (as of Q1 2025), the stock appears fairly valued relative to peers but offers stability in a volatile market. For those seeking a conservative regional banking play, Tompkins’ Q1 results reinforce its appeal—if macroeconomic clouds clear, its growth trajectory could outperform expectations.

In summary, Tompkins Financial Corporation navigates a challenging environment with a blend of prudence and growth, making it a compelling holding for investors prioritizing balance sheet strength and community-driven banking models.