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 March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-12709
TOMPKINS TRUSTCO, INC.
(Formerly Known as Tompkins County Trustco, Inc.)
(Exact name of registrant as specified in its charter)
NEW YORK 16-1482357
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 May 10, 1999
---------------------------- -------------------------------
Common Stock, $.10 par value 4,855,985 shares
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TOMPKINS TRUSTCO, INC.
FORM 10-Q
INDEX
PART I -FINANCIAL INFORMATION
PAGE
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ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION AS OF
MARCH 31, 1999 AND DECEMBER 31, 1998 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR
THE THREE MONTHS ENDED MARCH 31, 1999
AND 1998 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 5
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9-14
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS 16
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS NOT APPLICABLE
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS NOT APPLICABLE
ITEM 3 - DEFAULTS ON SENIOR SECURITIES NOT APPLICABLE
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS NOT APPLICABLE
ITEM 5 - OTHER INFORMATION 17
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
ASSETS (UNAUDITED)
AS OF AS OF
03/31/1999 12/31/1998
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Cash & noninterest bearing balances
due from banks $ 20,750 $ 17,170
Federal funds sold 0 9,600
Available-for-sale securities, at fair value 193,804 182,740
Held-to-maturity securities, fair value of $35,748
in 1999 and $35,011 in 1998 34,946 34,088
Loans/leases net of unearned income 410,262 405,357
Less: Reserve for loan/lease losses 5,053 5,028
NET LOANS/LEASES 405,209 400,329
- -----------------------------------------------------------------------------------------------------------
Bank premises and equipment, net 7,306 7,411
Other assets 21,836 21,704
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 683,851 $ 673,042
===========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings and money market $ 224,174 $ 208,741
Time 190,153 194,495
Noninterest bearing 84,568 89,556
- -----------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 498,895 492,792
Securities sold under agreements to repurchase and
Federal funds purchased 65,374 60,007
Other borrowings 45,005 45,005
Other liabilities 9,341 11,215
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 618,615 $ 609,019
- -----------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Shareholders' equity:
Common Stock - par value $.10 per share
Authorized 7,500,000 shares; issued and outstanding
4,894,435 shares in 1999 and 4,893,141 shares in 1998 $ 489 $ 489
Surplus 29,815 29,817
Undivided profits 35,114 33,364
Accumulated other comprehensive income 540 1,077
Treasury stock, at cost - 28,603 shares in 1999,
28,889 shares in 1998 (543) (548)
Deferred ISOP benefit expense - 8,917 shares in 1999,
8,789 shares in 1998 (179) (176)
- -----------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 65,236 $ 64,023
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 683,851 $ 673,042
===========================================================================================================
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data) (Unaudited)
YEAR TO DATE
03/31/1999 03/31/1998
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INTEREST INCOME
Loans $8,513 $8,349
Federal funds sold 46 50
Available-for-sale securities 2,996 3,109
Held-to-maturity securities 441 482
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TOTAL INTEREST INCOME 11,996 11,990
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INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or more 1,231 1,383
Other deposits 2,445 2,558
Federal funds purchased and securities sold under
agreements to repurchase 736 715
Other borrowings 558 438
- -------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 4,970 5,094
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NET INTEREST INCOME 7,026 6,896
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Less: Provision for loan/lease losses 122 151
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NET INTEREST INCOME AFTER PROVISION FOR LOAN/LEASE LOSSES 6,904 6,745
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OTHER INCOME
Trust and investment services income 1,028 960
Service charges on deposit accounts 414 416
Credit card merchant income 589 637
Other service charges 491 430
Other operating income 261 204
Loss on available-for-sale securities 0 (95)
- -------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 2,783 2,552
===================================================================================================================
OTHER EXPENSES
Salary and wages 2,176 2,099
Pension and other employee benefits 635 527
Net occupancy expense of bank premises 306 340
Furniture and fixture expense 281 247
Credit card operating expense 526 569
Other operating expense 1,311 1,355
- -------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 5,235 5,137
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INCOME BEFORE INCOME TAXES 4,452 4,160
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Income taxes 1,487 1,476
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NET INCOME $2,965 $2,684
===================================================================================================================
BASIC EARNINGS PER SHARE $0.61 $0.56
DILUTED EARNINGS PER SHARE $0.60 $0.54
===================================================================================================================
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
(Unaudited)
THREE MONTHS ENDED
03/31/1999 03/31/1998
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OPERATING ACTIVITIES
Net income $ 2,965 $ 2,684
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 122 151
Depreciation and amortization 279 257
Net amortization on securities 99 66
Benefit for deferred income taxes 1,219 1,217
Net loss on sale of securities 0 95
Net gain on sale of loans 0 (3)
Net (gain) loss on sales of bank premises and equipment (7) 5
ISOP shares released for allocation (5) 8
Increase in other assets (157) (743)
(Decrease) Increase in other liabilities (2,731) (656)
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,784 3,081
- ------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 24,162 25,981
Proceeds from sales of available-for-sale securities 0 19,905
Proceeds from maturities of held-to maturity securities 3,025 2,859
Purchases of available-for-sale securities (36,062) (64,431)
Purchases of held-to-maturity securities (4,045) (3,741)
Proceeds from sale of loans 246 584
Net increase in loans (5,248) (1,789)
Proceeds from sale of bank premises and equipment 7 1
Purchases of bank premises and equipment (149) (148)
- ------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (18,064) (20,779)
- ------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
money market accounts, and savings accounts 10,445 12,445
Net increase (decrease) in time deposits (4,342) 4,200
Net increase (decrease) in securities sold under agreements
to repurchase and Federal funds purchased 5,367 (3,643)
Net increase in other borrowings 0 6,000
Cash dividends (1,215) (1,043)
Sale of treasury stock 10 9
Common shares repurchased and returned to authorized
and unissued status (52) 0
Net proceeds from exercise of stock options,
and related tax benefit 47 49
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,260 18,017
- ------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,020) 319
Cash and Cash Equivalents at beginning of Period 26,770 25,089
TOTAL CASH & CASH EQUIVALENTS AT END OF PERIOD $ 20,750 $ 25,408
==========================================================================================
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In thousands, except share data) (Unaudited)
ACCUMULATED DEFERRED
OTHER ISOP
COMMON TREASURY UNDIVIDED COMPREHENSIVE BENEFIT
STOCK STOCK SURPLUS PROFITS INCOME EXPENSE TOTAL
===========================================================================================================================
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BALANCES AT
JANUARY 1, 1998 $326 ($571) $30,037 $ 26,769 $ 1,074 ($392) $ 57,243
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends ($0.21/Share) (1,043) (1,043)
Exercise of stock options (4,356 shares) 49 49
Treasury stock sold (342 shares) 6 3 9
ISOP Shares released for
allocation (177 shares) 4 4 8
Effect of 3 for 2 stock split in
the form of a stock dividend 163 (163)
Comprehensive Income:
Change in net unrealized gain (loss)
on available-for-sale
securities,
net of tax (359) (359)
Net Income 2,684 2,684
- ---------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income 2,325
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES AT
MARCH 31, 1998 $489 ($565) $30,093 $28,247 $715 ($388) $58,591
===========================================================================================================================
===========================================================================================================================
BALANCES AT
JANUARY 1, 1999 $489 ($548) $29,817 $33,364 $1,077 ($176) $64,023
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends ($0.25/Share) (1,215) (1,215)
Exercise of stock options and
related tax benefit (2,738 shares, net) 47 47
Common stock repurchased and
returned to authorized and
unissued status (1,444 shares) (52) (52)
Treasury stock sold (286 shares) 5 5 10
ISOP shares returned to unallocated
status (128 shares) (2) (3) (5)
Comprehensive Income:
Change in net unrealized gain (loss)
on available-for-sale
securities,
net of tax (537) (537)
Net Income 2,965 2,965
- ---------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income 2,428
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES AT
MARCH 31,1999 $489 ($543) $29,815 $35,114 $540 ($179) $65,236
===========================================================================================================================
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Tompkins Trustco, Inc. ("the Company") is a registered bank holding company,
organized under the laws of New York State, and is the parent company of the
Tompkins County Trust Company (the "Trust Company" or the "Bank"). The Trust
Company provides loan, deposit, and trust services to its customers primarily in
Tompkins County, New York, and surrounding areas.
In February 1998, the Trust Company formed a subsidiary corporation, Tompkins
Real Estate Holdings, Inc., which was formed to qualify as a real estate
investment trust. Tompkins Real Estate Holdings, Inc. became an active
subsidiary of the Trust Company on June 1, 1998.
The consolidated financial information included herein combines the results of
operations, the assets, liabilities, and shareholders' equity of the Company,
the Trust Company, and Tompkins Real Estate Holdings, Inc. for all periods
presented. All significant intercompany balances and transactions are eliminated
in consolidation. A description of significant accounting policies is presented
below.
2. 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 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, 1998.
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 March 31, 1999, and December 31, 1998, and the results of operations
for the three months ended March 31, 1999 and 1998. 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
(the "Program"), which authorizes the repurchase of up to $3 million in common
stock of the Company in open market transactions. During the first quarter of
1999, the Company repurchased 1,444 shares under the Program for $52,000, or
$35.12 per share. Since inception, the Company has repurchased 6,482 shares
under the program for a total cost of $221,000.
In December 1998, the Company repurchased 12,207 shares in a privately
negotiated transaction. The shares were purchased at $34.00 per share, for a
total purchase price of $415,000. All of the shares from the repurchase
transactions described above have been returned to the status of authorized but
unissued.
4. SECURITIES
As of March 31, 1999, net unrealized gains on available-for-sale securities
totaled $958,000, resulting in an after tax increase to shareholders' equity of
$540,000. As of December 31, 1998, available-for-sale securities had net
unrealized gains of $1.9 million, resulting in an after tax shareholders' equity
capital increase of $1.1 million.
7
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5. LOANS/LEASES
The Company's recorded investment in loans/leases considered impaired was
$388,000 on March 31, and the average recorded investment in impaired
loans/leases was $279,000 through the first three months of 1999. Included in
this amount was $385,000 of impaired loans/leases for which related reserves
totaled $65,000. The recorded investment in impaired loans/leases as of December
31, 1998, was $422,000. The December 31, 1998 amount includes $132,000 of
impaired loans/leases which had related reserves of $46,000. The effect on
interest income from impaired loans/leases was not material during the periods
presented.
6. EARNINGS PER SHARE
A computation of Basic EPS and Diluted EPS for the three month periods ending
March 31, 1999 and 1998, is presented in the table below.
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THREE MONTHS ENDED March 31, 1999 INCOME AVERAGE SHARES PER SHARE
(In thousands except share and per share data) (NUMERATOR) (DENOMINATOR) AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
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BASIC EPS
INCOME AVAILABLE TO COMMON SHAREHOLDERS $2,965 4,856,934 $0.61
EFFECT OF DILUTIVE SECURITIES (OPTIONS) 76,092
DILUTED EPS
INCOME AVAILABLE TO COMMON SHAREHOLDERS PLUS ASSUMED CONVERSIONS $2,965 4,933,026 $0.60
=========================================================================================================================
THREE MONTHS ENDED MARCH 31, 1998 INCOME AVERAGE SHARES PER SHARE
(In thousands except share and per share data) (NUMERATOR) (DENOMINATOR) AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
BASIC EPS
INCOME AVAILABLE TO COMMON SHAREHOLDERS $2,684 4,835,910 $0.56
EFFECT OF DILUTIVE SECURITIES (OPTIONS) 92,331
DILUTED EPS
INCOME AVAILABLE TO COMMON SHAREHOLDERS PLUS ASSUMED CONVERSIONS $2,684 4,928,241 $0.54
==========================================================================================================================
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7. ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This statement establishes comprehensive
accounting and reporting requirements for derivative instruments and hedging
activities. The statement requires companies to recognize all derivatives as
either assets or liabilities, with instruments measured at fair value. The
recognition of accounting gains and losses resulting from changes in fair value
of a derivative instrument depends on the intended use of the derivative and the
type of risk being hedged. This statement is effective for the Company for all
fiscal quarters beginning after January 1, 2000; however, early adoption is
permitted. When adopted, this statement is not expected to have a material
impact on the Company's financial condition or results of operations.
SFAS 133 also permits certain reclassifications of securities among the trading,
available-for-sale, and held-to-maturity classifications. The Company has no
current intentions to reclassify securities pursuant to SFAS No. 133.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Tompkins Trustco, Inc. is the parent company of Tompkins County Trust Company.
The Trust Company, which traces its charter back to 1836, is an independent
Community Bank whose primary service area is Tompkins County, New York, and
surrounding areas. Through the Bank, the Company provides a full range of
financial services including: deposits, trust and investment services,
commercial lending, consumer lending, residential mortgage lending, cash
management, and electronic banking.
The following discussion is intended to provide the reader with a further
understanding of the consolidated financial condition and results of operations
of Tompkins Trustco, Inc. and its operating subsidiaries. It should be read in
conjunction with the Company's Form 10-K and related notes for the year ended
December 31, 1998, and the condensed consolidated financial statements and notes
included elsewhere in this report.
RESULTS OF OPERATIONS
Net income for the first quarter of 1999 was $3.0 million, compared to $2.7
million for the first quarter of 1998. Basic earnings per share in the first
quarter of 1999 increased by 10.0% to $0.61, compared to $0.56 in the first
quarter of 1998. On a diluted basis, earnings per share increased to $0.60 per
share in the first quarter of 1999, compared to $0.54 for the same period in
1998.
The Company's return on average assets (ROAA) was 1.77% through the first three
months of 1999, compared to 1.71% for the same period in 1998. Return on average
shareholders' equity (ROAE) for the first three months of 1999 was 18.54%,
compared to 18.88% for the same period in 1998. Improvement in ROAA reflects the
strong earnings growth in the first quarter of 1999, which exceeded average
total asset growth of 6%. The modest decline in ROAE is the result of 12% growth
in average equity between March 1999 and March 1998, which outpaced growth in
net income.
NET INTEREST INCOME
As reflected in the attached Average Consolidated Balance Sheet and Net Interest
Analysis, the Company earned tax-equivalent net interest income of $7.3 million
for the three months ended March 31, 1999, compared to $7.2 million for the same
period in 1998. The improvement in net interest income is attributable to growth
in the Company's earnings assets, which helped offset a decline in net interest
margin. Average earning assets grew by $26.6 million between March 31, 1999 and
March 31, 1998. Growth in average earning assets was centered in residential
real estate loans, which grew by $21.0 million.
Earning asset growth from March 1998 to March 1999 was supported by a $9.3
million increase in average core deposits (noninterest bearing deposits, savings
and money market deposits, and time deposits of less than $100,000), and a $20.3
million increase in average non-core funding (Time deposits of $100,000 and
more, Federal funds purchased and securities sold under agreements to
repurchase, and other borrowings), and $7.2 million growth in average
shareholders' equity.
The tax-equivalent net interest margin on earning assets was 4.68% through the
first three months of 1999, compared to a 4.81% ratio through the first three
months of 1998. Yield on earning assets declined from 8.22% as of March 31,
1998, to 7.87% as of March 31, 1999. The decline in asset yields is reflective
of the general downward trending of interest rates over the periods presented.
The cost of interest bearing liabilities was 3.94% in the first three months of
1999, compared to 4.25% in the first three months of 1998. Noninterest bearing
liabilities contributed 75 basis points to the Company's net interest margin in
the first three months of 1999, compared to 84 basis points for the same period
in 1998.
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PROVISION FOR LOAN/LEASE LOSSES
The provision represents management's estimate of the expense necessary to
maintain the reserve for loan/lease losses at an adequate level. The provision
of $122,000 for the first three months of 1999 represents a 19% decline from the
$151,000 provision in the three months of 1998. The decline in the year to date
provision is reflective of a lower level of loan/lease losses in the current
period, and management's estimates of the reserves necessary given the overall
quality of the portfolio, and general economic conditions.
OTHER INCOME
Other income continues to be a key source of revenue growth for the Company.
Total other income for the first three months of 1999 totaled $2.8 million, an
increase of 9% from the prior year. Other income as a percentage of average
assets increased from 1.60% for the three months ended March 31, 1998, compared
to 1.64% for the same period in 1999.
Income from trust and investment services, the largest segment of other income,
increased 7% to $1.0 million, compared to $960,000 for the first three months of
1998. The increase is primarily attributable to continued asset growth in the
Trust and Investment Services Division. Total assets managed by, or in custody
of, the Trust and Investment Services Division were $973 million on March 31,
1999, representing a $37.3 million increase from March 31, 1998. Assets in the
custody of the Trust and Investment Services Division include a portion of the
Trust Company's securities portfolio, with a market value of $140 million on
March 31, 1999, and $168 million on March 31, 1998.
The Trust and Investment Services Division is expected to remain important to
future revenue growth of the Company. Although the division primarily provides
services to customers in the Bank's market area of Tompkins County and
surrounding areas, the division currently manages assets for clients in more
than 40 states. In 1997, the Company expanded the reach of the Trust and
Investment Services Division by offering trust and investment services through a
"Trust Alliance" program. Through this program, the Company provides servicing
and administrative support to trust departments of other banks. Currently, the
Company has formed Trust Alliances with two community banks, which have assets
under management totaling $23.8 million. Due to the early success of the
program, management anticipates expanding this service to additional banks.
Credit card merchant income contributed $589,000 to other income in the first
quarter of 1999, representing a decrease of 7% compared to the first quarter of
1998. The decline in credit card merchant income is primarily attributable to
the loss of a single large volume customer. Despite the decline in the current
period, merchant credit card processing remains a significant revenue source for
the Company. The Bank continues to add merchant credit card customers, and the
number of merchant credit card customers has continued to increase over the past
twelve months.
Other service charges increased 14%, to $491,000 for the first three months of
1999, compared to $430,000 for the same period in 1998. Growth in other service
charges reflects the Company's continued efforts to generate income from
noninterest related sources, and includes fees related to debit card usage, ATM
fees, wire transfer services, and lockbox services, all of which reflected
increases over the same period in the previous year.
Service charges on deposit accounts of $414,000 in the first quarter of 1999
remained relatively level with the $416,000 reported in the first quarter of
1998. Despite continued deposit growth, service charges on deposit accounts has
shown modest declines in recent quarters, as customers are increasingly taking
advantage of lower fee deposit products.
Other operating income increased by 27.9% to $261,000 in the first quarter of
1999, compared to the same period in 1998. The growth is primarily attributable
to an $11.0 million investment in corporate owned life insurance, which is
carried as an other asset in the consolidated financial statements. The
corporate owned life insurance was purchased in the third and fourth quarters of
1998, and covers several senior officers of the Company. The insurance provides
benefits to both the Company and the covered employees. Increases in the cash
surrender value of the insurance are reflected as other operating income, and
the related mortality expense is recognized as an other operating expense.
Increases in the cash surrender value of corporate owned life insurance are
expected to produce a tax-adjusted return of approximately 8.6% in 1999. Income
from corporate owned life insurance was $172,000 in the first quarter of 1999.
10
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OTHER EXPENSE
Total other expenses increased a modest 2% in the first three months of 1999 to
$5.2 million, compared to $5.1 million in 1998. Salary and wages remains the
largest segment of other expense, comprising 42% of other expenses for the
period ended March 31, 1999, compared to 41% for the same period in 1998.
Credit card operating expense is a variable expense that varies based upon the
volume of merchant and card holder transactions. The 7% decline in credit card
operating expenses during the three months of 1999 is primarily due to a
decreased volume of merchant customer transactions.
Year to date other operating expenses declined from $1.4 million in 1998, to
$1.3 million in 1999. The decline is primarily the result of a reduction in
professional fees related to consulting services incurred by the Bank in 1998.
These consulting contracts were entered into to enhance the ability of employees
to meet the needs of customers through improved sales and service techniques and
more efficient use of the Company's existing technology. The benefit from these
initiatives is expected to continue in 1999, and beyond.
INCOME TAXES
The provision for income taxes provides for Federal and New York State income
taxes. The provision for the first three months of 1999 was $1.5 million.
Despite an increased level of pretax net income, the provision for income taxes
was relatively unchanged, as the effective tax rate for the first three months
of 1999 was 33.4%, compared to 35.5% for the same period in 1998.
FINANCIAL CONDITION
The Company's total assets were $683.9 million as of March 31, 1999,
representing a 2% increase over total assets reported as of December 31, 1998.
Growth was primarily in the loan and lease portfolio, which increased by $4.9
million in the first three months of 1999. Investments, including Federal funds
sold, increased by $2.3 million in the first quarter of 1999, while noninterest
bearing cash balances increased by $3.6 million. Asset growth was funded
primarily through increases in core deposits, and short term borrowings in the
form of Federal funds purchased.
CAPITAL
Total shareholders' equity grew by 2% during the first three months of 1999 to
$65.2 million. Cash dividends paid in the first quarter half of 1999 totaled
approximately $1.2 million, representing 40.1% of year to date earnings. Per
share cash dividends of $0.25 for the first three months of 1999, represents a
19% increase over cash dividends paid in the first quarter of 1998.
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
March 31, 1999, compared to the regulatory capital requirements for "well
capitalized" institutions.
<TABLE>
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REGULATORY CAPITAL ANALYSIS - March 31, 1999
===========================================================================================================================
ACTUAL WELL CAPITALIZED
REQUIREMENT
(DOLLAR AMOUNTS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Capital (to risk weighted assets) $71,004 17.3% $40,972 10.0%
Tier I Capital (to risk weighted assets) $65,797 16.1% $24,583 6.0%
Tier I Capital (to average assets) $65,797 9.7% $33,787 5.0%
===========================================================================================================================
</TABLE>
As illustrated above, the Company's capital ratios on March 31, 1999, remain
well above the minimum requirement for well capitalized institutions. The ratios
show continued improvement from the levels reported at December 31, 1998. As of
December 31, 1998, the Company's Total Capital as a percentage of Risk Weighted
assets was 17.1%; Tier I Capital to risk weighted assets was 15.9%; and Tier I
Capital to average assets was 9.7%.
11
<PAGE>
RESERVE FOR LOAN AND LEASE LOSSES AND NONPERFORMING ASSETS
Management reviews the adequacy of the reserve for loan and lease losses in a
detailed and ongoing basis, giving consideration to various risk elements that
may affect losses in the loan portfolio. Based upon management's review, the
current reserve of $5.1 million is believed to be adequate to absorb inherent
losses in the loan and lease portfolios. Activity in the Company's reserve for
loan and lease losses during the first three months of 1999 and 1998 is
illustrated in the table below.
<TABLE>
<CAPTION>
ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In thousands)
===========================================================================================================================
MARCH 31, 1999 MARCH 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average Loans and Leases Outstanding Year to Date $407,011 $378,040
- ---------------------------------------------------------------------------------------------------------------------------
Beginning Balance 5,028 4,979
- ---------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 122 151
Loans charged off (224) (235)
Loan recoveries 127 96
- ---------------------------------------------------------------------------------------------------------------------------
Net Charge-offs (97) (139)
- ---------------------------------------------------------------------------------------------------------------------------
Ending Balance $5,053 $4,991
===========================================================================================================================
Annualized net charge-offs through the first three months of 1999 amounted to
0.10% of average loans outstanding during the period. This ratio compares to
0.15% for the three months ended March 31, 1998.
The level of nonperforming assets, as illustrated in the table below, reflects
an improving trend from the prior year. Over 94% of nonperforming loans as of
March 31, 1999 are secured by real estate, with 64% secured by 1-4 family
residential properties.
NONPERFORMING ASSETS (In thousands)
=========================================================================================================================
MARCH 31, 1999 MARCH 31, 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans $1,204 $1,855
Loans past due 90 days and accruing 24 29
Troubled debt restructuring not included above 0 0
- -------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 1,228 1,884
- -------------------------------------------------------------------------------------------------------------------------
Other real estate, net of allowances 29 100
- -------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $1,257 $1,984
=========================================================================================================================
Total nonperforming loans as a percent of total loans 0.31% 0.50%
Total nonperforming assets as a percentage of total assets 0.18% 0.31%
=========================================================================================================================
</TABLE>
DEPOSITS AND OTHER LIABILITIES Total deposits were $498.9 million on March 31,
1999, compared to $492.8 million on December 31, 1998. Core deposits, which
include demand deposits, savings and money market accounts, and time deposits of
less than $100,000 represent the primary funding source for the Company. As of
March 31, 1999, core deposits of $397.4 million represented 64.2% of total
liabilities. This compares to core deposits of $385.9 million, representing
65.5% of total liabilities on December 31, 1998.
The Company uses large time deposits, securities sold under repurchase
agreements, Federal funds purchased, and other borrowings as additional funding
sources. As of March 31, 1999, time deposits of $100,000 and over were $101.5
million, down from $106.9 million at year end. Securities sold under agreements
to repurchase and Federal funds purchased were $65.4 million on March 31, 1999,
representing an increase of approximately $5 million from December 31, 1998.
Other borrowings, consisting of term borrowings from the Federal Home Loan Bank,
were unchanged at $45 million.
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.
12
<PAGE>
Cash and cash equivalents of $20.5 million as of March 31, 1999 reflects a
decline of $6.0 million from December 31, 1998. Short term investments
consisting of securities due in one year or less declined from $21.6 million on
December 31, 1998, to $19.8 million on March 31, 1999. Securities pledged to
secure certain large deposits and securities sold under repurchase agreements
were 80.5% of total securities as of March 31, 1999, compared to 84.1% as of
December 31, 1998.
Additional liquidity is provided through the Trust Company's Federal Home Loan
Bank (FHLB) membership. As of March 31, 1999, the Trust Company had
approximately $57.2 million in unused borrowing capacity through established
lines of credit with the FHLB. The Trust Company's equity investment in Tompkins
Real Estate Holdings, Inc. of $204 million can be used to secure additional
borrowings from the FHLB.
YEAR 2000 CONSIDERATIONS
The Company uses purchased software products for all of its internal transaction
processing applications; therefore, no significant internal programming is
necessary to prepare these systems to handle transactions in the Year 2000. The
majority of the Company's efforts in preparation for Year 2000 processing relate
to testing purchased and outsourced processing systems, as well as updating
databases.
Management has initiated an enterprise-wide program, consistent with guidelines
issued by the Federal Financial Institutions Examination Council (FFIEC), to
prepare the Company's computer systems and software applications for the Year
2000. The program includes the following phases:
o Identification (Completed)
o Assessment (Completed)
o Remediation (Completed)
o Testing (In process)
o Contingency Planning (In process)
The identification phase involved identifying the types of risk exposures
related to Year 2000. Through this process the Company identified specific risk
exposures related to internal information technologies, information service
providers, other service providers, and customers.
As part of the assessment phase, the Company has categorized its information
technology systems as Mission Critical, Mission Important, or Important. The
Company has assessed the Year 2000 readiness of each information technology
system and has established a plan for remediating any known Year 2000 problems.
The Company's primary application, which handles processing of loans, deposits,
safe deposit, and general ledger, has been designated as Year 2000 compliant by
the vendor. The vendor, which has contracts with approximately 1,000 banks, has
also provided the Company with test results performed by an independent
contractor that has also designated the system as Year 2000 compliant.
Due to the importance of this application to the Company's operations,
management conducted its own tests of this system in the fourth quarter of 1998,
with satisfactory results. All of the remaining mission critical and mission
important systems have been remediated and certified as Year 2000 compliant.
Testing has been completed on 100% of the mission critical systems, and
approximately 95% of the mission important systems. It is expected that the
remaining mission important systems will be tested by the end of the second
quarter of 1999. Testing is also in process on several other systems that are
not considered mission critical or mission important.
The Company is formulating a contingency plan for business continuation in the
event of Year 2000 system failures. This contingency plan will be based upon the
Company's existing disaster recovery plan, with modifications for Year 2000
risks. The Company expects the Year 2000 contingency plan to be completed by
June 1999.
As part of the process of evaluating and attempting to mitigate third party
risk, the Company is collecting and analyzing Year 2000 information from third
parties who have significant business relationships with the Company. These
third parties include borrowers, obligors, and vendors. It is difficult to
predict the effect of third party non-readiness on the business of the Company.
13
<PAGE>
The Company believes that its reasonably likely worst case scenario might
include a material increase in credit losses due to Year 2000 problems of
borrowers and a disruption in financial markets causing liquidity stress to the
Company. The magnitude of potential credit losses or a disruption in financial
markets cannot be determined at this time; however, the Year 2000 program
described above is designed to reduce exposure to these risks. In any event, the
strong capital position, earnings strength and liquidity of the Company are
believed to be more than adequate to withstand any reasonably likely worst case
scenario.
Through March 31, 1999, the total cost of the Company's Year 2000 project was
approximately $200,000, the majority of which was incurred in 1998. This amount
includes the costs of additional hardware, software, and technology consultants,
as well as the cost of the Company's information technology professionals
dedicated to achieving Year 2000 compliance. Management does not expect to incur
any significant additional expense related to the Company's Year 2000 project in
the remainder of 1999.
FORWARD-LOOKING STATEMENTS
This report may include forward-looking statements with respect to revenue
sources, growth, market risk, corporate objectives, and Year 2000. The Company
assumes no duty to update forward-looking statements, and cautions that these
statements are subject to numerous assumptions, risk, and uncertainties, all of
which could change over time. Actual results could differ materially from
forward-looking statements.
14
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate sensitivity is the primary market risk category associated with
the Company's operations. Interest rate risk refers to the volatility of
earnings caused by changes in interest rates. 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 Company's March 31, 1999, one-year cumulative rate sensitivity gap was a
negative 11% 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 estimates that a 200 basis point rise in
interest rates over a one year period would result in a 3% decline in net
interest income, assuming no management actions to reposition the balance sheet
in reaction to a changing rate environment. Management believes the current
interest rate risk exposure is not material given the Company's current level of
earnings and capital.
15
<PAGE>
<TABLE>
<CAPTION>
TOMPKINS TRUSTCO, INC.
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
- -----------------------------------------------------------------------------------------------------------------------
QUARTER QUARTER
ENDED ENDED
MAR-99 MAR-98
- -----------------------------------------------------------------------------------------------------------------------
Average Average Average Average
(DOLLAR AMOUNTS IN THOUSANDS) Balance Interest Yield/Rate Balance Interest Yield/Rate
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Certificates of deposit with other banks $0 $0 $0 $0
Securities (1)
U.S. Government Securities 176,482 2,871 6.60% 180,366 3,021 6.79%
State and municipal (2) 34,848 679 7.90% 37,641 748 8.06%
Other Securities (2) 9,826 137 5.65% 5,867 99 6.84%
--------------------------------------------------------------------
Total securities 221,156 3,687 6.76% 223,874 3,868 7.01%
Federal Funds Sold 4,021 46 4.64% 3,704 50 5.47%
Loans, net of unearned income (3)
Residential real estate 180,194 3,410 7.67% 159,565 3,169 8.05%
Commercial Real Estate 74,188 1,566 8.56% 68,020 1,555 9.27%
Commercial Loans (2) 79,608 1,821 9.28% 77,723 1,838 9.59%
Consumer Loans 58,688 1,445 9.99% 60,174 1,548 10.43%
Direct Lease Financing 14,334 287 8.12% 12,558 253 8.17%
--------------------------------------------------------------------
Total loans, net of unearned income 407,011 8,529 8.50% 378,040 8,363 8.97%
--------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 632,188 12,262 7.87% 605,618 12,281 8.22%
Noninterest-earning assets 45,561 32,594
----------- ----------
TOTAL ASSETS $677,749 $638,212
=========== ==========
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Interest-bearing deposits
Interest checking, savings,
& money market 215,571 1,372 2.58% 209,115 1,418 2.75%
Time Dep > $100,000 100,736 1,231 4.96% 101,629 1,383 5.52%
Time Dep > $100,000 88,086 1,073 4.94% 88,541 1,141 5.23%
--------------------------------------------------------------------
Total interest-bearing deposits 404,393 3,676 3.69% 399,285 3,942 4.00%
Federal funds purchased & securities sold
under agreements to repurchase 62,744 736 4.76% 55,464 715 5.23%
Other borrowings 45,005 558 5.03% 31,105 437 5.70%
--------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 512,142 4,970 3.94% 485,854 5,094 4.25%
Noninterest bearing deposits 89,165 85,894
Accrued expenses and other liabilities 11,601 8,805
----------- ----------
TOTAL LIABILITIES 612,908 580,553
SHAREHOLDER'S EQUITY 64,841 57,659
TOTAL LIABILITIES AND
----------- ----------
SHAREHOLDERS' EQUITY $677,749 $638,212
=========== ==========
Interest rate spread 3.93% 3.97%
Impact of noninterest bearing liabilities 0.75% 0.84%
----------------- -------------------
Net interest income/margin on earning assets $7,292 4.68% $7,187 4.81%
- -----------------------------------------------------------------------------------------------------------------------
(1) Average balances and yields exclude unrealized gains and losses on available-for-sale securities.
(2) Interest income includes the effects of taxable-equivalent adjustments using a blended Federal and State income tax
rate of 40% to increase tax exempt interest income to a taxable-equivalent basis.
(3) Nonaccrual loans are included in the average asset totals presented above. Payments received on nonaccrual loans
have been recognized as disclosed in Note 6 to the condensed consolidated financial statements included.
</TABLE>
16
<PAGE>
PART II - OTHER INFORMATION
ALL ITEMS NOT LISTED HERE ARE NOT APPLICABLE.
ITEM 4. OTHER INFORMATION
On April 28, 1999 the shareholders of the Company approved a proposal
to change the name of the Company from Tompkins County Trustco. Inc. to
Tompkins Trustco, Inc. The name change became effective on May 10,
1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
17
<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: May 13, 1999
TOMPKINS 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
18
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGES
- --------------------------------------------------------------------------------
EXHIBIT 27 FINANCIAL DATA SCHEDULE
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
</LEGEND>
<CIK> 0001005817
<NAME> TOMPKINS COUNTY TRUSTCO, INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 20,750
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 193,804
<INVESTMENTS-CARRYING> 34,946
<INVESTMENTS-MARKET> 35,748
<LOANS> 410,262
<ALLOWANCE> 5,053
<TOTAL-ASSETS> 683,851
<DEPOSITS> 498,895
<SHORT-TERM> 65,374
<LIABILITIES-OTHER> 9,341
<LONG-TERM> 45,005
0
0
<COMMON> 489
<OTHER-SE> 64,747
<TOTAL-LIABILITIES-AND-EQUITY> 683,851
<INTEREST-LOAN> 8,513
<INTEREST-INVEST> 3,437
<INTEREST-OTHER> 46
<INTEREST-TOTAL> 11,996
<INTEREST-DEPOSIT> 3,676
<INTEREST-EXPENSE> 4,970
<INTEREST-INCOME-NET> 7,026
<LOAN-LOSSES> 122
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,235
<INCOME-PRETAX> 4,452
<INCOME-PRE-EXTRAORDINARY> 2,965
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,965
<EPS-PRIMARY> .61
<EPS-DILUTED> .60
<YIELD-ACTUAL> 3
<LOANS-NON> 1,204
<LOANS-PAST> 24
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,028
<CHARGE-OFFS> 224
<RECOVERIES> 127
<ALLOWANCE-CLOSE> 5,053
<ALLOWANCE-DOMESTIC> 5,053
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,082
</TABLE>
