TOMPKINS FINANCIAL CORP (TMP) stock intrinsic value fair value estimate & owner earnings analysis

Tompkins Financial is a community bank holding company based in Ithaca, New York. Its bank, Tompkins Community Bank, takes deposits and makes commercial, commercial real estate, residential mortgage and consumer loans across Central and Western New York, the Hudson Valley and southeastern Pennsylvania, and it runs a wealth management business under the Tompkins Financial Advisors name. For about 24 years it also owned an insurance agency, Tompkins Insurance Agencies, which it sold to Arthur J. Gallagher on October 31, 2025 for $223 million in cash, booking a $188 million pre-tax gain. The bank's loan book stood at about $6.6 billion and deposits at about $7.0 billion at June 30, 2026. How we measured earnings. We start from the cash the business actually generates from operations, remove short-term swings in working capital (such as mortgages made but not yet sold), subtract stock compensation as a real cost, and subtract the spending on branches, equipment and software needed to keep the bank running. On that basis the bank earned between $5.19 and $7.50 per share in every year from 2019 through 2024, including the 2020 pandemic year. Two years need explaining. In 2023 and again in late 2025 the company sold low-yielding bonds and reinvested at higher yields, taking pre-tax losses of $70.0 million and $78.7 million. Those losses do not use cash in the year they are booked, so they do not reduce our earnings figure. But they are real: they lock in a fall in book capital in exchange for higher interest income later, and we credit only the higher income that has actually shown up. Reported cash earnings for 2025 look very weak at $3.26 per share, because that year's figure carries about $36 million of extra income tax arising from the insurance agency sale and $11.6 million of sale costs. Both belong to the sale, not to running the bank. Adjusted for them, 2025 comes to about $6.61 per share. Our previous estimate left open a $43.4 million pool of loans held for sale at the end of 2025. The June 2026 quarterly report shows a matching $43.6 million reduction in that pool during the first half of 2026, so it was a timing effect that has now turned back into cash. Starting level. The median of 2019 through 2025 (2025 adjusted as above) is about $6.61 per share. Removing the insurance agency, which earned $8.1 million in 2025 (about $0.57 per share), leaves roughly $6.05 for the bank and wealth business alone. Two things already in hand push the run rate above that: reinvesting $564 million of bonds in the fourth quarter of 2025 at higher yields, and about $175 million of after-tax sale proceeds now earning interest instead of commissions. Both have shown up in the results. Net interest income was $145.8 million in the first half of 2026, up 25% from $116.8 million a year earlier, and net income was $55.4 million versus $41.2 million, even without the agency. So we start the base case at $7.00 per share for 2026. That is a 6% rise on the adjusted 2025 figure, well below the 27% adjusted increase the business actually achieved from 2024 to 2025, and we support it with two quarters of actual results rather than a forecast. Base case: $144 per share. Earnings of $7.00 in 2026 and $7.25 in 2027, then growth of 3% a year through 2035. That growth rests on what the bank has done steadily for a decade: loans have grown about 4% a year (from $5.26 billion in 2020 to $6.60 billion in mid-2026), all funded with its own deposits, and buybacks have shrunk the share count slowly. We give no credit for share gains, new markets or higher margins. After 2035 we hold earnings flat. A 190-year-old deposit franchise keeps earning, but we cannot name evidence for growth beyond the decade. As a bank, the borrowing that funds its loans is part of the business, so we deduct no debt. Bear case: $90 per share. Nothing in today's filings points to a credit problem, but over ten years a lender with a large commercial real estate book should expect at least one credit cycle. We model one like 2008 to 2010 for community banks: cumulative loan losses of about 4% of the loan book (about $264 million) taken over 2028 to 2030. That cuts per-share earnings to about $1.14 in each of those years, after a 2027 margin squeeze toward the 2024 level ($5.19), when rising deposit costs last pushed earnings down. The bank stays profitable through the trough. Its common equity tier 1 ratio was 13.6% at year-end 2025, well above regulatory minimums, so we assume no forced share issuance. Earnings then recover to $5.80 and grow 1.5% a year. This value is above tangible book value of about $62 per share because the franchise rests on low-cost core deposits gathered over generations and has kept earning through every downturn on record, including 2020. An acquirer of the bank would pay for that deposit base, not just its capital. Bull case: $185 per share. The reinvestment gains hold and run a little ahead of the base case ($7.40 in 2026, $7.80 in 2027). Loan growth and buybacks continue at the upper end of their record, about 4% a year, and the long-run deposit franchise supports 1% growth after 2035. We include no acquisition and no rise in industry margins. How sure we are, and what could go wrong. We are fairly confident in the earnings level. The business has produced positive cash earnings of $5 to $7.50 per share in every normal year for seven years, and the post-sale improvement shows up in two quarters of actual results. The biggest risks are (1) a commercial real estate downturn in upstate New York or Pennsylvania, which the bear case models, and (2) falling interest rates or a deposit-cost shock like 2023 to 2024 that erodes the reinvestment gains. If the uplift fades and earnings settle flat near $6.05 for good, the shares would be worth roughly $100. The bank repeatedly sells bonds at a loss to reposition its balance sheet. Each sale has boosted later income, but each one also crystallizes a capital loss we do not deduct. Nothing in the structure looks fragile: the $546 million of borrowings are ordinary funding for the loan book, the bank does not depend on any single customer, and the sale proceeds have added to its capital. Margin-of-safety price: $85. The shares pay $2.68 a year in dividends ($0.67 a quarter), which covers part of a 20% annual return while waiting. The price assumes a three-year holding period: from $85, the base case implies shares worth about $148 plus roughly $8 in dividends, which is about a 20% annual return. In the bear case, the credit cycle hits in years three to five, but the dividend continues and the bank is worth about $90, so the bear case implies roughly breaking even rather than a permanent loss. Above about $85, the base case would have to arrive faster than this bank's slow, steady record supports to imply 20% a year.