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, 2002
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.
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(Exact name of registrant as specified in its charter)
New York 16-1482357
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
The Commons, P.O. Box 460, Ithaca, NY 14851
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(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 October 25, 2002
---------------------------- -----------------------------------
Common Stock, $.10 par value 7,421,811 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, 2002 and December 31, 2001 3
Condensed Consolidated Statements of Income for
the three months and nine months ended September 30,
2002 and 2001 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2002 and 2001 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity for the nine months ended
September 30, 2002 and 2001 6
Notes to Unaudited Condensed Consolidated
Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 19
Item 4 - Controls and Procedures 19
Average Consolidated Balance Sheet and Net Interest Analysis 20
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 21
Item 2 - Changes in Securities and Use of Proceeds 21
Item 3 - Defaults on Senior Securities 21
Item 4 - Submission of Matters to a Vote of Securities Holders 21
Item 5 - Other Information 21
Item 6 - Exhibits and Reports on Form 8-K 21
SIGNATURES 22
Certification of Chief Executive Officer 23
Certification of Chief Financial Officer 24
EXHIBIT INDEX 25
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 09/30/2002 12/31/2001
----------------- -----------------
Cash & noninterest bearing balances
due from banks $ 63,317 $ 43,946
Interest bearing balances due from banks 10,000 21
Federal funds sold 10,300 150
Available-for-sale securities, at fair value 491,145 386,369
Held-to-maturity securities, fair value of $38,536 at
September 30, 2002 and $27,255 at December 31, 2001 36,572 26,846
Loans/leases net of unearned income 950,766 889,842
Less: Reserve for loan/lease losses 11,345 10,706
- -----------------------------------------------------------------------------------------------------------------------------------
Net Loans/Leases 939,421 879,136
Bank premises and equipment, net 26,276 25,034
Corporate owned life insurance 20,927 20,451
Intangible assets 13,492 14,072
Accrued interest and other assets 28,429 24,670
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Total Assets $1,639,879 $1,420,695
===================================================================================================================================
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings and money market $ 698,097 $ 457,427
Time 371,766 404,532
Noninterest bearing 243,524 225,499
- -----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 1,313,387 1,087,458
Securities sold under agreements to repurchase and
Federal funds purchased 74,133 109,669
Other borrowings 82,076 75,581
Other liabilities 22,204 15,423
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Total Liabilities $1,491,800 $1,288,131
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Minority interest in consolidated subsidiaries 1,526 1,492
Shareholders' equity:
Common Stock - par value $.10 per share, authorized 15,000,000 shares
Issued: 7,434,994 at September 30, 2002; and 7,442,177 at December 31, 2001 743 744
Surplus 44,911 45,456
Undivided profits 93,351 82,385
Accumulated other comprehensive income 8,014 3,039
Treasury stock, at cost - 24,529 shares at September 30, 2002,
and December 31, 2001. (466) (466)
Unallocated ISOP/ESOP
10,170 shares at December 31, 2001. 0 (86)
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Total Shareholders' Equity $ 146,553 $ 131,072
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Total Liabilities, Minority Interest in Consolidated Subsidiaries
and Shareholders' Equity $1,639,879 $1,420,695
===================================================================================================================================
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
09/30/2002 09/30/2001 09/30/2002 09/30/2001
------------ ------------ ------------ ------------
INTEREST AND DIVIDEND INCOME
Loans $17,246 $17,807 $50,898 $54,322
Interest on balances due from banks 10 10
Federal funds sold 63 75 164 403
Available-for-sale securities 6,116 5,304 18,278 15,497
Held-to-maturity securities 378 278 1,084 908
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Total Interest and Dividend Income 23,813 23,464 70,434 71,130
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INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or more 739 1,597 2,436 6,657
Other deposits 4,876 5,072 14,481 16,020
Federal funds purchased and securities sold under
agreements to repurchase 609 899 1,884 2,571
Other borrowings 1,038 1,102 3,121 3,310
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Total Interest Expense 7,262 8,670 21,922 28,558
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Net Interest Income 16,551 14,794 48,512 42,572
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Less: Provision for loan/lease losses 686 401 1,497 906
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Net Interest Income After Provision for Loan/Lease Losses 15,865 14,393 47,015 41,666
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NONINTEREST INCOME
Trust and investment services income 930 1,097 3,100 3,413
Service charges on deposit accounts 1,698 1,158 4,580 3,456
Insurance commissions and fees 1,312 1,205 3,745 3,234
Other service charges 1,381 1,035 3,739 3,170
Increase in cash surrender value of corporate owned life insurance 348 272 948 786
Other income 559 552 1,201 1,105
Net realized gain on available-for-sale securities 74 60 54 66
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Total Noninterest Income 6,302 5,379 17,367 15,230
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NONINTEREST EXPENSES
Salary and wages 5,626 5,071 16,568 14,810
Pension and other employee benefits 1,435 1,366 4,425 3,978
Net occupancy expense of bank premises 779 673 2,239 2,071
Furniture and fixture expense 802 744 2,433 2,251
Amortization of intangible assets 212 414 676 1,259
Other operating expense 3,944 3,281 11,780 9,688
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Total Noninterest Expenses 12,798 11,549 38,121 34,057
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Income Before Income Tax Expense and Minority
Interest in Consolidated Subsidiaries 9,369 8,223 26,261 22,839
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Minority interest in consolidated subsidiaries 34 34 101 100
Income Tax Expense 3,128 2,924 8,825 7,908
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Net Income $ 6,207 $ 5,265 $17,335 $14,831
==================================================================================================================================
Basic Earnings Per Share $ 0.84 $ 0.71 $ 2.34 $ 2.00
Diluted Earnings Per Share $ 0.82 $ 0.70 $ 2.29 $ 1.98
==================================================================================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Nine months ended
9/30/2002 9/30/2001
----------- -----------
OPERATING ACTIVITIES
Net income $ 17,335 $ 14,831
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 1,497 906
Depreciation and amortization premises, equipment, and software 2,178 2,110
Amortization of intangible assets 676 1,259
Earnings from corporate owned life insurance, net (913) (624)
Net amortization on securities 1,112 185
Net realized gain on available-for-sale securities (54) (66)
Net gain on sale of loans (541) (244)
Proceeds from sale of loans 25,134 18,227
Loans originated for sale (24,554) (17,983)
Net gain on sales of bank premises and equipment (8) (43)
ISOP/ESOP shares released for allocation 414 584
(Increase) decrease in accrued interest receivable (369) 1,238
Decrease in accrued interest payable (1,085) (1,548)
Other, net 941 3,851
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Net Cash Provided by Operating Activities 21,763 22,683
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INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 166,410 157,482
Proceeds from sales of available-for-sale securities 13,134 1,497
Proceeds from maturities of held-to maturity securities 8,777 7,973
Purchases of available-for-sale securities (277,006) (162,431)
Purchases of held-to-maturity securities (18,526) (4,569)
Net increase in loans (61,820) (60,302)
Proceeds from sale of bank premises and equipment 25 53
Purchases of bank premises and equipment (3,318) (2,149)
Redemption (purchase) of corporate owned life insurance 437 (885)
Net cash used in acquisitions (21) (1,004)
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Net Cash Used in Investing Activities (171,908) (64,335)
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FINANCING ACTIVITIES
Net increase in demand, money market,
and savings deposits 258,695 51,558
Net decrease in time deposits (32,766) (40,855)
Net (decrease) increase in securities sold under agreements
to repurchase and Federal funds purchased (35,536) 20,507
Net increase in other borrowings 6,495 4,193
Cash dividends (6,369) (6,093)
Common stock repurchased and returned to unissued status (1,304) (3,256)
Net proceeds from exercise of stock options and related tax benefit 430 622
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Net Cash Provided by Financing Activities 189,645 26,676
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Net Increase (Decrease) in Cash and Cash Equivalents 39,500 (14,976)
Cash and Cash Equivalents at beginning of Period 44,117 65,364
Total Cash & Cash Equivalents at End of Period $ 83,617 $ 50,388
===================================================================================================================================
Supplemental Information:
Cash paid during the year for:
Interest 23,007 30,107
Taxes 3,740 2,707
Noncash investing activities:
Fair value of noncash assets acquired in purchase acquisition 0 1,504
Fair value of liabilities acquired in purchase acquisition 0 1,449
Shares issued for acquisitions 0 3,058
Securitization of loans 0 41,440
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, 2001 $734 $44,182 $70,894 ($9) ($473) ($333) $114,995
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 14,831 14,831
Other comprehensive income 5,671 5,671
-----------
Total Comprehensive Income 20,502
===========
Cash dividends ($0.82/Share) (6,093) (6,093)
Exercise of stock options, and related
tax benefit (43,755 shares, net) 5 617 622
Common stock repurchased and returned
to unissued status (110,937 shares) (11) (3,245) (3,256)
Treasury stock issued (357 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 (16,976 shares) 355 229 584
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at
September 30, 2001 $743 $44,955 $79,632 $5,662 ($466) ($104) $130,422
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=================================================================================================================================
Balances at
January 1, 2002 $744 $45,456 $82,385 $3,039 ($466) ($86) $131,072
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 17,335 17,335
Other comprehensive income 4,975 4,975
-----------
Total Comprehensive Income 22,310
===========
Cash dividends ($0.86/Share) (6,369) (6,369)
Exercise of stock options and related
tax benefit (26,457 shares, net) 3 427 430
Common stock repurchased and returned
to unissued status (33,640 shares) (4) (1,300) (1,304)
ESOP shares committed to be released
for allocation (10,170 shares) 328 86 414
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at
September 30, 2002 $743 $44,911 $93,351 $8,014 ($466) $146,553
=================================================================================================================================
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 the corporate parent to
three community banks, Tompkins Trust Company ("Trust Company"), The Bank of
Castile, and The Mahopac National Bank ("Mahopac National Bank"), which together
operate 32 banking offices in local New York State market areas served by its
subsidiary banks. Headquartered in Ithaca, New York, Tompkins is registered as a
Financial Holding Company with the Federal Reserve Board under the Bank Holding
Company Act of 1956, as amended. Tompkins was organized in 1995, under the laws
of the State of New York, as a bank holding company for Tompkins Trust Company
(formerly known as Tompkins County Trust Company), a commercial bank that has
operated in Ithaca and surrounding communities since 1836.
Through its community banking subsidiaries, the Company provides traditional
banking services. Tompkins offers trust and investment services through Tompkins
Investment Services, a division of Tompkins Trust Company. The Company also
offers insurance services through its Tompkins Insurance Agencies, Inc.
("Tompkins Insurance") subsidiary, an independent agency with a history of over
100 years of service to individual and business clients throughout western New
York. Each Tompkins subsidiary operates with a community focus, meeting the
needs of the unique communities served.
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 the application of certain accounting policies management is
required to make assumptions regarding the effect of matters that are inherently
uncertain. These estimates and assumptions affect the reported amounts of
certain assets, liabilities, revenues, and expenses in the consolidated
financial statements. Different amounts could be reported under different
conditions, or if different assumptions were used in the application of these
accounting policies. The accounting policy considered critical in this respect
is the determination of the reserve for loan/lease losses.
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, 2002. The
unaudited condensed consolidated financial statements should be read in
conjunction with the Company's 2001 Annual Report on Form 10-K. The consolidated
financial information included herein combines the results of operations, the
assets, liabilities, and shareholders' equity of the Company and its
subsidiaries. Amounts in the prior period's consolidated financial statements
are reclassified when necessary to conform to the current period's presentation.
All significant intercompany balances and transactions are eliminated in
consolidation.
3. Earnings Per Share
A computation of Basic Earnings Per Share ("EPS") and Diluted EPS for the three
and nine month periods ending September 30, 2002 and 2001, is presented in the
table below.
- -------------------------------------------------------------------------------------------------------------
Weighted Per
Three months ended September 30, 2002 Net Income Average Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $6,207 7,402,341 $0.84
Effect of dilutive securities 161,618
Diluted EPS
Income available to common shareholders plus assumed conversions $6,207 7,563,959 $0.82
=============================================================================================================
7
- -------------------------------------------------------------------------------------------------------------
Weighted Per
Three months ended September 30, 2001 Net Income Average Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $5,265 7,399,600 $0.71
Effect of dilutive securities 116,030
Diluted EPS
Income available to common shareholders plus assumed conversions $5,265 7,515,630 $0.70
=============================================================================================================
The effect of dilutive securities calculation for 2001 excludes weighted average
options of 44,250 because the exercise price of the options was greater than the
average market value during the period.
- -------------------------------------------------------------------------------------------------------------
Weighted Per
Nine months ended September 30, 2002 Net Income Average Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $17,335 7,407,845 $2.34
Effect of dilutive securities 155,686
Diluted EPS
Income available to common shareholders plus assumed conversions $17,335 7,563,531 $2.29
=============================================================================================================
- -------------------------------------------------------------------------------------------------------------
Weighted Per
Nine months ended September 30, 2001 Net Income Average Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $14,831 7,400,016 $2.00
Effect of dilutive securities 100,761
Diluted EPS
Income available to common shareholders plus assumed conversions $14,831 7,500,777 $1.98
=============================================================================================================
The effect of dilutive securities calculation for 2001 excludes weighted average
options of 14,912 because the exercise price of the options was greater than the
average market value during the period.
8
4. Comprehensive Income (Loss)
Three months ended Nine months ended
(in thousands) 9/30/2002 9/30/2001 09/30/2002 09/30/2001
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $6,207 $5,265 $17,335 $14,831
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized holding gains (losses) during the period 1,545 4,204 5,007 5,711
Memo: Pre-tax net unrealized holding gain (loss) 2,575 7,007 8,345 9,518
Reclassification adjustment for net realized loss (gain) on
available-for-sale securities (44) (36) (32) (40)
Memo: Pretax net realized loss (gain) (74) (60) (54) (66)
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Other Comprehensive Income (Loss) 1,501 4,168 4,975 5,671
- ----------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $7,708 $9,433 $22,310 $20,502
==================================================================================================================================
5. Recent Accounting Pronouncements
ACCOUNTING FOR BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS:
In July 2001, the FASB 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 the criteria intangible assets
acquired in a purchase method business combination must meet to be recognized
and reported apart from goodwill. SFAS No. 142 requires 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 also requires 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. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.
The Company adopted the provisions of SFAS No. 141 in 2001. The adoption of SFAS
No. 141 did not have an impact on the Company's consolidated financial
statements. The Company adopted the provisions of SFAS No. 142 effective January
1, 2002. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 continued to be amortized prior to the adoption of
SFAS No. 142.
SFAS No. 141 requires 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 make any necessary reclassifications in order
to conform with the new criteria in SFAS No. 141 for recognition apart from
goodwill. Under SFAS No. 142, the Company was 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 assets was identified as having an indefinite useful life, the
Company was required to test the intangible asset for impairment in accordance
with the provisions of SFAS No. 142 within the first interim period.
In connection with the transitional goodwill impairment evaluation, SFAS No. 142
required the Company to perform an assessment of whether there was an indication
that goodwill was impaired as of the date of adoption based upon criteria
contained in SFAS No. 142. Any transitional impairment loss was to be recognized
as a cumulative effect of a change in accounting principle in the Company's
consolidated statement of income. The Company has performed an impairment
evaluation and based upon this analysis, no transitional impairment loss is
required to be recognized as a result of adopting SFAS 142.
At December 31, 2001, the Company had unamortized goodwill related to its
various acquisitions totaling $9.7 million. In accordance with SFAS No. 142, the
Company no longer amortizes this goodwill subsequent to December 31, 2001.
At December 31, 2001, the Company had core deposit intangible assets related to
various acquisitions of $3.5 million. In accordance with SFAS No. 142, these
intangible assets continue to be amortized.
At December 31, 2001, other intangible assets totaled $957,000, which included
mortgage servicing intangible assets of $663,000. Also included in this amount
were approximately $234,000 of unidentified intangible assets related to various
branch acquisitions accounted for under SFAS No. 72.
9
Information regarding the carrying amount and the amortization expense of the
Company's acquired intangible assets are disclosed in the table below.
- ----------------------------------------------------------------------------------------------------------
Gross Carrying Accumulated Net Carrying
September 30, 2002 (In thousands) Amount Amortization Amount
- ----------------------------------------------------------------------------------------------------------
Amortized intangible assets:
- ----------------------------------------------------------------------------------------------------------
Core deposit intangible $ 5,459 $ 2,601 $ 2,858
- ----------------------------------------------------------------------------------------------------------
Other intangibles 2,356 1,399 957
- ----------------------------------------------------------------------------------------------------------
Subtotal amortized intangible assets 7,815 4,000 3,815
- ----------------------------------------------------------------------------------------------------------
Goodwill 10,479 802 9,677
- ----------------------------------------------------------------------------------------------------------
Total intangible assets $18,294 $ 4,802 $13,492
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Aggregate amortization expense: *
- ----------------------------------------------------------------------------------------------------------
For the year to date period ended 9/30/02 * $ 676
- ----------------------------------------------------------------------------------------------------------
Estimated amortization expense: *
- ----------------------------------------------------------------------------------------------------------
For the year ended 12/31/02 972
- ----------------------------------------------------------------------------------------------------------
For the year ended 12/31/03 859
- ----------------------------------------------------------------------------------------------------------
For the year ended 12/31/04 744
- ----------------------------------------------------------------------------------------------------------
For the year ended 12/31/05 564
- ----------------------------------------------------------------------------------------------------------
For the year ended 12/31/06 449
- ----------------------------------------------------------------------------------------------------------
<FN>
* Aggregate amortization expense for the period does not include the
amortization of mortgage servicing rights. Estimated amortization expense for
the five years does include amortization of mortgage servicing rights and
amortization of unidentified intangible assets related to various branch
acquisitions. As discussed below, on adoption of SFAS No. 147 on October 1,
2002, the estimated amortization expense will be reduced by $79,000, $78,000,
and $72,000 for the years ended December 31, 2002, 2003, and 2004. These
unidentified intangible assets would have been fully amortized by year end
December 31, 2004.
</FN>
Goodwill and other intangible assets - Effect of adoption of SFAS No. 142
- ----------------------------------------------------------------------------------------------------------
(In thousands, except per share data) Three months ended Nine months ended
- ----------------------------------------------------------------------------------------------------------
September 30, 2001 September 30, 2001
- ----------------------------------------------------------------------------------------------------------
Reported Net Income $ 5,265 $14,831
- ----------------------------------------------------------------------------------------------------------
Add back goodwill amortization 135 394
- ----------------------------------------------------------------------------------------------------------
Adjusted Net Income 5,400 15,225
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Basic earning per share - as reported $ 0.71 $ 2.00
- ----------------------------------------------------------------------------------------------------------
Adjust for goodwill 0.02 0.05
- ----------------------------------------------------------------------------------------------------------
Basic earnings per share - adjusted 0.73 2.05
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Diluted earning per share - as reported $ 0.70 $ 1.98
- ----------------------------------------------------------------------------------------------------------
Adjust for goodwill 0.02 0.05
- ----------------------------------------------------------------------------------------------------------
Diluted earnings per share - adjusted 0.72 2.03
- ----------------------------------------------------------------------------------------------------------
Prior to October 1, 2002, the FASB required unidentifiable intangible assets
acquired in the acquisition of a bank or thrift (including acquisitions of
branches), where the fair value of the liabilities assumed exceeds the fair
value of the assets acquired, to be accounted for under SFAS No. 72, Accounting
for Certain Acquisitions of Banking or Thrift Institutions. Under SFAS No. 72,
all intangible assets associated with branch acquisitions recorded on the
Company's consolidated statement of condition as of December 31, 2001, continued
to be amortized through September 30, 2002. In October 2002, the FASB issued
SFAS No. 147, Acquisitions of Certain Financial Institutions. SFAS No. 147
amends SFAS No. 72 and SFAS No. 144 and FASB Interpretation No. 9, Applying APB
Opinions Nos. 16 and 17 When a Savings and Loan Association of a Similar
Institution is Acquired in a Business Combination Accounted for by the Purchase
Method. SFAS No. 147 is effective on October 1, 2002 and requires that
unidentifiable intangible assets related to branch acquisitions no longer be
amortized (as of the adoption date for SFAS No. 142, which for the Company was
January 1, 2002) and that the unidentified intangible assets be evaluated
annually for impairment in accordance with SFAS No. 142. SFAS No. 147 also
amends the provisions of SFAS No. 144 to apply to long-term customer
relationship intangible assets recognized in the
10
acquisition of a financial institution. Accordingly, effective October 1, 2002,
the Company will evaluate its core deposit intangible assets for impairment in
accordance with the provisions of SFAS No. 144. The Company does not expect the
adoption of SFAS No. 147 to have a material effect on the consolidated
statements of condition or consolidated statements of income.
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS: In October 2001,
the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, that replaces SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. The provisions of SFAS No. 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
generally, are to be applied prospectively. The adoption of SFAS No. 144 on
January 1, 2002, did not have a material impact on the Company's financial
condition or results of operations.
RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO.
13, AND TECHNICAL CORRECTIONS: In May 2002, the Financial Accounting Standards
Board issued SFAS No. 145, Rescission of FASB No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections. The provisions of SFAS No. 145
are generally effective for financial statements issued for fiscal years
beginning after May 15, 2002. The adoption of SFAS No. 145 is not expected to
have a material impact on the Company's financial condition or results of
operations.
ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES: In July 2002,
the Financial Accounting Standards Board issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. The provisions of SFAS No.
146 are effective for exit or disposal activities initiated after December 31,
2002, on a prospective basis.
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 ("Mahopac National Bank"), became subsidiaries of
Tompkins.
Effective January 1, 2001, the Company completed the acquisition of 100% 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. Tompkins Insurance has six offices located in the towns
of Attica, Warsaw, Alden, LeRoy, Batavia and Caledonia. Further details
pertaining to the mergers and acquisitions are presented in Note 2 to the
Company's 2001 Annual Report on Form 10-K.
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 services through Tompkins Investment Services, a division of Tompkins
Trust Company. Tompkins Investment Services provides trust and investment
services, including investment management accounts, custody accounts, trusts,
retirement plans and rollovers, estate settlement, and financial planning.
Tompkins Insurance services 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, 2001, 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
For the quarter ended September 30, 2002, net income was $6.2 million, an
increase of 17.9% over the same period in 2001. Diluted earnings per share was
$0.82 for third quarter of 2002, compared to $0.70 for the same period in 2001.
The Company's key performance ratios remain strong. Return on average assets
(ROA) for the quarter ended September 30, 2002, was 1.53%, compared to 1.55% for
the same period in 2001. Return on average shareholders' equity (ROAE) for the
third quarter of 2002 was 17.22%, compared to 16.73% for the same period in
2001.
Net income for the nine month period ended September 30, 2002, was $17.3
million, an increase of 16.9% over the same period in 2001. Diluted earnings per
share was $2.29 for the first nine months of 2002, compared to $1.98 for the
same period in 2001. Return on average assets (ROA) for the first nine months of
2002 was 1.49%, unchanged from the same period in 2001. Return on average
shareholders' equity (ROAE) for the first nine months of 2002 was 16.90%,
compared to 16.31% for the same period in 2001.
Net Interest Income
The attached Average Consolidated Balance Sheet and Net Interest Analysis
illustrates the trend in average interest-earning assets and interest-bearing
liabilities, and the corresponding yield or cost associated with each. The
Company earned tax-equivalent net interest income of $17.1 million for the three
months ended September 30, 2002, an increase of 12.1% over the same period in
2001. An increased volume of earning assets helped offset a decline in net
interest margin in the current quarter. The net interest margin for the quarter
declined from 4.91% in 2001, to 4.61% in 2002.
Year-to-date September 30, 2002, the Company earned tax-equivalent net interest
income of $50.2 million, an increase of 13.9% over the first nine months of
2001. Net interest margin for the nine months ended September 30, 2002, was
4.70%, down from 4.85% for the same period in 2001.
A declining trend in interest rates has resulted in declines in both the yield
on earning assets and the cost of interest-bearing liabilities. The yield on
earning assets declined from 7.99% for the first nine month of 2001, to 6.75%
for the same period in 2002. The cost of interest bearing liabilities declined
from 3.88% to 2.51% over the same period.
Average earning assets for the year-to-date period ended September 30, 2002,
increased $214.4 million, or 17.6% over the same period in 2001. Growth in
earning assets included steady growth in commercial lending products. Between
September 30, 2001, and September 30, 2002, average balances for commercial real
estate loans, commercial loans, and commercial leases increased by $18.4
million, $35.5 million, and $2.5 million, respectively. These commercial lending
products represented 47.8% of average loans at September 30, 2002, up from 45.0%
of average loans at September 30, 2001. Management continues to emphasize
commercial services, as these commercial loan products are typically attractive
to the Company from a yield and interest rate risk management perspective.
Application volume for residential mortgages over the past 12 months remained
very strong. Despite $24.6 million in loan sales during the first nine months of
2002, average residential real estate loans increased by $18.2 million in the
first nine months of 2002, when compared to the same period last year.
Average securities (excluding changes in unrealized gains and losses on
available-for-sale securities) increased by $144.5 million from the first nine
months of 2001. Growth in the securities portfolio include a $32.3 million
increase in average U.S. Government agency securities, and a $79.8 million
increase in U.S. Government mortgage-backed securities.
Asset growth in 2002 was funded primarily with core deposits (total deposits,
less: brokered deposits, municipal money market deposits, and time deposits of
$100,000 or more). Core deposits increased by 20.0% from an average balance of
$847.7 million for the first nine months of 2001, to $1.0 billion for the same
period in 2002. Core deposits represent the Company's largest and lowest cost
funding source, with average core deposits representing 71.8% of average
liabilities for the first nine months of 2002. This compares to 70.4% for the
same period in 2001.
13
Non-core funding sources (time deposits of $100,000 or more, brokered deposits,
municipal money market deposits, Federal funds purchased, securities sold under
agreements to repurchase, and other borrowings) represent an additional source
of funds to support asset growth. Average balances on these non-core funding
sources increased by $42.3 million between the first nine months of 2001 and the
first nine months of 2002. The category of non-core funding with the largest
increase was municipal money market deposits. The cost of interest-bearing
liabilities declined from 3.88% for the nine months ended September 30, 2001, to
2.51% for the first nine months of 2002.
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 $1.5 million for the first nine
months of 2002, is up from $906,000 for the same period in 2001. The increase in
the provision for loan/lease losses in 2002 is attributable to an increase in
net charge-offs, an increase in the dollar volume of nonperforming loans, as
well as continued growth in the loan portfolio. Net charge-offs were $858,000
for the first nine months of 2002, compared to $310,000 in 2001. 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 1.19% at September 30,
2002, and 1.20% at December 31, 2001.
Noninterest Income
Management continues to emphasize noninterest income as an important component
of the Company's future success. Noninterest income for the nine months ended
September 30, 2002, was $17.4 million, an increase of 14.0% over the same period
in 2001. Year-to-date September 30, 2002, noninterest income represented 25.7%
of total revenue, relatively unchanged from last year. Noninterest income for
the three months ended September 30, 2002, was $6.3 million, an increase of
17.2% over the same period in 2001.
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.
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 nearly 40 states. Recently, Tompkins Investment
Services expanded its marketing efforts and has dedicated staff to serve clients
in The Bank of Castile and Mahopac National Bank markets. Trends for new
business in trust and investments services remain positive, although the general
downward trend in national stock markets has caused earnings to decline in 2002,
when compared to the prior year. The market value of assets managed by, or in
custody of, Tompkins Investment Services was approximately $1.1 billion at
September 30, 2002, down approximately 3.7% from January 1, 2002. Trust and
Investment Services income was $3.1 million in the first nine months of 2002,
compared to $3.4 million in the first nine months of 2001. For the third quarter
of 2002, Trust and Investment Services income of $930,000 was down approximately
$167,000 from the same period last year.
Tompkins Insurance is an independent agency, representing several major
insurance carriers with access to special risk property and liability markets.
Tompkins Insurance has sophisticated computer systems for record keeping, claim
processing and coverage confirmation, and can provide instant insurance pricing
comparisons from some of the country's leading insurance companies. The agency
primarily offers property and casualty insurance to individuals and businesses
in Western New York State. Commission and fee income from Tompkins Insurance was
$3.7 million for the first nine months of 2002, up 15.8% from the same period
last year. For the third quarter of 2002, commission and fee income from
Tompkins Insurance was $1.3 million, up 8.9% over the prior year.
Service charges on deposit accounts were $4.6 million for the nine month period
ended September 30, 2002, compared to $3.5 million for the same period in 2001.
For the third quarter of 2002, service charges on deposits were $1.7 million, an
increase of $540,000 over the same quarter last year. The increase in 2002 is
largely due to the increase in deposit accounts and additional deposit related
services. The average dollar volume of noninterest-bearing accounts increased by
15.1% between September 30, 2001 and September 30, 2002. Average total deposits
were up 19.6% over the same period.
14
Income from card services, included in other service charges on the consolidated
statements of income, continues to be an important source of revenue. The
Company continues to expand its product offerings to better serve the needs of
customers. Card services products include traditional credit cards, purchasing
cards, debit cards, and merchant card processing. Income associated with card
services was $2.2 million for the nine months ended September 30, 2002, an
increase of approximately 23.5% from the nine months of 2001. Card services
income was $803,000 in the third quarter of 2002, an increase of 39.3% over the
same quarter last year.
The Company has corporate owned life insurance (COLI), which relates to life
insurance and certain other benefits provided to selected senior officers of the
Company and its subsidiaries. Increases in the cash surrender value of COLI are
reflected as other noninterest income, net of the related mortality expense.
Other noninterest income for the first nine months of 2002 includes $948,000 of
income relating to increases in COLI. This compares to $786,000 for the same
period in 2001. The Company's average investment in COLI was $20.6 million for
the nine month period ended September 30, 2002, compared to $19.2 million for
the same period in 2001.
The current historically low interest rate environment resulted in record
mortgage application volume for the Company in 2001, and has continued in 2002.
As a result of this record application volume, which included a high percentage
of applications to refinance loans currently serviced by the Company, the volume
of residential mortgage loan sales increased from $18.0 million in the first
nine months of 2001 to $24.6 million in 2002. Net gains from loan sales are
included in other income and amounted to $541,000 in the first nine months of
2002, compared to $244,000 for the same period in 2001.
Noninterest Expenses
Total noninterest expenses were $38.1 million for the nine months of 2002, an
increase of 11.9% over the same period in 2001. For the third quarter of 2002,
noninterest expenses were $12.8 million, up 10.8% over the prior year. The
increase in noninterest expense in the first nine months of 2002 is largely due
to higher personnel-related costs, which were up by 11.7%, or $2.2 million over
the first nine months of 2001. Personnel-related expenses comprise the largest
segment of noninterest expense, representing approximately 55.1% of operating
expense in the first nine months of 2002. The increase in personnel-related
expenses is attributable to a variety of factors including an increased number
of employees, as well as higher benefit related costs for medical insurance and
pensions.
Expenses related to bank premises and furniture and fixtures totaled $4.7
million for the first nine months of 2002, an increase of 8.1% over the same
period last year. A portion of the increase is attributable Mahopac National
Bank branch openings, which included the October 2001 opening of the Hopewell
Junction office and the July 2002 opening of the LaGrange office.
Amortization expense decreased from $1.3 million in the first nine months of
2001, to $676,000 in the first nine months of 2002. The decline in amortization
is primarily attributable to the adoption of SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 requires 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.
The adoption of SFAS No. 142 has resulted in a $400,000 reduction in goodwill
amortization expense in the first nine months of 2002 as compared to the same
period last year. If SFAS No. 142 had not been adopted on January 1, 2002, then
goodwill amortization expense would have been $455,000 in the first nine months
of 2002. At September 30, 2002, the Company had unamortized goodwill related to
various acquisitions totaling $9.7 million. An evaluation of impairment of the
Company's goodwill assets was completed as of December 31, 2001, which concluded
that these assets were not impaired. Management is not aware of any change in
circumstances since that date that would alter this conclusion.
At September 30, 2002, the Company had other identifiable intangible assets
(primarily core deposit intangibles) related to various acquisitions of $2.9
million. The amortization of these intangible assets amounted to $676,000 for
the nine months ended September 30, 2002, and $859,000 for the same period in
2001. In accordance with SFAS No. 142, these intangible assets continue to be
amortized.
15
Other operating expense amounted to $11.8 million in the first nine months of
2002, compared to $9.7 million for the same period in 2001. A portion of the
increase is related to variable expenses associated with increased business
volumes. Also contributing to the increase was the development and utilization
of an improved technology infrastructure, which added $439,000 in increased
software and communications costs. Marketing efforts related to newer branch
promotions and the introduction of Tompkins product lines to the Mahopac and
Castile markets contributed to a $575,000 increase in marketing expenses.
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, 2002, was $8.8
million, compared to $7.9 million in 2001. The increased provision is primarily
due to increased levels of taxable income. The effective tax rate for the first
nine months of 2002 was 33.6%, compared to 34.6% for the same period in 2001.
FINANCIAL CONDITION
The Company's total assets were $1.6 billion at September 30, 2002, representing
an increase of $219.2 million over total assets reported at December 31, 2001.
Asset growth was largely driven by strong deposit growth during 2002, as
deposits increased by $225.9 million since December 31, 2001, to $1.3 billion at
September 30, 2002. Asset growth included a $114.5 million increase in
securities and a $60.9 million increase in total loans. Loan originations have
been reasonably strong through the first nine months of 2002, with total loans
increasing by 6.8%, to $950.8 million. Loan growth during the period is net of
$24.6 million in sales of fixed rate residential mortgage loans. A $10.2 million
increase in Federal funds sold also added to asset growth during the first nine
months of 2002.
Capital
Total shareholders' equity increased to $146.6 million at September 30, 2002, an
increase of $15.5 million from December 31, 2001. Undivided profits at September
30, 2002, were up $11.0 million from December 31, 2001, while accumulated other
comprehensive income was up $5.0 million. Tangible book value per share
increased from $15.77 at December 31, 2001, to $17.96 at September 30, 2002.
Cash dividends paid in the first nine months of 2002 totaled approximately $6.4
million, representing 36.75% of year to date earnings. Per share cash dividends
of $0.86 for the first nine months of 2002, were up from $0.82 for the same
period in 2001.
In August 2002, the Company's board of directors approved a stock repurchase
plan (the "Plan"), which authorizes the repurchase of up to 400,000 shares of
Tompkins common stock over a two year period. To date, no shares have been
purchased under this Plan. Earlier this year, the Company repurchased 33,640
shares at an average price of $38.76 per share. These shares were repurchased
under a similar stock repurchase plan that was approved in August 2000, and
expired in August 2002.
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, 2002, compared to the regulatory capital requirements
for "well capitalized" institutions.
16
REGULATORY CAPITAL ANALYSIS - September 30, 2002
- -----------------------------------------------------------------------------------------------------------------
Actual Well Capitalized
Requirement
(Dollar amounts in thousands) Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets) $139,725 13.8% $101,300 10.0%
Tier I Capital (to risk weighted assets) $128,380 12.7% $ 60,780 6.0%
Tier I Capital (to average assets) $128,380 8.1% $ 79,278 5.0%
=================================================================================================================
As illustrated above, the Company's capital ratios on September 30, 2002, remain
well above the minimum requirement for well capitalized institutions. As of
September 30, 2002, 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/Lease Losses and Nonperforming Assets
Management reviews the adequacy of the reserve for loan/lease losses (reserve)
on a regular basis. Management considers the accounting policy relating to the
reserve to be a critical accounting policy, given the inherent uncertainty in
evaluating the levels of the reserve required to cover credit losses in the
portfolio and the material effect that assumption could have on the results of
operations. Factors considered in determining the adequacy of the reserve and
the related provision include: management's approach to granting new credit; the
ongoing monitoring of existing credits by the internal and external loan review
functions; the growth and composition of the loan and lease portfolio; comments
received during the course of independent examinations; current local economic
conditions; past due and nonperforming loan statistics; estimated collateral
values; and a historical review of loan and lease loss experience. Based upon
consideration of the above factors, management believes that the reserve is
adequate to provide for the risk of loss inherent in the current loan and lease
portfolio. Activity in the Company's reserve for loan/lease losses during the
first nine months of 2002 and 2001 is illustrated in the table below.
ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In thousands)
- -----------------------------------------------------------------------------------------------------------------
September 30, 2002 September, 30, 2001
- -----------------------------------------------------------------------------------------------------------------
Average Loans and Leases Outstanding Year to Date $914,951 $846,866
- -----------------------------------------------------------------------------------------------------------------
Beginning Balance 10,706 9,824
- -----------------------------------------------------------------------------------------------------------------
Provision for loan losses 1,497 906
Loans charged off (1,194) (890)
Loan recoveries 336 580
- -----------------------------------------------------------------------------------------------------------------
Net charge-offs 858 310
- -----------------------------------------------------------------------------------------------------------------
Ending Balance $ 11,345 $ 10,420
=================================================================================================================
The reserve represented 1.19% of total loans and leases outstanding at September
30, 2002, down slightly from 1.21% at September 30, 2001. The reserve coverage
of nonperforming loans (loans past due 90 days and accruing, nonaccrual loans,
and restructured troubled debt) declined from 1.91 times at September 30, 2001,
to 1.60 times at September 30, 2002. Management is committed to early
recognition of loan problems and to maintaining an adequate reserve.
The level of nonperforming assets at September 30, 2002 and 2001 is illustrated
in the table below. Nonperforming assets of $7.4 million as of September 30,
2002, reflect an increase of $1.9 million from September 30, 2001. Despite the
increase in nonperforming assets from September 30, 2001, the current level of
nonperforming assets remains modest at 0.45% of total assets. Approximately
$257,000 of the nonperforming loans at September 30, 2002, were secured by U.S.
Government guarantees, while $1.6 million were secured by one to four family
residential properties.
17
NONPERFORMING ASSETS (In thousands)
- -----------------------------------------------------------------------------------------------------------------
September 30, 2002 September 30, 2001
- -----------------------------------------------------------------------------------------------------------------
Nonaccrual loans $6,891 $5,082
Loans past due 90 days and accruing 40 369
Troubled debt restructuring not included above 180 0
- -----------------------------------------------------------------------------------------------------------------
Total nonperforming loans 7,111 5,451
- -----------------------------------------------------------------------------------------------------------------
Other real estate, net of allowances 282 45
- -----------------------------------------------------------------------------------------------------------------
Total nonperforming assets $7,393 $5,496
=================================================================================================================
Total nonperforming loans as a percent of total loans 0.75% 0.63%
Total nonperforming assets as a percentage of total assets 0.45% 0.40%
=================================================================================================================
Deposits and Other Liabilities
Total deposits of $1.3 billion on September 30, 2002, were up 20.8% from
December 31, 2001. Core deposits, which include demand deposits, savings
accounts, non-municipal money market accounts, and time deposits of less than
$100,000 represent the primary funding source for the Company. As of September
30, 2002, core deposits of $1.1 billion represented 71.5% of total liabilities.
This compares to core deposits of $925.8 million, representing 71.9% of total
liabilities at December 31, 2001. Deposit growth was aided by two newer Mahopac
National Bank offices - the Hopewell Office, which opened in October of 2001,
and the LaGrange Office which opened in July 2002.
Non-core funding sources for the Company include: time deposits greater than
$100,000, municipal money market deposits, brokered deposits, securities sold
under repurchase agreements, Federal funds purchased, and other borrowings.
These non-core funding sources totaled $402.5 million at September 30, 2002, up
from $372.5 million at December 31, 2001. The majority of the increase was in
municipal money market accounts, which was partially offset by a decline in time
deposits greater than $100,000. Other borrowings, consisting of term borrowings
from the Federal Home Loan Bank (FHLB), increased from $75.6 million at December
31, 2001, to $82.1 million at September 30, 2002.
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 $83.6 million as of September 30, 2002, up
from $44.1 million at December 31, 2001. Short term investments, consisting of
securities due in one year or less, increased from $23.8 million on December 31,
2001, to $25.6 million on September 30, 2002. Securities pledged to secure
certain large deposits and securities sold under repurchase agreements were
71.7% of total securities as of September 30, 2002, compared to 72.3% as of
December 31, 2001.
Liquidity is enhanced by ready access to national and regional wholesale funding
sources including Federal funds purchased, repurchase agreements, brokered
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, 2002, the
unused borrowing capacity on established lines with the FHLB was $142.7 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, 2002, total residential mortgage loans of the Company
were $365.3 million, the majority of which are available as collateral for FHLB
borrowings.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 quarter 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,
2002.
Condensed Static Gap - September 30, 2002 Repricing Interval
Cumulative
(Dollar amounts in thousands) Total 0-3 months 3-6 months 6-12 months 12 months
- -------------------------------------------------------------------------------------------------------------------------
Interest-earning assets $ 1,485,427 $ 490,059 $ 120,987 $ 186,346 $ 797,392
Interest-bearing liabilities 1,226,072 543,336 70,913 130,460 744,709
- -------------------------------------------------------------------------------------------------------------------------
Net gap position (53,277) 50,074 55,886 52,683
- -------------------------------------------------------------------------------------------------------------------------
Net gap position as a percentage of total assets (3.25%) 3.05% 3.41% 3.21%
==========================================================================================================================
The above analysis reflects a slightly asset sensitive position, suggesting that
earnings would benefit from a rising interest rate environment and would be
hindered by a declining interest rate environment. The Company's simulation
models suggest that earnings could suffer in a declining rate environment as
asset yields have more room to decline than costs on the Company's funding
sources.
The board of directors has set a policy that the Company's interest rate risk
exposure will remain within a range whereby net interest income will not decline
by more than 10% in one year as a result of a 200 basis point change in rates.
Based upon the simulation analysis performed as of September 30, 2002, a 200
basis point upward shift in interest rates over a one-year time frame would
result in a one-year decline in net interest income of approximately 0.56%,
assuming no balance sheet growth and no management action to address balance
sheet mismatches. The same simulation indicates that a 100 basis point decline
in interest rates over a one-year period would result in a decrease in net
interest income of 1.57%. As indicated above, the most recent simulation models
reflect a fairly well balanced position related to exposure to changes in
interest rates. However, the simulation also indicates that the Company will
likely continue to see downward pressure on the net interest margin over the
next 12 months under most interest rate scenarios.
Although the simulation model is useful in identifying potential exposure to
interest rate movements, the Company's current liquidity profile, capital
position, and growth prospects, offer a level of flexibility for management to
take actions that could offset some of the negative effects of unfavorable
movements in interest rates. Management believes the current exposure to changes
in interest rates is not significant in relation to the earnings and capital
strength of the Company.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer and Chief
Financial Officer evaluated the effectiveness of the design and operations of
the Company's disclosure controls and procedures (as defined in Rule 13a-14(c)
under the Securities Exchange Act of 1934, as amended) (the "Exchange Act") as
of a date (the "Evaluation Date") within 90 days prior to the filing date of
this report. Based upon that evaluation, the Company's management, including the
Chief Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures were effective
in timely alerting them to any material information relating to the Company and
its subsidiaries required to be included in the Company's Exchange Act filings.
There were no significant changes made in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the evaluation performed by the Company's Chief Executive Officer and
Chief Financial Officer.
19
TOMPKINS TRUSTCO, INC.
Average Consolidated Balance Sheet and Net Interest Analysis
Quarter Ended Year to Date Period Ended Year to Date Period Ended
----------------------------------------------------------------------------------------------
Sep-02 Sep-02 Sep-01
- -----------------------------------------------------------------------------------------------------------------------------------
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 $1,630 $10 2.43% $549 $10 2.44% $409 $2 1.94%
Securities (1)
U.S. Government Securities 392,111 5,214 5.28% 375,395 15,562 5.54% 266,125 13,022 6.54%
State and municipal (2) 82,051 1,418 6.86% 78,540 4,144 7.05% 68,730 3,847 7.48%
Other Securities (2) 44,995 401 3.54% 46,896 1,230 3.51% 21,449 954 5.95%
----------------------------------------------------------------------------------------------
Total securities 519,157 7,033 5.37% 500,831 20,936 5.59% 356,304 17,823 6.69%
Federal Funds Sold 14,143 63 1.77% 12,871 164 1.70% 11,213 403 4.81%
Loans, net of unearned income (3)
Real Estate 561,592 10,210 7.21% 542,612 30,028 7.40% 508,871 31,178 8.19%
Commercial Loans (2) 249,459 4,123 6.56% 243,766 12,134 6.66% 208,149 13,758 8.84%
Consumer Loans 109,089 2,579 9.38% 109,477 7,728 9.44% 111,180 8,343 10.03%
Direct Lease Financing 18,874 371 7.80% 19,096 1,119 7.83% 18,666 1,125 8.06%
----------------------------------------------------------------------------------------------
Total loans, net of unearned
income 939,014 17,283 7.30% 914,951 51,009 7.45% 846,866 54,404 8.59%
----------------------------------------------------------------------------------------------
Total interest-earning assets 1,473,944 24,389 6.56% 1,429,202 72,119 6.75% 1,214,792 72,632 7.99%
----------------------------------------------------------------------------------------------
Other assets 135,262 126,679 111,591
----------- ----------- -----------
Total assets $1,609,206 $1,555,881 $1,326,383
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking,
savings, & money market 677,384 2,586 1.51% 642,600 7,489 1.56% 419,078 6,215 1.98%
Time Dep > $100,000 95,872 739 3.06% 106,082 2,436 3.07% 174,936 6,657 5.09%
Time Dep < $100,000 253,694 2,121 3.32% 245,719 6,611 3.60% 236,333 9,618 5.44%
Brokered Time Dep < $100,000 17,141 169 3.91% 13,533 381 3.76% 5,311 186 4.68%
----------------------------------------------------------------------------------------------
Total interest-bearing deposits 1,044,091 5,615 2.13% 1,007,934 16,917 2.24% 835,658 22,676 3.63%
Federal funds purchased &
securities sold under agreements
to repurchase 71,606 609 3.37% 75,148 1,884 3.35% 72,699 2,571 4.73%
Other borrowings 82,787 1,038 4.97% 82,614 3,121 5.05% 76,168 3,311 5.81%
----------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,198,484 7,262 2.40% 1,165,696 21,922 2.51% 984,525 28,558 3.88%
Noninterest bearing deposits 244,163 233,492 202,764
Minority Interest 1,510 1,515 1,514
Accrued expenses and other
liabilities 22,058 18,028 15,972
----------- ----------- -----------
Total liabilities 1,466,215 1,418,731 1,204,775
Shareholders' equity 142,991 137,150 121,608
----------- ----------- -----------
Total liabilities and
shareholders' equity $1,609,206 $1,555,881 $1,326,383
=========== =========== ===========
Interest rate spread 4.16% 4.24% 4.11%
------------------- ------------------- --------------------
Net interest income/margin on
earning assets $17,127 4.61% $50,197 4.70% $44,074 4.85%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(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, 2001.
</FN>
20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults on Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act 2002.
(b) Reports on Form 8-K
On July 24, 2002, the Company filed a Form 8-K regarding its
Board of Directors authorization of the repurchase of up to
400,000 shares of the Company's outstanding common stock.
21
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: October 31, 2002
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
22
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, James J. Byrnes, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tompkins Trustco, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 31, 2002
/S/ James J. Byrnes
- ------------------------------------------
James J. Byrnes
Chairman, Chief Executive Officer
23
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Francis M. Fetsko, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tompkins Trustco, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 31, 2002
/S/ Francis M. Fetsko
- -------------------------------------------------
Francis M. Fetsko
Senior Vice President and Chief Financial Officer
24
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION PAGES
- -------------------------------------------------------------------------------
99.1 Certification of the Chief Executive Officer 26
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification of the Chief Financial Officer 27
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act 2002
25