Tompkins Financial (TMP) is one of those rare financial stocks that has maintained and increased its dividend through the financial crisis. Not only that, but it's also grown earnings for 36 straight years. Let that sink in for a minute before we go on. Only one company has done it longer, Wal-Mart (WMT). Tompkins Financial is now trading near its price to book lows going back at least ten years. Its book value has grown each one of those years as well, with last year jumping 10% YoY. Throw in a 3.4% dividend yield and there’s a lot to like here.
Tompkins Financial is a bank and trust founded in 1836 and sporting a $452 million market cap. It has 15 branches in New York. As you can imagine from its results, it stays away from sub-prime loans. It operates with five subsidiaries with three community banks: Tompkins Trust, The Bank of Castile, and Mahopac National Bank; as well as Tompkins Financial Advisors and Tompkins Insurance Agencies. I spent some time looking through the company's website and was impressed by how often it repeated its mission of long-term value, for shareholders and clients. Obviously this isn’t just lip service.
The thing that makes Tompkins Financial interesting now is its low P/B value. I pulled up its financials from the past ten years and until the last three years, it was very unusual for it to be trading at less than 2 times book. More typically, it was in the 2.25 range, and even occasionally got above 2.5 times book. Today, its stock price stands at 1.6 times book. The irony is that in the last three years, its book value has actually grown at a faster pace than the average book value growth from the last decade. If anything, it deserves a larger premium now than before. It’s a testament to today’s markets that companies that are difficult or impossible to value, such as Citibank (C) or American International Group (AIG) attract so much interest, but a stable high-level performer like Tompkins Financial isn’t on anyone's radar.
Book value is just an indicator. It’s also important to look behind the numbers to see if they are sustainable. Earnings increased by 5.1% over the past year and EPS is $3.11 for 2010, giving them a P/E of 13.3. Its Tier 1 Capital Ratio is 8.02%. Total loans were stable over the past year and its deposits are slightly up. Its net interest margin was slightly below last year’s figures. The steepening yield curve should help them in 2011. Non-performing assets declined in the past quarter, but are above 2009 levels. Still, they’re at very low levels relative to competitors.
Many investors are attracted to the dividend that Tompkins Financial pays. Not only is the yield attractive at 3.4%, but it qualifies as one of the most stable and secure dividends available in the markets. Its payout ratio is below 44%. It also paid a nice 10% stock dividend about a year ago in addition to its regular dividend. Shares are pushing 52 week highs, but that doesn’t mean they’re overvalued. In 2008 shares hit above $52 at years end despite book value being 20% lower, EPS being 10% lower, and revenue being the same. I'm pegging them at 20% undervalued right now. This is one you could buy now and forget about until P/B goes to 2.25.