A MESSAGE FROM THE CHIEF EXECUTIVE OFFICER
Last year, I commented on the rapid pace of change in our industry. In 1998,
it was even faster. We saw combinations of banking, brokerage, and insurance
companies; large acquisitions by international banks; and the continued
disappearance of community banks through acquisitions. We were reminded again
about the importance of prudent financial management when many banks were
affected by crises in Russia, Latin America, and a large "hedge fund." We have
also seen continued expansion by large credit unions, which succeeded in
maintaining their exemption from income taxes, while competing with tax-paying
businesses.
Given this environment, we are pleased to report that the Trust Company
achieved record financial results by focusing on our long term strategy--built
upon the merits of community banking--and by continuing to adapt to meet
changing market requirements. A full discussion of the results can be found in
the "Management Discussion and Analysis" section; however, I would like to point
out some highlights.
o Diluted earnings per share rose by 13.5% over 1997 to $2.27. Net income of
$11.2 million was up 13.5% over 1997. The company's return on assets of
1.72% and return on average equity of 18.5% were again at very high levels
compared to the banking industry as a whole.
o The level of earnings and our strong capital position allowed another
increase in our dividends per share, by 11% over 1997, to $.91 per share
for the year.
o Our stock price, adjusted for the 3-for-2 split in March, rose by
approximately 20% during the year. Smaller companies have not enjoyed the
same market favor as some "large cap" firms in recent years. However, the
long-term steady growth of your company has produced superior returns over
many years. At the end of 1998, this was noted in an article entitled,
"Digging Under the Surface" in BUSINESS WEEK magazine.
o Assets grew by 7.4%, with loans and leases increasing 7.6%. A focus on
prompt answers and sound advice by our lending personnel affected this
growth. As one example, residential mortgage originations were up over 100%
from 1997. This reflected some increase in home purchases in Tompkins
County, but also the fact that many people chose to switch to the Trust
Company when refinancing their mortgages.
o Growth of our Trust and Investment Services division continued in 1998. A
second alliance was established, this with Hudson Valley Bank in
Westchester County. Under our alliances, the Trust Company provides the
services supporting the development of Trust and Investment business at our
partner banks.
o We continued the emphasis on utilizing technology to improve service and to
keep us "the most convenient bank in town." During the year, usage of our
ANYTIME ACCESS telephone banking service grew to over 23,000 per month, and
over 8,000 customers now use our ANYWHERE ACCESS Visa Check Card. This
convenient card serves as both an ATM card and a purchase card wherever
Visa is accepted. The bank's web site, www.tompkinstrust.com, was enhanced
to provide both general information and customer specific services. We
invite you to visit it.
o In August, Jim Hulbert, Vice President and Corporate Secretary, retired
from the bank after 38 years of service. Fortunately, he will continue in a
new role, as Inspector of Elections at this year's Annual Meeting. Frank
Rhodes, President Emeritus of Cornell University, retired from the board in
October. We thank him for 14 years of dedicated service to our community
and our shareholders as a director. We are pleased to welcome Peggy
Williams, President of Ithaca College, who was elected to the board
effective January 26, 1999.
Finally, I would like to thank our dedicated employees, who are primarily
responsible for these excellent results. In 1988, we had 227 full-time
equivalent ("FTE") people who produced $3.9 million of net income. In 1998, 218
FTE people produced $11.2 million. This is an excellent indication of the
dedication to professionalism, the attention to efficiency, and the effort by
our people. This has been done while maintaining unusually strong bonds with our
customers. Our people have the desire to make the bank better, and to serve our
customers and our communities well.
Thanks also to our shareholders, many of whom are also customers, for your
continued support. We hope many of you will be able to join us at our Annual
Meeting on Wednesday, April 28, 1999, at 7:30 p.m. at the Clarion University
Hotel and Conference Center in Ithaca, New York.
1
HIGHLIGHTS
(IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997 % CHANGE
- -----------------------------------------------------------------------------
Operating Income $58,876 $55,530 6.0%
Net Income 11,189 9,856 13.5%
Basic Earnings Per Share $2.31 $2.02 14.4%
Diluted Earnings Per Share $2.27 $2.00 13.5%
Cash Dividends Paid Per Share $0.91 $0.82 11.0%
MARKET PRICE & DIVIDEND INFORMATION
MARKET PRICE CASH
HIGH LOW DIVIDENDS PAID
- -----------------------------------------------------------------------------
See Notes 1, 2, and 3 below:
1997 1st Quarter $23.17 $21.09 $.20
2nd Quarter 23.83 21.42 .20
3rd Quarter 25.37 23.25 .21
4th Quarter 28.83 25.42 .21
1998 1st Quarter $34.00 $28.50 $.21
2nd Quarter 38.75 33.38 .22
3rd Quarter 40.75 32.00 .23
4th Quarter 34.75 30.75 .25
Note 1 - The range of reported high and low transaction prices reflects
inter-dealer prices without retail markup, markdown or commission, and represent
actual transactions as quoted on the Nasdaq National Market or the American
Stock Exchange. The Company's stock was traded on the Nasdaq National Market
during January 1997. Effective February 3, 1997, the Company's stock began
trading on the American Stock Exchange.
Note 2 - On March 15, 1998, a 3-for-2 stock split was paid in the form of a
stock dividend to shareholders of record on March 1, 1998. Per share price and
dividend information has been adjusted for the stock split.
Note 3 - Dividends were paid on the 15th day of March, June, September, and
December of each year.
SELECTED FINANCIAL DATA (DOLLAR AMOUNTS IN
THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31: 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
Assets $673,042 $626,907 $591,344 $536,992 $511,162
Deposits 492,792 476,700 427,367 370,631 345,776
Other borrowings 45,005 27,005 15,005 12,000 12,000
Shareholders' equity 64,023 57,243 52,613 55,090 47,817
Interest income 48,791 46,812 43,287 40,204 35,676
Interest expense 20,560 20,182 17,916 16,526 12,911
Net interest income 28,231 26,630 25,371 23,678 22,765
Provision for loan/lease losses 1,006 1,068 1,210 751 768
Net securities gains (losses) (72) (85) -0- -0- 121
Net income 11,189 9,856 9,179 8,718 8,137
Basic earnings per share 2.31 2.02 1.76 1.64 1.53
Diluted earnings per share 2.27 2.00 1.75 1.63 1.51
Cash dividends per share 0.91 0.82 0.73 0.66 0.61
Return on average assets 1.72% 1.61% 1.62% 1.67% 1.62%
Return on average
Shareholders' equity 18.51% 18.41% 16.82% 17.02% 17.20%
Shareholders' equity to
average assets 9.8% 9.3% 9.2% 10.2% 9.5%
Dividend payout ratio 39.6% 40.7% 41.5% 40.2% 39.7%
(ACTUAL NUMERICAL COUNT)
- ------------------------------------------------------------------------------------------------
Employees (Average
Full-Time Equivalent) 218 223 221 219 219
Shareholders of Record 1,055 998 1,044 1,034 1,096
Full Service Banking Offices 11 11 11 10 10
Bank Access Centers (ATMs) 21 21 20 20 19
7
CONSOLIDATED STATEMENTS OF CONDITION
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31 1998 1997
- ------------------------------------------------------------------------------------------
ASSETS
Cash and noninterest bearing balances due from banks $ 17,170 $ 22,089
Federal funds sold 9,600 3,000
Available-for-sale securities, at fair value 182,740 176,660
Held-to-maturity securities, fair value of
$35,011 in 1998 and $37,882 in 1997 34,088 36,911
Loans and leases, net of unearned income 405,357 377,184
Less reserve for loan/lease losses 5,028 4,979
- ------------------------------------------------------------------------------------------
NET LOANS 400,329 372,205
Bank premises and equipment, net 7,411 6,832
Accrued interest and other assets 21,704 9,210
- ------------------------------------------------------------------------------------------
TOTAL ASSETS $ 673,042 $ 626,907
- ------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings and money market $ 203,741 $ 203,549
Time 194,495 185,436
Non-interest bearing 89,556 87,715
- ------------------------------------------------------------------------------------------
TOTAL DEPOSITS 492,792 476,700
Securities sold under agreements to repurchase 60,007 57,998
Other borrowings 45,005 27,005
Other liabilities 11,215 7,961
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 609,019 $ 569,664
- ------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Shareholders' equity:
Common stock - par value $0.10 per share:
Authorized 7,500,000 shares; issued and outstanding,
4,893,141 shares in 1998 and 4,888,210 shares in 1997 $ 489 $ 326
Surplus 29,817 30,037
Undivided profits 33,364 26,769
Accumulated other comprehensive income 1,077 1,074
Treasury stock at cost, 28,889 shares in
1998, 30,069 shares in 1997 (548) (571)
Deferred I.S.O.P. benefit expense,
8,789 shares in 1998, 19,595 shares in 1997 (176) (392)
- ------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 64,023 $ 57,243
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 673,042 $ 626,907
- ------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31 1998 1997 1996
- -----------------------------------------------------------------------------------------
INTEREST INCOME
Loans $ 34,228 $ 32,686 $ 30,591
Deposits with other banks -0- -0- 48
Federal funds sold 195 263 468
Available-for-sale securities 12,523 11,919 10,206
Held-to-maturity securities 1,845 1,944 1,974
- ----------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 48,791 46,812 43,287
- ----------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposit of $100,000 or more 5,271 4,629 2,363
Other deposits 10,300 10,240 9,776
Federal funds purchased and securities
sold under agreements to repurchase 2,973 4,233 4,831
Other borrowings 2,016 1,080 946
- ----------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 20,560 20,182 17,916
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME 28,231 26,630 25,371
LESS PROVISION FOR LOAN/LEASE LOSSES 1,006 1,068 1,210
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN/LEASE LOSSES 27,225 25,562 24,161
- ----------------------------------------------------------------------------------------
OTHER INCOME
Trust and investment services income 3,811 3,159 2,660
Service charges on deposit accounts 1,641 1,755 1,713
Credit card merchant income 2,351 2,206 1,892
Other service charges 1,842 1,356 1,318
Other operating income 512 327 218
Loss on available-for-sale securities (72) (85) -0-
- ----------------------------------------------------------------------------------------
TOTAL OTHER INCOME 10,085 8,718 7,801
- ----------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and wages 8,578 8,107 7,510
Pension and other employee benefits 1,832 1,906 1,759
Net occupancy expense of bank premises 1,325 1,314 1,337
Net furniture and fixture expense 1,073 1,114 1,134
Credit card operating expense 2,146 2,024 1,751
Other operating expenses 5,317 4,692 4,150
- ----------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 20,271 19,157 17,641
- ----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 17,039 15,123 14,321
INCOME TAXES 5,850 5,267 5,142
- ----------------------------------------------------------------------------------------
NET INCOME $ 11,189 $ 9,856 $ 9,179
- ----------------------------------------------------------------------------------------
Basic Earnings Per Share $ 2.31 $ 2.02 $ 1.76
Diluted Earnings Per Share $ 2.27 $ 2.00 $ 1.75
- ----------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
9
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 11,189 $ 9,856 $ 9,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 1,006 1,068 1,210
Depreciation and amortization 1,059 1,074 1,029
Net amortization (accretion) on securities 287 201 (134)
Deferred income tax benefit (417) (469) (94)
Net loss on sale of securities 72 85 -0-
Net gain on sales of loans (96) (9) (6)
Net gain on sales of bank premises and equipment (11) (45) (8)
I.S.O.P. shares released for allocation 376 347 320
Increase in other assets (1,614) (1,499) (373)
Increase in other liabilities 3,669 1,332 710
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,520 11,942 11,833
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 72,806 50,520 60,750
Proceeds from sales of available-for-sale securities 20,981 10,683 -0-
Proceeds from maturities of held-to-maturity securities 9,817 10,522 6,883
Purchases of available-for-sale securities (100,143) (68,412) (82,953)
Purchases of held-to-maturity securities (7,071) (9,775) (6,123)
Proceeds from sales of loans 6,877 3,306 1,048
Net increase in loans/leases (35,912) (30,940) (30,163)
Proceeds from sales of bank premises and equipment 25 64 18
Purchases of bank premises and equipment (1,552) (898) (790)
Purchase of corporate owned life insurance (10,980) -0- -0-
Deposit premium on acquired branch -0- -0- (500)
Loans of acquired branch -0- -0- (1,133)
- ------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (45,152) (34,930) (52,963)
- ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
money market accounts, and savings accounts 7,033 19,730 (13,093)
Net increase in time deposits 9,059 29,603 60,196
Demand deposits, money market accounts, and
savings accounts of acquired branch -0- -0- 5,680
Time deposits of acquired branch -0- -0- 3,952
Net increase (decrease) in securities sold
under agreements to repurchase 2,009 (31,994) (2,910)
Net increase in other borrowings 18,000 12,000 3,000
Cash dividends (4,431) (4,012) (3,813)
Sale of treasury stock 40 41 21
Purchase of treasury stock -0- -0- (627)
Repurchase of common shares (584) (2,670) (6,720)
Net proceeds from exercise of stock options,
and related tax benefit 187 60 6
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 31,313 22,758 45,692
- ------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,681 (230) 4,562
Cash and cash equivalents at beginning of year 25,089 25,319 20,757
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 26,770 $ 25,089 $ 25,319
- ------------------------------------------------------------------------------------------------------
Supplemental information:
Cash paid during the year for:
Interest $ 20,947 $ 20,148 $ 17,898
Income taxes 3,892 5,473 5,302
- ------------------------------------------------------------------------------------------------------
Non-cash investing activities:
Change in net unrealized holding gain (loss) on
available-for-sale securities $ 6 $ 1,738 $ (1,455)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
10
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) ACCUMULATED DEFERRED
OTHER I.S.O.P.
COMMON TREASURY UNDIVIDED COMPREHENSIVE BENEFIT
STOCK STOCK SURPLUS PROFITS INCOME EXPENSE TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT JANUARY 1, 1996 $ 358 $ -0- $ 39,190 $ 15,559 $ 909 $ (926) $ 55,090
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.73 per share) (3,813) (3,813)
Exercise of stock options (453 shares) 6 6
Treasury stock purchased (33,000 shares) (627) (627)
Treasury stock sold (1,195 shares) 23 (2) 21
Common stock repurchased and
returned to authorized and unissued
status (366,556 shares) (24) (6,696) (6,720)
I.S.O.P. shares released or committed to
be released for allocation (14,460 shares) 31 289 320
Comprehensive Income:
Change in net unrealized gain (loss) on
available-for-sale securities, net of taxes (843) (843)
Net Income 9,179 9,179
- -------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income 8,336
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 $ 334 $ (604) $ 32,529 $ 20,925 $ 66 $ (637) $ 52,613
- -------------------------------------------------------------------------------------------------------------------------------
Cash Dividends ($.82 per share) (4,012) (4,012)
Exercise of stock options (3,620 shares) 60 60
Treasury stock sold (1,735 shares) 33 8 41
Common stock repurchased and
returned to authorized and unissued
status (120,000 shares) (8) (2,662) (2,670)
I.S.O.P. shares released or committed to
be released for allocation (12,247 shares) 102 245 347
Comprehensive Income:
Change in net unrealized gain (loss) on
available-for-sale securities, net of taxes 1,008 1,008
Net Income 9,856 9,856
- -------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income 10,864
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 $ 326 $ (571) $ 30,037 $ 26,769 $ 1,074 $ (392) $ 57,243
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.91 per share) (4,431) (4,431)
Exercise of stock options, and related
tax benefit (22,396 shares, net ) 2 185 187
Treasury stock sold (1,180 shares) 23 17 40
Common stock repurchased and
returned to authorized and unissued
status (17,245 shares) (2) (582) (584)
I.S.O.P. shares released or committed to
be released for allocation (10,806 shares) 160 216 376
Effect of 3-for-2 stock split in the form
of a stock dividend 163 (163) -0-
Comprehensive Income:
Change in net unrealized gain (loss) on
available-for-sale securities, net of taxes 3 3
Net Income 11,189 11,189
- -------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income 11,192
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1998 $ 489 $ (548) $ 29,817 $ 33,364 $ 1,077 $ (176) $ 64,023
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: Tompkins County Trustco, Inc. ("the Company") is a registered bank
holding company, organized under the laws of New York State, and is the parent
company of Tompkins County Trust Company (the "Trust Company"). The Trust
Company provides loan, deposit, and trust services to its customers primarily in
Tompkins County, New York, and surrounding areas.
In February 1998, the Trust Company formed a subsidiary corporation, Tompkins
Real Estate Holdings, Inc., which was formed to qualify as a real estate
investment trust. Tompkins Real Estate Holdings, Inc. became an active
subsidiary of the Trust Company on June 1, 1998.
On March 15, 1998, a 3-for-2 stock split was paid in the form of a stock
dividend to shareholders of record on March 1, 1998. All per share price and
dividend information in the consolidated financial statements and notes thereto,
have been adjusted for the split.
The consolidated financial information included herein combines the results
of operations, the assets, liabilities, and shareholders' equity of the Company,
the Trust Company, and Tompkins Real Estate Holdings, Inc. for all periods
presented. All significant intercompany balances and transactions are eliminated
in consolidation. A description of significant accounting policies is presented
below.
BASIS OF PRESENTATION: The consolidated 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 affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS: Cash equivalents in the consolidated statements of cash
flows include cash and due from banks and Federal funds sold
SECURITIES: Management determines the appropriate classification of debt and
equity securities at the time of purchase. 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 accumulated
comprehensive income, in shareholders' equity.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to yield using the interest method. Dividend and
interest income are recognized when earned. Realized gains and losses on the
sale of securities are included in securities gains (losses). The cost of
securities sold is based on the specific identification method.
A decline in the fair value of any available-for-sale or held-to-maturity
security below cost that is deemed to be other than temporary is charged to
earnings, resulting in the establishment of a new cost basis for the security.
LOANS AND LEASES: Loans are reported at their principal outstanding balance
net of deferred loan origination fees and costs, and unearned income. The
Company has the ability and intent to hold its loans to maturity except for
education loans which are sold to a third party from time to time upon reaching
repayment status. The Company provides motor vehicle and equipment financing to
its customers through direct financing leases. These leases are carried at the
aggregate of 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.
RESERVE FOR LOAN/LEASE LOSSES: The reserve for loan/lease losses is
periodically evaluated by management in order to maintain the reserve at a level
sufficient to absorb probable future credit losses. Management's evaluation of
the adequacy of the reserve is based upon a review of the Company's historical
loss experience, known and inherent risks in the loan and lease portfolios, the
estimated value of collateral, and trends in delinquencies. External factors
such as the level and trend of interest rates and the national and local
economies are also considered.
Management considers a loan to be impaired if, based on current information,
it is probable that the Company will be unable to collect all scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of collateral if the
loan is collateral dependent. Management excludes large groups of
12
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
smaller balance homogeneous loans such as residential mortgages and consumer
loans which are collectively evaluated. Impairment losses are included in the
reserve for loan/lease losses through a charge to the provision for loan/lease
losses.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS: 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 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.
OTHER REAL ESTATE OWNED: Other real estate owned consists of properties
formerly pledged as collateral to loans, which have been acquired by the Company
through foreclosure proceedings or acceptance of a deed in lieu of foreclosure.
Other real estate owned is carried at the lower of the recorded investment in
the loan or the fair value of the real estate, less estimated costs to sell.
Upon transfer of a loan to foreclosure status, an appraisal is obtained and any
excess of the loan balance over the fair value, less estimated costs to sell, is
charged against the reserve for loan/lease losses. Expenses and subsequent
adjustments to the fair value are treated as other operating expense.
BANK PREMISES AND EQUIPMENT: Land is carried at cost. Bank premises and
equipment are stated at cost, less allowances for depreciation. The provision
for depreciation for financial reporting purposes is computed generally by the
straight-line method at rates sufficient to write-off the cost of such assets
over their estimated useful lives. Bank premises are amortized over a period of
10-39 years, and furniture, fixtures, and equipment are amortized over a period
of 2-20 years. Maintenance and repairs are charged to expense as incurred.
INCOME TAXES: Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
PENSION AND OTHER POSTRETIREMENT PLANS: On January 1, 1998, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 132,
"Employers' Disclosures about Pension and Other Postretirement Benefits." SFAS
No. 132 revises employers' disclosures about pension and other postretirement
benefits. SFAS No. 132 does not change the method of accounting for such plans.
RETIREMENT PLANS: The Company's funding policy is to contribute the maximum
amount annually that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date, but for those expected to be earned in the future.
OTHER POSTRETIREMENT BENEFITS: The estimated costs of providing medical and
life insurance benefits are accrued over the years the employees render services
necessary to earn those benefits. The Company is amortizing the discounted
present value of the accumulated postretirement benefit obligation at January 1,
1993, over a 20-year transition period.
DEPOSIT BASE INTANGIBLE: Deposit base intangible asset, resulting from a
branch acquisition in 1996, is being amortized over the expected useful life of
five years on a straight line basis. The amortization period is monitored to
determine if circumstances require such period to be reduced. The Company
periodically reviews its deposit base intangible asset for changes in
circumstances that may indicate the carrying amount of the asset is impaired.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: Effective January 1, 1998,
the Company adopted the remaining provisions of SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which relates to the accounting for securities lending, securities under
agreements to repurchase, and other secured financing activities based on a
financial components approach that focuses on control.
The Company enters into sales of U.S. Treasury and agency securities under
agreements to repurchase (repurchase agreements). These repurchase agreements
are treated as financings, and the obligations to repurchase securities sold are
reflected as liabilities in the consolidated statements of financial condition.
The amount of the securities underlying the agreements remains in the asset
account. The Company has agreed to repurchase securities identical to those
sold.
13
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
TREASURY STOCK: The cost of treasury stock is shown on the consolidated
statements of condition as a separate component of shareholders' equity, and is
a reduction to total shareholders' equity. Shares are released from treasury at
fair value, with any gain or loss on the sale reflected as an adjustment to
surplus. All shares currently carried in treasury are the result of a single
purchase; therefore, the cost basis for shares released is equal to the actual
cost.
FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK: The Company does not
engage in the use of derivative financial instruments, and the Company's only
financial instruments with off balance sheet risk are loan commitments, standby
letters of credit, and commercial lines of credit.
TRUST AND INVESTMENT SERVICES DIVISION: Assets held in fiduciary or agency
capacities for customers are not included in the accompanying consolidated
statements of condition, since such items are not assets of the Company. Fees
associated with providing trust management services are recorded on a cash basis
of income recognition and are included in Other Income.
EARNINGS PER SHARE: Basic earnings per share is calculated by dividing net
income available to common shareholders by the weighted average number of shares
outstanding during the year. Diluted earnings per share is calculated by
dividing net income available to common shareholders by weighted average number
of shares outstanding during the year plus the maximum dilutive effect of stock
issuable upon conversion of stock options.
SEGMENT REPORTING: During 1998, the Company adopted SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." This
statement requires the Company to report financial and other information about
key revenue-producing segments of the Company for which such information is
available and is utilized by the chief operation decision maker. Specific
information to be reported for individual segments include profit and loss,
certain revenue and expense items, and total assets. A reconciliation of segment
financial information to amounts reported in the financial statements is also
provided. This standard did not result in significant changes in the Company's
reporting.
The Company's operations are solely in the financial services industry and
include the provisions of traditional commercial banking services. The Company
operates primarily in the geographical regions of Tompkins County and
surrounding areas in New York State. The Company has identified separate
operating segments, however, these segments did not meet the quantitative
thresholds for separate disclosure.
COMPREHENSIVE INCOME: On January 1, 1998, the Company adopted the provisions
of SFAS No. 130, "Reporting Comprehensive Income." This Statement establishes
standards for the reporting and display of comprehensive income and its
components. For the Company, comprehensive income represents net income plus the
net change in unrealized gains or losses on securities available-for-sale for
the period and is presented in the consolidated statements of changes in
shareholders' equity and comprehensive income. Accumulated other comprehensive
income represents the net unrealized gains or losses on securities
available-for-sale as of the balance sheet dates. SFAS No. 130 requires only
additional disclosures in the consolidated financial statements; it does not
affect the Company's financial position or results of operations. Prior year
consolidated financial statements have been reclassified to conform to the
requirements of SFAS No. 130. Comprehensive income for the three years ended
December 31, 1998, is summarized in the table below:
(AMOUNTS IN THOUSANDS)
DECEMBER 31 1998 1997 1996
- --------------------------------------------------------------------------
NET INCOME $ 11,189 $ 9,856 $ 9,179
- --------------------------------------------------------------------------
NET UNREALIZED HOLDING
GAIN (LOSS) ON AVAILABLE-
FOR-SALE SECURITIES, BEFORE
TAX (EXPENSE) BENEFIT OF
(33), (766), AND 612 78 1,823 (1,455)
RECLASSIFICATION ADJUSTMENT
FOR NET REALIZED LOSS ON SALE OF
AVAILABLE-FOR-SALE SECURITIES,
BEFORE TAX BENEFIT OF 30,
36, AND 0 (72) (85) -0-
- --------------------------------------------------------------------------
UNREALIZED HOLDING GAIN (LOSS)
ARISING DURING THE PERIOD 6 1,738 (1,455)
DEFERRED TAXES ON UNREALIZED
HOLDING GAIN (LOSS) (3) (730) 612
- --------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME,
(LOSS), NET OF TAX 3 1,008 (843)
- --------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 11,192 $ 10,864 $ 8,336
- --------------------------------------------------------------------------
RECLASSIFICATION: Certain reclassifications have been made to prior period
amounts to conform to current year presentation.
14
NOTE 2 SECURITIES The following summarizes securities:
AVAILABLE-FOR-SALE SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES AND OBLIGATIONS OF
U.S. GOVERNMENT AGENCIES $ 121,977 $ 1,512 $ 20 $ 123,469
MORTGAGE-BACKED SECURITIES 54,397 282 90 54,589
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DEBT SECURITIES 176,374 1,794 110 178,058
- ---------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES 4,509 173 -0- 4,682
- ---------------------------------------------------------------------------------------------------------------------------
$ 180,883 $ 1,967 $ 110 $ 182,740
- ---------------------------------------------------------------------------------------------------------------------------
Available-for-sale securities includes $3,452,000 in equity securities, which
are carried at amortized cost since fair values are not readily determinable.
This figure includes $2,416,000 of Federal Home Loan Bank Stock.
HELD-TO-MATURITY SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS $ 34,088 $ 923 $ -0- $ 35,011
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DEBT SECURITIES $ 34,088 $ 923 $ -0- $ 35,011
- ---------------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1997 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES AND OBLIGATIONS OF
U.S. GOVERNMENT AGENCIES $ 135,152 $ 1,200 $ 222 $ 136,130
MORTGAGE-BACKED SECURITIES 30,674 492 47 31,119
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DEBT SECURITIES 165,826 1,692 269 167,249
EQUITY SECURITIES 8,983 428 -0- 9,411
- ---------------------------------------------------------------------------------------------------------------------------
$ 174,809 $ 2,120 $ 269 $ 176,660
- ---------------------------------------------------------------------------------------------------------------------------
Available-for-sale securities includes $3,050,400 in equity securities, which
are carried at amortized cost since fair values are not readily determinable.
This figure includes $2,014,100 of Federal Home Loan Bank Stock.
HELD-TO-MATURITY SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1997 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS $ 36,911 $ 972 $ 1 $ 37,882
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DEBT SECURITIES $ 36,911 $ 972 $ 1 $ 37,882
- ---------------------------------------------------------------------------------------------------------------------------
The amortized cost and estimated fair value of debt securities by contractual
maturity are shown in the following table. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
AMORTIZED FAIR
DECEMBER 31, 1998 (IN THOUSANDS) COST VALUE
- -------------------------------------------------------------------------------------------------------- -------------------
AVAILABLE-FOR-SALE SECURITIES:
DUE IN ONE YEAR OR LESS $ 11,018 $ 11,134
DUE AFTER ONE YEAR THROUGH FIVE YEARS 14,983 15,313
DUE AFTER FIVE YEARS THROUGH TEN YEARS 93,976 95,029
DUE AFTER TEN YEARS 2,000 1,993
- ----------------------------------------------------------------------------------------------------------------------------
121,977 123,469
- ----------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 54,397 54,589
- ----------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES 4,509 4,682
- ----------------------------------------------------------------------------------------------------------------------------
$ 180,883 $ 182,740
- ----------------------------------------------------------------------------------------------------------------------------
15
NOTE 2 SECURITIES - CONTINUED
- ---------------------------------------------------------------------------
AMORTIZED FAIR
DECEMBER 31, 1998 (IN THOUSANDS) COST VALUE
- ---------------------------------------------------------------------------
HELD-TO-MATURITY SECURITIES:
DUE IN ONE YEAR OR LESS $ 10,446 $ 10,501
DUE AFTER ONE YEAR THROUGH FIVE YEARS 18,995 19,675
DUE AFTER FIVE YEARS THROUGH TEN YEARS 3,604 3,752
DUE AFTER TEN YEARS 1,043 1,083
- ---------------------------------------------------------------------------
$ 34,088 $ 35,011
- ---------------------------------------------------------------------------
Gains from the sales of available-for-sale securities were $24,000 in 1998;
losses from the sales of available-for-sale securities were $96,000 in 1998 and
$85,000 in 1997. There were no gains or losses from the sale of securities in
1996.
At December 31, 1998, securities with a carrying value of $121,127,000 were
pledged to secure public deposits and for other purposes as required or
permitted by law.
NOTE 3 LOAN/LEASE CLASSIFICATION SUMMARY AND RELATED PARTY TRANSACTIONS
LOANS/LEASES AT DECEMBER 31 WERE AS FOLLOWS (IN THOUSANDS): 1998 1997
- ----------------------------------------------------------------------------------------------
RESIDENTIAL REAL ESTATE $178,529 $159,297
COMMERCIAL REAL ESTATE 70,822 61,342
REAL ESTATE CONSTRUCTION 3,516 5,267
COMMERCIAL 80,176 78,612
CONSUMER AND OTHER 58,677 60,090
LEASES 15,691 14,313
- ----------------------------------------------------------------------------------------------
TOTAL LOANS AND LEASES 407,411 378,921
LESS UNEARNED INCOME (2,054) (1,737)
- ----------------------------------------------------------------------------------------------
TOTAL LOANS AND LEASES, NET OF UNEARNED INCOME $405,357 $377,184
- ----------------------------------------------------------------------------------------------
Directors and officers of the Company and their affiliated companies were
customers of, and had other transactions with, the Company in the ordinary
course of business. Such loans and commitments were made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and did not involve more
than normal risk of collectibility or present other unfavorable features.
Loan transactions with related parties are summarized as follows:
(IN THOUSANDS) 1998 1997
- --------------------------------------------------------------
BALANCE JANUARY 1 $3,997 $ 2,603
NEW LOANS AND ADVANCES 865 2,691
LOAN PAYMENTS (1,241) (1,297)
- --------------------------------------------------------------
BALANCE DECEMBER 31 $ 3,621 $ 3,997
- --------------------------------------------------------------
During 1998, the Company sold $6,877,000 of education loans to the Student
Loan Mortgage Association and recognized a gain of $96,000, which is included in
other operating income in the consolidated statements of income. During 1997,
the Company sold $3,306,000 of education loans to the Student Loan Marketing
Association. The net gain on sale of loans in 1997 was $9,000.
The Company did not sell any mortgage loans during 1998 or 1997. At December
31, 1998, the Company serviced mortgage loans for others aggregating
$21,499,000, compared to $28,177,000 at December 31, 1997.
The Company's market area encompasses primarily Tompkins County, New York,
and surrounding areas. Substantially all of the Company's outstanding loans are
with borrowers living or doing business within 25 miles of the branches in its
market area. Other than general economic risks, management is not aware of any
material concentrations of credit risk to any industry or individual borrower.
16
NOTE 4 RESERVE FOR LOAN/LEASE LOSSES
CHANGES IN THE RESERVE FOR LOAN/LEASE LOSSES ARE AS FOLLOWS (IN THOUSANDS): 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
RESERVE AT BEGINNING OF YEAR $ 4,979 $ 4,779 $ 4,704
PROVISIONS CHARGED TO OPERATIONS 1,006 1,068 1,210
RECOVERIES ON LOANS/LEASES 401 487 415
LOANS/LEASES CHARGED-OFF (1,358) (1,355) (1,550)
- --------------------------------------------------------------------------------------------------------------
RESERVE AT END OF YEAR $ 5,028 $ 4,979 $ 4,779
- --------------------------------------------------------------------------------------------------------------
The Company's recorded investment in loans/leases that are considered
impaired totaled $422,000 at December 31, 1998, and $1.4 million at December 31,
1997. The average recorded investment in impaired loans/leases was $1,150,000 in
1998 and $962,000 in 1997, and $1.3 million in 1996. The December 31, 1998
recorded investment in impaired loans/leases includes $132,000 of loans/leases
which had related reserves of $46,000. The December 31, 1997 recorded investment
in impaired loans/leases includes $806,000 of loans/leases which had related
reserves of $329,000. The December 31, 1996 recorded investment in impaired
loans/leases includes $582,000 of loans/leases which had related reserves of
$94,000. The effect on interest income for impaired loans/leases was not
material to the accompanying financial statements for 1998, 1997, or 1996.
The principal balance of loans/leases not accruing interest, including
impaired loans/leases, amounted to approximately $1,143,000, and $2,698,000 at
December 31, 1998 and 1997, respectively. The difference between the interest
income that would have been recorded if non-accrual loans/leases had been paid
in accordance with their original terms and the interest income recorded in the
three year period ended December 31, 1998 was immaterial.
NOTE 5 BANK PREMISES AND EQUIPMENT
BANK PREMISES AND EQUIPMENT AT DECEMBER 31 WERE AS FOLLOWS (IN THOUSANDS): 1998 1997
- --------------------------------------------------------------------------------------------------------------
LAND $ 893 $ 683
BANK PREMISES 7,232 6,536
FURNITURE, FIXTURES, AND EQUIPMENT 10,143 9,713
ACCUMULATED DEPRECIATION AND AMORTIZATION (10,857) (10,100)
- --------------------------------------------------------------------------------------------------------------
$ 7,411 $ 6,832
- --------------------------------------------------------------------------------------------------------------
Depreciation and amortization expense in 1998, 1997, and 1996 are included in
operating expenses as follows:
(IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
BANK PREMISES $ 307 $ 296 $ 312
FURNITURE, FIXTURES, AND EQUIPMENT 652 675 717
- --------------------------------------------------------------------------------------------------------------
$ 959 $ 971 $ 1,029
- --------------------------------------------------------------------------------------------------------------
NOTE 6 DEPOSITS
The aggregate time deposits of $100,000 or more was $107,327,000 at December
31, 1998, and $97,128,000 at December 31, 1997. As of December 31, 1998, the
Company had time deposits with scheduled maturities as follows:
LESS THAN $100,000
(IN THOUSANDS) $100,000 AND OVER TOTAL
- --------------------------------------------------------------------------------------------------------------
MATURITY:
THREE MONTHS OR LESS $22,483 $ 79,368 $101,851
OVER THREE THROUGH SIX MONTHS 19,626 15,768 35,394
OVER SIX THROUGH TWELVE MONTHS 25,207 7,925 33,132
- --------------------------------------------------------------------------------------------------------------
TOTAL DUE IN 1999 67,316 103,061 170,377
2000 13,776 3,649 17,425
2001 1,673 417 2,090
2002 2,929 200 3,129
2003 AND THEREAFTER 1,474 -0- 1,474
- --------------------------------------------------------------------------------------------------------------
$87,168 $107,327 $194,495
- --------------------------------------------------------------------------------------------------------------
17
NOTE 7 FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO
REPURCHASE
Information regarding securities sold under agreements to repurchase as of
December 31, 1998, is summarized below:
(DOLLAR AMOUNTS IN THOUSANDS) ASSETS SOLD REPURCHASE LIABILITY
- -------------------------------------------------------------------------------
CARRYING FAIR INTEREST
AMOUNT VALUE AMOUNT RATE
- -------------------------------------------------------------------------------
MATURITY/TYPE OF ASSET
2 TO 30 DAYS:
U.S. GOVERNMENT AGENCY SECURITIES $ 3,609 $ 3,664 $ 3,609 4.90%
MORTGAGE-BACKED SECURITIES 413 416 408 4.93%
OVER 90 DAYS:
U.S. TREASURY SECURITIES 2,020 2,046 2,019 5.00%
MORTGAGE-BACKED SECURITIES 684 682 663 5.09%
DEMAND:
U.S. TREASURY SECURITIES 7,906 8,095 7,893 5.33%
U.S. GOVERNMENT AGENCY SECURITIES 11,020 11,203 11,035 4.91%
MORTGAGE-BACKED SECURITIES 35,003 35,132 34,380 4.56%
- -------------------------------------------------------------------------------
$60,655 $61,238 $60,007 5.38%
- -------------------------------------------------------------------------------
At December 31, 1998, substantially all of the above securities were held by
the Bank of New York or the Federal Reserve Bank of New York.
Additional information regarding securities sold under agreements to
repurchase and Federal funds purchased for the years ended December 31, is
detailed in the table below:
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------
TOTAL OUTSTANDING AT DECEMBER 31 $60,007 $57,998
MAXIMUM MONTH-END BALANCE 64,099 93,177
AVERAGE BALANCE DURING THE YEAR 54,984 79,075
AVERAGE INTEREST RATE PAID DURING YEAR 5.10% 5.28%
- ------------------------------------------------------------------------------------------------------
FEDERAL FUNDS PURCHASED (DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------
TOTAL OUTSTANDING AT DECEMBER 31 $ -0- $ -0-
MAXIMUM MONTH-END BALANCE 13,500 13,500
AVERAGE BALANCE DURING THE YEAR 2,904 1,039
AVERAGE INTEREST RATE PAID DURING YEAR 5.74% 5.94%
- ------------------------------------------------------------------------------------------------------
NOTE 8 OTHER BORROWINGS
The Company has available line-of-credit agreements with banks permitting
borrowings to a maximum of approximately $8,500,000. No advances were
outstanding against those lines on December 31, 1998 or 1997. As a member of the
Federal Home Loan Bank ("FHLB"), the Bank may apply for advances secured by
certain residential mortgage loans and other assets, provided that certain
standards for credit worthiness have been met. At December 31, 1998, the Bank
had $62,194,000 in established unused lines of credit with the FHLB. At December
31, 1998, the Bank had $45,000,000 in term advances from the FHLB, compared to
$27,000,000 at December 31, 1997. FHLB term advances due in one year or less as
of December 31, 1998 and 1997 are detailed in the table below.
FEDERAL HOME LOAN BANK ADVANCES: (DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------
DUE IN ONE YEAR OR LESS:
TOTAL OUTSTANDING AT DECEMBER 31 $ -0- $ 27,000
MAXIMUM MONTH-END BALANCE 26,000 29,000
AVERAGE BALANCE DURING THE YEAR 16,723 15,219
AVERAGE INTEREST RATE PAID DURING YEAR 5.77% 5.96%
- ------------------------------------------------------------------------------------------
At December 31, 1998, the Bank had $45,000,000 in advances due in more than
one year, with interest rates that ranged from 4.59% to 5.25%. Maturities of
advances included $23,000,000 maturing in 2003, $18,000,000 in 2005, and
$4,000,000 in 2007. All borrowings outstanding with the FHLB at December 31,
1998, were fixed rate callable borrowings. The call features of the borrowings
allow the FHLB to call the debt on the first anniversary of the borrowing, and
quarterly thereafter.
Other borrowings at December 31, 1998 and 1997 included a $5,000 Treasury Tax
and Loan Note account with the Federal Reserve Bank of New York.
18
NOTE 9 EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of service
and a percentage of the employee's average compensation for the five highest
consecutive years in the last ten years of employment.
In addition to the defined pension plan, the Company offers postretirement
medical coverage, life insurance, and prescription drug coverage to full-time
employees who have worked 10 years and attained age 55. Medical coverage is
contributory with contributions reviewed annually. The Company assumes the
majority of the cost for these other benefits, while retirees share some of the
cost through co-insurance and deductibles. The following table sets forth the
changes in the plans' accumulated benefit obligation and the plan assets, and
the plans' funded status and amounts recognized in the Company's consolidated
statements of condition at December 31, 1998 and 1997:
PENSION BENEFITS OTHER BENEFITS
- -------------------------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
BENEFIT OBLIGATION AT BEGINNING OF YEAR $12,402 $10,570 $ 3,004 $ 2,890
SERVICE COST 454 489 78 71
INTEREST COST 935 847 203 208
ACTUARIAL LOSS (GAIN) 2,457 1,048 (19) 4
BENEFITS PAID (610) (552) (152) (169)
- -------------------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR $15,638 $12,402 $ 3,114 $ 3,004
- -------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
FAIR VALUE OF PLAN ASSETS AT BEGINNING OF YEAR $14,970 $12,001 $ -0- $ -0-
ACTUAL RETURN ON PLAN ASSETS (66) 2,863 -0- -0-
EMPLOYER CONTRIBUTION 226 658 151 169
BENEFITS PAID (610) (552) (151) (169)
- -------------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $14,520 $14,970 $ -0- $ -0-
- -------------------------------------------------------------------------------------------------
FUNDED STATUS $(1,118) $ 2,568 $(3,114) $(3,004)
UNRECOGNIZED NET ACTUARIAL LOSS (GAIN) 3,445 (334) (149) (134)
NET TRANSITION (ASSET) OBLIGATION (350) (418) 1,617 1,733
UNRECOGNIZED PRIOR SERVICE COST 172 187 -0- -0-
- -------------------------------------------------------------------------------------------------
PREPAID (ACCRUED) BENEFIT COST $ 2,149 $ 2,003 $(1,646) $(1,405)
- -------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF SEPTEMBER 30:
DISCOUNT RATE 6.90% 7.50% 6.90% 7.50%
EXPECTED RETURN ON PLAN ASSETS 8.50% 8.50% -0- -0-
RATE OF COMPENSATION INCREASE 4.00% 5.00% 4.00% 4.00%
- -------------------------------------------------------------------------------------------------
The Company currently provides certain life and health insurance benefits to
substantially all of its employees. The weighted average annual assumed rate of
increase in the per capita cost of covered benefits (the health care cost trend
rate) is 9.9% beginning in 1999, and is assumed to decrease gradually to 5.0% in
2045 and beyond. The actual cost of benefits for 1998 and projected costs for
1999 were used. Increasing the assumed health care cost trend rates by 1% in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1998, by $63,242 and the net periodic postretirement benefit cost
for 1998 by $7,799. Decreasing the assumed health care cost trend rates by 1%
each year would decrease the accumulated postretirement benefit obligation as of
December 31, 1998, by $131,539 and the net periodic postretirement benefit cost
by $10,077.
Net periodic benefit cost includes the following components:
COMPONENTS OF NET PERIODIC BENEFIT COST PENSION BENEFITS OTHER BENEFITS
- -----------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
SERVICE COST $ 454 $ 489 $ 332 $ 78 $ 70 $ 74
INTEREST COST 935 848 731 202 208 199
EXPECTED RETURN ON PLAN ASSETS (1,255) (1,023) (914) -0- -0- -0-
AMORTIZATION OF PRIOR SERVICE COST 15 15 15 -0- -0- -0-
RECOGNIZED NET ACTUARIAL GAIN (LOSS) -0- 14 -0- (4) -0- -0-
AMORTIZATION OF TRANSITION LIABILITY (69) (69) (69) 116 116 116
- -----------------------------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST $ 80 $ 274 $ 95 $ 392 $ 394 $ 389
- -----------------------------------------------------------------------------------------------------
19
NOTE 9 EMPLOYEE BENEFIT PLANS - CONTINUED
In addition, the Company has an Investment and Stock Ownership Plan
("I.S.O.P.") which contains a deferred profit-sharing and employee stock
ownership plan which covers substantially all employees. The I.S.O.P. allows for
contributions either in the form of cash or stock of the Company. Contributions
are determined by the board of directors and are limited to a maximum amount as
stipulated in the plan. In 1994, the employee stock ownership plan of the
I.S.O.P. borrowed $1,650,000 from the Company to purchase 82,500 common shares
of the Company. The debt has a term of 10 years and an interest rate of 7%. At
December 31, 1998, 73,710 shares were released or committed to be released and
8,789 remained as unallocated shares. The fair value of the unallocated shares
on December 31, 1998, was $304,000. Shares will be released to the employee
stock ownership plan based on the principal only method. The Company recognized
compensation expense for the I.S.O.P. of $376,000 in 1998, $347,000 in 1997, and
$320,000 in 1996, based on the fair value of shares committed to be released. At
December 31, 1998, approximately 10,806 shares of unallocated stock were
committed to be released to fund the Company's 1998 contribution to the employee
stock ownership plan. The Company purchased $11,000,000 in corporate owned life
insurance in 1998, which is carried at its cash surrender value as an other
asset in the consolidated statements of condition. Increases in the cash
surrender value of the insurance are reflected as other operating income, and
the related mortality expense is recognized as an other expense.
NOTE 10 STOCK BASED COMPENSATION
In 1992, the Company adopted a stock option plan (the "1992 Plan") which
authorized grants of options up to 254,100 shares of authorized but unissued
common stock. In 1998, the Company adopted the 1998 Stock Option Plan ( the
"1998 Plan") which authorized grants of options up to 240,000 shares of
authorized but unissued common stock, plus to the extent authorized by the board
of directors, shares which are reacquired by the Company. Under the 1992 Plan
and the 1998 Plan, the board of directors may grant stock options to officers,
employees, and certain other individuals. Stock options are granted with an
exercise price equal to the stock's fair market value at the date of grant.
Stock options may not have a term in excess of 10 years, and have vesting
periods that range between one and five years from the grant date. At December
31, 1998, there were 240,691 shares available for grant. The Company applies APB
Opinion No. 25 in accounting for stock based compensation, and accordingly, no
compensation cost has been recognized for stock options in the accompanying
consolidated financial statements. 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:
(IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997 1996
- -------------------------------------------------------------------------
NET INCOME:
AS REPORTED $ 11,189 $ 9,856 $ 9,179
PRO FORMA 11,082 9,779 9,125
- -------------------------------------------------------------------------
BASIC EARNINGS PER SHARE:
AS REPORTED $ 2.31 $ 2.02 $ 1.76
PRO FORMA 2.29 2.01 1.75
- -------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
AS REPORTED $ 2.27 $ 2.00 $ 1.75
PRO FORMA 2.25 1.99 1.74
- -------------------------------------------------------------------------
The per share weighted average fair value of stock options granted during
1998, 1997, and 1996, was $8.52, $5.18, and $4.71, respectively. Fair values
were arrived at using the Black Scholes option-pricing model with the following
assumptions:
1998 1997 1996
- -------------------------------------------------------------------------
RISK-FREE INTEREST RATE 5.31% 5.78% 5.61%
EXPECTED DIVIDEND YIELD 3.10% 3.64% 3.97%
VOLATILITY 27.59% 20.17% 26.19%
EXPECTED LIFE (YEARS) 8 8 8
- -------------------------------------------------------------------------
20
NOTE 10 STOCK BASED COMPENSATION - CONTINUED
The following table presents the combined stock option activity for the 1992
Plan and the 1998 Plan during the periods indicated:
1996 NUMBER OF SHARES WTD. AVG. EXERCISE PRICE
- ------------------------------------------------------------------------------
BEGINNING BALANCE 99,429 $14.43
GRANTED 89,850 19.27
EXERCISED (453) 13.38
- ------------------------------------------------------------------------------
OUTSTANDING AT YEAR END 188,826 16.74
- ------------------------------------------------------------------------------
EXERCISABLE AT YEAR END 83,801 $13.66
- ------------------------------------------------------------------------------
1997 NUMBER OF SHARES WTD. AVG. EXERCISE PRICE
- ------------------------------------------------------------------------------
BEGINNING BALANCE 188,826 $16.74
GRANTED 63,000 23.66
EXERCISED (3,620) 16.46
FORFEITED (3,298) 19.43
- ------------------------------------------------------------------------------
OUTSTANDING AT YEAR END 244,908 18.49
- ------------------------------------------------------------------------------
EXERCISABLE AT YEAR END 109,569 $14.94
- ------------------------------------------------------------------------------
1998 NUMBER OF SHARES WTD. AVG. EXERCISE PRICE
- ------------------------------------------------------------------------------
BEGINNING BALANCE 244,908 $18.49
GRANTED 5,750 30.09
EXERCISED (43,627) 13.41
FORFEITED (2,456) 21.42
- ------------------------------------------------------------------------------
OUTSTANDING AT YEAR END 204,575 19.86
- ------------------------------------------------------------------------------
EXERCISABLE AT YEAR END 104,216 $17.76
- ------------------------------------------------------------------------------
The following summarizes outstanding and exercisable options at December 31,
1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------------------------
RANGE OF WEIGHTED AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------------------------------------------------------------------------------------
$11.21-15.56 40,747 3.99 years $13.60 40,747 $13.60
$19.27-20.91 96,578 6.98 years $19.48 51,278 $19.66
$23.66-32.75 67,250 8.68 years $24.21 12,191 $23.66
- ------------------------------------------------------------------------------------------------
204,575 6.94 YEARS $19.86 104,216 $17.76
- ------------------------------------------------------------------------------------------------
21
NOTE 11 INCOME TAXES
Total income tax expense (benefit) was allocated as follows:
(IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES $5,850 $5,267 $5,142
PAID IN CAPITAL FOR STOCK OPTIONS EXERCISED (328) -0- -0-
SHAREHOLDERS' EQUITY FOR UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES 2 730 (611)
- --------------------------------------------------------------------------------------------------------------------------
$5,524 $5,997 $4,531
- --------------------------------------------------------------------------------------------------------------------------
The income tax expense (benefit) attributable to income from operations is
summarized as follows:
(IN THOUSANDS) CURRENT DEFERRED TOTAL
- --------------------------------------------------------------------------------------------------------------------------
1998:
FEDERAL $5,196 $ (327) $4,869
STATE 1,071 (90) 981
- --------------------------------------------------------------------------------------------------------------------------
$6,267 $ (417) $5,850
- --------------------------------------------------------------------------------------------------------------------------
1997:
FEDERAL $4,393 $ (396) $3,997
STATE 1,342 (72) 1,270
- --------------------------------------------------------------------------------------------------------------------------
$5,735 $ (468) $5,267
- --------------------------------------------------------------------------------------------------------------------------
1996:
FEDERAL $4,013 $ (99) $3,915
STATE 1,223 5 1,227
- --------------------------------------------------------------------------------------------------------------------------
$5,236 $ (94) $5,142
- --------------------------------------------------------------------------------------------------------------------------
The primary reasons for the differences between income tax expense and the
amount computed by applying the statutory federal income tax rate to earnings
are as follows:
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
STATUTORY FEDERAL INCOME TAX RATE 34.0% 34.0% 34.0%
STATE INCOME TAXES, NET OF FEDERAL TAX BENEFIT 3.8 5.5 5.7
TAX EXEMPT INCOME (3.4) (4.0) (4.4)
ALL OTHER (0.1) (0.7) 0.6
- --------------------------------------------------------------------------------------------------------------------------
34.3% 34.8% 35.9%
- --------------------------------------------------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 were as
follows:
(IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
RESERVE FOR LOAN/LEASE LOSSES $1,943 $ 1,926
COMPENSATION AND BENEFITS 1,487 1,264
OTHER 225 197
- --------------------------------------------------------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS 3,655 3,387
- --------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
LEASING TRANSACTIONS 1,347 1,447
PREPAID PENSION 858 799
DEPRECIATION 177 213
UNDISTRIBUTED INCOME OF BANK SUBSIDIARY 10 -0-
OTHER 112 194
- --------------------------------------------------------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES 2,504 2,653
- --------------------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSET $1,151 $ 734
- --------------------------------------------------------------------------------------------------------------------------
This analysis does not include the recorded deferred tax liabilities of
$780,000 and $778,000 related to the net unrealized appreciation in the
available-for-sale securities portfolio as of December 31, 1998 and 1997,
respectively.
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carryback period. A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax assets will not be realized. In
assessing the need for a valuation allowance, management considers the scheduled
reversal of the deferred tax liabilities, the level of historical taxable
income, and the projected future taxable income over the periods in which the
temporary differences comprising the deferred tax assets will be deductible.
Based on its assessment, management determined that no valuation allowance is
necessary.
22
NOTE 12 COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases land, buildings, and equipment under operating lease
arrangements extending to the year 2042. Rental expense included in operating
expenses amounted to $333,000 in 1998, $332,000 in 1997, and $340,000 in 1996.
The future minimum rental commitments as of December 31, 1998, for all
non-cancelable operating leases are as follows: (in thousands)
1999 $ 192
2000 176
2001 154
2002 157
2003 132
Thereafter $3,613
Most leases include options to renew for periods ranging from five to 20
years. Options to renew are not included in the above future minimum rental
commitments.
The Company, in the normal course of business, is a party to financial
instruments with off balance sheet risk to meet the financial needs of its
customers. These financial instruments include loan commitments, standby letters
of credit, and unused portions of lines of credit. The contract, or notional
amount, of those instruments represents the Company's involvement in particular
classes of financial instruments. The Company's maximum potential obligation to
extend credit for loan commitments (unfunded loans and unused lines of credit)
and standby letters of credit outstanding on December 31 was as follows:
(IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------
LOAN COMMITMENTS $74,091 $ 67,336
STANDBY LETTERS OF CREDIT 1,742 1,627
UNDISBURSED PORTION OF COMMERCIAL LINES OF CREDIT 12,376 12,396
COMMITMENT TO INVEST IN LIMITED PARTNERSHIP REGISTERED
AS A SMALL BUSINESS INVESTMENT COMPANY 717 1,856
- --------------------------------------------------------------------------------
$88,926 $83,215
- --------------------------------------------------------------------------------
Commitments to extend credit (including lines of credit) are agreements to
lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Standby letters of credit
are conditional commitments written by the Trust Company to guarantee the
performance of a customer to a third party. Management uses the same credit
policies in making commitments to extend credit and standby letters of credit as
are used for on balance sheet lending decisions. Based upon management's
evaluation of the counterparty, the Trust Company may require collateral to
support commitments to extend credit and letters of credit. Since some
commitments and letters of credit are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash flow
requirements.
In 1997, the Company committed to invest $2,475,000 in a limited partnership
formed to operate a Small Business Investment Company (SBIC). As of December 31,
1998, the Company had advanced $1,758,000, which is accounted for under the
equity method of accounting and is included in other assets on the Company's
consolidated statements of condition. On December 31, 1998, the cost of the
Company's investment in the SBIC approximates fair value.
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management based upon a review with counsel, the
proceedings should not have a material effect on the consolidated financial
statements.
NOTE 13 EARNINGS PER SHARE
Calculation of Basic Earnings Per Share (Basic EPS) and Diluted Earnings Per
Share (Diluted EPS) is as follows:
FOR YEAR ENDED DECEMBER 31, 1998 INCOME AVERAGE SHARES PER SHARE
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (NUMERATOR) (DENOMINATOR) AMOUNT
- ------------------------------------------------------------------------------------------------------------
BASIC EPS
INCOME AVAILABLE TO COMMON SHAREHOLDERS $11,189 4,843,654 $2.31
EFFECT OF DILUTIVE SECURITIES
OPTIONS 87,681
DILUTED EPS
INCOME AVAILABLE TO COMMON SHAREHOLDERS PLUS ASSUMED CONVERSIONS $11,189 4,931,335 $2.27
- ------------------------------------------------------------------------------------------------------------
23
NOTE 13 EARNINGS PER SHARE - CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------
FOR YEAR ENDED DECEMBER 31, 1997 INCOME AVERAGE SHARES PER SHARE
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (NUMERATOR) (DENOMINATOR) AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
BASIC EPS
INCOME AVAILABLE TO COMMON SHAREHOLDERS $9,856 4,867,089 $2.02
EFFECT OF DILUTIVE SECURITIES
OPTIONS 56,415
DILUTED EPS
INCOME AVAILABLE TO COMMON SHAREHOLDERS PLUS ASSUMED CONVERSIONS $9,856 4,923,504 $2.00
- ----------------------------------------------------------------------------------------------------------------------------
FOR YEAR ENDED DECEMBER 31, 1996 INCOME AVERAGE SHARES PER SHARE
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (NUMERATOR) (DENOMINATOR) AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
BASIC EPS
INCOME AVAILABLE TO COMMON SHAREHOLDERS $9,179 5,228,348 $1.76
EFFECT OF DILUTIVE SECURITIES
OPTIONS 27,285
DILUTED EPS
INCOME AVAILABLE TO COMMON SHAREHOLDERS PLUS ASSUMED CONVERSIONS $9,179 5,255,633 $1.75
- ----------------------------------------------------------------------------------------------------------------------------
The diluted average shares calculation for 1996 excludes an average of 54,378
options with a range of exercise prices between $19.27 and $20.91 because at
various times during the year, the exercise price was greater than the average
market price.
NOTE 14 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1998 and 1997. The
carrying amounts shown in the table are included in the consolidated statements
of condition under the indicated captions.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS: 1998 1997
- --------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------------------------------------
Financial Assets:
CASH AND CASH EQUIVALENTS $ 26,770 $ 26,770 $ 25,089 $ 25,089
SECURITIES - AVAILABLE-FOR-SALE 182,740 182,740 176,660 176,660
SECURITIES - HELD-TO-MATURITY 34,088 35,011 36,911 37,882
LOANS/LEASES 405,357 407,178 377,184 382,474
Financial Liabilities:
TIME DEPOSITS $ 194,495 $ 195,034 $ 185,436 $ 199,034
OTHER DEPOSITS 298,297 298,297 291,264 291,264
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 60,007 60,345 57,998 58,773
OTHER BORROWINGS 45,005 44,977 27,005 27,046
- --------------------------------------------------------------------------------------------------
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the consolidated
statements of condition for cash and short-term instruments approximate the fair
value of those assets.
SECURITIES: Fair values for securities are based on quoted market prices.
When no secondary market exists to quote a market price, the book value of the
security is used as its fair value. Note 2 discloses the fair values of
securities.
LOANS/LEASES: For variable rate loans/leases that reprice frequently and with
no significant change in credit risk, fair values are based on carrying values.
The fair value of fixed rate loans/leases was estimated using discounted cash
flow analyses, and interest rates currently offered for loans/leases with
similar terms and credit quality.
24
NOTE 14 FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
DEPOSITS: The fair values disclosed for demand deposits (e.g. interest and
non-interest checking) are, by definition, equal to the amount payable on demand
at the reporting date (i.e., the carrying amounts). The carrying amounts of
variable rate money market accounts and certificates of deposit approximate
their fair values at the reporting date. Fair values for fixed rate time
deposits and repurchase agreements are estimated using a discounted cash flow
calculation that applies current interest rates to a schedule of aggregate
expected monthly maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: The carrying amounts of
securities sold under agreements to repurchase with maturities of 90 days or
less approximate their fair values. Fair values of repurchase agreements with
maturities of more than 90 days are estimated using discounted cash flow
analyses based on the Company's current incremental borrowing rate for similar
types of borrowing arrangements.
OTHER BORROWINGS: The fair value of other borrowings was estimated using
discounted cash flow analysis, discounted at the Company's current incremental
borrowing rate for similar borrowing arrangements.
OFF BALANCE SHEET INSTRUMENTS: The fair value of outstanding loan commitments
and standby letters of credit are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements,
the counterparties' credit standing and discounted cash flow analyses. The fair
value of these instruments approximates the value of the related fees and is not
material.
NOTE 15 REGULATION AND SUPERVISION
The Company and the Trust Company are subject to various regulatory capital
requirements administered by Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action ("PCA"), The Trust Company must meet specific guidelines that involve
quantitative measures of assets, liabilities, and certain off balance sheet
items as calculated under regulatory accounting practices. Capital amounts and
classifications of the Company and the Trust Company are also subject to
qualitative judgments by regulators concerning components, risk weightings, and
other factors. Quantitative measures established by regulation to ensure capital
adequacy require the maintenance of minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined). Management believes that the Company and the Trust Company meet all
capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Trust Company as well capitalized
under the regulatory framework for PCA. To be categorized as well capitalized,
the Company and the Trust Company must maintain total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the capital category of the Trust Company.
Actual capital amounts and ratios of the Company and the Trust Company are as
follows:
REQUIRED REQUIRED
TO BE TO BE
ACTUAL ADEQUATELY CAPITALIZED WELL CAPITALIZED
- ----------------------------------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS) AMOUNT/RATIO AMOUNT/RATIO AMOUNT/RATIO
- ----------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)
THE COMPANY (CONSOLIDATED) $69,095/17.1% >$32,313/>8.0% >$40,391/>10.0%
- - - -
TRUST COMPANY $66,713/16.6% >$32,138/>8.0% >$40,173/>10.0%
- - - -
TIER I CAPITAL (TO RISK WEIGHTED ASSETS)
THE COMPANY (CONSOLIDATED) $64,022/15.9% >$16,156/>4.0% >$24,235/>6.0%
- - - -
TRUST COMPANY $61,691/15.4% >$16,069/>4.0% >$24,104/>6.0%
- - - -
TIER I CAPITAL (TO AVERAGE ASSETS)
THE COMPANY (CONSOLIDATED) $ 64,022/9.7% >$26,271/>4.0% >$32,839/>5.0%
- - - -
TRUST COMPANY $ 61,691/9.4% >$26,193/>4.0% >$32,741/>5.0%
- - - -
- ----------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1997:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)
THE COMPANY (CONSOLIDATED) $60,356/16.5% >$29,327/>8.0% >$36,658/>10.0%
- -
TRUST COMPANY $58,273/16.0% >$29,169/>8.0% >$36,461/>10.0%
- -
TIER I CAPITAL (TO RISK WEIGHTED ASSETS)
THE COMPANY (CONSOLIDATED) $55,769/15.2% >$14,663/>4.0% >$21,995/>6.0%
- -
TRUST COMPANY $53,710/14.7% >$14,585/>4.0% >$21,877/>6.0%
- -
TIER I CAPITAL (TO AVERAGE ASSETS)
THE COMPANY (CONSOLIDATED) $ 55,769/9.0% >$24,888/>4.0% >$31,110/>5.0%
- -
TRUST COMPANY $ 53,710/8.7% >$24,796/>4.0% >$30,995/>5.0%
- -
- ----------------------------------------------------------------------------------------------------------
25
NOTE 15 REGULATION AND SUPERVISION - CONTINUED
The Company is subject to legal limitations on the amount of dividends that
can be paid to shareholders. Generally, dividends are limited to retained net
profits for the current year and two preceding years which amounted to
$17,805,000 as of December 31, 1998. The Trust Company is required to maintain
reserve balances by the Federal Reserve Bank of New York. On December 31, 1998,
the reserve requirement totaled $5,626,000.
NOTE 16 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements for Tompkins County Trustco, Inc. (the "Parent
Company") as of December 31 are presented below.
CONDENSED STATEMENTS OF CONDITION
- -------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Assets
CASH $ 176 $ 108
AVAILABLE-FOR-SALE SECURITIES, AT FAIR VALUE 2,230 2,361
INVESTMENT IN BANK, AT EQUITY 61,592 54,936
OTHER ASSETS 18 16
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $64,016 $ 57,421
- -------------------------------------------------------------------------------------------------------------------------
Liabilities
DEFERRED TAX (ASSET) LIABILITY $ (48) $ 167
OTHER LIABILITIES 41 11
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ (7) $ 178
- -------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
COMMON STOCK $ 489 $ 326
SURPLUS 29,817 30,037
UNDIVIDED PROFITS 33,364 26,769
TREASURY STOCK (548) (571)
ACCUMULATED OTHER COMPREHENSIVE INCOME 1,077 1,074
DEFERRED I.S.O.P. BENEFIT EXPENSE (176) (392)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $64,023 $ 57,243
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $64,016 $ 57,421
- -------------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
DIVIDENDS FROM AVAILABLE-FOR-SALE INVESTMENTS $ 97 $ 92 $ -0-
DIVIDENDS RECEIVED FROM BANK 5,569 7,614 11,814
- -------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME 5,666 7,706 11,814
- -------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES 388 79 -0-
INCOME BEFORE UNDISTRIBUTED INCOME OF SUBSIDIARY $ 5,278 $ 7,627 $ 11,814
- -------------------------------------------------------------------------------------------------------------------------
APPLICABLE INCOME TAXES $ (121) $ (13) $ -0-
EQUITY IN UNDISTRIBUTED INCOME OF BANK 5,790 2,216 (2,635)
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $11,189 $ 9,856 $ 9,179
- -------------------------------------------------------------------------------------------------------------------------
26
NOTE 16 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS - CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
Operating Activities
NET INCOME $11,189 $ 9,856 $ 9,179
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED
BY OPERATING ACTIVITIES:
EQUITY IN UNDISTRIBUTED EARNINGS OF BANK (5,790) (2,216) 2,955
INCREASE IN OTHER ASSETS (2) (16) -0-
INCREASE IN OTHER LIABILITIES 30 11 -0-
PROVISION FOR DEFERRED INCOME TAXES (108) (13) -0-
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,319 7,622 12,134
- -------------------------------------------------------------------------------------------------------------------------
Investing Activities
PURCHASE OF SECURITIES (123) (933) (1,000)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (123) (933) (1,000)
- -------------------------------------------------------------------------------------------------------------------------
Financing Activities
DIVIDENDS PAID ON COMMON STOCK (4,431) (4,011) (3,813)
PURCHASE OF TREASURY STOCK -0- -0- (627)
REPURCHASE OR CANCELLATION OF COMMON SHARES (1,320) (2,670) (6,720)
TREASURY STOCK SOLD 39 41 -0-
PROCEEDS FROM EXERCISE OF STOCK OPTIONS, AND RELATED TAX BENEFIT 584 59 26
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (5,128) (6,581) (11,134)
- -------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 68 108 -0-
- -------------------------------------------------------------------------------------------------------------------------
Cash at January 1 108 -0- -0-
- -------------------------------------------------------------------------------------------------------------------------
Cash at December 31 $ 176 $ 108 $ -0-
- -------------------------------------------------------------------------------------------------------------------------
NOTE 17 UNAUDITED INTERIM FINANCIAL INFORMATION
SELECTED UNAUDITED QUARTERLY FINANCIAL DATA: 1998
- -----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH
- -----------------------------------------------------------------------------------------------------------------
INTEREST INCOME $11,990 $12,321 $12,298 $12,182
INTEREST EXPENSE 5,093 5,205 5,204 5,058
NET INTEREST INCOME 6,897 7,116 7,094 7,124
PROVISION FOR LOAN/LEASE LOSSES 151 330 298 227
INCOME BEFORE INCOME TAXES 4,162 4,216 4,418 4,243
NET INCOME 2,686 2,719 2,991 2,793
NET INCOME PER COMMON SHARE (BASIC) .55 .56 .62 .58
NET INCOME PER COMMON SHARE (DILUTED) .55 .55 .60 .57
- -----------------------------------------------------------------------------------------------------------------
1997
- -----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH
- -----------------------------------------------------------------------------------------------------------------
INTEREST INCOME $11,322 $11,657 $11,933 $11,900
INTEREST EXPENSE 4,765 5,018 5,176 5,223
NET INTEREST INCOME 6,557 6,639 6,757 6,677
PROVISION FOR LOAN/LEASE LOSSES 414 153 263 238
INCOME BEFORE INCOME TAXES 3,729 3,778 3,986 3,630
NET INCOME 2,432 2,463 2,601 2,360
NET INCOME PER COMMON SHARE (BASIC) .49 .50 .54 .49
NET INCOME PER COMMON SHARE (DILUTED) .49 .50 .53 .48
- -----------------------------------------------------------------------------------------------------------------
27
MANAGEMENT'S STATEMENT & AUDITORS' REPORT
Management's Statement of Responsibility
Management is responsible for preparation of the consolidated financial
statements and related financial information contained in all sections of this
annual report, including the determination of amounts that must necessarily be
based on judgments and estimates. It is the belief of management that the
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances, and
that the financial information appearing throughout this annual report is
consistent with the consolidated financial statements.
Management establishes and monitors the Company's system of internal
accounting controls to meet its responsibility for reliable financial
statements. The system is designed to provide reasonable assurance that assets
are safeguarded and that transactions are executed in accordance with
management's authorization and are properly recorded.
The Audit/Examining Committee of the board of directors, composed solely of
outside directors, meets periodically and privately with management, internal
auditors and independent auditors, KPMG LLP, to review matters relating to the
quality of financial reporting, internal accounting control, and the nature,
extent, and results of audit efforts. The independent and internal auditors have
unlimited access to the Audit/Examining Committee to discuss all such matters.
The consolidated financial statements have been audited by the Company's
independent auditors for the purpose of expressing an opinion on the
consolidated financial statements.
/s/ James J. Byrnes /s/ Richard D. Farr
- ----------------------- -----------------------
James J. Byrnes Richard D. Farr
Chief Executive Officer Chief Financial Officer
REPORT OF KPMG LLP,
INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
TOMPKINS COUNTY TRUSTCO, INC.
We have audited the accompanying consolidated statements of condition of
Tompkins County Trustco, Inc. and subsidiary as of December 31, 1998 and 1997,
and the related consolidated statements of income, changes in shareholders'
equity and comprehensive income, and cash flows for each of the years in the
three year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tompkins
County Trustco, Inc. and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
SYRACUSE, NEW YORK
JANUARY 22, 1999
28
MANAGEMENT DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1998
- ------------------------------------------------------------------------------------------------------------
TABLE 1 - SOURCES OF INTEREST INCOME
% OF TOTAL % OF TOTAL % OF TOTAL
(DOLLAR AMOUNTS IN THOUSANDS) 1998 REVENUE* 1997 REVENUE* 1996 REVENUE*
- ------------------------------------------------------------------------------------------------------------
INTEREST ON LOANS:
Residential real estate $13,211 22.02% $12,254 21.61% $10,818 19.08%
Commercial and commercial
real estate* 13,900 23.17% 13,049 23.01% 12,110 21.36%
Consumer and other 6,172 10.29% 6,444 11.37% 6,758 11.92%
Lease financing 1,002 1.67% 994 1.75% 963 1.70%
- ------------------------------------------------------------------------------------------------------------
Total interest on
loans and leases* 34,285 57.14% 32,741 57.74% 30,649 54.06%
- ------------------------------------------------------------------------------------------------------------
INTEREST INCOME ON SECURITIES:
Interest on securities and
other investments* $15,434 25.72% $14,977 26.41% $13,271 23.41%
- ------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Trust and investment services income 3,811 6.85% 3,159 5.57% 2,660 5.09%
Credit card merchant income 2,351 3.92% 2,206 3.89% 1,892 3.62%
Service charges on deposit accounts 1,641 2.74% 1,755 3.10% 1,713 3.28%
- ------------------------------------------------------------------------------------------------------------
* INTEREST INCOME INCLUDES TAX-EQUIVALENCY ADJUSTMENTS FOR INCOME EXEMPT FROM
FEDERAL INCOME TAXES.
OVERVIEW
Tompkins County Trustco ("the Company") is the parent company of Tompkins
County Trust Company (the "Trust Company" or "the Bank"). The Trust Company,
which traces its charter back to 1836, is an independent community bank whose
primary service area is Tompkins County, New York, and surrounding areas.
Through the Bank, the Company provides a full range of financial services
including: deposits, trust and investment services, commercial lending, consumer
lending, residential mortgage lending, cash management, merchant card services,
and electronic banking.
The following analysis is intended to provide the reader with a further
understanding of the consolidated financial condition and results of operations
of the Company and its operating subsidiaries for the periods shown. For a full
understanding of this analysis, it should be read in conjunction with the
consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
Net income for 1998 was $11.2 million, or $2.31 per basic share; increasing
from $9.9 million, or $2.02 per basic share in 1997; and $9.2 million, or $1.76
per basic share in 1996. The 14.4% growth in 1998 basic earnings per share
continues a growth trend that saw basic earnings per share increase by 14.8% in
1997, and 6.9% in 1996. Diluted earnings per share was $2.27 for the year ended
December 31, 1998, reflecting an increase of 13.5% from 1997. Per share earnings
growth in 1997 benefited from a privately negotiated common stock repurchase
transaction, in which the Company repurchased 120,000 shares in May of 1997.
Return on average shareholders' equity remained strong compared to industry
peers at 18.5% in 1998, compared to 18.4% in 1997, and 16.8% in 1996. Return on
assets improved to 1.72% in 1998, up from 1.61% in 1997, and 1.62% in 1996. The
success of 1998 earnings results is attributable to growth in nearly all of the
Company's business lines. Net interest income of $28.2 million in 1998
represents an increase of 6.0% over 1997, while other income of $10.0 million in
1998 represents an increase of 15.7% over 1997.
The Company's primary source of revenue is interest earned on its loan and
securities portfolios. Additional revenue is generated from fees charged for
services provided to banking customers. Significant sources of revenue are
detailed in TABLE 1.
29
TABLE 2 - AVERAGE STATEMENTS OF CONDITION AND NET INTEREST ANALYSIS
DECEMBER 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(DOLLAR AMOUNTS IN THOUSANDS) BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets
Certificates of deposit
with other banks $ -0- $ -0- $ -0- $ -0- $ 907 $ 48 5.28%
Securities (1)
U.S. Government securities 183,295 12,198 6.65% 171,545 11,638 6.78% 151,698 10,021 6.59%
State and municipal (2) 36,105 2,865 7.94% 37,670 3,018 8.01% 37,756 3,065 8.10%
Other securities (2) 5,331 371 6.98% 4,444 321 7.22% 2,721 185 6.78%
- -------------------------------------------------------------------------------------------------------------------------------
Total securities 224,731 15,434 6.87% 213,659 14,977 7.01% 192,175 13,271 6.89%
Federal Funds Sold 3,680 195 5.30% 4,902 263 5.37% 8,789 468 5.31%
Loans, net of
unearned income (3)
Residential real estate 166,972 13,211 7.91% 151,013 12,254 8.11% 131,789 10,818 8.19%
Commercial real estate 70,337 6,325 8.99% 56,375 5,240 9.29% 41,324 3,859 9.31%
Commercial loans (2) 78,332 7,575 9.67% 81,634 7,809 9.57% 86,721 8,251 9.49%
Consumer and other 58,642 6,172 10.52% 60,532 6,444 10.65% 62,478 6,758 10.79%
Lease financing 12,438 1,002 8.06% 12,210 994 8.14% 11,875 963 8.09%
- -------------------------------------------------------------------------------------------------------------------------------
Total loans, net of
unearned income 386,721 34,285 8.87% 361,764 32,741 9.05% 334,187 30,649 9.15%
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets 615,132 49,914 8.11% 580,325 47,981 8.27% 536,058 44,436 8.27%
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 34,673 32,981 30,282
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $649,805 $613,306 $566,340
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits
Interest-bearing deposits
Interest checking,
savings and money market $213,125 $ 5,821 2.73% $202,044 $ 5,678 2.81% $196,108 $ 5,487 2.79%
Time deposits> $100,000 96,083 5,271 5.48% 83,878 4,629 5.52% 44,143 2,363 5.34%
Time deposits< $100,000 87,118 4,479 5.14% 87,058 4,562 5.24% 81,115 4,289 5.27%
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 396,326 15,571 3.93% 372,980 14,869 3.99% 321,366 12,139 3.77%
Federal funds purchased and
securities sold under
agreements to repurchase 57,888 2,973 5.14% 80,115 4,233 5.28% 92,930 4,831 5.18%
Other borrowings 37,112 2,016 5.43% 18,166 1,080 5.95% 16,186 946 5.83%
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 491,326 20,560 4.18% 471,261 20,182 4.28% 430,482 17,91617 4.15%
- -------------------------------------------------------------------------------------------------------------------------------
Non interest-bearing deposits 88,354 80,417 74,141
Accrued expenses and
other liabilities 9,688 8,108 7,146
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 589,368 559,786 511,769
Shareholders' equity 60,437 53,520 54,571
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $649,805 $613,306 $566,340
- -------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.93% 3.99% 4.12%
Impact of noninterest-
bearing liabilities 0.84% 0.80% 0.81%
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin
on earning assets $29,354 4.77% $27,799 4.79% $ 26,520 4.93%
- -------------------------------------------------------------------------------------------------------------------------------
(1) AVERAGE BALANCES AND YIELDS ON AVAILABLE-FOR-SALE SECURITIES ARE BASED ON
HISTORICAL AMORTIZED COST.
(2) INTEREST INCOME INCLUDES THE TAX EFFECTS OF TAXABLE-EQUIVALENT ADJUSTMENTS
USING A COMBINED NEW YORK STATE AND FEDERAL EFFECTIVE INCOME TAX RATE OF 41%
IN 1998, 1997, AND 1996 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 1 OF THE CONSOLIDATED FINANCIAL STATEMENTS.
30
TABLE 3 - ANALYSIS OF CHANGES IN NET INTEREST INCOME
(DOLLAR AMOUNTS IN THOUSANDS)(TAXABLE EQUIVALENT)
1998 VS. 1997 1997 VS. 1996
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) DUE INCREASE (DECREASE) DUE
TO CHANGE IN AVERAGE TO CHANGE IN AVERAGE
VOLUME RATE TOTAL VOLUME RATE TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Federal funds sold $ (65) $ (3) $ (68) $ (209) $ 4 $ (205)
Interest bearing deposits -0- -0- -0- (48) 0 (48)
Investments:
Taxable 845 (235) 610 1,388 240 1,628
Tax-exempt (124) (29) (153) 71 7 78
Loans:
Taxable 2,225 (680) 1,545 2,508 (406) 2,102
Tax-exempt (2) 1 (1) (7) (3) (10)
- -------------------------------------------------------------------------------------------------------------------------------
Total interest income 2,879 (946) 1,933 3,703 (158) 3,545
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest bearing deposits:
Interest checking, savings
and money market 305 (162) 144 144 47 191
Time 655 (96) 558 2,455 84 2,539
Federal funds purchased
and securities sold under
agreements to repurchase (1,145) (115) (1,260) (672) 74 (598)
Other borrowings 1,037 (101) 936 116 18 134
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense 852 (474) 378 2,043 223 2,266
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 2,027 $ (472) $ 1,555 $1,660 $(381) $1,279
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
Tax-equivalent net interest income has increased steadily over the past three
years from $26.5 million in 1996, to $27.8 million in 1997, and to $29.4 million
in 1998. The Company has maintained growth in net interest income through growth
in earning assets and improved cash management strategies. TABLE 2 illustrates
the trend in average interest earning assets and interest bearing liabilities,
and the corresponding yield or cost associated with each. The table shows that
earning asset growth has helped offset declines in tax-equivalent net interest
margin from 4.93% in 1996, to 4.79% in 1997, and to 4.77% in 1998. The declining
trend in net interest margin is reflective of the competitive environment for
deposits, combined with local and national economic conditions, which have
resulted in a narrowing of the interest rate spread between the cost of the
Company's funding sources and the yield on its lending and investment
opportunities.
Despite these pressures, the decline in net interest margin was a modest 2
basis points from 1997 to 1998. The effects of external pressures on net
interest margin were mitigated in 1998 through controlled growth of the balance
sheet, which was funded primarily through core deposits (total deposits, less
time deposits of $100,000 or more). Average core deposits, which represent the
Company's lowest cost funding source, increased by $19.1 million in 1998. In
particular, growth in noninterest bearing deposits added 84 basis points to net
interest margin in 1998, compared to 80 basis points in 1997.
Changes in net interest income occur from a combination of changes in the
volume of interest earning assets and interest bearing liabilities, and the rate
of interest earned or paid on them. TABLE 3 illustrates changes in interest
income and interest expense attributable to changes in volume (change in average
balance multiplied by prior year rate), changes in rate (change in rate
multiplied by prior year volume), and the net change in net interest income. The
net change attributable to the combined impact of volume and rate has been
allocated to each in proportion to the absolute dollar amounts of the change.
Net interest income grew on a tax-equivalent basis by approximately $1.6
million from 1997 to 1998, compared to an increase of $1.3 million from 1996 to
1997. Growth in total interest income of $1.9 million from 1997 to 1998,
resulted from a $2.8 million increase in income due to a higher volume of
earning assets, offset by a $946,000 decline due to lower yields on earning
assets. Earning asset growth was centered in the loan portfolio, primarily in
residential and commercial real estate loans. Average loans and leases grew by
$25.0 million in 1998, representing 6.9% growth over 1997. Average securities
increased by $11.1 million in 1998, representing a 5.2% increase over 1997.
Total interest expense grew by approximately $378,000 from 1997 to 1998. This
compares to a $2.3 million increase in total interest expense from 1996 to 1997.
An increased volume of interest bearing liabilities contributed $852,000 to the
increase in 1998 interest expense, while lower rates paid
31
on interest bearing liabilities partially offset this increase by reducing 1998
interest expense by $474,000.
PROVISION FOR LOAN/LEASE LOSSES
The provision for loan/lease losses represents management's estimate of the
expense necessary to maintain the reserve for loan/lease losses at an adequate
level. The provision for loan/lease losses declined to $1.0 million in 1998,
from $1.1 million in 1997, and $1.2 million in 1996. The lower provision in 1998
is attributable to improving trends in the volume of nonperforming loans and
leases and net charge-offs. Nonperforming loans and leases were $1.3 million on
December 31, 1998, representing 0.3% of total loans and leases outstanding at
year end. Nonperforming loans and leases at year end 1997 were $2.8 million. Net
charge-offs for 1998 represented 0.25% of average loans and leases outstanding
during the year, compared to 1997 net charge-offs of 0.24% of average loans and
leases, and 1996 net charge-offs of 0.34% of average loans and leases.
OTHER INCOME
As competitive and economic conditions have had a negative impact on net
interest margin in recent years, management has focused on expanding other
income opportunities as a means to diversify the Company's sources of income.
This strategy produced significant success in 1998 as other income exceeded $10
million, representing a 15.7% increase over the $8.7 million reported in 1997.
Other income, adjusted for non-core income, has increased steadily as a
percentage of average assets from 1.38% in 1996, to 1.44% in 1997, to 1.55% in
1998. Non-core income includes net losses on the sale of securities, and a
$96,000 gain on sale of student loans in 1998.
Income from trust and investment services remains the largest source of other
income. The Trust and Investment Services Division generates fee income through
managing investments or providing custody services for individuals, businesses,
personal trusts, estates, and employee benefits plans. Trust and Investment
services income of $3.8 million in 1998, represents a 20.6% increase over the
$3.2 million reported in 1997. Increased fee income is attributable to the
continued growth in assets managed by, or in the custody of, the Trust and
Investment Services Division. Total assets managed by, or in the custody of, the
division had a market value of $952.9 million on December 31, 1998, compared to
$838.8 million on December 31, 1997, and $645.7 million on December 31, 1996.
The Trust and Investment Services Division provides custodial management
services for the Bank's securities portfolio, which are included in the total
division assets. The market value of assets in the custody of the Trust and
Investment Services Division included Trust Company securities with a market
value of $129.0 million on December 31, 1998, $107.0 million on December 31,
1997, and $122.9 million on December 31, 1996. Excluding assets in custody for
the Bank, total Trust and Investment Services Division assets grew by 13% in
1998, 40% in 1997, and 29% in 1996.
The Trust and Investment Services Division is expected to remain important to
future revenue growth of the Company. Although the division primarily provides
services to customers in the Bank's market area of Tompkins County and
surrounding areas, the division currently manages assets for clients in more
than 42 states. In 1997, the Company expanded the reach of the Trust and
Investment Services Division by offering trust and investment services through a
"Trust Alliance" program with another community bank. Through this program, the
Company provides servicing and administrative support to trust departments of
other banks. Currently, the Company has formed Trust Alliances with two
community banks, which have assets under management totaling $12.9 million. Due
to the early success of the program, management anticipates expanding this
service to additional banks.
Credit card merchant income contributed $2.4 million to other income in 1998,
representing an increase of 6.6% over the $2.2 million reported in 1997. Growth
in credit card merchant income is primarily attributable to growth in the number
of customers using the Bank's merchant credit card processing services. Service
charges on deposit accounts declined 6% to $1.6 million in 1998, as customers
are increasingly taking advantage of ways to reduce service charges by
maintaining higher minimum balances and using direct deposit.
The Trust Company continues to invest in technology to meet consumer demands
for more convenient banking services. This investment has been a key to growth
in other service charges, which grew by 36% in 1998 to $1.8 million. Fees
related to ATM transactions, electronic interchange fees, and Visa check card
usage increased by 64% in 1998 to $545,000. Other service charges also benefited
from increased use of brokerage services available at the Trust Company through
INVEST Financial Corporation, which generated income of $261,000 in 1998,
compared to $163,000 in 1997.
OTHER EXPENSE
The Company's net expense ratio (noninterest expense less recurring
noninterest income divided by average assets) has improved steadily over the
past three years, reflecting success in management's efforts to maintain
efficient operations through a commitment to investing in personnel and
technology. The net expense ratio was 1.57% for the year ended December 31,
1998, compared to 1.69% in 1997, and 1.74% in 1996. Other expenses have remained
level at approximately 3.1% of average assets for each of the last three years.
Personnel related expenses comprise the largest segment of other expense,
representing approximately 51% of other expenses in 1998. Salary and wage costs,
which include incentive compensation, profit sharing, and contributions to
32
the employee investment and stock ownership plan, increased by 5.8% in 1998,
compared to a 7.9% increase in 1997. Pension and employee benefits expense
declined by 3.9% in 1998, following an increase of 8.4% in 1997. Pension and
employee benefits expense is heavily affected by actuarial calculations relating
to the Company's pension plan, and may fluctuate based upon those calculations.
TABLE 4 - BALANCE SHEET COMPARISONS
AVERAGE BALANCE SHEET CHANGE (1997-1998)
(DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996 AMOUNT PERCENTAGE
- --------------------------------------------------------------------------------------------------------------------------
Total assets $649,805 $613,306 $566,340 $36,499 5.95%
Earning assets* 615,132 580,325 536,058 34,807 6.00%
Total loans and leases,
net of unearned income 386,721 361,764 334,187 24,957 6.90%
Securities* 224,731 213,658 192,175 11,073 5.18%
Core deposits 388,597 369,519 351,364 19,078 5.16%
Time deposits of $100,000 and more 96,083 83,878 44,143 12,205 14.55%
Federal funds purchased and securities
sold under agreements to repurchase 57,889 80,115 92,930 (22,226) (27.74%)
Other borrowings 37,112 18,166 16,186 18,946 104.29%
Shareholders' equity 60,437 53,520 54,571 6,917 12.92%
- --------------------------------------------------------------------------------------------------------------------------
ENDING BALANCE SHEET CHANGE (1997-1998)
(DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996 AMOUNT PERCENTAGE
- --------------------------------------------------------------------------------------------------------------------------
Total assets $673,042 $626,907 $591,344 $46,135 7.36%
Earning assets* 629,928 591,904 555,953 38,024 6.42%
Total loans and leases,
net of unearned income 405,357 377,184 350,409 28,173 7.47%
Securities* 214,971 211,720 205,544 3,251 1.54%
Core deposits 385,465 379,572 357,345 5,893 1.55%
Time deposits of $100,000 and more 107,327 97,128 70,022 10,199 10.05%
Federal funds purchased and securities
sold under agreements to repurchase 60,007 57,998 89,993 2,009 3.46%
Other borrowings 45,005 27,005 15,005 18,000 66.65%
Shareholders' equity 64,023 57,243 52,613 7,123 12.52%
- --------------------------------------------------------------------------------------------------------------------------
* BALANCES OF AVAILABLE-FOR-SALE SECURITIES ARE SHOWN AT AMORTIZED HISTORICAL COST
Credit card operating expense correlates closely to transaction volumes for
merchant credit card processing and customer credit card processing. The 1998
credit card operating expense of $2.1 million included $1.9 million related to
merchant credit card processing.
Other operating expenses totaled $5.3 million for the year ended December 31,
1998, compared to $4.7 million in 1997, and $4.2 million in 1996. The $625,000
increase in other operating expenses included charges for professional services
and other fees associated with several initiatives implemented by the bank in
1998. These initiatives included: a company-wide training program to evaluate
and improve the use of technology to better serve customers; the implementation
of a cash management program to allow a greater percentage of the Bank's assets
to be invested as earning assets; and the formation of Tompkins Real Estate
Holdings, Inc. as a new subsidiary of the Trust Company. These initiatives
involved in excess of $300,000 in one-time charges in 1998. Benefits from these
initiatives were partially realized in 1998 and have contributed to the strong
operating results. Management expects the full benefit from these initiatives to
be realized in 1999, and future reporting periods.
Included in other expense in 1998 and 1997 is amortization expense of
$100,000 related to a core deposit intangible asset. The core deposit intangible
asset, which is being amortized over a five-year period, resulted from the Trust
Company's acquisition of the Odessa Office in October 1996.
PROVISION FOR INCOME TAXES
The provision for income taxes provides for Federal and New York State income
taxes. The 1998 provision was $5.9 million, compared to $5.3 million in 1997,
and $5.1 million in 1996. The increasing trend is primarily due to increased
levels of taxable income. The effective tax rate for 1998 was 34.3%, compared to
34.8% in 1997, and 35.9% in 1996.
FINANCIAL CONDITION
During 1998, total assets grew 7.4% to $673 million, compared to $627 million
at December 31, 1997. TABLE 4 provides a comparison of average and year-end
balances of selected balance sheet categories over the past three years. Earning
asset growth in 1998 included a $28.2 million increase in loans, a $3.3 million
increase in securities, and a $6.6 million increase in federal funds sold. Asset
growth was funded through a combination of sources, including core
33
deposits, time deposits of $100,000 or more, securities sold under repurchase
agreements, other borrowings, and retained earnings.
TABLE 5 - MATURITY DISTRIBUTION
DUE AFTER ONE DUE AFTER FIVE
DUE IN ONE YEAR THROUGH YEARS THROUGH DUE AFTER
(DOLLAR AMOUNTS IN THOUSANDS) YEAR OR LESS YIELD FIVE YEARS YIELD TEN YEARS YIELD TEN YEARS YIELD
- -----------------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE:
U.S. Treasury securities
and obligations of U.S.
Government agencies $11,018 6.573% $16,153 4.321% $ 98,214 5.960% $50,989 7.370%
- -----------------------------------------------------------------------------------------------------------------------------
$11,018 $16,153 $ 98,214 $50,989
HELD-TO-MATURITY:
Obligations of state and
political subdivisions* $10,446 4.710% $18,995 5.315% $ 3,604 5.248% $ 1,043 5.170%
- -----------------------------------------------------------------------------------------------------------------------------
$10,446 $18,995 $ 3,604 $ 1,043
- -----------------------------------------------------------------------------------------------------------------------------
Total $21,464 $35,148 $101,818 $52,032
- -----------------------------------------------------------------------------------------------------------------------------
* YIELDS ON OBLIGATIONS OF STATE AND POLITICAL SUBDIVISIONS ARE SHOWN BEFORE
TAX-EQUIVALENT ADJUSTMENTS.
Asset growth also included a $11.0 million investment in corporate owned life
insurance, which is carried as an other asset in the consolidated financial
statements. The corporate owned life insurance was purchased in the third and
fourth quarters of 1998, and covers several senior officers of the Company. The
insurance provides benefits to both the Company and the covered employees.
Increases in the cash surrender value of the insurance are reflected as other
operating income, and the related mortality expense is recognized as an other
operating expense. Increases in the cash surrender value of corporate owned life
insurance are expected to produce a tax-adjusted return of approximately 8.6% in
1999.
SHAREHOLDERS' EQUITY
The consolidated statements of changes in shareholders' equity and
comprehensive income of this annual report detail the changes in equity capital,
including payments to shareholders in the form of cash dividends. The Company
has continued the long history of increasing cash dividends with an increase of
11.0% in 1998, which followed a 12.7% increase in 1997. Dividends per share
amounted to $0.91 in 1998, compared to $0.82 in 1997, and $0.73 in 1996. Total
dividends paid represented 39.6%, 40.7%, and 41.5% of net income after tax in
each of those years, respectively.
Total shareholders' equity was $64.0 million at December 31, 1998, compared
to $57.2 million at December 31, 1997, and $52.6 million in 1996. Shareholders'
equity growth of 12.5% in 1998 was supported by net income which contributed
$6.8 million to shareholders' equity after the payment of cash dividends. Total
shareholders' equity grew by 8.8% in 1997, although growth was slowed by the
repurchase of 120,000 shares of common stock in May 1997.
During 1998, the company repurchased 17,245 shares of common stock at a cost
of $584,000. Of the 17,245 shares repurchased in 1998, 5,038 were purchased
under the stock repurchase program approved by the Company's board of directors
in November 1996, which authorizes the repurchase of up to $3 million in common
stock through open market transactions. The remaining shares were repurchased in
a privately negotiated transaction.
All shares repurchased in 1998 and 1997 were returned to the status of
authorized and unissued, which offset a portion of the 33,202 shares issued
through the exercise of stock options and shares issued under the Company's
Investment and Stock Ownership Plan.
The board of directors believes the recent repurchases of Company stock have
been excellent investment opportunities for the Company and its shareholders, in
light of the Company's strong capital position and historically strong equity
growth.
The Company and the Trust Company are subject to quantitative capital
measures established by regulation to ensure capital adequacy. Consistent with
the objective of operating a sound financial organization, the Company and the
Trust Company maintain capital ratios well above regulatory minimums, as
detailed in Note 15 of the consolidated financial statements.
SECURITIES
In 1998, the securities portfolio (net of fair value adjustments on
available-for-sale securities) increased 1.54% to $215 million, with
approximately 10.0% of debt securities maturing in one year or less. Note 2 to
the consolidated financial statements details the types of securities held, the
carrying and fair values, and the contractual maturities. Qualified tax exempt
debt securities, primarily obligations of states and political subdivisions,
were $34.1 million, or 16% of all securities at year end 1998, compared to $36.9
million, or 17% at December 31, 1997. Mortgage-backed securities, consisting
solely of securities issued by U.S. Government agencies, totaled $54.6 million
at December 31, 1998, compared to $30.7 million at December 31, 1997.
Management's policy is to purchase investment grade securities that, on
average, have relatively short expected
34
maturities. This policy helps mitigate interest rate risk and provides sources
of liquidity without significant risk to capital. A large percentage of
securities are direct obligations of the Federal government and its agencies.
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without penalty. The
maturity distribution of debt securities and mortgage-backed securities as of
December 31, 1998, along with the weighted average yield of each category is
presented in TABLE 5. Balances are shown at amortized cost.
TABLE 6 - LOAN CLASSIFICATION SUMMARY
(DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
Residential real estate $178,529 $159,297 $142,676 $122,223 $109,676
Commercial real estate 70,822 61,342 47,674 37,518 31,250
Real estate construction 3,516 5,267 1,203 663 639
Commercial 80,176 78,612 85,044 87,159 83,917
Consumer and other 58,677 60,090 62,488 61,823 65,841
Leases 15,691 14,313 12,740 13,563 11,225
- --------------------------------------------------------------------------------------------------------------------------
Total loans and leases 407,411 378,921 351,825 322,949 302,548
Less unearned income 2,054 1,737 1,416 1,659 1,461
- --------------------------------------------------------------------------------------------------------------------------
Total loans and leases,
net of unearned income $405,357 $377,184 $350,409 $321,290 $301,087
- --------------------------------------------------------------------------------------------------------------------------
LOANS
Total loans and leases, net of unearned income, grew 7.5%, to $405 million at
December 31, 1998. TABLE 6 details the composition and volume changes in the
loan portfolio over the past five years. Residential real estate loans grew by
$19.2 million or 12% in 1998, and comprised 44% of total loans and leases.
Residential real estate loan growth has exceeded 10% in each of the last five
years. Included in residential real estate loans are home equity loans, which
declined slightly from $20.2 million in 1997, to $17.9 million in 1998. The
Company occasionally sells some of its residential mortgage loans to Federal
agencies and retains all servicing rights. No mortgage loans were sold in 1998
or 1997. In 1996, the Company sold approximately $201,000 of mortgage loans.
Mortgage servicing on sold loans continues to provide fee income. Residential
mortgage loans serviced for others totaled $21.5 million at December 31, 1998,
compared to $28.2 million at December 31, 1997.
Commercial real estate loans increased by $9.5 million in 1998, or 15%.
Commercial real estate loans of $70.8 million represented 17% of total loans and
leases at December 31, 1998. Commercial loans totaled $80.2 million at December
31, 1998, an increase of 2% over 1997.
Consumer and other loans declined from $60.1 million at December 31, 1997, to
$58.7 million at December 31, 1998. The $1.4 million decline in consumer and
other loans in 1998 is attributable to the sale of $6.9 million in Federally
guaranteed education loans to the Student Loan Marketing Association. Education
loans are offered through the New York State Higher Education Assistance
Corporation, and the Company has the option of holding student loans in the
portfolio or selling them. The Company realized a $96,000 gain on education
loans sold in 1998. The Company sold $3.3 million of student loans in 1997, and
$847,000 in 1996 with no material gain or loss in either year.
Approximately 66% of the consumer loan portfolio is made up of automobile
loan financing, which is generally rate sensitive and highly competitive. New
marketing strategies initiated in 1998 resulted in an 8% increase in automobile
loans, to $38.3 million as of December 31, 1998. Open-end consumer loans,
consisting of credit cards and overdraft lines of credit, amounted to $10.8
million at December 31, 1998, compared to $10.3 million at year end 1997.
The lease portfolio increased by 10% in 1998, to $15.7 million. The lease
portfolio has traditionally consisted of leases on vehicles for consumers and
small businesses. Competition for automobile financing has increased in recent
years, resulting in a decline in the consumer leasing portfolio. In 1997, in
response to the decline in consumer leasing opportunities, management increased
its marketing efforts relating to commercial leasing. These efforts have been
successful as growth in the commercial lease portfolio has offset declines in
the consumer lease portfolio in 1997 and 1998. As of December 31, 1998,
commercial leases represented 44% of total leases, compared to 27% at year end
1997.
THE RESERVE FOR LOAN/LEASE LOSSES
Management reviews the adequacy of the reserve for loan/lease losses on an
ongoing basis. 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 loan review department;
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 nonaccrual loan statistics; and a rolling five-year
statistical review of loan and lease loss experience.
35
Management uses a model to measure some of these factors and the resulting
quantitative analysis, combined with qualitative assessments, comprise the basis
on which the adequacy of the reserve for loan/lease losses is determined. As a
result of this analysis, management increased the reserve by $50,000 in 1998, to
$5.0 million. The allocation of the Company's reserve for loan losses is
illustrated in TABLE 7.
TABLE 7 - ALLOCATION OF THE RESERVE FOR LOAN/LEASE LOSSES
(DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Total loans outstanding
at end of year $405,357 $377,184 $350,409 $321,290 $301,087
- ------------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF THE RESERVE
BY LOAN TYPE:
Commercial and
commercial real estate $ 1,115 $ 1,270 $ 786 $ 1,591 $ 1,589
Residential real estate 1,239 307 230 85 130
Consumer and all other 1,494 1,090 1,249 1,401 1,427
Unallocated 1,180 2,312 2,514 1,627 1,508
- ------------------------------------------------------------------------------------------------------------------------------
Total $ 5,028 $ 4,979 $ 4,779 $ 4,704 $ 4,654
- ------------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF THE RESERVE AS A
PERCENTAGE OF TOTAL RESERVE:
Commercial and
commercial real estate 22% 26% 17% 34% 34%
Residential real estate 25% 6% 5% 2% 3%
Consumer and all other 30% 22% 26% 30% 31%
Unallocated 23% 46% 52% 34% 32%
- ------------------------------------------------------------------------------------------------------------------------------
Total 100% 100% 100% 100% 100%
- ------------------------------------------------------------------------------------------------------------------------------
LOAN/LEASE TYPES AS A PERCENT
OF TOTAL LOANS/LEASES:
Commercial and
commercial real estate 37% 35% 38% 34% 33%
Residential real estate 44% 41% 41% 41% 40%
Consumer and all other 19% 24% 21% 25% 27%
- ------------------------------------------------------------------------------------------------------------------------------
Total 100% 100% 100% 100% 100%
- ------------------------------------------------------------------------------------------------------------------------------
Loans 90 days past
due and accruing $ 118 $ 85 $ 28 $ 254 $ 241
Nonaccruing loans 1,142 2,698 1,994 1,024 607
Troubled debt restructurings
not included above 471 483 428 205 134
Other real estate owned -0- 66 100 229 231
- ------------------------------------------------------------------------------------------------------------------------------
Reserve as percent of loans
outstanding at end of year 1.24% 1.32% 1.36% 1.46% 1.55%
- ------------------------------------------------------------------------------------------------------------------------------
The reserve represented 1.24% of total loans and leases outstanding at year
end 1998, down from 1.32% at December 31, 1997. Although the reserve declined as
a percentage of total loans and leases, reserve coverage of nonperforming assets
(loans past due 90 days and accruing, nonaccrual loans, restructured troubled
debt, and other real estate) increased to 3.99 times at December 31, 1998,
compared to coverage of 1.75 times at December 31, 1997.
Management is committed to early recognition of loan problems and to
maintaining a conservative, strong reserve. Based upon management's review, the
reserve is believed to be adequate to absorb probable losses in the portfolio.
The Company's historical loss experience is detailed in TABLE 8.
DEPOSITS AND OTHER LIABILITIES
Total deposits grew by $16.1 million in 1998, to $493 million. Deposit growth
was split between core deposits, which grew by $5.9 million, and time deposits
of $100,000 or more, which increased by $10.2 million. Included in core deposits
are noninterest bearing demand deposits of $89.6 million at December 31, 1998,
compared to $87.7 million at year end 1997.
The Company's liability for securities sold under agreements to repurchase
amounted to $60.0 million at December 31, 1998, representing a $2.0 million
increase from year end 1997. Securities sold under repurchase agreements
("repurchase agreements") are arrangements with local customers of the Bank, in
which the Bank agrees to sell
36
securities to the customer with an agreement to repurchase those securities at a
specified later date. Management generally views local repurchase agreements as
an alternative to large time deposits.
TABLE 8 - ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES
(DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Average loans outstanding
during year $386,721 $361,764 $334,187 $313,340 $287,684
- ------------------------------------------------------------------------------------------------------------------------------
Balance of reserve at
beginning of year $ 4,979 $ 4,779 $ 4,704 $ 4,654 $ 4,404
LOANS CHARGED-OFF, DOMESTIC:
Commercial, financial
and agricultural 136 138 46 83 34
Real estate - mortgage 484 39 148 50 59
Installment loans
to individuals 657 1,101 1,286 611 430
Lease financing 10 8 11 4 1
Other loans 70 69 59 355 370
- ------------------------------------------------------------------------------------------------------------------------------
Total loans charged-off 1,357 1,355 1,550 1,103 894
- ------------------------------------------------------------------------------------------------------------------------------
RECOVERIES OF LOANS
PREVIOUSLY CHARGED-OFF, DOMESTIC:
Commercial, financial
and agricultural 33 57 57 31 26
Real estate - mortgage 1 3 7 54 -0-
Installment loans
to individuals 339 394 324 201 242
Lease financing 5 4 7 17 13
Other loans 22 29 20 99 95
- ------------------------------------------------------------------------------------------------------------------------------
Total loans recovered 400 487 415 402 376
- ------------------------------------------------------------------------------------------------------------------------------
Net loans charged-off 956 868 1,135 701 518
Additions to reserve charged
to operations 1,006 1,068 1,210 751 768
- ------------------------------------------------------------------------------------------------------------------------------
Balance of reserve at
end of year $ 5,028 $ 4,979 $ 4,779 $ 4,704 $ 4,654
- ------------------------------------------------------------------------------------------------------------------------------
Net charge-offs as percent
of average loans
outstanding during year 0.25% 0.24% 0.34% 0.22% 0.18%
- ------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1998, securities pledged to secure certain large deposits,
repurchase agreements, and other borrowings amounted to $181.8 million, compared
to $162.0 million as of December 31, 1997. Total securities pledged and sold
under repurchase agreements represented 84% of total securities on December 31,
1998, compared to 76% of total securities on December 31, 1997.
During 1998, the Company increased its borrowings from the Federal Home Loan
Bank ("FHLB") by $18 million, to $45 million. All borrowings outstanding with
the FHLB at December 31, 1998, were fixed rate callable borrowings. The call
features of the borrowings allow the FHLB to call the debt on the first
anniversary of the borrowing, and quarterly thereafter. Borrowings outstanding
at December 31, 1998 carried an average interest rate of 4.97%, and an average
maturity of 5.7 years.
LIQUIDITY MANAGEMENT
The objective of liquidity management is to ensure the availability of
adequate funding sources to satisfy the demand for credit, deposit withdrawals,
and business investment opportunities. The Trust Company's large, stable core
deposit base and strong capital position are the foundation for the Company's
liquidity position. Asset and liability positions are monitored through an
Asset/Liability Management Committee, which reviews monthly reports on the
liquidity and interest rate sensitivity positions. Comparisons with industry and
peer groups of the Bank are also monitored. Core deposits remain the key funding
source, representing 78% of total deposits, and 63% of total liabilities at
December 31, 1998. Non-core liabilities increased by 16% to $211.9 million at
December 31, 1998, compared to $182.1 million at December 31, 1997. The portion
of non-core liabilities (time deposits of $100,000 or more, repurchase
agreements, and other borrowings) maturing in one year or less totaled $163.1
million at December 31, 1998, compared to $164.6 million at
37
December 31, 1997. Short term investments consisting of securities with
maturities of one year or less and Federal funds sold decreased from $36.3
million at December 31, 1997, to $31.1 million at December 31, 1998. The ratio
of short term investments to short term non-core liabilities declined from 20.0%
at year end 1997, to 13.0% at year end 1998, indicating an increase in the
volume of long term assets supported by short term non-core liabilities. The
decline in this ratio is primarily attributable to an increase in
mortgage-backed securities, which have stated maturities in excess of one year,
but have monthly principal reductions. Total mortgage-backed securities amounted
to 25% of total securities at December 31, 1998, compared to 15% at year end
1997.
TABLE 9 - LOAN MATURITY
REMAINING MATURITY OF SELECTED LOANS AT DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS) TOTAL WITHIN 1 YEAR 1-5 YEARS AFTER 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------------
Commercial real estate $ 70,822 $15,039 $46,282 $ 9,501
Real estate construction 3,516 67 3,449 -0-
Commercial 80,176 39,458 33,850 6,868
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 154,514 $54,564 $83,581 $16,369
- -----------------------------------------------------------------------------------------------------------------------------
TABLE 10 - INTEREST RATE RISK ANALYSIS
CONDENSED STATIC GAP - DECEMBER 31, 1998 REPRICING INTERVAL
CUMULATIVE
(DOLLAR AMOUNTS IN THOUSANDS) TOTAL 0-3 MONTHS 3-6 MONTHS 6-12 MONTHS 12 MONTHS
- -----------------------------------------------------------------------------------------------------------------------------
Interest earning assets $629,928 $ 119,896 $58,211 $90,581 $268,688
Interest-bearing liabilities 508,248 257,995 40,500 35,274 333,769
- -----------------------------------------------------------------------------------------------------------------------------
Net Gap position $(138,099) $17,711 $55,307 $(65,081)
- -----------------------------------------------------------------------------------------------------------------------------
Net Gap position as a percentage of total assets (20.52%) 2.63% 8.22% (9.67%)
- -----------------------------------------------------------------------------------------------------------------------------
Cash flow from the loan and investment portfolios is a significant source of
liquidity. Investment in residential mortgage loans, mortgage-backed securities,
and auto loans totaled approximately $160 million, $55 million, and $38 million,
respectively at December 31, 1998. Aggregate amortization from monthly payments
on these assets provides significant cash flow to the Company. TABLE 9 details
total scheduled maturities of selected loan categories.
Liquidity is enhanced by ready access to national and regional wholesale
funding sources including Federal funds purchased, repurchase agreements,
negotiable certificates of deposit, and FHLB advances. The Bank is a FHLB member
and has borrowing relationships with the FHLB and a correspondent bank, which
provide secured and unsecured borrowing capacity. At December 31, 1998, the
unused borrowing capacity with the FHLB was $62.2 million. As a member of the
FHLB, the Bank can use its equity investment in Tompkins Real Estate Holdings,
Inc. as collateral to secure additional borrowings from the FHLB. The Trust
Company's common and preferred equity investment in Tompkins Real Estate
Holdings, Inc. was $199.2 million.
MARKET RISK
The Company's primary market risk exposure relates to sensitivity to interest
rate changes. Interest rate sensitivity refers to the volatility in earnings,
resulting from changes in interest rates. Each month the Asset/Liability
Management Committee estimates the earnings impact of changes in interest rates.
The findings of the committee are incorporated into investment and funding
decisions, and in the business planning process.
TABLE 10 is a condensed Static Gap report, which illustrates the anticipated
repricing intervals of assets and liabilities as of December 31, 1998. The
analysis reflects a liability sensitive position, suggesting that earnings would
benefit from a declining interest rate environment and would be hindered by a
rising rate environment.
Management uses a simulation model to assess the potential impact from
various interest rate movements. Based upon the simulation analysis performed as
of December 31, 1998, a 200 basis point upward shift in interest rates over a
one year time frame would result in a one year decline of 3.1% in net interest
income, assuming management takes no action to address balance sheet mismatches.
The same simulation indicates that a 200 basis point decline in interest rates
over a one year period would increase net interest income by 0.5%. The
simulation model is useful in identifying potential exposure to interest rate
movements; however, management feels that certain actions could be taken to
offset some of the negative effects of unfavorable movements in interest rates.
Although the analysis reflects some exposure to rising interest rates,
management feels the exposure is not significant in relation to the earnings and
capital strength of the Company. Additional information regarding market risk of
the Company's financial instruments is provided in TABLE 11.
38
TABLE 11 - REPRICING INTERVALS OF SELECTED FINANCIAL INSTRUMENTS
GREATER
(DOLLAR AMOUNTS IN THOUSANDS) 0-1 YEAR 1-2 YEARS 2-3 YEARS 3-5 YEARS THAN 5 YEARS TOTAL FAIR VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Available-for-sale securities $ 57,511 $44,829 $34,364 $22,321 $21,858 $180,883 $182,740
Average interest rate 6.90% 6.63% 6.70% 6.65% 6.93% 6.76%
Held-to-maturity securities 10,436 6,849 6,040 6,390 4,373 34,088 35,011
Average interest rate * 4.74% 5.35% 5.32% 5.33% 5.21% 5.14%
Loans 176,117 63,597 63,626 65,959 36,058 405,357 407,178
Average interest rate 8.86% 9.06% 8.63% 8.47% 7.87% 8.70%
FINANCIAL LIABILITIES:
Time deposits 170,377 17,425 2,096 4,603 -0- 194,495 195,034
Average interest rate 4.79% 4.03% 5.05% 5.50% 4.84%
Federal funds sold and securities sold
under agreements to repurchase 60,007 -0- -0- -0- -0- 60,007 60,345
Average interest rate 5.38% 5.38%
Fixed rate borrowings 45,005 -0- -0- -0- -0- 45,005 44,977
Average interest rate 4.97% 4.97%
- -----------------------------------------------------------------------------------------------------------------------------------
* INTEREST RATE ON OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS IS SHOWN BEFORE TAX-EQUIVALENT ADJUSTMENTS
YEAR 2000 CONSIDERATIONS
Management is well along on an enterprise-wide program, consistent with
guidelines issued by the Federal Financial Institutions Examination Council
("FFIEC"), to prepare the Company's computer systems and software applications
for the Year 2000. The program includes the following phases:
o Identification (Completed)
o Assessment (Completed)
o Remediation (In process)
o Testing (In process)
o Contingency Planning (In process)
The identification phase involved identifying the types of risk exposures
related to Year 2000. Through this process the Company identified specific risk
exposures related to internal information technologies, information service
providers, other service providers, and customers.
As part of the assessment phase, the Company has categorized its information
technology systems as Mission Critical, Mission Important, or Important. The
Company has assessed the Year 2000 readiness of each information technology
system and has established a plan for remediating any known Year 2000 problems.
The Company's primary application, which handles processing of loans,
deposits, safe deposit, and general ledger, has been designated as Year 2000
compliant by the vendor. The vendor, which has contracts with approximately
1,000 banks, has also provided the Company with test results performed by an
independent contractor that has also designated the system as Year 2000
compliant.
Due to the importance of this application to the Company's operations,
management also conducted its own tests of this system in the fourth quarter of
1998. Of the remaining systems that have been categorized as Mission Critical or
Mission Important, approximately 90% have been designated as Year 2000
compliant.
Testing is also in process on several other systems, and it is expected that
testing of all Mission Critical and Mission Important systems will be completed
in the first quarter of 1999. Based upon the most recent communication with
vendors and service providers, management expects that remediation of all
Mission Critical and Mission Important systems if necessary, will be completed
by March 31, 1999.
The Company is formulating a contingency plan for business continuation in
the event of Year 2000 system failures. This contingency plan will be based upon
the Company's existing disaster recovery plan, with modifications for Year 2000
risks. The Company expects the Year 2000 contingency plan to be completed by May
1999.
As part of the process of evaluating and attempting to mitigate third party
risk, the Company is collecting and analyzing Year 2000 information from third
parties who have significant business relationships with the Company. These
third parties include borrowers, obligors, and vendors. The Company believes
that its reasonably likely worst case scenario might include a material increase
in credit losses due to Year 2000 problems of borrowers, and a disruption in
financial markets causing liquidity stresses. The magnitude of potential credit
losses or a disruption in financial markets cannot be determined at this time;
however, the Year 2000 program described above is designed to reduce exposure to
these risks. In any event, the strong capital position, earnings strength, and
liquidity of the Company are believed to be more than adequate to withstand any
reasonably likely worst case scenario.
The total cost of the Company's Year 2000 project is expected to be $200,000,
of which approximately $150,000 has been incurred as of December 31, 1998. This
amount includes the costs of additional hardware, software, and technology
consultants, as well as the cost of the Company's information technology
professionals dedicated to achieving Year 2000 compliance. A significant portion
of these costs are
39
not incremental, but rather involve redeployment of existing personnel and
resources. The Company has included the cost of the Year 2000 project in its
operating budget and management does not expect this to have a material effect
on the Company's financial condition or results of operations.
FORWARD-LOOKING STATEMENTS
This report may include forward-looking statements with respect to revenue
sources, growth, market risk, corporate objectives, and Year 2000. The Company
assumes no duty to update forward-looking statements, and cautions that these
statements are subject to numerous assumptions, risk, and uncertainties, all of
which could change over time. Actual results could differ materially from
forward-looking statements.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes comprehensive accounting and reporting requirements for derivative
instruments and hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with instruments
measured at fair value. The recognition of accounting gains and losses resulting
from changes in fair value of a derivative instrument depends on the intended
use of the derivative and the type of risk being hedged. This statement is
effective for the Company for all fiscal quarters beginning after January 1,
2000; however, early adoption is permitted. When adopted, this statement is not
expected to have a material impact on the Company's financial condition or
results of operations.
SFAS No. 133 also permits certain reclassifications of securities among the
trading, available-for-sale, and held-to-maturity classifications. The Company
has no current intentions to reclassify securities pursuant to SFAS No. 133.
FACILITIES AND SERVICES
The Company continues to invest in existing branches to maintain high quality
service to customers in the Bank's service area of Tompkins County and
surrounding areas. In 1998, the Bank purchased a parcel of land that includes
the site of the previously leased West End Office. The purchase allows the
Company to control expenses, and ensures our presence in this strategic
location. Plans for enhancement of the site will be developed in 1999. The Bank
also renovated the second and third floors of the Main Office to accommodate the
needs and goals of the Commercial Banking Services Department.
Technology investments continue to be important as the Trust Company strives
to control costs while providing customers with convenient access to high
quality products and services. By the end of 1998, the Trust Company had 21 ATMs
in its network and had signed agreements to place two additional ATMs; one on
the Cornell University campus and one in Slaterville, NY. Over 8,000 customers
enjoy the convenience of the Trust Company's Visa check card. To complement our
existing wide range of electronic access services, the Bank offered Internet
banking to our customers in 1998. Our web site was visited in excess of 20,000
times per month in 1998.
The Trust Company's Product and Services Analysis committee continues to
monitor and analyze product developments on both the local and national level.
This ongoing process positions the Trust Company to remain competitive, respond
quickly to changing customer needs, and offer a wide range of financial service
options to its customers.
COMPETITION
The Company and its operating subsidiary face aggressive competition from
other financial services providers who do business in Tompkins County and the
surrounding areas. Local competition includes large regional commercial banks
with branches in Tompkins County, savings and loans, mortgage companies, and
large, income tax-exempt credit unions which enjoy economic advantages over
taxpaying financial institutions. Additionally, the ability of non-banking
financial institutions to provide services previously reserved for commercial
banks has intensified competition. Since non-banking financial institutions are
not subject to regulations such as the Community Reinvestment Act or the Federal
Deposit Insurance Corporation Improvement Act, among others, they can often
operate with increased flexibility and lower costs of compliance.
Nevertheless, the Company is well positioned to meet the demands of its
existing and potential customers, with state-of-the-art facilities, efficient
operations, and a broad range of financial services and products. The Company
continues to emphasize the advantages of banking with a locally headquartered,
independent commercial bank, as well as the ability for many of its services to
be accessed from any state in the country. The Trust Company is the only
remaining full-service commercial bank with its headquarters in Ithaca, N.Y.
Management believes this gives the Trust Company certain advantages in meeting
the needs of the local market, as the oldest continuously operating commercial
bank in Tompkins County.
40
BANKING OFFICERS
JAMES J. BYRNES TERRY G. BARBER RICHARD W. W. LIND
President & Chief Executive Officer Assistant Vice President, Assistant Vice President,
Data Processing Central Recovery
DONALD S. STEWART
Executive Vice President, CHARLES E. BROWN RANDY C. LOVELL
Investment Services Senior Systems Programmer Assistant Vice President,
Assistant Auditor
RICHARD M. DOLGE DOUGLAS M. BROWN
Senior Vice President, Retail Banking Senior Accounting Officer RICHARD S. LYNN
Assistant Vice President,
RICHARD D. FARR LINDA M. CARLTON Mortgage Credit
Senior Vice President, Compliance Review Officer &
Chief Financial Officer Assistant Corporate Secretary PAUL E. MARINO
Assistant Vice President,
JOSEPH H. PERRY JOAN M. CURTIS Retail Investment Officer
Senior Vice President, Trust Officer Assistant Vice President,
Manager, Dryden LILLIAN E. MARSHALL
THOMAS J. SMITH Operations Officer
Senior Vice President, Credit Services RONALD A. DAVENPORT
Assistant Vice President, NANCY E. MASSICCI
LAWRENCE A. UPDIKE Community Marketing Manager Trust Officer
Senior Vice President,
Operations & Systems JOSEPH P. DOYLE MARILYN E. MAZZA
Assistant Vice President, Manager, Cornell Campus
Consumer Credit Services Store
STEVEN E. BACON CATHERINE H. ECKER J. DOUGLAS MELENS
Vice President, Commercial Banking Customer Service Officer Manager, Odessa
PAUL W. BANFIELD FRANCIS M. FETSKO JOELLEN F. MENDELIS
Vice President, Commercial Banking Controller Assistant Vice President,
Mortgage Loan Officer
MICHELLE BENEDICT-JONES MARCIA H. FINCH
Vice President, Trust Officer Credit Card Manager KAREN E. PARKES
Assistant Vice President,
SAMUEL V. BREWER JAMES P. GIORDANO Commercial Banking
Vice President, Trust Officer Assistant Vice President,
Facilities Manager CYNTHIA A. PHOENIX
JOHN E. BUTLER Credit Manager
Vice President, Trust Officer & SANDRA L. GROOMS
Corporate Secretary Consumer Loan Officer MARTHA K. PRESTON
Assistant Vice President,
EDWARD F. DAWSON ALAN R. GUREWICH Mortgage Loan Officer
Vice President, Consumer Assistant Vice President,
Credit Services Consumer Credit Services PATRICIA A. PULLMAN
Trust Officer
JEFFREY DOBBIN PAUL R. HARRINGTON
Vice President, Commercial Banking Assistant Vice President, NAKETO SCOTT
Manager, Trumansburg Assistant Vice President,
BENJAMIN E. HERRMANN Deposit Operations
Vice President, Retail Banking CATHERINE L. HAUPERT
INVEST Representative SIU-SING W. SHANTUR
STEPHEN R. HOYT Assistant Vice President,
Vice President, Commercial Banking EILEEN K. HOYT Loan Operations
Trust Operations Manager
JOYCE P. MAGLIONE C. KING STEVENS
Vice President, Personnel DIANA JAYNE Trust Officer
Assistant Vice President,
H. CRAIG MILLER Manager, Triphammer TIMOTHY S. SWARTZ
Vice President, Residential Manager, Plaza
Mortgage Services BRUCE A. KOBASA
Assistant Vice President, Operations ANN-MARIE TUTTON
STEPHEN L. PATCHETT Assistant Vice President, Marketing
Vice President, Commercial Banking WILLIAM K. KOHM
Card Systems Manager SUSAN D. UPDIKE
CINDY L. SEAGER Assistant Treasurer
General Auditor JOANNE LELIK
Assistant Vice President, JULIE C. WHITAKER
PAMELA L. WAIT Manager, West End Consumer Loan Officer
Vice President, Retail Banking
41
BOARD OF DIRECTORS ADVISORY BOARDS
JAMES J. BYRNES TRUMANSBURG
Chairman, President & JOHN A. DELANEY
Chief Executive Officer Superintendent of Schools,
Trumansburg School District
BONNIE H. HOWELL
Vice Chairman; President & MARTIN E. HAYES
Chief Executive Officer, President/Treasurer
Cayuga Medical Center at Ithaca Finger Lakes Fire & Casualty
JOHN E. ALEXANDER DONALD F. OLIVER, JR.
President, The CBORD Group, Inc. Manager, Taughannock Falls
State Park
REEDER D. GATES
President, R. D. Gates, Ltd. JOSEPH L. SIBLEY
Proprietor
WILLIAM W. GRISWOLD Ness-Sibley Funeral Home
President & Chief Operating Officer,
Ontario Telephone Company & CALISTA A. SMITH
Trumansburg Home Telephone Executive Director, Trumansburg
Company Conservatory of Fine Arts, Inc.
CARL E. HAYNES SUSAN L. WHITAKER
President, Tompkins Cortland Owner, Black Sheep Design
Community College
DRYDEN
EDWARD C. HOOKS LINDA L. BRUNO
Bank Counsel, Attorney-at-Law, Business Manager,
Partner, Harris Beach & Wilcox LLP Dryden School District
ROBERT T. HORN, JR. MARK N. GOLDFARB
Physician Owner, Dryden Apartment Company
LUCINDA A. NOBLE JAMES V. KOCH
Retired Director, Cooperative President, Sturges Electronics
Extension, Cornell University Products Company, Inc.
HUNTER R. RAWLINGS, III CHARLES G. MCMULLEN
President, Cornell University Professor of Psychology
Tompkins Cortland
THOMAS R. SALM Community College
Vice President, Business &
Administrative Affairs, Ithaca College MAHLON R. PERKINS
Attorney-at-Law
MICHAEL D. SHAY KAREL R. WESTERLING
Chairman of the Board, Local Businessman
Evaporated Metal Films Corporation
NORTHEAST
PEGGY R. WILLIAMS* WILLIAM E. COOKE
President, Ithaca College President, Bill Cooke
Imports, Inc. & Bill Cooke
ADVISORS TO THE BOARD Chevrolet, Oldsmobile, Cadillac, Inc.
OF DIRECTORS
THOMAS R. KURZ
DALE R. CORSON General Manager & Chief
Operating Officer, Advanced
CHARLES E. TREMAN, JR. BioAnalytical Services, Inc.
o APPOINTMENT EFFECTIVE JANUARY 26, 1999
ANDREA S. PRICE
Superintendent of Schools
Lansing Central School District
MICHAEL R. PRONTI
Director of Exceptional Education
BOCES
LYNNETTE M. SCOFIELD
Owner, William Henry Miller Inn
JOHN S. STEWART, SR.
Retired
42
BANKING LOCATIONS BANK ACCESS CENTERS (ATMS)
Main Office, The Commons, 273-3210 Main Office, The Commons
Campus Store Office, Cornell Big Al's Get-N-Go, McLean
University, 257-1909
Byrne Dairy, Meadow Street
Corners Community Center Office,
Hanshaw Road, 257-5857 Campus Store, Cornell University
Dryden Office, North Street Extension, Corners Community Center Office
Dryden, 844-8282
Dryden Office
East Hill Plaza Office,
1012 Ellis Hollow Road, 277-2561 Ithaca College Student Union
Kendal at Ithaca Office, Kinko's Copy Center,
Savage Farm Drive 409 College Avenue
Odessa Office, 100 Main Street, Jim's Place
Odessa, 594-3338 Rt. 13, Alpine Junction
Plaza Office, 775 S. Meadow Street, Lansing Xtramart,
273-5600 N. Triphammer Rd. & Route 34B
Pyramid Mall Office, Pyramid Mall, Plaza Office
257-7900 Pyramid Mall, Food Court
Seneca Street Drive-In, Seneca Street Drive-Up/Walk-Up
118 E. Seneca Street
Triphammer Road Office, (2 ATMs)
2251 North Triphammer Road, 257-2656 ShortStop Deli, 200 W. Seneca Street
Cayuga Medical Center at Ithaca
Trumansburg Office, Main Street, Triphammer Road Office (2 ATMs)
Trumansburg, 387-7331 Trumansburg Office
West End Office, West End Office
701 W. Seneca Street, 273-6171
43
CORPORATE INFORMATION
CORPORATE OFFICES
- --------------------------------------------------------------------------------
Tompkins County Trustco, Inc. Web site: www.tompkinstrust.com
The Commons E-mail: thetrustco@aol.com
P.O. Box 460
Ithaca, NY 14851
(607) 273-3210
STOCK LISTING
- --------------------------------------------------------------------------------
Tompkins County Trustco, Inc. common stock is traded on the American Stock
Exchange under the symbol TMP. At the close of
business on December 31, 1998, there were 1,055 shareholders of record.
ANNUAL SHAREHOLDERS' MEETING
- --------------------------------------------------------------------------------
All shareholders are invited to attend the annual meeting on Wednesday, April
28, 1999, at 7:30 p.m., Eastern Standard Time in the ballroom of the Clarion
University Inn and Conference Center, One Sheraton Drive, Ithaca, New York.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
This plan is administered by The Bank of New York, as your Agent. It offers a
convenient way for shareholders to increase their investment in the Company. The
plan enables shareholders to reinvest all or part of their cash dividends or
make additional cash payments with some restrictions, in order to purchase
shares of Tompkins County Trustco, Inc. common stock without incurring charges
for brokerage commissions or service charges. Shareholders who are interested in
this plan may receive a plan prospectus and enrollment card by writing or
calling the corporate secretary at (607) 273-3210.
FORM 10-K
- --------------------------------------------------------------------------------
Copies of the Company's Form 10-K (Annual Report) for 1998, filed with the
Securities and Exchange Commission, may be obtained by shareholders, by written
request, from Richard D. Farr, Senior Vice President and Chief Financial
Officer, P.O. Box 460, Ithaca, New York 14851.
INQUIRIES
- --------------------------------------------------------------------------------
Shareholder questions can be answered by contacting the Company's Transfer Agent
THE BANK OF NEW YORK
1-800-524-4458
E-mail address:
Shareowner-svces@bankofny.com
Address shareholder inquiries to:
Shareholder Relations Department - 11E
P.O. Box 11258
Church Street Station
New York, NY 10286
Send certificates for transfer and
address changes to:
Receive and Deliver Department - 11W
P.O. Box 11002
Church Street Station
New York, NY 10286
Answers to many of your shareholder questions and requests for forms are
available by visiting The Bank of New York's Web site at:
http://stock.bankofny.com
44