<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 0-27514
-------
TOMPKINS COUNTY TRUSTCO, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 161482357-8
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
THE COMMONS, P.O. BOX 460, ITHACA, NEW YORK 14851
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 273-3210
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: COMMON STOCK ($.10 PAR VALUE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's voting stock held by non-
affiliates was approximately $101,037,577 on March 13, 1997, based on the
closing sales price of the registrant's common stock, $.10 par value (the
"Common Stock"), as reported on the American Stock Exchange , Inc. as of such
date.
The number of shares of the registrant's Common Stock outstanding as of March
13, 1997 was 3,315,490 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders for the fiscal year ended December 31, 1996 (the
"Annual Report") filed with the Securities and Exchange Commission on March 26,
1997 is incorporated herein by reference (Parts I and II).
Proxy Statement (the "Proxy Statement") filed with the Securities and Exchange
Commission on March 26, 1997 in connection with the 1997 Annual Meeting of
Stockholders is incorporated herein by reference (in Part III).
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Tompkins County Trustco, Inc. (the "Company") was incorporated under the
laws of the State of New York on March 6, 1995, and is a bank holding
company registered with the Federal Reserve Board ("FRB") under the Bank
Holding Company Act of 1976, as amended. The principal offices of the
Company and its wholly-owned operating subsidiary, Tompkins County Trust
Company ("TCTC"), are located at The Commons, P.O. Box 460, Ithaca, New
York 14851, and its telephone number is 607-273-3210. TCTC is a commercial
bank chartered in New York State, which has operated in the community of
Ithaca, New York and environs since 1836.
On January 1, 1996, the Company consummated a corporate reorganization (the
"Reorganization") pursuant to which, the Company became the sole
shareholder of, and holding company for, TCTC. All outstanding shares of
common stock of TCTC were converted, on a one-for-one basis, into all of
the outstanding shares of common stock of the Company. As a result of the
Reorganization, the Company's primary asset is the common stock of its
wholly-owned subsidiary, TCTC.
In October 1996, the Company repurchased 244,371 shares of its own common
stock in a privately negotiated sale from RHP Incorporated, an unrelated
third party. The stock was purchased at a price of $27.50 per share, for a
total purchase price of $6.7 million. The shares have been returned to the
status of authorized and unissued shares. Additionally, in November 1996,
the board of directors approved a stock repurchase program, which
authorizes the repurchase of up to $3 million in common stock in open
market transactions. No open market transactions have been completed under
this program.
In November 1996, TCTC acquired all deposits and selected assets of the
Odessa branch office of the First National Bank of Rochester. The
acquisition of the Odessa office, with approximately $10 million in
deposits, represents TCTC's first banking office outside of Tompkins
County. Odessa, New York is in Schuyler County, which is adjacent to
Tompkins County.
The Company engages in no substantial business activities other than
activities related to its ownership of TCTC. Unless the context otherwise
requires, all references herein to the "Company" include its wholly-owned
operating subsidiary, TCTC.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's primary revenue source is interest income derived from loans
and securities. The Company offers a broad range of short to medium-term
business and personal loans and consumer leases. Commercial loans include
both collateralized and uncollateralized loans for working capital
(including inventory and receivables), business expansion (including real
estate acquisitions and improvements), and purchases of equipment and
machinery. Consumer loans include collateralized and uncollateralized
loans for financing automobiles, boats, home improvements and personal
investments. A detailed analysis of the Company's financial condition and
results of operations is included in the Management Discussion & Analysis
section of the Company's Annual Report, incorporated by reference under
Item 8, herein.
2
<PAGE>
NARRATIVE DESCRIPTION OF BUSINESS
The Company conducts commercial and consumer banking business, which
primarily consists of attracting deposits from the areas served by its
banking offices and using those deposits to originate a variety of
commercial, consumer and real estate loans (including commercial loans
collateralized by real estate). The Company's principal expenses are
interest paid on deposits, interest on borrowings, and operating and
general administrative expenses. Funding sources, other than deposits
include: borrowing, securities sold under agreements to repurchase, and
cash flow from operations, lending, and investing activities.
The Company conducts trust and investment management services through its
Trust and Investment Services Department (the "Trust Department"). The
Trust Department provides a full range of money management services,
including investment management accounts, custody accounts, living trusts,
life insurance trusts, standby trusts, retirement plans and rollovers, will
trusts, estate settlement and financial planning.
As is the case with banking institutions generally, the Company's
operations are materially and significantly influenced by general local and
national economic conditions and related monetary and fiscal policies of
the Federal government. Operations may also be significantly influenced
by regulatory policies of various Federal and State agencies, which
regulate various aspects of the Company's business. Deposit flows and cost
of funds are influenced by returns on competing investments and general
market rates of interest. Lending activities are affected by the demand
for financing of real estate and other types of loans, competing interest
rates, and other factors affecting local demand and availability of funds.
The Company faces strong competition in the attraction of deposits (its
primary source of lendable funds) and in the origination of loans. See "-
Competition."
The Company's primary source of income is interest earned from its loan and
securities portfolios. Significant sources of interest income are detailed
in Table 1.
<TABLE>
<CAPTION>
TABLE 1
% % %
PRIMARY SOURCES OF INTEREST INCOME OF TOTAL OF TOTAL OF TOTAL
(IN THOUSANDS) 1996 REVENUE 1995 REVENUE 1994 REVENUE
<S> <C> <C> <C> <C> <C> <C>
TOTAL INTEREST ON LOANS $30,366 59% $28,835 61% $24,630 57%
Commercial and Commercial Real 11,664 23% 11,096 23% 9,059 21%
Estate *
Residential Real Estate 8,581 17% 7,272 15% 6,183 14%
Consumer 6,887 13% 7,171 15% 6,702 16%
INTEREST ON SECURITIES & OTHER
INVESTMENTS * $13,713 26% $12,337 25% $12,168 28%
* Interest income includes tax-equivalency adjustments for income exempt from Federal income taxes.
</TABLE>
Other income sources include fees for providing trust and investment services,
service charges on deposit accounts, and other service charges for providing
banking services. Income from each of these sources, as a percentage of total
revenue, amounted to 5%, 3%, and 6%, respectively, in 1996.
3
<PAGE>
LENDING ACTIVITIES
A discussion of the Company's lending activities is included in the
Management Discussion and Analysis section of the Company's Annual Report,
incorporated by reference under Item 8, herein. As of December 31, 1996,
management is not aware of any potential problem loans, or loans classified
for regulatory purposes as Substandard, Doubtful, or Loss, which have not
been disclosed as nonperforming assets in the Annual Report.
Real Estate Mortgage Loans
The Company originates mortgage loans to businesses to finance the
acquisition and holding of commercial real estate, and to individuals for
residential real estate purchases and financing. The Company requires
mortgage title insurance, flood insurance, and hazard insurance in amounts
deemed appropriate by management or required by law. Escrow accounts for
the payment of real estate taxes and insurance may also be required. The
Company's real estate mortgage loans primarily are underwritten in the
Company's primary market area on the basis of the value of the underlying
real property. The Company carefully manages environmental risks in its
real estate loan portfolio. Primary risks associated with real estate
lending include the borrowers inability to repay the debt and a reduction
in collateral value.
Commercial Lending
The Company offers a variety of commercial loan services including term
loans, demand loans, lines of credit, purchased accounts receivables,
leasing and equipment financing. A broad range of short-to-medium term
commercial loans, both collateralized and uncollateralized, are made
available to businesses for working capital (including inventory and
receivables), business expansion (including acquisitions of real estate and
improvements), and the purchase of equipment and machinery. The purpose of
a particular loan generally determines its structure. Commercial loans
include loans that support local not-for-profit corporations.
Commercial loans typically are underwritten on the basis of the borrower's
repayment capacity from cash flow and are generally collateralized by
business assets such as accounts receivable, equipment, real estate, and
inventory. As a result, the availability of funds for the repayment of
commercial loans may be substantially dependent on the success of the
business itself. Further, the collateral underlying the loans may
depreciate over time, cannot be appraised with as much precision as real
estate, and may fluctuate in value based on the success of the business.
Working capital loans are primarily collateralized by short-term assets,
while term loans are primarily collateralized by long-term or fixed assets.
The Company normally requires personal guarantees for commercial loans and
has approximately $8 million of commercial loans which are fully or
partially guaranteed by the Small Business Administration.
Consumer Loans
Consumer loans made by the Company include loans for automobiles,
recreation vehicles, education, boats, mobile homes, appliances, home
improvements and overdraft protection. These loans have been extended
through second mortgages, personal (collateralized and uncollateralized)
loans, credit cards, and deposit account collateralized loans.
Consumer loans are beneficial for the Company because the portfolio risk is
more predictable over time and such loans carry higher interest rates than
those charged on other types of loans. Consumer loans, however, pose
additional risks of collectability when compared to other types of loans,
such as residential mortgage loans. In many instances, the Company must
rely on the borrower's ability to repay, since the collateral normally is
of reduced value at the time of any liquidation. Accordingly, the initial
determination of the borrower's ability to repay is of primary importance
in the underwriting of consumer loans.
Home equity lines of credit are extended to individuals and secured by a
mortgage covering residential real estate. The Company requires flood
insurance and hazard insurance in amounts deemed appropriate by management.
4
<PAGE>
Lease Financing
The Company's lease portfolio is comprised primarily of leases on vehicles
and equipment for small businesses and individuals. The terms of these
loans and leases typically range from 12 to 180 months and vary based upon
the type of collateral and amount of the lease. The current lease
portfolio is comprised substantially of direct lease financing of new and
used automobiles. The Company expects to expand its marketing efforts for
commercial lease financing in 1997.
INVESTMENT ACTIVITIES
The Company maintains a portfolio of securities such as U.S. government and
agency securities, obligations of states and political subdivisions
thereof, equity securities, and interest-bearing deposits. It is the
intention of management to maintain short to intermediate maturities in the
Company's securities portfolio in order to better match the interest rate
sensitivities of its assets and liabilities.
Investment decisions are made within policy guidelines established by the
Company's Board of Directors. The investment policy established by the
Board of Directors is based on the asset/liability management goals of the
Company. The intent of the policy is to establish a portfolio of high
quality diversified securities, which optimize net interest income within
acceptable limits of safety and liquidity.
Purchases of securities, other than obligations of states and political
subdivisions thereof, are classified as available-for-sale, though it is
generally management's intent to hold all securities to maturity.
Securities available-for-sale may be used to enhance total return, provide
additional liquidity or reduce interest rate risk. Securities classified as
held-to-maturity are comprised of obligations of states and political
subdivisions thereof. The Company's current policy is to invest in
instruments with maturities between one and fifteen years. A desired
maturity curve is determined by the asset\liability management committee
consistent with the desired interest rate sensitivity. The accounting
treatment of the Company's securities is addressed in Note 1 of the Notes
to the Consolidated Financial Statements of the Company's Annual Report,
incorporated by reference under Item 8, herein.
Information regarding the amortized cost and fair value of the securities
portfolio for the years ended 1996 and 1995 is presented in Note 2 of the
Notes to Financial Statements of the Company's Annual Report, incorporated
by reference under Item 8, herein. The amortized cost and fair value of
the securities portfolio for the year ended 1994 is presented in Table 2
below.
<TABLE>
<CAPTION>
TABLE 2 SECURITIES
- -------------------------------------------------------------------------------------------------------
Available-for-Sale Held-to-Maturity
December 31, 1994 Amortized Cost Fair Value Amortized Cost Fair Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
U.S. Treasury Securities & Obligations
of U.S. Government Agencies $49,580 $48,998 $ 58,053 $ 55,127
Mortgage-Backed Securities 17,294 16,449
Obligations of State and Political
Subdivisions 0 0 43,500 43,531
U.S. Corporate Debt Securities 0 0 5,034 4,987
Equity Securities 1,513 1,513 0 0
$68,387 $66,960 $106,587 $103,645
</TABLE>
5
<PAGE>
The maturity distribution of debt securities as of December 31, 1996, along
with the weighted average yield of each category is presented in Table 3.
<TABLE>
<CAPTION>
TABLE 3 MATURITY DISTRIBUTION
- ----------------------------------------------------------------------------------------------------------------------------------
DUE AFTER ONE DUE AFTER FIVE
DUE IN ONE YEAR THROUGH YEARS THROUGH DUE AFTER
(DOLLARS IN THOUSANDS) YEAR OR LESS YIELD FIVE YEARS YIELD TEN YEARS YIELD TEN YEARS YIELD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury Securities
& Obligations of U.S.
Government Agencies $19,522 6.73% $74,918 6.52% $48,207 7.20% $ 0 NA
- -----------------------------------------------------------------------------------------------------------------------------------
$19,522 6.73% $74,918 6.52% $48,207 7.20% $ 0 NA
HELD-TO-MATURITY:
Obligations of State and
Political Subdivisions * $ 7,967 4.54% $21,915 5.33% $ 7,526 5.42% $345 6.24%
- -----------------------------------------------------------------------------------------------------------------------------------
$ 7,967 4.54% $21,915 5.33% $ 7,526 5.42% $345 6.24%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $27,489 6.09% $96,833 6.25% $55,733 6.96% $345 6.24%
===================================================================================================================================
* Yields on Obligations of State and Political Subdivisions are shown before tax-equivalent adjustments.
</TABLE>
TRUST AND INVESTMENT MANAGEMENT SERVICES
The Company, through its Trust Department, provides trust and investment
management services to residents of its primary market area, and to those
who have relocated outside of Tompkins County and retained their trust
relationships with the Company. Additionally, the Company provides
financial planning and alternative investments through its relationships
with the INVEST Financial Corporation and Fidelity Investments
Incorporated. The Company also provides pension and 401(k) benefits
administration to small businesses.
In December 1996, the Trust Department began providing custodial services
for the Company's securities portfolio.
DEPOSITS
Deposit services include time deposits, individual retirement accounts
("IRAs"), checking and other demand deposit accounts, NOW accounts, savings
accounts, and money market accounts. Transaction accounts and time
deposits are tailored to the principal market area at rates competitive to
those in the area. All deposit accounts are insured under the Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
("FDIC") up to the maximum limits permitted by law. The Company solicits
deposit accounts from small businesses, professional firms, households, and
educational and governmental institutions located throughout its primary
market area. Total deposits represented 79% of total liabilities on
December 31, 1996. Total deposits of $427 million include $70 million in
time deposits of $100,000 or more. Maturities of time deposits of
$100,000 or more as of December 31, 1996, are detailed in Table 4.
TABLE 4 TIME DEPOSITS OF $100,000 OR MORE
===============================================================================
Maturity Amount (in thousands)
- -------------------------------------------------------------------------------
Three months or less $43,892
Over three through twelve months 24,822
Over twelve months 1,308
- -------------------------------------------------------------------------------
$70,022
===============================================================================
6
<PAGE>
MARKET AREA
Tompkins County, New York is the Company's primary market area. The
Company has ten full service branch facilities located in Tompkins County,
and one full service facility located in Schuyler County, New York, which
is adjacent to Tompkins County. The Company's deposit gathering, lending
markets and trust and investment management services are concentrated on
the communities surrounding its offices in Ithaca, New York. Management
believes its offices are located in an area serving small and mid-sized
businesses; and serving low, middle and upper income residential
communities.
Tompkins County has an estimated resident population of approximately
97,000 people, with approximately 36,000 households, and an average
household income of approximately $42,000. Education plays a significant
role in the local economy with Cornell University and Ithaca College being
two of the county's major employers. Unemployment in the county has
historically remained well below the State average, and was 2.9% in
November 1996, compared to a State average of 5.7%. Job growth in the
county was relatively slow during 1996, with a growth rate of .85% for 12
months ended November 30, 1996. This compares to a job growth rate of
1.55% for the State as a whole, over the same twelve month period.
MARKET FOR SERVICES
The Company's principal markets are the established and expanding small
businesses; and low, moderate, and high income households within Tompkins
and the surrounding counties. Management believes its focus on professional
personalized service, and TCTC's unique situation as the only commercial
bank headquartered in Ithaca, NY, contribute to the Company's
competitiveness as a leading provider of financial services in Tompkins
County.
COMPETITION
The Company encounters strong competition in making loans, attracting
deposits and providing trust and investment services. Competition among
financial institutions is based upon interest rates offered on deposit
accounts, interest rates charged on loans, other credit and service
charges, the quality and scope of the services rendered, and the
convenience of banking facilities.
The deregulation of the banking industry, the Riegle-Neale Interstate
Banking and Branching Efficiency Act of 1994, and the widespread enactment
of state laws that accommodate interstate multi-bank holding companies, and
an increasing level of interstate banking have created a highly competitive
environment for commercial banking in the Company's primary market area.
In one or more aspects of its business, the Company competes with other
commercial banks, savings institutions, credit unions, mortgage bankers and
brokers, finance companies, mutual funds, insurance companies, brokerage
and investment banking companies, and other financial intermediaries
operating in Tompkins County and elsewhere. Many of these competitors,
some of which are affiliated with large bank holding companies, have
substantially greater resources and lending limits; and may offer certain
services the Company does not currently provide. In addition, many non-
bank competitors, such as credit unions, are not subject to the same
extensive Federal regulations that govern bank holding companies and
Federally insured banks.
The Company primarily focuses on providing personalized banking and trust
and investment services to businesses and individuals within the market
area where its banking offices are located. As an independent community
bank headquartered in the Company's primary market area, management
believes the Company's community commitment and personalized service are
factors that contribute to the Company's competitiveness.
7
<PAGE>
Customers are solicited through the personal efforts of the Company's,
officers and employees. Management believes a locally-based bank can
possess a clearer understanding of local commerce and the needs of local
businesses. Consequently, management expects to be able to make prudent
lending decisions quickly and more equitably than many of its competitors,
without compromising asset quality or the Company's profitability.
The Company recognizes that its employees are the key to providing a high
level of personal service. During 1996, the Company invested approximately
$100,000 in formal education of its employees, and provides ongoing
internal training to ensure employees are knowledgeable of the Company's
products and services.
The Company offers state of the art facilities, convenient office locations
and service hours, an extensive ATM network, telephone banking services, PC
banking services, electronic bill payment services, and a wide variety of
financial products. Management periodically reviews the scope of the
Company's products and services to assess whether additional products or
services should be offered, giving consideration to customer demand, market
opportunities, and available resources.
REGULATION
As a registered bank holding company, the Company is subject to examination
and comprehensive regulation by the FRB, and TCTC is subject to examination
and comprehensive regulation by the FDIC and the New York State Banking
Department ("NYSBD"). Each of these agencies issues regulations and
requires the filing of reports describing the activities and financial
condition of the entities under its jurisdiction. Likewise, such agencies
conduct examinations on a recurring basis to evaluate the safety and
soundness of the institution and test compliance with various regulatory
requirements relating to: Consumer Protection, Fair Lending, the Community
Reinvestment Act, sales of non-deposit investments, electronic data
processing, and trust department activities.
Effective January 1, 1997, the Federal banking agencies have revised the
Uniform Financial Institutions Rating System, to consider an additional
component, sensitivity to market risk, in evaluating the safety and
soundness of financial institutions. Management feels the Company's
current risk management practices and the capital strength of the Company
should result in a favorable regulatory review of this new component.
Under FRB regulations, the Company may not, without providing prior notice
to the FRB, purchase or redeem its own Common Stock if the gross
consideration for the purchase or redemption, combined with the net
consideration paid for all such purchases or redemptions during the
preceding twelve (12) months, is equal to ten percent (10%) or more of the
Company's consolidated net worth. Additionally, FRB policy provides that
dividends shall not be paid except out of current earnings and unless
prospective rate of earnings retention by the Company appears consistent
with its capital needs, asset quality, and overall financial condition.
The FRB and FDIC have promulgated capital adequacy guidelines that are
considered by the agencies in examining and supervising a bank or bank
holding company; and in analyzing any applications a bank or holding
company may make the appropriate agency. In addition, for supervisory
purposes the agencies have promulgated regulations establishing five
categories of capitalization, ranging from well capitalized to critically
undercapitalized, depending upon level of capitalization and other factors.
Currently, the Company and TCTC maintain leverage and risk-based capital
ratios above the required levels and are considered well capitalized under
the FRB and FDIC regulations. A comparison of the Company's capital
ratios and the various regulatory requirements is included in Note 14 of
the Notes to Consolidated Financial Statements of the Company's Annual
Report, incorporated by reference under Item 8, herein.
TCTC deposit accounts are insured by the BIF, generally in amounts up to
$100,000 per depositor. The FDIC has the power to terminate a bank's
insured status or to temporarily suspend it under special conditions.
Deposit insurance coverage is maintained by payment of premiums assessed to
banks insured by the BIF.
8
<PAGE>
Based upon the capital strength of TCTC and a favorable FDIC risk
classification, TCTC is not currently subject to BIF insurance assessments.
Beginning in January 1997, TCTC, and all BIF insured banks, will be subject
to special assessments to repay Financing Corporation (FICO) bonds, which
were used to repay depositors of failed Savings and Loan Associations after
the former Federal Savings and Loan Insurance Fund became insolvent. The
special assessments attributable to the FICO bonds is expected to add
approximately $50,000 to the Company's operating expenses in 1997.
EMPLOYEES
At December 31, 1996, the Company employed 244 employees, approximately 51
of which are part-time. No employees are covered by a collective
bargaining agreement and the Company believes its employee relations are
excellent.
9
<PAGE>
ITEM 2. PROPERTIES
The following table provides information with respect to the Company's
facilities:
<TABLE>
<CAPTION>
Square Owned/
Location Facility Type Feet Leased
- ---------- ------------- ------- ------
<S> <C> <C> <C>
The Commons, Main Office 23,900 Owned
Ithaca, NY
119 E. Seneca Street, Trust and Investment Services 18,550 Owned
Ithaca, NY
121 E. Seneca Street, Administration 18,900 Owned
Ithaca, NY
Rothschilds Building, Operations 20,500 Leased
The Commons
Ithaca, NY
Campus Store, Cornell Cornell University Branch Office 400 Leased
University
Hanshaw Road, Community Corners 790 Leased
Ithaca, NY Branch Office
North Street Extension, Dryden Branch 2,250 Owned
Dryden, NY Office
Judd Falls Road, East Hill Plaza Branch 650 Leased
Ithaca, NY
775 S. Meadow St., Ithaca, NY Plaza Branch Office 2,280 Owned
Pyramid Mall, Pyramid Mall Branch Office 610 Leased
Ithaca, NY
116 E. Seneca St., Seneca Street 775 Owned
Ithaca, NY Drive-In
2251 Triphammer Road, Ithaca, Triphammer Road Branch Office 3,000 Leased
NY
Main Street, Trumansburg, NY Trumansburg Branch Office 2,720 Owned
701 W. Seneca St., West End Branch Office 2,150 Leased
Ithaca, NY
Savage Farm Drive Kendall at Ithaca 204 Leased
Ithaca, NY Part Time Office
100 Main Street Odessa Branch Office 3,115 Owned
Odessa, NY
</TABLE>
10
<PAGE>
Management believes the Company's facilities are suitable for their present
intended purposes and adequate for the Company's current level of
operations. The lease terminations for the Company's currently leased
properties range from November 1997 to July 2042.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings in the normal course of
business, none of which is expected to have a material adverse impact on
the financial condition or operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters during the fourth quarter of the
fiscal year covered by this report to a vote of security holders through
the solicitation of proxies or otherwise.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position Executive Officer Since
- ---- --- -------- -----------------------
<S> <C> <C> <C>
James J. Byrnes 55 Chairman of the Board, January 1989
President and Chief Executive
Officer
Francis E. Benedict 57 Executive Vice President December 1984
Richard D. Farr 44 Senior Vice President and Chief December 1988
Financial Officer
Thomas J. Smith 56 Senior Vice President December 1984
Donald S. Stewart 52 Senior Vice President December 1984
Lawrence A. Updike 51 Senior Vice President December 1988
</TABLE>
BUSINESS EXPERIENCE OF THE EXECUTIVE OFFICERS
James J. Byrnes has been Chairman of the Board of the Company since April
1992 and President and Chief Executive Officer of the Company since January
1989. From 1978 to 1988, Mr. Byrnes was employed at the Bank of Montreal,
most recently as Senior Vice President.
Francis E. Benedict has been employed by the Company since 1957 and has
served as Executive Vice President in charge of banking and investments
since December 1984.
Richard D. Farr has been employed by the Company since 1984 and has served
as Senior Vice President and Chief Financial Officer since December 1988.
11
<PAGE>
Thomas J. Smith has been employed by the Company since 1964 and has served
as Senior Vice President in charge of credit services since December 1984.
Donald S. Stewart has been employed by the Company since 1972 and has
served as Senior Vice President in charge of trust and investment services
since December 1984.
Lawrence A. Updike has been employed by the Company since 1965 and has
served as Senior Vice President in charge of operations and systems since
December 1988.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
<TABLE>
<CAPTION>
(SEE NOTES 1, 2 & 3 BELOW) MARKET PRICE CASH
HIGH LOW DIVIDENDS PAID
<S> <C> <C> <C> <C>
1995 1st Quarter $33.64 $30.00 $.24
2nd Quarter 33.64 29.55 .24
3rd Quarter 32.27 28.64 .24
4th Quarter 30.91 26.82 .28
1996 1st Quarter 32.00 27.50 .26
2nd Quarter 31.50 21.50 .27
3rd Quarter 28.00 23.75 .27
4th Quarter 34.25 25.75 .30
</TABLE>
Note 1 - During 1995 and 1996, the range of reported high and low
transaction prices reflects inter-dealer prices without retail mark-up,
mark-down or commission and do represent actual transactions as quoted on
the Nasdaq National Market, on which the Company's stock was traded during
1996. Effective February 3, 1997, the Company's stock began trading on the
American Stock Exchange. As of March 14, 1997, there were approximately
1,040, shareholders of record
Note 2 - On December 15, 1995, a 10% stock dividend was distributed to
shareholders of record on December 1, 1995. Per share price and dividend
information has been adjusted for the stock dividend.
Note 3 - Cash dividends were paid on the 15th day of March, June, September
and December of each year.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" contained on page 3 of the Annual Report is
incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management Discussion & Analysis of Financial Condition & Results of
Operations" contained on pages 22-30 of the Annual Report is incorporated
by reference herein.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference are the following sections of the Annual Report:
Consolidated Statements of Condition as of December 31, 1996 and 1995
contained on page 4 of the Annual Report;
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994 contained on page 5 of the Annual Report;
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994 contained on page 6 of the Annual Report;
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 contained on page 7 of the Annual
Report; and
Notes to Consolidated Financial Statements contained on pages 8-20 of the
Annual Report.
Report of KPMG Peat Marwick LLP, Independent Auditors, contained on page 21
of the Annual Report;
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On recommendation of its Audit/Examining Committee, at its board meeting
held on March 14, 1995, the Board of Directors of TCTC engaged the firm of
KPMG Peat Marwick LLP ("KPMG") as its independent auditors for the year
ended December 31, 1995 to replace the firm of Ernst & Young LLP ("E&Y"),
who were dismissed as auditors of TCTC effective upon the filing by TCTC of
its Annual Report on Form F-2 with the FDIC on March 30, 1995.
The report of E&Y on TCTC's financial statements for the year ended
December 31, 1994, contained no adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope
or accounting principles.
In connection with the audit of TCTC's financial statements for the year
ended December 31, 1994, there were no disagreements with E&Y on any
matters of accounting principles or practices, financial statement
disclosure or auditing scope and procedures which, if not resolved to the
satisfaction of E&Y, would have caused E&Y to make reference to the matter
in their report.
The Company has requested that E&Y furnish it with a letter addressed to
the Securities and Exchange Commission (the "Commission") stating whether
it agrees with the above statements. A copy of E&Y's letter to the
Commission is filed as Exhibit 16 to this report.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the executive officers of the Company is included
in Item 4A of Part I.
Information relating to the Directors of the Company is incorporated herein
by reference from the "Election of Directors" section of the Proxy
Statement beginning on page 4 thereof.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" beginning on page 8 of the Proxy Statement is
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners and Management" beginning
on page 2 of the Proxy Statement is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Certain Relationships and Related Transactions" contained on page 11 of
the Proxy Statement is incorporated by reference herein.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) THE FOLLOWING FINANCIAL STATEMENTS OF THE COMPANY AND
INDEPENDENT AUDITOR'S REPORT ARE INCORPORATED BY REFERENCE
HEREIN AS SPECIFIED IN ITEM 8:
Consolidated Statements of Condition as of December 31,
1996 and 1995
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of KPMG Peat Marwick LLP, Independent Auditors
(2) THE FOLLOWING FINANCIAL STATEMENT SCHEDULES ARE FILED WITH
THIS REPORT:
Report of Ernst & Young LLP for the fiscal year ended
December 31, 1994.
All other schedules for which provision is made in the
applicable accounting regulations of the Commission are not
required under related instructions or are inapplicable and
therefore have been omitted.
(b) Reports on Form 8-K
On November 15, 1996, the Company filed a current report on Form
8-K with the Commission. reporting the implementation of a $3
million stock repurchase program.
(c) Exhibits - The response to this portion of Item 14 is submitted
as a separate section of this report. See Exhibit Index on page
19.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TOMPKINS COUNTY TRUSTCO, INC.
By:/S/ James J. Byrnes
--------------------------------
James J. Byrnes
Chairman of the Board, President and
Chief Executive Officer
Date: March 14, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
- --------------------------- --------------------------------- ----------------
<S> <C> <C>
/S/ James J. Byrnes Chairman of the Board, President March 14, 1997
- --------------------------- and Chief Executive Officer
James J. Byrnes
/S/ Richard D. Farr Senior Vice President and March 18, 1997
- --------------------------- Chief Financial Officer
Richard D. Farr
/S/ John E. Alexander Director March 19, 1997
- ---------------------------
John E. Alexander
/S/ Wendell L. Bryce Director March 21, 1997
- ---------------------------
Wendell L. Bryce
/S/ Reeder D. Gates Director March 18, 1997
- ---------------------------
Reeder D. Gates
/S/ William W. Griswold Director March 24, 1997
- ---------------------------
William W. Griswold
/S/ Carl E. Haynes Director March 20, 1997
- ---------------------------
Carl E. Haynes
/S/ Edward C. Hooks Director March 18, 1997
- ---------------------------
Edward C. Hooks
/S/ Richard T. Horn, Jr. Director March 19, 1997
- ---------------------------
Robert T. Horn, Jr.
/S/ Bonnie H. Howell Director March 24, 1997
- ---------------------------
Bonnie H. Howell
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
/S/ Lucinda A. Noble Director March 20, 1997
- ---------------------------
Lucinda A. Noble
____________________ Director March XX, 1997
Frank H. T. Rhodes
/S/ Hunter R. Rawlings, III Director March 20, 1997
- ---------------------------
Hunter R. Rawlings, III
/S/ Thomas R. Salm Director March 20, 1997
- ---------------------------
Thomas R. Salm
/S/ Michael D. Shay Director March 21, 1997
- ---------------------------
Michael D. Shay
</TABLE>
18
<PAGE>
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Commission under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, and are incorporated herein by reference to such filings. As
indicated, various exhibits are incorporated herein by reference to the
identically numbered exhibit contained in the (I) Registrant's Registration
Statement on Form 8-A (No. 0-27514), as filed with the Commission on
December 29, 1995 and amended by the Company's Form 8-A/A filed with the
Commission on January 22, 1996 (the "Form 8-A"), and (ii) Form 10-K, as
filed with the Commission on March 26, 1996, and amended by the Company's
form 10-K/A filed with the Commission on September 20, 1996 (the "Form 10-
K").
<TABLE>
<CAPTION>
Exhibit
Number Title of Exhibit Page
- ------ ---------------- ----
<S> <C> <C>
2. Agreement and Plan of Reorganization, dated as of March 14, 1995,
among TCTC, the Company and TCTC Interim Bank (1)
3.1 Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
4. Form of Specimen Common Stock Certificate of the Company (1)
10.2 1992 Stock Option Plan (1)
10.3 1996 Stock Retainer Plan for Non-Employee Directors (1)
10.4 Form of Director Deferred Compensation Agreement (1)
10.5 Deferred Compensation Plan for Senior Officers (1)
10.6 Supplemental Executive Retirement Agreement with
James J. Byrnes (1)
10.7 Severance Agreement with James J. Byrnes (1)
10.8 Lease Agreement dated August 20, 1993 between Tompkins County
Trust Company and Comex Plaza Associates, relating to leased
property at the Rothschilds Building, Ithaca, NY (2)
11 Statement of Computation of Earnings Per Share
13 Portions of the Annual Report to Stockholders for the fiscal year
ended December 31, 1996.
16 Letter regarding change in certifying accountant
21 Subsidiaries of Registrant (2)
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99 Report of Ernst & Young LLP, Independent Auditors, for fiscal
year ended December 31, 1994.
</TABLE>
-------------------------
(1) Incorporated by reference herein to the identically numbered exhibit of
the Form 8-A.
(2) Incorporated by reference to the identically numbered exhibits of the
Form 10-K.
19
<PAGE>
EXHIBIT 11 - STATEMENT OF COMPUTATION OF EARNINGS
TOMPKINS COUNTY TRUSTCO INC.
WEIGHTED AVERAGE SHARES FOR 1996
<TABLE>
<CAPTION>
WEIGHTED
ACTUAL NO. AGGREGATE AVERAGE
DATE DESCRIPTION SHARES DAYS SHARES SHARES
<S> <C> <C> <C> <C> <C>
01-Jan-96 Number of shares outstanding 3,549,615 80 283,969,200
21-Mar-96 22,000 treasury shares purchased 3,527,617 29 102,300,893
19-Apr-96 302 shares (options exercised) 3,527,919 73 257,538,087
01-Jul-96 Director's Fees/420 Treasury Shares 3,528,339 92 324,607,188
01-Oct-96 Director's Fees/377 Treasury Shares 3,528,716 21 74,103,036
22-Oct-96 Retired (Repurchased) 244,371 shares 3,284,345 70 229,904,150
31-Dec-96 Issue 9,618 ESOP shares for Jan 3,303,581 1 3,303,581
profit sharing
NUMBER OF DAYS IN THE YEAR: 366 1,275,726,135 3,485,591
1996 NET INCOME $9,179,000
DIVIDED BY WEIGHTED AVERAGE SHARES 3,485,591
EARNINGS PER SHARE $2.63
</TABLE>
The dilutive effect of stock options outstanding on December 31, 1996, was
less than 3% of earnings per share, as computed by application of the "treasury
stock method".
<PAGE>
EXHIBIT 13
Highlights
<TABLE>
<CAPTION>
1996 1995 % CHANGE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Income $51,088,014 $47,479,006 + 7.6%
Net Income 9,179,000 $ 8,717,811 + 5.3%
Net Income Per Share $ 2.63 $ 2.46 + 6.9%
Cash Dividends Paid Per Share $ 1.10 $ .99 +11.1%
</TABLE>
Selected Financial Data
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31: 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets $ 591,344 $ 536,992 $511,162 $492,155 $459,291
Deposits 427,367 370,631 345,776 350,446 337,280
Shareholders' Equity 52,613 55,091 47,817 47,402 39,775
Interest Income 43,062 40,076 35,676 34,365 35,719
Interest Expense 17,916 16,526 12,911 11,887 13,982
Net Interest Income 25,146 23,550 22,765 22,478 21,737
Provision for Loan/Lease Losses 1,210 751 768 1,207 2,047
Net Securities Gains -0- -0- 121 -0- -0-
Net Income 9,179 8,718 8,137 8,135 7,205
Net Income Per Share 2.63 2.46 2.29 2.27 2.01
Cash Dividends Per Share 1.10 .99 .91 .82 .66
Return on Average Assets 1.62% 1.67% 1.62% 1.75% 1.65%
Return on Average
Shareholders' Equity 16.74% 17.02% 17.20% 19.16% 19.50%
Shareholders' Equity to
Average Assets 9.2% 10.2% 9.5% 9.4% 8.8%
Dividend Payout Ratio 41.5% 40.2% 39.7% 35.8% 31.9%
(ACTUAL NUMERICAL COUNT)
- ----------------------------------------------------------------------------------------------------------------
Employees (Average
Full-Time Equivalent) 221 219 219 219 216
Shareholders of Record 1,044 1,034 1,096 1,060 999
Full Service Banking Offices 11 10 10 10 10
Bank Access Centers (ATMs) 20 20 19 17 16
</TABLE>
3
<PAGE>
Consolidated Statements of Condition
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 25,318,664 $ 20,756,874
Available-for-sale securities, at fair value 167,903,720 146,626,489
Held-to-maturity securities, fair value
of $38,784,390 in 1996 and $40,219,442 in 1995 37,752,933 38,907,640
Loans, net of unearned income 350,409,423 321,289,950
Less reserve for loan/lease losses 4,778,600 4,703,600
- ------------------------------------------------------------------------------------------
NET LOANS 345,630,823 316,586,350
Bank premises and equipment, net 6,923,996 7,173,397
Accrued interest and other assets 7,814,321 6,941,016
- ------------------------------------------------------------------------------------------
TOTAL ASSETS $ 591,344,457 $ 536,991,766
==========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking $ 59,738,079 $ 54,911,824
Savings and money market 119,775,264 135,956,899
Time 169,856,561 106,348,614
Non-interest bearing 77,996,989 73,413,699
- ------------------------------------------------------------------------------------------
TOTAL DEPOSITS 427,366,893 370,631,036
Federal funds purchased and securities sold
under agreements to repurchase 89,992,723 92,902,366
Other borrowings 15,000,000 12,000,000
Other liabilities 6,371,912 6,366,946
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES 538,731,528 481,900,348
- ------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Shareholders' equity:
Common Stock - par value $0.10 per share:
Authorized 7,500,000 shares; issued and outstanding,
3,336,394 shares in 1996 and 3,580,463 shares in 1995 333,639 358,046
Surplus 32,529,590 39,190,471
Undivided profits 20,925,196 15,559,593
Treasury stock, at cost, 21,203 shares in 1996 (604,286 -0-
Net unrealized gain on available-for-sale securities,
net of taxes 65,651 909,361
Deferred I.S.O.P. benefit expense (636,861) (926,052)
- ------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 52,612,929 55,091,419
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 591,344,457 $ 536,991,767
==========================================================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $30,365,625 $28,835,374 $24,629,986
Deposits with other banks 48,465 -0- -0-
Federal funds sold 468,193 318,800 133,003
Available-for-sale securities 10,206,131 8,794,810 5,463,901
Held-to-maturity securities 1,973,711 2,127,045 5,449,691
- --------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 43,062,125 40,076,029 35,676,581
- --------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposit of $100,000 or more 2,362,587 643,214 416,552
Other deposits 9,776,583 10,017,458 8,483,734
Federal funds purchased and securities
sold under agreements to repurchase 4,831,391 5,178,859 3,164,492
Borrowed funds 945,589 686,384 846,314
- --------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 17,916,150 16,525,915 12,911,092
- --------------------------------------------------------------------------------------------
NET INTEREST INCOME 25,145,975 23,550,114 22,765,489
LESS PROVISION FOR LOAN/LEASE LOSSES 1,209,943 751,258 767,675
- --------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN/LEASE LOSSES 23,936,032 22,798,856 21,997,814
- --------------------------------------------------------------------------------------------
OTHER INCOME
Trust and investment services income 2,660,358 2,290,328 2,205,139
Service charges on deposit accounts 1,727,206 1,696,467 1,669,275
Credit card merchant income 1,891,767 1,645,456 1,473,648
Other service charges 1,136,639 1,007,820 1,380,980
Other operating income 609,919 762,906 540,428
Net securities gains -0- -0- 121,247
- --------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 8,025,889 7,402,977 7,390,717
- --------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and wages 7,509,542 7,115,591 6,876,933
Pension and other employee benefits 1,759,191 1,830,579 1,887,234
Net occupancy expense of bank premises 1,336,771 1,243,756 1,246,961
Net furniture and fixture expense 1,134,344 1,062,656 1,004,087
Credit card operating expense 1,751,495 1,475,258 1,311,276
Other operating expenses 4,149,654 4,137,778 5,505,928
- --------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 17,640,997 16,865,618 17,832,419
- --------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,320,924 13,336,215 11,556,112
INCOME TAXES 5,141,924 4,618,404 3,419,240
- --------------------------------------------------------------------------------------------
NET INCOME $ 9,179,000 $ 8,717,811 $ 8,136,872
============================================================================================
Weighted average shares 3,485,591 3,538,626 3,554,703
- --------------------------------------------------------------------------------------------
Net income per common share $ 2.63 $ 2.46 $ 2.29
============================================================================================
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,179,000 $ 8,717,811 $ 8,136,872
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 1,209,943 751,258 767,675
Depreciation and amortization 1,029,362 973,599 852,151
Net accretion on securities (133,490) (271,826) (437,970)
Provision for deferred income taxes (93,966) 125,388 (163,627)
Net securities gains -0- -0- (121,247)
Gains on sales of bank premises and equipment (7,904) (12,890) (11,094)
Increase in other assets (373,305) (362,727) (323,046)
Increase in other liabilities 709,897 1,243,114 8,286
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,519,537 11,163,727 8,708,000
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 60,749,656 13,119,228 34,698,261
Proceeds from maturities of held-to-maturity securities 6,883,128 39,820,981 24,227,836
Proceeds from sales of available-for-sale securities -0- -0- 121,165
Purchases of available-for-sale securities (82,498,371) (1,977,187) (22,086,627)
Purchases of held-to-maturity securities (6,123,619) (59,600,643) (34,995,444)
Purchases of FHLB stock (454,500) (83,100) -0-
Proceeds from sales of loans 1,047,969 10,824,697 5,175,909
Net increase in loans (30,169,287) (31,927,122) (29,810,189)
Proceeds from sales of bank premises and equipment 18,100 34,710 44,560
Purchases of bank premises and equipment (790,156) (1,061,808) (2,332,667)
Deposit premium on acquired branch (500,000) -0- -0-
Loans of acquired branch (1,133,097) -0- -0-
- ----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (52,970,179) (30,850,244) (24,957,196)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease increase in demand deposits,
money market accounts and savings accounts (12,452,573) 9,204,102 (6,339,801)
Net increase in time deposits 59,555,530 15,651,078 1,669,600
Demand deposits, money market accounts and
savings accounts of acquired branch 5,680,482 -0- -0-
Time deposits of acquired branch 3,952,417 -0- -0-
Net (increase) decrease in securities sold under
repurchase agreements and Federal funds purchased (2,909,643) (9,335,787) 25,247,041
Net increase in other borrowings 3,000,000 -0- -0-
Cash dividends (3,813,397) (3,506,291) (3,229,826)
Sale of treasury stock 20,537 -0- -0-
Purchase of treasury stock (627,000) -0- -0-
Repurchase of common shares (6,720,202) -0- -0-
Decrease (increase) in deferred I.S.O.P. benefit expense 320,221 325,057 (1,267,992)
Net proceeds from issuance of common stock 6,061 57 19,917
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 46,012,433 12,338,216 16,098,939
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,561,790 (7,348,301) (150,257)
Cash and cash equivalents at beginning of year 20,756,874 28,105,175 28,255,432
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 25,318,664 $ 20,756,874 $ 28,105,175
==========================================================================================================
Supplemental disclosure of cash-flow information:
Cash paid during the year for:
Interest $ 17,897,649 $ 15,545,784 $ 12,704,581
Income taxes 5,302,225 4,145,301 3,568,713
- ----------------------------------------------------------------------------------------------------------
Non-cash investing and financing activities:
Change in net unrealized holding gain (loss) on
available-for-sale securities $ (1,454,674) $ 2,994,864 $ (5,592,337)
Transfer of securities to available-for-sale -0- 87,516,398 -0-
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN/(LOSS) DEFERRED
ON AVAILABLE- I.S.O.P.
COMMON TREASURY UNDIVIDED FOR-SALE BENEFIT
STOCK STOCK SURPLUS PROFITS SECURITIES EXPENSE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
JANUARY 1, 1994 $325,468 $ -0- $29,779,771 $14,881,212 $ 2,415,897 $ -0- $47,402,348
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 8,136,872 8,136,872
Common stock
issued (152 shares) 15 2,538 2,553
Cash dividends
($.91 per share (3,229,826) (3,229,826)
Change in net unrealized
gain/(loss) net of taxes (3,244,606) (3,244,606)
Acquistion of shares
for I.S.O.P. (55,000 shares) (1,650,000) (1,650,000)
I.S.O.P. shares released for
allocation (12,734 shares) 17,364 382,008 399,372
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1994 325,483 -0- 29,799,673 19,788,258 (828,709) (1,267,992) 47,816,713
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 8,717,811 8,717,811
Common stock
issued (453 shares) 41 8,590 8,631
10% stock dividend
(325,228 shares at
$29 per share) 32,522 9,399,091 (9,440,185) (8,572)
Cash dividends
($.99 per share) (3,506,291) (3,506,291)
Change in net unrealized
gain/(loss), net of taxes 1,738,070 1,738,070
I.S.O.P. shares released for
allocation (11,397 shares) (16,883) 341,940 325,057
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1995 358,046 -0- 39,190,471 15,559,593 909,361 (926,052) 55,091,419
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 9,179,000 9,179,000
Common stock
issued (302 shares) 30 6,031 6,061
Common stock repurchased
and returned to authorized
and unissued status
(244,371 shares) (24,437) (6,695,765) (6,720,202)
Cash dividends
($1.10 per share) (3,813,397) (3,813,397)
Treasury Stock purchased
(22,000 shares) (627,000) (627,000)
Treasury Stock sold
(797 shares) 22,714 (2,177) 20,537
Change in net unrealized
gain/(loss), net of taxes (843,710) (843,710)
I.S.O.P. shares released for
allocation (9,640 shares) 31,030 289,191 320,221
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1996 $333,639 $(604,286) $32,529,590 $20,925,196 $ 65,651 $ (636,861) $52,612,929
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
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. On April 26, 1995,
the shareholders of Tompkins County Trust Company (the "Trust Company") approved
a proposal to revise its corporate structure by establishing the Company as a
one bank holding company. On January 1, 1996, the Trust Company became a wholly
owned subsidiary of the Company and all outstanding shares of Trust Company
common stock were converted to common shares of the Company. The holding company
formation was accounted for similar to a pooling of interests. Accordingly, the
financial information included herein combine: the results of operations, and
the assets, liabilities, and shareholders' equity of the Company and the Trust
Company for all periods presented. The Trust Company traces its charter back to
1836 and provides loan, deposit, and trust services to its customers primarily
in Tompkins County, New York.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, the Trust Company. 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 this reporting period.
CASH EQUIVALENTS: Cash equivalents in the consolidated statements of cash flows
include cash and due from banks.
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 shareholders'
equity.
Premiums and discounts are amortized or accreated 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, and
declines in value judged to be other-than-temporary, are included in net
securities gains (losses). The cost of securities sold is based on the specific
identification method.
Transfers of securities between categories are recorded at fair value at the
date of transfer.
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 fees and costs, and unearned income. The Company provides motor
vehicle and equipment financing to its customers through direct financing
leases. These leases are carried at the aggregate 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.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 122, Accounting for Mortgage Servicing Rights, on a
prospective basis. SFAS No. 122 requires the recognition of rights to service
mortgage loans for others as separate assets however those servicing rights are
acquired. It also requires the Company to assess its capitalized mortgage
servicing rights for impairment based on the fair value of those rights. The
adoption of SFAS No. 122 did not have a material impact on the Company's
financial condition or results of operations.
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 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 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 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
8
<PAGE>
Note 1 Summary of Significant Accounting Policies Continued
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 provision for loan 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.
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.
STOCK-BASED COMPENSATION: Prior to January 1, 1996, the Company accounted for
its stock option plan in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock issued to Employees, and
related interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. On January l, 1996, the Company adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of the grant. Alternatively, SFAS No. 123 also allows the Company to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
DEPOSIT BASE INTANGIBLE: Deposit base intangible, 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 assets is impaired.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: 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.
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 DEPARTMENT: 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.
PER SHARE AMOUNTS: Earnings per share are computed based on the weighted average
number of shares outstanding reduced by unallocated shares held for the
Investment and Stock Ownership Plan (I.S.O.P.) in each period. The exercise of
outstanding stock options was not considered in the calculation as they did not
have a material dilutive effect. In December 1995, the Company declared a 10%
stock dividend. All share and per share data in the consolidated financial
statements and related notes thereto have been retroactively adjusted to reflect
the dividend.
RECLASSIFICATION: Certain reclassifications have been made to prior period
amounts to conform to current year presentation.
9
<PAGE>
Note 2 Securities
The following summarizes securities:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
- -------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1996: COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
Government agencies $142,647,771 $ 948,407 $ 867,546 $142,728,632
Mortgage-backed securities 22,092,358 201,525 169,195 22,124,688
- -------------------------------------------------------------------------------------------
Total debt securities 164,740,129 1,149,932 1,036,741 164,853,320
Equity securities 3,050,400 -0- -0- 3,050,400
- -------------------------------------------------------------------------------------------
$167,790,529 $1,149,932 $1,036,741 $167,903,720
===========================================================================================
</TABLE>
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.
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
- ------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1996: COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $37,752,933 $1,045,055 $13,598 $38,784,390
- ------------------------------------------------------------------------------------
Total debt securities $37,752,933 $1,045,055 $13,598 $38,784,390
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
- ------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1995: COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
Government agencies $127,012,705 $1,720,858 $352,011 $128,381,552
Mortgage-backed securities 13,451,136 275,855 93,989 13,633,002
U.S. corporate securities 2,998,883 17,152 -0- 3,016,035
- ------------------------------------------------------------------------------------
Total debt securities 143,462,724 2,013,865 446,000 145,030,589
Equity securities 1,595,900 -0- -0- 1,595,900
- ------------------------------------------------------------------------------------
$145,058,624 $2,013,865 $446,000 $146,626,489
====================================================================================
</TABLE>
Available for sale securities includes $1,595,900 in equity securities, which
are carried at amortized cost since fair values are not readily determinable.
This figure includes $1,559,600 of Federal Home Loan Bank Stock.
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
- ------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1995: COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $38,907,640 $1,327,751 $15,949 $40,219,442
- ------------------------------------------------------------------------------
Total debt securities $38,907,640 $1,327,751 $15,949 $40,219,442
==============================================================================
</TABLE>
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.
<TABLE>
<CAPTION>
AMORTIZED
DECEMBER 31, 1996 COST FAIR VALUE
- ---------------------------------------------------------------------
<S> <C> <C>
Available-for-Sale Securities
Due in one year or less $ 19,522,055 $ 19,644,524
Due after one year through five years 74,918,181 74,949,535
Due after five years through ten years 48,207,535 48,134,573
- ---------------------------------------------------------------------
142,647,771 142,728,632
Mortgage-backed securities 22,092,358 22,124,688
Equity securities 3,050,400 3,050,400
- ---------------------------------------------------------------------
$167,790,529 $167,903,720
=====================================================================
</TABLE>
10
<PAGE>
Note 2 Securities continued
<TABLE>
<CAPTION>
AMORTIZED
DECEMBER 31, 1996 COST FAIR VALUE
- ------------------------------------------------------------------
<S> <C> <C>
Held-to-Maturity Securities
Due in one year or less $ 7,966,913 $ 7,986,531
Due after one year through five years 21,915,486 22,567,666
Due after five years through ten years 7,525,534 7,846,142
Due after ten years 345,000 384,051
- ------------------------------------------------------------------
$37,752,933 $38,784,390
==================================================================
</TABLE>
There were no gains or losses from the sale of securities in 1996 or 1995. Gains
from the sales of available-for-sale securities in 1994 were $932,318; losses
from the sales of available-for-sale securities were $811,153.
In November 1995, the Financial Accounting Standards Board published "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" (Guide). Concurrent with the initial adoption of the
Guide but no later than December 31, 1995, the Company was permitted to reassess
the appropriateness of the classifications of all securities held at that time
and implement reclassifications without calling into question the intent of the
Company to hold other debt securities to maturity in the future. Effective
December 31, 1995, the Company transferred U.S. government agencies and
corporate bonds, with a total amortized cost of $87,516,398 and a total fair
value of $87,593,693, from the held-to-maturity portfolio to the available-for-
sale portfolio. The net unrealized loss was $77,295. The transferred securities
were reported at fair value, with the unrealized loss excluded from earnings and
reported as a separate component of shareholders' equity, net of taxes.
At December 31, 1996, securities with an amortized cost of $94,460,904 were
pledged to secure public deposits (as required
by law).
Note 3 Loan Classification Summary And Related Party Transactions
<TABLE>
<CAPTION>
Loans at December 31, 1996 and 1995 are as follows: 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Commercial $118,964,895 $109,825,966
Real estate construction 1,202,577 663,039
Real estate mortgage 151,712,943 132,566,305
Consumer 66,860,082 66,025,662
Leases and other 12,939,997 13,733,007
- ----------------------------------------------------------------------------------
Total loans 351,680,494 322,813,979
Less unearned income 1,271,071 1,524,029
- ----------------------------------------------------------------------------------
Total loans, net of unearned income $350,409,423 $321,289,950
==================================================================================
</TABLE>
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 with beginning of the year amounts
adjusted to reflect new directorships, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Balance January 1 $2,899,869 $ 5,091,239
Retired director (155) (2,071,531)
Resigned directors (263,600) -0-
New director -0- 44,082
New executive officers 95,466 -0-
New loans and advances 938,540 396,307
Loan payments (732,517) (560,228)
- ---------------------------------------------------------------
Balance December 31 $2,937,603 $ 2,899,869
===============================================================
</TABLE>
During 1996, the Company sold $847,219 of education loans to the Student Loan
Mortgage Association and sold $200,750 of mortgage loans to the Federal Home
Loan Mortgage Corporation. The gain on sale of loans during 1996 was immaterial
to the consolidated financial statements. During 1995, the Company sold
$10,342,447 of education loans to the Student Loan Mortgage Association and
recognized a gain of $250,425, which is included in other operating income in
the consolidated statements of income. The Company sold $482,250 of mortgage
loans to the Federal Home Loan Mortgage Corporation in 1995.
At December 31, 1996, the Company serviced mortgage loans for others aggregating
$32,405,770, compared to $36,144,815 at
December 31, 1995.
11
<PAGE>
Note 4 Reserve For Loan/Lease Losses
Changes in the reserve for loan/lease losses are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve at beginning of year $ 4,703,600 $ 4,653,600 $4,403,600
Provisions charged to operations 1,209,943 751,258 767,675
Recoveries on loans 414,994 402,159 376,157
Loans charged-off (1,549,937) (1,103,417) (893,832)
- ----------------------------------------------------------------------------
Reserve at end of year $ 4,778,600 $ 4,703,600 $4,653,600
============================================================================
</TABLE>
Trustco's recorded investment in loans/leases that are considered impaired
totaled $1.2 million at December 31, 1996, and $1.1 million at December 31,
1995. The average recorded investment in impaired loans was $1.3 million in
1996, and less than $1 million in 1995. The December 31, 1996 recorded
investment in impaired loans includes $582,000 of loans which had related
reserves of $94,000. The December 31, 1995 recorded investment in impaired loans
includes $760,000 of impaired loans, which had related reserves of $233,000.
Interest income on impaired loans of $67,000 was recognized for cash payments
received in 1996.
The principle balances of loans not accruing interest, including impaired loans,
amounted to approximately $1,994,000, and $1,024,000 at December 31, 1996, and
1995. The difference between the interest income that would have been recorded
if these loans had been paid in accordance with their original terms and the
interest income recorded in the three year period ending December 31, 1996 was
immaterial.
Note 5 Bank Premises And Equipment
Bank premises and equipment at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 682,554 $ 682,554
Bank premises 6,392,038 6,193,382
Furniture, fixtures and equipment 9,520,792 9,028,050
Accumulated depreciation (9,671,388) (8,730,589)
- ------------------------------------------------------------------------------------------------
$ 6,923,996 $ 7,173,397
================================================================================================
</TABLE>
Depreciation and amortization expense in 1996, 1995 and 1994 are included in
operating expenses as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Bank premises $ 312,369 $319,704 $274,112
Furniture, fixtures and equipment 716,993 653,895 578,039
- ---------------------------------------------------------------------------------
$1,029,362 $973,599 $852,151
=================================================================================
</TABLE>
Note 6 Deposits
The aggregate total Time Deposits of $100,000 or more was $70,022,038 at
December 31, 1996, and $14,214,825 at December 31, 1995. Of the balance
outstanding at December 31, 1996, approximately $66,649,000 have maturities of
one year or less.
As of December 31, 1996, the Company had time deposits with scheduled maturities
as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1997 $145,439
1998 16,031
1999 2,874
2000 2,410
2001 and thereafter 3,103
</TABLE>
12
<PAGE>
Note 7 Federal Funds Purchased and Securities Sold Under Agreements To
Repurchase
Repurchase agreement information as of December 31, 1996 is summarized as
follows:
<TABLE>
<CAPTION>
ASSETS SOLD REPURCHASE LIABILITY
- ----------------------------------------------------------------------------------------
Carrying Fair Interest
Amount Value Amount Rate
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity/Type of Asset
2 to 30 days:
U.S. Treasury securities $ 255,420 $ 250,837 $ 253,210 5.25%
31 to 90 days:
U.S. Government Agency
securities 1,119,362 1,109,083 1,119,362 5.40%
Over 90 days:
U.S. Treasury securities 8,326,830 8,474,038 8,301,860 5.57%
U.S. Government Agency
securities 4,521,944 4,493,746 4,581,375 5.44%
Mortgage-backed
certificates 416,896 426,514 418,440 5.54%
Demand:
U.S. Treasury securities 15,271,399 15,428,180 15,333,816 4.26%
U.S. Government Agency securities 41,596,157 41,326,955 41,592,978 5.01%
Mortgage-backed
certificates 14,895,857 14,848,500 14,591,682 5.23%
- ----------------------------------------------------------------------------------------
$86,403,865 $86,357,853 $86,192,723 5.00%
========================================================================================
</TABLE>
At December 31, 1996, the Company had unsecured borrowings of $3,800,000 in the
form of overnight Federal funds purchased, at an interest rate of 7.25%. The
average balance of Federal funds purchased during 1996 was $545,902. There were
no Federal funds purchased at December 31, 1995.
Information concerning borrowings under repurchase agreements for the years
ended December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Total outstanding at December 31 $ 86,192,723 $ 92,902,366
Maximum month-end balance 104,045,238 104,938,867
Average balance 92,383,979 91,435,128
- ----------------------------------------------------------------
Weighted average interest rate 5.20% 5.62%
================================================================
</TABLE>
At December 31, 1996, substantially all of the above securities were held by the
Bank of New York or the Federal Reserve Bank of New York.
Note 8 Leases
The Company leases land, buildings, and equipment under operating lease
arrangements.
Rental expense included in operating expenses amounted to $339,588 in 1996,
$363,266 in 1995, and $381,956 in 1994.
The future minimum rental commitments as of December 31, 1996 for all non-
cancelable operating leases are as follows:
<TABLE>
<S> <C>
1997 $ 323,683
1998 293,399
1999 284,558
2000 275,931
2001 259,489
Thereafter 4,265,844
</TABLE>
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.
13
<PAGE>
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.
The following table sets forth the plan's funded status and amounts recognized
in the Company's consolidated statements of condition at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$8,521,640 in 1996 and $7,666,455 in 1995 $ (8,574,571) $ (7,687,341)
====================================================================================================================
Projected benefit obligation for service rendered to date (10,569,750) $(10,131,155)
Plan assets at fair value, primarily government securities and common
stocks including the Company stock having a fair value of
$758,654 and $736,364 at September 30, 1996 and 1995, respectively 12,000,461 10,517,942
- -------------------------------------------------------------------------------------------------------------------
Plan assets over projected benefit obligation 1,430,711 386,787
Unrecognized net loss from past experience different from that
assumed and changes in assumptions 471,769 850,282
Prior service cost not yet recognized in net periodic pension cost 202,346 217,242
Unrecognized net asset at September 30, 1996 net of amortization (487,134) (555,858)
- -------------------------------------------------------------------------------------------------------------------
Prepaid pension cost included in other assets $ 1,617,692 $ 898,453
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Net periodic pension cost included the following components: 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned during the period $ 332,115 $ 326,242 $ 313,745
Interest cost on projected benefit obligation 731,029 697,552 662,551
Actual return on plan assets (1,160,837) (1,452,811) 113,400
Net amortization and deferral 192,326 659,144 (941,583)
- ------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 94,633 $ 230,127 $ 148,113
===================================================================================================================
</TABLE>
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 7.5% and 5.0%, respectively, at December 31, 1996 and 1995. The
expected long-term rate of return on plan assets was 8.5% in 1996 and 1995.
Trustco's contributions to the plan totaled $515,409 in 1996, $642,359 in 1995,
and $590,582 in 1994.
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
cover 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 55,000 common shares of the Company. The debt has a
term of 10 years and an interest rate of 7%. At December 31, 1996, 33,771 shares
were released and 21,229 remained as unallocated shares. The fair value of the
unallocated shares on December 31, 1996 was $705,433. Shares will be released to
the employee stock ownership plan based on the principal only method. Cash
dividends received by the employee stock ownership plan on unallocated shares
will be used to pay down the employee stock ownership plan's debt. The Company
recognized compensation expense for the I.S.O.P. of $289,191 in 1996, $341,940
in 1995, and $382,008 in 1994.
The Company provides health care benefits to its employees on a self insured
basis up to $60,000 per employee, per year, and $1,000,000 over the employee's
lifetime. Stop loss insurance provides coverage to the Company in the event that
an employee's annual health care costs exceed $60,000. Management believes that
adequate provision has been made for all incurred and incurred but not reported
claims.
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 all benefits, while retirees share some of the cost
through co-insurance and deductibles. The cost for post employment medical
coverage is capped at $3,000 annually. The Company pays 75% of retiree medical
coverage until the cost of the coverage exceeds this cap. Once the cap is
reached, retirees pay the full cost of any amount above the cap.
The following table represents the Plan's funded status and amounts recognized
in the Company's consolidated statements of condition at December 31, 1996 and
1995:
14
<PAGE>
Note 9 Employee Benefit Plans continued
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $(1,486,321) $(1,282,798)
Active employees (598,067) (686,094)
Spouses and others (805,871) (1,196,631)
- ------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation (2,890,259) (3,165,523)
Plan assets at fair value -0- -0-
- ------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets (2,890,259) (3,165,523)
Unrecognized transition obligation 1,848,343 1,963,865
Unrecognized (gain) loss (138,039) 315,250
- ------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost included in other liabilities $(1,179,955) $ (886,408)
================================================================================================
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits (the health care cost trend rate) is 9% beginning in 1997, and
is assumed to decrease gradually to 5% in 2045 and beyond. The actual cost of
benefits for 1996 and projected costs for 1997 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, 1996 by $87,925 and the net
periodic postretirement benefit cost for 1996 by $12,182.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% on December 31, 1996 and 1995.
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amortization of transition obligation over 20 years $115,522 $115,522 $115,522
Service cost 74,248 50,083 48,362
Interest cost 199,528 219,448 208,463
Amortization (gain)/loss -0- 1,477 8,448
Retired employee reimbursements -0- (29,979) -0-
- --------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $389,298 $356,551 $380,795
======================================================================================
</TABLE>
Note 10 Stock Based Compensation
In 1992, the Company adopted a stock option plan (the "Plan") pursuant to which,
the Board of Directors may grant stock options to officers and key employees.
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. The Plan authorized grants of options up to 169,400 shares of
authorized but unissued common stock.
At December 31, 1996, there were 42,044 additional shares available for grant
under the Plan. No options were granted in 1995. The per share weighted average
fair value of stock options granted during 1996 was $7.06 on the date of grant.
The fair value was arrived at using the Black Scholes option-pricing model with
the following weighted-average assumptions: expected dividend yield 3.97%, risk
free interest rate of 5.61%, expected life of 8 years, and a 26.19% volatility
ratio.
The Company applies APB Opinion No. 25 in accounting for its Plan, 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 below:
<TABLE>
<CAPTION>
1996
- -----------------------------------------------------------------------------
<S> <C>
Net Income:
As Reported $9,179,000
Pro forma 9,103,674
- -----------------------------------------------------------------------------
Earnings Per Share:
As Reported $ 2.63
Pro forma 2.61
=============================================================================
</TABLE>
15
<PAGE>
Note 10 Stock Based Compensation continued
The full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts because
compensation cost is reflected over an average vesting period of three years and
pro forma net income reflects only options granted in 1996.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
1994 NUMBER OF SHARES WTD. AVG. EXERCISE PRICE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning Balance 55,629 $19.40
Granted 12,320 31.36
Exercised (152) 16.82
Forfeited (1,058) 20.81
- -------------------------------------------------------------------------------------------------------------
Outstanding at end of year 66,739 21.65
=============================================================================================================
Exercisable at year end 23,550 $18.75
=============================================================================================================
1995 NUMBER OF SHARES WTD. AVG. EXERCISE PRICE
- -------------------------------------------------------------------------------------------------------------
Beginning Balance 66,739 $21.65
Exercised (453) 19.00
- -------------------------------------------------------------------------------------------------------------
Outstanding at end of year 66,286 21.65
=============================================================================================================
Exercisable at year end 39,616 $19.85
=============================================================================================================
1996 NUMBER OF SHARES WTD. AVG. EXERCISE PRICE
- -------------------------------------------------------------------------------------------------------------
Beginning Balance 66,286 $21.65
Granted 59,900 28.90
Exercised (302) 20.07
- -------------------------------------------------------------------------------------------------------------
Outstanding at end of year 125,884 25.11
=============================================================================================================
Exercisable at year end 55,861 $20.49
=============================================================================================================
</TABLE>
The following summarizes outstanding and exercisable options at December 31,
1996:
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
$16.00-22.00 38,116 5.5 yrs $17.87 38,116 5.5 yrs
$22.00-32.00 87,768 8.5 yrs $28.26 17,745 7.0 yrs
- -----------------------------------------------------------------------------------------------------------------------------
125,884 55,861
=============================================================================================================================
</TABLE>
Note 11 Income Taxes
<TABLE>
<CAPTION>
Total income tax expense (benefit) was allocated as follows: 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $5,141,924 $4,618,404 $ 3,419,240
Shareholders' equity for
unrealized
gain (loss) on available-for-sale securities (610,964) 1,256,792 (2,347,731)
- -----------------------------------------------------------------------------------------------------------------------------
$4,530,960 $5,875,196 $ 1,071,509
=============================================================================================================================
</TABLE>
The income tax expense (benefit) attributable to income from operations is
summarized as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996:
Federal $4,013,153 $ (98,571) $3,914,582
State 1,222,737 4,605 1,227,342
- -----------------------------------------------------------------------------------------------------------------------------
$5,235,890 $ (93,966) $5,141,924
=============================================================================================================================
1995:
Federal $3,386,535 $ 72,026 $3,458,561
State 1,106,481 53,362 1,159,843
- -----------------------------------------------------------------------------------------------------------------------------
$4,493,016 $ 125,388 $4,618,404
=============================================================================================================================
1994:
Federal $2,678,655 $(123,914) $2,554,741
State 904,212 (39,713) 864,499
- -----------------------------------------------------------------------------------------------------------------------------
$3,582,867 $(163,627) $3,419,240
=============================================================================================================================
</TABLE>
16
<PAGE>
Note 11 Income Taxes continued
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:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 5.7 5.7 5.0
Tax exempt income (4.4) (5.2) (5.9)
All other 0.6 0.1 (3.5)
- ----------------------------------------------------------------------------
35.9% 34.6% 29.6%
============================================================================
</TABLE>
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 are as
follows:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Reserve for loan/lease losses $1,845,971 $1,832,276
Compensation and benefits 1,100,999 885,458
Other 98,440 71,713
- ----------------------------------------------------------------------
Total deferred tax assets 3,045,410 2,789,447
- ----------------------------------------------------------------------
Deferred tax liabilities:
Leasing transactions 1,542,802 1,431,709
Prepaid pension 645,499 482,767
Depreciation 223,735 263,033
Other 368,150 440,680
- ----------------------------------------------------------------------
Total deferred tax liabilities 2,780,186 2,618,189
- ----------------------------------------------------------------------
Net deferred tax asset $ 265,224 $ 171,258
======================================================================
</TABLE>
This analysis does not include the recorded deferred tax liabilities of $47,540
and $658,503 related to the unrealized appreciation in the available-for-sale
securities portfolio as of December 31, 1996 and 1995, 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 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.
NOTE 12 Commitments, Contingent Liabilities, and Other Borrowings
Loan commitments are made to accommodate the financial needs of the Company's
customers. Standby letters of credit commit the Company to make payments on
behalf of customers when certain specified future events occur. They primarily
are issued to facilitate customers' trade transactions.
Both arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Company's normal credit
policies. Collateral (e.g., securities, receivables, inventory, and equipment)
is obtained based on management's credit assessment of the customer.
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 at December 31 (in thousands) was as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Loan commitments $69,195 $61,710
Standby letters of credit 1,145 6,526
Commercial lines of credit 11,604 13,058
- --------------------------------------------------------------------
$81,944 $81,294
====================================================================
</TABLE>
The Company has available line of credit agreements with banks permitting
borrowings to a maximum of approximately $8,500,000. On December 31, 1996,
advances against those lines amounted to $3,800,000. At December 31, 1996, the
Company had $15,000,000 of debt secured by one-to-four family variable rate
mortgages with scheduled principal repayments of $8,000,000 in 1997, and
$7,000,000 in 1998 at interest rates ranging from 5.00% to 6.46%. The Company
has $53,712,200 in unused lines of credit with the Federal Home Loan Bank. At
December 31, 1995, the Company had $12,000,000 of debt secured by one-to-four
family variable rate mortgages with interest rates ranging from 4.61% to 6.42%.
The Company is required to maintain reserve balances by the Federal Reserve Bank
of New York. On December 31, 1996, the reserve requirement totaled $2,504,000.
17
<PAGE>
Note 13 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, 1996 and 1995. 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:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents 25,318,664 25,318,664 20,756,874 20,756,874
Securities - Available-for-Sale 167,903,720 167,903,720 146,626,489 146,626,489
Securities - Held-to-Maturity 37,752,933 38,784,390 38,907,640 40,219,442
Loans 350,409,423 352,792,209 321,289,950 323,332,820
Financial Liabilities
Time Deposits 169,856,561 172,249,046 106,348,614 108,292,669
Other Deposits 257,510,332 257,510,332 264,282,422 264,282,422
Federal funds purchased &
repurchase agreements 89,992,723 90,715,339 92,902,366 94,112,628
Borrowings 15,000,000 15,081,781 12,000,000 12,031,384
========================================================================================
</TABLE>
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: For variable rate loans 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 was estimated using discounted cash flow analyses, and
interest rates currently offered for loans with similar terms and credit
quality.
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.
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS: The carrying amounts of
Federal funds purchased and 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.
BORROWINGS: The fair value of borrowings was estimated using discounted cash
flow analysis using the weighted average interest rate on the outstanding debt.
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 14 Regulation and Supervision
Trustco 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
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, 1996, 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.
18
<PAGE>
Note 14 Regulation and Supervision continued
Actual capital amounts and ratios of the Company and the Trust Company are as
follows:
<TABLE>
<CAPTION>
REQUIRED REQUIRED
TO BE TO BE
ACTUAL ADEQUATELY CAPITALIZED WELL CAPITALIZED
- ------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AMOUNT/RATIO AMOUNT/RATIO AMOUNT/RATIO
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total Capital (to Risk weighted assets)
Trustco (Consolidated) $56,420/16.1% *$27,987/*8.0% *$34,984/*10.0%
Trust Company $55,408/15.9% *$27,907/*8.0% *$34,884/*10.0%
Tier I Capital (to Risk weighted assets)
Trustco (Consolidated) $52,047/14.9% *$13,994/*4.0% *$20,991/*6.0%
Trust Company $51,047/14.6% *$13,954/*4.0% *$20,931/*6.0%
Tier I Capital (to Average Assets)
Trustco (Consolidated) $ 52,047/8.9% *$23,512/*4.0% *$29,390/*5.0%
Trust Company $ 51,047/8.7% *$23,505/*4.0% *$29,381/*5.0%
- ------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1995:
Total Capital (to Risk weighted assets)
Trustco (Consolidated) N/A N/A N/A
Trust Company $58,376/17.4% *$26,841/*8.0% *$33,551/*10.0%
Tier I Capital (to Risk weighted assets)
Trustco (Consolidated) N/A N/A N/A
Trust Company $54,182/16.2% *$13,420/*4.0% *$20,131/*6.0%
Tier I Capital (to Average Assets)
Trustco (Consolidated) N/A N/A N/A
Trust Company $54,182/10.1% *$21,431/*4.0% *$26,789/*5.0%
======================================================================================================
</TABLE>
* = Greater than or equal to
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
$15,484,169 as of December 31, 1996.
N/A - Not applicable as the Company was formed on January 1, 1996.
Note 15 Condensed Parent Company Only Financial Statements
Condensed Financial Statements for Tompkins County Trustco, Inc. (the "Parent
Company") as of December 31, 1996, are presented below. The Parent Company was
established on January 1, 1996; therefore, no prior year information is
presented.
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CONDITION
- ---------------------------------------------------------------------------
(in thousands) 1996
- ---------------------------------------------------------------------------
<S> <C>
Assets
Available-for-sale securities carried at cost $ 1,000
Investment in bank, at equity 51,613
- --------------------------------------------------------------------------
Total Assets $52,613
==========================================================================
Shareholders' Equity
Common stock 334
Surplus 32,529
Undivided profits 20,925
Treasury stock (604)
Net unrealized gain or loss on available for sale securities 66
Deferred I.S.O.P. benefit expense (637)
- --------------------------------------------------------------------------
Total Shareholders' Equity $52,613
==========================================================================
CONDENSED STATEMENT OF INCOME
- --------------------------------------------------------------------------
(in thousands) 1996
- --------------------------------------------------------------------------
Dividends received from bank 11,814
Equity in undistributed income of bank (2,635)
- --------------------------------------------------------------------------
Net Income $ 9,179
==========================================================================
CONDENSED STATEMENT OF CASH FLOWS
(in thousands) 1996
- ---------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Note 15 Condensed Parent Company Only Financial Statements continued
<TABLE>
<S> <C>
Operating Activities
Net Income $ 9,179
Adjustments to reconcile net income to cash provided by operating activities:
Equity in undistributed earnings of bank 2,635
- --------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities
11,814
- --------------------------------------------------------------------------------------------
Investing Activities
Purchase of securities (1,000)
- --------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (1,000)
- --------------------------------------------------------------------------------------------
Financing Activities
Dividends paid on common stock (3,813)
Purchase of Treasury stock (627)
Repurchase of common shares (6,720)
Decrease in I.S.O.P benefit expense 320
Issuance of common stock 26
- --------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (10,814)
- --------------------------------------------------------------------------------------------
Increase (Decrease) in cash and cash equivalents -0-
- --------------------------------------------------------------------------------------------
Cash At January 1, 1996 -0-
- --------------------------------------------------------------------------------------------
Cash At December 31, 1996 -0-
============================================================================================
</TABLE>
Note 16 Unaudited Interim Financial Information
<TABLE>
<CAPTION>
Selected unaudited quarterly financial data for 1996 and 1995 follows: 1996
- ------------------------------------------------------------------------------------------------------------
(in thousands except per share data) FIRST SECOND THIRD FOURTH
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $10,303 $10,570 $11,001 $11,188
Interest expense 4,214 4,302 4,577 4,823
Net interest income 6,089 6,268 6,424 6,365
Provision for loan/lease losses 204 251 258 497
Income before income taxes 3,384 3,547 3,925 3,465
Net income 2,200 2,314 2,532 2,133
Net income per common share .62 .65 .72 .64
============================================================================================================
<CAPTION>
1995
- ------------------------------------------------------------------------------------------------------------
(in thousands except per share data) FIRST SECOND THIRD FOURTH
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $9,565 $9,860 $10,280 $10,371
Interest expense 3,937 4,184 4,137 4,268
Net interest income 5,628 5,676 6,143 6,103
Provision for loan/lease losses 83 134 178 356
Income before income taxes 3,074 3,117 3,958 3,187
Net income 2,060 2,077 2,573 2,008
Net income per common share .58 .59 .72 .57
============================================================================================================
</TABLE>
All per share amounts have been adjusted to reflect stock dividends.
20
<PAGE>
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 depends upon 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 Peat Marwick 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 PEAT MARWICK 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. as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. The accompanying
statements of income, changes in shareholders' equity and cash flows of Tompkins
County Trustco, Inc. for the year ended December 31, 1994, were audited by other
auditors whose report thereon dated January 13, 1995, referred to changes in
accounting for securities and other postretirement benefits.
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 1996 and 1995 consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Tompkins County Trustco, Inc. at December 31, 1996 and 1995, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
SYRACUSE, NEW YORK
JANUARY 17, 1997
<PAGE>
MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
1996
OVERVIEW
Tompkins County Trustco ("the Company") is the parent company of Tompkins
County Trust Company (the "Trust Company" or "the Bank"). The Trust Company is
an independent community bank whose primary service area is Tompkins County,
New York. 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, and electronic
banking.
The Company generates interest and other income through finance charges on
outstanding loan balances, loan servicing fees, interest on investments, trust
and investment service fees, and processing fees. Primary costs are related to
the funding of loans receivable and investments. Costs include interest paid on
deposits, securities sold under agreements to repurchase, and borrowings.
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 subsidiary for the periods shown. It should be
read in conjunction with the consolidated financial statements and notes thereto
for a full understanding of this analysis.
RESULTS OF OPERATIONS
Net income for 1996 was $9.2 million, or $2.63 per share; increasing from
$8.7 million, or $2.46 per share in 1995; and $8.1 million, or $2.29 per share
in 1994. The 5.3% growth in 1996 earnings, continues an earnings growth trend
that saw 1995 earnings increase by 7.1% over 1994 earnings.
Return on average shareholders' equity and return on average total assets
have remained relatively stable over the past three years, as illustrated in
Table 1. The modest decline in the return on assets in 1996 is due to an 8.6%
growth in average assets during the year, which outpaced the growth in earnings.
The return on average shareholders' equity also declined modestly during the
year, as growth in average equity also outpaced earnings growth. Total equity of
$52.6 million on December 31, 1996, represents a 4.5% decline from the previous
year due to a $6.7 million stock repurchase that was completed in October 1996.
The reduction in total equity capital should have a positive impact on return on
average shareholders' equity in 1997.
TABLE 1 - RETURN ON SHAREHOLDERS' EQUITY AND ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Return on average shareholders' equity 16.74% 17.02% 17.20%
Return on average total assets 1.62 1.67 1.62
=============================================================================
</TABLE>
Earnings growth was supported by growth in loans receivable and securities,
which increased by $29.1 million and $20.1 million, respectively during 1996.
Total loans receivable grew by $20.2 million in 1995, while securities increased
by $11.9 million. Earning asset growth helped offset modest declines net
interest margin, to support growth in net interest income of $1.6 million in
1996, and $785,000 in 1995.
NET INTEREST INCOME
Tax-equivalent net interest income has increased steadily over the past three
years from $23.9 million in 1994, to $24.7 million in 1995, to $26.2 million in
1996. Table 2 illustrates the trend in average earning assets and costing
liabilities, and the corresponding yield or cost associated with each. Tax-
equivalent net interest margin has been relatively stable at 5.06% in 1994,
5.01% in 1995, and 4.90% in 1996. The modest declining trend is primarily due to
a change in composition of liabilities. During 1995, the Company began
experiencing a shift in deposit liabilities from interest checking, savings, and
money market accounts, to higher cost time deposits. This trend is indicative of
the highly competitive market for retail deposit customers, and more attentive
management of funds by consumers. Average total time deposits represented 24.7%
of average total assets as of December 31, 1996, compared to 19.0% on December
31, 1995, and 17.8% on December 31, 1994.
22
<PAGE>
TABLE 2 - AVERAGE STATEMENTS OF CONDITION AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
BALANCE AVERAGE BALANCE AVERAGE BALANCE AVERAGE
(Dollar amounts in thousands) (YTD) INTEREST YIELD/RATE (YTD) INTEREST YIELD/RATE (YTD) INTEREST YIELD/RATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Certificates of deposit
with other banks $ 908 $ 48 5.29% $ 0 $ 0 $ 0 $ 0
Securities (1)
U.S. Treasury securities 39,259 2,789 7.10% 46,259 3,267 7.06% 52,892 3,527 6.67%
Obligations of U.S.
Government agencies
and corporations 112,439 7,233 6.43% 82,809 5,204 6.28% 76,476 4,653 6.08%
Obligations of states and
political subdivisions (2) 37,756 2,990 7.92% 40,704 3,223 7.92% 44,018 3,298 7.49%
Other securities 2,677 185 6.91% 4,675 324 6.92% 8,559 557 6.51%
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities 192,131 13,197 6.87% 174,447 12,018 6.89% 181,945 12,035 6.61%
Federal funds sold 8,789 468 5.33% 5,607 319 5.69% 3,206 133 4.15%
Loans, net of unearned
income (3)
Commercial (2) 124,807 11,664 9.35% 117,010 11,096 9.48% 108,965 9,059 8.31%
Residential real estate 109,829 8,581 7.81% 93,903 7,272 7.74% 82,208 6,183 7.52%
Home equity 20,738 2,013 9.71% 21,257 2,163 10.18% 20,320 1,685 8.29%
Consumer 64,291 6,887 10.71% 67,687 7,171 10.59% 64,824 6,702 10.34%
Direct lease financing 11,875 963 8.11% 11,268 913 8.10% 9,216 763 8.28%
Other 2,647 340 12.84% 2,215 308 13.91% 2,150 285 13.27%
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income 334,187 30,448 9.11% 313,340 28,923 9.23% 287,683 24,677 8.58%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 536,015 44,161 8.24% 493,394 41,260 8.36% 472,834 36,845 7.79%
Noninterest-earning assets 30,733 28,465 29,384
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $566,748 $521,859 $502,218
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Interest-bearing deposits
Interest-bearing checking $ 55,698 $ 1,048 1.88% $ 53,929 $ 993 1.84% $ 57,275 $ 1,067 1.86%
Savings and money market 125,866 3,831 3.04% 138,181 4,523 3.27% 143,778 4,063 2.83%
Time 139,803 7,259 5.19% 99,029 5,145 5.19% 89,487 3,770 4.23%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 321,367 12,138 3.78% 291,139 10,661 3.66% 290,540 8,900 3.06%
Federal funds purchased 546 30 5.50% 615 38 6.11% 1,985 84 4.23%
Securities sold under
agreements to repurchase 92,384 4,802 5.20% 91,435 5,141 5.62% 77,453 3,080 3.98%
Other borrowings 16,185 946 5.85% 12,625 686 5.44% 16,352 846 5.18%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 430,482 17,916 4.16% 395,814 16,526 4.18% 386,330 12,910 3.34%
Noninterest-bearing liabilities 81,437 74,963 69,404
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 511,919 470,777 455,734
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 54,829 51,082 46,484
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $566,748 $521,859 $502,218
====================================================================================================================================
Interest rate spread 4.08% 4.18% 4.45%
Impact of noninterest-bearing
liabilities 0.82% 0.83% 0.61%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin
on earning assets $26,245 4.90% $24,734 5.01% $23,935 5.06%
====================================================================================================================================
</TABLE>
(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
34% in 1994, 1995, 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.
23
<PAGE>
Changes in net interest income occur from a combination of changes in the
volume of earning assets and costing 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 or
volume 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 proportionately to the absolute dollar amounts of the change in each.
TABLE 3 - ANALYSIS OF YEAR TO DATE CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
(Dollar amounts in thousands)(taxable equivalent) 1996 vs. 1995 1995 vs. 1994
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) DUE INCREASE (DECREASE) DUE
TO CHANGE IN AVERAGE TO CHANGE IN AVERAGE
VOLUME RATE TOTAL VOLUME RATE TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold $ 171 $ (22) $ 149 $ 124 $ 62 $ 186
Interest bearing deposits 48 0 48 0 0 0
Investments
Taxable 1,349 62 1,411 (343) 401 58
Tax-exempt (233) 1 (232) (256) 181 (75)
Loans
Taxable 1,860 (320) 1,540 2,318 1,812 4,130
Tax-exempt 54 (69) (15) (21) 134 113
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 3,249 (348) 2,901 1,822 2,590 4,412
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest bearing deposits:
Interest checking 33 22 55 (61) (13) (74)
Savings and money market (387) (305) (692) (163) 623 460
Time 2,117 (2) 2,115 431 943 1,374
Securities sold under
agreements to repurchase 53 (393) (340) 626 1,435 2,061
Federal funds purchased (4) (4) (8) (74) 28 (46)
Others borrowings 204 55 259 (202) 42 (160)
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,016 (627) 1,389 557 3,058 3,615
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income $1,233 $ 279 $1,512 $1,265 $ (468) $ 797
===========================================================================================================================
</TABLE>
Net interest income grew on a tax-equivalent basis by approximately $1.5
million from 1995 to 1996, compared to an increase of $797,000 from 1994 to
1995. Total tax-equivalent interest income grew by $2.9 million from 1995 to
1996, while total interest expense grew by approximately $1.4 million. This
compares to a $4.4 million increase in total tax-equivalent interest income and
a $3.6 million increase in total interest expense, from 1994 to 1995. Net
earning asset growth provided $1.2 million to 1996 net interest income. A
favorable rate variance, especially on securities sold under agreements to
repurchase and savings and money market deposits, provided $279,000 to 1996 net
interest income.
PROVISION FOR LOAN AND LEASE LOSSES
The provision represents management's estimate of the expense necessary to
maintain the reserve for loan and lease losses at an adequate level. The
provision for loan and lease losses remained fairly steady during 1995 and 1994,
at $751,000 and $768,000, respectively. The 1996 provision of $1.2 million
represents an increase of 61% over 1995. The increased provision in 1996 was
largely due to an increased volume of charge-offs, primarily in the consumer
loan portfolio. Although the 1996 provision was significantly higher than in
1995 and 1994, net loan losses in 1996 as a percentage of average loans was
consistent with the Company's longer term loan loss experience, as illustrated
in Table 5. The 1996 provision expense included $75,000 in additions to the
reserve in excess of actual net loan losses.
OTHER INCOME
Other income totaled $8.0 million in 1996, representing an 8.4% increase over
the $7.4 million reported in the two previous years. Other income as a
percentage of average assets was approximately 1.42% in 1996 and 1995, compared
to approximately 1.47% in 1994. Other income in 1994 included a $121,000 gain on
the sale of securities.
Income from trust and investment services continues to be the largest segment
of other income, with $2.7 million in total revenue generated in 1996. This
represents a 16.2% increase over the $2.3 million reported in 1995. Increased
fee income is attributable to the continued growth in assets managed by the
Trust and Investment Services Department. Total assets managed by the department
had a market value of $645.7 million on December 31, 1996, compared to $404.8
million on December 31, 1995, and $343.2 million on December 31,
24
<PAGE>
1994. Total department assets on December 31, 1996 includes $122.9 million of
the Company's investment securities, for which the Trust and Investment Services
Department began providing custodial services in December 1996. Total Trust and
Investment Services Department assets, excluding assets of the Company, grew by
29% in 1996.
Utilization of trust and investment services continues to grow as increasing
numbers of individuals seek professional investment management and investment
planning advice from the Trust Company. In 1994, the Trust Company introduced
the "Targets" program, which allows customers with smaller asset balances to
utilize the personal services of bank Trust Officers in conjunction with the
research and investment advisory services of Fidelity Investments.
Other operating income also includes commissions generated by securities
brokerage services. The Trust Company, in affiliation with INVEST Financial
Corporation, offers a variety of investment alternatives to its customers.
Other service charges and fees, consisting of service charges on deposit
accounts, credit card merchant fee income, and other service charges, grew a
combined $406,000 in 1996 to $4.8 million, after a modest decline of $174,000 in
1995.
OTHER EXPENSE
The Company's 1996 efficiency ratio improved to 55.2% in 1996, compared to
55.8% in 1995, and 60.7% in 1994. The improving trend is a result of operating
revenues increasing at a faster rate than other expenses. Total other expenses
increased by 4.6% to $17.6 million in 1996, after a decrease of 5.4% to $16.9
million in 1995. Contributing to the decrease in 1995 was a $373,000 reduction
in the cost of Federal Deposit Insurance Corporation (FDIC) insurance premiums.
Salary and wage costs, which include incentive compensation, profit sharing and
contributions to the employee investment and stock ownership plan, increased by
5.5% in 1996, compared to a 3.5% increase during 1995. The increase in salary
and wage expense in 1996 was partially offset by a 3.9% decrease in expense for
pensions and other employee benefits.
The provision for income taxes provides for Federal and New York State income
taxes. The 1996 provision was $5.1 million, an increase of $524,000, or 11% over
1995. This increase was due to higher taxable income in 1996. The 1995 provision
for income taxes was $4.6 million, an increase of $1.2 million or 35% over 1994.
The 1995 increase was attributable to a one time tax qualified contribution of
appreciated equity securities to the Tompkins County Trust Company Charitable
Fund in 1994, which lowered 1994 taxes significantly. The effective tax rate was
35.9% in 1996, 34.6% in 1995, and 29.6% in 1994.
FINANCIAL CONDITION
During 1996, total assets grew 10.1% to $591 million, compared to $537
million at December 31, 1995. Total earning assets were $555.6 million at
December 31, 1996, compared to $506.8 million in 1995, and $482.4 million at
year end 1994. Growth was centered in the investment portfolio and the loan
portfolio, and was funded primarily with time deposits.
SHAREHOLDERS' EQUITY
The consolidated statements of changes in shareholders' equity on page 7 of
this annual report details the changes in equity capital, including payments to
our shareholders in the form of cash dividends. The Company continued the Bank's
long history of increasing cash dividends with an increase of 11.1% to $1.10
per share in 1996, compared to $.99 in 1995, and $.91 in 1994. Total dividends
paid out represented 41.5%, 40.2%, and 40.0% of net income after tax in each of
those years, respectively. Additionally, the Board of Directors declared a 10%
stock dividend in 1995.
Total equity capital was $52.6 million at December 31, 1996, compared to
$55.1 million at December 31, 1995, and $47.8 million in 1994. The 4.5% decline
in equity capital in 1996, is primarily the result of a $6.7 million private
stock repurchase transaction, whereby, the Company repurchased 244,371 of its
own shares from RHP, Incorporated, an unrelated third party. The shares were
purchased on October 22, 1996, at a price of $27.50 per share and have been
returned to the status of authorized but unissued. The Board of Directors
believes the repurchase of this stock, the largest block owned by a single
entity, was an excellent investment opportunity for the Company and its
shareholders, in light of the Company's strong capital position and historically
strong equity growth rate. The Company also purchased 22,000 shares of treasury
stock in 1996 for $28.50 per share, for a total purchase price of $627,000.
In 1994, the Investment and Stock Ownership Plan (I.S.O.P.) borrowed
$1,650,000 from the Bank in order to purchase 55,000 shares of outstanding Trust
Company common stock. As directed by the Board of Directors, these shares are
being released by the I.S.O.P. to satisfy a significant portion of the Company's
annual obligations to its employees under the profit sharing plan. The I.S.O.P.
debt was recorded as a reduction to capital. Debt payments to the Bank are made
annually by the I.S.O.P. with profit sharing contributions and are recorded as
compensation expense with a corresponding increase to capital.
25
<PAGE>
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 14 of the consolidated financial statements.
SECURITIES
In 1996, the securities portfolio (net of SFAS 115 fair value adjustments on
available-for-sale securities) increased 11.8% to $206 million, with 13.4% 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 securities,
primarily obligations of states and political subdivisions were $37.8 million,
or 18% of all securities at year end 1996, compared to $38.9 million, or 21% at
December 31, 1995. Mortgage-backed securities, consisting solely of securities
issued by U.S. Government agencies, totaled $22.1 million at December 31, 1996,
compared to $13.5 million at December 31, 1995.
Management's policy is to purchase investment grade securities which, on
average, have relatively short expected maturities to mitigate interest rate
risk and provide sources of liquidity without significant risk to capital. A
large percentage 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.
LOANS
Loans and leases, net of unearned income, grew 9.3%, to $350.4 million at
December 31, 1996. Real estate mortgage loans grew $19.1 million or 14.4% in
1996, and comprised 43% of the total loan portfolio. Commercial loans increased
by 8.3% during 1996, to $119.0 million, representing 34% of total loans. Table 5
details the composition and volume changes in the loan portfolio over the past
five years.
TABLE 4 - LOAN CLASSIFICATION SUMMARY
<TABLE>
<CAPTION>
DECEMBER 31 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $118,964,895 $109,825,966 $ 99,577,328 $ 93,337,985 $ 62,729,728
Real estate construction 1,202,577 663,039 638,852 668,149 1,722,764
Real estate mortgage 151,712,943 132,566,305 121,584,599 110,527,265 135,700,877
Consumer 66,860,082 66,025,662 69,273,425 63,896,510 57,863,456
Leases and other 12,939,997 13,733,007 11,338,606 9,866,298 7,758,867
- ----------------------------------------------------------------------------------------------------
Total loans 351,680,494 322,813,979 302,412,810 278,296,207 265,775,692
Less unearned income 1,271,071 1,524,029 1,326,127 1,250,355 1,077,284
- ----------------------------------------------------------------------------------------------------
Total loans, net of
unearned income $350,409,423 $321,289,950 $301,086,683 $277,045,852 $264,698,408
====================================================================================================
</TABLE>
The residential mortgage portfolio grew 20.7% in 1996, to $121 million,
compared to $100.3 million in 1995, and $88.1 million in 1994. The Company
sells some of its mortgage loans to Federal agencies and retains all servicing
rights. In 1996, the Company sold approximately $201,000 of mortgage loans,
compared to $500,000 sold in 1995, and $3.2 million sold in 1994. Mortgage
servicing on sold loans will continue to provide fee income. Total residential
loans serviced for others totaled $32.4 million at December 31, 1996, compared
to $36.1 million at December 31, 1995.
Approximately 49% of the consumer loan portfolio is made up of automobile
loan financing, which is generally rate sensitive and competitive. The portfolio
has remained relatively steady in 1995 and 1996; however, the local demand for
automobiles weakened in 1995 which contributed to a 4.7% reduction in consumer
loans from 1994 and 1995. The lease portfolio, comprised mostly of leases on
vehicles and equipment for small businesses, declined 5.8% to $12.9 million in
1996, following a 21.1% increase in 1995. Home equity loans declined a modest
1.4% in 1996 to $20.9 million.
The Company offers Federally guaranteed education loans through the New York
State Higher Education Assistance Corporation. The Company has the option of
holding student loans in the loan portfolio or selling them. During 1995, as a
result of changes in the way student loans are funded and originated through the
Federal government, and favorable market conditions, the Bank sold $10.3 million
of student loans, which represented most of the outstanding loans at the time of
the sale. The Company continues to offer student loan financing, and may sell
student loans before they reach repayment status. Total student loans amounted
to $4.9 million at December 31, 1996, compared to $2.1 million at December 31,
1995. The Company sold approximately $847,000 of student loans in 1996 with no
material gain or loss on the sales.
26
<PAGE>
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 loss 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.
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 to $4.8 million in
1996, representing 1.36% of total loans and leases outstanding at year end.
The allocated portions of the reserve, as illustrated in Table 6, reflect
management's estimates of specific known risk elements in the respective
portfolios. Among the factors considered in allocating portions of the reserve
by loan type are the current levels of past due, nonaccrual, and impaired loans.
The unallocated portion of the reserve represents risk elements in the loan
portfolio that have not been specifically identified. Factors considered in
determining the appropriate level of unallocated reserves include historical
loan loss history, current economic conditions, and expectations for loan
growth. The Company's historical loss experience is illustrated in Table 5.
TABLE 5 - ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding
during year $334,186,905 $313,339,533 $287,684,234 $272,728,898 $249,716,080
=============================================================================================================
Balance of reserve at
beginning of year $ 4,703,600 $ 4,653,600 $ 4,403,600 $ 4,150,000 $ 2,950,000
Loans charged-off:
Domestic:
Commercial, financial
and agricultural 46,273 82,947 33,860 320,977 276,888
Real estate - mortgage 148,295 50,000 59,110 117,203 74,163
Real estate - construction -0- -0- -0- -0- -0-
Installment loans
to individuals 1,286,202 611,732 430,215 450,592 490,381
Lease financing 10,498 3,933 337 38,776 10,067
Other loans 58,669 354,805 370,310 289,762 283,193
- -------------------------------------------------------------------------------------------------------------
Total loans charged off 1,549,937 1,103,417 893,832 1,217,310 1,134,692
- -------------------------------------------------------------------------------------------------------------
Recoveries of loans
previously charged-off:
Domestic:
Commercial, financial
and agricultural 56,704 31,624 26,055 30,661 51,119
Real estate - mortgage 7,141 53,731 350 -0- -0-
Real estate - construction -0- -0- -0- -0- -0-
Installment loans
to individuals 324,015 200,974 241,726 159,754 171,448
Lease financing 7,437 17,188 12,599 16,925 11,757
Other loans 19,697 98,642 95,427 56,086 52,780
- -------------------------------------------------------------------------------------------------------------
Total loans recovered 414,994 402,159 376,157 263,426 287,104
- -------------------------------------------------------------------------------------------------------------
Net loans charged-off 1,134,943 701,258 517,675 953,884 847,588
Additions to reserve charged
to operations 1,209,943 751,258 767,675 1,207,484 2,047,588
- -------------------------------------------------------------------------------------------------------------
Balance of reserve at
end of year $ 4,778,600 $ 4,703,600 $ 4,653,600 $ 4,403,600 $ 4,150,000
=============================================================================================================
Net charge-offs as percent
of average loans
outstanding during year 0.34% 0.22% 0.18% 0.35% 0.34%
=============================================================================================================
</TABLE>
27
<PAGE>
Despite the increasing trend in nonaccrual loans, a majority of the
nonaccrual loans are secured by real estate collateral, with approximately 40%
secured by one-to four family residential properties. The December 31, 1996
reserve for loan and lease losses provides coverage of 1.87 times nonperforming
assets (loans past due 90 days and accruing, nonaccrual loans, restructured
troubled debt, and other real estate). Management is committed to early
recognition of possible loan problems and to maintaining a conservative, strong
reserve. Based upon management's review, the reserve is believed to be adequate
to absorb possible losses in the portfolio.
TABLE 6 - ALLOCATION OF THE RESERVE FOR LOAN/LEASE LOSSES
<TABLE>
<CAPTION>
DECEMBER 31
(Dollar amounts in thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total loans outstanding
at end of year $350,409 $321,290 $301,087 $277,046 $264,698
=====================================================================================================
Allocation of the Reserve
by Loan Type
Commercial $ 786 $ 1,591 $ 1,589 $ 1,686 $ 2,085
Residential Real Estate 230 85 130 138 249
Consumer & all other 1,249 1,401 1,427 1,401 1,588
Unallocated 2,514 1,627 1,508 1,179 228
- -----------------------------------------------------------------------------------------------------
Total $ 4,779 $ 4,704 $ 4,654 $ 4,404 $ 4,150
=====================================================================================================
Allocation of the Reserve as
a Percentage of Total Reserve
Commercial 17% 34% 34% 38% 50%
Residential Real Estate 5% 2% 3% 3% 6%
Consumer & all other 26% 30% 31% 32% 38%
Unallocated 52% 34% 32% 27% 6%
- -----------------------------------------------------------------------------------------------------
Total 100% 100% 100% 100% 100%
=====================================================================================================
Loan Types as a Percent
of Total Loans
Commercial 38% 34% 33% 34% 24%
Residential Real Estate 41% 41% 40% 40% 51%
Consumer & all other 21% 25% 27% 26% 25%
- -----------------------------------------------------------------------------------------------------
Total 100% 100% 100% 100% 100%
=====================================================================================================
Loans 90 days past
due and accruing $ 28 $ 254 $ 241 $ 538 $ 975
Nonaccruing loans 1,994 1,024 607 953 825
Troubled Debt Restructurings
Not included above 428 205 134 219 0
Other Real Estate Owned 100 229 231 94 213
=====================================================================================================
Reserve as percent of loans
outstanding at end of year 1.36% 1.46% 1.55% 1.59% 1.57%
=====================================================================================================
</TABLE>
DEPOSITS AND OTHER LIABILITIES
Total deposits grew 15.3%, or $56.7 million in 1996, which includes $9.6
million in deposits acquired through the acquisition of the Odessa Community
Banking office from the First National Bank of Rochester in October 1996.
Deposit growth centered primarily in time deposits over $100,000, which
increased by $55.8 million, to $70.0 million at December 31, 1996. Total core
deposits (including time deposits less than $100,000) grew by $929,000 in 1996,
to $357.3 million. Non-interest bearing demand deposits grew by 6.2% in 1996, to
$78.0 million. Non-interest bearing demand deposits represented 18.3% of all
deposits at December 31, 1996, compared to 19.8% in 1995, and 18.8% in 1994.
The Company's liability for securities sold under agreements to repurchase
decreased by 7.2% to $86.2 million at December 31, 1996. During 1996, the
Company increased its borrowings from the Federal Home Loan Bank (FHLB) by $3
million, to $15 million. Total debt outstanding with the FHLB on December 31,
1996 had a weighted average rate of 5.93%, and a weighted average maturity of
approximately 12 months. the Company also has a line of credit of $8.5 million
with The First National Bank of Chicago. As of December 31, 1996, $3.8 million
in Federal funds purchased were advanced against this line.
28
<PAGE>
To secure certain large deposits, specific securities are pledged. Pledged
securities and those subject to repurchase agreements totaled $180.8 million on
December 31, 1996, representing 88.0% of the securities portfolio compared to
$145.6 million and 78.5%, respectively, at December 31, 1995.
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 83.6% of total
deposits, and 66.3% of total liabilities at December 31, 1996. Non-core
liabilities (time deposits greater than $100,000, Federal funds purchased,
securities sold under agreements to repurchase, and other borrowings) increased
by 47.7% to $175.0 million at December 31, 1996, compared to $119.1 million at
December 31, 1995. The portion of non-core liabilities maturing in one year or
less totaled $164.6 million at December 31, 1996, compared to $105.0 million at
December 31, 1995. Short-term investments consisting of securities with
maturities of one year or less declined 9.5% from $30.5 million to $27.6
million. The ratio of short term investments to short term non-core liabilities
declined from 17.6% at year end 1995, to 11.4% at year end 1996, indicating an
increased volume of long term assets supported by short term non-core
liabilities.
Cash flow from the loan and investment portfolios are a significant source of
liquidity. Investment in residential mortgage loans, auto loans, and mortgage-
backed securities totaled $121 million, $32 million, and $22.1 million,
respectively at December 31, 1996. Aggregate amortization from monthly payments
on these assets is anticipated to be approximately $41.8 million in 1997. Table
7 details total scheduled maturities of selected loan categories, including
scheduled amortization.
TABLE 7 - LOAN MATURITY
<TABLE>
<CAPTION>
REMAINING MATURITY OF SELECTED LOANS AT DECEMBER 31, 1996
(Dollar amounts in thousands) TOTAL WITHIN 1 YEAR 1-5 YEARS AFTER 5 YEARS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loan Maturity
Commercial $118,965 $ 60,888 $ 50,343 $ 7,734
Real estate construction 1,203 1,111 92 -0-
Real estate mortgage 151,713 60,602 52,769 38,342
- ---------------------------------------------------------------------------------------------
Total $271,881 $122,601 $103,204 $46,076
=============================================================================================
</TABLE>
Additionally, liquidity is enhanced by ready access to national and regional
wholesale funding sources including Federal funds purchased, securities sold
under agreement to repurchase, negotiable certificates of deposit, and FHLB
advances. The Bank is a FHLB member and has a borrowing relationship with the
FHLB and a correspondent bank, which provide for secured and unsecured borrowing
capacity. At December 31, 1996, the unused borrowing capacity with the FHLB was
$53.7 million. As a member of FHLB, the Bank can also use its residential
mortgage portfolio to secure additional borrowings from the FHLB.
INTEREST RATE SENSITIVITY
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 and on
interest rate sensitivity. The findings of the committee are incorporated into
investment and funding decisions, and in the business planning process.
Table 8 is a condensed Gap report, which illustrates the anticipated
repricing intervals of assets and liabilities, as of December 31, 1996. 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.
29
<PAGE>
TABLE 8 - INTEREST RATE RISK ANALYSIS
<TABLE>
<CAPTION>
CONDENSED STATIC GAP - DECEMBER 31, 1996 REPRICING INTERVAL
CUMULATIVE
(Dollar amounts in thousands) TOTAL 0-3 MONTHS 3-6 MONTHS 6-12 MONTHS 12 MONTHS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning assets $ 556,066 $ 120,849 $45,640 $73,363 $239,852
Interest bearing liabilities 454,363 222,557 54,934 49,043 326,534
- ----------------------------------------------------------------------------------------------------------------------
Net Gap position $(101,708) $(9,294) $24,320 $(86,682)
- ----------------------------------------------------------------------------------------------------------------------
Net Gap position as a percentage of Total Assets (17.20%) (1.57%) 4.11% (14.66%)
======================================================================================================================
</TABLE>
Although the analysis reflects some exposure to rising interest rates,
management feels the exposure is not significant in relation to total assets.
RECENT ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers of Servicing of Financial Assets and Extinguishments
of Liabilities." The statement provides accounting and reporting standards for
transfers of servicing of financial assets and extinguishments of liabilities
based upon a consistent application of a financial-components approach that
focuses on control. It distinguishes transfers of financial assets that are
sales, from transfers that are secured borrowings. The Company will
prospectively adopt SFAS No. 125 effective January 1, 1997. The expected impact
on the Company's consolidated financial statements is not material.
FACILITIES AND SERVICES
In order to achieve asset and return on equity growth targets, The Bank
expanded its market area. During the fourth quarter of 1996, the Trust Company
acquired the Odessa branch office of the First National Bank of Rochester.
Odessa is in Schuyler County (which is contiguous to Tompkins County). The Bank
also opened a limited service, part-time office in Kendal at Ithaca (a life care
retirement community) which will serve its employees and residents. The Bank
installed a cash dispensing ATM in McLean, N.Y. Bank-wide ATM activity continues
to increase at a rate of nearly 10% per year. The family of Access products
continues to be well received. The Bank's voice response system, Anytime Access,
receives over 4,000 calls a week. Our VISA check card, Anywhere Access, is used
extensively, and our home banking product, Home Access, is becoming more
popular.
The Company plans to continue to invest in existing branches to maintain high
quality service. Both the Main Office and Dryden Office will be renovated in
1997, with the addition of sales/service counters. These counters are convenient
for customers, and allow bank representatives to provide more personal service
and improve their sales interactions with customers.
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 and
provide a wide range of products 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
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 tax
paying 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 full range of financial services and products. The Company
continues to emphasize the advantages of banking with a locally headquartered,
independent commercial bank. 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.
30
<PAGE>
EXHIBIT 16 - LETTER REGARDING CHANGE IN CERTIFYING ACCOUNTANT
March 21, 1997
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, DC 20549
Gentlemen:
We have read Item 9 of this Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, of Tompkins County Trustco, Inc. and are in agreement
with the statements contained in paragraphs 1 through 3 on page 14 therein.
/S/ Ernst & Young LLP
Syracuse, New York
March 21, 1997
<PAGE>
EXHIBIT 23.1 - CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-00146) pertaining to the Investment and Stock Ownership Plan,
1992 Stock Option Plan, and 1996 Stock Retainer Plan for Non-Employee Directors
of Tompkins County Trustco, Inc. of our report dated January 13, 1995, with
respect to the financial statements of Tompkins County Trust Company for the
year ended December 31, 1994 incorporated by reference in the Annual Report
(Form 10-K) for the year ended December 31,1996.
/S/ Ernst & Young LLP
Syracuse, New York
March 21, 1997
<PAGE>
EXHIBIT 23.2 - CONSENT OF KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Tompkins County Trustco, Inc.
We consent to incorporation by reference in the Registration Statement No. 333-
00146 on Form S-8 of Tompkins County Trustco, Inc. of our report dated January
17, 1997, relating to the consolidated statements of condition of Tompkins
County Trustco, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholdersO equity and cash
flows for the years then ended, which report has been incorporated by reference
in the December 31, 1996 annual report on Form 10-K of Tompkins County Trustco,
Inc.
/S/ KPMG Peat Marwick LLP
Syracuse, New York
March 19, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,318,664
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 167,903,720
<INVESTMENTS-CARRYING> 205,656,653
<INVESTMENTS-MARKET> 206,688,110
<LOANS> 350,409,423
<ALLOWANCE> 4,778,600
<TOTAL-ASSETS> 591,344,457
<DEPOSITS> 427,366,893
<SHORT-TERM> 97,992,723
<LIABILITIES-OTHER> 6,371,912
<LONG-TERM> 7,000,000
0
0
<COMMON> 331,519
<OTHER-SE> 52,281,410
<TOTAL-LIABILITIES-AND-EQUITY> 591,344,457
<INTEREST-LOAN> 30,365,625
<INTEREST-INVEST> 12,179,842
<INTEREST-OTHER> 516,658
<INTEREST-TOTAL> 43,062,125
<INTEREST-DEPOSIT> 12,139,170
<INTEREST-EXPENSE> 17,916,150
<INTEREST-INCOME-NET> 25,145,975
<LOAN-LOSSES> 1,209,943
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 17,640,997
<INCOME-PRETAX> 14,320,924
<INCOME-PRE-EXTRAORDINARY> 14,320,924
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,179,000
<EPS-PRIMARY> 2.63
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3
<LOANS-NON> 1,994,000
<LOANS-PAST> 28,000
<LOANS-TROUBLED> 428,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,703,600
<CHARGE-OFFS> 1,549,937
<RECOVERIES> 414,994
<ALLOWANCE-CLOSE> 4,778,600
<ALLOWANCE-DOMESTIC> 4,778,600
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,514,000
</TABLE>
<PAGE>
EXHIBIT 99 - REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
TOMPKINS COUNTY TRUST COMPANY
ITHACA, NEW YORK
We have audited the accompanying statements of income, changes in shareholders'
equity, and cash flows of Tompkins County Trust Company (Trust Company) for the
year ended December 31, 1994. These financial statements are the
responsibility of the Trust Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of the Trust
Company for the year ended December 31, 1994, in conformity with generally
accepted accounting principles.
In 1993, the Trust Company changed its method of accounting for securities and
other postretirement benefits.
/S/ Ernst & Young LLP
Syracuse, New York
January 13, 1995
