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, 2000
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.
------------------------------------------------------
(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 12, 2000
---------------------------- -------------------------------
Common Stock, $.10 par value 7,020,661 shares
<PAGE>
TOMPKINS TRUSTCO, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Statements of Condition as of
March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income for
the Three Months Ended March 31, 2000
and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Changes in Shareholders'
Equity for the Three Months Ended March 31, 2000 and 1999 6
Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-15
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 16
Average Consolidated Balance Sheet and Net Interest Analysis 17
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 Not Applicable
Item 6 - Exhibits and Reports On Form 8-K
SIGNATURES 19
EXHIBIT INDEX 20
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
<CAPTION>
(UNAUDITED)
AS OF AS OF
ASSETS 03/31/2000 12/31/1999
- ---------------------------------------------------------------------------------------------------- ------------------
<S> <C> <C>
Cash & noninterest bearing balances
due from banks $52,056 $35,938
Federal funds sold 9,775 18,850
Available-for-sale securities, at fair value 298,449 294,199
Held-to-maturity securities, fair value of $29,887 at March 31, 2000
and $31,265 at December 31, 1999 29,442 30,975
Loans/leases net of unearned income 771,808 755,382
Less: Reserve for loan/lease losses 9,391 9,228
- ---------------------------------------------------------------------------------------------------------------------------
NET LOANS/LEASES 762,417 746,154
Bank premises and equipment, net 22,357 21,147
Corporate owned life insurance 13,433 13,267
Intangible assets 6,091 6,271
Accrued interest and other assets 20,629 21,878
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,214,649 $1,188,679
===========================================================================================================================
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings and money market $420,830 $416,836
Time 391,589 376,371
Non-interest bearing 178,870 181,032
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 991,289 974,239
Securities sold under agreements to repurchase and
Federal funds purchased 63,907 57,846
Other borrowings 42,836 42,012
Other liabilities 12,715 11,766
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $1,110,747 $1,085,863
- ---------------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries $6,369 $6,192
Shareholders' equity:
Common Stock - par value $.10 per share, authorized 15,000,000 shares
Issued: 7,068,736 at March 31, 2000; and 7,099,606 at December 31, 1999 $707 $710
Surplus 39,679 40,548
Undivided profits 63,503 61,078
Accumulated other comprehensive loss (5,389) (4,745)
Treasury stock, at cost - 27,663 shares at March 31, 2000
and December 31, 1999. (525) (525)
Unallocated ISOP/ESOP: 37,637 shares at March 31, 2000
and December 31, 1999. (442) (442)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $97,533 $96,624
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
AND SHAREHOLDERS' EQUITY $1,214,649 $1,188,679
===========================================================================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data) (Unaudited)
<CAPTION>
YEAR TO DATE
03/31/2000 03/31/1999
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<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $16,400 $12,713
Federal funds sold 254 206
Available-for-sale securities 4,735 3,874
Held-to-maturity securities 410 441
- -----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST AND DIVIDEND INCOME 21,799 17,234
- -----------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or more 1,960 1,726
Other deposits 5,486 3,843
Federal funds purchased and securities sold under
agreements to repurchase 893 753
Other borrowings 632 622
- -----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 8,971 6,944
- -----------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 12,828 10,290
- -----------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 240 239
- -----------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN/LEASE LOSSES 12,588 10,051
- -----------------------------------------------------------------------------------------------------------------
OTHER INCOME
Trust and investment services income 1,242 1,049
Service charges on deposit accounts 844 667
Credit card merchant income 257 122
Other service charges 762 595
Increase in cash surrender value of corporate owned life insurance 185 172
Other operating income 158 113
Realized gain on available-for-sale securities 106 0
- -----------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 3,554 2,718
- -----------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salary and wages 4,249 3,171
Pension and other employee benefits 1,021 860
Net occupancy expense of bank premises 627 444
Furniture and fixture expense 620 505
Amortization of intangible assets 253 88
Other operating expense 2,752 1,906
- -----------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 9,522 6,974
- -----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY
INTEREST IN CONSOLIDATED SUBSIDIARIES 6,620 5,795
- -----------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 156 0
INCOME TAX EXPENSE 2,138 1,864
- -----------------------------------------------------------------------------------------------------------------
NET INCOME $4,326 $3,931
=================================================================================================================
BASIC EARNINGS PER SHARE $0.62 $0.56
DILUTED EARNINGS PER SHARE $0.61 $0.54
=================================================================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data) (Unaudited)
<CAPTION>
THREE MONTHS ENDED
03/31/2000 03/31/1999
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $4,326 $3,931
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 240 239
Depreciation and amortization premises, equipment, and software 590 434
Amortization of intangible assets 252 60
Earnings from corporate owned life insurance (185) (172)
Net amortization on securities 47 99
Net gain on sale of securities (106) 0
Net gain on sale of loans (12) (2)
Net gain on sales of bank premises and equipment (17) (7)
ISOP/ESOP shares released for allocation 0 44
Decrease in interest receivable 334 350
Increase (decrease) in interest payable 83 (413)
Other, net 2,360 (1,808)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,912 2,755
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale securities 5,865 30,699
Proceeds from sales of available-for-sale securities 159 0
Proceeds from maturities of held-to maturity securities 4,979 3,025
Purchases of available-for-sale securities (11,365) (40,372)
Purchases of held-to-maturity securities (3,457) (4,045)
Proceeds from sale of loans 2,849 669
Net increase in loans (19,340) (4,639)
Proceeds from sale of bank premises and equipment 23 7
Purchases of bank premises and equipment (1,744) (276)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (22,031) (14,932)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, money market,
and savings deposits 1,832 1,209
Net increase in time deposits 15,218 3,591
Net increase in securities sold under agreements
to repurchase and Federal funds purchased 6,061 5,372
Net increase (decrease) in other borrowings 824 (142)
Cash dividends (1,901) (1,513)
Sale of treasury stock 0 10
Common shares repurchased and returned to authorized 0
and unissued status (894) (268)
Cash paid in lieu of fractional shares Letchworth common shares (9) 0
Net proceeds from exercise of stock options, and related tax benefit 31 53
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 21,162 8,312
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,043 (3,865)
Cash and Cash Equivalents at beginning of Period 54,788 46,668
TOTAL CASH & CASH EQUIVALENTS AT END OF PERIOD $61,831 $42,803
=====================================================================================================================
Supplemental Information:
Cash paid during the year for:
Interest $8,673 $7,358
Taxes 525 351
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data) (Unaudited)
<CAPTION>
ACCUMULATED
OTHER
COMMON TREASURY UNDIVIDED COMPREHENSIVE UNALLOCATED
STOCK STOCK SURPLUS PROFITS INCOME (LOSS) ISOP/ESOP TOTAL
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
JANUARY 1, 1999 $717 ($548) $43,774 $52,037 $2,339 ($667) $97,652
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 3,931 3,931
Other Comprehensive loss (755) (755)
------------
TOTAL COMPREHENSIVE INCOME 3,176
============
Cash dividends ($0.25/Share)* (1,513) (1,513)
Exercise of stock options, and related
tax benefit (4,793 shares, net) 1 52 53
Common stock repurchased and
returned to unissued status (1,444) (52) (52)
Treasury stock purchased and returned
to unissued status by pooled company
(9,465 shares) (1) (215) (216)
Treasury stock sold (286 shares) 5 5 10
ISOP/ESOP shares released for
allocation (3) 46 43
- ----------------------------------------------------------------------------------------------------------------------------
BALANCES AT
MARCH 31, 1999 $717 ($543) $43,561 $54,455 $1,584 ($621) $99,153
- ----------------------------------------------------------------------------------------------------------------------------
============================================================================================================================
BALANCES AT
JANUARY 1, 2000 $710 ($525) $40,548 $61,078 ($4,745) ($442) $96,624
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 4,326 4,326
Other Comprehensive loss (644) (644)
------------
TOTAL COMPREHENSIVE INCOME 3,682
============
Cash paid in lieu of fractional
Letchworth
common shares (9) (9)
Cash dividends ($0.27/Share) (1,901) (1,901)
Exercise of stock options and
related tax benefit (3,197 shares, 31 31
net)
Common stock repurchased and
returned to authorized and
unissued status (33,762 shares) (3) (891) (894)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCES AT
MARCH 31, 2000 $707 ($525) $39,679 $63,503 ($5,389) ($442) $97,533
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects historical per share cash dividends paid by Tompkins Trustco, Inc.
See accompanying notes to unaudited condensed consolidated financial statements.
6
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Tompkins Trustco, Inc. ("Tompkins" or "the Company") is a bank holding company,
organized under the laws of New York State, and is the parent company of
Tompkins County Trust Company (the "Trust Company"), The Bank of Castile, and
The Mahopac National Bank. The Trust Company and The Bank of Castile are 100
percent owned by Tompkins, and The Mahopac National Bank is approximately 70%
owned by Tompkins. The consolidated financial information included herein
combines the results of operations, the assets, liabilities, and shareholders'
equity of the Company and its subsidiaries. All significant intercompany
balances and transactions are eliminated in consolidation.
On December 31, 1999, Tompkins completed a merger with Letchworth Independent
Bancshares ("Letchworth"), which was the parent company for The Bank of Castile
(a wholly-owned subsidiary), and The Mahopac National Bank (approximately 70%
owned by Letchworth). The merger was accounted for as a pooling-of-interests,
and upon completing the merger, Letchworth was merged with and into Tompkins.
All prior period financial information has been restated to present the combined
financial condition and results of operations of both companies as if the merger
had been in effect for all periods presented. Further details pertaining to the
merger are presented in Note 2 to the Company's Annual Report on Form 10-K dated
December 31, 1999.
On April 3, 2000, the Company announced that it entered into an agreement to
acquire two Western New York insurance agencies, pending regulatory approvals.
The Austin, Hardie, Wise Agency, Inc., with offices in Attica, Warsaw and Alden,
and Ernest Townsend & Son, Inc., with offices in LeRoy, Batavia and Caledonia,
are expected continue operating in those locations. The two agencies employ a
total of 47 persons.
2. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and disclose
contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period. Actual
results could differ from those estimates. Amounts in the prior period's
consolidated financial statements are reclassified when necessary to conform
with the current period's presentation.
All intercompany accounts and transactions have been eliminated in
consolidation. In management's opinion, the unaudited condensed consolidated
financial statements reflect all adjustments of a normal recurring nature and
should be read in conjunction with the Company's 1999 Annual Report on Form
10-K. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year ended
December 31, 2000.
3. EARNINGS PER SHARE
A computation of Basic EPS and Diluted EPS for the three month periods ending
March 31, 2000 and 1999, is presented in the table below.
<TABLE>
<CAPTION>
WEIGHTED PER
THREE MONTHS ENDED MARCH 31, 2000 NET INCOME AVERAGE SHARES SHARE
(In thousands except share and per share data) (NUMERATOR) (DENOMINATOR) AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EPS
Income Available to common shareholders $4,326 7,018,994 $0.62
EFFECT OF DILUTIVE SECURITIES (Stock options) 59,343
DILUTED EPS
Income Available to common shareholders plus assumed conversions $4,326 7,078,337 $0.61
========================================================================================================================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED PER
THREE MONTHS ENDED MARCH 31, 1999 NET INCOME AVERAGE SHARES SHARE
(In thousands except share and per share data) (NUMERATOR) (DENOMINATOR) AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EPS
Income Available to common shareholders $3,931 7,074,999 $0.56
EFFECT OF DILUTIVE SECURITIES (Stock options) 140,854
DILUTED EPS
Income Available to common shareholders plus assumed conversions $3,931 7,215,853 $0.54
========================================================================================================================
</TABLE>
4. ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivatives embedded in other contracts, and for hedging
activities. As amended, this statement is effective for fiscal years beginning
after June 15, 2000. Management is currently evaluating the impact, if any, of
this statement on the Company's consolidated financial statements.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Tompkins Trustco, Inc. ("Tompkins" or "the Company") was organized in 1995, as
the parent company of Tompkins County Trust Company (the "Trust Company"), which
traces its charter back to 1836. On December 31, 1999, the Company completed a
merger with Letchworth Independent Bancshares Corporation ("Letchworth"), at
which time Letchworth was merged with and into Tompkins. Upon completion of the
merger, Letchworth's two subsidiary banks, The Bank of Castile and The Mahopac
National Bank, became subsidiaries of Tompkins. The Trust Company and The Bank
of Castile are wholly-owned subsidiaries, and The Mahopac National Bank is
approximately 70% owned by the Company.
Through its community bank subsidiaries, the Company provides traditional
banking related services, which constitute the Company's only business segment.
Banking services consist primarily of attracting deposits from the areas served
by its banking offices and using those deposits to originate a variety of
commercial loans, consumer loans, real estate loans (including commercial loans
collateralized by real estate), and leases, and providing trust and investment
related services. The Company's principal expenses are interest on deposits,
interest on borrowings, and operating and general administrative expenses, as
well as provisions for loan losses. Funding sources, other than deposits,
include borrowings, securities sold under agreements to repurchase, and cash
flow from lending and investing activities.
9
<PAGE>
The Company conducts trust and investment management services through the Trust
and Investment Services Divisions of its banking subsidiaries. These Trust and
Investment Services Divisions provide a full range of money management services,
including investment management accounts, custody accounts, living trusts, life
insurance trusts, stand-by trusts, retirement plans and rollovers, will trusts,
estate settlement, and financial planning.
The merger with Letchworth was accounted for as a pooling-of-interests, and
accordingly all prior period financial information has been restated to present
the combined financial condition and results of operations of both companies as
if the merger had been in effect for all periods presented. On June 4, 1999,
Letchworth acquired 70.17 percent of the outstanding common stock of The Mahopac
National Bank in a cash transaction, accounted for as a purchase. Accordingly,
the 1999 consolidated financial information in this report does not include
results of operations of The Mahopac National Bank. The 29.83 percent interest
in The Mahopac National Bank, which is not owned by Tompkins, is shown as a
minority interest in consolidated subsidiaries on the consolidated statement of
condition. Further details pertaining to the merger with Letchworth are
presented in Note 2 to the Company's Annual Report on Form 10-K dated December
31, 1999.
Tompkins has assumed an option to acquire the remaining outstanding shares of
The Mahopac National Bank from the minority shareholders, at 90 percent of their
fair value. The option becomes exercisable in December 2000, if the Company's
shares in The Mahopac National Bank have not been acquired by the minority
shareholders at 90 percent of their fair value. Management anticipates that
Tompkins will be able to exercise its option in 2000, at which time The Mahopac
National Bank will become a wholly-owned subsidiary of the Company.
Since the merger with Letchworth was completed on December 31, 1999, operating
results for the first three months of 2000 reflect minimal cost savings and
revenue enhancements resulting from the merger. Management anticipates that
certain cost savings and revenue enhancement opportunities will be realized
beginning in the second quarter of 2000. Additionally, two branch office
openings -- the Chili Office of The Bank of Castile (opened in the third quarter
of 1999), and the Brewster Office of The Mahopac National Bank (opened in the
first quarter of 2000) -- are expected to contribute positively to the Company's
earnings beginning in the second half of 2000.
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, 1999, and the unaudited condensed consolidated financial statements
and notes included elsewhere in this report.
FORWARD-LOOKING STATEMENTS
This report may include forward-looking statements with respect to revenue
sources, growth, market risk, and corporate objectives. The Company assumes no
duty, and specifically disclaims any obligation, 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.
10
<PAGE>
RESULTS OF OPERATIONS
Net income before amortization of intangible assets (operating earnings)
increased 13.2% percent in the first quarter of 2000, reflecting strength in the
core business strategies of the Company's community banking subsidiaries. Since
the purchase acquisition of The Mahopac National Bank was completed on June 4,
1999, operating results for The Mahopac National Bank are not included for
periods prior to that date. Net income for the first quarter of 2000 was $4.3
million, compared to $3.9 million for the first quarter of 1999. Basic earnings
per share in the first quarter of 2000 increased by 10.7% to $0.62, compared to
$0.56 in the first quarter of 1999. Diluted earnings per share was $0.61 for the
first quarter of 2000, compared to $0.54 in 1999. Diluted operating earnings per
share of $0.63 reflects an increase of 14.5% over the same period in 1999.
The Company's return on average assets (ROAA) of 1.45% for the first three
months of 2000 remains strong by industry standards, although the ratio was down
from 1.65% for the same period in 1999. The decline in ROAA is primarily the
result of increased expenses associated with the recent openings of the Chili
Office of The Bank of Castile and the Brewster Office of The Mahopac National
Bank. Both offices became fully operational in the first quarter of 2000, and
are ahead of early expectations for deposit growth.
Return on average shareholders' equity (ROAE) for the first three months of 2000
was 17.61%, compared to 16.01% for the same period in 1999. Operating return on
equity was 18.25% for the first quarter of 2000, compared to 16.16% in 1999.
Improvement in ROAE reflects strong earnings growth in the first quarter of
2000, along with a slightly lower average equity position.
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 $13.4 million
for the three months ended March 31, 2000, compared to $10.8 million for the
same period in 1999. This 24% increase in net interest income was achieved
through growth in the earnings assets, and was funded primarily by strong growth
in core deposits. The improved net interest income reflects benefits from the
acquisition of The Mahopac National Bank in June 1999, which added $91.3 million
in average loans and $134.3 million in average core deposits (total deposits,
less time deposits of $100,000 or more). The favorable mix of high quality
earning assets and low cost funding helped maintain the Company's net interest
margin at relatively high level compared to its peers of 4.81% for the first
quarter of 2000. The ratio is down slightly from the 4.89% ratio reported in the
first quarter of 1999.
Core deposits represent the Company's key funding source. Average core deposits
amounted to $826 million at March 31, 2000,, and represented 75.5% of average
liabilities. This compares to average core deposits of $598 million at March 31,
1999, representing 69.6% of average liabilities.
The strong growth in the Company's core funding base supported average asset
growth of $240 million, an increase of 25% over the first quarter of 1999. Loan
growth was particularly strong, with average loans of $764 million, representing
an increase of 29% over 1999. Most of the growth in average loans centered in
real estate loans, which increased from $306 million at March 31, 1999 to $464
million at March 31, 2000.
11
<PAGE>
PROVISION FOR LOAN/LEASE LOSSES
The provision for loan/lease losses represents management's estimate of the
expense necessary to maintain the reserve for loan/lease losses at an adequate
level. The provision for loan/lease losses of $240,000 for the first quarter of
2000 was relatively unchanged from the same period in 1999. The low provision
expense in the periods presented is reflective of the generally high quality of
the Company's loan portfolio, as evidenced by the low level of nonperforming
loans, and a declining trend in net charge-offs. Nonperforming loans and leases
were $3.6 million at March 31, 2000, representing 0.50% of total loans
and leases. Nonperforming loans and leases at March 31, 1999 were $2.4 million,
or 0.40 percent of total loans and leases. Net charge-offs of $76,000 in the
first quarter of 2000 reflect a decline from the $141,000 in net charge-offs in
the first quarter of 1999.
The provision for loan/lease losses was maintained at a level consistent with
the prior year as a result of the general consistency in the overall quality of
the loan portfolio. The reserve for loan/lease losses as a percentage of period
end loans was 1.22% at March 31, 2000 and December 31, 1999.
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 2000 totaled $3.6 million, an
increase of 31% from the prior year. Other income as a percentage of average
assets increased from 1.14% for the three months ended March 31, 1999, to 1.19%
for the same period in 2000.
Income from trust and investment services, the largest segment of other income,
increased 18% to $1.2 million, compared to $1.0 million the first three months
of 1999. 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 $1.1 billion on March 31,
2000, representing a $147 million increase from March 31, 1999.
The Trust and Investment Services Division is expected to remain important to
future revenue growth of the Company. Trust and investment services are
primarily provided to customers in the Trust Company's market area of Tompkins
County and surrounding areas, although 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 which the Company provides servicing
and administrative support to trust departments of other banks. The first bank
to participate in this Trust Alliance program was The Bank of Castile, which
became a subsidiary of the Company upon the completion of the merger with
Letchworth. The Company has formed Trust Alliances with two additional
non-affiliated community banks, which have assets under management totaling $52
million at March 31, 2000.
The Company continues to invest in technology to meet consumer demands for more
convenient banking services. The Trust Company and The Mahopac National Bank
currently offer Internet banking products. In the first quarter of 2000, the
Trust Company introduced an improved Internet banking product for individuals
and businesses. The Bank of Castile is expected to begin offering Internet
banking during the second quarter of 2000. Through the Trust Company, the
Company has invested significant resources in developing fee income producing
products and services. Many of these products and services can be offered to
customers of The Bank of Castile and The Mahopac National Bank, thereby
expanding the customer base for these products. Through this expanded customer
base, the Company anticipates continued growth from noninterest related sources.
The recently announced plans to acquire Austin, Hardy, Wise, Inc. and Ernest
Townsand & Sons, Inc. will provide an additional source of non-interest income
and enhance the Company's ability to serve its customers with a full range of
financial products and services.
Other income includes a $185,000 increase in cash surrender value of corporate
owned life insurance, up from $172,000 in 1999. The corporate owned life
insurance relates to life insurance provided to certain senior officers.
12
<PAGE>
Increases in the cash surrender value of the insurance are reflected as other
income, and the related mortality expense is recognized as an other expense. The
income and expense associated with this insurance are excluded from taxes.
Although income associated with the insurance policies is not included in
interest income, increases in the cash surrender value produced a tax-adjusted
return of approximately 8.1 percent for the year ended December 31, 1999.
OTHER EXPENSES
Total other expenses of $9.5 million for the first three months of 2000,
reflects an increase of 37% over 1999. The increase in the first quarter of 2000
includes the additional costs associated with operating the new Chili and
Brewster Offices. Other expenses in the first quarter of 2000 includes $1.8
million in operating expenses for the Mahopac National Bank as well as Post
Merger integration expenses. Other expenses in 2000 also includes approximately
$175,000 of intangible amortization expense associated with the Mahopac
acquisition. In general, the expenses associated with the branch openings and
post merger integration initiatives have been in line with, or below, management
expectations.
Personnel-related expenses comprise the largest segment of other expense,
representing approximately 55% percent of operating expense in the first quarter
of 2000, compared to approximately 58% for the same period in 1999. Total
personnel-related expenses for the first quarter of 2000 increased by 31% over
the first quarter of 1999. The increase includes $921,000 related to the Mahopac
acquisition. Although the Company does not anticipate significant personnel
reductions as a result of the merger, certain operational changes are expected
to result in more efficient personnel utilization in the remainder of year 2000.
First quarter expense for premises, furniture, and fixtures increased from
$947,000 in 1999, to $1.2 million in 2000. The increase of $298,000 is almost
entirely related to the additional expenses for premises, furniture, and
fixtures of The Mahopac National Bank, which are included in the 2000 operating
results.
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
Minority interest expense represents the portion of net income in consolidated
majority-owned subsidiaries that is attributable to the minority owners of the
subsidiaries. Minority interest expense for the three months ended March 31,
2000 includes $122,000 related to the minority owners of The Mahopac National
Bank, and $34,000 related to the minority interests in the Real Estate
Investment Trust subsidiaries of the Company's three banking subsidiaries.
INCOME TAX EXPENSE
The provision for income taxes provides for federal and New York State income
taxes. The provision for the three months ended March 31, 2000, was $2.1
million, compared to $1.9 million in 1999. The increased provision is primarily
due to increased levels of taxable income. The effective tax rate for the first
quarter of 2000 was 33% percent, compared to 32% for the same period in 1999.
13
<PAGE>
FINANCIAL CONDITION
The Company's total assets were $1.2 billion as of March 31, 2000, representing
a $26 million increase over total assets reported as of December 31, 1999.
Growth was primarily in the loan and lease portfolio, which increased by $16.4
million in the first three months of 2000, while the securities portfolio grew
by approximately $2.7 million (including market value adjustments on
available-for-sale securities).
CAPITAL
Total shareholders' equity grew by approximately 1% during the first three
months of 2000 to $97.5 million. Cash dividends paid in the first half of 2000
totaled approximately $1.9 million, representing 44% of year to date earnings.
Per share cash dividends of $0.27 for the first three months of 2000, represents
an 8% increase over cash dividends paid by Tompkins Trustco, Inc. in the same
period of 1999.
The Company and its banking subsidiaries are subject to various regulatory
capital requirements administered by Federal banking agencies. Management
believes the Company and its subsidiaries meet all capital adequacy requirements
to which they are subject. The table below reflects the Company's capital
position at March 31, 2000, compared to the regulatory capital requirements for
"well capitalized" institutions.
<TABLE>
<CAPTION>
REGULATORY CAPITAL ANALYSIS - March 31, 2000
========================================================================================================
ACTUAL WELL CAPITALIZED REQUIREMENT
(Dollar amounts in thousands) AMOUNT RATIO AMOUNT RATIO
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Capital (to risk weighted assets) $112,590 13.7% $82,249 10.0%
Tier I Capital (to risk weighted assets) $103,199 12.5% $49,349 6.0%
Tier I Capital (to average assets) $103,199 8.6% $60,064 5.0%
========================================================================================================
</TABLE>
As illustrated above, the Company's capital ratios on March 31, 2000 remain well
above the minimum requirement for well capitalized institutions. As of March 31,
2000, the capital ratios for each of the Company's subsidiary banks also
exceeded the minimum levels required to be considered well capitalized.
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 the inherent risk of loss in the current loan/lease portfolio. Based
upon management's review, the current reserve of $9.4 million is believed
adequate based on the inherent risk of loss in the loan and lease portfolios.
Activity in the Company's reserve for loan and lease losses during the first
three months of 2000 and 1999 is illustrated in the table below.
<TABLE>
<CAPTION>
ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In thousands)
=====================================================================================================
MARCH 31, 2000 MARCH 31, 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Average Loans and Leases Outstanding Year to Date $763,502 $591,693
- -----------------------------------------------------------------------------------------------------
Beginning Balance 9,228 7,406
- -----------------------------------------------------------------------------------------------------
Provision for loan losses 240 239
Loans charged off (209) (273)
Loan recoveries 132 132
- -----------------------------------------------------------------------------------------------------
Net Charge-offs (77) (141)
- -----------------------------------------------------------------------------------------------------
Ending Balance $9,391 $7,504
=====================================================================================================
</TABLE>
Annualized net charge-offs through the first three months of 2000 amounted to
0.04% of average loans outstanding during the period. This ratio compares to
0.10% for the three months ended March 31, 1999.
14
<PAGE>
The level of nonperforming assets at March 31, 2000 and 1999 is illustrated in
the table below. Although nonperforming loans at March 31, 2000 reflect an
increase of $1.5 million over the same period in 1999, the ratio of
nonperforming loans as a percentage of total loans remains a modest 0.50%.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS (In thousands)
============================================================================================================
MARCH 31, 2000 MARCH 31, 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $3,426 $1,469
Loans past due 90 days and accruing 234 680
Troubled debt restructuring not included above 0 0
- ------------------------------------------------------------------------------------------------------------
Total nonperforming loans 3,660 2,149
- ------------------------------------------------------------------------------------------------------------
Other real estate, net of allowances 214 222
- ------------------------------------------------------------------------------------------------------------
Total nonperforming assets $3,874 $2,371
============================================================================================================
Total nonperforming loans as a percent of total loans 0.50% 0.40%
Total nonperforming assets as a percentage of total assets 0.32% 0.25%
============================================================================================================
</TABLE>
DEPOSITS AND OTHER LIABILITIES
Total deposits were $991 million on March 31, 2000, compared to $974 million on
December 31, 1999. 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, 2000, core deposits of
$804 million represented 72% of total liabilities. This compares to core
deposits of $794 million, representing 73% of total liabilities at December 31,
1999.
The Company uses large time deposits, securities sold under repurchase
agreements, Federal funds purchased, and other borrowings as additional funding
sources. Time Deposits of $100,000 and over increased from $180 million on
December 31, 1999, to $187 million on March 31, 2000. As of March 31, 2000,
total securities sold under repurchase agreements amounted to $55 million,
compared to $58 million at December 31, 1999. Other borrowings, consisting of
term borrowings from the Federal Home Loan Bank, increased from $42 million at
December 31, 1999, to $43 million at March 31, 2000.
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 of $61 million as of March 31, 2000 reflects an
increase of $13 million from December 31, 1999. Approximately $7 million of this
increase is a temporary increase that is the result of a single item posted to
the Company's account with the Federal Reserve on March 31, 2000.
Short term investments consisting of securities due in one year or less declined
from $43 million on December 31, 1999, to $38 million on March 31, 2000.
Securities pledged to secure certain large deposits and securities sold under
repurchase agreements were 79% of total securities as of March 31, 2000,
compared to 77% as of December 31, 1999.
15
<PAGE>
Liquidity is enhanced by ready access to national and regional wholesale funding
sources including federal funds purchased, repurchase agreements, negotiable
certificates of deposit, and FHLB advances. Through its subsidiary banks, the
Company has borrowing relationships with the FHLB and correspondent banks, which
provide secured and unsecured borrowing capacity. At March 31, 2000, the unused
borrowing capacity on established lines with the FHLB was $106.9 million. As
members of the FHLB, the Company's subsidiary banks can use unencumbered
mortgage-related assets to secure additional borrowings from the FHLB. At March
31, 2000, total real estate loans of the Company were $469 million.
YEAR 2000
Concerns over the arrival of Year 2000 and its impact on computer technologies
used by financial institutions led bank regulatory authorities to require
substantial advance testing and preparations by all banking organizations,
including the Company. As of the date of this filing, the Company has
experienced no material problems in connection with the arrival of Year 2000.
Management will continue to monitor its technologies for any Year 2000 related
issue that may arise that may not become immediately apparent. Although
management expects that the likelihood of its business being materially impacted
by Year 2000 issues is remote, future events cannot be known with certainty.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk 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 table below is a Condensed Static Gap Report, which illustrates the
anticipated repricing intervals of assets and liabilities as of March 31, 2000.
The analysis reflects a liability sensitive position, suggesting that earnings
would benefit from a declining interest rate environment and would be hindered
by a rising rate environment.
<TABLE>
<CAPTION>
CONDENSED STATIC GAP - MARCH 31, 2000 REPRICING INTERVAL
CUMULATIVE
(dollar amounts in thousands) TOTAL 0-3 MONTHS 3-6 MONTHS 6-12 MONTHS 12 MONTHS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets $1,109,474 $267,698 $52,255 $99,618 $426,455
Interest-bearing liabilities 919,162 462,423 94,402 90,334 654,043
- -------------------------------------------------------------------------------------------------------------------
Net gap position (194,725) (42,147) 9,284 (227,588)
- -------------------------------------------------------------------------------------------------------------------
Net gap position as a percentage of total assets (16.03%) (3.47%) (0.76%) (18.74%)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's March 31, 2000, one-year cumulative rate sensitivity gap was a
negative 19% 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.
16
<PAGE>
<TABLE>
TOMPKINS COUNTY TRUSTCO, INC.
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
YTD YTD
PERIOD PERIOD
ENDED ENDED
MAR-00 MAR-99
- ------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
(Dollar amounts in thousands) Balance Interest Yield/Rate Balance Interest Yield/Rate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Securities (1)
U.S. government securities 242,615 3,943 6.52% 185,629 3,318 7.25%
State and municipal (2) 81,402 1,453 7.16% 71,265 1,295 7.37%
Other securities (2) 12,213 274 9.00% 27,300 538 7.99%
-----------------------------------------------------------------------------
Total securities 336,230 5,670 6.76% 284,194 5,151 7.35%
Federal funds sold 18,021 254 5.65% 17,296 206 4.83%
Total loans, net of unearned income (3) 763,502 16,414 8.62% 591,693 12,353 8.47%
-----------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 1,117,753 22,338 8.02% 893,183 17,710 7.76%
-----------------------------------------------------------------------------
Other assets 81,178 64,768
--------------- ----------------
TOTAL ASSETS $1,198,931 $957,951
=============== ================
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Interest-bearing deposits
Interest checking, savings,
& money market 415,462 2,498 2.41% 301,060 1,666 2.24%
Time Dep > $100,000 142,092 1,960 5.53% 136,561 1,726 5.13%
Time Dep < $100,000 235,755 2,988 5.08% 174,439 2,179 5.07%
-----------------------------------------------------------------------------
Total interest-bearing deposits 793,309 7,446 3.76% 612,060 5,571 3.69%
Federal funds purchased & securities
sold under agreements to repurchase 67,329 893 5.32% 63,998 752 4.77%
Other borrowings 45,116 632 5.62% 48,888 622 5.16%
-----------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 905,754 8,971 3.98% 724,946 6,945 3.88%
Noninterest bearing deposits 174,653 122,276
Accrued expenses and other liabilities 13,455 12,189
--------------- ----------------
TOTAL LIABILITIES 1,093,862 859,411
Minority Interest 6,274 1,376
SHAREHOLDERS' EQUITY 98,795 97,164
TOTAL LIABILITIES AND
--------------- ----------------
SHAREHOLDERS' EQUITY $1,198,931 $957,951
=============== ================
Interest rate spread 4.04% 3.88%
----------------------- -----------------------
Net interest income/margin on earning $13,367 4.81% $10,765 4.89%
assets
- ------------------------------------------------------------------------------------------------------------------------
</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 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 loans totals presented above.
Payments received on nonaccrual loans have been recognized as disclosed in
Note 1 to the Company's Annual Report on Form 10-K dated December 31, 1999.
17
<PAGE>
PART II - OTHER INFORMATION
ALL ITEMS NOT LISTED HERE ARE NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
18
<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 15, 2000
TOMPKINS TRUSTCO, INC.
By: /s/ JAMES J. BYRNES
---------------------------
JAMES J. BYRNES
Chairman of the Board,
Chief Executive Officer
By: /s/ RICHARD D. FARR
---------------------------
RICHARD D. FARR
Senior Vice President and
Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION PAGES
- -------------- ----------- -----
EXHIBIT 27 FINANCIAL DATA SCHEDULE
20
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001005817
<NAME> Tompkins Trustco, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 52,056
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,775
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 298,449
<INVESTMENTS-CARRYING> 29,442
<INVESTMENTS-MARKET> 29,887
<LOANS> 771,808
<ALLOWANCE> 9,391
<TOTAL-ASSETS> 1,214,649
<DEPOSITS> 991,289
<SHORT-TERM> 63,907
<LIABILITIES-OTHER> 12,715
<LONG-TERM> 42,836
0
0
<COMMON> 707
<OTHER-SE> 96,826
<TOTAL-LIABILITIES-AND-EQUITY> 1,214,649
<INTEREST-LOAN> 16,400
<INTEREST-INVEST> 5,145
<INTEREST-OTHER> 254
<INTEREST-TOTAL> 21,799
<INTEREST-DEPOSIT> 7,446
<INTEREST-EXPENSE> 8,971
<INTEREST-INCOME-NET> 12,828
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 106
<EXPENSE-OTHER> 9,522
<INCOME-PRETAX> 6,464
<INCOME-PRE-EXTRAORDINARY> 6,464
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,326
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 5
<LOANS-NON> 3,426
<LOANS-PAST> 234
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,228
<CHARGE-OFFS> 209
<RECOVERIES> 133
<ALLOWANCE-CLOSE> 9,391
<ALLOWANCE-DOMESTIC> 9,391
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 750
</TABLE>
