SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-12709
TOMPKINS COUNTY TRUSTCO, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-1482357
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
THE COMMONS, P.O. BOX 460, ITHACA, NY 14851
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 273-3210
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ].
Indicate the number of shares of the Registrant's Common Stock outstanding as of
the latest practicable date:
Class Outstanding as of November 5, 1997
- ---------------------------- -----------------------------------
Common Stock, $.10 par value 3,217,651 shares
TOMPKINS COUNTY TRUSTCO, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1 - Financial Statements
Condensed Consolidated Statements of Condition as of
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income for
the three months and nine months ended September 30, 1997
and 1996 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996 5
Consolidated Statements of Changes in Shareholders' Equity
for the nine months ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7-9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Average Consolidated Balance Sheet and Net Interest Analysis 14
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
ASSETS As of As of
09/30/97 12/31/96
Cash & noninterest bearing balances
due from banks 24,528 25,319
Federal funds sold 2,700 0
Available-for-sale securities, at fair value 180,873 167,904
Held-to-maturity securities, fair value of $38,060
in 1997 and $38,784 in 1996 37,091 37,753
Loans and leases net of unearned income 367,943 350,409
Less: Reserve for loan and lease losses 4,929 4,779
- ----------------------------------------------------------------------------------------------------------
NET LOANS 363,014 345,630
Bank Premises and Equipment 7,042 6,924
Other Assets 8,876 7,814
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS 624,124 591,344
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking 60,893 59,738
Savings and money market 158,165 133,798
Time 165,691 155,833
Noninterest bearing 80,306 77,997
- ----------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 465,055 427,366
Securities Sold under agreements to repurchase and
Federal funds purchased 76,135 89,993
Other Borrowings 20,005 15,005
Other Liabilities 7,742 6,367
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 568,937 538,731
- ----------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Shareholders' equity:
Common Stock - par value $.10 per share
Authorized 7,500,000 shares; issued and outstanding
3,256,822 in 1997 and 3,336,394 shares in 1996 326 334
Surplus 29,885 32,529
Undivided Profits 25,432 20,925
Net Unrealized gain (loss) on available-for-sale
securities, net of taxes 756 66
Treasury Stock - 20,046 shares in 1997, 21,203 shares
in 1996 (579) (604)
Deferred I.S.O.P. benefit expense - 21,110 Shares 1997,
21,228 shares 1996 (633) (637)
- ----------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 55,187 52,613
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 624,124 591,344
==========================================================================================================
* See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
Three months ended Nine Months Ended
09/30/97 09/30/96 09/30/97 09/30/96
INTEREST INCOME
Loans 8,345 7,808 24,272 22,701
Deposits with other banks 0 37 0 37
Federal funds sold 26 126 198 386
Available-for-sale securities 3,087 2,624 8,976 7,456
Held-to maturity securities 475 487 1,466 1,485
- --------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 11,933 11,082 34,912 32,065
- --------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or more 1,071 648 3,323 1,384
Other Deposits 2,629 2,383 7,543 7,319
Federal funds Purchased and Securities sold under
agreements to repurchase 1,159 1,267 3,349 3,725
Borrowed funds 317 280 744 666
- --------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 5,176 4,578 14,959 13,094
- --------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 6,757 6,504 19,953 18,971
- --------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 263 258 830 713
- --------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN/LEASE 6,494 6,246 19,123 18,258
LOSSES
- --------------------------------------------------------------------------------------------------------------
OTHER INCOME
Trust and investment services income 743 689 2,309 1,996
Service charges on deposit accounts 413 414 1,309 1,263
Credit card merchant income 663 584 1,701 1,451
Other service charges 353 333 1,028 1,000
Other operating income 113 51 256 164
Gain (Loss) on available-for-sale securities (41) 0 (85) 0
- --------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 2,244 2,071 6,518 5,874
- --------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salary and wages 2,037 1,903 5,983 5,632
Pension and other employee benefits 455 441 1,428 1,423
Net Occupancy Expense of bank premises 328 326 976 1,021
Furniture and fixture expense 238 269 812 838
Credit Card Operating Expense 592 525 1,539 1,321
Other operating expense 1,102 929 3,410 3,042
- --------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 4,752 4,393 14,148 13,277
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 3,986 3,924 11,493 10,855
- --------------------------------------------------------------------------------------------------------------
Income Taxes 1,385 1,393 3,997 3,810
- --------------------------------------------------------------------------------------------------------------
NET INCOME 2,601 2,531 7,496 7,045
==============================================================================================================
Weighted Average Shares Outstanding 3,215,406 3,528,339 3,253,901 3,534,363
NET INCOME PER COMMON SHARE 0.81 0.72 2.30 1.99
==============================================================================================================
* See accompanying notes to condensed consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
NINE MONTHS ENDED
9/30/97 9/30/96
------- -------
OPERATING ACTIVITIES
Net Income $ 7,496 $ 7,045
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 830 713
Provision for depreciation and amortization 814 755
Provision for Deferred Income Taxes 94 (75)
Net amortization/(accretion) on securities 146 (102)
Net loss on the sale of securities 85 0
Net Gain on the Sale of Loans (6) (5)
Net (Gains)/Loss on sales of bank premises and equipment (30) (8)
Increase in other assets (1,139) (968)
Increase in other liabilities 781 548
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,071 7,903
- -------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 30,791 43,074
Proceeds from sale of available for sale securities 10,684 0
Proceeds from maturities of held-to-maturity securities 9,871 6,883
Purchases of available-for-sale securities (53,413) (57,278)
Purchases of held-to-maturity securities (9,281) (6,124)
Proceeds from sales of loans 2,561 678
Net increase in loans (20,768) (24,062)
Proceeds from sales of bank premises and equipment 42 18
Purchases of bank premises and equipment (868) (375)
- -------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (30,381) (37,186)
- -------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease) increase in demand deposits,
money market accounts and savings accounts 27,831 (8,432)
Net increase in time deposits 9,858 55,597
Net increase in securities sold under
repurchase agreements and Federal funds purchased (13,858) (16,887)
Net increase in other borrowings 5,000 7,000
Cash dividends (2,989) (2,853)
Decrease in deferred I.S.O.P benefit expense 5 1
Treasury stock sold 30 11
Treasury stock purchased 0 (627)
Common shares repurchased and returned to authorized
and unissued status (2,670) 0
Proceeds from issuance of common stock 12 6
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 23,219 33,816
- -------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,909 4,533
Cash and cash equivalents at beginning of period 25,319 20,757
- -------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,228 $ 25,290
=====================================================================================
* See accompanying notes to condensed consolidated financial statements.
5
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
NET
UNREALIZED
GAIN/(LOSS)
ON
AVAILABLE- DEFERRED
COMMON TREASURY UNDIVIDED FOR-SALE ISOP
STOCK STOCK SURPLUS PROFITS SECURITIES BENEFIT EXP TOTAL
==========================================================================================================================
BALANCES AT
JANUARY 1, 1996 358 0 39,190 15,560 909 (926) 55,091
- --------------------------------------------------------------------------------------------------------------------------
Net income 7,045 7,045
Common stock issued 6 6
Cash dividends ($.80/Share) (2,853) (2,853)
Treasury stock purchased (22,000 (627) (627)
shares)
Treasury stock sold 12 12
Change in net unrealized
Gain/(Loss) net of taxes (1,531) (1,531)
I.S.O.P. shares released for (2) 1 (1)
allocation
- --------------------------------------------------------------------------------------------------------------------------
BALANCES AT
SEPTEMBER 30, 1996 358 (615) 39,194 19,752 (622) (925) 57,142
==========================================================================================================================
==========================================================================================================================
BALANCES AT
JANUARY 1, 1997 334 (604) 32,529 20,925 66 (637) 52,613
- --------------------------------------------------------------------------------------------------------------------------
Net income 7,496 7,496
Common stock issued 12 12
Cash dividends ($.92/Share) (2,989) (2,989)
Treasury stock sold 25 5 30
Common stock repurchased and (8) (2,662) (2,670)
returned to authorized and
unissued status
Change in net unrealized
Gain/(Loss) net of taxes 690 690
I.S.O.P. shares released for 1 4 5
allocation
- --------------------------------------------------------------------------------------------------------------------------
BALANCES AT
SEPTEMBER 30, 1997 326 (579) 29,885 25,432 756 (633) 55,187
==========================================================================================================================
* See accompanying notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Tompkins County Trustco, Inc. (the "Company") is a registered bank holding
company, organized under the laws of New York State. On April 26, 1995, the
shareholders of Tompkins County Trust Company (the "Trust Company") approved a
proposal to revise its corporate structure by establishing the Company as a one
bank holding company. On January 1, 1996, the Trust Company became a wholly
owned subsidiary of the Company and all issued and outstanding shares of Trust
Company common stock were converted to shares of the Company's common stock. The
holding company formation was accounted for similar to a pooling of interests.
Accordingly, the financial information included herein combine the results of
operations, and the assets, liabilities, and shareholders equity of the Company
and the Trust Company for all periods presented. The Trust Company traces its
charter back to 1836 and provides loan, deposit, and trust services to its
customers primarily in Tompkins County, New York.
2. BASIS OF PRESENTATION
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that effect the
reported amounts of assets and liabilities as of the date of the statements of
condition and statements of income and expenses for the period. Actual amounts
could differ from estimates.
The accompanying interim condensed consolidated financial statements and related
notes should be read in conjunction with the Company's Form 10-K and related
notes for the year ended December 31, 1996.
The condensed consolidated financial statements included herein reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary for a fair presentation of the Company's financial
position at September 30, 1997, and December 31, 1996, and the results of
operations for the three months and nine months ended September 30, 1997 and
1996. Certain reclassifications have been made to prior period amounts for
consistency in reporting.
3. STOCK REPURCHASE PROGRAM
In November 1996, the board of directors approved a stock repurchase program,
which authorizes the repurchase of up to $3 million in common stock of the
Company in open market transactions. No open market transactions have been
completed under this program. On May 14, 1997, the Company repurchased 80,000
shares of its common stock in a privately negotiated transaction. The shares,
which have been returned to the status of authorized and unissued, were
purchased at $33.38 per share, for a total purchase price of $2.67 million.
4. SECURITIES
Management determines the appropriate classification of debt and equity
securities at the time of purchase. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost. Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale securities
are stated at fair value, with the unrealized gains and losses, net of tax,
excluded from earnings and reported as a separate component of shareholders'
equity.
Amortized cost of held-to-maturity debt securities is adjusted for amortization
of premiums and accretion of discounts to maturity, or in the case of
mortgage-backed securities, over the estimated life of the security. Realized
gains and losses, and declines in value judged to be other-than-temporary, are
included in net securities gains (losses). The cost of securities sold is based
on the specific identification method.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized holding gains or losses included in the separate
component of shareholders' equity for securities transferred from
available-for-sale to held-to-maturity are maintained and amortized into
7
earnings over the remaining life of the security as an adjustment to yield in a
manner consistent with the amortization or accretion of premium or discount on
the associated security.
As of September 30, 1997, net unrealized gains on securities classified as
available-for-sale totaled $1.3 million, resulting in an after tax increase to
shareholders' equity of $756,000. As of December 31, 1996, available-for-sale
securities had net unrealized gains of $113,000, resulting in an after tax
shareholders' equity capital increase of $66,000.
5. LOANS
Loans are reported at their principal outstanding balance net of charge-offs,
deferred loan fees and costs, and unearned income. The Company provides motor
vehicle and equipment financing to its customers through direct financing
leases. These leases are carried at the aggregate lease payments receivable,
plus estimated residual values, less unearned income. Unearned income on direct
financing leases is amortized over the lease terms resulting in a level rate of
return.
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well secured and in the process of
collection. Loans that are past due less than 90 days may also be classified as
nonaccrual if repayment in full of principal and/or interest is in doubt. Loans
may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable time period, and there is a sustained period of repayment
performance by the borrower, in accordance with the contractual terms of the
loan agreement. Payments received on loans carried as nonaccrual are generally
applied as a reduction to principal. When the future collectibility of the
recorded loan balance is expected, interest income may be recognized on a cash
basis.
The Company's recorded investment in loans considered impaired was $935,000 on
September 30, 1997, and the average recorded investment in impaired loans was
$998,000 through the first nine months of 1997. Included in this amount was
$231,000 of impaired loans for which related reserves total $113,000. The
recorded investment in impaired loans as of December 31, 1996, was $1.2 million.
The December 31, 1996 amount includes $582,000 of impaired loans which had
related reserves of $94,000. Interest income on impaired loans of $23,000 was
recognized for cash payments received during the first nine months of 1997.
6. ACCOUNTING CHANGES
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers of Servicing of Financial Assets and Extinguishments
of Liabilities." The statement provides accounting and reporting standards for
transfers of servicing of financial assets and extinguishments of liabilities
based upon a consistent application of a financial-components approach that
focuses on control. It distinguishes transfers of financial assets that are
sales, from transfers that are secured borrowings. The Company prospectively
adopted applicable sections of SFAS No. 125 effective January 1, 1997. Sections
of SFAS No. 125, which have been deferred by SFAS No. 127 will be prospectively
adopted by the Company on January 1, 1998. The expected impact on the Company's
consolidated financial statements is not material.
In December 1996, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". The Statement supersedes Accounting Principles Board
Opinion No. 15. "Earnings Per Share", and specifies the computation,
presentation, and disclosure requirements for earnings per share (EPS) for
entities with publicly held common stock. It requires dual presentation of
"Basic EPS" and "Diluted EPS" on the face of the income statement for all
entities with complex capital structures. The Company will prospectively adopt
SFAS No. 128 effective for financial statement periods ending after December 15,
1997. Upon adoption, all prior period EPS will be restated. The expected impact
on the Company's consolidated financial statements is not material.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure". SFAS 129 establishes
standards for disclosing information about an entity's capital structure and is
effective for financial statement periods ending after December 31, 1997.
Adoption of SFAS 129 is not expected to have an impact on the financial
condition or results of operations of the Company.
8
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. The impact of adopting
SFAS No. 130, which is effective for the Company in 1998, has not been
determined.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 requires publicly held companies to report financial and other information
about key revenue-producing segments of the entity for which such information is
available and is utilized by the chief operation decision maker. Specific
information to be reported for individual segments includes profit or loss,
certain revenue and expense items and total assets. A reconciliation of segment
financial information to amounts reported in the financial statements would be
provided. SFAS No. 131 is effective for the Company in 1998 and the impact of
adoption has not been determined.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
----------------------------------------------------------------------
This discussion is intended to provide the reader with a further understanding
of the consolidated financial condition and results of operations of Tompkins
County Trustco, Inc. and its operating subsidiary the Tompkins County Trust
Company. It should be read in conjunction with the Company's Form 10-K and
related notes for the year ended December 31, 1996, and the condensed
consolidated financial statements and notes included elsewhere in this report.
RESULTS OF OPERATIONS
Net income for the third quarter of 1997 was $2.6 million, compared to $2.5
million for the third quarter of 1996. Earnings per share in the third quarter
of 1997 increased by 13% to $0.81, compared to $0.72 in the third quarter of
1996. Year to date net income increased to $7.5 million through the first nine
months of 1997, compared to net income of $7.0 million for the same nine month
period of 1996. Year to date earnings per share increased by 16% to $2.30,
compared to $1.99 per share for the first nine months of 1996.
Significant improvement in earnings per share through the first nine months of
1997 was achieved through a combination of 6% growth in net income, and an 8%
decline in the average number of shares outstanding. The reduction in average
shares outstanding is primarily the result of two privately negotiated
transactions in which the Company repurchased 244,371 common shares in October
of 1996 and 80,000 common shares in May of 1997.
The Company's return on average assets was 1.64% through the first nine months
of 1997, compared to 1.68% during the same period in 1996. Return on average
shareholders' equity for the first nine months of 1997 was 18.97%, compared to
16.98% for the same period in 1996. The 12% increase in return on average
shareholders' equity was aided by the repurchases of the Company's common stock.
NET INTEREST INCOME
The Company earned net interest income of $20.0 million for the nine months
ended September 30, 1997, compared to $19.0 million for the same period in 1996.
The improvement in net interest income is attributable to growth in the
Company's earnings assets, which helped offset a modest decline in net interest
margin.
The attached Average Consolidated Balance Sheet and Net Interest Analysis
reflects a 4.82% tax-equivalent net interest margin on earning assets through
the first nine months of 1997, compared to a 4.99% ratio through the first nine
months of 1996. Despite favorable trends on rates paid on interest-bearing core
deposits, an increased volume of large time deposits and other borrowings
resulted in higher overall funding costs. The cost of interest bearing
liabilities was 4.26% through the first nine months of 1997, compared to 4.12%
for the same period in 1996. The increasing cost of funds precipitated a decline
in net interest margin, despite the tax-equivalent yield on earning assets
remaining steady at 8.29%
PROVISION FOR LOAN AND LEASE LOSSES
The provision represents management's estimate of the expense necessary to
maintain the reserve for loan and lease losses at an adequate level. The third
quarter provision of $263,000 is relatively unchanged from the $258,000
provision in the third quarter of 1996. The year-to-date provision of $830,000
represents a $117,000 increase from the $713,000 provision made during the first
nine months of 1996.
OTHER INCOME
Total other income of $2.2 million in the third quarter of 1997, compared
favorably to $2.1 million in the third quarter of 1996. Year-to-date other
income of $6.5 million represents an 11% increase from the $5.9 million reported
for the same nine month period of 1996. Income from trust and investment
services, the largest segment of other income, increased 16% to $2.3 million,
compared to $2.0 million in the first nine months of 1996. The increase is
primarily attributable to continued asset growth in the Trust and Investment
Services Department. Total assets under management by the Trust and Investment
Services Department were $775.1 million on September 30, 1997, which includes
$129.2 million of the Company's investment portfolio, for which the department
provides custodial services. Total Trust and investment services are considered
important to future revenue growth of the Company and management continues to
market these services broadly.
10
Credit card merchant fee income of $1.7 million through the first nine months of
1997 represents a 17% increase from the same period in 1996. Growth in merchant
fee income is primarily attributable to an increase in the number of Trust
Company merchant customers.
Total other income is reduced by $85,000 in losses on the sale of
available-for-sale investments, the proceeds from which were reinvested in
higher yielding investments.
OTHER EXPENSE
Total other expenses increased in the third quarter from $4.4 million in 1996 to
$4.8 million in 1997. Through the first nine months of 1997, other operating
expenses were up approximately 7% to $14.1 million. Credit card operating
expense is a variable expense that increases as the volume of merchant and card
holder transactions increases. The 17% increase in credit card operating
expenses during the first nine months of 1997 is primarily due to an increase in
the volume of merchant customer transactions.
Year-to-date other operating expenses increased from $3.0 million in 1996, to
$3.4 million in 1997. Included in other operating expenses is a $120,000 accrual
for donations expensed in the second quarter of 1997, which has been committed
to local not for profit organizations and will be distributed throughout the
remainder of the year. Year-to-date donations expense was $162,000 as of
September 30, 1997, compared to $35,000 for the same period of 1996.
Other operating expenses increased by $75,000 in 1997 due to amortization of a
core deposit intangible asset. The core deposit intangible asset resulted from
the Trust Company's acquisition of its Odessa branch office in October 1996, and
is being amortized over a five year period.
INTEREST RATE RISK
Interest rate sensitivity refers to the volatility of earnings caused by changes
in interest rates. Each month the Asset/Liability Management Committee estimates
the likely impact on earnings resulting from various changing interest rate
scenarios. The findings of the committee are incorporated into the investment
and funding decision of the Company.
The Trust Company's September 30, 1997, one-year cumulative rate sensitivity gap
was a negative 18.4% of total assets. This suggests earnings would benefit from
a declining interest rate environment, and would be vulnerable to a rising
interest rate environment. Management believes the current interest rate risk
exposure is not significant given the Company's current level of earnings and
capital.
FINANCIAL CONDITION
The Company's total assets were $624.1 million as of September 30, 1997,
representing a 6% increase over total assets reported as of December 31, 1996.
Growth was evenly distributed between loans, which grew by 5%, and securities
(net of SFAS 115 market value adjustments on available-for-sale securities)
which grew by approximately 7%. Asset growth was funded through a combination of
core deposit growth, large time deposit growth, and other borrowings.
CAPITAL
Total shareholders' equity grew by 5% during the first nine months of 1997 to
$55.2 million. Dividends through September 30, 1997 totaled approximately $3.0
million, or $.92 per share. Dividends paid in the first nine months of 1997
represent approximately 40% of year-to-date earnings. Total common shares
outstanding were reduced in May 1997, after the Company repurchased 80,000
shares at a price of $33.375 per share. The shares were returned to the status
of authorized but unissued, and the transaction resulted in a $2.7 million
reduction in total shareholders' equity.
The Company and the Trust Company are subject to various regulatory capital
requirements administered by Federal banking agencies. Management believes the
Company and the Trust Company meet all capital adequacy requirements to which
they are subject. The table below reflects the Company's capital position at
September 30, 1997, compared to the regulatory capital requirements for "well
capitalized" institutions.
11
REGULATORY CAPITAL ANALYSIS - September 30, 1997
======================================================================================================
ACTUAL WELL CAPITALIZED REQUIREMENT
(Dollar amounts in thousands) AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------------------------------------------------------------------
Total Capital (to risk weighted assets) 58,467 16.4% 35,644 10.0%
Tier I Capital (to risk weighted assets) 54,006 15.2% 21,387 6.0%
Tier I Capital (to average assets) 54,006 8.7% 30,935 5.0%
======================================================================================================
As illustrated above, the Company's capital ratios on September 30, 1997 remain
well above the minimum requirement for well capitalized institutions. Despite
the $2.6 million reduction in capital from the common stock repurchased in May
1997, capital ratios are generally improved form the levels reported as of
December 31, 1996. As of December 31, 1996, the Company's Total Capital as a
percentage of Risk Weighted assets was 16.1%; Tier I Capital to risk weighted
assets was 14.9%; and Tier I Capital to average assets was 8.9%.
RESERVE FOR LOAN AND LEASE LOSSES AND NONPERFORMING ASSETS
Management reviews the adequacy of the reserve for loan and lease losses in a
detailed and ongoing basis, giving consideration to various risk elements that
may affect losses in the loan portfolio. Based upon management's review, the
current reserve of $4.9 million is believed to be adequate to absorb inherent
losses in the loan and lease portfolios. Activity in the Company's reserve for
loan and lease losses during the first nine months of 1997 and 1996 is
illustrated in the table below.
ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In Thousands)
=======================================================================================================
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------------------------------
Average Loans and Leases Outstanding Year to Date 358,085 329,818
- -------------------------------------------------------------------------------------------------------
Beginning Balance 4,779 4,704
- -------------------------------------------------------------------------------------------------------
Provision for loan losses 830 712
Loans charged off (1,053) (989)
Loan recoveries 373 327
- -------------------------------------------------------------------------------------------------------
Net Charge-offs (680) (662)
=======================================================================================================
Ending Balance 4,929 4,754
=======================================================================================================
Annualized net charge-offs through the first nine months of 1997 amounted to
0.25% of average loans outstanding during the period. This ratio compares to
0.27% for the nine months ended September 30, 1996.
The level of nonperforming loans, as illustrated in the table below, reflects an
improvement from the prior year. Over 85% of nonperforming loans as of September
30, 1997 are secured by real estate, with 67% secured by 1-4 family residential
properties.
NONPERFORMING ASSETS (In thousands)
- -------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------------------------------------
Nonaccrual loans 1,763 1,429
Loans past due 90 days and accruing 55 866
Troubled debt restructuring not included above 0 0
- --------------------------------------------------------------------------------------------------------------
Total nonperforming loans 1,818 2,295
- --------------------------------------------------------------------------------------------------------------
Other real estate, net of allowances 137 201
==============================================================================================================
Total nonperforming assets 1,955 2,496
==============================================================================================================
Total nonperforming loans as a percent of total loans 0.49% 0.67%
Total nonperforming assets as a percentage of total assets 0.31% 0.43%
==============================================================================================================
12
DEPOSITS AND OTHER LIABILITIES
Total Deposits were $465.1 million on September 30, 1997, representing 9% growth
over total deposits on December 31, 1996. Core deposits, which include demand
deposits, savings and money market accounts, and time deposits of less than
$100,000 represent the primary funding source for the Company. As of September
30, 1997, core deposits of $359.7 million represented 63.2% of total
liabilities. This compares to core deposits of $357.3 million, representing
66.3% of total liabilities on December 31, 1996. The above core deposit
comparison excludes $27.3 million from the September 30, 1997 core deposit
total, which represents funds formerly held as large time deposits and
securities sold under agreements to repurchase, which have been temporarily
shifted to money market deposits. Due to the wholesale nature of these deposits,
management does not consider them to be core deposits.
The Company uses large time deposits, securities sold under repurchase
agreements, Federal funds purchased, and other borrowings as additional funding
sources. Time Deposits of $100,000 and over increased from $70.0 million on
December 31, 1996, to $78.0 million on September 30, 1997. As of September 30,
1997, total securities sold under repurchase agreements amounted to $76.1
million, compared to $86.2 million at December 31, 1996. There were no Federal
funds purchased on September 30, 1997, compared to $3.8 million on December 31,
1996. Other borrowings of $20.0 million represent a $5.0 million increase from
December 31, 1996.
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 increased from $25.3 million on December 31, 1996, to
$27.2 million on September 30, 1997. Short term investments consisting of
securities due in one year or less increased from $27.6 million on December 31,
1996, to $37.1 million on September 30, 1997. Total securities pledged to secure
certain large deposits and securities sold under repurchase agreements declined
as a percentage of total securities from 88.6% on December 31, 1996, to 77.8% on
September 30, 1997.
Additional liquidity is provided through the Trust Company's Federal Home Loan
Bank (FHLB) membership. As of September 30, 1997, the Trust Company had
approximately $57.6 million in unused borrowing capacity through established
lines of credit with the FHLB. The Trust Company has approximately $149.7
million in loans secured by first liens on residential properties that can be
used to secure additional borrowings from the FHLB.
13
TOMPKINS COUNTY TRUSTCO, INC.
Average Consolidated Balance Sheet and Net Interest Analysis
Three Months Ended Nine Months Ended Nine Months Ended
30-Sep-97 30-Sep-97 30-Sep-96
----------------------------------------------------------------------------------------
Average Average Average
Balance Average Balance Average Balance Average
(Dollar amounts in thousands) (QTD) Interest Yield/Rate (YTD) Interest Yield/Rate (YTD) Interest Yield/Rate
----------------------------------------------------------------------------------------
ASSETS
Interest-earning assets
Certificates of deposit with
other banks $ 0 $ 0 $ 0 $ 0 $ 919 $ 37 5.36%
Securities (1)
U.S. Government Securities 176,043 3,001 6.76% 172,515 8,782 6.81% 148,195 7,305 6.57%
State and municipal (2) 36,846 737 7.94% 37,870 2,277 8.04% 37,790 2,305 8.13%
Other Securities (2) 5,808 96 6.56% 3,980 224 7.52% 2,887 151 6.97%
-----------------------------------------------------------------------------------------
Total securities 218,697 3,834 6.96% 214,365 11,283 7.04% 188,872 9,761 6.88%
Federal Funds Sold 1,938 26 5.32% 4,997 198 5.30% 9,657 386 5.32%
Loans, net of unearned income (3)
Residential real estate 153,684 3,145 8.12% 148,552 9,056 8.15% 128,933 7,970 8.23%
Commercial Real Estate 58,204 1,352 9.22% 54,186 3,767 9.29% 39,558 2,783 9.37%
Commercial Loans (2) 82,024 1,993 9.64% 82,660 5,919 9.57% 87,003 6,205 9.50%
Consumer Loans 59,909 1,616 10.70% 60,631 4,837 10.67% 62,327 5,056 10.81%
Direct Lease Financing 12,481 253 8.04% 12,056 735 8.15% 11,997 731 8.12%
-----------------------------------------------------------------------------------------
Total loans, net of unearned
income 366,302 8,359 9.05% 358,085 24,314 9.08% 329,818 22,745 9.19%
-----------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 586,937 12,219 8.26% 577,447 35,795 8.29% 529,266 32,929 8.29%
-----------------------------------------------------------------------------------------
Noninterest-earning assets 33,961 32,920 30,361
-------- -------- --------
TOTAL ASSETS $620,898 $610,367 $559,627
======== ======== ========
----------------------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking $ 59,407 $ 275 1.84% $ 58,884 $ 813 1.85% $ 55,377 $ 768 1.85%
Savings and money market 147,228 1,205 3.25% 141,625 3,339 3.15% 141,735 3,384 3.18%
Time Dep greater than
$100,000 76,169 1,071 5.58% 80,729 3,323 5.50% 34,925 1,384 5.28%
Time Dep less than
$100,000 86,885 1,149 5.25% 86,719 3,391 5.23% 79,978 3,167 5.27%
-----------------------------------------------------------------------------------------
Total interest-bearing
deposits 369,689 3,700 3.97% 367,957 10,866 3.95% 312,015 8,703 3.72%
Federal funds purchased & securities
sold under agreements to repurchase 86,186 1,159 5.34% 84,922 3,349 5.27% 95,776 3,725 5.18%
Other borrowings 21,374 317 5.88% 16,665 744 5.97% 15,774 666 5.62%
-----------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 477,249 5,176 4.30% 469,544 14,959 4.26% 423,565 13,094 4.12%
Non-interest bearing deposits 81,755 79,607 73,486
Accrued expenses and other liabilities 8,514 8,090 7,053
-------- -------- --------
TOTAL LIABILITIES 567,518 557,241 504,104
SHAREHOLDERS' EQUITY 53,380 53,126 55,523
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $620,898 $610,367 $559,627
======== ======== ========
Interest rate spread 3.96% 4.03% 4.17%
Impact of noninterest-bearing
liabilities 0.80% 0.79% 0.82%
--------------- --------------- -----------------
Net interest income/margin on
earning assets $7,043 4.76% $20,836 4.82% $19,835 4.99%
================================================================================================================================
(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 41% to increase tax
exempt interest income to a taxable-equivalent basis.
(3) Nonaccrual loans are included in the average asset totals presented above.
Payments received on nonaccrual loans have been recognized as disclosed in
Note 5 to the condensed consolidated financial statements.
14
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: November 12, 1997
TOMPKINS COUNTY TRUSTCO, INC.
By: /s/ James J. Byrnes
-------------------
JAMES J. BYRNES
Chairman of the Board,
President and Chief Executive Officer
By: /s/ Richard D. Farr
-------------------
RICHARD D. FARR
Senior Vice President and
Chief Financial Officer
16
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGES
- -------------- ----------- -----
Exhibit 27 Financial Data Schedule
17