UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-12709
[GRAPHIC OMITTED]
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 July 27, 2005
---------------------------- -------------------------------
Common Stock, $.10 par value 8,960,710 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 3
June 30, 2005 and December 31, 2004
Condensed Consolidated Statements of Income for
the three months and six months ended June 30, 2005 and 2004 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2005 and 2004 5
Condensed Consolidated Statements of Changes in Shareholders'
Equity for the six months ended June 30, 2005 and 2004 6
Notes to Unaudited Condensed Consolidated Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-21
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 21-22
Item 4 - Controls and Procedures 22
Average Consolidated Balance Sheet and Net Interest Analysis 23
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 24
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3 - Defaults on Senior Securities 24
Item 4 - Submission of Matters to a Vote of Securities Holders 24-25
Item 5 - Other Information 25
Item 6 - Exhibits 25
SIGNATURES 26
EXHIBIT INDEX 27
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data) (Unaudited)
As of As of
ASSETS 06/30/2005 12/31/2004
------------ ------------
Cash and noninterest bearing balances due from banks $ 51,973 $ 39,911
Interest bearing balances due from banks 1,067 1,021
Available-for-sale securities, at fair value 592,119 591,071
Held-to-maturity securities, fair value of $76,023 at June 30, 2005,
and $70,526 at December 31, 2004 74,970 69,252
Loans and leases, net of unearned income and deferred costs and fees 1,222,801 1,172,148
Less: Reserve for loan/lease losses 12,985 12,549
- ------------------------------------------------------------------------------------------------------------------
Net Loans/Leases 1,209,816 1,159,599
Bank premises and equipment, net 34,439 33,118
Corporate owned life insurance 26,536 23,940
Goodwill 12,286 12,280
Other intangible assets 2,451 2,782
Accrued interest and other assets 36,747 37,321
- ------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,042,404 $ 1,970,295
==================================================================================================================
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings and money market $ 715,009 $ 784,850
Time 537,179 455,942
Noninterest bearing 337,904 320,081
- ------------------------------------------------------------------------------------------------------------------
Total Deposits 1,590,092 1,560,873
Federal funds purchased and securities sold under agreements to repurchase 166,923 153,715
Other borrowings 84,435 63,303
Other liabilities 23,059 19,937
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities $ 1,864,509 $ 1,797,828
- ------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 1,457 1,465
Shareholders' equity:
Common Stock - par value $.10 per share: Authorized 15,000,000 shares;
Issued: 8,980,389 at June 30, 2005; and 8,980,049 at December 31, 2004 898 816
Surplus 117,991 75,837
Undivided profits 60,281 94,522
Accumulated other comprehensive (loss) income (1,592) 871
Treasury stock, at cost - 50,697 shares at June 30, 2005,
and 48,719 shares at December 31, 2004 (1,140) (1,044)
- ------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 176,438 $ 171,002
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities, Minority Interest in Consolidated Subsidiaries
and Shareholders' Equity $ 2,042,404 $ 1,970,295
==================================================================================================================
Share data has been retroactively adjusted to reflect a 10% stock dividend paid
on February 15, 2005. See accompanying notes to unaudited condensed consolidated
financial statement
3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) (Unaudited)
Three months ended Six months ended
06/30/2005 06/30/2004 06/30/2005 06/30/2004
------------ ------------ ------------ ------------
INTEREST AND DIVIDEND INCOME
Loans $ 19,749 $ 16,842 $ 38,409 $ 33,430
Balances due from banks 6 28 48 76
Federal funds sold 2 5 13 17
Available-for-sale securities 5,908 5,973 11,618 11,920
Held-to-maturity securities 595 454 1,138 890
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest and Dividend Income 26,260 23,302 51,226 46,333
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or more 1,492 659 2,691 1,276
Other deposits 3,928 3,008 7,478 6,013
Federal funds purchased and securities sold under agreements
to repurchase 1,204 1,091 2,269 2,182
Other borrowings 835 934 1,564 1,897
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 7,459 5,692 14,002 11,368
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income 18,801 17,610 37,224 34,965
- ---------------------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 716 736 1,168 1,525
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan/Lease Losses 18,085 16,874 36,056 33,440
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust and investment services income 1,312 1,338 2,670 2,664
Service charges on deposit accounts 2,055 1,948 3,904 3,795
Insurance commissions and fees 1,935 1,657 3,789 3,191
Card services income 665 631 1,268 1,189
Other service charges 802 741 1,456 1,644
Increase in cash surrender value of corporate owned life insurance 264 280 516 582
Gains (losses) on sale of loans 78 (3) 120 119
Other income 503 191 670 425
Net realized gain on available-for-sale securities 13 19 19 78
- ---------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 7,627 6,802 14,412 13,687
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salary and wages 7,124 6,790 13,931 13,264
Pension and other employee benefits 1,844 1,782 3,868 3,653
Net occupancy expense of bank premises 1,013 920 2,058 1,874
Furniture and fixture expense 896 820 1,800 1,699
Marketing expense 590 573 1,137 970
Professional fees 346 269 671 575
Software licenses and maintenance 473 359 906 701
Cardholder expense 338 356 663 635
Amortization of intangible assets 153 170 315 348
Other operating expense 2,561 2,608 5,207 5,131
- ---------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 15,338 14,647 30,556 28,850
- ---------------------------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense and Minority
Interest in Consolidated Subsidiaries 10,374 9,029 19,912 18,277
- ---------------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 33 34 66 67
Income Tax Expense 3,393 2,893 6,485 5,960
===========================================================================================================================
Net Income $ 6,948 $ 6,102 $ 13,361 $ 12,250
===========================================================================================================================
Basic Earnings Per Share $ 0.78 $ 0.68 $ 1.49 $ 1.36
===========================================================================================================================
Diluted Earnings Per Share $ 0.77 $ 0.67 $ 1.47 $ 1.34
===========================================================================================================================
Per share data has been retroactively adjusted to reflect a 10% stock dividend
paid on February 15, 2005. See accompanying notes to unaudited condensed
consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Six months ended
06/30/2005 06/30/2004
------------ ------------
OPERATING ACTIVITIES
Net income $ 13,361 $ 12,250
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 1,168 1,525
Depreciation and amortization premises, equipment, and software 1,892 1,801
Amortization of intangible assets 315 348
Earnings from corporate owned life insurance (516) (582)
Net amortization on securities 936 1,144
Net realized gain on available-for-sale securities (19) (78)
Net gain on sale of loans (120) (119)
Proceeds from sale of loans 7,853 7,810
Loans originated for sale (7,691) (7,691)
Tax benefit from stock option exercise 143 46
Net gain on sales of bank premises and equipment (210) (13)
(Increase) decrease in accrued interest receivable (771) 34
Increase (decrease) in accrued interest payable 699 (186)
Other, net 5,138 3,649
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 22,178 19,938
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 50,503 151,959
Proceeds from sales of available-for-sale securities 20,988 23,835
Proceeds from maturities of held-to-maturity securities 8,365 11,456
Purchases of available-for-sale securities (77,500) (208,141)
Purchases of held-to-maturity securities (14,145) (15,677)
Net increase in loans (51,427) (53,957)
Proceeds from sale of bank premises and equipment 357 41
Purchases of bank premises and equipment (3,085) (2,898)
(Purchase) redemption of corporate owned life insurance (2,080) 98
- -------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (68,024) (93,284)
- -------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease) increase in demand, money market,
and savings deposits (52,018) 46,795
Net increase in time deposits 81,237 32,655
Net increase in securities sold under agreements
to repurchase and Federal funds purchased 13,208 1,442
Increase in other borrowings 21,500 5,023
Repayment of other borrowings (368) (19,082)
Cash dividends (5,127) (4,898)
Cash paid in lieu of fractional shares - 10% stock dividend (13) 0
Common stock repurchased and returned to unissued status (897) (1,627)
Net proceeds from exercise of stock options 432 385
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 57,954 60,693
- -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 12,108 (12,653)
Cash and cash equivalents at beginning of period 40,932 65,756
=============================================================================================================
Total Cash & Cash Equivalents at End of Period $ 53,040 $ 53,103
=============================================================================================================
Supplemental Information:
Cash paid during the year for:
Interest $ 13,302 $ 11,554
Taxes 4,264 4,708
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
Stock Surplus Profits Income (Loss) Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
January 1, 2004 $ 819 $ 76,926 $ 78,676 $ 3,015 ($ 466) $ 158,970
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 12,250 12,250
Other comprehensive loss (7,963) (7,963)
------------
Total Comprehensive Income 4,287
============
Cash dividends ($0.55/Share) (4,898) (4,898)
Exercise of stock options, and related
tax benefit (17,542 shares, net) 2 429 431
Common stock repurchased and returned
To unissued status (39,871 shares) (4) (1,623) (1,627)
Directors deferred compensation plan
(16,228 shares) 483 (483) 0
===================================================================================================================================
Balances at June 30, 2004 $ 817 $ 76,215 $ 86,028 ($ 4,948) ($ 949) $ 157,163
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
January 1, 2005 $ 816 $ 75,837 $ 94,522 $ 871 ($ 1,044) $ 171,002
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 13,361 13,361
Other comprehensive loss (2,463) (2,463)
------------
Total Comprehensive Income 10,898
============
Cash dividends ($0.57/Share) (5,127) (5,127)
Exercise of stock options and related
tax benefit (22,604 shares, net) 2 573 575
Common stock repurchased and returned
to unissued status (21,984 shares) (2) (895) (897)
Effect of 10% stock dividend 82 42,380 (42,462) 0
Directors deferred compensation plan
(1,978 shares) 96 (96) 0
Cash paid in lieu of fractional shares
(279 shares) (13) (13)
===================================================================================================================================
Balances at June 30, 2005 $ 898 $ 117,991 $ 60,281 ($ 1,592) ($ 1,140) $ 176,438
===================================================================================================================================
Share and per share data have been retroactively adjusted to reflect a 10% stock
dividend paid on February 15, 2005.
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 bank subsidiaries, Tompkins Trust Company ("Trust Company"), The
Bank of Castile and The Mahopac National Bank, which together operate 34 banking
offices in New York State, and to one insurance agency subsidiary, Tompkins
Insurance Agencies, Inc. ("Tompkins Insurance"). Unless the context otherwise
requires, the term "Company" refers collectively to Tompkins Trustco, Inc. and
its subsidiaries.
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 the 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 and
related financial services. Tompkins offers trust and investment services
through Tompkins Investment Services, a division of Trust Company. The Company
also offers insurance services through Tompkins Insurance, an independent
insurance agency with a history of over 100 years of service to individual and
business clients throughout western New York. At year-end 2004, Tompkins
Insurance expanded its geographic presence through its acquisition of Banfield &
Associates, Inc., an insurance agency in Ithaca, 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 included in this
quarterly report 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 unaudited condensed 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 management considers 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 fiscal year ending December 31, 2005.
The unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2004. 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. Share and per share data have been
retroactively adjusted to reflect a 10% stock dividend paid on February 15,
2005.
The Company applies Accounting Principles Board Opinion (APB Opinion) No. 25,
"Accounting for Stock Issued to Employees," 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. Since the Company grants options with
the exercise price equal to the fair value of the underlying stock at the grant
date, there is no compensation expense recorded in net income. Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," 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.
7
Three months ended Six months ended
(in thousands except per share data) 06/30/2005 06/30/2004 06/30/2005 06/30/2004
- ----------------------------------------------------------------------------------------------------------------
Net Income:
As reported $ 6,948 $ 6,102 $ 13,361 $ 12,250
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of all related tax effects 222 167 441 312
- ----------------------------------------------------------------------------------------------------------------
Pro forma $ 6,726 $ 5,935 $ 12,920 $ 11,938
- ----------------------------------------------------------------------------------------------------------------
Basic earnings per share:
As reported $ 0.78 $ 0.68 $ 1.49 $ 1.36
- ----------------------------------------------------------------------------------------------------------------
Pro forma 0.75 0.66 1.44 1.33
- ----------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
As reported $ 0.77 $ 0.67 $ 1.47 $ 1.34
================================================================================================================
Pro forma 0.74 0.65 1.42 1.31
================================================================================================================
No stock options were granted in the first six months of 2005. The per share
weighted average fair value of the 199,000 stock options granted during the
first six months of 2004 was $15.00. Fair values were arrived at using the Black
Scholes option-pricing model with the following assumptions:
2004
- ------------------------------------------------------------------------------
Risk-free interest rate 3.82%
Expected dividend yield 2.70%
Volatility 39.76%
Expected life (years) 5.00
- ------------------------------------------------------------------------------
In December 2004, The FASB issued SFAS No. 123R, "Share-Based Payment." This
Statement is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation" and supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees" and its related implementation
guidance. SFAS No. 123R eliminates the ability to account for stock-based
compensation using APB No. 25 and requires a public entity to measure the cost
of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. The cost will be recognized
over the period during which an employee is required to provide service in
exchange for the award. The grant-date fair value of employee stock options and
similar instruments will be estimated using option-pricing models adjusted for
the unique characteristics of those instruments (unless observable market prices
for the same or similar instruments are available). For equity awards that are
modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the modified award over
the fair value of the original award immediately before the modification. In the
future, the notes to consolidated financial statements will include information
to assist users of financial information to understand the nature of share-based
payment transactions and the effects of those transactions on the financial
statements. On April 14, 2005, the Securities and Exchange Commission amended
the date for compliance with SFAS No. 123R to the first interim or annual
reporting period of the first fiscal year beginning on or after June 15, 2005.
SFAS No. 123R is therefore effective for the Company beginning January 1, 2006.
The Company's method and timing of adoption has not yet been determined.
8
3. Earnings Per Share
The Company follows the provisions of SFAS No. 128, "Earnings per Share"
("EPS"). A computation of Basic EPS and Diluted EPS for the three-month and
six-month periods ending June 30, 2005 and 2004 is presented in the table below.
- -------------------------------------------------------------------------------------------------------------
Three months ended June 30, 2005 Net Income Weighted Per
(In thousands except share and per share data) (Numerator) Average Shares Share
(Denominator) Amount
- -------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $ 6,948 8,950,979 $ 0.78
Effect of dilutive securities (Stock options) 117,263
Diluted EPS
=============================================================================================================
Income available to common shareholders plus assumed conversions $ 6,948 9,068,242 $ 0.77
=============================================================================================================
The effect of dilutive securities calculation for the three-month period ended
June 30, 2005 excludes stock options of 213,730 because the exercise price of
the options was greater than the average market value of the Company's common
stock during the period.
- -------------------------------------------------------------------------------------------------------------
Three months ended June 30, 2004 Net Income Weighted Per
(In thousands except share and per share data) (Numerator) Average Shares Share
(Denominator) Amount
- -------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $ 6,102 8,977,152 $ 0.68
Effect of dilutive securities (Stock options) 142,462
Diluted EPS
=============================================================================================================
Income available to common shareholders plus assumed conversions $ 6,102 9,119,614 $ 0.67
=============================================================================================================
The effect of dilutive securities calculation for the three-month period ended
June 30, 2004 excludes stock options of 144,477 because the exercise price of
the options was greater than the average market value of the Company's common
stock during the period.
- -------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2005 Net Income Weighted Per
(In thousands except share and per share data) (Numerator) Average Shares Share
(Denominator) Amount
- -------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $ 13,361 8,952,208 $ 1.49
Effect of dilutive securities (Stock options) 134,363
Diluted EPS
=============================================================================================================
Income available to common shareholders plus assumed conversions $ 13,361 9,086,571 $ 1.47
=============================================================================================================
The effect of dilutive securities calculation for the six-month period ended
June 30, 2005 excludes stock options of 213,878 because the exercise price of
the options was greater than the average market value of the Company's common
stock during the period.
9
3. Earnings Per Share (continued)
- -------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2004 Net Income Weighted Per
(In thousands except share and per share data) (Numerator) Average Shares Share
(Denominator) Amount
- -------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to common shareholders $ 12,250 8,978,083 $ 1.36
Effect of dilutive securities (Stock options) 148,883
Diluted EPS
=============================================================================================================
Income available to common shareholders plus assumed conversions $ 12,250 9,126,966 $ 1.34
=============================================================================================================
The effect of dilutive securities calculation for the six-month period ended
June 30, 2004 excludes stock options of 75,263 because the exercise price of the
options was greater than the average market value of the Company's common stock
during the period.
* Share and per share data have been retroactively adjusted to reflect a 10%
stock dividend paid on February 15, 2005.
4. Comprehensive Income (Loss)
Three months ended Six months ended
(in thousands) 06/30/2005 06/30/2004 06/30/2005 06/30/2004
- ----------------------------------------------------------------------------------------------------------------------
Net Income $ 6,948 $ 6,102 $ 13,361 $ 12,250
Net unrealized holding gains (losses) during the period 3,117 (10,396) (2,452) (7,916)
Memo: Pre-tax net unrealized holding gain (loss) 5,195 (17,327) (4,087) (13,193)
Reclassification adjustment for net realized gain on
available-for-sale securities (8) (11) (11) (47)
Memo: Pretax net realized gain (13) (19) (19) (78)
Other Comprehensive Income (Loss) 3,109 (10,407) (2,463) (7,963)
======================================================================================================================
Total Comprehensive Income (Loss) $ 10,057 ($ 4,305) $ 10,898 $ 4,287
======================================================================================================================
5. Employee Benefit Plans
The following table sets forth the amount of the net periodic benefit cost
recognized, including the following components: the service cost and interest
cost; the expected return on plan assets for the period; the amortization of the
unrecognized transitional obligation or transition asset; and the amounts of
recognized gains and losses, prior service cost recognized, and gain or loss
recognized due to settlement or curtailment, for the Company's pension plan,
post-retirement plan (Life and Heath), and supplemental employee retirement
plans (SERP).
Components of Net Period Benefit Cost
Pension Benefits Life and Health SERP Benefits
Three months ended Three months ended Three months ended
(In thousands) 06/30/2005 06/30/2004 06/30/2005 06/30/2004 06/30/2005 06/30/2004
- -----------------------------------------------------------------------------------------------------------------------------
Service cost $ 377 $ 334 $ 50 $ 44 $ 32 $ 18
Interest cost 434 407 81 77 99 83
Expected return on plan assets for the period (660) (579) 0 0 0 0
Amortization of transition (asset) liability 0 0 29 29 0 0
Amortization of prior service cost (33) (33) 2 2 26 26
Amortization of net loss 164 164 3 1 20 7
- -----------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 282 $ 293 $ 165 $ 153 $ 177 $ 134
=============================================================================================================================
10
5. Employee Benefit Plans (continued)
Pension Benefits Life and Health SERP Benefits
Six months ended Six months ended Six months ended
(In thousands) 06/30/2005 06/30/2004 06/30/2005 06/30/2004 06/30/2005 06/30/2004
- -----------------------------------------------------------------------------------------------------------------------------
Service cost $ 753 $ 690 $ 100 $ 88 $ 65 $ 58
Interest cost 868 817 161 154 197 183
Expected return on plan assets for the period (1,320) (1,169) 0 0 0 0
Amortization of transition (asset) liability 0 0 58 58 0 0
Amortization of prior service cost (65) (65) 3 4 53 53
Amortization of net loss 328 337 7 2 40 30
- -----------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 564 $ 610 $ 329 $ 306 $ 355 $ 324
=============================================================================================================================
The Company previously disclosed in its financial statements for the year ended
December 31, 2004, included in its 2004 Annual Report on Form 10-K, that
although it was not required to contribute to the pension plan in 2005, it may
voluntarily contribute to the pension plan in 2005. There was no contribution to
the pension plan through the first six months of 2005.
In December 2003, The Medicare Prescription Drug, Improvement and Modernization
Act of 2003 ("Medicare Act") was signed into law. The Medicare Act introduced
both a Medicare prescription-drug benefit and a federal subsidy to sponsors of
retiree healthcare plans that provide a benefit at least "actuarially
equivalent" to the Medicare benefit. These provisions of the Medicare Act will
affect accounting measurements under SFAS No. 106.
In May 2004, the Financial Accounting Standards Board (FASB) issued Staff
Position (FSP) No. FAS 106-2, "Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization Act of 2003",
which supersedes FSP FAS 106-1 of the same title. The FSP clarifies the
accounting for the benefits attributable to new government subsidies for
companies that provide prescription drug benefits to retirees. The new
accounting requirements became effective at the beginning of the third calendar
quarter of 2004. In accordance with FSP FAS 106-1, the Company elected to defer
accounting for the economic effects of the new Medicare Act, pending specific
authoritative guidance on the accounting for the federal subsidy. The Company
has reviewed the requirements of the Medicare Act relative to its
post-retirement plan and has determined that the effects will not be material to
the Company's financial condition or results of operation.
6. Financial Guarantees
FASB Interpretation No. 45 (FIN No. 45), Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others; an Interpretation of FASB Statements No. 5, 57, and 107 and rescission
of FASB Interpretation No. 34 requires certain disclosures and potential
liability recognition for the fair value at issuance of guarantees that fall
within its scope. Based upon management's interpretation of FIN No. 45, the
Company currently does not issue any guarantees that would require liability
recognition under FIN No. 45, other than standby letters of credit. The Company
extends standby letters of credit to its customers in the normal course of
business. The standby letters of credit are generally short-term. As of June 30,
2005, the Company's maximum potential obligation under standby letters of credit
was $30.0 million. Management uses the same credit policies to extend standby
letters of credit that it uses for on-balance sheet lending decisions and may
require collateral to support standby letters of credit based upon its
evaluation of the counterparty. Management does not anticipate losses as a
result of these transactions.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
BUSINESS
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. The Company is the corporate parent to three community bank subsidiaries,
Tompkins Trust Company ("Trust Company"), The Bank of Castile and The Mahopac
National Bank, which together operate 34 banking offices in New York State, and
to one insurance agency subsidiary, Tompkins Insurance Agencies, Inc. ("Tompkins
Insurance"). Unless the context otherwise requires, the term "Company" refers
collectively to Tompkins Trustco, Inc. and its subsidiaries.
Tompkins Insurance primarily offers property and casualty insurance to
individuals and businesses in Western New York State. Tompkins Insurance has
eight offices located in a geographic area that closely matches the footprint of
The Bank of Castile. At year-end 2004, Tompkins Insurance expanded its
geographic presence into the Ithaca, New York market with the acquisition of
Banfield and Associates, Inc., an insurance agency in Ithaca, New York. Further
details pertaining to the mergers and acquisitions are presented in Note 6 to
the notes to consolidated financial statements to the Company's audited
consolidated financial statements contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 2004.
The Company completed construction of Tompkins Financial Center in Batavia, New
York in the first quarter of 2005. The building houses the management of The
Bank of Castile and Tompkins Insurance. Additionally, representatives of
Tompkins Investment Services, a division of Tompkins Trust Company, have office
space available to them at this facility.
Through its community bank subsidiaries, the Company provides traditional
banking and related financial services, which constitute the Company's only
reportable business segment. Banking services consist primarily of attracting
deposits from the areas served by the community bank subsidiaries' 34 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 provides trust and investment
services through Tompkins 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
community bank subsidiaries.
The banking industry is highly competitive, as deregulation has opened the
industry to nontraditional commercial banking companies. Competition for
commercial banking and other financial services is strong in the Company's
market area. Competition includes other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment companies, and other financial
intermediaries. The Company differentiates itself from its competitors through
its full complement of banking and related financial services, and through its
community commitment and involvement in its primary market areas, as well as its
commitment to quality and personalized banking services. The banking industry is
also highly regulated. As a Financial Holding Company of three community banks,
the Company is subject to examination and regulation from the Federal Reserve
Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller
of Currency, and the New York State Banking Department.
Other external factors affecting the Company's operating results are market
rates of interest, the condition of financial markets, and both national and
regional economic conditions. The Company's community bank subsidiaries operate,
in the aggregate, 34 banking offices, including one limited-service office,
serving communities in many upstate New York markets. Economic climates in these
markets vary by region. The Western New York market served by The Bank of
Castile was the most challenging in recent years, due to cutbacks and layoffs by
some major employers in Rochester, New York. Conditions in this market appear to
have improved recently. The economic climates in the Central New York markets
served by Tompkins Trust Company and the lower Hudson Valley markets served by
Mahopac National Bank remain favorable.
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 audited consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2004, and the unaudited condensed consolidated financial
statements and notes included elsewhere in this Quarterly Report on Form 10-Q.
12
Forward-Looking Statements
The Company is making this statement in order to satisfy the "Safe Harbor"
provision contained in the Private Securities Litigation Reform Act of 1995. The
statements contained in this Quarterly Report on Form 10-Q that are not
statements of historical fact may include forward-looking statements that
involve a number of risks and uncertainties. Such forward-looking statements are
made based on management's expectations and beliefs concerning future events
impacting the Company and are subject to certain uncertainties and factors
relating to the Company's operations and economic environment, all of which are
difficult to predict and many of which are beyond the control of the Company,
that could cause actual results of the Company to differ materially from those
matters expressed and/or implied by such forward-looking statements. The
following factors are among those that could cause actual results to differ
materially from the forward-looking statements: changes in general economic,
market and regulatory conditions; the development of an interest rate
environment that may adversely affect the Company's interest rate spread, other
income or cash flow anticipated from the Company's operations, investment and/or
lending activities; changes in laws and regulations affecting banks, insurance
companies, bank holding companies and/or financial holding companies;
technological developments and changes; the ability to continue to introduce
competitive new products and services on a timely, cost-effective basis;
governmental and public policy changes, including environmental regulation;
protection and validity of intellectual property rights; reliance on large
customers; and financial resources in the amounts, at the times and on the terms
required to support the Company's future businesses. In addition, such
forward-looking statements could be affected by general industry and market
conditions and growth rates, general economic and political conditions,
including interest rate and currency exchange rate fluctuations, and other
factors.
Critical Accounting Policy
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 (the "reserve")
to be a critical accounting policy because of the uncertainty and subjectivity
inherent in estimating the levels of reserve needed to cover probable credit
losses within the Company's loan portfolio and the material effect that these
estimates can have on the Company's results of operations.
The Company has developed a methodology to measure the amount of estimated loan
loss exposure inherent in the loan portfolio to ensure that an adequate reserve
is maintained. The methodology includes an estimate of exposure for the
following: specifically reviewed and graded loans, historical loss experience by
product type, past due and nonperforming loans, and other internal and external
factors such as local and regional economic conditions, growth trends, and
credit policy and underwriting standards. The methodology includes a review of
loans considered impaired in accordance with the Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan", as well as other commercial loans and commercial mortgage loans that
are evaluated using an internal rating system. An estimated exposure amount is
assigned to these internally reviewed credits based upon a review of the
borrower's financial condition, payment history, collateral adequacy, and
business conditions. For commercial loans and commercial mortgage loans not
specifically reviewed, and for more homogenous loan portfolios such as
residential mortgage loans and consumer loans, estimated exposure amounts are
assigned based upon historical loss experience as well as past due status.
Lastly, an additional reserve is maintained based upon management's judgment and
assessment of other quantitative and qualitative factors such as regional and
local economic conditions and portfolio growth trends.
Since the methodology is based upon historical experience and trends as well as
management's judgment, factors may arise that result in different estimations.
Significant factors that could give rise to changes in these estimates may
include, but are not limited to, changes in economic conditions in the local
area, concentration of risk, and declines in local property values. While
management's evaluation of the reserve for loan/lease losses as of June 30,
2005, considers the reserve to be adequate, under adversely different conditions
or assumptions, the Company would need to increase the reserve.
All accounting policies are important and the reader of the Company's financial
statements should review these policies, described in Note 1 to the notes to
consolidated financial statements to the Company's audited consolidated
financial statements contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 2004, and in Note 1 to the notes to the Company's
unaudited condensed consolidated financial statements in this Quarterly Report
on Form 10-Q, to gain a greater understanding of how the Company's financial
performance is reported.
13
OVERVIEW
For the second quarter ended June 30, 2005, net income was $6.9 million, an
increase of 13.9% compared to net income of $6.1 million for the same period in
2004. Diluted earnings per share were $0.77 for the second quarter of 2005,
compared to $0.67 for the same period in 2004. For the six months ended June 30,
2005, net income was up 9.1% to $13.4 million compared to $12.3 million for the
six months ended June 30, 2004. Diluted earnings per share were $1.47 for the
first six months of 2005 compared to $1.34 for the same period in 2004. The
increase in net income for the second quarter and year-to-date 2005 is as result
of an increase in net interest income and noninterest income, and lower
provisions for loan and lease losses. Net interest income increased as a result
of an improved net interest margin, growth in average interest-earning assets
(primarily loans) and growth in core deposits, including noninterest-bearing
deposits. The primary driver of noninterest income growth was a strong increase
in insurance commissions and fees, which was due in part to the year-end 2004
acquisition of Banfield & Associates, Inc., an insurance agency in Ithaca, New
York. Trust and investment services income and service charges on deposit
accounts were relatively flat compared to the same periods in 2004. The
Company's strategies include a commitment to community banking and a
diversification of revenue sources, by offering a strong suite of products and
services, including trust and investment services, insurance sales, card
services, and other banking and related financial services, in addition to the
interest and fees generated from loans and securities.
Key performance measurements for the Company include return on average assets
and return on average equity. Return on average assets for the second quarter
ended June 30, 2005, was 1.37%, compared to 1.27% for the same period in 2004.
Return on average shareholders' equity for the second quarter of 2005 was
16.16%, compared to 15.25% for the same period in 2004. Return on average assets
for the six months ended June 30, 2005, was 1.34%, compared to 1.29% for the
same period in 2004. Return on average shareholders' equity for the six months
ended June 30, 2005 was 15.66%, compared to 15.28% for the same period in 2004.
An improved net interest margin and growth in higher yielding earning assets
contributed to the increased return on average assets and return on average
equity.
The current interest rate environment of rising short-term rates and narrow
spreads between short-term rates and long-term rates is a primary challenge to
the Company's operating performance in the near term. The low interest rate
environment over the past two years resulted in a decline in the Company's asset
yields and cost of funds. As rates move upwards, the Company's funding sources,
including deposits, are expected to reprice faster than its asset base, which
will put pressure on the net interest margin over the short term.
Asset quality as of June 30, 2005, showed improvement when compared to the same
period last year, with nonperforming assets decreasing to $6.1 million at June
30, 2005, from $8.6 million at June 30, 2004. The ratio of nonperforming assets
to total assets improved from 0.44% at June 30, 2004, to 0.30% at June 30, 2005.
Contributing to the decrease in nonperforming assets was the return to accruing
status of a large commercial relationship as a result of a strengthened
financial position. Net charge-offs in the second quarter and year-to-date 2005
were $651,000, and $732,000, respectively, compared to $737,000 and $1.1 million
in the same periods in 2004. With the improvement in asset quality, the
provision for loan and lease losses decreased to $716,000 in the second quarter
of 2005 from $736,000 in the same period in 2004. For the year-to-date period,
the provision for loan and leases losses decreased from $1.5 million in 2004 to
$1.2 million in 2005.
Net Interest Income
The Average Consolidated Balance Sheet and Net Interest Analysis included at the
end of Part I of this Quarterly Report on Form 10-Q illustrates the trend in
average interest-earning assets and interest-bearing liabilities, and the
corresponding yield or cost associated with each. The Company earned
taxable-equivalent net interest income of $19.5 million for the three months
ended June 30, 2005 an increase of 7.0% over the same period in 2004. For the
six months ended June 30, 2005, the Company earned taxable-equivalent net
interest income of $38.6 million, an increase of 6.5% over $36.3 million for the
first six months of 2004. Quarter-to-date and year-to-date increases in
taxable-equivalent net interest income as compared to the same periods in 2004
are mainly a result of growth in average interest-earning assets (primarily
loans) higher yields on loans, and growth in deposits, including
noninterest-bearing deposits. Average interest-earning assets increased 5.1% and
5.4% for the three- and six-month periods ended June 30, 2005, respectively, as
compared to the same periods in 2004.
14
Taxable-equivalent interest income was up 12.7% for the second quarter and 10.4%
for the year-to-date over the comparable periods in 2004. The increase in
taxable-equivalent interest income was mainly in the lending portfolio and
reflects higher yields and higher average volumes. Loan growth was concentrated
in the commercial real estate, commercial and industrial, and residential real
estate portfolios. Loan yields on commercial and industrial loans, and
commercial real estate loans benefited from increases in the benchmark market
interest rates. Likewise, home equity loan yields were higher due to repricing
initial introductory rates to fully indexed rates. Increases in
taxable-equivalent interest income were partially offset by an increase in
interest expense reflecting the increase in short-term market interest rates.
The net interest margin increased from 4.08% in the second quarter of 2004 to
4.15% in the second quarter of 2005. The net interest margin for the six months
ended June 30, 2005 was 4.16%, up from 4.11% for the same period in 2004.
Between June 30, 2004 and June 30, 2005, year-to-date average balances for
commercial real estate loans and commercial loans increased by $54.5 million and
$8.9 million, respectively. The combined average balances of commercial loan
products, including commercial leases, increased by 11.0% for the first six
months of 2005 compared to the same period in 2004. These commercial lending
products represented 53.2% of average loans at June 30, 2005, compared with
52.5% of average loans at June 30, 2004. 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.
Average residential real estate loans increased by $44.5 million, despite $14.5
million in residential mortgage loan sales between June 30, 2004 and June 30,
2005.
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 the first six months of 2005. Average core deposits increased by $55.5
million, or 4.8%, from an average balance of $1.16 billion for the first six
months of 2004, to $1.21 billion for the same period in 2005. Core deposits
represent the Company's largest and lowest cost funding source, with average
core deposits representing 65.8% of average liabilities for the first six months
of 2005. This compares to 65.5% for the same period in 2004.
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 $78.7 million in
the first six months of 2005 as compared to the same period in 2004. Time
deposits over $100,000 accounted for the majority of the growth in non-core
funding sources over the period, and represented the largest component of
non-core funding sources at June 30, 2005, with a six-month average balance of
$202.5 million.
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. Management has developed a model to measure the amount of estimated loan
loss exposure inherent in the loan portfolio to ensure that an adequate reserve
is maintained. The provision for loan and lease losses for the second quarter
and year-to-date period ended June 30, 2005 was lower than the provision for the
same periods in 2004. The provision for loan and lease losses was $1.2 million
for the first six months of 2005, down from $1.5 million for the same period in
2004. The decrease in the provision for loan and lease losses in 2005 was a
result of improved asset quality as evidenced by lower net charge-offs and a
decrease in the dollar volume of nonperforming loans. Net charge-offs were
$732,000 for the first six months of 2005, compared to $1.1 million for the same
period in 2004. In 2004, economic weakness in the Company's Western New York
markets contributed to higher net charge-offs and provision for loan and lease
losses. Mitigating the allowance impact of these positive trends in asset
quality is continued growth in the loan portfolio, including an increased level
of commercial real estate and commercial loans. The reserve for loan/lease
losses as a percentage of period end loans was 1.06% at June 30, 2005, and 1.07%
at December 31, 2004.
Noninterest Income
Although net interest income is the Company's primary revenue source,
competitive, regulatory and economic conditions have led management to target
noninterest income sources as important drivers of long-term revenue growth.
Noninterest income for the three months ended June 30, 2005 was $7.6 million, an
increase of 12.1% over the same period in 2004. Noninterest income for the six
months ended June 30, 2005, was $14.4 million, an increase of 5.3% over the same
period in 2004. The growth in noninterest income for both the quarter and
year-to-date periods in 2005 over the comparable periods in 2004 is mainly a
result of strong growth in insurance commissions and fees and a gain on the sale
of real estate. The sale related to the recent relocation of The Bank of
Castile's Warsaw, New York office to a newly renovated facility.
Trust and investment services income was $1.3 million in the second quarter of
2005, a decrease of 1.9% from the same period in 2004. For the first six months
of 2005, trust and investment services income of $2.7 million was flat compared
with
15
the same period in 2004. With fees largely based on the market value and mix of
assets managed, the general direction of the stock market can have a
considerable impact on fee income. The market value of assets managed by, or in
custody of, Tompkins Investment Services was $1.5 billion at June 30, 2005, up
4.3% from $1.4 billion at June 30, 2004. These figures include $422.8 million
and $431.1 million, respectively, of Company-owned securities where Tompkins
Investment Services is custodian. Tompkins Investment Services generates fee
income through managing trust and investment relationships, managing estates,
providing custody services, and managing investments in employee benefits plans.
Services are primarily provided to customers in the Trust Company's market area
of Tompkins County; however, Tompkins Investment Services representatives also
serve clients in The Bank of Castile and Mahopac National Bank markets. Trends
for new business in trust and investments services remain positive. The number
of accounts increased by nearly 6.8% between June 30, 2005 and June 30, 2004.
Service charges on deposit accounts increased 5.5% to $2.1 million in the second
quarter of 2005 from $1.9 million in the second quarter of 2004. For the six
months ended June 30, 2005, service charge on deposit accounts were $3.9
million, a 2.9% increase over the same period in 2004. The largest component of
this category is overdraft fees, which is largely dependent on customer
behavior. A key factor affecting overdraft income is check volume, which has
been trending downward as a result of increased debit card volume and other
electronic payment methods. Increased fees in the second quarter of 2005 over
the comparable period of 2004 benefited from an increase in the per item charge
for overdrafts, and an increase in deposit accounts. The year-to-date average
balance of noninterest-bearing accounts increased by $30.1 million between June
30, 2004, and June 30, 2005, to $313.9 million from $283.8 million.
Insurance commissions and fees were $1.9 million in the second quarter of 2005,
an increase of 16.8% over the second quarter of 2004. For the first six months
of 2005, insurance commissions and fees were $3.8 million, up 18.7% from $3.2
million for the same period in 2004. The Banfield & Associates, Inc., insurance
agency acquisition at year-end 2004 accounted for approximately 66.5% and 59.9%
of the revenue growth for the second quarter of 2005 and year-to-date 2005,
respectively over the comparable periods in 2004. Also contributing to the
revenue growth over prior year was continued efforts by Tompkins Insurance to
offer services to bank customers by sharing certain offices with The Bank of
Castile.
Card services income increased by 5.4% or $34,000, to $665,000 for the second
quarter of 2005 over the same quarter in 2004. Card services income of $1.3
million for the six months ended June 30, 2005 was up 6.6% from $1.2 million for
the six months ended June 30, 2004. The increase in income over prior year was
concentrated in debit card income and reflects an increased number of
cardholders, higher transaction volume and fee increases. Debit card income
totaled $451,000 for the three months ended June 30, 2005, compared to $395,000
for the same period in 2004, and $860,000 for the six months ended June 30,
2005, compared to $743,000 for the same period in 2004. Card services products
include traditional credit cards, purchasing cards, debit cards, and automated
teller machines. Card services continues to build revenues as technology has
created opportunities to offer customers new products. This is a highly
competitive business with many large national competitors.
Other services charges were up 8.2% in the second quarter of 2005 to $802,000
from $741,000 in the same period of 2004. For the year ended June 30, 2005,
other service charges are down 11.4% to $1.5 million from $1.6 million in the
same period of 2004. The decrease in the year-to-date period ended June 30,
2005, from the same period prior year, was largely due to lower loan related
fees and lower income from merchant card processing.
Noninterest income for the second quarter of 2005 includes $264,000 of income
relating to increases in the cash surrender value of corporate owned life
insurance (COLI). This compares to $280,000 for the same period in 2004. For the
year-to-date period COLI related income was $516,000, down 11.3% from the same
period in 2004. The COLI relates to life insurance policies covering certain
executive officers of the Company. The Company's average investment in COLI was
$24.8 million for the six-month period ended June 30, 2005, compared to $23.0
million for the same period in 2004. Although income associated with the
insurance policies is not included in interest income, increases in the cash
surrender value produced a tax-equivalent return of 7.01% for the first six
months of 2005, compared to 7.97% for the same period in 2004.
Net gains on loan sales were $78,000 in the second quarter of 2005, compared
with a loss of $3,000 during the same period last year. Year-to-date 2005, gains
of $120,000 are in line with year-to-date 2004. Current residential mortgage
loan origination is predominately purchase volume and the majority of loans are
being originated as portfolio loans since they meet the parameters for portfolio
loans as established by the Company's Asset/Liability Management Committee. The
low
16
interest rate environment in the second quarter of 2005 led to a higher volume
of loan sales compared to the second quarter of 2004. Loan sales totaled $4.9
million in the second quarter of 2005, up from $2.7 million in the second
quarter of 2004.
Other income for the second quarter of 2005 was up $312,000 over the same period
in 2004. Other income increased from $425,000 for the first six months of 2004
to $670,000 for the same period in 2005. This increase in both the quarter and
year-to-date 2005 over comparative periods in 2004 was largely driven by a
$207,000 gain on sale of real estate related to the recent relocation of The
Bank of Castile's Warsaw Office to a newly renovated building and the sale of
the former office building.
Noninterest Expenses
Total noninterest expenses for the second quarter of 2005 were $15.3 million, up
4.7% over the prior year's second quarter. For the first six months of 2005,
noninterest expenses were $30.6 million, an increase of 5.9% over noninterest
expenses of $28.9 million for the same period in 2004. The majority of expense
categories are up in 2005 both for the second quarter and the year-to-date
period compared with prior year.
Personnel-related expenses comprise the largest segment of noninterest expense,
representing 58.3% of noninterest expense for the first half of 2005 compared to
58.6% of noninterest expense for the first six months of 2004. The 4.6%
quarterly and 5.2% year-to-date increase in personnel-related expenses in 2005
as compared to the same quarter and year-to-date periods in 2004, respectively,
was primarily a result of higher salaries and wages related to an increase in
average full time equivalents (FTEs) as well as annual salary adjustments. The
increase in average FTEs is primarily a result of staffing requirements at the
Company's newer offices, including the Mount Kisco office of Mahopac National
Bank, which opened in June 2004, and the Banfield Agency acquisition by Tompkins
Insurance in late 2004. Healthcare costs and other postretirement benefits were
also up over the second quarter and year-to-date periods in 2004.
Expenses related to bank premises and furniture and fixtures totaled $1.9
million in the second quarter of 2005, an increase of 9.7% over the second
quarter of 2004. Expenses related to bank premises and furniture and fixtures
totaled $3.9 million for the first six months of 2005, an increase of 8.0% over
the same period last year. Recent additions to the Company's branch network
mentioned above and the opening of the Tompkins Financial Center in Batavia, New
York, in early 2005, as well as higher taxes, insurance and utility costs
contributed to the increased expenses for bank premises and furniture and
fixtures for the quarter and year-over-year.
Marketing expense is up 3.0% in the second quarter of 2005 over the same period
in 2004, and 17.2% year-to-date 2005 over year-to-date 2004. Planned marketing
initiatives for 2005 accounted for the increase in marketing expenditures over
the prior year.
Software licenses and maintenance expenses were $473,000 in the second quarter
of 2005 compared to $359,000 in the second quarter of 2004, an increase of
31.8%. For the first six months of 2005, software licenses and maintenance
expenses were up 29.2% to $906,000. Increases in annual maintenance contracts
contributed to the increase in this category, as did expenses related to the
implementation of new systems.
Other operating expense amounted to $2.6 million for the second quarter of 2005,
down 1.8% from the same period 2004. For the year-to-date, other operating
expenses of $5.2 million are up 1.5% over the same period in 2004. Quarterly
results benefitted from the recapture of legal fees associated with a loan
workout. The year-to-date increase was in numerous expense categories including
business development, printing and supplies, collections, audits and
examinations, legal fees, education and training, and donations.
Income Tax Expense
The provision for income taxes provides for Federal and New York State income
taxes. The provision for the second quarter of 2005 was $3.4 million compared to
$2.9 million in 2004. The Company's effective tax rate for the second quarter
was 32.7% compared to 32.0% in the second quarter of 2004. The income tax
provision for the six months ended June 30, 2005, was $6.5 million, compared to
$6.0 million for the same period in 2004. The Company's effective tax rate for
the first six months of 2005 was 32.6%, unchanged from the same period in 2004.
The higher income tax provision in both the quarter and year-to-date periods in
2005 over the comparable periods in 2004 is primarily due to increased levels of
taxable income. The increase in the effective rate in the second quarter of 2005
compared with 2004 is due to higher levels of taxable income relative to tax
advantaged income, such as income from investments in municipal bonds, new
market tax credits, and real estate investment trusts.
17
FINANCIAL CONDITION
The Company's total assets were $2.0 billion at June 30, 2005, representing an
increase of $72.1 million over total assets reported at December 31, 2004. Asset
growth included a $50.7 million increase in total loans and a $6.8 million
increase in the carrying value of securities. Loan growth during the period is
net of $7.7 million in sales of fixed rate residential mortgage loans during the
first six months of 2005. Loan growth was concentrated in the commercial real
estate and residential real estate loan portfolios. Deposits were up $29.2
million in the first six months of 2005, from December 31, 2004, to $1.6 billion
at June 30, 2005. Additions to the Company's branch network in 2003 and 2004 and
certificates of deposits over $100,000 contributed to the growth in deposits in
the first six months of 2005.
Capital
Total shareholders' equity totaled $176.4 million at June 30, 2005, an increase
of $5.4 million from December 31, 2004. Surplus increased $42.2 million from
$75.8 million at December 31, 2004, to $118.0 million at June 30, 2005; while
undivided profits decreased $34.2 million from $94.5 million at December 31,
2004, to $60.3 million at June 30, 2005, and accumulated other comprehensive
income was down $2.5 million over the same period. The increase in surplus and
decrease in undivided profits reflects the 10% stock dividend paid on February
15, 2005. The decrease in accumulated other comprehensive income relates to a
decrease in unrealized gains on available-for-sale securities largely due to
recent increases in interest rates. Cash dividends paid in the first six months
of 2005 totaled approximately $5.1 million, representing 38.4% of year to date
earnings. Cash dividends of $0.57 per share paid during the first six months of
2005 were up from $0.55 per share for the same period in 2004. Dividends per
share were retroactively adjusted to reflect the 10% stock dividend paid on
February 15, 2005.
On July 27, 2004, the Company's board of directors approved a stock repurchase
plan (the "2004 Plan") to replace the 2002 Plan, which expired in July 2004. The
2004 Plan authorizes the repurchase of up to 400,000 shares of the Company's
outstanding common stock over a two-year period. As of June 30, 2005, the
Company had repurchased 21,984 shares under the 2004 Plan, all during the second
quarter 2005, with an average price of $40.79.
The Company and its community bank subsidiaries are subject to various
regulatory capital requirements administered by Federal banking agencies.
Management believes the Company and its subsidiaries meet all capital adequacy
requirements to which they are subject. The table below reflects the Company's
capital position at June 30, 2005, compared to the regulatory capital
requirements for "well capitalized" institutions.
REGULATORY CAPITAL ANALYSIS - June 30, 2005
- -------------------------------------------------------------------------------------------
Actual Well Capitalized
Requirement
(Dollar amounts in thousands) Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets) $ 179,059 13.6% $ 132,008 10.0%
Tier I Capital (to risk weighted assets) $ 166,074 12.6% $ 79,205 6.0%
Tier I Capital (to average assets) $ 166,074 8.2% $ 100,814 5.0%
===========================================================================================
As illustrated above, the Company's capital ratios on June 30, 2005, remain well
above the minimum requirement for well capitalized institutions. As of June 30,
2005, the capital ratios for each of the Company's subsidiary community 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
Company's portfolio and the material effect that assumption could have on the
Company's 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 six months of 2005 and 2004 is illustrated in
the table below.
18
ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In thousands)
- ------------------------------------------------------------------------------------------------
June 30, 2005 June 30, 2004
- ------------------------------------------------------------------------------------------------
Average Loans and Leases Outstanding Year to Date $ 1,196,612 $ 1,092,384
- ------------------------------------------------------------------------------------------------
Beginning Balance 12,549 11,685
- ------------------------------------------------------------------------------------------------
Provision for loan/lease losses 1,168 1,525
Loans charged off (1,161) (1,559)
Loan recoveries 429 449
- ------------------------------------------------------------------------------------------------
Net charge-offs 732 1,110
- ------------------------------------------------------------------------------------------------
Ending Balance $ 12,985 $ 12,100
================================================================================================
The reserve represented 1.06% of total loans and leases outstanding at June 30,
2005, down from 1.08% at June 30, 2004. The reserve coverage of nonperforming
loans (loans past due 90 days and accruing, nonaccrual loans, and restructured
troubled debt) increased to 2.20 times at June 30, 2005, from 1.44 times at June
30, 2004. Management is committed to early recognition of loan problems and to
maintaining an adequate reserve.
The level of nonperforming assets at June 30, 2005, and 2004 is illustrated in
the table below. Nonperforming assets of $6.1 million as of June 30, 2005,
reflect a decrease of $2.5 million from $8.6 million as of June 30, 2004. The
current level of nonperforming assets remains modest at 0.30% of total assets.
Contributing to the decrease in nonperforming assets was an upgrade of a large
commercial relationship to accruing status based upon improved operating
performance. Approximately $335,000 of the nonperforming loans at June 30, 2005,
were secured by U.S. Government guarantees, while $1.8 million were secured by
one-to-four family residential properties.
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 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 some time in the future. Management considers
loans/leases classified as Substandard that continue to accrue interest to be
potential problem loans/leases. At June 30, 2005, the Company's internal loan
review function had identified 32 commercial relationships totaling $17.6
million, which it has classified as Substandard, which continue to accrue
interest. As of December 31, 2004, the Company's internal loan review function
had classified 25 commercial relationships totaling $13.9 million, which
continue to accrue interest, as Substandard. 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 the aggregate, give management reason to believe
that the current risk exposure on these loans is not significant. The increase
in the dollar amount of potential problem loans is mainly due to the recent
inclusion of a larger commercial relationship. This relationship is largely
secured by the guarantee of a U.S government agency. At June 30, 2005,
approximately $3.6 million of potential problem loans were backed by guarantees
of U.S. government agencies. While in a performing status as of June 30, 2005,
these loans exhibit certain risk factors, which have the potential to cause them
to become nonperforming in the future. Accordingly, management's attention is
focused on these credits, which are reviewed on at least a quarterly basis.
NONPERFORMING ASSETS (In thousands)
- --------------------------------------------------------------------------------------------------------
June 30, 2005 June 30, 2004
- --------------------------------------------------------------------------------------------------------
Nonaccrual loans and leases $ 5,290 $ 8,177
Loans past due 90 days and accruing 570 22
Troubled debt restructuring not included above 50 193
- --------------------------------------------------------------------------------------------------------
Total nonperforming loans 5,910 8,392
- --------------------------------------------------------------------------------------------------------
Other real estate, net of allowances 202 167
========================================================================================================
Total nonperforming assets $ 6,112 $ 8,559
========================================================================================================
Total nonperforming loans/leases as a percent of total loans/leases 0.48% 0.75%
========================================================================================================
Total nonperforming assets as a percentage of total assets 0.30% 0.44%
========================================================================================================
19
Deposits and Other Liabilities
Total deposits of $1.6 billion on June 30, 2005, were up $29.2 million, or 1.9%,
from December 31, 2004. The growth was predominately in time deposits as
interest rates moved higher on certain of these deposit accounts. The growth in
time deposits was partially offset by lower savings and money market deposits,
driven by lower municipal money market balances. Core deposits, which represent
the primary funding source for the Company, were down less than 1.0% from
years-end 2004. As of June 30, 2005, core deposits of $1.2 billion represented
66.3% of total liabilities. This compares to core deposits of $1.2 billion,
representing 66.9% of total liabilities at December 31, 2004.
Non-core funding sources for the Company totaled $624.3 million at June 30,
2005, up from $575.9 million at December 31, 2004. Non-core funding at June 30,
2005, included municipal deposits, time deposits of $100,000 or more, term
advances and repurchase agreements with the Federal Home Loan Bank ("FHLB"),
Federal funds purchased, and retail repurchase agreements. The growth in
non-core funding between December 31, 2004, and June 30, 2005, was mainly in
time deposits of $100,000 or more, which were up $46.0 million to $196.1 million
at June 30, 2005, from $150.1 million at December 31, 2004. The growth was
primarily due to an increase in interest rates on certain time deposit products.
The Company's liability for securities sold under agreements to repurchase
("repurchase agreements") amounted to $166.9 million at June 30, 2005, an
increase of $13.2 million from $153.7 million at December 31, 2004. Included in
repurchase agreements at June 30, 2005, were $100.0 million in FHLB repurchase
agreements and $66.9 million in retail repurchase agreements. Retail repurchase
agreements are arrangements with local customers of the Company, in which the
Company agrees to sell securities to the customer with an agreement to
repurchase those securities at a specified later date.
The Company's other borrowings are comprised solely of amounts owed to the FHLB.
The Company increased its other borrowings from the FHLB by $21.1 million, to
$84.4 million at June 30, 2005, from $63.3 million at year-end 2004.
Included in the $184.4 million in term advances and repurchase agreements with
the FHLB are $110.0 million of callable advances. The majority of the advances
have call dates between 2005 and 2007 and are callable quarterly at the option
of the FHLB.
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 $53.0 million as of June 30, 2005, up from
$40.9 million at December 31, 2004. Short-term investments, consisting of
securities due in one year or less, increased from $33.8 million at December 31,
2004, to $40.3 million on June 30, 2005. The Company also pledges securities as
collateral for certain non-core funding sources. Securities carried at $522.1
million at December 31, 2004, and $470.8 million at June 30, 2005, were
designated as pledged as collateral for public deposits or other borrowings, and
pledged or sold under agreements to repurchase. Pledged securities represented
70.6% of total securities as of June 30, 2005, compared to 79.1% as of December
31, 2004.
Cash flow from the loan and investment portfolios provides a significant source
of liquidity. These assets may have stated maturities in excess of one year, but
have monthly principal reductions. Total mortgage-backed securities, at fair
value, were $283.2 million at June 30, 2005 compared with $301.9 million at
December 31, 2004. Using current prepayment assumptions, cash flow from the
investment portfolio is estimated to be approximately $149.6 million over the
next 12 months. Investments in residential mortgage loans, consumer loans, and
leases totaled approximately $584.8 million at June 30, 2005. Aggregate
amortization from monthly payments on these loan assets provides significant
additional cash flow to the Company.
Core deposits are a primary funding source and represent a low cost funding
source obtained primarily through its branch network. In addition to core
deposits, the Company uses non-core funding sources to support asset growth.
These non-core funding sources include time deposits of $100,000 or more,
brokered time deposits, municipal money market accounts, securities sold under
agreements to repurchase and term advances from the FHLB. Rates and terms are
the primary determinants of the mix of these funding sources. Non-core funding
sources, as a percentage of total liabilities, increased from 32.0% at December
31, 2004, to 32.4% at June 30, 2005. The increase in the dollar volume of
non-core funding was concentrated in time deposits of $100,000 or more. Rates on
these products have moved up due to higher market interest rates and competitive
market conditions.
20
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 community
banks, the Company has borrowing relationships with the FHLB and correspondent
banks, which provide secured and unsecured borrowing capacity. At June 30, 2005,
the unused borrowing capacity on established lines with the FHLB was $126.7
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 June 30, 2005, total unencumbered residential mortgage loans of the
Company were $270.8 million. Additional assets may also qualify as collateral
for FHLB advances upon approval of the FHLB.
The Company has not identified any trends or circumstances that are reasonably
likely to result in material increases or decreases in liquidity in the near
term.
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. The Company manages interest rate risk
using income simulation to measure interest rate risk inherent in its on-balance
sheet and off-balance sheet financial instruments at a given point in time. The
simulation models are used to estimate the potential effect of interest rate
shifts on net interest income for future periods. Each quarter the
Asset/Liability Management Committee reviews the simulation results to determine
whether the exposure of net interest income to changes in interest rates remains
within board-approved levels. The Committee also discusses strategies to manage
this exposure and incorporates these strategies into the investment and funding
decisions of the Company. The Company has not made use of derivatives, such as
interest rate swaps, to manage its interest rate risk exposure.
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 June 30, 2005, 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 2.82%, while a 200
basis point decline in interest rates over a one-year period would result in a
decrease in net interest income of 2.61%. This simulation assumes no balance
sheet growth and no management action to address balance sheet mismatches. Over
the past several years, balance sheet growth has helped to offset the effects of
a lower interest rate environment and to increase net interest income. The
negative exposure in a rising rate environment is mainly driven by the repricing
assumptions of the Company's core deposit base and the lag in the repricing of
the Company's adjustable rate assets. Longer-term, the impact of a rising rate
environment is positive as the asset base continues to reset at higher levels,
while the repricing of the rate sensitive liabilities moderates. The negative
exposure in the 200 basis point decline scenario results from the Company's
assets repricing downward more rapidly than the rates on the Company's
interest-bearing liabilities, mainly deposits, as deposit rates are at low
levels given the historically low interest rate environment over the past
several years. The aforementioned percentage changes in net interest income are
based on variations from our base case scenario, which assumes interest rates
remain unchanged from the date of the simulation. Our most recent base case
simulation showed a slightly declining net interest margin over the next 12
months.
Although the simulation model is useful in identifying potential exposure to
interest rate movements, actual results may differ from those modeled as the
repricing, maturity, and prepayment characteristics of financial instruments may
change to a different degree than modeled. In addition, the model does not
reflect actions that management may employ to manage its interest rate risk
exposure. The Company's current liquidity profile, capital position, and growth
prospects offer management a level of flexibility 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.
21
The table below is a Condensed Static Gap Report, which illustrates the
anticipated repricing intervals of assets and liabilities as of June 30, 2005.
Condensed Static Gap - June 30, 2005 Repricing Interval
Cumulative
(Dollar amounts in thousands) Total 0-3 months 3-6 months 6-12 months 12 months
- -----------------------------------------------------------------------------------------------------------------------
Interest-earning assets $1,893,612 $ 467,429 $ 78,398 $ 164,541 $ 710,368
Interest-bearing liabilities 1,503,546 621,053 103,688 177,388 902,129
- -----------------------------------------------------------------------------------------------------------------------
Net gap position (153,624) (25,290) (12,847) (191,761)
- -----------------------------------------------------------------------------------------------------------------------
Net gap position as a percentage of total assets (7.52%) (1.24%) (0.63%) (9.39%)
=======================================================================================================================
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management, including its 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-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as
of June 30, 2005. Based upon that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer, concluded that as of the end of the period
covered by this Report on Form 10-Q the Company's disclosure controls and
procedures were effective in providing reasonable assurance that any information
required to be disclosed by the Company in its reports filed or submitted under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms
and that material information relating to the Company and its subsidiaries is
made known to management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding
disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting
that occurred during the Company's second quarter ended June 30, 2005, that
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
22
TOMPKINS TRUSTCO, INC.
Average Consolidated Balance Sheet and Net Interest Analysis
Quarter Ended Year to Date Period Ended Year to Date Period Ended
June-05 June-05 June-04
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Balance Average Balance Average Balance Average
(Dollar amounts in thousands) (QTD) Interest Yield/Rate (YTD) Interest Yield/Rate (YTD) Interest Yield/Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets
Interest-bearing balances
due from banks $ 1,373 $ 6 1.75% $ 4,402 $ 48 2.20% $ 15,952 $ 76 0.96%
Securities (1)
U.S. Government
Securities 535,621 5,242 3.93% 530,440 10,345 3.93% 536,411 10,708 4.01%
State and municipal(2) 119,053 1,688 5.69% 116,228 3,283 5.70% 98,609 3,001 6.12%
Other Securities (2) 20,560 215 4.19% 21,704 383 3.56% 27,791 261 1.89%
---------------------------------------------------------------------------------------------------
Total securities 675,234 7,145 4.24% 668,372 14,011 4.23% 662,811 13,970 4.24%
Federal Funds Sold 316 2 2.54% 1,022 13 2.57% 3,594 17 0.95%
Loans, net of unearned
income(3)
Real Estate 805,874 12,461 6.20% 799,060 24,473 6.18% 700,048 21,044 6.05%
Commercial Loans (2) 285,760 4,935 6.93% 278,830 9,266 6.70% 264,818 7,345 5.58%
Consumer Loans 102,735 2,173 8.48% 101,818 4,241 8.40% 105,460 4,432 8.45%
Direct Lease Financing 14,918 237 6.37% 16,904 550 6.56% 22,058 742 6.76%
---------------------------------------------------------------------------------------------------
Total loans, net of
unearned income 1,209,287 19,806 6.57% 1,196,612 38,530 6.49% 1,092,384 33,563 6.18%
---------------------------------------------------------------------------------------------------
Total interest-
earning assets 1,886,210 26,959 5.73% 1,870,408 52,602 5.67% 1,774,741 47,626 5.40%
---------------------------------------------------------------------------------------------------
Other assets 141,592 141,930 140,323
---------- ---------- ----------
Total assets $2,027,802 $2,012,338 $1,915,064
========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
Deposits
Interest-bearing deposits
Interest bearing
checking, savings,
& money market 734,619 1,726 0.94% 752,315 3,333 0.89% 777,214 2,686 0.69%
Time Dep > $100,000 212,999 1,492 2.81% 202,450 2,691 2.68% 120,575 1,276 2.13%
Time Dep < $100,000 290,097 1,853 2.56% 283,106 3,497 2.49% 250,588 2,912 2.34%
Brokered Time Dep
< $100,000 45,894 349 3.05% 43,461 648 3.01% 28,900 415 2.89%
---------------------------------------------------------------------------------------------------
Total interest-
bearning deposits 1,283,609 5,420 1.69% 1,281,332 10,169 1.60% 1,177,277 7,289 1.25%
Federal funds purchased &
securities sold under
agreements to repurchase 156,242 1,204 3.09% 153,272 2,269 2.99% 187,904 2,182 2.34%
Other borrowings 74,175 835 4.52% 68,309 1,564 4.62% 84,585 1,897 4.51%
---------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,514,026 7,459 1.98% 1,502,913 14,002 1.88% 1,449,766 11,368 1.58%
Noninterest bearing deposits 316,770 313,906 283,765
Accrued expenses and other
liabilities 23,077 21,934 18,770
---------- ---------- ----------
Total liabilities 1,853,873 1,838,753 1,752,301
Minority Interest 1,495 1,482 1,518
Shareholders' equity 172,434 172,103 161,245
---------- ---------- ----------
Total liabilities and
shareholders' equity $2,027,802 $2,012,338 $1,915,064
========== ========== ==========
Interest rate spread 3.75% 3.79% 3.82%
------------------ ------------------- --------------------
Net interest income/margin
on earning assets $ 19,500 4.15% $ 38,600 4.16% $ 36,258 4.11%
Tax Equivalent Adjustment (699) (1,376) (1,293)
--------- --------- ----------
Net interest income per
consolidated financial
statements $ 18,801 $ 37,224 $ 34,965
- ------------------------------------------------------------------------------------------------------------------------------------
(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 for its fiscal year ended
December 31, 2004.
23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table includes all Company repurchases made on a monthly basis
during the period covered by this Quarterly Report on Form 10-Q, including those
made pursuant to publicly announced plans or programs.
- --------------------------------------------------------------------------------------------------------------------------
Maximum Number (or
Approximate Dollar
Total Number of Shares Value) of Shares
Purchased as Part of that May Yet Be
Total Number of Average Price Paid Publicly Announced Purchased Under the
Shares Purchased Per Share Plans or Programs Plans or Programs
Period (a) (b) (c) (d)
- --------------------------------------------------------------------------------------------------------------------------
April 1, 2005 through
April 30, 2005 8,390 $40.71 7,084 432,916
May 1, 2005 through
May 31, 2005 15,044 40.97 14,900 418,016
June 1, 2005 through
June 30, 2005 0 0 0 418,016
- --------------------------------------------------------------------------------------------------------------------------
Total 23,434 $40.88 21,984 418,016
- --------------------------------------------------------------------------------------------------------------------------
On July 27, 2004, the Company's board of directors approved a stock repurchase
plan (the "Plan"), which authorizes the repurchase of up to 440,000 of Tompkins
common stock over a two-year period. To date, 21,984 shares have been
repurchased at an average cost of $40.79.
Included above are shares acquired by the trustee of the rabbi trust established
pursuant to the Company's Stock Retainer Plan For Eligible Directors of Tompkins
Trustco, Inc., and Participating Subsidiaries. 1,306 shares were purchased in
April 2005 at an average cost of $41.98 and 144 shares were purchased in May
2005 at an average cost of $43.58.
Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of stockholders of the Company was held on May 9, 2005 (the
"Annual Meeting"). Proxies for the Annual Meeting were solicited pursuant to
Regulation 14 under the Securities Exchange Act of 1934, as amended.
The election of four directors for three-year terms was approved at the Annual
Meeting. Director nominees John E. Alexander, Elizabeth W. Harrison, Hunter R.
Rawlings III, and Craig Yunker were each elected to a term of three years
expiring in 2008. Directors continuing in office: James J. Byrnes, James W.
Fulmer, William W. Griswald, James R. Hardie, Bonnie H. Howell, Thomas R. Salm,
Michael H. Spain, and William D. Spain. The voting for the directors is shown
below.
24
Director For Against Withheld
John E. Alexander 8,021,815 52,734 881,919
Elizabeth W. Harrison 8,042,760 31,789 881,919
Hunter R. Rawlings III 8,049,128 25,421 881,919
Craig Yunker 8,047,773 26,776 881,919
Certain amendments to the Company's 1996 Stock Retainer Plan for Non-Employee
Directors were also approved at the Annual Meeting. There were 6,413,808 votes
cast "for" the proposal, 124,770 votes cast "against" the proposal and there
were 152,512 abstentions.
Item 5. Other Information
None
Item 6. Exhibits
31.1 Certification of the Chief Executive Officer as required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
31.2 Certification of the Chief Financial Officer as required by
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
32.1 Certification of the Chief Executive Officer as required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, 18 U.S.C. Section 1350.
32.2 Certification of the Chief Financial Officer as required by
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, 18 U.S.C. Section 1350.
25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: August 8, 2005
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
Executive Vice President and
Chief Financial Officer
26
EXHIBIT INDEX
- -------------
EXHIBIT NUMBER DESCRIPTION PAGES
- --------------------------------------------------------------------------------
31.1 Certification of the Chief Executive Officer as
required by Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended 28
31.2 Certification of the Chief Financial Officer as
required by Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended 29
32.1 Certification of the Chief Executive Officer as
required by Rule 13a-14(b) of the Securities Exchange
Act of 1934 as amended, 18 U.S.C. Section 1350 30
32.2 Certification of the Chief Financial Officer as
required by Rule 13a-14(b) of the Securities Exchange
Act of 1934 as amended, 18 U.S.C. Section 1350 31
27