SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-12709
TOMPKINS TRUSTCO, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 16-1482357
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
The Commons, P.O. Box 460, Ithaca, NY 14851
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 273-3210
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ].
Indicate the number of shares of the Registrant's Common Stock outstanding as of
the latest practicable date:
Class Outstanding as of November 2, 2000
---------------------------- -----------------------------------
Common Stock, $.10 par value 7,360,642 shares
TOMPKINS TRUSTCO, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
PAGE
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Statements of Condition as
of September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income for
the Three Months and the Nine Months Ended September
30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity for the Nine Months Ended
September 30, 2000 and 1999 6
Notes to Unaudited Condensed Consolidated Financial
Statements 7-13
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-21
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 22
Average Consolidated Balance Sheet and Net Interest
Analysis 23
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings Not Applicable
Item 2 - Changes in Securities and Use of Proceeds Not Applicable
Item 3 - Defaults On Senior Securities Not Applicable
Item 4 - Submission of Matters to a Vote of Securities
Holders Not Applicable
Item 5 - Other Information Not Applicable
Item 6 - Exhibits and Reports On Form 8-K 24
SIGNATURES 25
EXHIBIT INDEX 26
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data) (Unaudited)
As of As of
ASSETS 09/30/2000 12/31/1999
- -------------------------------------------------------------------------------------------------------- -----------
Cash & noninterest bearing balances
due from banks $ 41,024 $ 35,938
Federal funds sold 16,000 18,850
Available-for-sale securities, at fair value 302,581 294,199
Held-to-maturity securities, fair value of $28,838 at
September 30, 2000 and $31,265 at December 31, 1999 26,995 30,975
Loans/leases net of unearned income 822,617 755,382
Less: Reserve for loan/lease losses 9,581 9,228
- ----------------------------------------------------------------------------------------------------------------------
NET LOANS/LEASES 813,036 746,154
Bank premises and equipment, net 23,614 21,147
Corporate owned life insurance 18,315 13,267
Intangible assets 10,004 6,271
Accrued interest and other assets 25,279 21,878
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,276,848 $ 1,188,679
======================================================================================================================
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings and money market 413,807 $ 416,836
Time 388,177 376,371
Noninterest bearing 204,444 181,032
- ----------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,006,428 974,239
Securities sold under agreements to repurchase and
Federal funds purchased 76,275 57,846
Other borrowings 67,434 42,012
Other liabilities 14,570 11,766
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 1,164,707 $ 1,085,863
- ----------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 1,528 6,192
Shareholders' equity:
Common Stock - par value $.10 per share, authorized 15,000,000 shares
Issued: 7,387,162 at September 30, 2000; and 7,099,606 at December 31, 1999 739 $ 710
Surplus 45,351 40,548
Undivided profits 68,368 61,078
Accumulated other comprehensive loss (2,900) (4,745)
Treasury stock, at cost - 26,462 shares at September 30, 2000,
and 27,663 shares at December 31, 1999 (503) (525)
Unallocated ISOP/ESOP: 37,637 shares at September 30, 2000,
37,637 shares at December 31, 1999 (442) (442)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 110,613 $ 96,624
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
AND SHAREHOLDERS' EQUITY $ 1,276,848 $ 1,188,679
======================================================================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) (Unaudited)
Three months ended Nine months ended
----------------------- -----------------------
09/30/2000 09/30/1999 09/30/2000 09/30/1999
---------- ---------- ---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $ 18,110 $ 15,635 $ 51,850 $ 41,918
Federal funds sold 170 282 552 774
Available-for-sale securities 4,969 4,461 14,451 12,351
Held-to-maturity securities 350 378 1,136 1,247
- ------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST AND DIVIDEND INCOME 23,599 20,756 67,989 56,290
- ------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or more 2,732 1,812 7,333 5,273
Other deposits 5,583 4,710 16,336 12,755
Federal funds purchased and securities sold under
agreements to repurchase 1,098 791 3,025 2,240
Other borrowings 1,277 661 2,527 1,907
- ------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 10,690 7,974 29,221 22,175
- ------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 12,909 12,782 38,768 34,115
- ------------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 301 174 815 680
- ------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN/LEASE LOSSES 12,608 12,608 37,953 33,435
- ------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Trust and investment services income 1,054 954 3,404 3,164
Service charges on deposit accounts 927 835 2,681 2,248
Other service charges 950 595 2,855 1,903
Increase in cash surrender value of corporate owned
life insurance 271 187 668 537
Other operating income 342 418 726 719
Net realized gain (loss) on available-for-sale securities 225 (2) 415 0
- ------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 3,769 2,987 10,749 8,571
- ------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salary and wages 4,345 4,279 12,914 10,989
Pension and other employee benefits 994 635 3,057 2,294
Net occupancy expense of bank premises 584 390 1,814 1,251
Furniture and fixture expense 622 589 1,890 1,630
Amortization of intangible assets 278 218 775 432
Other operating expense 2,736 2,531 8,328 6,690
- ------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 9,559 8,642 28,778 23,286
- ------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY
INTEREST IN CONSOLIDATED SUBSIDIARIES 6,818 6,953 19,924 18,720
- ------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 174 222 534 357
INCOME TAX EXPENSE 2,072 2,183 6,304 5,954
- ------------------------------------------------------------------------------------------------------------------
NET INCOME $ 4,572 $ 4,548 $ 13,086 $ 12,409
==================================================================================================================
BASIC EARNINGS PER SHARE $ 0.64 $ 0.64 $ 1.86 $ 1.75
DILUTED EARNINGS PER SHARE $ 0.64 $ 0.64 $ 1.85 $ 1.73
==================================================================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Nine months ended
-------------------------
September 30, September 30,
2000 1999
----------- -----------
OPERATING ACTIVITIES
Net income $ 13,086 $ 12,409
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 815 680
Depreciation and amortization premises, equipment, and software 1,813 1,625
Amortization of intangible assets 775 432
Earnings from corporate owned life insurance (668) (537)
Net amortization on securities 94 221
Net realized (gain) loss on available-for-sale securities (415) 0
Net (gain) loss on sale of loans (25) (5)
Net (gain) loss on sales of bank premises and equipment 7 (35)
ISOP/ESOP shares released for allocation 0 43
(Increase) decrease in accrued interest receivable (473) (97)
(Decrease) increase in accrued interest payable 587 (135)
Other, net (2,482) 7,049
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,114 21,650
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 28,776 56,277
Proceeds from sales of available-for-sale securities 6,935 10,341
Proceeds from maturities of held-to maturity securities 12,138 10,837
Purchases of available-for-sale securities (40,667) (82,775)
Purchases of held-to-maturity securities (8,186) (4,684)
Proceeds from sale of loans 3,989 2,357
Net increase in loans (71,660) (53,502)
Proceeds from sale of bank premises and equipment 33 45
Purchases of bank premises and equipment (4,713) (1,744)
Purchase of corporate owned life insurance (4,445) (6,980)
Net cash provided by acquisition of The Mahopac National Bank 0 4,258
- ---------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (77,800) (65,570)
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in demand, money market,
and savings deposits 20,383 53,450
Net increase (decrease) in time deposits 11,806 23,105
Net increase (decrease) in securities sold under agreements
to repurchase and Federal funds purchased 18,429 (4,839)
Net increase (decrease) in other borrowings 25,422 2,729
Cash dividends (5,796) (4,571)
Sale of treasury stock 31 30
Repurchase of common shares (3,442) (3,330)
Cash paid in lieu of fractional shares Letchworth
common shares (9) 0
Net proceeds from exercise of stock options and
related tax benefit 98 629
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 66,922 67,203
- ---------------------------------------------------------------------------------------------------------
0
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,236 23,283
Cash and Cash Equivalents at beginning of Period 54,788 46,668
TOTAL CASH & CASH EQUIVALENTS AT END OF PERIOD $ 57,024 $ 69,951
=========================================================================================================
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest 28,634 22,399
Taxes 5,858 5,236
Noncash investing activities:
Change in net unrealized holding gain (loss) on
available-for-sale securities 3,490 (8,068)
Fair value of noncash assets acquired in purchase
acquisition 60,034 143,298
Fair value of liabilities acquired in purchase
acquisition 55,469 147,556
See accompanying notes to unaudited condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data) (Unaudited)
Accumulated
Other
Common Undivided Comprehensive Treasury Unallocated
Stock Surplus Profits Income (Loss) Stock ISOP/ESOP Total
===============================================================================================================================
BALANCES AT
JANUARY 1, 1999 $717 $43,774 $52,037 $2,339 ($548) ($667) $ 97,652
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 12,409 12,409
Other Comprehensive loss (4,841) (4,841)
--------
TOTAL COMPREHENSIVE INCOME 7,568
========
Cash dividends ($0.76/Share)* (4,571) (4,571)
Exercise of stock options, and related
tax benefit (67,184 shares, net) 12 617 629
Common stock repurchased and
returned to unissued status (93,790) (9) (3,105) (3,114)
Treasury stock purchased and returned
to unissued status by pooled company
(9,465 shares) (1) (215) (216)
Treasury stock sold (893 shares) 14 16 30
ISOP/ESOP shares released for
allocation (5,248 shares) (3) 46 43
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
SEPTEMBER 30, 1999 $719 $41,082 $59,875 ($2,502) ($532) ($621) $ 98,021
- -------------------------------------------------------------------------------------------------------------------------------
===============================================================================================================================
BALANCES AT
JANUARY 1, 2000 $710 $40,548 $61,078 ($4,745) ($525) ($442) $ 96,624
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 13,086 13,086
Other Comprehensive Income 1,845 1,845
--------
TOTAL COMPREHENSIVE INCOME 14,931
========
Cash paid in lieu of fractional Letchworth
common shares (9) (9)
Cash dividends ($0.81/Share) (5,796) (5,796)
Exercise of stock options and
related tax benefit (7,397 shares, net) 1 97 98
Common stock repurchased and
returned to unissued status (134,841 shares) (13) (3,429) (3,442)
Treasury stock sold (1,201 shares) 9 22 31
Stock issued for purchase acquisition
of minority interest in The Mahopac
National Bank (415,000 shares) 41 8,135 8,176
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
SEPTEMBER 30, 2000 $739 $45,351 $68,368 ($2,900) ($503) ($442) $110,613
- -------------------------------------------------------------------------------------------------------------------------------
* Reflects historical per share cash dividends paid by Tompkins Trustco, Inc.
See accompanying notes to unaudited condensed consolidated financial statements.
6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Tompkins Trustco, Inc. ("Tompkins" or "the Company") is a financial holding
company, organized under the laws of New York State, and is the parent company
of Tompkins County Trust Company (the "Trust Company"), The Bank of Castile, and
The Mahopac National Bank. The consolidated financial information included
herein combines the results of operations, the assets, liabilities, and
shareholders' equity of the Company and its subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation.
2. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and disclose
contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period. Actual
results could differ from those estimates. Amounts in the prior period's
consolidated financial statements are reclassified when necessary to conform
with the current period's presentation.
All intercompany accounts and transactions have been eliminated in
consolidation. In management's opinion, the unaudited condensed consolidated
financial statements reflect all adjustments of a normal recurring nature. The
results of operations for the interim periods are not necessarily indicative of
the results of operations to be expected for the full year ended December 31,
2000. The unaudited condensed consolidated financial statements should be read
in conjunction with the Company's 1999 Annual Report on Form 10-K.
3. MERGERS AND ACQUISITIONS
Letchworth Merger
On December 31, 1999, Tompkins completed a merger with Letchworth Independent
Bancshares ("Letchworth"), which was the parent company for The Bank of Castile
(a wholly-owned subsidiary), and The Mahopac National Bank (approximately 70%
owned by Letchworth). The merger was accounted for as a pooling-of-interests,
and upon completing the merger, Letchworth was merged with and into Tompkins.
All prior period financial information has been restated to present the combined
financial condition and results of operations of both companies as if the merger
had been in effect for all periods presented.
The following table presents the results of operations as reported by Tompkins
and Letchworth, and on a pro forma combined basis. Pro forma combined financial
information is based upon unaudited historical information, assuming the mergers
had been consummated as of the beginning of the respective periods.
7
Three Months Ended Nine Months Ended
----------------------- ------------------------
(dollar amounts in thousands, except per share) 9/30/2000 9/30/1999 9/30/2000 9/30/1999
=============================================================================================================
Net interest income:
Tompkins $12,909 $ 7,379 $38,768 $21,528
Letchworth (1) -- $ 5,403 -- $12,587
- -------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED $12,909 $12,782 $38,768 $34,115
Net income:
Tompkins $ 4,572 $ 3,271 $13,086 $ 9,244
Letchworth (1) -- $ 1,277 -- $ 3,165
- -------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED $ 4,572 $ 4,548 $13,086 $12,409
Basic earnings per share:
Tompkins $ 0.64 $ 0.68 $ 1.86 $ 1.91
Letchworth (1) -- $ 0.39 -- $ 0.97
- -------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED $ 0.64 $ 0.64 $ 1.86 $ 1.75
Diluted earnings per share:
Tompkins $ 0.64 $ 0.67 $ 1.85 $ 1.88
Letchworth (1) -- $ 0.38 -- $ 0.96
- -------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED $ 0.64 $ 0.64 $ 1.85 $ 1.73
=============================================================================================================
(1) Letchworth was merged into Tompkins effective December 31, 1999; therefore,
no information is shown for Letchworth subsequent to the date of the merger.
The Mahopac National Bank Acquisition
Upon completion of the merger with Letchworth, The Mahopac National Bank became
a subsidiary of Tompkins. Letchworth had initially acquired 70.17% of the
outstanding common stock of The Mahopac National Bank in a cash transaction,
accounted for as a purchase on June 4, 1999. Accordingly, operating results for
The Mahopac National Bank are not included for periods prior to June 4, 1999.
Further details pertaining to the merger with Letchworth are presented in Note 2
to the Company's Annual Report on Form 10-K dated December 31, 1999.
Effective September 1, 2000, Tompkins Trustco, Inc. completed a purchase of the
approximate 30% minority interest in The Mahopac National Bank from the minority
shareholders (the "Spain family"). Prior to September 1, 2000, the approximate
30% interest in The Mahopac National Bank, which was not owned by Tompkins, was
shown as a minority interest in consolidated subsidiaries on the consolidated
statements of condition. The interest owned by the Spain family had been subject
to a buy/sell contract between Tompkins and the Spain family. It has been the
stated intention of the parties to reach agreement for purchase of the Spain
interest by Tompkins. The purchase has now been completed several months earlier
than anticipated.
The table below presents the pro forma combined results of operations of
Tompkins, Letchworth, and The Mahopac National Bank, as if Mahopac had been 100%
owned for all periods presented.
8
Three Months Ended Nine Months Ended
----------------------- ------------------------
(dollar amounts in thousands, except per share) 9/30/2000 9/30/1999 9/30/2000 9/30/1999
=============================================================================================================
Net interest income:
- -------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED $12,909 $12,782 $38,768 $36,977
Net income:
- -------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED $ 4,681 $ 4,690 $13,392 $12,954
Basic earnings per share:
- -------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED $ 0.62 $ 0.63 $ 1.80 $ 1.73
Diluted earnings per share:
- -------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED $ 0.62 $ 0.62 $ 1.78 $ 1.70
=============================================================================================================
The pro forma combined financial information does not reflect any potential cost
savings or revenue enhancements that are expected to result from the mergers.
Accordingly, the pro forma combined financial information may not be indicative
of operations that would have been achieved had the mergers occurred on the
dates indicated, nor do they purport to be indicative of the results of
operations that may be achieved in the future.
On April 3, 2000, the Company announced that it entered into an agreement to
acquire two Western New York insurance agencies, pending regulatory approvals.
The Austin, Hardie, Wise Agency, Inc., with offices in Attica, Warsaw and Alden;
and Ernest Townsend & Son, Inc., with offices in LeRoy, Batavia and Caledonia,
are expected to continue operating in those locations. The two agencies employ a
total of 47 persons. The Company anticipates that this transaction will close in
the fourth quarter of 2000, or very early in the first quarter of 2001.
9
4. EARNINGS PER SHARE
A computation of Basic Earnings Per Share ("EPS") and Diluted EPS for the three
month periods ending September 30, 2000 and 1999, is presented in the table
below.
Weighted Per
Three months ended September 30, 2000 Net Income Average Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------
BASIC EPS
Income available to common shareholders $ 4,572 7,093,592 $0.64
EFFECT OF DILUTIVE SECURITIES (Stock options) 50,723
DILUTED EPS
Income Available to common shareholders plus assumed conversions $ 4,572 7,144,315 $0.64
===============================================================================================================
Weighted Per
Three months ended September 30, 2000 Net Income Average Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------
BASIC EPS
Income Available to common shareholders $ 4,548 7,060,147 $0.64
EFFECT OF DILUTIVE SECURITIES (Stock options) 104,124
DILUTED EPS
Income Available to common shareholders plus assumed conversions $ 4,548 7,164,271 $0.64
===============================================================================================================
The effect of dilutive securities calculation for 2000 excludes weighted average
options of 32,035 because the exercise price of the options was greater than the
average market value during the period.
A computation of Basic EPS and Diluted EPS for the nine month periods ending
September 30, 2000 and 1999, is presented in the table below.
Weighted Per
Nine months ended September 30, 2000 Net Income Average Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------
BASIC EPS
Income available to common shareholders $13,086 7,034,339 $1.86
EFFECT OF DILUTIVE SECURITIES (Stock options) 51,274
DILUTED EPS
Income Available to common shareholders plus assumed conversions $13,086 7,085,613 $1.85
===============================================================================================================
Weighted Per
Nine months ended September 30, 2000 Net Income Average Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------
BASIC EPS
Income Available to common shareholders $12,409 7,079,564 $1.75
EFFECT OF DILUTIVE SECURITIES (Stock options) 117,585
DILUTED EPS
Income Available to common shareholders plus assumed conversions $12,409 7,197,149 $1.73
===============================================================================================================
The effect of dilutive securities calculation for 2000 excludes weighted average
options of 14,188 because the exercise price of the options was greater than the
average market value during the period.
10
5. COMPREHENSIVE INCOME (LOSS)
Three months ended Nine months ended
----------------------- -----------------------
09/30/2000 09/30/1999 09/30/2000 09/30/1999
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 4,572 $ 4,548 $13,086 $12,409
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized holding gain (losses) during the period 2,776 (316) 2,094 (4,841)
Memo: Pre-tax unrealized net holding gain (loss) 4,627 (527) 3,490 (8,068)
Reclassification adjustment for net realized (gain) loss on
available-for-sale securities (135) 1 (249) 0
Memo: Pretax net realized (gain) loss (225) 2 (415) 0
- -----------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) 2,641 (315) 1,845 (4,841)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 7,213 $ 4,233 $14,931 $ 7,568
- -----------------------------------------------------------------------------------------------------------------------
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivatives embedded in
other contracts, and for hedging activities. This statement, as amended, is
effective for fiscal quarters of fiscal years beginning after June 15, 1999 to
fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000, the
FASB issued SFAS No. 138 "Accounting for Derivative Instruments and Hedging
Activities, an amendment to FASB Statement No. 133." This statement amends the
accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and certain hedging activities. This standard requires that all
derivative financial instruments be measured at fair value and recognized in the
statement of condition as either assets or liabilities. Changes in the fair
value of the derivative financial instruments will be reported in either
earnings or comprehensive income, depending on the use of the derivative and
whether or not it qualifies for hedge accounting. Consequently, there may be
increased volatility in net income and shareholders' equity as a result of
accounting for derivatives in accordance with SFAS No. 133.
Special hedge accounting treatment is permitted only if specific criteria are
met, including a requirement that the hedging relationship be highly effective
both at inception and on an ongoing basis. Results of effective hedges are
recognized in current earnings for fair value hedges, in other comprehensive
income for cash flow hedges, and as part of the cumulative translation
adjustments in other comprehensive income for foreign currency net investment
hedges. Ineffective portions of hedges are recognized immediately in earnings
and are not deferred.
Management has estimated that if the Company had adopted SFAS No. 133 on
September 30, 2000, the initial adoption would not have had a material effect on
the Company's financial statements. Although management anticipates that the
adoption of this statement on January 1, 2001 will not be material to the
Company's financial statements, the effect of adoption cannot be estimated with
certainty at this time, as it is subject to unknown variables at that date such
as (1) actual derivatives and related hedge positions, (2) market values of
derivatives and related hedge items, and (3) further ongoing interpretation of
SFAS No. 133 by the FASB.
11
In March 2000, the FASB issued FASB interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation." FASB Interpretation No. 44
clarifies certain issues relating to the application of Accounting Principles
Board No. 25, "Accounting for Stock Issued to Employees." FASB interpretation
No. 44 became effective on July 31, 2000, and the adoption of this
interpretation did not have a material effect on the Company's financial
position or results of operations.
In September 2000, The FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140
replaces identically titled SFAS No. 125, and it carries forward most of SFAS
No. 125's provisions without change. It does revise accounting standards for
securitizations and certain other transfers of financial assets and collateral.
The statement is generally applied prospectively to transactions and servicing
activities occurring after March 31, 2001, although provisions with respect to
collateral and certain disclosure requirements are effective for fiscal years
ending after December 15, 2000. This statement is not expected to have a
material impact on the consolidated financial statements of the Company.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Tompkins Trustco, Inc. ("Tompkins" or "the Company") was organized in 1995, as
the parent company of Tompkins County Trust Company (the "Trust Company"), which
traces its charter back to 1836. On December 31, 1999, the Company completed a
merger with Letchworth Independent Bancshares Corporation ("Letchworth"), at
which time Letchworth was merged with and into Tompkins. Upon completion of the
merger, Letchworth's two subsidiary banks, The Bank of Castile and The Mahopac
National Bank, became subsidiaries of Tompkins.
Through its community bank subsidiaries, the Company provides traditional
banking related services, which constitute the Company's only business segment.
Banking services consist primarily of attracting deposits from the areas served
by its banking offices and using those deposits to originate a variety of
commercial loans, consumer loans, real estate loans (including commercial loans
collateralized by real estate), and leases, and providing trust and investment
related services. The Company's principal expenses are interest on deposits,
interest on borrowings, and operating and general administrative expenses, as
well as provisions for loan/lease losses. Funding sources, other than deposits,
include borrowings, securities sold under agreements to repurchase, and cash
flow from lending and investing activities.
The Company conducts trust and investment management services through the Trust
and Investment Services Divisions of its banking subsidiaries. The Trust and
Investment Services Divisions provide a full range of money management services
to individuals and institutions, including: investment management accounts,
custody accounts, trusts, retirement plans and rollovers, estate settlement, and
financial planning.
The merger with Letchworth was accounted for as a pooling-of-interests, and
accordingly all prior period financial information has been restated to present
the combined financial condition and results of operations of both companies as
if the merger had been in effect for all periods presented. In conjunction with
the Letchworth merger, Tompkins assumed an option to acquire the remaining
outstanding shares of The Mahopac National Bank from the minority shareholders,
at 90% of their fair value. Effective September 1, 2000, Tompkins completed the
purchase of remaining approximate 30% interest of The Mahopac National Bank from
the minority shareholders. Upon consummation of the purchase The Mahopac
National Bank became a wholly-owned subsidiary of the Tompkins. Further details
pertaining to the merger with Letchworth are presented in Note 2 to the
Company's Annual Report on Form 10-K dated December 31, 1999, and in Note 3 to
the unaudited condensed consolidated financial statements included in this
report.
The following discussion is intended to provide the reader with a further
understanding of the consolidated financial condition and results of operations
of Tompkins Trustco, Inc. and its operating subsidiaries. It should be read in
conjunction with the Company's Form 10-K and related notes for the year ended
December 31, 1999, and the unaudited condensed consolidated financial statements
and notes included elsewhere in this report.
FORWARD-LOOKING STATEMENTS
This report may include forward-looking statements with respect to revenue
sources, growth, market risk, and corporate objectives. The Company assumes no
duty, and specifically disclaims any obligation, to update forward-looking
statements, and cautions that these statements are subject to numerous
assumptions, risk, and uncertainties, all of which could change over time.
Actual results could differ materially from forward-looking statements.
13
RESULTS OF OPERATIONS
Net income was $13.1 million for the nine months ended September 30, 2000, an
increase of 5.5% over the same period in 1999. Operating earnings (Net income
before amortization of intangible assets and before one-time merger related
expenses net of tax, if applicable), of $13.6 million for the first nine months
of 2000 reflects a 7.2% increase over operating earnings of $12.7 million in
1999. Diluted operating earnings per share was $1.92 for the first nine months
of 2000, an increase of 9.1% over the same period in 1999. Basic earnings per
share reported in accordance with Generally Accepted Accounting Principles
("GAAP") was $1.86 for the year to date period ended September 30, 2000,
compared to $1.75 for the first nine months of 1999. Diluted earnings per share
reported in accordance with GAAP was $1.85 for first nine months of 2000, an
increase of 6.9% over the $1.73 reported in 1999. Included in year to date
income as of September 30, 2000, is a net realized gain on available-for-sale
securities of $415,000, compared to no such gain or loss for the same period in
1999.
Net income for the third quarter of 2000 was $4.6 million, reflecting the
strongest quarterly operating results since the Company's merger with Letchworth
on December 31, 1999. Net income for the third quarter of 1999 was $4.5 million.
Diluted operating earnings per share was $0.67 for the third quarter of 2000, an
increase of 3.1% over the third quarter of 1999. Diluted earnings per share
reported in accordance with GAAP was also $0.64 for the third quarter of 2000,
unchanged from the prior year. Included in quarter to date income as of
September 30, 2000, is a net realized gain on available-for-sale securities of
$225,000, compared to a net realized loss of $2,000 for the same period in 1999.
The Company has begun to realize some of the anticipated benefits of the merger
with Letchworth. The Bank of Castile's data processing has now been fully
converted to the Trust Company's mainframe system. The Company was able to
leverage its investment in internet banking services to create an enhanced
product for the Trust Company and begin offering a new service to customers at
The Bank of Castile. Plans have been established, and in some cases implemented,
for coordinated marketing of certain products. In addition, efficiencies are
beginning to be realized in certain administrative activities through increased
coordination of various functions.
While implementing various merger related activities have been a high priority
in 2000, the Company's core operating performance has remained strong. Return on
average shareholders' equity (ROAE) for the first nine months of 2000 was
17.59%, compared to 16.84% for the same period in 1999. Operating ROAE was
18.18% for the nine months ended September 30, 2000, compared to 17.16% for the
same period in 1999. The Company's return on average assets (ROAA) of 1.43% for
the first nine months of 2000 remains strong by industry standards, although it
is down slightly from 1.46% for the same period in 1999. Operating ROAA was
1.48% for the first nine months of 2000, compared to 1.49% in 1999.
NET INTEREST INCOME
As reflected in the attached Average Consolidated Balance Sheet and Net Interest
Analysis, the Company earned tax-equivalent net interest income of $40.4 million
for the nine months ended September 30,, 2000, compared to $35.6 million for the
same period in 1999. Tax-equivalent net interest income for the third quarter of
2000 was $13.5 million. Growth in net interest income reflects benefits from the
Letchworth acquisition, which has provided the Company with new and faster
growing markets for loan and deposit products. Net interest income for the first
nine months of 2000 increased by 13.5% over the same period in 1999. Improved
results were achieved through growth in earnings assets, which were primarily
funded by core deposits (total deposits less time deposits of $100,000 or more).
14
Average core deposits grew by 19.1% between September 30, 1999 and September 30,
2000. At September 30, 2000, average core deposits amounted to $816 million, and
represented 72.5% of average liabilities. This compares to average core deposits
of $685 million at September 30, 1999, representing 66.1% of average
liabilities. Growth in the Company's core funding base was the primary support
for a $89 million increase in average assets, up 7.8% over the first nine months
of 1999. Loan growth was particularly strong, with average loans of $787
million, increasing by 11.1% over 1999. Most of the growth in average loans
centered in real estate loans, which increased from $400 million at September
30, 1999 to $479 million at September 30, 2000.
A favorable mix of high quality earning assets and low cost funding contributed
to a net interest margin increase to 4.75% for the first nine months of 2000,
compared to a 4.51% for the same period in 1999. Recent rising interest rate
trends have resulted in increases in both the yield on earning assets and the
cost of funds. Between September 30, 1999 and September 30, 2000 the Company's
yield on earning assets increased by 89 basis points from 7.31% to 8.18%,
respectively. Over that same period, the Company's cost of funds increased 74
basis points from 3.49% in 1999 to 4.23% in 2000. The Company has seen some
narrowing of the net interest margin in the third quarter of 2000, as the margin
of 4.59%, reflects a decline from the previous two quarters of 2000.
PROVISION FOR LOAN/LEASE LOSSES
The provision for loan/lease losses represents management's estimate of the
expense necessary to maintain the reserve for loan/lease losses at an adequate
level. The provision for loan/lease losses of $815,000 for the first nine months
of 2000, compared to $680,000 for the same period in 1999. The provision for
loan/lease losses was $301,000 for the third quarter of 2000, compared to
$174,000 for the third quarter of 1999. Net charge-offs of $462,000 in the first
nine months of 2000, reflect an increase over net charge-offs of $332,000 for
the first nine months of 1999. The increase in the provision for loan/lease
losses is primarily the result of continued increases in the loan portfolio, as
well as increases in net charge-offs and nonperforming loans. The reserve for
loan/lease losses as a percentage of period end loans was 1.16% at September 30,
2000, and 1.22% at December 31, 1999.
OTHER INCOME
Other income continues to be a key source of revenue growth for the Company.
Through the Trust Company primarily, the Company has invested significant
resources in developing fee income producing products and services. Many of
these products and services can be offered to customers of The Bank of Castile
and The Mahopac National Bank, thereby expanding the customer base for these
products. Through this expanded customer base, the Company anticipates continued
growth from noninterest related sources.
Total other income for the first nine months of 2000 totaled $10.7 million, an
increase of 25% from the prior year. Other income for the third quarter of 2000
was $3.8 million, and increase of 26.2% from the third quarter of 1999. Other
income, before realized gains and losses on available-for-sale securities,
increased as a percentage total revenue (Tax equivalent net interest income,
plus other income before realized gains and losses on available-for-sale
securities) to 20.4% for the nine months ended September 30, 2000, from 19.4%
for the same period in 1999. Other income from The Mahopac National Bank
amounted to $966,000 for the nine months ended September 30, 2000. In 1999,
other income from The Mahopac National Bank was $335,000 for the four months in
which Mahopac was included in the consolidated statements of income.
15
Income from trust and investment services, the largest segment of other income,
increased 8% to $3.4 million, compared to $3.2 million the first nine months of
1999. The increase is primarily attributable to continued asset growth in the
Trust and Investment Services Division. Total assets managed by, or in custody
of, the Trust and Investment Services Division were $1.1 billion on September
30, 2000, up approximately $97 million from September 30, 1999. Trust and
investment services are primarily provided to customers in the Trust Company's
market area of Tompkins County and surrounding areas, although the division
currently manages assets for clients in more than 40 states. Since 1997, the
Trust and Investment Services Division of the Trust Company has been offering a
"Trust Alliance" program, through which the Company provides servicing and
administrative support to trust departments of other banks. Currently the Trust
Alliance program participants include The Bank of Castile and two non-affiliated
community banks.
Card services, included in other service charges on the consolidated statements
of income, has been another growth area for the Company, as technology has
created opportunities to provide customers with new products to better serve
their needs. Card services products include traditional credit cards, purchasing
cards, debit cards, and merchant card processing. Fee income associated with
card services increased 40% to $1.6 million in 2000, compared to $1.2 million in
1999.
The Company continues to invest in technology to meet consumer demands for more
convenient banking services. All three of the Company's subsidiary banks offer
Internet banking products. In the first quarter of 2000, the Trust Company
introduced an improved internet banking product for individuals and businesses.
The Bank of Castile began offering internet banking during the third quarter of
2000.
The pending acquisitions of Austin, Hardie, Wise, Inc. and Ernest Townsend &
Sons, Inc., will provide an additional source of noninterest income and enhance
the Company's ability to serve its customers with a full range of financial
products and services.
- -240Other income for the first nine months of 2000 includes a $668,000 increase
in cash surrender value of corporate owned life insurance (COLI), up from
$537,000 in 1999. The corporate owned life insurance relates to life insurance
provided to certain senior officers. The Company's average investment in COLI
was $15.7 million for the nine month period ended September 30, 1999, compared
to $12.4 million for the same period in 1999. Increases in the cash surrender
value of insurance are reflected as other income, and the related mortality
expense is recognized as an other expense. The income and expense associated
with this insurance are excluded from taxes.
OTHER EXPENSES
Total other expenses of $28.8 million for the first nine months of 2000,
compared to $23.3 for the same period in 1999. For the third quarter of 2000,
other expenses were $9.6 million, up 10.6% from the third quarter of 1999. The
increase in 2000 includes the additional costs associated with two branch office
openings -- the Chili Office of The Bank of Castile (opened in the third quarter
of 1999), and the Brewster Office of The Mahopac National Bank (opened in the
first quarter of 2000). Other expenses in the first nine months of 2000 include
$5.1 million of operating expenses (excluding amortization of intangible assets)
relating to The Mahopac National Bank, while 1999 results include $1.9 million
of operating expenses relating to The Mahopac National Bank, representing four
months of consolidated operations. Intangible amortization expense associated
with the Mahopac acquisition was approximately $595,000 for the nine months
ended September 30, 2000, and $256,000 for the nine months ended September 30,
1999. In general, the expenses associated with the branch openings and post
merger systems conversions have been in line with management expectations.
16
Personnel-related expenses comprise the largest segment of other expense,
representing approximately 55.5% of operating expense in the first nine months
of 2000, compared to approximately 57.0% for the same period in 1999. Total
personnel-related expenses for the first nine months of 2000 increased by 20%
over the first nine months of 1999. Although the Company does not anticipate
significant personnel reductions as a result of recent mergers, certain
operational changes are expected to result in more efficient personnel
utilization in the remainder of 2000.
Expense for premises, furniture, and fixtures increased from $2.9 million for
the period ended September 30, 1999, to $3.7 million for the period ended
September 30, 2000. The increase of $823,000 is largely due to the addition of
the Chili and Brewster Offices.
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
Minority interest expense represents the portion of net income in consolidated
majority-owned subsidiaries that is attributable to the minority owners of the
subsidiaries. Minority interest expense included in the statements of income
includes the approximate 30% interest in The Mahopac National Bank that was
owned by minority shareholders during the period from June 4, 1999, through
August 31, 2000. The minority interest expense attributable to the minority
shareholders of The Mahopac national Bank was $233,000 for the year to date
period ended September 30, 1999, and $434,000 for the year to date period ended
September 30, 2000. The remaining minority interest expense is attributable to
the minority interests in the Real Estate Investment Trust subsidiaries of the
Company's three banking subsidiaries.
INCOME TAX EXPENSE
The provision for income taxes provides for Federal and New York State income
taxes. The provision for the nine months ended September 30, 2000, was $6.3
million, compared to $6.0 million in 1999. The increased provision is primarily
due to increased levels of taxable income. The effective tax rate for the first
nine months of 1999 and 2000 was approximately 32.5%.
FINANCIAL CONDITION
The Company's total assets were $1.3 billion as of September 30, 2000,
representing an increase of $88.2 million over total assets reported as of
December 31, 1999. Growth was primarily in the loan and lease portfolio, which
increased by $67.2 million in the first nine months of 2000, while the
securities portfolio grew by approximately $4.4 million (including market value
adjustments on available-for-sale securities).
CAPITAL
Total shareholders' equity grew by approximately 14% during the first nine
months of 2000 to $110.6 million. The increase in shareholders' equity includes
an increase of approximately $8.2 million related common stock issued to
purchase the approximate 30% minority interest in The Mahopac National Bank.
This increase was partially offset by $3.4 million in common stock that was
repurchased and returned to unissued status. On August 15, 2000, the Company
announced that its Board of Directors had approved a repurchase plan (the
"Plan") authorizing the repurchase of up to 400,000 shares of the Company's
outstanding common stock over the next 24 months. As of September 30, 2000,
79,064 shares had been repurchased under the Plan.
Cash dividends paid in the first nine months of 2000 totaled approximately $5.8
million, representing 44% of year to date earnings. Per share cash dividends of
$0.81 for the first nine months of 2000, represents a 6.6% increase over cash
dividends paid by Tompkins in the same period of 1999.
17
The Company and its banking subsidiaries are subject to various regulatory
capital requirements administered by Federal banking agencies. Management
believes the Company and its subsidiaries meet all capital adequacy requirements
to which they are subject. The table below reflects the Company's capital
position at September 30, 2000, compared to the regulatory capital requirements
for "well capitalized" institutions.
REGULATORY CAPITAL ANALYSIS - September 30, 2000
================================================================================
Well Capitalized
Actual Requirement
----------------- ----------------
(Dollar amounts in thousands) Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------
Total Capital (to risk weighted assets) $114,690 13.0% $87,979 10.0%
Tier I Capital (to risk weighted assets) $105,109 11.9% $52,787 6.0%
Tier I Capital (to average assets) $105,109 8.4% $62,877 5.0%
================================================================================
As illustrated above, the Company's capital ratios on September 30, 2000 remain
well above the minimum requirement for well capitalized institutions. As of
September 30, 2000, the capital ratios for each of the Company's subsidiary
banks also exceeded the minimum levels required to be considered well
capitalized.
RESERVE FOR LOAN AND LEASE LOSSES AND NONPERFORMING ASSETS
Management reviews the adequacy of the reserve for loan and lease losses in a
detailed and ongoing basis, giving consideration to various risk elements that
may affect the inherent risk of loss in the current loan/lease portfolio. Based
upon management's review, the current reserve of $9.6 million is believed
adequate based on the inherent risk of loss in the loan and lease portfolios.
Activity in the Company's reserve for loan and lease losses during the first
nine months of 2000 and 1999 is illustrated in the table below.
ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In thousands)
=============================================================================================
September 30, 2000 September 30, 1999
- ---------------------------------------------------------------------------------------------
Average Loans and Leases Outstanding Year to Date $786,677 $638,496
- ---------------------------------------------------------------------------------------------
Beginning Balance 9,228 7,405
- ---------------------------------------------------------------------------------------------
Allowance related to purchase acquisition 0 1,511
- ---------------------------------------------------------------------------------------------
Provision for loan losses 815 680
Loans charged off (777) (732)
Loan recoveries 315 366
- ---------------------------------------------------------------------------------------------
Net Charge-offs (462) (366)
- ---------------------------------------------------------------------------------------------
Ending Balance $ 9,581 $ 9,230
=============================================================================================
Annualized net charge-offs through the first nine months of 2000 amounted to
0.08% of average loans outstanding during the period. This ratio is unchanged
from the nine month period ended September 30, 1999. Reserve coverage of
nonperforming loans was 1.73x at September 30, 2000, compared to 4.56x at
September 30, 1999.
18
The level of nonperforming assets at September 30, 2000 and 1999 is illustrated
in the table below. Nonperforming assets of $5.8 million as of September 30,
2000, reflect an increase of $3.6 million from September 30, 1999. Despite the
increase in the current period, the level of nonperforming assets at September
30, 2000, remains modest at 0.45% of total assets.
NONPERFORMING ASSETS (IN THOUSANDS)
=============================================================================================
September 30, 2000 September 30, 1999
- ---------------------------------------------------------------------------------------------
Nonaccrual loans $ 4,197 $ 1,786
Loans past due 90 days and accruing 1,344 239
Troubled debt restructuring not included above 0 0
- ---------------------------------------------------------------------------------------------
Total nonperforming loans 5,541 2,025
- ---------------------------------------------------------------------------------------------
Other real estate, net of allowances 244 178
- ---------------------------------------------------------------------------------------------
Total nonperforming assets $ 5,785 $ 2,203
=============================================================================================
Total nonperforming loans as a percent of total loans 0.70% 0.30%
Total nonperforming assets as a percentage of total assets 0.45% 0.19%
=============================================================================================
DEPOSITS AND OTHER LIABILITIES
Total deposits were $1.0 billion on September 30, 2000, compared to $974 million
on December 31, 1999. Core deposits, which include demand deposits, savings and
money market accounts, and time deposits of less than $100,000 represent the
primary funding source for the Company. As of September 30, 2000, core deposits
of $838 million represented 72% of total liabilities. This compares to core
deposits of $794 million, representing 73% of total liabilities at December 31,
1999. Deposit growth was primarily centered in newer offices. The Brewster
Office of The Mahopac National Bank, which opened in the first quarter of 2000,
had $26 million in deposits at September 30, 2000. The Chili Office of The Bank
of Castile, which opened in the second quarter of 1999, had $12 million in
deposits at December 31, 1999, and $19 million in deposits at September 30,
2000.
The Company uses large time deposits, securities sold under repurchase
agreements, Federal funds purchased, and other borrowings as additional funding
sources. Time Deposits of $100,000 and over decreased from $180 million at
December 31, 1999, to $168 million at September 30, 2000. As of September 30,
2000, total securities sold under repurchase agreements amounted to $76 million,
compared to $58 million at December 31, 1999. Other borrowings, consisting of
term borrowings from the Federal Home Loan Bank, increased from $42 million at
December 31, 1999, to $67 million at September 30, 2000.
LIQUIDITY
Liquidity represents the Company's ability to efficiently and economically
accommodate decreases in deposits and other liabilities, and fund increases in
assets. The Company uses a variety of resources to meet its liquidity needs
which include cash and cash equivalents, short term investments, cash flow from
lending and investing activities, deposit growth, securities sold under
repurchase agreements, and borrowings.
Cash and cash equivalents totaled $57 million as of September 30, 2000,
reflecting an increase of $2.2 million from December 31, 1999. Short term
investments consisting of securities due in one year or less declined from $43
million on December 31, 1999, to $39 million on September 30, 2000. Securities
pledged to secure certain large deposits and securities sold under repurchase
agreements were 84% of total securities as of September 30, 2000, compared to
77% as of December 31, 1999.
19
Liquidity is enhanced by ready access to national and regional wholesale funding
sources including federal funds purchased, repurchase agreements, negotiable
certificates of deposit, and FHLB advances. Through its subsidiary banks, the
Company has borrowing relationships with the FHLB and correspondent banks, which
provide secured and unsecured borrowing capacity. At September 30, 2000, the
unused borrowing capacity on established lines with the FHLB was $85 million. As
members of the FHLB, the Company's subsidiary banks can use certain unencumbered
mortgage-related assets to secure additional borrowings from the FHLB. At
September 30, 2000, total real estate loans of the Company were $507 million.
YEAR 2000
Concerns over the arrival of Year 2000 and its impact on computer technologies
used by financial institutions led bank regulatory authorities to require
substantial advance testing and preparations by all banking organizations,
including the Company. As of the date of this filing, the Company has
experienced no material problems in connection with the arrival of Year 2000.
Management will continue to monitor its technologies for any Year 2000 related
issue that may arise and may not become immediately apparent. Although
management expects that the likelihood of its business being materially impacted
by Year 2000 issues is remote, future events cannot be known with certainty.
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk is the primary market risk category associated with the
Company's operations. Interest rate risk refers to the volatility of earnings
caused by changes in interest rates. Each month the Asset/Liability Management
Committee estimates the likely impact on earnings resulting from various
changing interest rate scenarios. The findings of the committee are incorporated
into the investment and funding decisions of the Company.
The table below is a Condensed Static Gap Report, which illustrates the
anticipated repricing intervals of assets and liabilities as of September 30,
2000.
Condensed Static Gap - September 30, 2000 Repricing Interval
Cumulative
(dollar amounts in thousands) Total 0-3 months 3-6 months 6-12 months 12 months
- ---------------------------------------------------------------------------------------------------
Interest-earning assets $1,163,359 $283,507 $ 58,480 $107,907 $449,894
Interest-bearing liabilities 945,692 365,617 118,037 97,789 581,443
- ---------------------------------------------------------------------------------------------------
Net gap position (82,110) (59,557) 10,118 (131,549)
- ---------------------------------------------------------------------------------------------------
Net gap position as a percentage of total assets (6.43%) (4.66%) 0.79% (10.30%)
- ---------------------------------------------------------------------------------------------------
The Company's September 30, 2000, one-year cumulative rate sensitivity gap was a
negative 10.3% of total assets, indicating a liability sensitive position. The
analysis suggests earnings would benefit from a declining interest rate
environment, and would be vulnerable to a rising interest rate environment.
Management estimates that a 200 basis point rise in interest rates would result
in a 1.8% decline in net interest income over a one year period, and a 3.9%
decline over a 2 year period, assuming no management actions to reposition the
balance sheet in reaction to a changing rate environment. Management believes
the current interest rate risk exposure is not material given the Company's
current level of earnings and capital.
21
TOMPKINS TRUSTCO, INC.
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
Sep-00 Sep-00 Sep-99
- -----------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Balance Average Balance Average Balance Average
(Dollar amounts in thousands) (QTD) Interest Yield/Rate (YTD) Interest Yield/Rate (YTD) Interest Yield/Rate
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets
Certificates of deposit with
other banks $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Securities (1)
U.S. Government Securities 246,732 4,049 6.53% 243,900 11,958 6.55% 235,168 10,522 5.98%
State and municipal (2) 78,446 1,407 7.14% 80,044 4,310 7.19% 81,048 4,005 6.61%
Other Securities (2) 17,053 365 8.52% 13,957 861 8.24% 8,912 508 7.62%
----------------------------------------------------------------------------------------------
Total securities 342,231 5,821 6.77% 337,901 17,129 6.77% 322,128 15,035 6.18%
Federal Funds Sold 10,776 170 6.28% 12,516 552 5.89% 20,531 778 5.07%
Loans, net of unearned income (3)
Real Estate 499,301 10,315 8.22% 479,183 31,122 8.68% 374,838 19,497 6.95%
Commercial Loans (2) 187,416 4,766 10.12% 181,486 11,842 8.72% 199,778 12,678 8.48%
Consumer Loans 109,090 2,724 9.93% 108,733 7,985 9.81% 119,811 8,891 9.92%
Direct Lease Financing 17,348 345 7.91% 17,275 1,022 7.90% 15,407 906 7.86%
----------------------------------------------------------------------------------------------
Total loans, net of unearned
income 813,155 18,150 8.88% 786,677 51,971 8.82% 709,834 41,972 7.91%
----------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 1,166,162 24,141 8.24% 1,137,094 69,652 8.18% 1,055,493 57,785 7.31%
----------------------------------------------------------------------------------------------
Other assets 95,642 87,545 80,302
---------- ---------- ----------
TOTAL ASSETS $1,261,804 $1,224,639 $1,135,795
========== ========== ==========
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Interest-bearing deposits
Interest bearing checking,
savings, & money market 409,931 2,570 2.49% 413,630 7,661 2.47% 396,850 5,903 1.99%
Time Dep > $100,000 170,879 2,732 6.36% 163,505 7,333 5.99% 142,079 5,273 4.96%
Time Dep < $100,000 214,965 3,012 5.57% 218,421 8,675 5.31% 195,918 6,853 4.68%
----------------------------------------------------------------------------------------------
Total interest-bearing deposits 795,775 8,314 4.16% 795,556 23,669 3.97% 734,847 18,029 3.28%
Federal funds purchased & securities
sold under agreements to repurchase 71,403 1,098 6.12% 69,872 3,025 5.78% 62,858 2,240 4.76%
Other borrowings 80,462 1,277 6.31% 56,353 2,527 5.99% 51,507 1,906 4.95%
----------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 947,640 10,689 4.49% 921,781 29,221 4.23% 849,212 22,175 3.49%
Non-interest bearing deposits 192,212 184,159 174,804
Minority Interest 4,928 5,885 0
Accrued expenses and other liabilities 14,608 13,463 13,236
---------- ---------- ----------
TOTAL LIABILITIES 1,159,388 1,125,288 1,037,252
SHAREHOLDERS' EQUITY 102,416 99,351 98,543
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,261,804 $1,224,639 $1,135,795
========== ========== ==========
Interest rate spread 3.75% 3.95% 3.80%
------------------ ------------------ ------------------
Net interest income/margin on
earning assets $13,452 4.59% $40,431 4.75% $35,610 4.51%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Average balances and yields exclude unrealized gains and losses on
available-for-sale securities.
(2) Interest income includes the effects of taxable-equivalent adjustments using
a blended Federal and State income tax rate of 40% to increase tax exempt
interest income to a taxable-equivalent basis.
(3) Nonaccrual loans are included in the average loans totals presented above.
Payments received on nonaccrual loans have been recognized as disclosed in
Note 1 to the Company's Annual Report on Form 10-K dated December 31, 1999.
22
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
(b) Reports on form 8-K
On September 13, 2000, Tompkins filed a Form 8-K announcing that on August 31,
2000, Tompkins Trustco, Inc. completed the acquisition of the approximate 30%
interest in The Mahopac National Bank owned by various members of the Spain
family in a stock-for-stock transaction. In connection with the acquisition
Tompkins issued 415,000 shares of common stock. The purchase brings Tompkins'
total ownership interest in Mahopac to approximately 99.7%.
On August 23, 2000, Tompkins filed a Form 8-K announcing that on August 8, 2000,
the Board of Tompkins Trustco, Inc. authorized the repurchase of up to 400,000
shares of the Company's outstanding common stock. The purchases may be made on
the open market or in privately negotiated transactions, over the next 24
months.
23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: November 13, 2000
TOMPKINS TRUSTCO, INC.
By: /s/ JAMES J. BYRNES
-------------------------------
James J. Byrnes
Chairman of the Board,
Chief Executive Officer
By: /s/ RICHARD D. FARR
-------------------------------
Richard D. Farr
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGES
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EXHIBIT 27 FINANCIAL DATA SCHEDULE
25