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A Bank That Said “NO”: Tompkins Financial (TMP)

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November 15, 2008 – Comments (3) | RELATED TICKERS: TMP

Friday afternoon was the deadline for banks to apply to the Treasury’s TARP program and Briefing.com was full of announcements from banks that were or were not participating. 

I decided to dig a little deeper into one of the banks that opted out on the theory that any bank turning down the government funds must be pretty confident in their prospects.  Tompkins Financial (TMP) was the first ‘thanks, but no thanks’ announcement I saw, so decided to peel back a few layers of the onion.

TMP is a financial holding company headquartered in Ithaca, NY.  They are the parent company for Tompkins Trust Company, The Bank of Castile, Mahopac National Bank, Tompkins Insurance Agencies, Inc., and AM&M Financial Services, Inc.

The company’s homepage has a link to a statement by CEO Steve Romaine that includes the following, “Unlike the banks and Wall Street firms that are requiring government bailouts or filing for bankruptcy, Tompkins Financial has not engaged in subprime mortgage lending nor have we invested in securities backed by subprime mortgages. Tompkins Financial does not hold any shares of Fannie Mae, Freddie Mac, Bear Stearns, Merrill Lynch, Lehman Brothers, AIG, or Washington Mutual stock.”  Sounds like Mr. Romaine should be on the short list for CEO of a bigger bank or maybe Treasury Secretary.

On 22 Oct, the company reported earnings for the quarter ended on 30 Sep.  I didn’t find a conference call announcement or transcript so assume they don’t hold earnings calls. 

The first statistic that jumped out was the earnings comparison with the year ago quarter.  Earnings for quarter ended Sep ’08 were 0.81 per diluted share, up from 0.70 per diluted share last year.  TMP actually grew year-over-year earnings in one of the most difficult financial environments in history.  I don’t have statistics, but the ‘banks with growing earnings’ club must have a pretty short membership list.  CAPS screener returned 108 banks with positive earnings growth over the past three years, but there isn’t a screen option for 1-year earnings growth. I checked a few of the banks and many would not have passed a 1-year earnings screen.

Net charge-offs are growing, but are well below industry comparables.  Loan loss reserves are just over one percent of total loans.  That’s a little lower percentage than most other banks, but TMP’s loan losses are also running well below other banks’.  The loan loss provision increased by $3 million over the first nine months of the year and is nearly 140% of nonperforming loans.

The market cap is a little under $500 million.  At Friday’s closing price of $46.06, the company is trading at a price to tangible book value of 2.61 and 14.44 times estimated 2009 earnings.  Both numbers are at the high end of valuation for banks.  Based on the good loan performance, growing earnings and sound balance sheet, the company deserves to trade at a premium to its peers.  The 52-week trading range is $34.66 - $59.30.

The dividend yield is 2.90%, much lower than many competitors.  With a 42% payout ratio and solid earnings, that dividend appears safe.

TMP proves that there are some strong banks out there.  Loan losses are well below industry averages.  Year-over-year earnings growth is particularly impressive.  The stock trades at a premium to most banks, even other sound banks.  That premium appears warranted.  If I wanted to buy this stock, I’d be patient and hope for a pull back of 10-15% from here, although it may not come down that far.

The list of banks that said ‘thanks, but no thanks’ to the Treasury should be a decent start to a shopping list for anyone interested in sound, smaller, regional banks.  The other banks that announced they would not be participating in TARP on Friday are:  Kearny Financial (KRNY), First Financial Bankshares (FFIN), Commerce Bancshares (CBSH) and Charles Schwab (SCHW).  According to the AP, there are 110 banks participating in TARP.  That leaves a lot of companies who decided not to play.  I’ll leave researching those names to others for now. 

Disclosure:  I have no position in TMP at time of posting.

3 Comments – Post Your Own

#1) On November 15, 2008 at 2:06 PM, ikkyu2 (99.22) wrote:

Why is a bank that did not participate in TARP attractive to you?

Here's the way I see it: Rates went down to 1% in the great Greenspan cut of 2002.   Banks were accustomed to receiving 8% on their money, but they couldn't get that from prime borrowers.  They came up with ways of charging higher interest rates to unqualified borrowers and then selling the debt to others for cash which they then lent out to still more unqualified borrowers.  Risky, but rewarding.  Banks that did this took market share and grew.

Meanwhile, smaller regional banks - like the one I bank at - said "No, fooey on this.  We'll take our 3% from the few prime borrowers out there and sit on our hands."  These banks are the right banks to have your money in, because they're not going under.

But they're sure as heck not candidates for investment, because their competitors - who took huge risks, reaped commensurate profits, and now are being bailed out of the consequences of the risks they took - have taken all their market share and have been able to grow - employees, branches, accounts - in ways that the conservative banks have not. 

What do you think?  I think I wouldn't go near these banks, whose sound policies have left them doubly shafted. 

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#2) On November 15, 2008 at 4:50 PM, rd80 (97.59) wrote:

Thanks for the comment.

I ran a 1-year comparison between TMP, BAC, C, and WFC.  FWIW, TMP has done slightly better than WFC and has clobbered BAC and C.

I think choosing not to participate in TARP is a good indicator that management thinks a bank is in good shape or believes they can access capital on better terms if they need it.  In their press release, TMP stated they felt private capital would be a better deal for their shareholders than TARP.

I agree that a good bank should be able to do well with TARP money and wouldn't rule out investing in a bank just because they participated in TARP.  In fact, I own shares of WFC.

Your comment did give me an idea.  I’ve set up a new Fool player to track the banks that took TARP money.  It’ll be interesting to see how they perform compared to the overall market and the banking indices.

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#3) On November 16, 2008 at 2:32 AM, ikkyu2 (99.22) wrote:

Interesting.  I will be keeping an eye on that.  Maybe you should throw XLF in there as a comparison basis.

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