SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
THE COMMONS, P.O. BOX 460, ITHACA, NY 14851
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 273-3210
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [ X ] No [ ].
Indicate the number of shares of the Registrant's Common Stock outstanding as of
the latest practicable date:
CLASS OUTSTANDING AS OF AUGUST 1, 1997
---------------------------- --------------------------------
Common Stock, $.10 par value 3,236,516 shares
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TOMPKINS COUNTY TRUSTCO, INC.
FORM 10-Q
INDEX
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PART I - FINANCIAL INFORMATION
PAGE
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Item 1 - Financial Statements
Condensed Consolidated Statements of Condition
June 30, 1997 and December 31, 1996 ........................ 3
Condensed Consolidated Statements of Income
for the three months and six months ended June 30, 1997
and 1996 ................................................... 4
Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1996 ............ 5
Consolidated Statements of Changes in Shareholders' Equity
for the six months ended June 30, 1997 and 1996 ............ 6
Notes to Condensed Consolidated Financial Statements ....... 7-9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 10-13
Average Consolidated Balance Sheet and Net Interest Analysis 14
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Securities Holders ...... 15
Item 6 - Exhibits and Reports on Form 8-K ........................... 15
SIGNATURES ................................................................... 16
EXHIBIT INDEX ................................................................ 17
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
ASSETS
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
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Cash & noninterest bearing balances
due from banks 26,262 25,319
Available-for-sale securities, at fair value 178,438 167,904
Held-to-maturity securities, fair value of $37,445
in 1997 and $38,784, in 1996 36,589 37,753
Loans and leases net of unearned income 363,893 350,409
Less: Reserve for loan and lease losses 4,879 4,779
- ---------------------------------------------------------------------------------------------------------------------------
NET LOANS 359,014 345,630
Bank Premises and Equipment 6,798 6,924
Other Assets 8,376 7,814
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 615,477 591,344
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking 56,486 59,738
Savings and money market 136,666 119,775
Time 161,254 169,856
Noninterest bearing 83,403 77,997
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 437,809 427,366
Securities Sold under agreements to repurchase and
Federal funds purchased 96,085 89,993
Other Borrowings 22,005 15,000
Other Liabilities 6,839 6,372
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 562,738 538,731
- ---------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Shareholders' equity:
Common Stock - par value $.10 per share
Authorized 7,500,000 shares; issued and outstanding
3,256,822 in 1997 and 3,336,394 shares in 1996 326 334
Surplus 29,883 32,529
Undivided Profits 23,867 20,925
Net Unrealized gain (loss) on available-for-sale
securities, net of taxes (117) 66
Treasury Stock - 20,592 shares in 1997, 21,203 shares
in 1996. (587) (604)
Deferred I.S.O.P. benefit expense (633) (637)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 52,739 52,613
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 615,477 591,344
===========================================================================================================================
* See accompanying notes to condensed consolidated financial statements.
3
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
QUARTER ENDING YEAR TO DATE
06/30/97 06/30/96 06/30/97 06/30/96
-------- -------- -------- --------
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans 8,037 7,423 15,827 14,782
Federal funds sold 54 99 172 261
Available-for-sale securities 3,034 2,557 5,889 4,832
Held-to maturity securities 489 491 992 998
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 11,614 10,570 22,880 20,873
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or more 1,195 448 2,252 737
Other Deposits 2,481 2,385 4,914 4,934
Federal Funds Purchased and Securities sold under
agreements to repurchase 1,125 1,246 2,184 2,459
Other Borrowed funds 217 223 433 386
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 5,018 4,302 9,783 8,516
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 6,596 6,268 13,097 12,357
- ---------------------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 153 251 567 455
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN/LEASE LOSSES 6,443 6,017 12,530 11,902
- ---------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Trust and investment services income 747 690 1,566 1,307
Service charges on deposit accounts 442 428 901 854
Credit card merchant income 482 404 1,038 867
Other service charges 300 281 626 575
Other operating income 150 159 287 310
Net Loss on Sale of Securities (44) 0 44 0
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 2,077 1,962 4,374 3,913
- ---------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salary and wages 1,981 1,867 3,945 3,729
Pension and other employee benefits 451 473 973 983
Net Occupancy Expense of bank premises 320 341 648 695
Furniture and fixture expense 294 288 574 569
Credit Card Operating Expense 453 396 947 795
Other operating expense 1,243 1,067 2,310 2,113
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 4,742 4,432 9,397 8,884
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 3,778 3,547 7,507 6,931
- ---------------------------------------------------------------------------------------------------------------------------
Income Taxes 1,315 1,233 2,612 2,417
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME 2,463 2,314 4,895 4,514
===========================================================================================================================
Weighted Average Shares Outstanding 3,236,230 3,527,859 3,273,468 3,537,408
NET INCOME PER COMMON SHARE 0.76 0.66 1.50 1.27
===========================================================================================================================
* See accompanying notes to condensed consolidated financial statements.
4
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
SIX MONTHS ENDED
6/30/97 6/30/96
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OPERATING ACTIVITIES
Net Income $ 4,895 $ 4,514
Adjustments to reconcile net income to net cash
provided by operating activities:
- -------------------------------------------------------------------------------------
Provision for loan/lease losses 567 455
Provision for depreciation and amortization 565 517
Provision for Deferred Income Taxes 67 3
Net amortization/(accretion) on securities 93 (72)
Net loss on the sale of securities 44 0
Net Gain on the Sale of Loans (2) 0
- -------------------------------------------------------------------------------------
Net (Gains)/Loss on sales of bank premises and equipment 1 (3)
Increase in other assets (613) (412)
Increase in other liabilities 537 (266)
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,154 4,736
- -------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 15,607 31,930
Proceeds from sale of available for sale securities 4,942 0
Proceeds from maturities of held-to-maturity securities 6,638 5,021
Purchases of available-for-sale securities (31,485) (46,323)
Purchases of held-to-maturity securities (5,524) (3,338)
Proceeds from sales of loans 911 678
Net increase in loans (14,860) (11,439)
Proceeds from sales of bank premises and equipment 4 13
Purchases of bank premises and equipment (392) (275)
- -------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (24,159) (23,733)
- -------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease) increase in demand deposits,
money market accounts and savings accounts 5,021 (1,832)
Net increase in time deposits 5,422 25,072
Net increase in securities sold under
repurchase agreements and Federal funds purchased 6,092 6,394
Net increase in other borrowings 7,000 8,000
Cash dividends (1,953) (1,892)
Decrease in deferred I.S.O.P benefit expense 4 1
Treasury stock sold 20 6
Treasury stock purchased 0 (627)
Common shares repurchased and returned to authorized
and unissued status (2,670)
Proceeds from issuance of common stock 12 0
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,948 35,122
- -------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 943 16,125
Cash and cash equivalents at beginning of period 25,319 20,757
- -------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,262 $ 36,882
=====================================================================================
* See accompanying notes to condensed consolidated financial statements.
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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
NET
UNREALIZED
GAIN/(LOSS)
ON
AVAILABLE DEFERRED
COMMON TREASURY UNDIVIDED FOR-SALE ISOP
STOCK STOCK SURPLUS PROFITS SECURITIES BENEFIT EXP TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
===========================================================================================================================
BALANCES AT
JANUARY 1, 1996 358 0 39,190 15,560 909 (926) 55,091
- ---------------------------------------------------------------------------------------------------------------------------
Net income 4,514 4,514
Common stock issued 6 6
Cash dividends ($.53/Share) (1,892) (1,892)
Treasury stock purchased (22,000 (627) (627)
shares)
Treasury stock sold 0
Change in net unrealized 0
Gain/(Loss), net of taxes (1,761) (1,761)
I.S.O.P. shares released for 1 1
allocation
0
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES AT
JUNE 30, 1996 358 (627) 39,196 18,182 (852) (925) 55,332
===========================================================================================================================
0
===========================================================================================================================
BALANCES AT
JANUARY 1, 1997 334 (604) 32,529 20,925 66 (637) 52,613
- ---------------------------------------------------------------------------------------------------------------------------
Net income 4,895 4,895
Common stock issued 12 12
Cash dividends ($.60/Share) (1,953) (1,953)
Treasury stock sold 17 3 20
Common stock repurchased and (8) (2,662) (2,670)
returned to authorized and
unissued status (80,000 shares)
Change in net unrealized 0
Gain/(Loss), net of taxes (183) (183)
I.S.O.P. shares released for 1 4 5
allocation
0
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES AT
JUNE 30, 1997 326 (587) 29,883 23,867 (117) (633) 52,739
===========================================================================================================================
* See accompanying notes to condensed consolidated financial statements.
6
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Tompkins County Trustco, Inc. (the "Company") is a registered bank holding
company, organized under the laws of New York State. On April 26, 1995, the
shareholders of Tompkins County Trust Company (the "Trust Company") approved a
proposal to revise its corporate structure by establishing the Company as a one
bank holding company. On January 1, 1996, the Trust Company became a wholly
owned subsidiary of the Company and all issued and outstanding shares of Trust
Company common stock were converted to shares of the Company's common stock. The
holding company formation was accounted for similar to a pooling of interests.
Accordingly, the financial information included herein combine the results of
operations, and the assets, liabilities, and shareholders equity of the Company
and the Trust Company for all periods presented. The Trust Company traces its
charter back to 1836 and provides loan, deposit, and trust services to its
customers primarily in Tompkins County, New York.
2. BASIS OF PRESENTATION
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that effect the
reported amounts of assets and liabilities as of the date of the statements of
condition and statements of income and expenses for the period. Actual amounts
could differ from estimates.
The accompanying interim condensed consolidated financial statements and related
notes should be read in conjunction with the Company's Form 10-K and related
notes for the year ended December 31, 1996.
The condensed consolidated financial statements included herein reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary for a fair presentation of the Company's financial
position at June 30, 1997, and December 31, 1996, and the results of operations
for the three months and six months ended June 30, 1997 and 1996. Certain
reclassifications have been made to prior period amounts for consistency in
reporting.
3. STOCK REPURCHASE PROGRAM
In November 1996, the board of directors approved a stock repurchase program,
which authorizes the repurchase of up to $3 million in common stock of the
Company in open market transactions. No open market transactions have been
completed under this program. On May 14, 1997, the Company repurchased 80,000
shares of its common stock in a privately negotiated transaction. The shares,
which have been returned to the status of authorized and unissued, were
purchased at $33.38 per share, for a total purchase price of $2.67 million.
4. SECURITIES
Management determines the appropriate classification of debt and equity
securities at the time of purchase. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost. Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale securities
are stated at fair value, with the unrealized gains and losses, net of tax,
excluded from earnings and reported as a separate component of shareholders'
equity.
Amortized cost of held-to-maturity debt securities is adjusted for amortization
of premiums and accretion of discounts to maturity, or in the case of
mortgage-backed securities, over the estimated life of the security. Realized
gains and losses, and declines in value judged to be other-than-temporary, are
included in net securities gains (losses). The cost of securities sold is based
on the specific identification method.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized holding gains or losses included in the separate
component of shareholders' equity for securities transferred from
available-for-sale to held-to-maturity are maintained and amortized into
7
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earnings over the remaining life of the security as an adjustment to yield in a
manner consistent with the amortization or accretion of premium or discount on
the associated security.
As of June 30, 1997, net unrealized losses on securities classified as
available-for-sale totaled $201,000, resulting in an after tax shareholders'
equity capital reduction of $117,000. As of December 31, 1996,
available-for-sale securities had net unrealized gains of $113,000, resulting in
an after tax shareholders' equity capital increase of $66,000.
5. LOANS
Loans are reported at their principal outstanding balance net of charge-offs,
deferred loan fees and costs, and unearned income. The Company provides motor
vehicle and equipment financing to its customers through direct financing
leases. These leases are carried at the aggregate lease payments receivable,
plus estimated residual values, less unearned income. Unearned income on direct
financing leases is amortized over the lease terms resulting in a level rate of
return.
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well secured and in the process of
collection. Loans that are past due less than 90 days may also be classified as
nonaccrual if repayment in full of principal and/or interest is in doubt. Loans
may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable time period, and there is a sustained period of repayment
performance by the borrower, in accordance with the contractual terms of the
loan agreement. Payments received on loans carried as nonaccrual are generally
applied as a reduction to principal. When the future collectibility of the
recorded loan balance is expected, interest income may be recognized on a cash
basis.
The Company's recorded investment in loans considered impaired was $800,000 on
June 30, 1997, and the average recorded investment in impaired loans was
$808,000 through the first six months of 1997. Included in this amount was
$175,000 of impaired loans for which related reserves total $57,000. The
recorded investment in impaired loans as of December 31, 1996, was $1.2 million.
The December 31, 1996 amount includes $582,000 of impaired loans which had
related reserves of $94,000. Interest income on impaired loans of $19,000 was
recognized for cash payments received during the first six months of 1997.
6. ACCOUNTING CHANGES
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers of Servicing of Financial Assets and Extinguishments
of Liabilities." The statement provides accounting and reporting standards for
transfers of servicing of financial assets and extinguishments of liabilities
based upon a consistent application of a financial-components approach that
focuses on control. It distinguishes transfers of financial assets that are
sales, from transfers that are secured borrowings. The Company prospectively
adopted applicable sections of SFAS No. 125 effective January 1, 1997. Sections
of SFAS No. 125, which have been deferred by SFAS No. 127 will be prospectively
adopted by the Company on January 1, 1998. The expected impact on the Company's
consolidated financial statements is not material.
In December 1996, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". The Statement supersedes Accounting Principles Board
Opinion No. 15. "Earnings Per Share", and specifies the computation,
presentation, and disclosure requirements for earnings per share (EPS) for
entities with publicly held common stock. It requires dual presentation of
"Basic EPS" and "Diluted EPS" on the face of the income statement for all
entities with complex capital structures. The Company will prospectively adopt
SFAS No. 128 effective for financial statement periods ending after December 15,
1997. Upon adoption, all prior period EPS will be restated. The expected impact
on the Company's consolidated financial statements is not material.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure". SFAS 129 establishes
standards for disclosing information about an entity's capital structure and is
effective for financial statement periods ending after December 31, 1997.
Adoption of SFAS 129 is not expected to have an impact on the financial
condition or results of operations of the Company.
8
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In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 123 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. The impact of adopting
SFAS No. 130, which is effective for the Company in 1998, has not been
determined.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 requires publicly held companies to report financial and other information
about key revenue-producing segments of the entity for which such information is
available and is utilized by the chief operation decision maker. Specific
information to be reported for individual segments includes profit or loss,
certain revenue and expense items and total assets. A reconciliation of segment
financial information to amounts reported in the financial statements would be
provided. SFAS No. 131 is effective for the Company in 1998 and the impact of
adoption has not been determined.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-----------------------------------------------------------------------
This discussion is intended to provide the reader with a further understanding
of the consolidated financial condition and results of operations of Tompkins
County Trustco, Inc. and its operating subsidiary the Tompkins County Trust
Company. It should be read in conjunction with the Company's Form 10-K and
related notes for the year ended December 31, 1996, and the condensed
consolidated financial statements and notes included elsewhere in this report.
RESULTS OF OPERATIONS
Net income for the second quarter of 1997 was $2.5 million, compared to $2.3
million for the second quarter of 1996. Earnings per share in the second quarter
of 1997 increased 16.9% to $0.76, compared to $0.66 in the second quarter of
1996. Year to date net income increased to $4.9 million through the first six
months of 1997, compared to net income of $4.5 million for the same six month
period of 1996. Year to date earnings per share increased by 18.1% to $1.50,
compared to $1.27 per share for the first six months of 1996.
Significant improvement in earnings per share through the first six months of
1997 was achieved through a combination of 8% growth in earnings and a 7%
decline in the average number of shares outstanding. The reduction in average
shares outstanding is primarily the result of a two privately negotiated
transactions in which the Company repurchased 244,371 common shares in October
of 1996 and 80,000 common shares in May of 1997.
The Company's return on average assets was 1.62% during the first six months of
1997, compared to 1.65% during the same period in 1996. Return on average
shareholders' equity for the first six months of 1997 was 19.0%, compared to
16.4% for the same period in 1996. The 16% increase in return on average
shareholders' equity was aided by the repurchases of the Company's common stock.
NET INTEREST INCOME
The attached Average Consolidated Balance Sheet and Net Interest Analysis
reflects a 4.84% tax-equivalent net interest margin on earning assets through
the first six months of 1997, compared to a 4.99% ratio through the first six
months of 1996. The decline in net interest margin is attributable to several
large customers shifting deposits from money market accounts to higher yielding
time deposits during 1996. Deposit growth through the first six months of 1997
has been centered in time deposits and savings and money market accounts.
Despite the increase in the cost of interest-bearing deposits, year-to-date net
interest income of $13.1 million represents a 6% increase over the same six
month period in 1996.
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 second
quarter provision of $153,000 represents a 64% decrease from the $251,000
provision in the second quarter of 1996. The year to date provision of $567,000
represents a modest increase from the $455,000 provision made during the first
six months of 1996. The decline in the provision expense in the second quarter
of 1997 compared to the second quarter of 1996 is largely attributable to a
lower volume of net loan losses, which allowed management to maintain adequate
reserves with a lower provision expense.
OTHER INCOME
Total other income was $2.1 million in the second quarter of 1997, compared to
$2.0 million in the second quarter of 1996. Year to date other income of $4.4
million represents a 13% increase from the $3.9 million reported for the same
six month period of 1996. Income from trust and investment services, the largest
segment of other income, increased 20% to $1.6 million, compared to $1.3 million
in the first six months of 1996. The increase is primarily attributable to
continued asset growth in the Trust and Investment Services Department. Total
assets under management by the Trust and Investment Services Department were
$725.3 million on June 30, 1997, which includes $170.4 million of the Company's
investment portfolio, for which the department began providing custodial
services in December 1996. Total Trust and investment services are considered
important to future revenue growth of the Company and management plans to
continue to market these services broadly.
10
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Credit card merchant fee income of $1.0 million through the first six months of
1997 represents a 20% increase from the same period in 1996. Growth in merchant
fee income is primarily attributable to an increase in the number of Trust
Company merchant customers.
OTHER EXPENSE
Total other expenses increased in the second quarter from $4.4 million in 1996
to $4.8 million in 1997. Through the first six months of 1997, other operating
expenses were up approximately 6% to $9.4 million. Credit card operating
expenses is a variable expense that is tied to the volume of transactions from
the Company's merchant and other credit card customers. The increase in credit
card operating expenses during the first half of 1997 is primarily the result of
an increased number of merchant credit card customers.
Included in other operating expenses in the second quarter of 1997 is $120,000
accrual for donations, which has been committed to local not for profit
organizations and will be distributed throughout the remainder of the 1997. The
Company also realized a $44,000 loss on the sale of available-for-sale
securities, the proceeds from which were reinvested in higher yielding
investments.
INTEREST RATE RISK
Interest rate sensitivity refers to the volatility of earnings caused by changes
in interest rates. Each month the Asset/Liability Management Committee estimates
the likely impact on earnings resulting from various changing interest rate
scenarios. The findings of the committee are incorporated into the investment
and funding decision of the Company.
The Trust Company's June 30, 1997, one-year cumulative rate sensitivity gap was
a negative 14.8% of total assets. This suggests earnings would benefit from a
declining interest rate environment, and would be vulnerable to a rising
interest rate environment. Management believes the current interest rate risk
exposure is not significant given the Company's current level of earnings and
capital.
FINANCIAL CONDITION
The Company's total assets were $615.5 million as of June 30, 1997, representing
a 4% increase over total assets reported as of December 31, 1996. Growth was
evenly distributed between loans and securities (net of SFAS 115 market value
adjustments on available-for-sale securities) which each grew at approximately
4%. Asset growth was funded through a combination of core deposit growth and a
$7 million increase in borrowings.
CAPITAL
Total shareholders' equity grew a modest $126,000 during the first six months of
1997 to $52.7 million. Dividends through June 30, 1997 totaled approximately
$2.0 million, or $.60 per share. Dividends paid in the first six months of 1997
represent approximately 40% of earnings for the same period. Total common shares
outstanding were reduced in May 1997, after the Company repurchased 80,000
shares at a price of $33.375 per share. The shares were returned to the status
of authorized but unissued, and the transaction resulted in a $2.7 million
reduction in total shareholders' equity.
The Company and the Trust Company are subject to various regulatory capital
requirements administered by Federal banking agencies. Management believes the
Company and the Trust Company meet all capital adequacy requirements to which
they are subject. The table below reflects the Company's capital position at
June 30, 1997, compared to the regulatory capital requirements for a "well
capitalized" institution.
<TABLE>
<CAPTION>
REGULATORY CAPITAL ANALYSIS - June 30, 1997
=======================================================================================================
ACTUAL WELL CAPITALIZED REQUIREMENT
AMOUNT RATIO AMOUNT RATIO
=======================================================================================================
<S> <C> <C> <C> <C>
Total Capital (to risk weighted assets) 56,849 16.0% 35,503 10.0%
Tier I Capital (to risk weighted assets) 52,406 14.8% 21,302 6.0%
Tier I Capital (to average assets) 52,406 8.6% 30,480 5.0%
=======================================================================================================
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As illustrated above, the Company's capital ratios on June 30, 1997 remain well
above the minimum requirement for a well capitalized institution. The ratios
reflect a modest decline from the December 31, 1996 capital ratios, due to
limited capital growth as a result of the stock repurchased in May 1997. As of
December 31, 1996, the Company's Total Capital as a percentage of Risk Weighted
assets was 16.1%; Tier I Capital to risk weighted assets was 14.9%; and Tier I
Capital to average assets was 8.9%.
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
Management reviews the adequacy of the allowance for loan and lease losses in a
detailed and ongoing basis, giving consideration to various risk elements that
may affect the losses in the loan portfolio. Based upon management's review, the
current reserve of $4.9 million is believed to be adequate to absorb potential
losses in the loan and lease portfolios. Activity in the Company's reserve for
loan and lease losses during the first six months of 1997 and 1996 is
illustrated in the table below.
<TABLE>
<CAPTION>
ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In Thousands)
===================================================================================================
JUNE 30, 1997 JUNE 30, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Average Loans and Leases Outstanding Year to Date 353,908 325,417
- ---------------------------------------------------------------------------------------------------
Beginning Balance 4,779 4,704
Provision for loan losses 567 455
Loans charged off 747 613
Loan recoveries 280 208
- ---------------------------------------------------------------------------------------------------
Net Charge-offs 467 405
- ---------------------------------------------------------------------------------------------------
Ending Balance 4,879 4,754
===================================================================================================
</TABLE>
Annualized net charge-offs through the first six months of 1997 amounted to
0.26% of average loans outstanding during the period. This ratio compares to
0.25% for the six months ended June 30, 1996. The second quarter of 1997
reflected improving trends in the loan portfolio, with net charge-offs of
$103,000 in the second quarter of 1997, compared to $364,000 in the first
quarter of 1997. Fewer consumer loan charge-offs and improved recoveries
contributed to the significant reduction in net charge-offs in the second
quarter.
The level of nonperforming loans, as illustrated in the table below, was
approximately the same on June 30, 1997 as in the prior year. Over 90% of
nonperforming loans as of June 30, 1997 are secured by real estate, with 68%
secured by 1-4 family residential properties.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS (In thousands)
===================================================================================================
JUNE 30, 1997 JUNE 30, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans 1,569 1,188
Loans past due 90 days and accruing 75 325
Troubled debt restructuring not included above 0 129
- ---------------------------------------------------------------------------------------------------
Total nonperforming loans 1,644 1,640
- ---------------------------------------------------------------------------------------------------
Other real estate, net of allowances 137 515
- ---------------------------------------------------------------------------------------------------
Total nonperforming assets 1,781 2,157
===================================================================================================
Total nonperforming loans as a percent of total loans 0.45% 0.46%
Total nonperforming assets as a percentage of total assets 0.26% 0.38%
===================================================================================================
</TABLE>
DEPOSITS AND OTHER LIABILITIES
Core deposits, which include demand deposits, savings and money market accounts,
and time deposits of $100,000 and less represent the primary funding source for
the Company. As of June 30, 1997, core deposits represented 64.6% of total
liabilities, compared to 66.3% on December 31, 1996. Core deposits grew at a
rate of 1.7% in the first six months of 1997 to $363.2 million. Total Deposits
were $437.8 million on June 30, 1997, representing 2% growth over total deposits
on December 31, 1996. Time Deposits over $100,000 increased from $70.0 million
on June 30, 1996, to $74.6 million on June 30, 1997.
12
<PAGE>
The Company uses securities sold under repurchase agreements, Federal funds
purchased, and other borrowings as additional funding sources. As of June 30,
1997, total securities sold under repurchase agreements amounted to $82.6
million, compared to $86.2 million at December 31, 1996. Federal funds purchased
increased to $13.5 million on June 30, 1997, from $3.8 million on December 31,
1996. Other borrowings increased by $7.0 million in the first half of 1997, to
$22.0. The proceeds of the borrowings were used to support growth in the loan
and securities portfolios.
LIQUIDITY
Liquidity represents the Company's ability to efficiently and economically
accommodate decreases in deposits and other liabilities, and fund increases in
assets. The Company uses a variety of resources to meet its liquidity needs
which include cash and cash equivalents, short term investments, cash flow from
lending and investing activities, deposit growth, securities sold under
repurchase agreements, and borrowings.
Cash and cash equivalents increased from $25.3 million on December 31, 1996 to
$26.2 million on June 30, 1997. Short term investments consisting of securities
due in one year or less increased from $27.6 million to $30.3 million over the
same six month period. Total securities pledged to secure certain large deposits
and securities sold under repurchase agreements increased as a percentage of
total securities increased from 88.6% on December 31, 1996, to 91.1% on June 30,
1997.
Additional liquidity is provided through the Trust Company's Federal Home Loan
Bank (FHLB) membership. As of June 30, 1997, the Trust Company had approximately
$42.5 million in unused borrowing capacity through established lines of credit
with the FHLB. The Trust Company has approximately $143 million in loans secured
by first liens on residential properties that can be used to secure additional
borrowings from the FHLB.
13
<PAGE>
<TABLE>
<CAPTION>
TOMPKINS COUNTY TRUSTCO, INC
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
(IN THOUSANDS)
June 30 1997 1996
-------------------------------------------------------------------------
Average Average Average Average
Balance (YTD) Interest Yield/Rate Balance (YTD) Interest Yield/Rate
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------
Interest-earning assets
Securities (1)
U.S. Treasury $ 40,153 1,394 6.94% $ 39,768 1,417 7.13%
U.S. Government agencies and corporations 130,568 4,387 6.72% 104,764 3,309 6.32%
State and municipal(2) 38,391 1,503 7.83% 38,001 1,512 7.96%
Other Securities 3,050 123 8.08% 3,076 107 6.95%
-------------------------------------------------------------------------
Total securities 212,164 7,407 6.98% 185,608 6,344 6.84%
Federal Funds Sold 6,552 172 5.24% 9,712 261 5.37%
Loans, net of unearned income (3)
Commercial and industrial (2) 131,916 6,128 9.29% 121,647 5,656 9.35%
Residential real estate 124,114 4,838 7.80% 104,111 4,066 7.85%
Home equity 20,557 970 9.43% 20,917 1,033 9.93%
Consumer 62,769 3,278 10.44% 64,020 3,418 10.74%
Direct lease financing 11,840 483 8.15% 12,053 483 8.05%
Other 2,717 171 12.58% 2,670 168 12.66%
-------------------------------------------------------------------------
Total loans, net of unearned income 353,908 15,867 8.97% 325,417 14,823 9.16%
-------------------------------------------------------------------------
Total interest-earning assets 572,624 23,446 8.19% 520,737 21,428 8.28%
Noninterest-earning assets
Allowance for credit losses (4,840) (4,747)
Cash and due from banks 21,910 20,392
Other assets 15,319 14,548
=============== ==============
TOTAL ASSETS $605,014 $550,931
=============== ==============
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
- ---------------------------------------------------
Deposits
Interest-bearing deposits
Interest bearing checking $ 58,617 $ 545 1.88% $ 55,608 $ 516 1.87%
Savings and money market 145,404 2,310 3.22% 129,272 1,999 3.11%
Time 163,055 4,311 5.36% 122,596 3,157 5.18%
------------------------------------------------------------------------
Total deposits 367,077 7,166 3.96% 307,476 5,671 3.71%
Federal funds purchased 712 19 5.46% 172 5 5.60%
Repurchase agreements 83,347 2,165 5.27% 95,222 2,454 5.18%
Other borrowings 14,491 433 6.06% 13,640 386 5.69%
------------------------------------------------------------------------
Total interest-bearing liabilities 465,627 9,783 4.26% 416,509 8,516 4.11%
Non-interest bearing deposits 78,525 72,619
Accrued expenses and other liabilities 8,892 6,876
--------------- ---------------
TOTAL LIABILITIES 553,044 496,004
SHAREHOLDERS' EQUITY 51,970 54,926
=============== ===============
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $605,014 $550,931
=============== ===============
Interest rate spread 3.93% 4.17%
Impact of noninterest-bearing liabilities 0.91% 0.82%
-------------------- --------------------
Net interest income/margin on earning assets $13,663 4.84% $12,913 4.99%
===========================================================================================================================
</TABLE>
(1) Average balances and yields exclude unrealized gains and losses on
available-for-sale securities.
(2) Interest income includes the effects of taxable-equivalent adjustments
using a federal income tax rate of 34% to increase tax exempt interest
income to a taxable-equivalent basis.
(3) Nonaccrual loans are included in the average asset totals presented above.
Payments received on nonaccrual loans have been recognized as disclosed in
Note 5 to the condensed consolidated financial statements.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
- ------- -----------------------------------------------------
The Annual Meeting of stockholders of the Company was held on April 30, 1997
(the "Annual Meeting"). Proxies for the Annual Meeting were solicited pursuant
to Regulation 14 under the Securities Exchange Act of 1934, as amended.
The election of five Directors was approved at the Annual Meeting. Directors:
William W. Griswald, Carl E. Haynes, Robert T. Horn Jr., Frank H. T. Rhodes, and
Thomas R. Salm were each elected for terms of three years which expire in the
year 2000. Directors Wendell L. Bryce, James J. Byrnes, Reeder D. Gates, Bonnie
H. Howell, Lucinda A. Noble, John E. Alexander, Edward C. Hooks, Hunter R.
Rawlings, III, and Michael D. Shay will continue as directors.
No other matters were submitted to a vote of securities holders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
(b) On May 15, 1997, the Company filed a Form 8-K with the Securities and
Exchange Commission, reporting under Item 5 Other Events, the repurchase of
80,000 shares of the Company's common stock in a privately negotiated
transaction from certain trust accounts administered by the Company's Trust
and Investment Services Department. The repurchase was completed on May 14,
1997, at the then current market price of $33.375 per share.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: August 14, 1997
TOMPKINS COUNTY TRUSTCO, INC.
By: /s/ JAMES J. BYRNES
-------------------------------------
JAMES J. BYRNES
Chairman of the Board,
President and Chief Executive Officer
By: /s/ RICHARD D. FARR
-------------------------------------
RICHARD D. FARR
Senior Vice President and
Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGES
- -------------- ----------- -----
EXHIBIT 27 FINANCIAL DATA SCHEDULE
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM *JUNE
30, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001005817
<NAME> Tompkins County Trustco, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 26,262
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 178,438
<INVESTMENTS-CARRYING> 215,027
<INVESTMENTS-MARKET> 215,883
<LOANS> 363,893
<ALLOWANCE> 4,879
<TOTAL-ASSETS> 615,477
<DEPOSITS> 437,809
<SHORT-TERM> 19,005
<LIABILITIES-OTHER> 6,839
<LONG-TERM> 3,000
0
0
<COMMON> 326
<OTHER-SE> 52,413
<TOTAL-LIABILITIES-AND-EQUITY> 615,477
<INTEREST-LOAN> 15,827
<INTEREST-INVEST> 6,881
<INTEREST-OTHER> 172
<INTEREST-TOTAL> 22,880
<INTEREST-DEPOSIT> 7,166
<INTEREST-EXPENSE> 9,783
<INTEREST-INCOME-NET> 13,097
<LOAN-LOSSES> 567
<SECURITIES-GAINS> (44)
<EXPENSE-OTHER> 9,441
<INCOME-PRETAX> 7,507
<INCOME-PRE-EXTRAORDINARY> 7,507
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,895
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3
<LOANS-NON> 1,569
<LOANS-PAST> 75
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,779
<CHARGE-OFFS> 747
<RECOVERIES> 280
<ALLOWANCE-CLOSE> 4,879
<ALLOWANCE-DOMESTIC> 4,879
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 835
</TABLE>
