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 March 31, 2003
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). 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 April 25, 2003
---------------------------- ---------------------------------
Common Stock, $.10 par value 7,394,327 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
March 31, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Income for
the three months ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows for the
three ended March 31, 2003 and 2002 5
Condensed Consolidated Statements of Changes in Shareholders'
Equity for the three months ended March 31, 2003 and 2002 6
Notes to Unaudited Condensed Consolidated Financial Statements 7-9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-16
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 16
Item 4 - Controls and Procedures 17
Average Consolidated Balance Sheet and Net Interest Analysis 18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 2 - Changes in Securities and Use of Proceeds 19
Item 3 - Defaults on Senior Securities 19
Item 4 - Submission of Matters to a Vote of Securities Holders 19
Item 5 - Other Information 19
Item 6 - Exhibits and Reports on Form 8-K 19
SIGNATURES 20
Certification of Chief Executive Officer 21
Certification of Chief Financial Officer 22
EXHIBIT INDEX 23
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 03/31/2003 12/31/2002
----------- -----------
Cash and noninterest bearing balances due from banks $ 60,158 $ 53,898
Interest bearing balances due from banks 0 10,000
Federal funds sold 325 400
Available-for-sale securities, at fair value 580,133 493,780
Held-to-maturity securities, fair value of $42,030 at
March 31, 2003 and $40,260 at December 31, 2002 40,311 38,722
Loans and leases net of unearned income and deferred costs and fees 1,004,471 995,346
Less: Reserve for loan/lease losses 11,990 11,704
- ---------------------------------------------------------------------------------------------------------------
Net Loans/Leases 992,481 983,642
Bank premises and equipment, net 27,174 27,111
Corporate owned life insurance 21,634 21,382
Goodwill 10,757 10,684
Intangible assets 3,332 3,422
Accrued interest and other assets 27,552 27,162
- ---------------------------------------------------------------------------------------------------------------
Total Assets $ 1,763,857 $ 1,670,203
===============================================================================================================
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings and money market $ 718,090 $ 710,753
Time 392,625 379,603
Noninterest bearing 245,177 249,929
- ---------------------------------------------------------------------------------------------------------------
Total Deposits 1,355,892 1,340,285
Federal funds purchased and securities sold under agreements to repurchase 120,386 77,843
Other borrowings 116,790 81,930
Other liabilities 19,607 18,059
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities $ 1,612,675 $ 1,518,117
- ---------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 1,523 1,489
Shareholders' equity:
Common Stock - par value $.10 per share: Authorized 15,000,000 shares;
Issued: 7,394,127 at March 31, 2003; and 7,465,286 at December 31, 2002 740 747
Surplus 42,812 45,997
Undivided profits 100,380 96,722
Accumulated other comprehensive income 6,193 7,597
Treasury stock, at cost - 24,529 shares at March 31, 2003,
and December 31, 2002 (466) (466)
- ---------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 149,659 $ 150,597
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities, Minority Interest in Consolidated Subsidiaries
and Shareholders' Equity $ 1,763,857 $ 1,670,203
===============================================================================================================
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
-------------------------
03/31/2003 03/31/2002
----------- -----------
INTEREST AND DIVIDEND INCOME
Loans $ 16,891 $ 16,766
Interest on balances due from banks 15 0
Federal funds sold 13 56
Available-for-sale securities 5,476 5,645
Held-to-maturity securities 394 286
- ---------------------------------------------------------------------------------------------------------------
Total Interest and Dividend Income 22,789 22,753
- ---------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or more 754 903
Other deposits 3,809 4,613
Federal funds purchased and securities sold under agreements to repurchase 620 639
Other borrowings 1,062 1,021
- ---------------------------------------------------------------------------------------------------------------
Total Interest Expense 6,245 7,176
- ---------------------------------------------------------------------------------------------------------------
Net Interest Income 16,544 15,577
- ---------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 540 376
- ---------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan/Lease Losses 16,004 15,201
- ---------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust and investment services income 1,000 1,079
Service charges on deposit accounts 1,679 1,315
Insurance commissions and fees 1,270 1,177
Other service charges 1,330 1,098
Increase in cash surrender value of corporate owned life insurance 252 311
Other income 535 330
Net realized gain on available-for-sale securities 59 0
- ---------------------------------------------------------------------------------------------------------------
Total Noninterest Income 6,125 5,310
- ---------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salary and wages 5,987 5,430
Pension and other employee benefits 1,833 1,574
Net occupancy expense of bank premises 896 736
Furniture and fixture expense 822 817
Amortization of intangible assets 190 238
Other operating expense 3,499 3,833
- ---------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 13,227 12,628
- ---------------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense and Minority
Interest in Consolidated Subsidiaries 8,902 7,883
- ---------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 33 34
Income Tax Expense 2,984 2,644
- ---------------------------------------------------------------------------------------------------------------
Net Income $ 5,885 $ 5,205
===============================================================================================================
Basic Earnings Per Share $ 0.79 $ 0.70
Diluted Earnings Per Share $ 0.78 $ 0.69
===============================================================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Three months ended
------------------------
3/31/2003 3/31/2002
---------- ----------
OPERATING ACTIVITIES
Net income $ 5,885 $ 5,205
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 540 376
Depreciation and amortization premises, equipment, and software 760 735
Amortization of intangible assets 190 238
Earnings from corporate owned life insurance (252) (298)
Net amortization on securities 887 376
Net realized gain on available-for-sale securities (59) 0
Net gain on sale of loans (500) (209)
Proceeds from sale of loans 16,372 13,565
Loans originated for sale (15,543) (13,028)
ISOP/ESOP shares released for allocation 0 113
Increase in accrued interest receivable (382) (196)
Increase (decrease) in accrued interest payable 47 (564)
Other, net 2,377 532
- ---------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 10,322 6,845
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 83,826 53,939
Proceeds from sales of available-for-sale securities 59 22
Proceeds from maturities of held-to-maturity securities 4,511 3,663
Purchases of available-for-sale securities (173,390) (140,780)
Purchases of held-to-maturity securities (6,116) (6,624)
Net increase in loans (9,708) (5,179)
Purchases of bank premises and equipment (778) (934)
Redemption of corporate owned life insurance 0 458
Net cash used in acquisitions (53) (21)
- ---------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (101,649) (95,456)
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, money market,
and savings deposits 2,585 193,907
Net increase (decrease) in time deposits 13,022 (50,368)
Net increase (decrease) in securities sold under agreements
to repurchase and Federal funds purchased 42,543 (36,927)
Increase in other borrowings 40,000 9,269
Repayment of other borrowings (5,219) (281)
Cash dividends (2,227) (2,072)
Common stock repurchased and returned to unissued status (3,479) (346)
Net proceeds from exercise of stock options and related tax benefit 287 237
- ---------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 87,512 113,419
- ---------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (3,815) 24,808
Cash and Cash Equivalents at beginning of Period 64,298 44,117
Total Cash & Cash Equivalents at End of Period $ 60,483 $ 68,925
=========================================================================================================
Supplemental Information:
Cash paid during the year for:
Interest $ 6,198 $ 7,740
Taxes 873 294
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, 2002 $ 744 $ 45,456 $ 82,385 $ 3,039 ($ 466) ($ 86) $ 131,072
- ----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 5,205 5,205
Other comprehensive loss (2,291) (2,291)
---------
Total Comprehensive Income 2,914
=========
Cash dividends ($0.28/Share) (2,072) (2,072)
Exercise of stock options, and related
tax benefit (10,342 shares, net) 1 236 237
Common stock repurchased and returned
to unissued status (8,500 Shares) (1) (345) (346)
ESOP shares committed to be released
for allocation (3,449 shares) 102 11 113
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at
March 31, 2002 $ 744 $ 45,449 $ 85,518 $ 748 ($ 466) ($ 75) $ 131,918
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
Balances at
January 1, 2003 $ 747 $ 45,997 $ 96,722 $ 7,597 ($ 466) $ 0 $ 150,597
- ----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 5,885 5,885
Other comprehensive loss (1,404) (1,404)
---------
Total Comprehensive Income 4,481
=========
Cash dividends ($0.30/Share) (2,227) (2,227)
Exercise of stock options and related
tax benefit (10,711 shares, net) 1 286 287
Common stock repurchased and returned
to unissued status (81,870 shares) (8) (3,471) (3,479)
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at
March 31, 2003 $ 740 $ 42,812 $ 100,380 $ 6,193 ($ 466) $ 0 $ 149,659
==================================================================================================================================
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 33 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,
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, 2003. The
unaudited condensed consolidated financial statements should be read in
conjunction with the Company's 2002 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
month periods ending March 31, 2003 and 2002, is presented in the table below.
- -------------------------------------------------------------------------------------------------------------------------
Weighted Per
Three months ended March 31, 2003 Net Income Average Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $5,885 7,413,866 $0.79
Effect of dilutive securities 118,328
Diluted EPS
Income available to common shareholders plus assumed conversions $5,885 7,532,194 $0.78
=========================================================================================================================
7
- -------------------------------------------------------------------------------------------------------------------------
Weighted Per
Three months ended March 31, 2002 Net Income Average Shares Share
(In thousands except share and per share data) (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $5,205 7,411,335 $0.70
Effect of dilutive securities 128,898
Diluted EPS
Income available to common shareholders plus assumed conversions $5,205 7,540,233 $0.69
=========================================================================================================================
4. Comprehensive Income (Loss)
Three months ended
(In thousands) 03/31/2003 03/31/2002
- -----------------------------------------------------------------------------------------------------------------
Net Income $ 5,885 $ 5,205
- -----------------------------------------------------------------------------------------------------------------
Net unrealized holding losses during the period (1,369) (2,291)
Memo: Pre-tax net unrealized holding loss (2,281) (3,818)
Reclassification adjustment for net realized gain on
available-for-sale securities (35) 0
Memo: Pre-tax net realized gain (59) 0
- -----------------------------------------------------------------------------------------------------------------
Other Comprehensive Loss (1,404) (2,291)
- -----------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $ 4,481 $ 2,914
=================================================================================================================
5. Recent Accounting Pronouncements
ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS: In June 2001, FASB issued SFAS No.
143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The Company adopted SFAS No. 143 on January 1, 2003. The adoption of SFAS
No. 143 did not have a material effect on the Company's consolidated financial
statements.
ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES: In June 2002,
the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS No. 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity. The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The adoption of SFAS No.
146 effective January 1, 2003, did not have a material effect on the Company's
financial statements.
ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE, AN AMENDMENT
OF SFAS NO. 123: In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-transition and Disclosure, an Amendment of SFAS No.
123. This statement amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock option plan. Accordingly, compensation expense is recognized only
if the exercise price of the option is less than the fair value of the
underlying stock at the grant date. SFAS No. 123 requires companies not using a
fair value based method of accounting for stock options to provide pro forma
disclosure of net income and earnings per share as if the fair value method of
accounting had been applied. Had the Company determined compensation cost based
on the fair value of its stock options at the grant date under SFAS No. 123, the
Company's net income and earnings per share would have been reduced to pro forma
amounts indicated in the following table.
8
Three months ended
(in thousands except per share data) 3/31/03 3/31/02
- ----------------------------------------------------------------------------------------------------------------
Net income:
As reported $5,885 $5,205
Deduct: Total stock-based employee compensation expense determined under
fair value based method for all awards, net of related tax effects 112 80
Pro forma $5,773 $5,125
- ----------------------------------------------------------------------------------------------------------------
Basic earnings per share:
As reported $0.79 $0.70
Pro forma 0.78 0.69
- ----------------------------------------------------------------------------------------------------------------
Diluted earnings per share
As reported $0.78 $0.69
Pro forma 0.77 0.68
================================================================================================================
The per share weighted average fair value of the 1,000 stock options granted
during the first three months of 2003 was $16.21. No stock options were granted
during the first quarter of 2002. Fair values were arrived at using the Black
Scholes option-pricing model with the following assumptions:
2003 2002
- --------------------------------------------------------------------------------
Risk-free interest rate 3.44% NA
Expected dividend yield 3.00% NA
Volatility 46.20% NA
Expected life (years) 7.00 NA
================================================================================
In management's opinion the existing models do not necessarily provide a
reliable measure of the fair value of its employee stock options because the
Company's employee stock options have characteristics significantly different
from those of traded options for which the Black-Scholes model was developed,
and because changes in the subjective assumptions can materially affect fair
value estimate.
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS TO OTHERS: In November 2002, the FASB issued
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to Others, an
interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB
Interpretation No. 34. This Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under guarantees issued. The Interpretation also clarifies that a
guarantor is required to recognize, at inception of a guarantee, a liability for
the fair value of the obligation undertaken. The initial recognition and
measurement provisions of the Interpretation were applicable to guarantees
issued or modified after December 31, 2002 and did not have a material effect on
the Company's financial statements.
CONSOLIDATION OF VARIABLE INTEREST ENTITIES: In January 2003, the FASB issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51. This Interpretation addresses the consolidation by
business enterprises of variable interest entities as defined in the
Interpretation. The Interpretation applies immediately to variable interests in
variable interest entities created after January 31, 2003, and to variable
interests in variable interest entities obtained after January 31, 2003. For
public enterprises with a variable interest in a variable interest entity
created before February 1, 2003, the Interpretation applies to that enterprise
no later than the beginning of the first interim or annual reporting period
beginning after June 15, 2003. The application of this Interpretation is not
expected to have a material effect on the Company's financial statements. The
Interpretation requires certain disclosures in financial statements issued after
January 31, 2003 if it is reasonably possible that the Company will consolidate
or disclose information about variable interest entities when the Interpretation
becomes effective. The Company did not have any disclosures required in these
consolidated financial statements.
9
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, 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 2002 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 primarily provides services consisting 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, 2002, 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.
Critical Accounting Policies
In the course of the Company's normal business activity, management must select
and apply many accounting policies and methodologies that lead to the financial
results presented in the consolidated financial statements of the Company. Some
of these policies are more critical than others. Management considers the
accounting policy relating to the reserve for loan/lease losses to be a critical
accounting policy because of the uncertainty and subjectivity inherent in
estimating the levels of allowance needed to cover probable credit losses within
the loan portfolio and the material effect that these estimates can have on the
Company's results of operations. While management's evaluation of the reserve
for loan/lease losses as of March 31, 2003, considers the allowance to be
adequate, under adversely different conditions or assumptions, the Company would
need to increase the allowance.
All accounting policies are important and the reader of the financial statements
should review these policies, described in Note 1 of the Company's Form 10-K for
the year ended December 31, 2002, to gain a greater understanding of how the
Company's financial performance is reported.
10
RESULTS OF OPERATIONS
For the quarter ended March 31, 2003, net income was $5.9 million, an increase
of 13.1% over the same period in 2002. Diluted earnings per share was $0.78 for
the first quarter of 2003, compared to $0.69 for the same period in 2002. The
Company's key performance ratios remain strong. Return on average assets for the
quarter ended March 31, 2003, was 1.40%, compared to 1.42% for the same period
in 2002. Return on average shareholders' equity for the first quarter of 2003
was 15.89%, compared to 15.86% for the same period in 2002.
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 March 31, 2003, an increase of 6.6% over the same period in 2002.
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 4.80% in 2002, to 4.45% in 2003.
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 6.94% for the first three months of 2002, to 6.07%
for the same period in 2003. The cost of interest-bearing liabilities declined
from 2.62% to 1.97% over the same period.
Average earning assets for the year-to-date period ended March 31, 2003,
increased $202.3 million, or 14.9% over the same period in 2002. Growth in
earning assets was concentrated in securities, residential real estate, and
commercial lending products. Average securities (excluding changes in unrealized
gains and losses on available-for-sale securities) increased by $101.1 million
from the first three months of 2002. Growth in the securities portfolio includes
a $26.7 million increase in average U.S. Government agency securities, and a
$72.3 million increase in U.S. Government mortgage-backed securities.
Application volume for residential mortgages over the past 12 months remained
very strong, driven by a low interest rate environment. Despite $31.3 million in
residential mortgage loan sales between March 31, 2002 and March 31, 2003,
average residential real estate loans increased by $64.3 million as of March 31,
2003, when compared to the same period last year.
Between March 31, 2002 and March 31, 2003, average balances for commercial real
estate loans, commercial loans, and commercial leases increased by $19.3
million, $18.9 million, and $1.6 million, respectively. The combined average
balances of these commercial loan products increased by 10.4% from the first
quarter of 2002 to the first quarter of 2003. These commercial lending products
represented 46.9% of average loans at March 31, 2003, compared with 47.6% of
average loans at March 31, 2002. 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.
Core deposits (total deposits, less: brokered deposits, municipal money market
deposits, and time deposits of $100,000 or more) supported the growth in average
assets in 2003. Core deposits increased by $46.8 million or 4.7% from an average
balance of $996.5 million for the first three months of 2002, to $1.0 billion
for the same period in 2003. Core deposits represent the Company's largest and
lowest cost funding source, with average core deposits representing 67.3% of
average liabilities for the first three months of 2003. This compares to 73.9%
for the same period in 2002.
Non-core funding sources, which include time deposits of $100,000 or more,
brokered deposits, municipal money market deposits, Federal funds purchased,
securities sold under agreements to repurchase (repurchase agreements), and
other borrowings provided additional sources of funding to support asset growth.
Average balances on these non-core funding sources increased by $151.9 million
between March 31, 2002 and March 31, 2003. The primary component of non-core
funding sources at March 31, 2003 was municipal money market deposits with an
average balance of $172.2 million. The cost of interest-bearing liabilities
declined from 2.62% for the three months ended March 31, 2002, to 1.97% for the
first three months of 2003.
11
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 $540,000 for the first three
months of 2003, is up from $376,000 for the same period in 2002. The increase in
the provision for loan/lease losses in 2003 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 $254,000
for the first three months of 2003, compared to $218,000 in 2002. The reserve
for loan/lease losses as a percentage of period end loans was 1.19% at March 31,
2003, and 1.18% at December 31, 2002.
Noninterest Income
Noninterest income is an important component of the Company's revenue mix.
Noninterest income for the three months ended March 31, 2003, was $6.1 million,
an increase of 15.3% over the same period in 2002. For the year-to-date period
ended March 31, 2003, noninterest income represented 27.0% of total revenue,
compared to 25.4% for the same period in 2002.
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. Tompkins Investment Services'
marketing efforts and staff 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 2003, when compared to the prior year. Trust
and Investment Services income was $1.0 million in the first three months of
2003, compared to $1.1 million in the first three months of 2002. The market
value of assets managed by, or in custody of, Tompkins Investment Services was
approximately $1.3 billion at March 31, 2003, up approximately 6.1% from
December 31, 2002.
Service charges on deposit accounts were $1.7 million for the three month period
ended March 31, 2003, compared to $1.3 million for the same period in 2002. The
increase in 2003 is largely due to the increase in deposit accounts and
additional deposit related services. Service charges have also improved as a
result of a new service (introduced in the first quarter of 2002), which
automated overdraft payment decisions. The average dollar volume of
noninterest-bearing accounts increased by 10.2%, or $22.5 million, from $221.7
million at March 31, 2002 to $244.3 million at March 31, 2003. Average total
deposits were up 15.6% over the same period.
Commission and fee income generated through Tompkins Insurance was $1.3 million
for the first three months of 2003, up 7.9% from the $1.2 million for the same
period last year. Tompkins Insurance primarily offers property and casualty
insurance to individuals and businesses in western New York State. Rising
premium costs instituted by underwriting insurance companies contributed to the
growth in commissions and fees in 2003 over the same period in 2002.
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 $793,000 for the three months ended March 31, 2003, an increase of
approximately 23.0% from income of $644,000 for the first three months of 2002.
The Company has corporate owned life insurance (COLI), which relates to life
insurance and certain other benefits provided to certain 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 three months of 2003 includes $252,000 of
income relating to increases in COLI. This compares to $311,000 for the same
period in 2002. The decrease in earnings in the first three months of 2003
compared to the same period in 2002 reflects lower returns on the insurance
assets as a result of weak market conditions. The Company's average investment
in COLI was $21.5 million for the three month period ended March 31, 2003,
compared to $20.5 million for the same period in 2002. The tax-equivalent return
on COLI was 7.82% for the first quarter of 2003, compared to 9.29% for the same
period in 2002.
12
Residential loan volume has benefited from the historically low interest rate
environment. As a result of the strong 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 $13.4 million in
the first three months of 2002 to $15.9 million in 2003. Net gains from loan
sales are included in other income and amounted to $500,000 in the first three
months of 2003, compared to $209,000 for the same period in 2002.
Noninterest Expenses
Total noninterest expenses were $13.2 million for the three months of 2003, an
increase of 4.7% over the same period in 2002. The increase in noninterest
expense in the first three months of 2002 is largely due to higher
personnel-related costs, which were up by 11.7%, or $816,000 million over the
first three months of 2002. Personnel-related expenses comprise the largest
segment of noninterest expense, representing approximately 59.1% of operating
expense in the first three months of 2003. 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. Average full time-equivalent employees were 534 in the first quarter
of 2003, compared to 527 in the first quarter of 2002.
Expenses related to bank premises and furniture and fixtures totaled $1.7
million for the first three months of 2003, an increase of 10.6% over the same
period last year. A portion of the increase is attributable to the opening of a
new Trust Company office in Cortland (December 2002) and a new Mahopac National
Bank office in LaGrange (July 2002).
Other operating expense amounted to $3.5 million in the first three months of
2003, compared to $3.8 million for the same period in 2002.
Income Tax Expense
The provision for income taxes provides for Federal and New York State income
taxes. The provision for the three months ended March 31, 2003, was $3.0
million, compared to $2.6 million in 2002. The increased provision is primarily
due to increased levels of taxable income. The effective tax rate for the first
three months of 2003 and 2002 was 33.5%.
FINANCIAL CONDITION
The Company's total assets were $1.8 billion at March 31, 2003, representing an
increase of $93.7 million over total assets reported at December 31, 2002. Asset
growth included an $87.9 million increase in securities and an $9.1 million
increase in total loans. Loan growth during the period is net of $15.9 million
in sales of fixed rate residential mortgage loans. Growth in the securities
portfolio reflects enhanced utilization of the Company's liquidity position.
During the first quarter of 2003, growth in the securities portfolio was
supported by deposit growth, increases in retail repurchase agreements, and a
reduction in cash and cash equivalents. Additionally, a $37.0 million increase
in short-term FHLB borrowings was used to purchase securities in advance of
anticipated cash flows from the investment portfolio.
Capital
Total shareholders' equity totaled $149.7 million at March 31, 2003, a decrease
of $938,000 from December 31, 2002. Surplus decreased $3.2 million from $46.0
million at December 31, 2002 to $42.8 million at March 31, 2003, while
accumulated other income was down $1.4 million over the same period. The
decrease in surplus reflects the repurchase of 81,870 shares of Trustco common
stock at a total cost of $3.5 million during the first quarter of 2003. The
decrease in other comprehensive income relates to a decrease in unrealized gains
on available-for-sale securities. Undivided profits at March 31, 2003, were up
$3.7 million from December 31, 2002. Cash dividends paid in the first three
months of 2003 totaled approximately $2.2 million, representing 37.8% of year to
date earnings. Cash dividends of $0.30 per share for the first three months of
2003, were up from $0.28 per share for the same period in 2002.
In July 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, 83,070 shares have been
purchased under this Plan, including 81,870 shares purchased in the first
quarter of 2003, at an average cost of $42.48 per share.
13
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 March 31, 2003, compared to the regulatory capital requirements for
"well capitalized" institutions.
REGULATORY CAPITAL ANALYSIS - March 31, 2003
- ------------------------------------------------------------------------------------------------------------
Actual Well Capitalized Requirement
(Dollar amounts in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets) $144,557 13.5% $107,368 10.0%
Tier I Capital (to risk weighted assets) $132,567 12.3% $ 64,421 6.0%
Tier I Capital (to average assets) $132,567 7.9% $ 83,838 5.0%
- ------------------------------------------------------------------------------------------------------------
As illustrated above, the Company's capital ratios on March 31, 2003, remain
well above the minimum requirement for well capitalized institutions. As of
March 31, 2003, 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 three months of 2003 and 2002 is illustrated in the table below.
ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In thousands)
- -------------------------------------------------------------------------------------------------
March 31, 2003 March 31, 2002
- -------------------------------------------------------------------------------------------------
Average Loans and Leases Outstanding Year to Date $1,000,310 $ 893,058
- -------------------------------------------------------------------------------------------------
Beginning Balance 11,704 10,706
- -------------------------------------------------------------------------------------------------
Provision for loan/lease losses 540 376
Loans charged off (385) (325)
Loan recoveries 131 107
- -------------------------------------------------------------------------------------------------
Net charge-offs 254 218
- -------------------------------------------------------------------------------------------------
Ending Balance $ 11,990 $ 10,864
=================================================================================================
The reserve represented 1.19% of total loans and leases outstanding at March 31,
2003, down slightly from 1.21% at March 31, 2002. The reserve coverage of
nonperforming loans (loans past due 90 days and accruing, nonaccrual loans, and
restructured troubled debt) improved from 1.53 times at March 31, 2002, to 1.68
times at March 31, 2003. Management is committed to early recognition of loan
problems and to maintaining an adequate reserve.
The level of nonperforming assets at March 31, 2003 and 2002 is illustrated in
the table below. Nonperforming assets of $7.6 million as of March 31, 2003,
reflect an increase of $382,000 from $7.2 million as of March 31, 2002. Despite
the increase in nonperforming assets from March 31, 2002, the current level of
nonperforming assets remains modest at 0.43% of total assets. Approximately
$441,000 of the nonperforming loans at March 31, 2003, were secured by U.S.
Government guarantees, while $1.8 million were secured by one to four family
residential properties.
14
Potential problem loans/leases are loans/leases that are currently performing,
but where known information about possible credit problems of the related
borrowers causes management to have serious doubt as to the ability of such
borrowers to comply with the present loan payment terms and may result in
disclosure of such loans/leases as nonperforming at sometime in the future.
Management considers loans/leases classified as Substandard, which continue to
accrue interest, to be potential problem loans/leases. At March 31, 2003, the
Company, through its internal loan review function had identified 22 commercial
relationships totaling $5.8 million, which it has classified as Substandard,
which continue to accrue interest. These loans remain in a performing status due
to a variety of factors, including payment history, the value of collateral
supporting the credits, and personal or government guarantees. These factors,
when considered in aggregate, give management reason to believe that the current
risk exposure on these loans is not significant. Approximately $688,000 of these
loans are backed by guarantees of U.S. government agencies. While in a
performing status as of March 31, 2003, these loans exhibit certain risk
factors, which have the potential to cause them to become nonperforming.
Accordingly, management's attention is focused on these credits, which are
reviewed on at least a quarterly basis.
NONPERFORMING ASSETS (In thousands)
- ----------------------------------------------------------------------------------------------------
March 31, 2003 March 31, 2002
- ----------------------------------------------------------------------------------------------------
Nonaccrual loans $6,585 $6,823
Loans past due 90 days and accruing 317 88
Troubled debt restructuring not included above 252 183
- ----------------------------------------------------------------------------------------------------
Total nonperforming loans 7,154 7,094
- ----------------------------------------------------------------------------------------------------
Other real estate, net of allowances 399 77
- ----------------------------------------------------------------------------------------------------
Total nonperforming assets $7,553 $7,171
- ----------------------------------------------------------------------------------------------------
Total nonperforming loans as a percent of total loans 0.71% 0.79%
Total nonperforming assets as a percentage of total assets 0.43% 0.47%
====================================================================================================
Deposits and Other Liabilities
Total deposits of $1.4 billion on March 31, 2003, were up $15.6 million, or 1.2%
from December 31, 2002. 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 March 31,
2003, core deposits of $1.0 billion represented 64.8% of total liabilities. This
compares to core deposits of $1.0 billion, representing 68.3% of total
liabilities at December 31, 2002. The opening of the LaGrange office (July 2002)
of the Mahopac National Bank and the Cortland office (December 2002) of the
Trust Company helped support deposit growth.
Non-core funding sources for the Company include: time deposits greater than
$100,000, municipal money market deposits, brokered deposits, securities sold
under agreements to repurchase, Federal funds purchased, and other borrowings.
These non-core funding sources totaled $548.3 million at March 31, 2003, up from
$464.2 million at December 31, 2002. The majority of the increase was in other
borrowings, securities sold under agreements to repurchases, and Federal funds
purchased. Other borrowings, consisting of term borrowings from the Federal Home
Loan Bank (FHLB), increased from $81.9 million at December 31, 2002, to $116.8
million at March 31, 2003.
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 $60.5 million as of March 31, 2003, down from
$64.3 million at December 31, 2002. Short term investments, consisting of
securities due in one year or less, decreased from $24.8 million on December 31,
2002, to $8.5 million on March 31, 2003. Securities pledged to secure certain
large deposits and securities sold under agreements to repurchase were 63.3% of
total securities as of March 31, 2003, compared to 71.8% as of December 31,
2002.
15
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 March 31, 2003, the unused
borrowing capacity on established lines with the FHLB was $156.9 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 March
31, 2003, total unencumbered residential mortgage loans of the Company were
$222.7 million. Additional assets may also qualify as collateral for FHLB
advances upon approval of the FHLB.
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 March 31, 2003.
Condensed Static Gap - March 31, 2003 Repricing Interval
Cumulative
(Dollar amounts in thousands) Total 0-3 months 3-6 months 6-12 months 12 months
- ---------------------------------------------------------------------------------------------------------------------------
Interest-earning assets $ 1,614,919 $ 534,647 $ 132,572 $ 220,187 $ 887,406
Interest-bearing liabilities 1,347,891 577,411 94,625 103,861 775,897
- ---------------------------------------------------------------------------------------------------------------------------
Net gap position (42,764) 37,947 116,326 111,509
- ---------------------------------------------------------------------------------------------------------------------------
Net gap position as a percentage of total assets (2.70%) 2.39% 7.33% 7.03%
===========================================================================================================================
The Company's board of directors has set a policy that 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 March 31, 2003, 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 1.23%, 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 1.01%.
Although the simulation model suggests a relatively modest exposure to changes
in interest rates, the base scenario (which assumes interest rates remain at
current levels) indicates a downward trending net interest margin due to more
assets repricing than liabilities in the current low rate environment. Given the
expectation of a lower net interest margin in 2003, net interest income growth
in 2003 will be largely dependent upon continued growth in earning assets.
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.
16
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") on
April 21, 2003 (the "Evaluation Date"). 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
Evaluation Date.
17
Average Consolidated Balance Sheet and Net Interest Analysis
Year to Date Period Ended Year to Date Period Ended
Mar-03 Mar-02
- -------------------------------------------------------------------------------------------------------------------------------
Average Average
Balance Average Balance Average
(Dollar amounts in thousands) (YTD) Interest Yield/Rate (YTD) Interest Yield/Rate
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets
Certificates of deposit with other banks $ 3,778 $ 15 1.61% $ 0 $ 0 0.00%
Securities (1)
U.S. Government Securities 432,384 4,680 4.39% 333,397 4,793 5.83%
State and municipal (2) 85,407 1,432 6.80% 71,869 1,221 6.89%
Other Securities (2) 35,306 308 3.54% 46,762 374 3.26%
-------------------------------------------------------------------------------
Total securities 553,097 6,420 4.71% 452,028 6,388 5.73%
Federal Funds Sold 4,248 13 1.24% 14,046 56 1.62%
Loans, net of unearned income (3)
Real Estate 618,385 10,333 6.78% 525,459 9,898 7.64%
Commercial Loans (2) 254,928 3,815 6.07% 236,005 3,923 6.74%
Consumer Loans 103,433 2,368 9.28% 111,993 2,599 9.41%
Direct Lease Financing 23,564 412 7.09% 19,601 381 7.88%
-------------------------------------------------------------------------------
Total loans, net of unearned income 1,000,310 16,928 6.86% 893,058 16,801 7.63%
-------------------------------------------------------------------------------
Total interest-earning assets 1,561,433 23,376 6.07% 1,359,132 23,245 6.94%
-------------------------------------------------------------------------------
Other assets 139,858 123,388
---------- ----------
Total assets $1,701,291 $1,482,520
========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings,
& money market 721,387 1,805 1.01% 571,351 2,192 1.56%
Time Dep > $100,000 113,290 754 2.70% 122,400 903 2.99%
Time Dep < $100,000 249,822 1,820 2.95% 241,209 2,325 3.91%
Brokered Time Dep < $100,000 20,051 184 3.72% 10,350 96 3.76%
-------------------------------------------------------------------------------
Total interest-bearing deposits 1,104,550 4,563 1.68% 945,310 5,516 2.37%
Federal funds purchased & securities sold
under agreements to repurchase 89,046 620 2.82% 82,821 639 3.13%
Other borrowings 92,494 1,062 4.66% 81,846 1,021 5.06%
-------------------------------------------------------------------------------
Total interest-bearing liabilities 1,286,090 6,245 1.97% 1,109,977 7,176 2.62%
Noninterest bearing deposits 244,255 221,707
Minority Interest 1,507 1,507
Accrued expenses and other liabilities 19,230 16,222
---------- ----------
Total liabilities 1,551,082 1,349,413
Shareholders' equity 150,209 133,107
---------- ----------
Total liabilities and shareholders'
equity $1,701,291 $1,482,520
========== ==========
Interest rate spread 4.10% 4.32%
------------------------ ------------------------
Net interest income/margin on earning
assets $ 17,131 4.45% $ 16,069 4.80%
Tax equivalent adjustment (587) (492)
---------- ----------
Net interest income per consolidated
financial statements $ 16,544 $ 15,577
- -------------------------------------------------------------------------------------------------------------------------------
(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, 2002.
18
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 February 25, 2003, Tompkins Trustco, Inc. filed a Form 8-K
regarding the repurchase of 81,870 shares of the Company's
common stock. The shares were acquired in a privately
negotiated transaction for $3,479,475, or $42.50 per share.
19
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: May 2, 2003
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
20
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: May 2, 2003
/s/ JAMES J. BYRNES
- ---------------------------------
James J. Byrnes
Chairman, Chief Executive Officer
21
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: May 2, 2003
/s/ FRANCIS M. FETSKO
- -------------------------------------------------
Francis M. Fetsko
Senior Vice President and Chief Financial Officer
22
EXHIBIT INDEX
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EXHIBIT NUMBER DESCRIPTION PAGES
- -------------- ----------- -----
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 24
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 25
23