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 June 30, 2001
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 Identification No.)
incorporation or organization)
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 August 2, 2001
---------------------------- --------------------------------
Common Stock, $.10 par value 7,445,368 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
June 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Income for
the three months and six months ended June 30, 2001
and 2000 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2001 and 2000 5
Condensed Consolidated Statements of Changes in Shareholders'
Equity for the six months ended June 30, 2001 and 2000 6
Notes to Unaudited Condensed Consolidated Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-17
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 18
Average Consolidated Balance Sheet and Net Interest Analysis 19
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 20
Item 5 - Other Information Not Applicable
Item 6 - Exhibits and Reports on Form 8-K Not Applicable
SIGNATURES 21
EXHIBIT INDEX 22
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 06/30/2001 12/31/2000
----------- -----------
Cash & noninterest bearing balances
due from banks $ 46,531 $ 45,939
Interest bearing balances due from banks 288 0
Federal funds sold 16,400 19,425
Available-for-sale securities, at fair value 327,912 304,358
Held-to-maturity securities, fair value of $21,774 at
June 30, 2001 and $26,147 at December 31, 2000 21,480 25,863
Loans/leases net of unearned income 851,071 845,758
Less: Reserve for loan/lease losses 10,269 9,824
- ----------------------------------------------------------------------------------------------------------------
Net Loans/Leases 840,802 835,934
Bank premises and equipment, net 24,192 23,861
Corporate owned life insurance 19,053 18,581
Intangible assets 13,642 9,858
Accrued interest and other assets 19,523 21,075
- ----------------------------------------------------------------------------------------------------------------
Total Assets $ 1,329,823 $ 1,304,894
================================================================================================================
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings and money market 425,655 406,081
Time 386,291 420,255
Noninterest bearing 216,067 208,565
- ----------------------------------------------------------------------------------------------------------------
Total Deposits 1,028,013 1,034,901
Securities sold under agreements to repurchase and
Federal funds purchased 79,428 72,231
Other borrowings 81,871 67,257
Other liabilities 15,676 14,020
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities $ 1,204,988 $ 1,188,409
- ----------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 1,492 1,490
Shareholders' equity:
Common Stock - par value $.10 per share, authorized 15,000,000 shares
Issued: 7,441,950 at June 30, 2001; and 7,344,813 at December 31, 2000. 744 734
Surplus 45,297 44,182
Undivided profits 76,442 70,894
Accumulated other comprehensive income (loss) 1,493 (9)
Treasury stock, at cost - 24,550 shares at June 30, 2001,
and 24,886 shares at December 31, 2000. (466) (473)
Unallocated ISOP/ESOP: 20,885 shares at June 30, 2001,
32,261 shares at December 31, 2000. (167) (333)
- ----------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 123,343 $ 114,995
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities, Minority Interest in Consolidated Subsidiaries
and Shareholders' Equity $ 1,329,823 $ 1,304,894
================================================================================================================
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 Six months ended
----------------------- -----------------------
06/30/2001 06/30/2000 06/30/2001 06/30/2000
---------- ---------- ---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $ 18,032 $ 17,347 $ 36,514 $ 33,741
Federal funds sold 133 128 328 382
Available-for-sale securities 5,352 4,734 10,193 9,482
Held-to-maturity securities 307 388 630 785
- ----------------------------------------------------------------------------------------------------------------------
Total Interest and Dividend Income 23,824 22,597 47,665 44,390
- ----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or more 2,311 2,641 5,060 4,601
Other deposits 5,346 5,267 10,947 10,753
Federal funds purchased and securities sold under
agreements to repurchase 765 1,035 1,672 1,927
Other borrowings 1,158 624 2,208 1,250
- ----------------------------------------------------------------------------------------------------------------------
Total Interest Expense 9,580 9,567 19,887 18,531
- ----------------------------------------------------------------------------------------------------------------------
Net Interest Income 14,244 13,030 27,778 25,859
- ----------------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 320 274 505 514
- ----------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan/Lease Losses 13,924 12,756 27,273 25,345
- ----------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust and investment services income 1,082 1,107 2,315 2,350
Service charges on deposit accounts 1,208 908 2,297 1,752
Insurance commissions and fees 1,068 0 2,029 0
Other service charges 1,101 891 2,102 1,903
Increase in cash surrender value of corporate owned life insurance 261 212 515 397
Other income 297 229 587 389
Net realized gain on available-for-sale securities 0 83 6 189
- ----------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 5,017 3,430 9,851 6,980
- ----------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salary and wages 5,049 4,319 9,880 8,569
Pension and other employee benefits 1,230 1,041 2,471 2,062
Net occupancy expense of bank premises 678 598 1,397 1,221
Furniture and fixture expense 779 659 1,507 1,277
Amortization of intangible assets 419 245 844 497
Other operating expense 3,428 2,838 6,410 5,593
- ----------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 11,583 9,700 22,509 19,219
- ----------------------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense and Minority
Interest in Consolidated Subsidiaries 7,358 6,486 14,615 13,106
- ----------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 34 204 67 360
Income Tax Expense 2,552 2,094 4,983 4,232
- ----------------------------------------------------------------------------------------------------------------------
Net Income $ 4,772 $ 4,188 $ 9,565 $ 8,514
======================================================================================================================
Basic Earnings Per Share $ 0.65 $ 0.60 $ 1.29 $ 1.22
Diluted Earnings Per Share $ 0.64 $ 0.60 $ 1.28 $ 1.21
======================================================================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Six months ended
-----------------------
6/30/2001 6/30/2000
---------- ----------
OPERATING ACTIVITIES
Net income $ 9,565 $ 8,514
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 505 514
Depreciation and amortization premises, equipment, and software 1,399 1,201
Amortization of intangible assets 844 497
Earnings from corporate owned life insurance (515) (397)
Net amortization on securities 90 74
Net realized gain on available-for-sale securities (6) (189)
Net gain on sale of loans (150) (17)
Proceeds from sale of loans 9,783 3,274
Net (gain) loss on sales of bank premises and equipment (25) 7
Issuance of treasury stock 10 20
ISOP/ESOP shares released for allocation 370 0
(Increase) decrease in accrued interest receivable 1,398 (539)
Decrease in accrued interest payable (1,196) (112)
Other, net 1,109 (2,724)
- -----------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 23,181 10,123
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 111,683 18,619
Proceeds from sales of available-for-sale securities 437 5,039
Proceeds from maturities of held-to maturity securities 6,845 10,152
Purchases of available-for-sale securities (100,188) (33,768)
Purchases of held-to-maturity securities (2,474) (7,872)
Net increase in loans (47,851) (54,096)
Proceeds from sale of bank premises and equipment 27 25
Purchases of bank premises and equipment (1,369) (3,095)
Purchase of corporate owned life insurance 0 (4,000)
Net cash used in acquisition activities (1,004) 0
- -----------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (33,894) (68,996)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, money market,
and savings deposits 27,076 9,408
Net decrease in time deposits (33,964) (15,925)
Net increase in securities sold under agreements
to repurchase and Federal funds purchased 7,197 48,166
Net increase in other borrowings 14,416 20,646
Cash dividends (4,017) (3,797)
Common stock repurchased and returned to unissued status (2,665) (1,429)
Cash paid in lieu of fractional shares Letchworth common shares 0 (9)
Net proceeds from exercise of stock options and related tax benefit 525 58
- -----------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 8,568 57,118
- -----------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (2,145) (1,755)
Cash and Cash Equivalents at beginning of Period 65,364 54,788
Total Cash & Cash Equivalents at End of Period $ 63,219 $ 53,033
- -----------------------------------------------------------------------------------------------------------
Supplemental Information:
Cash paid during the year for:
Interest 21,084 18,643
Taxes 2,617 5,858
Noncash investing activities:
Fair value of noncash assets acquired in purchase acquisition 1,504 0
Fair value of liabilities acquired in purchase acquisition 1,449 0
Shares issued for acquisitions 3,058 0
Securitization of loans 32,845 0
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, 2000 $ 710 $ 40,548 $ 61,078 ($ 4,745) ($ 525) ($ 442) $ 96,624
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 8,514 8,514
Other comprehensive loss (796) (796)
---------
Total Comprehensive Income 7,718
---------
Cash dividends ($0.54/Share) (3,797) (3,797)
Cash paid in lieu of fractional
Letchworth common shares (9) (9)
Exercise of stock options, and related
tax benefit (4,752 shares, net) 1 57 58
Common stock repurchased and
returned to unissued status (55,472) (6) (1,423) (1,429)
Treasury stock issued (773 shares) 6 14 20
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at
June 30, 2000 $ 705 $ 39,179 $ 65,795 ($ 5,541) ($ 511) ($ 442) $ 99,185
===================================================================================================================================
===================================================================================================================================
Balances at
January 1, 2001 $ 734 $ 44,182 $ 70,894 ($ 9) ($ 473) ($ 333) $ 114,995
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 9,565 9,565
Other comprehensive income 1,502 1,502
---------
Total Comprehensive Income 11,067
---------
Cash dividends ($0.54/Share) (4,017) (4,017)
Exercise of stock options and
related tax benefit (39,755 shares, net) 4 521 525
Common stock repurchased and
Returned to unissued status
(94,337 shares) (9) (2,656) (2,665)
Treasury stock issued (336 shares) 3 7 10
Stock issued for purchase acquisition
(151,719 shares) 15 3,043 3,058
ESOP shares committed to be released
for allocation (11,376 shares) 204 166 370
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at
June 30, 2001 $ 744 $ 45,297 $ 76,442 $ 1,493 ($ 466) ($ 167) $ 123,343
===================================================================================================================================
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 Trust Company (the "Trust Company"), The Bank of Castile, The
Mahopac National Bank, and Tompkins Insurance Agencies, Inc. 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 accounting principles generally accepted in the United States of
America. 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.
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 expected for the full year ended December 31, 2001. The unaudited
condensed consolidated financial statements should be read in conjunction with
the Company's 2000 Annual Report on Form 10-K.
3. Mergers and Acquisitions
Letchworth Independent Bancshares Corporation
On December 20, 1999, the shareholders of Tompkins Trustco, Inc. and Letchworth
Independent Bancshares Corporation ("Letchworth") approved a merger between the
two companies. Effective December 31, 1999, Letchworth was merged with and into
Tompkins, and each issued and outstanding share of Letchworth common stock was
converted into 0.685 shares of Tompkins common stock, plus cash in lieu of any
fractional shares. This merger resulted in the issuance of approximately 2.3
million additional shares of Tompkins common stock, bringing Tompkins' total
outstanding shares to approximately 7.1 million shares immediately following the
merger. The merger qualified as a tax-free reorganization and was accounted for
as a pooling-of-interests.
Letchworth was the holding company for The Bank of Castile, Castile, New York,
and The Mahopac National Bank, Mahopac, New York. The Bank of Castile will
continue to operate its community banking business as a wholly-owned subsidiary
of Tompkins. The Bank of Castile conducts its operations through its main office
located in Castile, New York, and at its eleven branch offices in towns situated
in and around the areas commonly known as the Letchworth State Park area and the
Genesee Valley region of New York State. In 1999, The Bank of Castile opened its
first branch office in Monroe County. Immediately following the Letchworth
merger, Tompkins owned 70.17 percent of The Mahopac National Bank outstanding
common stock. As noted below, Tompkins subsequently purchased the additional
remaining shares of The Mahopac National Bank, and currently owns all of The
Mahopac National Bank outstanding common stock. The Mahopac National Bank is
located in Putnam County, New York, and operates four bank branches in that
county.
7
The Mahopac National Bank
On June 4, 1999, Letchworth acquired 70.17 percent of the outstanding common
stock of The Mahopac National Bank in a cash transaction accounted for as a
purchase. Accordingly, operating results for The Mahopac National Bank are not
included for periods prior to June 4, 1999. Subsequent to June 4, 1999, net
income of The Mahopac National Bank is included in Tompkins' net income based
upon the percentage of Tompkins' ownership of The Mahopac National Bank . This
transaction resulted in a core deposit intangible of $3.5 million, which is
being amortized over a 10 year period, and goodwill of $2.5 million, which is
being amortized over a 20 year period.
Effective September 1, 2000, and early in 2001, Tompkins completed the purchase
of the minority interest in The Mahopac National Bank, primarily in a
stock-for-stock transaction accounted for as a purchase. Prior to September 1,
2000, the approximately 30 percent 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. Subsequent to
September 1, 2000, effectively all of the net income of The Mahopac National
Bank is included in Tompkins' consolidated net income. The approximately 30
percent acquisition of The Mahopac National Bank resulted in a core deposit
intangible of $1.9 million, which is being amortized over a 10 year period, and
goodwill of approximately $2.5 million, which is being amortized over a 20 year
period.
The table below presents the pro forma combined results of operations of
Tompkins and The Mahopac National Bank, as if Mahopac had been 100 percent owned
for the period presented.
Three months ended Six months ended
(In thousands, except per share) June 30, 2000 June 30, 2000
================================================================================
Net interest income:
- --------------------------------------------------------------------------------
As reported $13,030 $25,859
Pro forma combined $13,030 $25,859
Net income:
- --------------------------------------------------------------------------------
As reported $ 4,188 $ 8,514
Pro forma combined $ 4,311 $ 8,711
Basic earnings per share:
- --------------------------------------------------------------------------------
As reported $ 0.60 $ 1.22
Pro forma combined $ 0.58 $ 1.17
Diluted earnings per share:
- --------------------------------------------------------------------------------
As reported $ 0.60 $ 1.21
Pro forma combined $ 0.58 $ 1.17
================================================================================
The pro forma combined financial information does not reflect any potential cost
savings or revenue enhancements that are expected to result from the
acquisitions. Accordingly, the pro forma combined financial information may not
be indicative of operations that would have been achieved had the acquisitions
occurred on the dates indicated, nor do they purport to be indicative of the
results of operations that may be achieved in the future.
Tompkins Insurance Agencies
Effective January 1, 2001, the Company completed the acquisition of 100 percent
of the common stock of Austin, Hardie, Wise Agency, Inc. and Ernest Townsend &
Son, Inc., in a cash and stock transaction accounted for as a purchase. The two
agencies have been merged with and into Tompkins Insurance Agencies, Inc., a
wholly-owned subsidiary of Tompkins. The agencies are expected to continue
operating in their current western New York locations, which include Attica,
Warsaw, Alden, LeRoy, Batavia and Caledonia. The excess of the purchase price
over the fair value of identifiable assets acquired less liabilities assumed of
$3.92 million has been recorded as goodwill and is being amortized on a
straight-line basis over 15 years.
The purchase agreements for the insurance agencies include provisions for
additional consideration to be paid in the form of Company stock if Tompkins
Insurance Agencies, Inc. meets certain income targets in 2001 and 2002. The
contingent consideration includes 25,093 shares, which are payable if the income
targets are met, and an additional 8,333 shares which are payable if income
targets are exceeded by 5 percent.
On June 22, 2001, Tompkins Insurance acquired the assets of Youngs & Linfoot of
LeRoy, Inc. in a cash transaction accounted for as a purchase. The excess of the
purchase price over the fair value of identifiable assets acquired less
liabilities assumed of $287,000 has been recorded as goodwill and is being
amortized on a straight-line basis over 15 years.
8
4. Earnings Per Share
A computation of Basic Earnings Per Share ("EPS") and Diluted EPS for the three
month periods ending June 30, 2001 and 2000, is presented in the table below.
- -----------------------------------------------------------------------------------------------------------------------------
Weighted
Three months ended June 30, 2001 Net Income Average Shares Per Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- -----------------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $4,772 7,395,260 $0.65
Effect of dilutive securities (Stock options) 108,077
Diluted EPS
Income available to common shareholders plus assumed conversions $4,772 7,503,337 $0.64
=============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Weighted
Three months ended June 30, 2000 Net Income Average Shares Per Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- -----------------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $4,188 6,989,779 $0.60
Effect of dilutive securities (Stock options) 43,217
Diluted EPS
Income available to common shareholders plus assumed conversions $4,188 7,032,996 $0.60
=============================================================================================================================
The effect of dilutive securities calculation for 2000 excludes weighted average
options of 4,582 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 six month periods ending June
30, 2001 and 2000, is presented in the table below.
Weighted
Six months ended June 30, 2001 Net Income Average Shares Per Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- -----------------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $9,565 7,400,228 $1.29
Effect of dilutive securities (Stock options) 87,801
Diluted EPS
Income Available to common shareholders plus assumed conversions $9,565 7,488,029 $1.28
=============================================================================================================================
The effect of dilutive securities calculation for 2001 excludes weighted average
options of 2,000 because the exercise price of the options was greater than the
average market value during the period.
Weighted
Six months ended June 30, 2000 Net Income Average Shares Per Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------------------------------
Basic EPS
Income Available to common shareholders $8,514 7,004,386 $1.22
Effect of dilutive securities (Stock options) 51,553
Diluted EPS
Income Available to common shareholders plus assumed conversions $8,514 7,055,939 $1.21
=============================================================================================================================
The effect of dilutive securities calculation for 2000 excludes weighted average
options of 5,166 because the exercise price of the options was greater than the
average market value during the period.
9
5. Comprehensive Income (Loss)
Three months ended Six months ended
06/30/2001 06/30/2000 06/30/2001 06/30/2000
- -----------------------------------------------------------------------------------------------------------------------------
Net Income $ 4,772 $ 4,188 $ 9,565 $ 8,514
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized holding gains (losses) during the period (522) (102) 1,506 (683)
Memo: Pre-tax unrealized net holding gain ( loss) (870) (170) 2,510 (1,138)
Reclassification adjustment for net realized gain on
available-for-sale securities 0 (50) (4) (113)
Memo: Pretax Adjustment 0 (83) (6) (188)
- -----------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss) (522) (152) 1,502 (796)
- -----------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $ 4,250 $ 4,036 $11,067 $ 7,718
- -----------------------------------------------------------------------------------------------------------------------------
6. Recent Accounting Pronouncements
ACCOUNTING FOR BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS:
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill. SFAS No. 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 will also require
that intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of SFAS No. 141 immediately.
Furthermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-SFAS No. 142
accounting literature. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be amortized prior
to the adoption of SFAS No. 142.
SFAS No. 141 will require upon adoption of SFAS No. 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Upon adoption of SFAS No. 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.
In connection with the transitional goodwill impairment evaluation, SFAS No. 142
will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption, based upon the
criteria in the statement. Any transitional impairment loss will be recognized
as the cumulative effect of a change in accounting principle in the Company's
statement of earnings.
Because of the extensive effort needed to comply with adopting SFAS Nos. 141 and
142, it is not practicable to reasonably estimate the impact of adopting these
Statements on the Company's financial statements at the date of this report,
including whether any transitional impairment losses will be required to be
recognized as the cumulative effect of a change in accounting principle.
10
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Company
adopted the provisions of Financial Accounting Standards Board (FASB) SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," effective
January 1, 2001. This statement establishes accounting and reporting standards
for derivative instruments, including certain derivatives embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities on the balance sheet and measure
those assets at fair value. Changes in fair value of the derivative financial
instruments are reported as either net income or as a component of comprehensive
income, depending on whether or not it qualifies for hedge accounting.
Consequently, for those entities using derivative financial instruments, 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 and in other comprehensive
income for cash flow hedges. Ineffective portions of hedges are recognized
immediately in earnings and are not deferred. The adoption of SFAS No. 133 by
the Company on January 1, 2001, did not have a material effect on the Company's
consolidated financial statements. The Company does not presently use derivative
financial instruments to manage interest rate risk.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES: 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. The adoption of this statement did
not have a material impact on the consolidated financial statements of the
Company.
11
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 Trust Company (formerly known as Tompkins County
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.
Effective January 1, 2001, the Company completed the acquisition of 100 percent
of the common stock of Austin, Hardie, Wise Agency, Inc. and Ernest Townsend &
Son, Inc., in a cash and stock transaction accounted for as a purchase. The two
agencies have been merged with and into Tompkins Insurance Agencies, Inc.
(Tompkins Insurance), a wholly-owned subsidiary of Tompkins. The agencies
primarily offer property and casualty insurance to individuals and businesses in
Western New York State. They are expected to continue operating in their current
locations, which include Attica, Warsaw, Alden, LeRoy, Batavia and Caledonia.
Further details pertaining to the mergers and acquisitions are presented in Note
3 to the unaudited condensed consolidated financial statements, included herein.
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 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 services through Tompkins Investment Services, a division of Tompkins
Trust Company. Tompkins Investment Services provides a full range of money
management services, including investment management accounts, custody accounts,
trusts, retirement plans and rollovers, estate settlement, and financial
planning. Financial services of Tompkins Insurance Agencies, Inc., primarily
consist of property and casualty insurance for individuals and businesses, which
complement the services offered through the Company's banking subsidiaries.
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, 2000, 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.
12
RESULTS OF OPERATIONS
Cash earnings for the second quarter of 2001 were $5.1 million, an increase of
16.8 percent over cash earnings of $4.3 million in 2000. Management believes
that cash earnings, which excludes amortization of intangible assets (net of
applicable tax benefit), is more reflective of the Company's core operating
performance. Net income reported in accordance with Generally Accepted
Accounting Principles (GAAP) was $4.8 million for the three months ended June
30, 2001, an increase of 13.9 percent over the same period in 2000. Cash
earnings for the six months ended June 30, 2001 were $10.2 million, an increase
of 15.1 percent over cash earnings of $8.8 million in 2000.
Diluted cash earnings per share was $0.68 for the second quarter of 2001, an
increase of 9.7 percent over the same period in 2000. Diluted earnings per share
reported in accordance with GAAP was $0.64 for first three months of 2001,
compared to $0.60 for the same period in 2000. For the year to date, diluted
cash earnings per share of $1.36 were up 8.8% over the same six month period in
2000. On a GAAP basis, diluted earnings per share were $1.28, for the first six
months of 2001, compared to $1.21 for the same period in 2000.
The Company's key performance ratios remain strong. Return on average assets
(ROAA) for the first six months of 2001 was 1.47 percent, up slightly from 1.42
percent for the same period in 2000. On a cash basis, ROAA was 1.56 percent for
the year to date, compared to 1.47 percent in 2000. Return on average
shareholders' equity (ROAE) for the first six months of 2001 was 16.08 percent,
compared to 17.51 percent for the same period in 2000. On a cash basis ROAE was
17.02 percent for the six months ended June 30, 2001, compared to 18.11 percent
for the same period in 2000. The decline in ROAE in the current period is
primarily due to increased average equity in 2001, which includes approximately
$8.2 million related to the September 2000 acquisition of the approximately 30
percent minority interest in The Mahopac National Bank, and approximately $3.0
million related to the acquisition of Austin, Hardie, Wise Agency, Inc. and
Ernest Townsend & Son, Inc. The increased equity resulting from the above
acquisitions was partially offset by common stock repurchased under the
Company's common stock repurchase plan (the "Plan"), which was approved by the
board of directors on August 15, 2000. The Plan authorizes the repurchase of up
to 400,000 shares over a two year period. As of June 30, 2001, 224,561 shares
had been repurchased at a total cost of $6.1 million.
Net Interest Income
As shown in the attached Average Consolidated Balance Sheet and Net Interest
Analysis, the Company earned tax-equivalent net interest income of $28.8 million
for the six months ended June 30, 2001, an increase of 6.6 percent from the
prior year. Net interest income benefited from growth in earning assets, while
the net interest margin was relatively unchanged at 4.82 percent in the current
period, compared to 4.84 percent in the prior year.
Average earning assets were $1.2 billion for the six month period ended June 30,
2001, compared to $1.1 billion for the same period in 2000. Growth in average
earning assets over the past 12 months was centered in the loan portfolio which
grew by 9.1 percent to $843 million, including a $40.3 million increase in
average real estate loans and $26.9 million in average commercial loans. The
growth in average real estate loans was net of $33 million in residential
mortgage loans that were securitized in March 2001, and are now carried as
available-for-sale securities. Asset growth was funded with a combination of
core deposits (total deposits less time deposits greater than $100,000 and
brokered deposits); non-core deposits; and other borrowings. For the 12 month
period ended June 30, 2001, average core deposits were up $14.9 million, average
non-core deposits were up $30.5 million, and average other borrowings were up
$31.7 million.
For the second quarter of 2001, tax-equivalent net interest income was $14.8
million, with a net interest margin of 4.86 percent. This compares to
tax-equivalent net interest income of $13.6 million and a net interest margin of
4.85 percent for the second quarter 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 $505,000 for the first six months
of 2001, is relatively unchanged from $514,000 for the same period in 2000. Net
charge-offs were $60,000 for the first six month of 2001, compared to $219,000
in 2000. Net charge-offs in 2001 benefited from a $320,000 recovery in the first
quarter. The reserve for loan/lease losses as a percentage of period end loans
was 1.21 percent at June 30, 2001, and 1.16 percent at December 31, 2000.
13
Noninterest Income
Management continues to emphasize noninterest income as an important component
of the Company's future revenue. Noninterest income for the first six months of
2001, represented 25.5 percent of total revenue (tax equivalent net interest
income, plus noninterest income), up from 20.5 percent for the same period in
2000.
Noninterest income for the six months ended June 30, 2001, was $9.9 million, an
increase of 41.1 percent over the same period in 2000. The increase in 2001
included $2.0 million of insurance commissions and fees related to Tompkins
Insurance, which became an active subsidiary of the Company effective January 1,
2001. Even without the revenue from Tompkins Insurance, the Company's
noninterest income remained strong, increasing by 12.1 percent over the first
half of 2000. For the second quarter, noninterest income of $5.0 million was up
from $3.4 million in the second quarter of 2000.
Income from trust and investment services remains the largest source of
noninterest income. The Tompkins Investment Services Division of Tompkins Trust
Company generates fee income through managing trust and investment
relationships, managing estates, providing custody services, and managing
employee benefits plans. Trends for new business in trust and investments
services remain positive, although the general downward trend in national stock
markets during the first six months of 2001 caused earnings to be flat. Trust
and investments services income was $2.3 million in the first half of 2001,
relatively unchanged from the same period in 2000. The market value of assets
managed by, or in custody of, Tompkins Investment Services was approximately
$1.1 billion at June 30, 2001, also relatively unchanged from the prior year.
Service charges on deposit accounts were $2.3 million for the first half of
2001, an increase of $545,000 over the same period in 2000. The growth in
service charges reflects an increased volume of transaction accounts,
particularly at the Company's newest offices - the Chili Office of The Bank of
Castile, and the Brewster Office of The Mahopac National Bank.
Income from card services, included in other service charges on the consolidated
statements of income, continues to be an important source of revenue. Card
services products include traditional credit cards, purchasing cards, debit
cards, and merchant card processing. Income associated with card services was
$1.2 million for the six months ended June 30, 2001, an increase of
approximately 10 percent from the same period last year.
Other income for the first six months of 2001 includes $515,000 relating to
increases in the cash surrender value of corporate owned life insurance (COLI).
This compares to $397,000 for the same period in 2000. The corporate owned life
insurance relates to life insurance and other benefits provided to certain
senior officers of the Company and its subsidiaries. The Company's average
investment in COLI was $18.8 million for the six month period ended June 30,
2001, compared to $14.4 million for the same period in 2000. Increases in the
cash surrender value of insurance are reflected as other income, and the related
mortality expense is recognized as an other operating expense.
Noninterest Expenses
Total noninterest expenses were $22.5 million for the first six months of 2001,
compared to $19.2 million for the same period in 2000. The 17.2 percent increase
in 2001, includes operating expenses related to Tompkins Insurance, and
amortization of intangible assets related to the acquisition of the minority
interest in The Mahopac National Bank in September of 2000 and the acquisition
of Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc., in January
2001. If these expenses are excluded from 2001 totals for comparison, growth in
noninterest expenses would be 5 percent. For the quarter ended June 30, 2001,
noninterest expense was $11.6 million, up from $9.7 million for the second
quarter of 2000.
Personnel-related expenses comprise the largest segment of noninterest expense,
representing approximately 54.9 percent of operating expense in the first six
months of 2001. The $12.4 million of personnel-related expenses for the first
half of 2001 reflect an increase of $1.7 million over 2000, including $1.0
million related to Tompkins Insurance.
Expense for premises, furniture, and fixtures increased from $2.5 million for
the period ended June 30, 2000, to $2.9 million for the period ended June 30,
2001. The increase includes $196,000 related to Tompkins Insurance.
14
Amortization expense increased from $497,000 in the first six months of 2000, to
$844,000 in the first six months of 2001. The increase reflects the additional
intangible assets that resulted from the purchase of the approximately 30
percent minority interest of The Mahopac National Bank in September 2000, and
the purchase of the Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son,
Inc., in January 2001. The approximately 30 percent acquisition of The Mahopac
National Bank resulted in a core deposit intangible of $1.9 million, which is
being amortized over a 10 year period, and goodwill of $2.5 million, which is
being amortized over a 20 year period. The purchase of the Austin, Hardie, Wise
Agency, Inc. and Ernest Townsend & Son, Inc., resulted in $3.92 million of
goodwill, which is being amortized on a straight-line basis over 15 years.
Income Tax Expense
The provision for income taxes provides for Federal and New York State income
taxes. The provision for the six months ended June 30, 2001, was $5.0 million,
compared to $4.2 million in 2000. The increased provision is primarily due to
increased levels of taxable income. The effective tax rate for the first half of
2001 was 34.1 percent, compared to 32.3 percent for the same period in 2000. The
increased effective tax rate in the current year is primarily due to a reduced
level of tax exempt investments in municipal securities.
FINANCIAL CONDITION
The Company's total assets were $1.3 billion as of June 30, 2001, representing
an increase of $24.9 million over total assets reported as of December 31, 2000.
Asset growth is primarily the result of an increased volume of loan
originations. Total loans of $851 million at June 30, 2001 were up a modest $5.3
million from December 31, 2000; however, the balance in the current year is net
of $33 million in residential mortgage loans that were securitized in March
2001, and are now carried as available-for-sale securities. Asset growth also
included an increase in intangible assets from $9.9 million at December 31,
2000, to $13.6 million at June 30, 2001. The increase in intangible assets is
primarily related to goodwill associated with the purchase of the Austin,
Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc., in January 2001.
Capital
Total shareholders' equity grew by approximately 7.3 percent during the first
six months of 2001 to $123 million. The increase in shareholders' equity
includes an increase of approximately $3.0 million related the purchase of the
Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc., which
included the issuance of 151,156 shares of common stock. The increased equity
resulting from the above acquisition was partially offset by 94,337 shares of
common stock repurchased in the first half of 2001 under the Company's common
stock repurchase plan, at a total cost of $2.7 million. Tangible book value per
share increased from $14.36 at December 31, 2000, to $14.74 at June 30, 2001.
Cash dividends paid in the first six months of 2001 totaled approximately $4.0
million, representing 42.0 percent of year to date earnings. Per share cash
dividends of $0.54 for the first six months of 2001 is unchanged from the first
six months of 2000.
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 June 30, 2001, compared to the regulatory capital requirements for
"well capitalized" institutions.
REGULATORY CAPITAL ANALYSIS - June 30, 2001
- -------------------------------------------------------------------------------------------------------
Actual Well Capitalized Requirement
(Dollar amounts in thousands) Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets) $119,969 13.1% $91,681 10.0%
Tier I Capital (to risk weighted assets) $109,700 12.0% $55,009 6.0%
Tier I Capital (to average assets) $109,700 8.4% $65,452 5.0%
=======================================================================================================
15
As illustrated above, the Company's capital ratios on June 30, 2001 remain well
above the minimum requirement for well capitalized institutions. As of June 30,
2001, 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 $10.3 million is believed
adequate with respect to the inherent risk of loss in the loan and lease
portfolios. Activity in the Company's reserve for loan/lease losses during the
first six months of 2001 and 2000 is illustrated in the table below.
ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In thousands)
- ------------------------------------------------------------------------------------------
June 30, 2001 June 30, 2000
- ------------------------------------------------------------------------------------------
Average Loans and Leases Outstanding Year to Date $843,190 $773,012
- ------------------------------------------------------------------------------------------
Beginning Balance 9,824 9,228
- ------------------------------------------------------------------------------------------
Provision for loan losses 505 514
Loans charged off (571) (449)
Loan recoveries 511 230
- ------------------------------------------------------------------------------------------
Net charge-offs 60 219
- ------------------------------------------------------------------------------------------
Ending Balance $ 10,269 $ 9,523
==========================================================================================
Recoveries for the current period included a recovery on a single loan in the
amount of $320,000. Reserve coverage of nonperforming loans was 1.8x at June 30,
2001, compared to 4.17x at June 30, 2000.
The level of nonperforming assets at June 30, 2001 and 2000 is illustrated in
the table below. Nonperforming assets of $5.8 million as of June 30, 2001,
reflect an increase of $3.2 million from June 30, 2000. Despite the increase in
the current period, the level of nonperforming assets at June 30, 2001, remains
modest at 0.43 percent of total assets.
NONPERFORMING ASSETS (In thousands)
- ----------------------------------------------------------------------------------------
June 30, 2001 June 30, 2000
- ----------------------------------------------------------------------------------------
Nonaccrual loans $4,572 $2,129
Loans past due 90 days and accruing 1,145 153
Troubled debt restructuring not included above 0 0
- ----------------------------------------------------------------------------------------
Total nonperforming loans 5,717 2,282
- ----------------------------------------------------------------------------------------
Other real estate, net of allowances 63 282
- ----------------------------------------------------------------------------------------
Total nonperforming assets $5,780 $2,564
- ----------------------------------------------------------------------------------------
Total nonperforming loans as a percent of total loans 0.68% 0.28%
Total nonperforming assets as a percentage of total assets 0.43% 0.20%
========================================================================================
Deposits and Other Liabilities
Total deposits were $1.0 billion on June 30, 2001, down approximately $6.9
million from December 31, 2000. Core deposits, which include demand deposits,
savings and money market accounts, and non-brokered time deposits of less than
$100,000 represent the primary funding source for the Company. As of June 30,
2001, core deposits of $877 million represented 72.8 percent of total
liabilities. This compares to core deposits of $851 million, representing 71.6
percent of total liabilities at December 31, 2000.
The Company uses large time deposits, brokered-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
$183 million at December 31, 2000, to $141 million at June 30, 2001. At June 30,
2001, the Company also had $10 million of brokered-deposits in denominations
under $100,000. The Company had no brokered-deposits at December 31, 2000. Total
securities sold under repurchase agreements amounted to $79.4 million at June
30, 2001, compared to $72.2 million at December 31, 2000. Other borrowings,
consisting of term borrowings from the Federal Home Loan Bank, increased from
$67.3 million at December 31, 2000, to $81.9 million at June 30, 2001.
16
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 $63.2 million as of June 30, 2001, down
slightly from $65.4 million at December 31, 2000. Short term investments,
consisting of securities due in one year or less and Federal funds sold,
declined from $52.5 million on December 31, 2000, to $45.8 million on June 30,
2001. Securities pledged to secure certain large deposits and securities sold
under repurchase agreements were 67.3 percent of total securities as of June 30,
2001, compared to 79 percent as of December 31, 2000. The lower proportion of
pledged securities compared to total securities in the current period reflects
the benefit of $33 million in residential mortgage loans that were securitized
in June 2001, and are now carried as available-for-sale securities.
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 June 30, 2001, the unused
borrowing capacity on established lines with the FHLB was $128.3 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 June
30, 2001, total real estate loans of the Company were $507.2 million, the
majority of which are available as collateral purposes for FHLB borrowings.
17
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 June 30, 2001.
Condensed Static Gap - June 30, 2001
Repricing Interval Cumulative
(In thousands) Total 0-3 months 3-6 months 6-12 months 12 months
- -------------------------------------------------------------------------------------------------------------------
Interest-earning assets $1,214,663 $341,682 $68,581 $124,478 $534,741
Interest-bearing liabilities 973,245 445,303 77,776 94,065 617,144
- -------------------------------------------------------------------------------------------------------------------
Net gap position (103,621) (9,195) 30,413 (82,403)
- -------------------------------------------------------------------------------------------------------------------
Net gap position as a percentage of total assets (7.86%) (0.70%) 2.31% (6.25%)
===================================================================================================================
The Company's June 30, 2001, one-year cumulative rate sensitivity gap was a
negative 6.25 percent 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.
Consistent with the above analysis, as interest rates declined during the first
half of 2001, the Company's net interest margin improved in comparison to the
last two quarters of 2000.
Based upon the Company's simulation analysis, management estimates that a 200
basis point rise in interest rates would result in a 2.3 percent decline in net
interest income over a one year period, and a 2.8 percent decline over a two
year period, assuming no management action to reposition the balance sheet as a
result of 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.
18
TOMPKINS TRUSTCO, INC.
Average Consolidated Balance Sheet and Net Interest Analysis
- ----------------------------------------------------------------------------------------------------------------------------------
Quarter Ended YTD Period Ended YTD Period Ended
Jun-01 Jun-01 Jun-00
- ----------------------------------------------------------------------------------------------------------------------------------
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
Interest bearing deposits due
from banks $ 467 $ 1 0.86% $ 432 $ 2 1.86% $ 0 $ 0 NA
Securities (1)
U.S. Government Securities 277,545 4,535 6.55% 259,875 8,547 6.63% 242,469 7,909 6.56%
State and municipal (2) 68,736 1,291 7.53% 69,425 2,609 7.58% 80,852 2,986 7.43%
Other Securities (2) 20,250 312 6.18% 19,351 631 6.58% 12,391 496 8.05%
----------------------------------------------------------------------------------------
Total securities 366,531 6,138 6.72% 348,651 11,787 6.82% 335,712 11,391 6.82%
Federal Funds Sold 11,442 133 4.66% 12,466 328 5.31% 13,395 382 5.73%
Loans, net of unearned income (3)
Real Estate 500,694 10,281 8.24% 509,316 20,911 8.28% 469,015 19,107 8.19%
Commercial Loans (2) 208,305 4,622 8.90% 205,392 9,374 9.20% 178,488 8,724 9.83%
Consumer Loans 110,379 2,785 10.12% 110,030 5,541 10.16% 108,272 5,262 9.77%
Direct Lease Financing 18,898 372 7.90% 18,452 742 8.11% 17,237 677 7.90%
----------------------------------------------------------------------------------------
Total loans, net of unearned
income 838,276 18,060 8.64% 843,190 36,568 8.75% 773,012 33,770 8.79%
----------------------------------------------------------------------------------------
Total interest-earning assets 1,216,716 24,332 8.02% 1,204,739 48,685 8.15% 1,122,119 45,543 8.18%
----------------------------------------------------------------------------------------
Other assets 109,071 109,290 83,151
---------- ---------- ----------
Total assets $1,325,787 $1,314,029 $1,205,270
---------- ---------- ----------
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
Deposits
Interest-bearing deposits
Interest bearing checking,
savings, & money market 417,584 2,058 1.98% 414,099 4,273 2.08% 415,323 5,091 2.47%
Time Dep > $100,000 186,073 2,311 4.98% 187,377 5,060 5.45% 159,777 4,601 5.79%
Time Dep < $100,000 235,555 3,220 5.48% 236,287 6,606 5.64% 220,168 5,663 5.17%
Brokered Time Dep < $100,000 5,824 68 4.68% 2,928 68 4.68% 0 0 NA
----------------------------------------------------------------------------------------
Total interest-bearing deposits 845,036 7,657 3.63% 840,691 16,007 3.84% 795,268 15,355 3.88%
Federal funds purchased & securities
sold under agreements to repurchase 61,661 765 4.98% 64,414 1,672 5.23% 69,098 1,927 5.61%
Other borrowings 80,803 1,158 5.75% 75,829 2,209 5.87% 44,165 1,250 5.69%
----------------------------------------------------------------------------------------
Total interest-bearing liabilities 987,500 9,580 3.89% 980,934 19,888 4.09% 908,531 18,532 4.10%
Noninterest bearing deposits 199,619 196,307 180,264
Accrued expenses and other liabilities 14,929 15,317 12,305
---------- ---------- ----------
Total liabilities 1,202,048 1,192,558 1,101,100
Minority Interest 1,529 1,517 6,369
Shareholders' equity 122,210 119,954 97,801
---------- ---------- ----------
Total liabilities and shareholders'
equity $1,325,787 $1,314,029 $1,205,270
---------- ---------- ----------
Interest rate spread 4.13% 4.06% 4.08%
---------------- ---------------- ----------------
Net interest income/margin on
earning assets $14,752 4.86% $28,797 4.82% $27,011 4.84%
- ----------------------------------------------------------------------------------------------------------------------------------
(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, 2000.
19
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote by Security Holders
- ------------------------------------------------------------
The Annual Meeting of stockholders of the Company was held on May 15, 2001 (the
"Annual Meeting"). Proxies for the Annual Meeting were solicited pursuant to
Regulation 14 under the Securities and Exchange Act of 1934, as amended.
The election of five directors for three year terms and one director for a two
year term were approved at the Annual Meeting. Directors James J. Byrnes, Reeder
D. Gates, Bonnie H. Howell, Michael H. Spain and William D. Spain, Jr. were each
elected to terms of three years which expire in the year 2004 and Director James
R. Hardie was elected to a two year term expiring in the year 2003. John E.
Alexander, James W. Fulmer, William W. Griswold, Edward C. Hooks, Hunter R.
Rawlings, III, Thomas R. Salm and Craig Yunker will continue as Directors.
In addition to the election of directors, the Company's 2001 Stock Option Plan
(the "Plan") was approved and 350,000 shares have been reserved for issuance
under the Plan. Voting with respect to the Plan was as follows: 5,781,178 in
favor, 235,122 opposed, 120,845 abstained, and 1,296,739 did not vote.
ITEM 5. Other Information
- --------------------------
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
None
(b) Reports on form 8-K
None
20
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: August 10, 2001
TOMPKINS TRUSTCO, INC.
By: /s/ JAMES J. BYRNES
-------------------------------
James J. Byrnes
Chairman of the Board,
Chief Executive Officer
By: /s/ FRANCIS M. FETSKO
-------------------------------
Francis M. Fetsko
Senior Vice President and
Chief Financial Officer
21
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION PAGES
- ---------------------------------------------
22