UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
THE COMMONS, P.O. BOX 460, ITHACA, NEW YORK 14851
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 273-3210
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Title of Class:
COMMON STOCK
($.10 PAR VALUE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $150,944,950 on March 15, 2000, based on the
closing sales price of the registrant's common stock, $.10 par value (the
"Common Stock"), as reported on the American Stock Exchange, Inc. as of such
date.
The number of shares of the registrant's Common Stock outstanding as of March
10, 2000, was 7,040,373 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement (the "Proxy Statement") filed with the Securities and Exchange
Commission on March 30, 2000, in connection with the 2000 Annual Meeting of
Stockholders, is incorporated herein by reference in Part III.
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<TABLE>
TOMPKINS TRUSTCO, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1. Business of the Company 1
Item 2. Properties 4
Item 3. Legal Proceedings 6
Item 4. Submission of Matters for a Vote by Securities Holders 6
PART II
Item 5. Market for Registrant's Common Equity and Related Securities 7
Item 6. Selected Financial Data 7
Item 7. Management Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 20
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 48
PART III
Item 10. Directors and Executive Officers of the Registrant 48
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners and
Management 48
Item 13. Certain Relationships and Related Transactions 48
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 49
</TABLE>
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PART I
ITEM 1. BUSINESS OF THE COMPANY
GENERAL
Headquartered in Ithaca, New York, Tompkins Trustco, Inc. ("Tompkins" or "the
Company") is the publicly traded parent company of Tompkins County Trust Company
and The Bank of Castile, both of which are wholly-owned subsidiaries. Tompkins
is also the parent company of The Mahopac National Bank, which is approximately
70 percent owned by the Company. The Trust Company, The Bank of Castile, and The
Mahopac National Bank provide community banking services to their local market
areas in New York State. Tompkins is registered as a multiple bank holding
company with the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended. Tompkins was organized in 1995, under the laws of the State of
New York, as a bank holding company for the Tompkins County Trust Company ("the
Trust Company"), a commercial bank that has operated in the community of Ithaca,
New York, and environs since 1836.
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
percent 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 consolidated
financial statements, included herein.
NARRATIVE DESCRIPTION OF BUSINESS
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.
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 Company maintains a portfolio of securities such as U.S. government and
agency securities, obligations of states and political subdivisions thereof,
equity securities, and interest-bearing deposits. It is the intention of
management to maintain short to intermediate maturities in the Company's
securities portfolio in order to better match the interest rate sensitivities of
its assets and liabilities.
Investment decisions are made within policy guidelines established by the
Company's board of directors. The investment policy established by the board of
directors is based on the asset/liability management goals of the Company. The
intent of the policy is to establish a portfolio of high quality diversified
securities, which optimize net interest income within acceptable limits of
safety and liquidity. Purchases of securities, other than obligations of states
and political subdivisions thereof, are classified as available-for-sale, though
it is generally management's intent to hold all securities to maturity.
Securities available-for-sale may be used to enhance total return, provide
additional liquidity, or reduce interest rate risk.
Information regarding the amortized cost and fair value of the securities
portfolio for the years ended 1999 and 1998 is presented in Note 3 to the
Company's consolidated financial statements. The amortized cost and fair value
of the securities portfolio for the year ended 1997 is presented in the table
below.
1
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<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
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GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1997 (in thousands) COST GAINS LOSSES VALUE
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<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government agencies $150,072 $1,470 $226 $151,316
Obligations of states and political subdivisions 4,812 112 1 4,923
Mortgage-backed securities 44,837 590 62 45,365
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Total debt securities 199,721 2,172 289 201,604
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Equity securities 8,983 428 0 9,411
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$208,704 $2,600 $289 $211,015
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</TABLE>
Available-for-sale securities include $4,431,000 in equity securities, which are
carried at amortized cost since fair values are not readily determinable. This
figure includes $3,227,000 of Federal Home Loan Bank Stock.
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
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GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1997 (in thousands) COST GAINS LOSSES VALUE
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<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government agencies $11,958 $ 211 $ 1 $12,168
Obligations of states and political subdivisions 61,872 1,867 4 63,735
Mortgage-backed securities 6,190 35 5 6,220
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Total debt securities $80,020 $2,113 $10 $82,123
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</TABLE>
COMPETITION
The Company's subsidiary banks operate 29 offices, including 27 full-service
branches, serving communities in upstate New York. The Trust Company operates 11
full-service banking offices in the counties of Tompkins and Schuyler. The Bank
of Castile conducts its operations through its 12 branch offices in towns
situated in and around the areas commonly known as the Letchworth State Park
area and the Genesee Valley region of New York State. The Bank of Castile branch
locations include its recently opened branch office in Monroe County. The
Mahopac National Bank is located in Putnam County, and operated 3 full-service
branches in that county as of December 31, 1999. A fourth office located in
Brewster, New York, opened in February 2000. Deposits of all three banks are
insured by the Federal Deposit Insurance Corporation.
Competition for commercial banking and trust and investment services is strong
in the Company's upstate New York market areas. Deregulation of the banking
industry has created a highly competitive environment for commercial banking
services. Increased competition has resulted in a decreasing number of community
banks, and increased competition from regional and national financial service
providers. In one or more aspects of its business, the Company competes with
other commercial banks, savings institutions, credit unions, mortgage bankers
and brokers, finance companies, mutual funds, insurance companies, brokerage and
investment banking companies, and other financial intermediaries. Many of these
competitors, some of which are affiliated with large bank holding companies,
have substantially greater resources and lending limits, and may offer certain
services the Company does not currently provide. In addition, many non-bank
competitors, such as credit unions, are not subject to the same extensive
federal regulations that govern bank holding companies and federally insured
banks. Management believes the Letchworth acquisition will provide increased
capacity for growth, and greater capital resources necessary to make investments
in technology and services that will improve the Company's ability to compete.
Since the locations of The Mahopac National Bank and The Bank of Castile are not
immediately adjacent to markets served by the Trust Company, the merger provides
Tompkins with enhanced growth opportunities with relatively little disruption to
the core strategy or operation of the Trust Company. The Company intends to
continue to operate the subsidiaries as three locally managed community banks.
Community banking is a business understood by management of the Company, and is
a core strength that will continue to be emphasized. The acquisition provides
Tompkins with new areas to market products and services, thereby offering
significant opportunities for growth.
2
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The area served by the Trust Company consists primarily of Tompkins County, with
an estimated population of 97,000 people. Education plays a significant role in
the local economy with Cornell University and Ithaca College being two of the
county's major employers. Current economic trends include low unemployment and
moderate growth. The Bank of Castile serves a four-county market that is
primarily rural in nature. The recent opening of a branch office in Chili, New
York, will provide increased access to the suburban Rochester, New York, market.
Excluding Monroe County, which includes Rochester, the population of counties
served by The Bank of Castile is approximately 171,000. Economic growth has been
relatively flat in The Bank of Castile's market area, although the significant
population base of the suburban Rochester market (in excess of 700,000 people),
provides significant opportunities for growth. The primary market area for The
Mahopac National Bank is Putnam County, New York, with a population of
approximately 93,000. Putnam County is about 60 miles north of Manhattan, and is
the fastest growing county in New York State.
REGULATION
As a registered bank holding company, the Company is subject to examination and
comprehensive regulation by the Federal Reserve Board (FRB). The Company's
subsidiary banks are subject to examination and comprehensive regulation by
various regulatory authorities, including the Federal Deposit Insurance
Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the
New York State Banking Department (NYSBD). Each of these agencies issues
regulations and requires the filing of reports describing the activities and
financial condition of the entities under its jurisdiction. Likewise, such
agencies conduct examinations on a recurring basis to evaluate the safety and
soundness of the institutions, and to test compliance with various regulatory
requirements, including: consumer protection, fair lending, the Community
Reinvestment Act, sales of non-deposit investments, electronic data processing,
and trust department activities.
Under FRB regulations, the Company may not, without providing prior notice to
the FRB, purchase or redeem its own Common Stock if the gross consideration for
the purchase or redemption, combined with the net consideration paid for all
such purchases or redemptions during the preceding twelve months, is equal to
ten percent or more of the Company's consolidated net worth. Additionally, FRB
policy provides that dividends shall not be paid except out of current earnings
and unless prospective rate of earnings retention by the Company appears
consistent with its capital needs, asset quality, and overall financial
condition.
The FRB, the FDIC, and the OCC have promulgated capital adequacy guidelines that
are considered by the agencies in examining and supervising a bank or bank
holding company; and in analyzing any applications a bank or bank holding
company may submit to the appropriate agency. In addition, for supervisory
purposes, the agencies have promulgated regulations establishing five categories
of capitalization, ranging from well capitalized to critically undercapitalized,
depending upon the level of capitalization and other factors. Currently, the
Company and its subsidiary banks maintain leverage and risk-based capital ratios
above the required levels and are considered well capitalized under the
applicable regulations. A comparison of the Company's capital ratios and the
various regulatory requirements is included in Note 17 of the Company's
consolidated financial statements.
All deposit accounts of the Company's subsidiary banks are insured by the Bank
Insurance Fund (BIF), generally in amounts up to $100,000 per depositor. The
FDIC has the power to terminate a bank's insured status or to temporarily
suspend it under special conditions. Deposit insurance coverage is maintained by
payment of premiums assessed to banks insured by the BIF. Based on capital
strength and a favorable FDIC risk classification, the subsidiary banks are not
currently subject to BIF insurance assessments. Beginning in January 1997, all
BIF insured banks are subject to special assessments to repay Financing
Corporation (FICO) bonds, which were used to repay depositors of failed Savings
and Loan Associations after the former Federal Savings and Loan Insurance Fund
became insolvent.
EMPLOYEES
At December 31, 1999, the Company employed 494 employees, approximately 98 of
whom were part-time. No employees are covered by a collective bargaining
agreement and the Company believes its employee relations are excellent.
3
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<TABLE>
ITEM 2. PROPERTIES
The following table provides information relating to the Company's facilities:
<CAPTION>
LOCATION FACILITY TYPE SQUARE FEET OWNED/LEASED*
<S> <C> <C> <C>
The Commons Trust Company 23,900 Owned
Ithaca, NY Main Office
119 E. Seneca Street Trust Company 18,550 Owned
Ithaca, NY Trust and Investment Services
121 E. Seneca Street Administration 18,900 Owned
Ithaca, NY
Rothschilds Building Operations and Data Processing 20,500 Leased
The Commons, Ithaca,
NY
Central Avenue Trust Company 400 Leased
Cornell University, Cornell Campus Branch Office
Ithaca, NY
905 Hanshaw Road Trust Company 790 Leased
Ithaca, NY Community Corners Branch Office
139 N. Street Trust Company 2,250 Owned
Extension Dryden Branch Office
Dryden, NY
1020 Ellis Hollow Road Trust Company 650 Leased
Ithaca, NY East Hill Plaza Branch
775 S. Meadow Street Trust Company 2,280 Owned
Ithaca, NY Plaza Branch Office
Pyramid Mall Trust Company 610 Leased
Ithaca, NY Pyramid Mall Office
116 E. Seneca Street Trust Company 775 Owned
Ithaca, NY Seneca Street Drive-in
2251 N. Triphammer Trust Company 3,000 Leased
Road Triphammer Road Branch Office
Ithaca, NY
2 W. Main Street Trust Company 2,720 Owned
Trumansburg, NY Trumansburg Branch Office
701 W. Seneca Street Trust Company 2,150 Owned
Ithaca, NY West End Branch Office
2230 N. Triphammer Trust Company 204 Leased
Road Kendal Branch Office
Ithaca, NY (Part-time office)
100 Main Street Trust Company 3,115 Owned
Odessa, NY Odessa Branch Office
50 N. Main Street The Bank of Castile 6,662 Owned
Castile, NY Main Office
4
<PAGE>
LOCATION FACILITY TYPE SQUARE FEET OWNED/LEASED*
604 W. Main Street The Bank of Castile 4,662 Owned
Arcade, NY Arcade Branch Office
263 E. Main Street The Bank of Castile 3,303 Owned
Avon, NY Avon, NY
408 E. Main Street The Bank of Castile 3,496 Owned
Batavia, NY Batavia Branch Office
3155 State Street The Bank of Castile 4,680 Owned
Caledonia, NY Caledonia Branch Office
3252 Chili Avenue The Bank of Castile 4,000 Owned
Chili, NY Chili Branch Office
1 Main Street The Bank of Castile 1,448 Owned
Gainesville, NY Gainesville Branch Office
11 South Street The Bank of Castile 9,700 Owned
Geneseo, NY Geneseo Branch Office
29 Main Street The Bank of Castile 3,084 Owned
LeRoy, NY LeRoy Branch Office
102 N. Center Street The Bank of Castile 4,702 Owned
Perry, NY Perry Branch Office
2727 Genesee Street The Bank of Castile 2,220 Leased
Retsof, NY Retsof Branch Office
445 N. Main Street The Bank of Castile 2,798 Owned
Warsaw, NY Warsaw Branch Office
129 N. Center Street The Bank of Castile 11,138 Owned
Perry, NY Processing Center **
630 Route 6 The Mahopac National Bank 2,800 Owned
Mahopac, NY Mahopac Office
591 Route 6N The Mahopac National Bank 3,000 Owned
Mahopac Falls, NY Red Mills Office
21 Peekskill Hollow RoaThe Mahopac National Bank 17,950 Owned
Putnam Valley, NY Putnam Valley Branch Office
925 S. Lake Boulevard The Mahopac National Bank 3,460 Owned
Mahopac, NY Loan Center
1441 Route 22 The Mahopac National Bank 34,000 Owned
Brewster, NY Brewster Office ***
</TABLE>
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* Lease terminations for the Company's leased properties range from 2000
through 2042.
** Office includes two parcels of land that are being leased through 2004,
and 2090, respectively.
*** Branch office opened in February 2000.
Management believes the current facilities are suitable for their present and
intended purposes. The Bank of Castile submitted an application with the New
York State Banking Department in February 2000, seeking approval to open a
branch office in Medina, New York.
5
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings in the normal course of business,
none of which are expected to have a material adverse impact on the financial
condition or operations of the Company.
ITEM 4. SUBMISSION OF MATTERS FOR A VOTE BY SECURITIES HOLDERS
On December 20, 1999, Tompkins held a special meeting of shareholders to
consider and vote on a proposal to approve and adopt the Agreement and Plan of
Reorganization, dated July 30, 1999, by and between Tompkins and Letchworth. The
agreement provided for the merger of Letchworth with and into Tompkins, and for
each share of common stock of Letchworth, par value $1.00 per share, to be
converted into and exchangeable for 0.685 shares of the common stock of
Tompkins, par value $0.10 per share, plus cash in lieu of any fractional share
interest. The proposal also provided for the issuance of the required number of
shares of Tompkins common stock to be exchanged for Letchworth common stock, as
contemplated in the agreement.
The proposal was approved by the Tompkins shareholders, with shares voted as
follows: 3,881,063 FOR; 17,887 AGAINST; and 25,968 ABSTAINED. Shares voted
represented 82 percent of the 4,759,103 shares eligible to vote.
A special meeting of Letchworth shareholders was also held on December 20, 1999,
to approve the same Agreement and Plan of Reorganization, dated July 30, 1999.
The proposal was approved by the Letchworth shareholders, with shares voted as
follows: 2,729,417 FOR; 4,824 AGAINST; and 6,525 ABSTAINED. Shares voted
represented 81 percent of the 3,376,408 shares eligible to vote.
6
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PART II
<TABLE>
<CAPTION>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITIES
MARKET PRICE** CASH
MARKET PRICE & DIVIDEND INFORMATION HIGH LOW DIVIDENDS PAID**
- ----------------------------------------------------------------------------------------------------
See Notes 1, 2, and 3 below:
<S> <C> <C> <C> <C>
1998 1st Quarter $34.00 $28.50 $.21
2nd Quarter 38.75 33.38 .22
3rd Quarter 40.75 32.00 .23
4th Quarter 34.75 30.75 .25
1999 1st Quarter $35.88 $33.75 $.25
2nd Quarter 34.25 31.75 .25
3rd Quarter 35.50 30.69 .26
4th Quarter 31.50 28.25 .27
</TABLE>
Note 1 - The range of reported high and low transaction prices reflects
inter-dealer prices without retail markup, mark down or commission, and
represents actual transactions as quoted on the American Stock Exchange. As of
March 10, 2000, there were approximately 2,122 shareholders of record.
Note 2 - All share and per share information has been adjusted for the stock
splits effected in the form of a dividend.
Note 3 - Dividends on Tompkins Trustco, Inc. common stock were paid on the 15th
day of March, June, September, and December of each year.
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
YEAR ENDED DECEMBER 31
(dollar amounts in thousands except per share data) 1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
Assets $1,188,679 $954,705 $886,846 $836,397 $770,486
Deposits 974,239 733,644 693,905 635,649 574,706
Other borrowings 42,012 48,973 34,817 23,150 15,507
Shareholders' equity 96,624 97,652 89,003 78,419 77,916
Interest income 77,617 69,729 66,265 61,427 58,082
Interest expense 30,551 29,371 28,235 25,359 24,137
Net interest income 47,066 40,358 38,030 36,068 33,945
Provision for loan/lease losses 944 1,539 1,436 1,493 1,075
Net securities gains (losses) (59) (12) (48) 13 0
Net income 15,200 14,502 12,992 12,049 11,375
Basic earnings per share 2.15 2.05 1.91 1.70 1.60
Diluted earnings per share 2.12 2.01 1.84 1.66 1.57
Basic earnings per share-operating* 2.39 2.07 1.93 1.72 1.60
Diluted earnings per share-operating* 2.36 2.03 1.86 1.67 1.57
Cash dividends per share** 1.03 0.91 0.82 0.73 0.66
Return on average assets 1.41% 1.57% 1.51% 1.50% 1.52%
Return on average equity 15.46% 16.09% 15.95% 15.29% 15.67%
Return on average assets-operating* 1.57% 1.59% 1.52% 1.52% 1.52%
Return on average equity-operating* 16.91% 16.22% 16.10% 15.41% 15.67%
Shareholders' equity to average assets 8.97% 10.60% 10.32% 9.79% 10.44%
Dividend payout ratio 40.52% 37.92% 36.68% 36.65% 35.08%
(actual numerical count)
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Employees (average full-time equivalent) 442 365 361 356 347
Shareholders of record 2,070 1,773 1,683 1,728 1,702
Full-service banking offices 26 22 22 21 20
Bank access centers (ATMs) 36 33 32 30 30
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</TABLE>
* Uses net income before amortization of intangible assets and one-time
merger-related expenses, net of applicable tax benefit.
** Cash dividends per share and stock price reflect historical information for
Tompkins Trustco, Inc.
7
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8
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>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Tompkins Trustco, Inc. or ("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 percent owned by the Company.
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 annual report includes the
results of operations of The Mahopac National Bank for the seven-month period
ending December 31, 1999. 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 1999 consolidated statement of condition.
Further details pertaining to the merger with Letchworth are presented in Note 2
to the consolidated financial statements included herein.
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 1999 reflect no cost savings or 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 fourth 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 analysis is intended to provide the reader with a further
understanding of the consolidated financial condition and results of operations
of the Company and its operating subsidiaries for the periods shown. For a full
understanding of this analysis, it should be read in conjunction with the
consolidated financial statements and notes thereto.
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.
RESULTS OF OPERATIONS
Net income before amortization of intangible assets and one-time merger-related
expenses (operating earnings) increased 15.5 percent in 1999, reflecting
strength in the core business strategies of the Company's community banking
subsidiaries. Net income for 1999 was $15.2 million, or $2.15 per basic share;
increasing from $14.5 million, or $2.05 per basic share in 1998; and $13.0
million, or $1.91 per basic share in 1997. The Company has diversified revenue
sources, which consist of net interest income generated from the loan and
securities portfolios, trust and investment services income, and other service
charges and fees for providing banking and related financial services. For the
year ended December 31, 1999, total other income increased 21.0 percent over
1998, and represented 19.4 percent of total tax-equivalent revenue.
Tax-equivalent net interest income for 1999 was $49.1 million, reflecting growth
of 16.0 percent over 1998.
Return on average shareholders' equity was 15.46 percent in 1999, compared to
16.09 percent in 1998, and 15.95 percent in 1997. Return on average
shareholders' equity declined slightly in 1999 as a result of one-time
merger-related expenses. Operating return on equity (using net income before
amortization of intangible assets and one-time merger-related expenses) improved
to 16.91 percent in 1999, compared to 16.22 percent and 16.10 percent in 1998
and 1997, respectively. Return on average assets of 1.41 percent in 1999 also
includes the negative effects of one-time merger-related expenses, declining
from 1.57 percent in 1998, and 1.52 percent in 1997. Operating return on average
assets was 1.57 percent in 1999, 1.59 percent in 1998, and 1.52 percent in 1997.
9
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>
<TABLE>
<CAPTION>
TABLE 1 - AVERAGE STATEMENTS OF CONDITION AND NET INTEREST ANALYSIS
DECEMBER 31
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1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(dollar amounts in thousands) BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE BALANCE INTERESTYIELD/RATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Securities (1)
U.S. Government securities $210,598 $13,751 6.53% $204,357 $13,545 6.63% $203,245 $13,663 6.72%
State and municipal (2) 75,531 5,463 7.23% 67,613 5,222 7.72% 63,858 5,039 7.89%
Other securities (2) 24,858 1,580 6.36% 26,455 1,657 6.26% 24,187 1,551 6.41%
- --------------------------------------------------------------------------------------------------------------------------------
Total securities 310,987 20,794 6.69% 298,425 20,424 6.84% 291,290 20,253 6.95%
Federal funds sold 17,717 980 5.53% 12,018 632 5.26% 10,132 549 5.42%
Loans, net of unearned income (3)
Residential real estate 274,321 21,049 7.67% 216,479 17,422 8.05% 197,177 16,271 8.25%
Commercial real estate 138,882 12,464 8.97% 107,204 10,164 9.48% 89,289 8,539 9.56%
Commercial loans (2) 122,288 11,855 9.69% 113,595 11,263 9.92% 113,197 10,979 9.70%
Consumer and other 123,655 11,233 9.08% 109,442 10,784 9.85% 100,116 10,568 10.56%
Lease financing 15,602 1,249 8.01% 12,438 1,002 8.06% 12,210 994 8.14%
- --------------------------------------------------------------------------------------------------------------------------------
Total loans, net of
unearned income 674,748 57,850 8.57% 559,158 50,635 9.06% 511,989 47,351 9.25%
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning 1,003,452 79,624 7.94% 869,601 71,691 8.24% 813,411 68,153 8.38%
assets
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 74,122 51,587 48,686
Total assets $1,077,574 $921,188 $862,097
================================================================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits:
Interest-bearing deposits
Interest checking,
savings, and money market $361,115 $8,436 2.34% $294,188 $7,459 2.54% $278,822 $7,279 2.61%
Time Dep > $100,000 149,124 7,565 5.07% 125,329 6,905 5.51% 107,032 6,066 5.67%
Time Dep < $100,000 186,603 9,206 4.93% 174,853 9,395 5.37% 170,900 8,976 5.25%
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing 696,842 25,207 3.62% 594,370 23,759 4.00% 556,754 22,321 4.01%
deposits
Federal funds purchased and
securities sold under
agreements to repurchase 60,662 2,852 4.70% 60,391 3,110 5.15% 82,075 4,340 5.29%
Other borrowings 49,966 2,492 4.99% 44,444 2,502 5.63% 26,029 1,574 6.05%
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities
Liabilities 807,470 30,551 3.78% 699,205 29,371 4.20% 664,858 28,235 4.25%
- --------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing deposits 154,803 120,036 105,659
Accrued expenses and other 15,555 11,487 10,109
liabilities
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 977,828 830,728 780,626
Minority Interest 1,404 324 0
Shareholders' equity 98,342 90,136 81,471
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,077,574 $921,188 $862,097
================================================================================================================================
Interest rate spread 4.16% 4.04% 4.13%
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin
on earning assets $49,073 4.89% $42,320 4.87% $39,918 4.91%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average balances and yields on available-for-sale securities are based on
amortized cost.
(2) Interest income includes the tax effects of taxable-equivalent adjustments
using a combined New York State and federal effective income tax rate of 40
percent in 1999, and 41 percent in 1998 and 1997, to increase tax-exempt
interest income to a taxable equivalent basis.
(3) Nonaccrual loans are included in the average loan totals presented above.
Payments received on nonaccrual loans have been recognized as disclosed in
Note 1 of the consolidated financial statements.
10
<PAGE>
NET INTEREST INCOME
Table 1 illustrates the trend in average interest-earning assets and
interest-bearing liabilities, and the corresponding yield or cost associated
with each. The Company continues to focus on earning asset growth to improve net
interest income, as the competitive environment for loans and deposits, combined
with local and national economic conditions, continues to put downward pressure
on net interest margins. The Company's average earning assets grew by 15.4
percent in 1999, following growth of 6.9 percent in 1998. The increase in
earning assets resulted in tax-equivalent net interest income growth of $6.8
million in 1999, and $2.4 million in 1998. The Company's 1999 net interest
income benefited 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 improve the
Company's net interest margin to 4.89 percent in 1999, from 4.87 percent in
1998.
Interest rates generally trended upward in 1999, although average interest rates
for 1999 were generally lower than in 1998. As a result, declines were noted in
both the yields on earning assets and in the cost of interest-bearing
liabilities. Net interest margin was helped by an improved mix of earning assets
and interest-bearing liabilities. Average loans for 1999 increased to 67.2
percent of average earning assets, compared to 64.3 percent in 1998, while
average core deposits improved to 52.3 percent of average interest-bearing
liabilities, compared to 50.5 percent in 1998.
Changes in net interest income occur from a combination of changes in the volume
of interest-earning assets and interest-bearing liabilities, and the rate of
interest earned or paid on them. Table 2 illustrates changes in interest income
and interest expense attributable to changes in volume (change in average
balance multiplied by prior year rate), changes in rate (change in rate
multiplied by prior year volume), and the net change in net interest income. The
net change attributable to the combined impact of volume and rate has been
allocated to each in proportion to the absolute dollar amounts of the change.
The $6.8 million increase in tax-equivalent net interest income from 1998 to
1999 included a $7.9 million increase in interest income, which was partially
offset by a $1.2 million increase in interest expense. An increased volume of
earning assets resulted in a $7.2 million increase in net interest income
between 1998 and 1999, while lower average interest rates had a greater dollar
impact on earning assets during the period than on interest-bearing liabilities,
causing a $492,000 reduction in net interest income. Between 1997 and 1998, net
interest income increased by $2.4 million, with a $3.5 million increase in
interest income offset by a $1.1 million increase in interest expense. An
increased volume of earning assets contributed $3.3 million to the increase in
net interest income, which was offset by a $930,000 decline in net interest
income due to an unfavorable rate variance.
<TABLE>
<CAPTION>
TABLE 2 - ANALYSIS OF CHANGES IN NET INTEREST INCOME
(dollar amounts in thousands)(taxable equivalent)1999 VS. 1998 1998 VS. 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) DUE INCREASE (DECREASE) DUE
TO CHANGE IN AVERAGE TO CHANGE IN AVERAGE
VOLUME RATE TOTAL VOLUME RATE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 314 $ 34 $ 348 $ 100 $ (17) $ 83
Investments:
Taxable 299 (183) 116 173 (193) (20)
Tax-exempt 595 (341) 254 335 (144) 191
Loans, net:
Taxable 9,770 (2,573) 7,197 4,261 (976) 3,285
Tax-exempt 22 (4) 18 (2) 1 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income $11,000 $(3,067) $7,933 $4,867 $(1,329) $3,538
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest bearing deposits:
Interest checking,
savings, and money market 1,600 (623) 977 384 (204) 180
Time 1,849 (1,378) 471 1,225 33 1,258
Federal funds purchased
and securities sold under
agreements to repurchase 14 (272) (258) (1,118) (112) (1,230)
Other borrowings 292 (302) (10) 1,044 (116) 928
- -------------------------------------------------------------------------------------------------------------------
Total interest expense $3,755 $(2,575) $1,180 $1,535 $(399) $1,136
- -------------------------------------------------------------------------------------------------------------------
Net interest income $7,245 $(492) $6,753 $3,332 $(930) $2,402
===================================================================================================================
Notes: See notes to Table 1.
</TABLE>
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 declined to $944,000 in 1999, from
$1.5 million in 1998, and $1.4 million in 1997. The lower provision in 1999 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 $3.2 million at December 31,
1999, representing a modest 0.42 percent of total loans and leases outstanding
at year-end. Nonperforming loans and leases at year-end 1998 were $2.6 million,
or 0.44 percent of total loans and leases. Net charge-offs of $632,000 in 1999
represented 0.09 percent of average loans and leases outstanding during the
year, compared to net charge-offs of $1.1 million in 1998, representing 0.20
percent of average loans and leases.
OTHER INCOME
Management considers growth in noninterest income an important strategic focus
for the Company. Although net interest income remains a key revenue source for
the Company, competitive, regulatory, and economic conditions have led
management to focus increasingly on other income opportunities as a source for
long-term revenue growth. The success of this strategy is evident, as other
income grew 21 percent in 1999 to $11.8 million, following growth of 19.3
percent in 1998. Other income, excluding sales of securities, has increased
steadily as a percentage of average assets from 0.95 percent in 1997, to 1.06
percent in 1998, to 1.10 percent in 1999. Of the $2.1 million increase in other
income from 1998 to 1999, $587,000 is attributable other income of The Mahopac
National Bank, which has been included for the seven months ended December 31,
1999.
Income from trust and investment services remains the largest source of other
income. The Trust and Investment Services Division generates fee income through
managing investments or providing custody services for individuals, businesses,
personal trusts, estates, and employee benefits plans. Trust and investment
services income of $4.1 million in 1999 represents an 8.1 percent increase over
the $3.8 million reported in 1998. Trust and investment services income grew by
20.6 percent from 1997 to 1998. Increased fee income is attributable to the
continued growth in assets managed by, or in the custody of, the Trust and
Investment Services Division. Total assets managed by, or in the custody of, the
division had a market value of $1.1 billion at December 31, 1999, compared to
$952.9 million at December 31, 1998, and $838.8 million at December 31, 1997.
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
$37.1 million at December 31, 1999.
Card services, included in other service charges on the consolidated statements
of income, has been another growth area for the Company, as technology has
created opportunities to provide customers with new products to better serve
their needs. Card services products include traditional credit cards, purchasing
cards, debit cards, and merchant card processing. Fee income associated with
card services increased 56.7 percent to $1.7 million in 1999, compared to $1.1
million in 1998.
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 second quarter of 2000, the
Trust Company will be introducing an improved Internet banking product for
individuals and businesses. The Bank of Castile is expected to begin offering
Internet banking by the end 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.
Other income includes a $723,000 increase in cash surrender value of corporate
owned life insurance, up from $66,000 in 1998, and $38,000 in 1997. This income
is exempt from taxes. The corporate owned life insurance was purchased primarily
in the third and fourth quarters of 1998, and relates to life insurance provided
to certain senior officers. 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. 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
in 1999.
12
<PAGE>
OTHER EXPENSE
The Company's 1999 other expense increased 27.8 percent, over 1998, to $34.3
million. Operating expense, which excludes amortization of intangible assets and
one-time merger expense increased 20.9 percent. The $5.6 million increase in
operating expense includes $3.5 million of expenses attributable to The Mahopac
National Bank, which has been included for the seven months ended December 31,
1999. The Company's efficiency ratio (operating expense divided by
tax-equivalent net interest income and other income before securities gains and
losses) was 52.62 percent in 1999, compared to 50.91 percent in 1998 and 51.48
percent in 1997. The ratio increased slightly in 1999 due to increased expenses
associated with the opening of the Chili Office of The Bank of Castile and the
Brewster Office of The Mahopac National Bank. In addition, The Bank of Castile
and The Mahopac National Bank incurred a combined $270,000 in professional fees
and other expenses associated with the formation of subsidiary real estate
investment trusts.
Personnel-related expenses comprise the largest segment of other expense,
representing approximately 57.8 percent of operating expense in 1999, compared
to approximately 56.6 percent in 1998. Total personnel-related expenses
increased by $3.5 million in 1999, to $18.6 million. The increase includes $2.1
million associated with the acquisition of The Mahopac National Bank. 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.
Expense for premises, furniture, and fixtures increased from $3.8 million, to
$4.1 million, including a $189,000 increase associated with The Mahopac National
Bank acquisition. The opening of the two additional branches will result in
increased occupancy expenses in 2000.
Intangible asset expense for 1999 includes $530,000 of amortization expense
related to core deposit intangible assets and approximately $157,000 of
amortization expense related to goodwill. Included in the 1999 intangible
amortization expense is $447,000 of expense related to The Mahopac National Bank
acquisition. Goodwill of $2.5 million resulting from The Mahopac National Bank
acquisition is being amortized over a twenty year period. A core deposit
intangible asset of $3.5 million resulting from The Mahopac National Bank
transaction is being amortized over ten years.
Merger-related expenses of $1.5 million are primarily related to investment
banking services and other professional services associated with the Letchworth
merger.
Other expenses included, among other things, fees paid for marketing services,
postage and courier services, telephone expense, donations, software maintenance
and amortization, and card services related expense. The $1.7 million increase
in other expense from 1998 to 1999 included $1.1 million associated with The
Mahopac National Bank acquisition.
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
subsidiary. Minority interest expense for 1999 includes $403,000 related to the
minority owners of The Mahopac National Bank, and $155,000 related to the
minority interest in the Tompkins Real Estate Holdings, Inc, which is
approximately 99 percent owned by the Trust Company.
INCOME TAX EXPENSE
The provision for income taxes provides for federal and New York State income
taxes. The 1999 provision was $7.8 million, compared to $7.2 million in 1998,
and $6.8 million in 1997. The increasing trend is primarily due to increased
levels of taxable income. The effective tax rate for 1999 was 34.1 percent,
compared to 33.3 percent in 1998, and 34.2 percent in 1997.
13
<PAGE>
FINANCIAL CONDITION
During 1999, total assets grew by 24.5 percent to $1.2 billion, compared to $955
million at December 31, 1998. Asset growth included $158 million in assets from
The Mahopac National Bank acquisition in June 1999, and $6.0 million of
intangible assets created in the acquisition. Assets acquired from The Mahopac
National Bank included approximately $18.8 million in cash and cash equivalents,
$39.4 million in securities, $89.8 million in net loans, and $10 million in
other assets.
Table 3 provides a comparison of average and year-end balances of selected
balance sheet categories over the past three years, and the change in those
balances between 1998 and 1999. Earning asset growth in 1999 consisted of a
$163.1 million increase in loans, and a $53.6 million increase in securities.
Asset growth was funded primarily with core deposits, which increased by $199.4
million, including $134.3 million in core deposits acquired in The Mahopac
National Bank acquisition.
<TABLE>
<CAPTION>
TABLE 3 - BALANCE SHEET COMPARISONS
AVERAGE BALANCE SHEET CHANGE (1998-1999)
(dollar amounts in thousands) 1999 1998 1997 AMOUNT PERCENTAGE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $1,077,574 $921,188 $862,097 $156,386 16.98%
Earning assets* 1,003,452 869,601 813,411 133,851 15.39%
Total loans and leases, less unearned income and
net deferred costs and fees 674,748 559,158 511,989 115,590 20.67%
Securities* 310,987 298,425 291,290 12,562 4.21%
Core deposits 702,521 589,077 555,381 113,444 19.26%
Time deposits of $100,000 and more 149,124 125,329 107,032 23,795 18.99%
Federal funds purchased and securities
sold under agreements to repurchase 60,662 60,391 82,075 271 0.45%
Other borrowings 49,966 44,444 26,029 5,522 12.42%
Shareholders' equity 98,342 90,136 81,471 8,206 9.10%
- -------------------------------------------------------------------------------------------------------------------
ENDING BALANCE SHEET CHANGE (1998-1999)
(dollar amounts in thousands) 1999 1998 1997 AMOUNT PERCENTAGE
- -------------------------------------------------------------------------------------------------------------------
Total assets $1,188,679 $954,705 $886,846 $233,974 24.51%
Earning assets* 1,107,510 890,676 830,430 216,834 24.34%
Total loans and leases, less unearned income and
net deferred costs and fees 755,382 592,193 537,156 163,189 27.56%
Securities* 333,278 279,633 288,724 53,645 19.18%
Core deposits 794,303 594,914 575,787 199,389 33.52%
Time deposits of $100,000 and more 179,936 138,730 118,118 41,206 29.70%
Federal funds purchased and securities
sold under agreements to repurchase 57,846 61,205 59,672 (3,359) -5.49%
Other borrowings 42,012 48,973 34,817 (6,961) -14.21%
Shareholders' equity 96,624 97,652 89,004 (1,028) -1.05%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Balances of available-for-sale securities are shown at amortized cost.
SHAREHOLDERS' EQUITY
The consolidated statements of changes in shareholders' equity, included under
Item 8 herein, detail the changes in equity capital, including payments to
shareholders in the form of cash dividends. Per share cash dividends represent
the historical per share dividends paid on Tompkins common stock, while the
dollar amount of the dividends paid represents the cash dividends paid by the
combined organization. The Company continued the long history of increasing cash
dividends with an increase of 13.2 percent in 1999, which followed an 11.0
percent increase in 1998. Dividends per share amounted to $1.03 in 1999,
compared to $0.91 in 1998, and $0.82 in 1997. Total cash dividends paid
represented 40.52 percent, 37.92 percent, and 36.68 percent of net income after
tax in each of 1999, 1998, and 1997, respectively.
Total shareholders' equity was $96.6 million at December 31, 1999, compared to
$97.7 million at December 31, 1998, and $89.0 million in 1997. The decline in
shareholders' equity from year-end 1998 to year-end 1999 is due primarily to a
decline in the fair value of the available-for-sale securities portfolio, as a
result of rising interest rates in the second half of 1999. The decline in fair
value of securities resulted in an other comprehensive loss of $7.1 million for
the year ended December 31, 1999. The unrealized loss in the available-for-sale
securities portfolio represents approximately 2.1 percent of the amortized cost
of the portfolio. Shareholders' equity also declined by approximately $4.1
million in 1999 due to the repurchase of 128,731 shares of common stock. Shares
repurchased in 1999 were partially offset by 71,786 net shares issued through
the exercise of stock options.
Tangible equity of $90.4 million represented 7.64 percent of tangible assets as
of December 31, 1999, compared to 10.14 percent at December 31, 1998. The
decline in the tangible equity ratio reflects the increase in assets, and the
intangible assets created as a
14
<PAGE>
result of The Mahopac National Bank acquisition. The Company and its subsidiary
banks are subject to quantitative capital measures established by regulation to
ensure capital adequacy. Consistent with the objective of operating a sound
financial organization, the Company and its subsidiary banks maintain capital
ratios well above regulatory minimums, as detailed in Note 17 of the
consolidated financial statements.
SECURITIES
In 1999, the securities portfolio (excluding fair value adjustments on
available-for-sale securities) increased 19.2 percent over 1998, to $333.3
million. The $53.6 million increase included $39.4 million attributable to The
Mahopac National Bank acquisition. Note 3 to the consolidated financial
statements details the types of securities held, the carrying and fair values,
and the contractual maturities. Qualified tax-exempt debt securities, primarily
obligations of state and political subdivisions, were $78.9 million, or 23.68
percent of all securities at year-end 1999, compared to $66.6 million, or 23.81
percent at December 31, 1998. Mortgage-backed securities, consisting solely of
securities issued by U.S. government agencies, totaled $85.3 million at December
31, 1999, compared to $71.5 million at December 31, 1998.
Management's policy is to purchase investment grade securities that, on average,
have relatively short expected maturities. This policy helps mitigate interest
rate risk and provides sources of liquidity without significant risk to capital.
A large percentage of securities are direct obligations of the federal
government and its agencies. Expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations with
or without penalty. At December 31, 1999, approximately 8.1 percent of total
debt securities were scheduled to mature in one year or less. The maturity
distribution of debt securities and mortgage-backed securities as of December
31, 1999, along with the weighted average yield of each category, is presented
in Table 4. Balances are shown at amortized cost.
TABLE 4 - MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
DUE AFTER ONE DUE AFTER FIVE
DUE IN ONE YEAR THROUGH YEARS THROUGH DUE AFTER
(dollar amounts in thousands) YEAR OR LESS YIELD FIVE YEARS YIELD TEN YEARS YIELD TEN YEARS YIELD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury securities
and obligations of U.S.
Government agencies $15,024 4.78% $55,654 5.79% $154,883 6.68% 68,971 7.76%
- ------------------------------------------------------------------------------------------------------------------------------------
$15,024 $55,654 $154,883 68,971
HELD-TO-MATURITY:
Obligations of state and
political subdivisions* $11,420 4.79% $14,721 5.19% $3,450 5.08% $1,384 4.81%
- -------------------------------------------------------------------------------------------------------------------
$11,420 $14,721 $3,450 $1,384
- -------------------------------------------------------------------------------------------------------------------
Total $26,444 $70,375 $158,333 $70,355
- -------------------------------------------------------------------------------------------------------------------
* Yields on obligations of state and political subdivisions are shown before tax-equivalent adjustments
</TABLE>
LOANS
Total loans and leases, net of unearned income and net deferred loan fees and
costs, grew 27.8 percent, to $757.0 million at December 31, 1999. The $164.8
million increase in loans and leases from 1998 to 1999 includes $91.3 million
related to the purchase of The Mahopac National Bank. Loans acquired in The
Mahopac National Bank acquisition included $48.2 million of residential real
estate loans, $24.2 million of commercial real estate loans, $5.8 million of
real estate construction loans, $9.0 million of commercial loans, $4.1 million
of consumer and other loans. Table 5 details the composition and volume changes
in the loan portfolio over the past five years.
15
<PAGE>
<TABLE>
<CAPTION>
TABLE 5 - LOAN CLASSIFICATION SUMMARY
DECEMBER 31
(Dollar amounts in thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential real estate $312,506 $232,167 $208,455 $188,332 $163,344
Commercial real estate 141,903 105,222 96,389 81,526 71,436
Real estate construction 19,046 9,064 5,267 1,203 663
Commercial 166,263 154,085 143,791 142,189 135,644
Consumer and other 99,206 78,018 70,678 72,132 71,777
Leases 18,850 15,691 14,313 12,740 13,563
- ---------------------------------------------------------------------------------------------
Total loans and leases 757,774 594,247 538,893 498,122 456,428
Less unearned income and net deferred fees and costs (2,392) (2,054) (1,737)
(1,416) (1,659)
- ---------------------------------------------------------------------------------------------
Total loans and leases, net of unearned income and
deferred fees and costs $755,382 $592,193 $537,156 $496,706 $454,769
=============================================================================================
</TABLE>
Residential real estate loans grew by $80.4 million or 34.6 percent in 1999, and
comprised 41 percent of total loans and leases. Residential real estate loan
growth has exceeded 10 percent in each of the last five years. The Company
occasionally sells some of its residential mortgage loans to federal agencies
and retains all servicing rights. The Company sold $6.0 million of residential
mortgage loans in 1999, compared to $1.0 million in 1998. Mortgage servicing on
sold loans continues to provide fee income. Residential mortgage loans serviced
for others totaled $59.2 million at December 31, 1999, compared to $31.6 million
at December 31, 1998.
Commercial real estate loans increased by $36.7 million in 1999, or 34 percent.
Commercial real estate loans of $141.1 million represented 18 percent of total
loans and leases at December 31, 1999. Commercial loans totaled $166.3 million
at December 31, 1999, an increase of 7.9 percent over 1998.
The consumer loan portfolio includes personal installment loans, indirect
automobile financing, credit card loans, and overdraft lines of credit. Consumer
and other loans were $99.2 million at December 31, 1999, up from $78 million at
December 31, 1998. Approximately $10.3 million of the growth in consumer loans
from 1998 to 1999 is attributable to an increased emphasis in indirect
automobile financing at The Bank of Castile.
The lease portfolio increased by 20 percent in 1999, to $18.9 million. The lease
portfolio has traditionally consisted of leases on vehicles for consumers and
small businesses. Competition for automobile financing has increased in recent
years, resulting in a decline in the consumer leasing portfolio. In response to
the decline in consumer leasing opportunities, management has increased its
marketing efforts relating to commercial leasing. These efforts have been
successful as the commercial lease portfolio has grown to $10.8 million, an
increase of $6.8 million since 1997. As of December 31, 1999, commercial leases
represented 57.6 percent of total leases, compared to 45.0 percent at year-end
1998.
THE RESERVE FOR LOAN/LEASE LOSSES
Management reviews the adequacy of the reserve for loan/lease losses on a
regular basis. Factors considered in determining the adequacy of the reserve and
the related provision include: management's approach to granting new credit; the
ongoing monitoring of existing credits by the internal loan review department;
the growth and composition of the loan and lease portfolio; comments received
during the course of independent examinations; current local economic
conditions; past due and nonaccrual loan statistics; and a historical review of
loan and lease loss experience. Based upon consideration of the above factors,
management believes that the allowance for loan/lease losses is adequate to
provide for the risk of loss inherent in the current loan and lease portfolio.
Management uses a model to measure some of these factors and the resulting
quantitative analysis, combined with qualitative assessments, comprise the basis
on which the adequacy of the reserve for loan/lease losses is determined. The
reserve for loan/lease losses increased by $1.8 million from 1998 to 1999. The
increase included $1.5 million attributable to The Mahopac National Bank
acquisition, and a $300,000 increase as a result of the provision for loan/lease
losses exceeding the net loan losses for the year. The allocation of the
Company's reserve for loan/lease losses for year-end 1999, and each of the
previous four year-ends is illustrated in Table 6.
16
<PAGE>
<TABLE>
<CAPTION>
TABLE 6 - ALLOCATION OF THE RESERVE FOR LOAN/LEASE LOSSES
DECEMBER 31
(dollar amounts in thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL LOANS OUTSTANDING AT END OF YEAR $755,382 $592,193 $537,156 $496,706 $454,769
- -------------------------------------------------------------------------------------------------------------
ALLOCATION OF THE RESERVE BY LOAN TYPE:
Commercial $3,281 1,906 981 699 1,188
Real estate 1,964 1,384 1,458 944 927
Consumer and all other 3,202 2,935 2,256 2,463 2,678
Unallocated 781 1,180 2,312 2,514 1,627
- -------------------------------------------------------------------------------------------------------------
TOTAL $9,228 $7,405 $7,007 $6,620 6,420
=============================================================================================================
ALLOCATION OF THE RESERVE AS A PERCENT OF TOTAL RESERVE:
Commercial 36% 26% 14% 11% 19%
Real estate 21% 19% 21% 14% 14%
Consumer and all other 35% 40% 32% 37% 42%
Unallocated 8% 15% 33% 38% 25%
- -------------------------------------------------------------------------------------------------------------
TOTAL 100% 100% 100% 100% 100%
=============================================================================================================
LOAN/LEASE TYPES AS A PERCENT OF TOTAL LOANS/LEASES:
Commercial 22% 26% 27% 29% 28%
Real estate 62% 59% 58% 55% 51%
Consumer and all other 16% 15% 15% 16% 21%
- -------------------------------------------------------------------------------------------------------------
TOTAL 100% 100% 100% 100% 100%
=============================================================================================================
Loans 90 days past due and accruing $ 168 $ 507 $ 183 $ 400 $ 546
Nonaccruing loans 3,698 1,611 3,425 2,486 1,475
Troubled debt restructurings not
included above 400 471 483 428 205
Other real estate owned 214 235 244 128 247
- -------------------------------------------------------------------------------------------------------------
RESERVE AS PERCENT OF LOANS OUTSTANDING
AT END OF YEAR 1.22% 1.25% 1.30% 1.33% 1.41%
=============================================================================================================
</TABLE>
The reserve represented 1.22 percent of total loans and leases outstanding at
year-end 1999, down slightly from 1.25 percent at December 31, 1998. The reserve
coverage of nonperforming loans (loans past due 90 days and accruing, nonaccrual
loans, and restructured troubled debt) declined slightly to 2.16 times at
December 31, 1999, compared to 2.86 times at December 31, 1998. Management is
committed to early recognition of loan problems and to maintaining an adequate
reserve. Based upon management's review, the reserve is believed adequate to
absorb probable losses in the portfolio. The Company's historical loss
experience is detailed in Table 7 .
17
<PAGE>
<TABLE>
<CAPTION>
TABLE 7 - ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES
dollar amounts in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding during year $674,748 559,158 511,989 469,942 439,159
Balance of reserve at beginning of year $7,405 7,007 6,620 6,420 6,181
Allowance related to purchase acquisition 1,511 N/A N/A N/A N/A
LOANS CHARGED-OFF, DOMESTIC:
Commercial, financial, and agricultural 241 326 230 124 154
Real estate - mortgage 105 509 64 174 50
Installment loans to individuals 647 674 1,200 1,369 757
Lease financing 1 10 8 10 4
Other loans 114 70 69 59 355
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS CHARGED-OFF 1,108 1,589 1,571 1,736 1,320
- ------------------------------------------------------------------------------------------------------------------------------------
RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF,
DOMESTIC:
Commercial, financial, and agricultural 62 69 74 61 41
Real estate - mortgage 49 4 3 7 54
Installment loans to individuals 343 349 412 348 273
Lease financing 0 5 4 7 17
Other loans 22 21 29 21 98
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS RECOVERED 476 448 522 444 483
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans charged-off 632 1,141 1,049 1,292 837
Additions to reserve charged to operations 944 1,539 1,436 1,492 1,076
- ------------------------------------------------------------------------------------------------------------------------------------
Balance of reserve at end of year $9,228 7,405 7,007 6,620 6,420
- ------------------------------------------------------------------------------------------------------------------------------------
Net charge-offs as percent of average loans
outstanding during year 0.09% 0.20% 0.20% 0.28% 0.19%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS AND OTHER LIABILITIES
Total deposits grew by $240.6 million in 1999, to $974.2 million. Deposit growth
consisted primarily of core deposits, which increased by $199.4 million, while
time deposits of $100,000 or more grew by $41.2 million. The strength of The
Mahopac National Bank's core deposit base was an important consideration in
management's decision to acquire The Mahopac National Bank. At the time of the
acquisition, The Mahopac National Bank had core deposits of $134.4 million,
which increased to $143.5 million by December 31, 1999. Core deposit growth was
strong at all three of the Company's subsidiary banks.
The Company's liability for securities sold under agreements to repurchase
("repurchase agreements") amounted to $57.8 million at December 31, 1999,
representing a $3.4 million decline from year-end 1998. Repurchase agreements
are arrangements with local customers of the Company, in which the Company
agrees to sell securities to the customer with an agreement to repurchase those
securities at a specified later date. Management generally views local
repurchase agreements as an alternative to large time deposits.
As of December 31, 1999, securities pledged to secure certain large deposits,
repurchase agreements, and other borrowings amounted to $249.3 million, compared
to $203.2 million as of December 31, 1998. Total securities pledged for deposits
and repurchase agreements represented 76.7 percent of total securities at
December 31, 1999, compared to 71.7 percent of total securities at December 31,
1998.
During 1999, the Company reduced its borrowings from the Federal Home Loan Bank
(FHLB) by $7.1 million, to $41.9 million. Borrowings outstanding at December 31,
1999, included $10 million in borrowings due in one year or less, and $31.9
million due in more than one year. The weighted average interest rate on
borrowings due in more than one year carried an average interest rate of 5.46
percent at December 31, 1999.
18
<PAGE>
LIQUIDITY MANAGEMENT
The objective of liquidity management is to ensure the availability of adequate
funding sources to satisfy the demand for credit, deposit withdrawals, and
business investment opportunities. The Company's large, stable core deposit base
and strong capital position are the foundation for the Company's liquidity
position. Asset and liability positions are monitored primarily through
Asset/Liability Management Committees of the subsidiary banks, which review
monthly reports on the liquidity and interest rate sensitivity positions.
Comparisons with industry and peer groups are also monitored.
Core deposits remain the key funding source, representing 81 percent of total
deposits, and 73 percent of total liabilities at December 31, 1999. Non-core
funding sources (time deposits of $100,000 or more, repurchase agreements, and
other borrowings) declined as a percentage of total liabilities from 29 percent
at December 31, 1998, to 26 percent at December 31, 1999. Short-term investments
consisting of securities with maturities of one year or less and federal funds
sold decreased from $55.1 million at December 31, 1998, to $42.6 million at
December 31, 1999. The ratio of short-term investments to short-term non-core
liabilities declined from 22.1 percent at year-end 1998, to 15.2 percent at
year-end 1999, indicating an increase in the volume of long-term assets
supported by short-term non-core liabilities. The decline in this ratio is
partially attributable to an increase in mortgage-backed securities, which have
stated maturities in excess of one year, but have monthly principal reductions.
Total mortgage-backed securities increased from $71.8 million at year-end 1998,
to $83.2 million at year-end 1999.
Cash flow from the loan and investment portfolios provides a significant source
of liquidity. Investment in residential mortgage loans, mortgage-backed
securities, and consumer loans totaled approximately $312.6 million at December
31, 1999. Aggregate amortization from monthly payments on these assets provides
significant cash flow to the Company. Table 8 details total scheduled maturities
of selected loan categories.
TABLE 8 - LOAN MATURITY
<TABLE>
<CAPTION>
REMAINING MATURITY OF SELECTED LOANS AT DECEMBER 31, 1999
(dollar amounts in thousands) TOTAL WITHIN 1 YEAR 1-5 YEARS AFTER 5 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial real estate $141,903 15,811 38,382 87,710
Real estate construction 19,046 7,735 364 10,947
Commercial 166,263 76,733 34,767 54,763
- ----------------------------------------------------------------------------------------------
TOTAL $327,212 100,279 73,513 153,420
==============================================================================================
</TABLE>
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 December 31, 1999, 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
December 31, 1999, total real estate loans of the Company were $454.5 million.
RECENT ACCOUNTING STANDARDS
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.
19
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISK
The Company's primary market risk exposure relates to sensitivity to interest
rate changes. Interest rate sensitivity refers to the volatility in earnings,
resulting from changes in interest rates. Each month the Asset/Liability
Management Committees estimate the earnings impact of changes in interest rates.
The findings of the committees are incorporated into investment and funding
decisions, and in the business planning process.
Table 9 is a Condensed Static Gap Report, which illustrates the anticipated
repricing intervals of assets and liabilities as of December 31, 1999. 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 9 - INTEREST RATE RISK ANALYSIS
<TABLE>
<CAPTION>
CONDENSED STATIC GAP - DECEMBER 31, 1999 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 $1,107,510 $265,242 $40,804 $85,693 $391,739
Interest-bearing liabilities 891,411 438,310 99,573 69,619 607,502
- ----------------------------------------------------------------------------------------------------------
Net gap position (173,068) (58,769) 16,074 (215,763)
- ----------------------------------------------------------------------------------------------------------
Net gap position as a percentage of total assets (14.56%) (4.94%) (1.35%) (18.15%)
==========================================================================================================
</TABLE>
Management uses a simulation model to assess the potential impact from various
interest rate movements. Based upon the simulation analysis performed as of
December 31, 1999, a 200 basis point upward shift in interest rates over a
one-year time frame would result in a one-year decline of approximately 3
percent in net interest income, assuming management takes no action to address
balance sheet mismatches. The same simulation indicates that a 200 basis point
decline in interest rates over a one-year period would increase net interest
income by approximately 1 percent. The simulation model is useful in identifying
potential exposure to interest rate movements; however, management feels that
certain actions could be taken to offset some of the negative effects of
unfavorable movements in interest rates. Although the analysis reflects some
exposure to rising interest rates, management feels the exposure is not
significant in relation to the earnings and capital strength of the Company.
Additional information regarding market risk of the Company's financial
instruments at December 31, 1999 is provided in Table 10.
<TABLE>
<CAPTION>
TABLE 10 - REPRICING INTERVALS OF SELECTED FINANCIAL INSTRUMENTS
GREATER
(dollar amounts in thousands) 0-1 YEAR 1-2 YEARS 2-3 YEARS 3-5 YEARS THAN 5 YEARS TOTAL FAIR VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale securities $44,722 $31,761 $25,329 $48,541 $143,846 $294,199 $294,199
Average interest rate 6.07% 6.25% 6.17% 6.09% 6.69% 6.41%
Held-to-maturity securities 11,411 6,530 4,651 3,488 4,895 30,975 31,265
Average interest rate* 4.97% 5.45% 5.40% 5.18% 5.04% 5.17%
Loans 285,604 71,735 70,766 135,798 191,479 755,382 750,271
Average interest rate* 8.58% 8.31% 8.30% 8.13% 8.32% 8.47%
FINANCIAL LIABILITIES:
Time deposits $307,377 $51,887 $10,563 $6,524 $20 $376,371 $376,307
Average interest rate 5.02% 5.39% 5.84% 5.54% 5.76% 5.10%
Federal funds sold and securities sold
under agreements to repurchase 57,719 127 0 0 0 57,846 57,834
Average interest rate 5.10% 5.75% 0.00% 0.00% 0.00% 5.20%
Other borrowings 18,443 9,328 9,328 3,354 1,559 42,012 41,845
Average interest rate 4.39% 5.20% 5.24% 6.80% 6.80% 5.04%
==========================================================================================================
</TABLE>
* Interest rate on tax-exempt obligations is shown before tax-equivalent
adjustments.
20
<PAGE>
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF CONDITION
YEAR ENDED DECEMBER 31
(in thousands except share and per share data) 1999 1998
- -------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and noninterest bearing balances due from banks $35,938 $27,818
Federal funds sold 18,850 18,850
Available-for-sale securities, at fair value 294,199 249,255
Held-to-maturity securities, fair value of $31,265
at December 31, 1999 and $35,011 at December 31, 1998 30,975 34,088
Loans and leases, net of unearned income 755,382 592,193
- -------------------------------------------------------------------------------------------
Less reserve for loan/lease losses 9,228 7,405
NET LOANS/LEASES 746,154 584,788
Bank premises and equipment, net 21,147 13,755
Corporate owned life insurance 13,267 11,219
Intangible assets 6,271 951
Accrued interest and other assets 21,878 13,981
- -------------------------------------------------------------------------------------------
TOTAL ASSETS $1,188,679 $954,705
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES, AND
SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings, and money market $416,836 $295,378
Time 376,371 312,277
Non-interest bearing 181,032 125,989
- -------------------------------------------------------------------------------------------
TOTAL DEPOSITS 974,239 733,644
Securities sold under agreements to repurchase 57,846 61,205
Other borrowings 42,012 48,973
Other liabilities 11,766 11,855
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES $1,085,863 $855,677
- -------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries $6,192 $1,376
Shareholders' equity:
Common stock - par value $0.10 per share: authorized:
15,000,000 shares;
Issued: 7,099,606 shares at December 31, 1999,
and 7,156,246 shares at December 31, 1998 $ 710 $717
Surplus 40,548 43,774
Undivided profits 61,078 52,037
Accumulated other comprehensive (loss) income (4,745) 2,339
Treasury stock at cost: 27,663 shares at December 31, 1999,
and 28,889 shares at December 31, 1998 (525) (548)
Unallocated ISOP/ESOP: 37,637 shares at December 31, 1999,
and 51,801 shares at December 31, 1998 (442) (667)
- -------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 96,624 97,652
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES, AND SHAREHOLDERS' EQUITY $1,188,679 $954,705
- -------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
(in thousands except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
<S> <C> <C> <C>
Loans $57,790 $50,578 $47,296
Federal funds sold 980 632 549
Available-for-sale securities 17,229 15,020 13,995
Held-to-maturity securities 1,618 3,499 4,425
- ---------------------------------------------------------------------------------------
TOTAL INTEREST AND DIVIDEND INCOME 77,617 69,729 66,265
- ---------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposit of $100,000 or more 7,565 6,905 6,066
Other deposits 17,642 16,854 16,255
Federal funds purchased and securities sold
under agreements to repurchase 2,852 3,110 4,340
Other borrowings 2,492 2,502 1,574
- ---------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 30,551 29,371 28,235
- ---------------------------------------------------------------------------------------
NET INTEREST INCOME 47,066 40,358 38,030
LESS PROVISION FOR LOAN/LEASE LOSSES 944 1,539 1,436
- ---------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN/LEASE LOSSES 46,122 38,819 36,594
OTHER INCOME
Trust and investment services income 4,119 3,811 3,159
Service charges on deposit accounts 3,223 2,722 2,729
Other service charges 2,716 2,008 1,849
Increase in cash surrender value of corporate
owned life insurance 723 66 38
Other operating income 1,083 1,160 452
Loss on sale of available-for-sale securities (59) (12) (48)
- ---------------------------------------------------------------------------------------
TOTAL OTHER INCOME 11,805 9,755 8,179
- ---------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and wages 15,131 12,358 11,490
Pension and other employee benefits 3,469 2,697 2,693
Net occupancy expense of bank premises 1,801 1,839 1,806
Net furniture and fixture expense 2,255 1,958 1,890
Amortization of intangible assets 687 239 241
Merger and acquisition-related expenses 1,463 0 0
Other operating expenses 9,514 7,765 6,907
- ---------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 34,320 26,856 25,027
- ---------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY
INTEREST IN CONSOLIDATED SUBSIDIARIES 23,607 21,718 19,746
Minority interest in consolidated subsidiaries 558 0 0
INCOME TAX EXPENSE 7,849 7,216 6,754
- ---------------------------------------------------------------------------------------
NET INCOME $15,200 $14,502 $12,992
=======================================================================================
Basic earnings per share $2.15 $2.05 $1.91
Diluted earnings per share $2.12 $2.01 $1.84
=======================================================================================
See notes to consolidated financial statements.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
(in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $15,200 $14,502 $12,992
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan/lease losses 944 1,539 1,436
Depreciation and amortization premises, equipment,
and software 2,166 1,890 1,769
Amortization of intangible assets 687 239 241
Earnings from corporate owned life insurance (723) (66) (38)
Net amortization on securities 266 287 201
Deferred income tax benefit (576) (537) (375)
Loss on sale of securities 59 12 48
Net gain on sales of loans (27) (107) (12)
Net gain on sales of bank premises and equipment (32) (11) (45)
ISOP/ESOP shares released for allocation 384 507 449
Increase in interest receivable (802) (420) (382)
(Decrease) increase in interest payable (18) 35 136
Other, net (2,127) 2,928 269
- ---------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,401 20,798 16,689
- ---------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale
securities 82,381 86,514 61,153
Proceeds from sales of available-for-sale securities 12,983 26,237 14,712
Proceeds from maturities of held-to-maturity
securities 12,296 19,018 18,096
Purchases of available-for-sale securities (115,701) (115,231) (83,177)
Purchases of held-to-maturity securities (6,766) (7,071) (16,999)
Proceeds from sales of loans 7,436 8,564 4,312
Net increase in loans/leases (79,905) (64,636) (45,800)
Proceeds from sales of bank premises and equipment 74 25 64
Purchases of bank premises and equipment (2,434) (2,184) (2,324)
Purchase of corporate owned life insurance (815) (10,980) 0
Net cash provided by acquisition of The Mahopac
National Bank 4,258 0 0
- ---------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (86,193) (59,744) (49,963)
- ---------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand deposits, money market accounts,
and savings accounts 58,059 21,416 22,853
Net increase in time deposits 40,701 18,323 35,404
Net (decrease) increase in securities sold under
agreements to repurchase and federal funds
purchased (3,359) 1,533 (32,023)
Net (decrease) increase in other borrowings (6,961) 14,156 11,668
Cash dividends (6,159) (5,499) (4,766)
Sale of treasury stock 41 40 41
Repurchase of common shares (4,101) (2,138) (2,670)
Repurchase of warrants 0 0 (430)
Net proceeds from exercise of stock options,
warrants, and related tax benefit 691 281 4,160
Common shares acquired by ESOP 0 0 (346)
- ---------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 78,912 48,112 33,891
- ---------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 8,120 9,166 617
- ---------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 46,668 37,502 36,885
- ---------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $54,788 $46,668 $37,502
=======================================================================================
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest $30,569 $29,410 $28,099
Income taxes $10,307 $5,221 $6,586
Non-cash investing activities:
Change in net unrealized holding (loss) gain
on available-for-sale securities $(11,814) $1,399 $1,926
Fair value of noncash assets acquired
in purchase acquisition 143,298 0 0
Fair value of liabilities assumed in
purchase acquisition 147,556 0 0
See notes to consolidated financial statements.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER
COMMON TREASURY UNDIVIDED COMPREHENSIVE UNALLOCATED
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) STOCK STOCK SURPLUS PROFITS INCOME (LOSS) ISOP/ESOP TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 $398 $(604) $44,315 $34,971 $229 $(890) $78,419
====================================================================================================================================
Comprehensive income:
Net income 12,992 12,992
Other comprehensive income 1,154 1,154
---------
TOTAL COMPREHENSIVE INCOME 14,146
Cash dividends ($.82 per share) (4,766) (4,766)
Exercise of stock options, warrants, and
related tax benefit (384,753 shares, net) 13 4,147 4,160
Repurchase of warrants (36,271 shares) (430) (430)
Treasury stock sold (1,735 shares) 33 8 41
Common stock repurchased and returned
to unissued status (120,000 shares) (8) (2,662) (2,670)
ISOP/ESOP shares released or committed to
be released for allocation (17,623 shares) 144 305 449
Shares purchased by ESOP (30,928 shares) (346) (346)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 $403 $(571) $45,522 $43,197 $1,383 $(931) $89,003
====================================================================================================================================
Comprehensive income:
Net income 14,502 14,502
Other comprehensive income 956 956
-------
TOTAL COMPREHENSIVE INCOME 15,458
Cash dividends ($.91 per share) (5,499) (5,499)
Exercise of stock options, and related
tax benefit (33,215 shares, net) 3 278 281
Treasury stock sold (1,180 shares) 23 17 40
Treasury stock purchased and returned to unissued
status by pooled company (59,490 shares) (5) (1,549) (1,554)
Common stock repurchased and returned
to unissued status (17,245 shares) (1) (583) (584)
ISOP/ESOP shares released or committed to
be released for allocation (16,182 shares) 243 264 507
Effect of stock splits in the form
of stock dividends 317 (154) (163) 0
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1998 $717 $(548) $43,774 $52,037 $2,339 $(667) $97,652
====================================================================================================================================
Comprehensive income:
Net income 15,200 15,200
Other comprehensive loss (7,084) (7,084)
-----------
TOTAL COMPREHENSIVE INCOME 8,116
Cash dividends ($1.03 per share) (6,159) (6,159)
Exercise of stock options, and related tax benefit
(71,786 shares, net) 7 684 691
Treasury stock sold (1,226 shares) 23 18 41
Treasury stock purchased and returned to unissued
status by pooled company (9,465 shares) (1) (215) (216)
Common stock repurchased and returned to unissued status
(119,266 shares) (13) (3,872) (3,885)
ISOP/ESOP shares released or committed to
be released for allocation (14,164 shares) 159 225 384
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1999 $710 $(525) $40,548 $61,078 $(4,745) $(442) $96,624
====================================================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: 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 percent 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.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and 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 years' consolidated financial
statements are reclassified when necessary to conform with the current year's
presentation.
MERGER WITH LETCHWORTH INDEPENDENT BANCSHARES CORPORATION: On December 31, 1999,
Letchworth Independent Bancshares Corporation ("Letchworth") was merged with and
into Tompkins Trustco, Inc. The merger was accounted for as a
pooling-of-interests and, accordingly, the financial information for all prior
periods 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 consolidated financial statements.
CASH EQUIVALENTS: Cash equivalents in the consolidated statements of cash flows
include cash and amounts due from banks and federal funds sold.
SECURITIES: Management determines the appropriate classification of debt and
equity securities at the time of purchase. Securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost. Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale securities
are stated at fair value with the unrealized gains and losses, net of tax,
excluded from earnings and reported as a separate component of accumulated
comprehensive income, in shareholders' equity.
Premiums and discounts are amortized or accreted over the expected life of the
related security as an adjustment to yield using the interest method. Dividend
and interest income are recognized when earned. Realized gains and losses on the
sale of securities are included in securities gains (losses). The cost of
securities sold is based on the specific identification method.
A decline in the fair value of any available-for-sale or held-to-maturity
security below cost that is deemed to be other than temporary is charged to
earnings, resulting in the establishment of a new cost basis for the security.
LOANS AND LEASES: Loans are reported at their principal outstanding balance, net
of deferred loan origination fees and costs, and unearned income. The Company
has the ability and intent to hold its loans for the foreseeable future, except
for education loans which are sold to a third party from time to time upon
reaching repayment status. The Company provides motor vehicle and equipment
financing to its customers through direct financing leases. These leases are
carried at the aggregate of lease payments receivable, plus estimated residual
values, less unearned income. Unearned income on direct financing leases is
amortized over the lease terms, resulting in a level rate of return.
RESERVE FOR LOAN/LEASE LOSSES: The reserve for loan/lease losses is regularly
evaluated by management in order to maintain the reserve at a level consistent
with the inherent risk of loss in the loan and lease portfolios. Management's
evaluation of the adequacy of the reserve is based upon a review of the
Company's historical loss experience, known and inherent risks in the loan and
lease portfolios, the estimated value of collateral, the level of nonperforming
loans, and trends in delinquencies. External factors, such as the level and
trend of interest rates and the national and local economies, are also
considered. Management believes that the reserve for loan/lease losses is
adequate.
Management considers a loan to be impaired if, based on current information, it
is probable that the Company will be unable to collect all scheduled payments of
principal or interest when due, according to the contractual terms of the loan
agreement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the effective interest rate of the loan or, as a practical
expedient, at the observable market price or the fair value of collateral if the
loan is collateral dependent. Management excludes large groups of smaller
balance homogeneous loans such as residential mortgages, consumer loans, and
leases, which are collectively evaluated. Impairment losses are included in the
reserve for loan/lease losses through a charge to the provision for loan/lease
losses. Loans and leases restructured in a troubled debt restructuring are also
considered impaired loans
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS AND LEASES: Loans and
leases, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well secured and in the process of
collection. Loans that are past due less than 90 days may also be classified as
nonaccrual if repayment in full of principal or interest is in doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable time period, and there is a sustained period of repayment
performance by the borrower in accordance with the contractual terms of the loan
agreement. Payments received on loans carried as nonaccrual are generally
applied as a reduction to principal. When the future collectibility of the
recorded loan balance is expected, interest income may be recognized on a cash
basis.
25
<PAGE>
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
OTHER REAL ESTATE OWNED: Other real estate owned consists of properties formerly
pledged as collateral to loans, which have been acquired by the Company through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Other
real estate owned is carried at the lower of the recorded investment in the loan
or the fair value of the real estate, less estimated costs to sell. Upon
transfer of a loan to foreclosure status, an appraisal is obtained and any
excess of the loan balance over the fair value, less estimated costs to sell, is
charged against the reserve for loan/lease losses. Expenses and subsequent
adjustments to the fair value are treated as other operating expense.
BANK PREMISES AND EQUIPMENT: Land is carried at cost. Bank premises and
equipment are stated at cost, less allowances for depreciation. The provision
for depreciation for financial reporting purposes is computed generally by the
straight-line method at rates sufficient to write-off the cost of such assets
over their estimated useful lives. Bank premises are amortized over a period of
10-39 years, and furniture, fixtures, and equipment are amortized over a period
of 2-20 years. Maintenance and repairs are charged to expense as incurred.
INCOME TAXES: Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
GOODWILL AND CORE DEPOSIT INTANGIBLE: Goodwill represents the excess of purchase
price over the fair value of assets acquired in a transaction using purchase
accounting. Core deposit intangible represents a premium paid to acquire a base
of stable low cost deposits in the acquisition of a bank, or a bank branch,
using purchase accounting. The amortization period of goodwill ranges from 10
years to 20 years, and the amortization period for core deposit intangible
ranges from 5 years to 10 years. The amortization periods are monitored to
determine if circumstances require such period to be reduced. The Company
periodically reviews its intangible assets for changes in circumstances that may
indicate the carrying amount of the asset is impaired.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: Securities sold under agreements
to repurchase (repurchase agreements) are agreements in which the Company
transfers the underlying securities to a third-party custodian's account that
explicitly recognizes the Company's interest in the securities. The agreements
are accounted for as secured financing transactions provided the Company
maintains effective control over the transferred securities and meets other
criteria as specified in Statement of Financial Accounting Standards (SFAS) No.
125. The Company's agreements are accounted for as secured financings;
accordingly, the transaction proceeds are reflected as liabilities and the
securities underlying the agreements continue to be carried in the Company's
securities portfolio.
TREASURY STOCK: The cost of treasury stock is shown on the consolidated
statements of condition as a separate component of shareholders' equity, and is
a reduction to total shareholders' equity. Shares are released from treasury at
fair value, with any gain or loss on the sale reflected as an adjustment to
shareholders' equity. All shares currently carried in treasury are the result of
a single purchase; therefore, the cost basis for shares released is equal to the
actual cost.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company does not engage
in the use of derivative financial instruments. The Company is party to certain
other financial instruments with off-balance-sheet risk such as commitments
under stand-by letters of credit, unused portions of lines of credit, and
commitments to fund new loans. The Company's policy is to record such
instruments when funded.
TRUST AND INVESTMENT SERVICES DIVISION: Assets held in fiduciary or agency
capacities for customers are not included in the accompanying consolidated
statements of condition, since such items are not assets of the Company. Fees
associated with providing trust management services are recorded on a cash basis
of income recognition and are included in other income.
EARNINGS PER SHARE: Basic earnings per share is calculated by dividing net
income available to common shareholders by the weighted average number of shares
outstanding during the year. Diluted earnings per share is calculated by
dividing net income available to common shareholders by the weighted average
number of shares outstanding during the year plus the maximum dilutive effect of
stock issuable upon conversion of stock options and warrants.
CASH DIVIDENDS PER SHARE: Cash dividends per share reflect actual historical
information for Tompkins Trustco, Inc.
SEGMENT REPORTING: The Company's operations are solely in the financial services
industry and include the provisions of traditional commercial banking services.
The Company operates primarily in the geographical areas in the proximity of its
branch locations in New York State. Operating decisions are made based upon a
review of the Company's traditional banking services, which constitute the
Company's only reportable segment.
COMPREHENSIVE INCOME: For the Company, comprehensive income represents net
income plus the net change in unrealized gains or losses on securities available
for sale for the period (net of taxes), and is presented in the consolidated
statements of changes in shareholders' equity. Accumulated other comprehensive
income represents the net unrealized gains or losses on securities available for
sale as of the dates of the consolidated statements of condition.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: 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.
26
<PAGE>
NOTE 2 MERGERS AND ACQUISITIONS
On December 20, 1999, the shareholders of Tompkins Trustco, Inc. and Letchworth
Independent Bancshares Corporation approved a merger between the two companies.
Effective December 31, 1999, Letchworth was merged with and into Tompkins, and
each issued and outstanding share of Letchworth common stock was converted into
0.685 shares of Tompkins common stock, plus cash in lieu of any fractional
shares. This merger resulted in the issuance of approximately 2.3 million
additional shares of Tompkins common stock, bringing Tompkins' total outstanding
shares to approximately 7.1 million shares immediately following the merger.
Letchworth was the holding company for The Bank of Castile, Castile, New York,
and The Mahopac National Bank, Mahopac, New York. The Bank of Castile will
continue to operate its community banking business as a wholly-owned subsidiary
of Tompkins. The Bank of Castile conducts its operations through its main office
located in Castile, New York, and at its eleven branch offices in towns situated
in and around the areas commonly known as the Letchworth State Park area and the
Genesee Valley region of New York State. The Bank of Castile recently opened its
first branch office in Monroe County. The Mahopac National Bank will continue to
operate its community banking business as a majority-owned subsidiary of
Tompkins, with Tompkins owning approximately 70 percent of Mahopac's outstanding
common stock. The Mahopac National Bank is located in Putnam County, New York,
and operates three bank branches in that county.
As a result of the merger, the Company incurred one-time merger-related expenses
of approximately $1.5 million ($1.3 million after tax impact), which were
recognized in the fourth quarter of 1999. The expenses related primarily to fees
for professional services and also include fees for data processing conversion
and certain employment-related costs. No significant additional expenses are
expected in 2000 as a result of the merger.
The merger qualified as a tax-free reorganization and was accounted for as a
pooling-of-interests. All historical financial information in this annual report
has been restated for the combination of the two companies.
The following table presents the results of operations as reported by each of
the companies, and on a combined basis:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (dollar amounts in thousands,
except per share) 1999 1998 1997
- ------------------------------------------------------------------------------------------
Net interest income:
<S> <C> <C> <C>
Tompkins $29,111 $28,231 $26,630
Letchworth 17,955 12,127 11,400
- ------------------------------------------------------------------------------------------
COMBINED $47,066 $40,358 $38,030
Net income:
Tompkins $11,865 $11,189 $9,856
Letchworth 3,335 3,313 3,136
- ------------------------------------------------------------------------------------------
COMBINED $15,200 $14,502 $12,992
Basic earnings per share:
Tompkins $2.46 $2.31 $2.02
Letchworth $1.01 $1.01 $1.10
- ------------------------------------------------------------------------------------------
COMBINED $2.15 $2.05 $1.91
Diluted earnings per share:
Tompkins $2.43 $2.27 $2.00
Letchworth $1.00 $.99 $1.00
- ------------------------------------------------------------------------------------------
COMBINED $2.12 $2.01 $1.84
==========================================================================================
</TABLE>
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
annual report includes the results of operations of Mahopac for the seven-month
period ending December 31, 1999. 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 1999 consolidated statement of condition.
The Mahopac transaction resulted in a core deposit intangible of $3.5 million,
which is being amortized over a ten year period, and goodwill of $2.5 million,
which is being amortized over a 20 year period. Pursuant to the agreement by
which Letchworth acquired approximately 70 percent ownership interest in The
Mahopac National Bank, 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.
27
<PAGE>
<TABLE>
<CAPTION>
NOTE 3 SECURITIES
The following summarizes securities:
AVAILABLE-FOR-SALE SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1999 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of
<S> <C> <C> <C> <C>
U.S. Government agencies $156,763 $ 63 $6,025 $150,801
Obligations of states and political subdivisions 47,943 325 628 47,640
Mortgage-backed securities 85,340 50 2,204 83,186
U.S. corporate securities 4,486 7 25 4,468
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt securities 294,532 445 8,882 286,095
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities 7,771 333 0 8,104
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL AVAILABLE-FOR-SALE SECURITIES $302,303 $778 $8,882 $294,199
====================================================================================================================================
Available-for-sale securities includes $6,665,000 in equity securities, which
are carried at amortized cost since fair values are not readily determinable.
This figure includes $5,039,000 of Federal Home Loan Bank Stock.
HELD-TO-MATURITY SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1999 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions $30,975 $349 $59 $31,265
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL HELD-TO-MATURITY DEBT SECURITIES $30,975 $349 $59 $31,265
====================================================================================================================================
AVAILABLE-FOR-SALE SECURITIES
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of
U.S. Government agencies $135,719 $1,858 $ 21 $137,556
Obligations of states and political subdivisions 32,487 1,415 25 33,877
Mortgage-backed securities 71,570 444 134 71,880
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt securities 239,776 3,717 180 243,313
Equity securities 5,769 173 0 5,942
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL AVAILABLE-FOR-SALE SECURITIES $245,545 $3,890 $180 $249,255
====================================================================================================================================
Available-for-sale securities includes $4,833,000 in equity securities, which
are carried at amortized cost since fair values are not readily determinable.
This figure includes $3,629,000 of Federal Home Loan Bank Stock.
HELD-TO-MATURITY SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions $34,088 $923 $0 $35,011
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL HELD-TO-MATURITY DEBT SECURITIES $34,088 $923 $0 $35,011
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
NOTE 3 SECURITIES (continued)
The amortized cost and estimated fair value of debt securities by contractual
maturity are shown in the following table. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
DECEMBER 31, 1999 (in thousands) COST VALUE
- ---------------------------------------------------------------------------
Available-for-sale securities:
<S> <C> <C>
Due in one year or less $12,288 $12,630
Due after one year through five years 50,134 49,325
Due after five years through ten years 136,749 131,116
Due after ten years 10,019 9,838
TOTAL AVAILABLE-FOR-SALE DEBT SECURITIES 209,190 202,909
- ---------------------------------------------------------------------------
Mortgage-backed securities 85,342 83,186
Equity securities 7,771 8,104
- ---------------------------------------------------------------------------
TOTAL AVAILABLE-FOR-SALE SECURITIES $302,303 $294,199
===========================================================================
AMORTIZED FAIR
DECEMBER 31, 1999 (in thousands) COST VALUE
- ---------------------------------------------------------------------------
Held-to-maturity securities:
Due in one year or less $11,420 $11,457
Due after one year through five years 14,721 14,949
Due after five years through ten years 3,450 3,516
Due after ten years 1,384 1,343
- ---------------------------------------------------------------------------
TOTAL HELD-TO-MATURITY DEBT SECURITIES $30,975 $31,265
===========================================================================
Gains from the sales of available-for-sale securities were $37,000 in 1999,
$89,000 in 1998, and $37,000 in 1997; losses from the sales of
available-for-sale securities were $96,000 in 1999, $101,000 in 1998, and
$85,000 in 1997.
At December 31, 1999, securities with a carrying value of $249,258,000 were
pledged to secure public deposits (as required by law), and securities were sold
under agreements to repurchase.
Except for U.S. government securities, there were no holdings, when taken in
aggregate, of any single issuer that exceeded 10 percent of shareholders' equity
at December 31, 1999.
NOTE 4 COMPREHENSIVE INCOME
Comprehensive income for the three years ended December 31, 1999, is summarized below:
- ---------------------------------------------------------------------------------------
DECEMBER 31 (in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------
Net income $15,200 $14,502 $12,992
- ---------------------------------------------------------------------------------------
Net unrealized holding gain (loss) on available-for-sale
securities during the year. Pre-tax unrealized holding
gain (loss) was $(11,873) in 1999, $1,387 in 1998,
and $1,878 in 1997. (7,119) 948 1,125
Reclassification adjustment for net realized loss on sale of
available-for-sale securities (pre-tax of $59 in 1999,
$12 in 1998, and $48 in 1997). 35 8 29
- ---------------------------------------------------------------------------------------
Other comprehensive (loss) income (7,084) 956 1,154
- ---------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 8,116 $15,458 $14,146
========================================================================================
</TABLE>
29
<PAGE>
NOTE 5 LOAN/LEASE CLASSIFICATION SUMMARY AND RELATED PARTY TRANSACTIONS
Loans/Leases at December 31 were as follows:
- --------------------------------------------------------------------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Residential real estate $312,506 $232,167
Commercial real estate 141,903 105,222
Real estate construction 19,046 9,064
Commercial 166,263 154,085
Consumer and other 99,206 78,018
Leases 18,850 15,691
- --------------------------------------------------------------------------------
Total loans and leases 757,774 594,247
- --------------------------------------------------------------------------------
Less unearned income and net deferred costs and fees (2,392) (2,054)
- --------------------------------------------------------------------------------
TOTAL LOANS AND LEASES, NET OF UNEARNED INCOME $755,382 $592,193
================================================================================
Directors and officers of the Company and its affiliated companies were
customers of, and had other transactions with, the Company in the ordinary
course of business. Such loans and commitments were made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, and did not involve more
than normal risk of collectibility or present other unfavorable features.
Loan transactions with related parties are summarized as follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Balance January 1 $5,855 $5,579
Related party loans associated with
purchase acquisition 576 0
New loans and advances 5,126 4,977
Loan payments (6,444) (4,701)
- --------------------------------------------------------------------------------
BALANCE DECEMBER 31 $5,113 $5,855
================================================================================
During 1999, the Company sold $1,401,000 of education loans and $6,035,000 of
mortgage loans, realizing net gains of $27,000. During 1998, the Company sold
$6,877,000 of student loans and $1,687,000 of mortgage loans, realizing a net
gain of $107,000. During 1997, the Company sold $3,306,000 in student loans and
$1,006,000 in mortgage loans, realizing a net gain of $12,000. Net gains and
losses on the sale of loans are included in other operating income on the
Company's consolidated statements of income. There were no loans held for sale
at December 31, 1999, or 1998. At December 31, 1999, the Company serviced
mortgage loans for third parties aggregating $59,145,000, compared to
$31,646,000 at December 31, 1998.
The Company's loan/lease customers are located primarily in the upstate New York
communities served by its three subsidiary banks. The Trust Company operates
eleven full-service banking offices in the counties of Tompkins and Schuyler.
The Bank of Castile operates twelve branch offices in towns situated in and
around the areas commonly known as the Letchworth State Park area and the
Genesee Valley region of New York State. The Bank of Castile branch locations
include its recently opened branch office in the Monroe County town of Chili.
The Mahopac National Bank is located in Putnam County, and operated three
full-service branches in that county on December 31, 1999. Other than general
economic risks, management is not aware of any material concentrations of credit
risk to any industry or individual borrower.
30
<PAGE>
NOTE 6 RESERVE FOR LOAN/LEASE LOSSES
Changes in the reserve for loan/lease losses are summarized as follows:
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Reserve at beginning of year $7,405 $7,007 $6,620
Allowance related to purchase acquisition 1,511 0 0
Provisions charged to operations 944 1,539 1,436
Recoveries on loans/leases 476 448 522
Loans/leases charged-off (1,108) (1,589) (1,571)
- ------------------------------------------------------------------------------
RESERVE AT END OF YEAR $9,228 $7,405 $7,007
==============================================================================
The Company's recorded investment in loans/leases that are considered impaired
totaled $2,371,000 at December 31, 1999, and $684,000 at December 31, 1998. The
average recorded investment in impaired loans/leases was $828,000 in 1999,
$1,592,000 in 1998, and $1,399,000 in 1997. The December 31, 1999, recorded
investment in impaired loans/leases includes $2,059,000 of loans/leases which
had related reserves of $786,000. The recorded investment in impaired
loans/leases at December 31, 1998, included $394,000 of loans/leases which had
related reserves of $136,000. Interest income recognized for cash payments
received on impaired loans/leases was $103,000 for 1999, and was not material to
the accompanying financial statements for 1998 or 1997.
The principal balance of loans/leases not accruing interest, including impaired
loans/leases, amounted to approximately $3,698,000 and $1,611,000 at December
31, 1999, and 1998, respectively. The difference between the interest income
that would have been recorded if these loans/leases had been paid in accordance
with their original terms and the interest income recorded for the three-year
period ended December 31, 1999, was not significant.
NOTE 7 BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31 were as follows:
(in thousands) 1999 1998
- ------------------------------------------------------------------------------
Land $ 3,148 $ 1,234
Bank premises 19,409 12,558
Furniture, fixtures, and equipment 17,574 14,793
Accumulated depreciation and amortization (18,984) (14,830)
- ------------------------------------------------------------------------------
$21,147 $13,755
==============================================================================
Depreciation and amortization expense in 1999, 1998, and 1997 are included in
operating expenses as follows:
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Bank premises $ 702 $ 474 $ 434
Furniture, fixtures, and equipment 1,420 1,193 1,186
- ------------------------------------------------------------------------------
$2,122 $1,667 $1,620
- ------------------------------------------------------------------------------
NOTE 8 DEPOSITS
The aggregate time deposits of $100,000 or more were $179,936,000 at December
31, 1999, and $138,730,000 at December 31, 1998. Scheduled maturities of time
deposits at December 31, 1999, were as follows:
LESS THAN $100,000
(in thousands) $100,000 AND OVER TOTAL
- ------------------------------------------------------------------------------
Maturity:
Three months or less $57,953 $121,578 $179,531
Over three through six months 41,164 35,718 76,882
Over six through twelve months 36,121 15,090 51,211
- ------------------------------------------------------------------------------
Total due in 2000 135,238 172,386 307,624
2001 45,898 5,780 51,678
2002 9,567 957 10,524
2003 3,043 511 3,554
2004 and thereafter 2,689 302 2,991
- ------------------------------------------------------------------------------
$196,435 $179,936 $376,371
==============================================================================
31
<PAGE>
NOTE 9 FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO
REPURCHASE
Information regarding securities sold under agreements to repurchase as of
December 31, 1999, is summarized below:
(dollar amounts in thousands) COLLATERAL SECURITIESREPURCHASE LIABILITY
- --------------------------------------------------------------------------------
ESTIMATED WEIGHTED AVERAGE
CARRYING FAIR INTEREST
AMOUNT VALUE AMOUNT RATE
- --------------------------------------------------------------------------------
Maturity/Type of Asset
2 to 30 days:
U.S. Government agency securities $18 $18 $16 5.35%
Mortgage-backed securities 309 309 312 5.25%
Obligations of states and political
subdivisions 115 117 99 5.35%
31 to 89 days:
U.S. Treasury securities 509 509 518 4.82%
Mortgage-backed securities 360 360 350 5.45%
Over 90 days:
Mortgage-backed securities 672 672 668 5.00%
Obligations of states and political
subdivisions 560 559 492 5.29%
Demand:
U.S. Treasury securities 5,461 5,461 5,439 5.43%
U.S. Government agency securities 15,001 15,001 15,561 5.20%
Corporate bonds 3,007 3,007 3,000 5.00%
Mortgage-backed securities 30,791 30,791 31,391 4.94%
- --------------------------------------------------------------------------------
$56,803 $56,804 $57,846 5.07%
================================================================================
At December 31, 1999, substantially all of the above securities were held by the
Bank of New York or the Federal Reserve Bank of New York.
Additional information regarding securities sold under agreements to repurchase
and federal funds purchased for the years ended December 31, is detailed in the
table below:
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (dollar amounts in thousands)
1999 1998
- --------------------------------------------------------------------------------
Total outstanding at December 31 $57,846 $61,205
Maximum month-end balance 60,662 66,079
Average balance during the year 56,453 57,379
Average interest rate paid during year 4.76% 5.12%
================================================================================
FEDERAL FUNDS PURCHASED (dollar amounts in thousands) 1999 1998
- --------------------------------------------------------------------------------
Total outstanding at December 31 $0 $0
Maximum month-end balance 13,500 13,500
Average balance during the year 4,201 3,012
Average interest rate paid during year 5.27% 5.74%
================================================================================
32
<PAGE>
NOTE 10 OTHER BORROWINGS
The Company, through its subsidiary banks, had available lines-of-credit
agreements with banks permitting borrowings to a maximum of approximately
$29,500,000 at December, 31, 1999, and $14,500,000 at December 31, 1998. No
advances were outstanding against those lines at December 31, 1999, or 1998.
All bank subsidiaries are members of the Federal Home Loan Bank (FHLB) and as
such, may apply for advances secured by certain residential mortgage loans and
other assets, provided that certain standards for credit worthiness have been
met. At December 31, 1999, the Company, through its subsidiaries, had
established unused lines of credit with the FHLB of $106,916,000. At December
31, 1999, the $41,913,000 in term advances from the FHLB, compared to
$48,968,000 at December 31, 1998.
FHLB term advances due in one year or less as of December 31, 1999, and 1998,
are detailed in the table below:
FEDERAL HOME LOAN BANK ADVANCES:
(dollar amounts in thousands) 1999 1998
- --------------------------------------------------------------------------------
Due in one year or less:
Total outstanding at December 31 $10,000 $ 1,570
Maximum month-end balance 10,000 31,000
Average balance during the year 2,285 21,535
Average interest rate paid during year 5.46% 5.78%
================================================================================
At December 31, 1999, there were advances due in more than one year of
$31,913,000, with a weighted average rate of 5.49 percent. Maturities of
advances included $15,000,000 maturing in 2003, $13,354,000 in 2004, $952,000 in
2006, $2,000,000 in 2009, and $606,000 in 2010. The Company's FHLB borrowings at
December 31, 1999, include $25,000,000 in fixed-rate callable borrowings, which
can be called by the FHLB on the first anniversary of the borrowing, and
quarterly thereafter.
Other borrowings at December 31, 1999, included a $100,000 Treasury Tax and Loan
Note account with the Federal Reserve Bank of New York, compared to $5,000 at
December 31, 1998.
33
<PAGE>
NOTE 11 EMPLOYEE BENEFIT PLANS
The Trust Company and The Bank of Castile have noncontributory defined-benefit
pension plans covering substantially all employees. The benefits are based on
years of service and a percentage of the employee's average compensation.
In addition to the defined pension plan, the Trust Company offers
post-retirement medical coverage, life insurance, and prescription drug coverage
to full-time employees who have worked ten years and attained age 55. Medical
coverage is contributory with contributions reviewed annually. The Trust Company
assumes the majority of the cost for these other benefits, while retirees share
some of the cost through co-insurance and deductibles. The Bank of Castile does
not provide post-retirement benefits other than the defined-benefit pension
plan.
The following table sets forth the changes in the plans' accumulated benefit
obligation and plan assets, and the plans' funded status and amounts recognized
in the Company's consolidated statements of condition at December 31, 1999 and
1998. At December 31, 1999, and 1998, the Trust Company had a prepaid benefit
cost of $2,396,000 and $2,149,000, respectively, and The Bank of Castile had an
accrued benefit cost of $207,000 and $123,000, respectively. For purposes of
this disclosure the defined-benefit pension plans have been combined.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
- ------------------------------------------------------------------------------------------------------------
(dollar amounts in thousands) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
Change in benefit obligation:
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $17,375 $ 13,923 $ 3,114 $ 3,004
Service cost 646 548 88 78
Interest cost 1,134 1,041 227 203
Actuarial (gain) loss (1,396) 2,541 141 (19)
Benefits paid (776) (678) (179) (152)
- ------------------------------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR $16,983 $ 17,375 $ 3,391 $ 3,114
- ------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $16,207 $ 16,621 $ 0 $ 0
Actual return on plan assets 1,523 38 0 0
Employer contribution 579 226 178 151
Benefits paid (776) (678) (178) (151)
- ------------------------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $17,533 $16,207 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------
Funded status $ 550 $ (1,168) $(3,391) $(3,114)
Unrecognized net actuarial loss (gain) 1,781 3,400 (9) (149)
Net transition (asset) obligation (301) (377) 1,502 1,617
Unrecognized prior service cost 159 171 0 0
============================================================================================================
PREPAID (ACCRUED) BENEFIT COST $ 2,189 $ 2,026 $(1,898) $(1,646)
============================================================================================================
TOMPKINS COUNTY TRUST COMPANY
Weighted-average assumptions as of September 30:
Discount rate 7.25% 6.90% 6.90% 6.90%
Expected return on plan assets 8.50% 8.50% -- --
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
THE BANK OF CASTILE
Weighted-average assumptions as of September 30:
Discount rate 7.25% 6.50% N/A N/A
Expected return on plan assets 8.50% 7.75% N/A N/A
Rate of compensation increase 5.00% 5.50% N/A N/A
============================================================================================================
</TABLE>
The Trust Company currently provides certain life and health insurance benefits
to substantially all of its employees upon retirement. The weighted average
annual assumed rate of increase in the per capita cost of covered benefits (the
health care cost trend rate) is 9.9 percent beginning in 2000, and is assumed to
decrease gradually to 5.0 percent in 2046 and beyond. Increasing the assumed
health care cost trend rates by 1 percent in each year would increase the
accumulated post-retirement benefit obligation as of December 31, 1999, by
$42,000 and the net periodic post-retirement benefit cost for 1999 by $3,000.
Decreasing the assumed health care cost trend rates by 1 percent each year would
decrease the accumulated post-retirement benefit obligation as of December 31,
1998, by $55,000 and the net periodic post-retirement benefit cost by $4,000.
34
<PAGE>
NOTE 11 EMPLOYEE BENEFIT PLANS (continued)
Net periodic benefit cost includes the following components:
<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC BENEFIT COST PENSION BENEFITS OTHER BENEFITS
(in thousands) 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 646 $ 548 $ 576 $ 88 $ 78 $ 70
Interest cost 1,134 1,040 944 227 203 208
Expected return on plan assets (1,371) (1,381) (1,133) 0 0 0
Amortization of prior service cost 14 14 14 0 0 0
Recognized net actuarial gain (loss) 70 0 14 0 (4) 0
Amortization of transition (asset) liability (77) (77) (77) 116 116 116
- ------------------------------------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST $ 416 $ 144 $ 338 $ 431 $ 393 $ 394
============================================================================================================
</TABLE>
In addition, the Trust Company and The Bank of Castile have an Incentive Stock
Ownership Plan (ISOP) and an Employee Stock Ownership Plan (ESOP), which cover
substantially all employees of those organizations. The plans allow for Company
contributions in the form of cash and/or stock of the Company. Contributions are
determined by the board of directors as determined by a performance-based
formula, and are limited to a maximum amount as stipulated in the respective
plans.
In 1994, the Trust Company ISOP borrowed $1,650,000 from the Trust Company to
purchase 82,500 common shares of the Company. The debt has a term of ten years
and an interest rate of 9.5 percent. At December 31, 1999, the debt had been
repaid and no shares remained unallocated. The Trust Company recognized
compensation expense for the ISOP of $375,000 in 1999, $364,000 in 1998, and
$351,000 in 1997, based on the average fair value of shares committed to be
released.
In 1997, The Bank of Castile ESOP borrowed $487,000 from The Bank of Castile to
purchase Company stock for the ESOP. The debt has a term of ten years and on
December 31, 1999, had an outstanding balance of $389,000 and an adjustable
interest rate of 9.5 percent. On December 31, 1999, 37,637 shares remained
unallocated with a fair market value of $1,087,000. Letchworth recognized
compensation expense of $130,000 in 1999, $132,000 in 1998, and $102,000 in 1997
based on the average fair value of shares committed to be released.
Life insurance benefits are provided to certain officers of the Company. In
connection with these benefits, the Company purchased $815,000 and $10,980,000
in corporate owned life insurance in 1999 and 1998, respectively, which is
carried at its cash surrender value as an other asset in the consolidated
statements of condition. Increases in the cash surrender value of the insurance
are reflected as other operating income, and the related mortality expense is
recognized as other expense in the consolidated statements of income.
NOTE 12 STOCK BASED COMPENSATION
In 1992, the Company adopted a stock option plan (the "1992 Plan") which
authorized grants of options up to 254,100 shares of authorized but unissued
common stock. In 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Plan") which authorized grants of options up to 240,000 shares of authorized but
unissued common stock, plus to the extent authorized by the board of directors,
shares which are reacquired by the Company. Under the 1992 Plan and the 1998
Plan, the board of directors may grant stock options to officers, employees, and
certain other individuals. Stock options are granted with an exercise price
equal to the stock's fair market value at the date of grant. Stock options may
not have a term in excess of ten years, and have vesting periods that range
between one and five years from the grant date. Outstanding options of
Letchworth were converted to options of Tompkins at the time of the merger. At
December 31, 1999, there were 113,697 shares available for grant under the 1992
and 1998 Plans.
The Company applies APB Opinion No. 25 in accounting for stock based
compensation, and accordingly, no compensation cost has been recognized for
stock options in the accompanying consolidated financial statements. Had the
Company determined compensation cost based on the fair value of its stock
options at the grant date under SFAS No. 123, the Company's net income and
earnings per share would have been reduced to pro forma amounts indicated in the
following table:
(in thousands except per share data) 1999 1998 1997
- ------------------------------------------------------------------------------
Net income:
As reported $ 15,200 14,502 12,992
Pro forma 14,958 14,387 12,907
- ------------------------------------------------------------------------------
Basic earnings per share:
As reported $2.15 2.05 1.91
Pro forma 2.12 2.03 1.89
- ------------------------------------------------------------------------------
Diluted earnings per share:
As reported $2.12 2.01 1.84
Pro forma 2.08 1.99 1.83
==============================================================================
35
<PAGE>
NOTE 12 STOCK BASED COMPENSATION (continued)
Pro forma compensation cost is amortized over the options' vesting period. Pro
forma net income reflects only options granted after January 1, 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
123 is not reflected in the pro forma net income amounts presented above because
compensation cost for options granted prior to January 1, 1995 is not
considered.
The per share weighted average fair value of stock options granted during 1999,
1998, and 1997 was $8.07, $8.52, and $5.18, respectively. Fair values were
arrived at using the Black Scholes option-pricing model with the following
assumptions:
1999 1998 1997
- --------------------------------------------------------------------------------
Risk-free interest rate 5.85% 5.31% 5.78%
Expected dividend yield 3.43% 3.10% 3.64%
Volatility 47.00% 27.60% 20.20%
Expected life (years) 7.00 8.00 8.00
- --------------------------------------------------------------------------------
The following table presents the combined stock option activity for the 1992
Plan and the 1998 Plan during the periods indicated:
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
- --------------------------------------------------------------------------------
1999:
Beginning balance 300,738 $16.78
Granted 33,568 20.17
Exercised (79,589) 10.25
Forfeited (2,740) 7.29
- --------------------------------------------------------------------------------
OUTSTANDING AT YEAR-END 251,977 19.46
================================================================================
EXERCISABLE AT YEAR-END 158,377 $18.24
================================================================================
Beginning balance 349,149 $15.88
Granted 12,600 25.64
Exercised (54,445) 12.45
Forfeited (6,566) 16.84
- --------------------------------------------------------------------------------
OUTSTANDING AT YEAR-END 300,738 16.78
================================================================================
EXERCISABLE AT YEAR-END 154,640 $14.35
================================================================================
1997:
Beginning balance 335,742 $13.25
Granted 63,000 23.66
Exercised (46,295) 8.02
Forfeited (3,298) 19.43
- --------------------------------------------------------------------------------
OUTSTANDING AT YEAR-END 349,149 15.88
================================================================================
EXERCISABLE AT YEAR-END 144,348 $13.22
================================================================================
<TABLE>
<CAPTION>
The following summarizes outstanding and exercisable options at December 31,
1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -----------------------------------------------------------------------------------------------
RANGE OF WEIGHTED AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 7.30-14.12 52,460 4.56 $13.23 47,322 $13.14
$15.56-19.27 85,695 5.98 $19.07 61,547 $18.99
$20.17-21.90 49,197 8.56 $20.54 24,564 $20.67
$23.66-32.75 64,625 7.68 $24.23 24,944 $23.66
- -----------------------------------------------------------------------------------------------
251,977 6.62 $19.46 158,377 $18.24
===============================================================================================
</TABLE>
36
<PAGE>
NOTE 13 INCOME TAXES
<TABLE>
<CAPTION>
The income tax expense (benefit) attributable to income from operations is
summarized as follows:
(in thousands) CURRENT DEFERRED TOTAL
- ------------------------------------------------------------------------------
1999:
<S> <C> <C> <C>
Federal $7,338 $(523) $6,815
State 1,087 (53) 1,034
- ------------------------------------------------------------------------------
$8,425 $(576) $7,849
- ------------------------------------------------------------------------------
1998:
Federal $6,261 $(421) $5,840
State 1,492 (116) 1,376
- ------------------------------------------------------------------------------
$7,753 $(537) $7,216
- ------------------------------------------------------------------------------
1997:
Federal $5,449 $(324) $5,125
State 1,680 (51) 1,629
- ------------------------------------------------------------------------------
$7,129 $(375) $6,754
- ------------------------------------------------------------------------------
</TABLE>
The primary reasons for the differences between income tax expense and the
amount computed by applying the statutory federal income tax rate to earnings
are as follows:
1999 1998 1997
- ------------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 2.9 4.2 5.4
Tax exempt income (4.8) (4.8) (5.0)
Non-deductible merger costs 1.5 0 0
All other (0.5) (0.1) (0.2)
- ------------------------------------------------------------------------------
34.1% 33.3% 34.2%
- ------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 were as
follows:
(in thousands) 1999 1998
- ------------------------------------------------------------------------------
Deferred tax assets:
Reserve for loan/lease losses $3,378 $2,660
Compensation and benefits 2,015 1,610
Other 779 370
- ------------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS $6,172 $4,640
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Leasing transactions $1,432 $1,347
Prepaid pension 948 858
Depreciation 653 622
Purchase accounting adjustments 810 0
Other 270 122
- ------------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES $4,113 $2,949
- ------------------------------------------------------------------------------
NET DEFERRED TAX ASSET AT YEAR-END $2,059 $1,691
==============================================================================
NET DEFERRED TAX ASSET AT BEGINNING OF YEAR $1,691 1,154
- ------------------------------------------------------------------------------
Increase in net deferred tax asset (368) (537)
Net deferred tax asset acquired 723 0
Initial purchase accounting adjustments (931) 0
- ------------------------------------------------------------------------------
DEFERRED TAX BENEFIT $(576) $(537)
==============================================================================
37
<PAGE>
NOTE 13 INCOME TAXES (continued)
This analysis does not include the recorded deferred tax assets/(liabilities) of
$3,359,000 and $(1,371,000) related to the net unrealized depreciation
(appreciation) in the available-for-sale securities portfolio as of December 31,
1999, and 1998, respectively.
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carry-back period. A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax assets will not be realized. In
assessing the need for a valuation allowance, management considers the scheduled
reversal of the deferred tax liabilities, the level of historical taxable
income, and the projected future taxable income over the periods in which the
temporary differences comprising the deferred tax assets will be deductible.
Based on its assessment, management determined that no valuation allowance is
necessary.
NOTE 14 COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases land, buildings, and equipment under operating lease
arrangements extending to the year 2090. Rental expense included in operating
expenses amounted to $359,000 in 1999, $343,000 in 1998, and $348,000 in 1997.
The future minimum rental commitments as of December 31, 1999, for all operating
leases that cannot be canceled are as follows:
(in thousands)
2000 $ 193
2001 177
2002 156
2003 158
2004 133
Thereafter $3,552
Most leases include options to renew for periods ranging from five to 20 years.
Options to renew are not included in the above future minimum rental
commitments.
The Company, in the normal course of business, is a party to financial
instruments with off-balance-sheet risk to meet the financial needs of its
customers. These financial instruments include loan commitments, stand-by
letters of credit, and unused portions of lines of credit. The contract, or
notional amount, of these instruments represents the Company's involvement in
particular classes of financial instruments. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized on the consolidated statements of condition.
As of December 31, 1999, the Company was committed to invest $3,850,000 in a
limited partnership formed to operate a Small Business Investment Company
(SBIC). As of December 31, 1999, the Company had made equity investments in the
SBIC of $2,988,000, which is accounted for under the equity method of
accounting, and is included in other assets on the Company's consolidated
statements of condition. On December 31, 1999, and 1998, the cost of the
Company's investment in the SBIC approximates fair value.
The Company's maximum potential obligations to extend credit for loan
commitments (unfunded loans and unused lines of credit, stand-by letters of
credit) outstanding, and its remaining commitment to invest in a Small Business
Investment Company, on December 31 were as follows:
(in thousands) 1999 1998
- ------------------------------------------------------------------------------
Loan commitments $146,254 $114,284
Stand-by letters of credit 3,793 2,542
Undisbursed portion of commercial lines of credit 30,592 12,376
Commitment to invest in limited partnership registered
as a Small Business Investment Company 862 717
- ------------------------------------------------------------------------------
$181,501 $129,919
==============================================================================
Commitments to extend credit (including lines of credit) are agreements to lend
to a customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Stand-by letters of credit
are conditional commitments to guarantee the performance of a customer to a
third party. Management uses the same credit policies in making commitments to
extend credit and stand-by letters of credit as are used for on-balance-sheet
lending decisions. Based upon management's evaluation of the counterparty, the
Company may require collateral to support commitments to extend credit and
stand-by letters of credit. The credit risk amounts are equal to the contractual
amounts, assuming the amounts are fully advanced and collateral or other
security is of no value. The Company does not anticipate losses as a result of
these transactions. These commitments also have off-balance-sheet interest-rate
risk, in that the interest rate at which these commitments were made may not be
at market rates on the date the commitments are fulfilled. Since some
commitments and stand-by letters of credit are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash flow requirements.
38
<PAGE>
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, based upon a review with counsel, the
proceedings should not have a material effect on the consolidated financial
statements.
<TABLE>
<CAPTION>
NOTE 15 EARNINGS PER SHARE
Calculation of basic earnings per share (Basic EPS) and diluted earnings per
share (Diluted EPS) is as follows:
NET WEIGHTED
FOR YEAR ENDED DECEMBER 31, 1999 INCOME AVERAGE SHARES PER SHARE
(in thousands except share and per share data) (NUMERATOR) (DENOMINATOR) AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Basic EPS:
<S> <C> <C> <C>
Income available to common shareholders $15,200 7,068,409 $2.15
Effect of dilutive securities:
Stock options 109,412
Diluted EPS:
Income available to common shareholders plus assumed conversions $15,200 7,177,821 $2.12
- --------------------------------------------------------------------------------------------------------------------------------
The effect of dilutive securities calculation for 1999 excludes 2,000 options
with an exercise price of $32.75 because the exercise price was greater than the
average market price for the period.
NET WEIGHTED
FOR YEAR ENDED DECEMBER 31, 1998 INCOME AVERAGE SHARES PER SHARE
(in thousands except share and per share data) (NUMERATOR) (DENOMINATOR) AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Basic EPS:
Income available to common shareholders $14,502 7,081,213 $2.05
Effect of dilutive securities:
Stock options 147,241
Stock warrants 47
Diluted EPS:
Income available to common shareholders plus assumed conversions $14,502 7,228,501 $2.01
- --------------------------------------------------------------------------------------------------------------------------------
NET WEIGHTED
FOR YEAR ENDED DECEMBER 31, 1997 INCOME AVERAGE SHARES PER SHARE
(in thousands except share and per share data) (NUMERATOR) (DENOMINATOR) AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Basic EPS:
Income available to common shareholders $12,992 6,811,571 $1.91
Effect of dilutive securities:
Stock options 128,907
Stock warrants 128,240
Diluted EPS:
Income available to common shareholders plus assumed conversions $12,992 7,068,718 $1.84
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1999 and 1998. The carrying
amounts shown in the table are included in the consolidated statements of
condition under the indicated captions.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
1999 1998
- ------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
(in thousands) AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 54,788 $ 54,788 $ 46,668 $ 46,668
Securities - available-for-sale 294,199 294,199 249,255 249,255
Securities - held-to-maturity 30,975 31,265 34,088 35,011
Loans/leases, net 746,154 741,043 584,788 591,322
Accrued interest receivable 7,842 7,842 7,040 7,040
Financial liabilities:
Time deposits $376,371 $376,307 $312,277 $313,650
Other deposits 597,868 597,868 421,367 421,367
Securities sold under agreements
to repurchase 57,846 57,834 61,205 61,543
Other borrowings 42,012 41,845 48,973 49,781
Accrued interest payable 3,880 3,880 3,898 3,898
- ------------------------------------------------------------------------------
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the consolidated
statements of condition for cash, noninterest bearing deposits, and federal
funds sold approximate the fair value of those assets.
SECURITIES: Fair values for securities are based on quoted market prices. When
no secondary market exists to quote a market price, the book value of the
security is used as its fair value. Note 3 discloses the fair values of
securities.
LOANS/LEASES: For variable rate loans/leases that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair value of fixed rate loans/leases was estimated using discounted cash flow
analyses, and interest rates currently offered for loans/leases with similar
terms and credit quality.
DEPOSITS: The fair values disclosed for demand deposits (e.g. interest and
noninterest checking) are, by definition, equal to the amount payable on demand
at the reporting date (i.e., the carrying amounts). The carrying amounts of
variable-rate money market accounts and certificates of deposit approximate
their fair values at the reporting date. Fair values for fixed-rate time
deposits are estimated using a discounted cash flow calculation that applies
current interest rates to a schedule of aggregate expected monthly maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: The carrying amounts of
securities sold under agreements to repurchase with maturities of 90 days or
less approximate their fair values. Fair values of repurchase agreements with
maturities of more than 90 days are estimated using discounted cash flow
analyses based on the Company's current incremental borrowing rate for similar
types of borrowing arrangements.
OTHER BORROWINGS: The fair value of other borrowings was estimated using
discounted cash flow analysis, discounted at the Company's current incremental
borrowing rate for similar borrowing arrangements.
OFF-BALANCE-SHEET INSTRUMENTS: The fair value of outstanding loan commitments
and stand-by letters of credit are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements,
the counterparties' credit standing, and discounted cash flow analyses. The fair
value of these instruments approximates the value of the related fees and is not
significant.
40
<PAGE>
NOTE 17 REGULATION AND SUPERVISION
The Company and its subsidiary banks are subject to various regulatory capital
requirements administered by Federal Bank Regulatory agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action (PCA), banks must meet specific guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. Capital amounts and
classifications of the Company and its subsidiary banks are also subject to
qualitative judgments by regulators concerning components, risk weightings, and
other factors. Quantitative measures established by regulation to ensure capital
adequacy require the maintenance of minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined). Management believes that the Company and its subsidiary banks meet all
capital adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notifications from federal bank
regulatory agencies categorized the Trust Company, The Bank of Castile, and The
Mahopac National Bank as well capitalized under the regulatory framework for
PCA. To be categorized as well capitalized, the Company and its subsidiary banks
must maintain total risk-based, Tier I risk-based, and Tier I leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the capital category of the
Company or its subsidiary banks.
Actual capital amounts and ratios of the Company and its subsidiary banks are as
follows:
<TABLE>
<CAPTION>
REQUIRED REQUIRED
TO BE TO BE
ACTUAL ADEQUATELY CAPITALIZED WELL CAPITALIZED
- ----------------------------------------------------------------------------------------------------------------
(dollar amounts in thousands) AMOUNT/RATIO AMOUNT/RATIO AMOUNT/RATIO
- ----------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999:
Total Capital (to risk-weighted assets)
<S> <C> <C> <C> <C> <C> <C>
The Company (consolidated) $109,105/14.5% >$60,026/>8.0% >$75,032/>10.0%
Trust Company $70,264/16.0% >$35,080/>8.0% >$43,850/>10.0%
Castile $21,628/10.1% >$17,079/>8.0% >$21,349/>10.0%
Mahopac $17,907/16.7% >$8,572/>8.0% >$10,716/>10.0%
Tier I Capital (to risk-weighted assets)
The Company (consolidated) $99,877/13.3% >$30,013/>4.0% >$45,019/>6.0%
Trust Company $65,135/14.9% >$17,540/>4.0% >$26,310/>6.0%
Castile $19,077/ 8.9% >$8,540/>4.0% >$12,809/>6.0%
Mahopac $16,580/15.5% >$4,286/>4.0% >$6,429/>6.0%
Tier I Capital (to average assets)
The Company (consolidated) $99,877/9.3% >$42,913/>4.0% >$53,641/>5.0%
Trust Company $65,135/9.2% >$28,431/>4.0% >$35,539/>5.0%
Castile $19,077/6.6% >$11,504/>4.0% >$14,381/>5.0%
Mahopac $16,580/9.9% >$6,696/>4.0% >$8,370/>5.0%
- ----------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998:
Total Capital (to risk-weighted assets)
The Company (consolidated) $103,222/17.7% >$46,633/>8.0% >$58,291/>10.0%
Trust Company $66,713/16.6% >$32,138/>8.0% >$40,173/>10.0%
Castile $32,107/17.7% >$14,526/>8.0% >$18,157/>10.0%
Tier I Capital (to risk-weighted assets)
The Company (consolidated) $95,903/16.5% >$23,317/>4.0% >$34,975/>6.0%
Trust Company $61,691/15.4% >$16,069/>4.0% >$24,104/>6.0%
Castile $29,837/16.4% >$7,263/>4.0% >$10,894/>6.0%
Tier I Capital (to average assets)
The Company (consolidated) $95,903/10.2% >$37,598/>4.0% >$46,998/>5.0%
Trust Company $61,691/ 9.4% >$26,193/>4.0% >$32,741/>5.0%
Castile $29,837/11.0% >$10,818/>4.0% >$13,522/>5.0%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company is subject to legal limitations on the amount of dividends that can
be paid to shareholders. Generally, dividends are limited to retained net
profits for the current year and two preceding years, which amounted to
$26,107,000 as of December 31, 1999.
Each bank subsidiary is required to maintain reserve balances by the Federal
Reserve Bank of New York. On December 31, 1999, the reserve requirement totaled
$6,480,000, $3,324,000 and $1,224,000 for the Trust Company, The Bank of
Castile, and The Mahopac National Bank, respectively.
41
<PAGE>
NOTE 18 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements for Tompkins Trustco, Inc. (the Parent Company)
as of December 31 are presented below.
CONDENSED STATEMENTS OF CONDITION
- ------------------------------------------------------------------------------
(in thousands) 1999 1998
- ------------------------------------------------------------------------------
ASSETS
Cash $769 $1,563
Available-for-sale securities, at fair value 2,559 2,425
Investment in subsidiaries, at equity 90,251 93,350
Other, net 5,786 832
- ------------------------------------------------------------------------------
TOTAL ASSETS $99,365 $98,170
- ------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $2,741 518
Shareholders' equity 96,624 97,652
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $99,365 $98,170
- ------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Dividends from available-for-sale investments $110 $97 $92
Dividends received from banking subsidiaries 24,365 6,369 8,386
Other income 72 24 2
- ------------------------------------------------------------------------------
TOTAL OPERATING INCOME 24,547 6,490 8,480
- ------------------------------------------------------------------------------
Amortization of intangible assets 370 0 0
Other expenses 2,198 728 352
- ------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 2,568 728 352
- ------------------------------------------------------------------------------
INCOME BEFORE TAXES AND UNDISTRIBUTED NET
INCOME OF SUBSIDIARIES 21,979 5,762 8,128
- ------------------------------------------------------------------------------
Income tax benefit (414) (121) (13)
Equity in undistributed income of subsidiaries (7,193) 8,619 4,851
- ------------------------------------------------------------------------------
NET INCOME $15,200 $14,502 $12,992
- ------------------------------------------------------------------------------
42
<PAGE>
NOTE 18 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (continued)
CONDENSED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $15,200 $14,502 $12,992
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in undistributed income of
subsidiaries 7,193 (8,619) (4,851)
Amortization of intangible assets 370 0 0
ESOP compensation expenses 130 132 102
Other, net (334) (846) (516)
- ------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 22,559 5,169 7,727
- ------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of securities (191) (123) (933)
Purchase of The Mahopac National Bank (14,624) 0 0
- ------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (14,815) (123) (933)
- ------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash dividends (6,159) (5,499) (4,766)
Repurchase of common shares (4,101) (2,138) (2,670)
Repurchase of warrants 0 0 (430)
Treasury stock sold 41 40 41
Net proceeds from exercise of stock options,
warrants, and related tax benefit 691 281 4,160
Advances from subsidiaries 1,265 0 0
Repayment of advances from subsidiaries (275) (49) (60)
- ------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (8,538) (7,365) (3,725)
- ------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH (794) (2,319) 3,069
- ------------------------------------------------------------------------------
CASH AT BEGINNING OF YEAR 1,563 3,882 813
- ------------------------------------------------------------------------------
CASH AT END OF YEAR $769 $1,563 $3,882
- ------------------------------------------------------------------------------
43
<PAGE>
NOTE 19 UNAUDITED INTERIM FINANCIAL INFORMATION
SELECTED UNAUDITED QUARTERLY FINANCIAL DATA: 1999
- ------------------------------------------------------------------------------
(in thousands except per share data) FIRST SECOND THIRD FOURTH
- ------------------------------------------------------------------------------
Interest income $17,233 $18,301 $20,756 $21,327
Interest expense 6,942 7,258 7,975 8,376
Net interest income 10,291 11,043 12,781 12,951
Provision for loan/lease losses 238 268 174 264
Income before income taxes 5,782 5,849 6,732 4,686
Net income 3,931 3,390 4,548 2,791
Net income per common share (basic) .56 .55 .64 .40
Net income per common share (diluted) .55 .55 .64 .39
- ------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------
(in thousands except per share data) FIRST SECOND THIRD FOURTH
- ------------------------------------------------------------------------------
Interest income $17,091 $17,524 $17,598 $17,516
Interest expense 7,257 7,411 7,410 7,293
Net interest income 9,834 10,113 10,188 10,223
Provision for loan/lease losses 282 455 420 382
Income before income taxes 5,300 5,309 5,692 5,417
Net income 3,485 3,493 3,856 3,668
Net income per common share (basic) .49 .49 .55 .52
Net income per common share (diluted) .48 .48 .54 .51
- ------------------------------------------------------------------------------
44
<PAGE>
REPORT OF KPMG LLP,
INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS, TOMPKINS TRUSTCO, INC.
We have audited the accompanying consolidated statements of condition of
Tompkins Trustco, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the years in the three year period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The consolidated
financial statements give retroactive effect to the merger of Letchworth
Independent Bancshares Corporation and Tompkins Trustco, Inc., which has been
accounted for as a pooling-of-interests, as described in Note 2 to the
consolidated financial statements. We did not audit the consolidated statement
of condition of Letchworth Independent Bancshares Corporation as of December 31,
1998, or the related statements of income, changes in shareholders' equity, and
cash flows of Letchworth Independent Bancshares Corporation for each of the
years in the two year period ended December 31, 1998, which statements reflect
total assets of $281.7 million as of December 31, 1998, and net interest income
of $12.1 million and $11.4 million for the years ended December 31, 1998 and
1997, respectively. Those statements were audited by other auditors whose
unqualified report dated January 22, 1999 has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Letchworth
Independent Bancshares Corporation for 1998 and 1997, is based solely on the
report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Tompkins Trustco, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
[GRAPHIC OMITTED]
SYRACUSE, NEW YORK
JANUARY 28, 2000
45
<PAGE>
[This Page Intentionally Left Blank]
46
<PAGE>
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
Management is responsible for preparation of the consolidated financial
statements and related financial information contained in all sections of this
annual report, including the determination of amounts that must necessarily be
based on judgments and estimates. It is the belief of management that the
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances, and
that the financial information appearing throughout this annual report is
consistent with the consolidated financial statements.
Management establishes and monitors the Company's system of internal accounting
controls to meet its responsibility for reliable financial statements. The
system is designed to provide reasonable assurance that assets are safeguarded,
and that transactions are executed in accordance with management's authorization
and are properly recorded.
The Audit/Examining Committee of the board of directors, composed solely of
outside directors, meets periodically and privately with management, internal
auditors, and independent auditors, KPMG LLP, to review matters relating to the
quality of financial reporting, internal accounting control, and the nature,
extent, and results of audit efforts. The independent and internal auditors have
unlimited access to the Audit/Examining Committee to discuss all such matters.
The consolidated financial statements have been audited by the Company's
independent auditors for the purpose of expressing an opinion on the
consolidated financial statements.
/s/ James J. Byrnes /s/ Richard D. Farr
---------------------- -----------------------
James J. Byrnes Richard D. Farr
Chief Executive Officer Chief Financial Officer
47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Information relating to the Directors of the Company is incorporated herein by
reference from the "Election of Directors" section of the Proxy Statement
beginning on page 4 thereof.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
AGE TITLE JOINED COMPANY
--- ----- --------------
<S> <C> <C> <C>
James J. Byrnes 58 Chairman of the Board, and Chief Executive Officer January 1989
James W. Fulmer 48 President, Director January 2000*
Donald S. Stewart 55 Executive Vice President December 1984
Richard D. Farr 47 Senior Vice President and Chief Financial Officer December 1988
Thomas J. Smith 59 Senior Vice President December 1984
Lawrence A. Updike 54 Senior Vice President December 1988
</TABLE>
BUSINESS EXPERIENCE OF THE EXECUTIVE OFFICERS:
James J. Byrnes has been chairman of the board of the Company since April 1992,
and chief executive officer of the Company since January 1989. From 1978 to
1988, Mr. Byrnes was employed at the Bank of Montreal, most recently as senior
vice president.
Richard D. Farr has been employed by the Company since 1984, and has served as
senior vice president and chief financial officer since December 1988.
Thomas J. Smith has been employed by the Company since 1964, and has served as
senior vice president in charge of credit services since December 1984.
Donald S. Stewart has been employed by the Company since 1972, served as senior
vice president in charge of trust and investment services since December 1984,
and was promoted to executive vice president in 1997.
Lawrence A. Updike has been employed by the Company since 1965, and has served
as senior vice president in charge of operations and systems since December 1988
*James W. Fulmer was appointed president of the Company in January 2000. Mr.
Fulmer is the former president and chief executive officer of Letchworth
Independent Bancshares Corporation, where he served as president and chief
executive officer since January 1991. Effective December 31, 1999, Letchworth
was merged with and into Tompkins Trustco, Inc.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" beginning on page 8 of the Proxy Statement is
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners and Management" beginning on
page 2 of the Proxy Statement is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Certain Relationships and Related Transactions" contained on page 12 of the
Proxy Statement is incorporated by reference herein.
48
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) THE FOLLOWING FINANCIAL STATEMENTS AND ACCOUNTANT'S REPORT ARE INCLUDED
IN THIS ANNUAL REPORT ON FORM 10-K:
Report of Independent Accountants
Consolidated Statement of Condition for the years ended December 31,
1999, and 1998
Consolidated Statement of Income for the years ended December 31, 1999,
1998, and 1997
Consolidated Statement of Changes in Shareholders' Equity for the years
ended December 31, 1999, 1998, and 1997
Consolidated Statement of Cash Flows for the years ended December 31,
1999, 1998, and 1997
Notes to Consolidated Financial Statements
(A)(2) LIST OF FINANCIAL SCHEDULES
Not Applicable.
(A)(3) EXHIBITS
Item No. Description
2. Agreement and Plan of Reorganization, dated as of March 14, 1995,
among the Bank, the Company and the Interim Bank incorporated herein
by reference to the identically numbered exhibit contained in the
Registrant's Registration Statement on Form 8-A (No. 0-27514), as
filed with the Commission on December 29, 1995, and amended.
3.1 Certificate of Incorporation of the Company incorporated herein by
reference to the identically numbered exhibit contained in the
Registrant's Registration Statement on Form 8-A (No. 0-27514), as
filed with the Commission on December 29, 1995, and amended.
3.2 Bylaws of the Company incorporated herein by reference to the
identically numbered exhibit contained in the Registrant's
Registration Statement on Form 8-A (No. 0-27514), as filed with the
Commission on December 29, 1995, and amended.
4. Form of Specimen Common Stock Certificate of the Company incorporated
herein by reference to the identically numbered exhibit contained in
the Registrant's Registration Statement on Form 8-A (No. 0-27514), as
filed with the Commission on December 29, 1995, and amended.
10.2 1992 Stock Option Plan incorporated herein by reference to the
identically numbered exhibit contained in the Registrant's
Registration Statement on Form 8-A (No. 0-27514), as filed with the
Commission on December 29, 1995, and amended.
10.3 1996 Stock Retainer Plan for Non-Employee Directors incorporated
herein by reference to the identically numbered exhibit contained in
the Registrant's Registration Statement on Form 8-A (No. 0-27514), as
filed with the Commission on December 29, 1995, and amended.
10.4 Form of Director Deferred Compensation Agreement incorporated herein
by reference to the identically numbered exhibit contained in the
Registrant's Registration Statement on Form 8-A (No. 0-27514), as
filed with the Commission on December 29, 1995, and amended.
10.5 Deferred Compensation Plan for Senior Officers incorporated herein
by reference to the identically numbered exhibit contained in the
Registrant's Registration Statement on Form 8-A (No. 0-27514), as
filed with the Commission on December 29, 1995, and amended.
49
<PAGE>
10.6 Supplemental Executive Retirement Agreement with James J. Byrnes
incorporated herein by reference to the identically numbered exhibit
contained in the Registrant's Registration Statement on Form 8-A (No.
0-27514), as filed with the Commission on December 29, 1995, and
amended.
10.7 Severance Agreement with James J. Byrnes incorporated herein by
reference to the identically numbered exhibit contained in the
Registrant's Registration Statement on Form 8-A (No. 0-27514), as
filed with the Commission on December 29, 1995, and amended.
10.8 Lease Agreement dated August 20, 1993, between Tompkins County Trust
Company and Comex Plaza Associates, relating to leased property at
the Rothschilds Building, Ithaca, NY, incorporated herein by
reference to the identically numbered exhibit contained in the
Registrant's Form 10-K, as filed with the Commission on March 26,
1996, and amended.
10.9 Employment Agreement, dated September 12, 1989, by and between
Letchworth and James W. Fulmer, incorporated by reference to
Letchworth's Amendment No. 1 to Form S-18 Registration Statement
(Reg. No. 33-31149-NY), filed with the Commission on October 31,
1989, and wherein such Exhibit is designated Exhibit 10(a).
10.10 Employment Agreement, dated as of January 1,1991, by and between
Letchworth and Brenda L. Copeland, incorporated by reference to
Letchworth's Annual Report on Form 10-K for the year ended December
31, 1991, filed with the Commission on March 30, 1992, and wherein
such Exhibit is designated Exhibit 10(b).
10.11 Employee Stock Ownership Plan of Letchworth, incorporated by
reference to Letchworth's Registration Statement on Form S-18 (Reg.
No. 33-31149-NY), filed with the Commission on September 2, 1989, and
wherein such Exhibit is designated Exhibit 10(c).
10.12 Defined Benefit Pension Plan of Letchworth, incorporated by reference
to Letchworth's Registration Statement on Form S-18 (Reg. No.
33-31149-NY), filed with the Commission on September 2, 1989, and
wherein such Exhibit is designated Exhibit 10(d).
10.13 Form of Executive Supplemental Income Agreement, as amended,
incorporated by reference to Letchworth's Annual Report on Form 10-K
for the year ended December 31, 1991 and filed with the Commission on
March 30, 1992, and where in such Exhibit is designated Exhibit 19.
10.14 Form of Director Deferred Compensation Agreement, incorporated by
reference to Letchworth's Registration Statement on Form S-18 (Reg.
No. 33-31149-NY), filed with the Commission on September 2, 1989, and
wherein such Exhibit is designated Exhibit 10(f).
10.15 Loan and Pledge Agreement, dated June 16, 1986, by and between
Employee Stock Ownership Trust of Letchworth and Salamanca Trust
Company, incorporated by reference to Letchworth's Registration
Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the
Commission on September 2, 1989, and wherein such Exhibit is
designated Exhibit 10(g).
10.16 Loan and Pledge Agreement, dated June 16, 1986, by and between
Employee Stock Ownership Trust of Letchworth and Community National
Bank, incorporated by reference to Letchworth's Registration
Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the
Commission on September 2, 1989, and wherein such Exhibit is
designated Exhibit 10(h).
10.17 Lease Agreement, dated March 1, 1982, by and between Letchworth and
Herald Ford, Inc., incorporated by reference to Letchworth's
Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed
with the Commission on September 2, 1989, and wherein such Exhibit is
designated Exhibit 10(i).
10.18 Lease Agreement, dated April 12, 1982, and an Addendum thereto, dated
January 25, 1973, by and between Letchworth and 15 South Center
Street, Inc., incorporated by reference to Letchworth's Registration
Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the
Commission on September 2, 1989, and wherein such Exhibit is
designated Exhibit 10(j).
10.19 Lease Agreement, dated August 1, 1974, by and between The Citizen
Bank, Attica and Fred Glickstein, which Lease Agreement was assumed
by Letchworth on December 7, 1984, incorporated by reference to
Letchworth's Registration Statement on Form S-18 (Reg. No.
33-31149-NY), filed with the Commission on September 2, 1989, and
wherein such Exhibit is designated Exhibit 10(k).
50
<PAGE>
10.20 Salary Savings Plan (401(k) Plan) of Letchworth, incorporated by
reference to Letchworth's Amendment No. 1 to Form S-18 Registration
Statement (Reg. No. 33-31149-NY), filed with the Commission on
October 31, 1989, and wherein such Exhibit is designated Exhibit
10(l).
10.21 Loan Agreement, dated November 6, 1990, by and between Letchworth and
Alden State Bank, incorporated by reference to Letchworth's Annual
Report on Form 10-K for the year-ended December 31, 1990, and filed
with the Commission on April 1, 1991, and wherein such Exhibit is
designated Exhibit 10(m).
10.22 Sales Contract, dated September 10, 1991, by and between John
Piraino, Jr. ("Piraino") and the Bank, incorporated by reference to
Letchworth's Annual Report on Form 10-K for the year ended December
31, 1992, and filed with the Commission on March 30, 1993, and
wherein such Exhibit is designated Exhibit 10(n).
10.23 Indenture of Lease, dated September 10, 1991, by and between Piraino
and the Bank, incorporated by reference to Letchworth's Annual Report
on Form 10-K for the year ended December 31, 1992, and filed with the
Commission on March 30, 1993, and wherein such Exhibit is designated
Exhibit 10(o).
10.24 Purchase and Assumption Agreement, dated as of January 10, 1991, by
and between Letchworth, The Bank of Castile, and Anchor Savings Bank
FSB, incorporated by reference to the Letchworth's Report on Form
8-K/A amending the Letchworth's Current Report on Form 8-K dated
January 31, 1992, and which Form 8-K/A was filed with the Commission
on April 3, 1992, and wherein such Exhibit is designated Exhibit
10(a).
10.25 Sales Contract, dated as of January 10, 1991, by and between The Bank
of Castile and Anchor Savings Bank FSB, incorporated by reference to
Letchworth's Report on Form 8-K/A amending the Letchworth's Current
Report on Form 8-K dated January 31, 1992, and which Form 8-K/A was
filed with the Commission on April 3, 1992, and wherein such Exhibit
is designated Exhibit 10(b).
10.26 Purchase and Assumption Agreement, dated as of May 11, 1994, by and
between The Bank of Castile and The Chase Manhattan Bank (National
Association), incorporated by reference to Letchworth's Report on
Form 8-K, dated December 12, 1994, and which Form 8-K was filed with
the Commission on December 19, 1994, and wherein such Exhibit is
designated Exhibit 2.1.
10.27 Sales Contract, dated as of May 11, 1994, by and between The Bank of
Castile and The Chase Manhattan Bank (National Association),
incorporated by reference to Letchworth's Report on Form 8-K, dated
December 12, 1994, and which Form 8-K was filed with the Commission
on December 19, 1994, and wherein such Exhibit is designated Exhibit
2.2.
10.28 Agreement and Plan of Reorganization, dated as of July 30, 1999
between Tompkins Trustco, Inc. and Letchworth Independent Bancshares
Corporation, incorporated by reference to the Company's Registration
Statement on Form S-4 (Registration No. 333-90411), in which such
exhibit is included as Annex A.
10.29 Stock Purchase Agreement, dated October 31, 1998, between Letchworth
and certain shareholders of The Mahopac National Bank, together with
a letter agreement extending the closing date for said transaction
until the close of business on June 4, 1999. The exhibit is
incorporated by reference to Letchworth's report on Form 8-K dated
June 17, 1999, as amended, wherein said exhibit is referenced as
Exhibit 2(a).
10.30 Shareholder agreement dated October 16, 1998, by and among Letchworth
and W. D. Spain & Sons Limited Partnership, William D. Spain, Jr., C.
Compton Spain, Michael H. Spain, and William D. Spain.
11 Statement of Computation of Earnings Per Share Required information
is incorporated by reference to Note 15 of the Company's consolidated
financial statements included under Item 8.
51
<PAGE>
21 Subsidiaries of Registrant:
Tompkins County Trust Company, which is wholly-owned by the Company,
and its subsidiary Tompkins Real Estate Holdings, Inc., which is
approximately 99 percent owned by Tompkins County Trust Company.
The Bank of Castile, which is wholly-owned by the Company, and its
subsidiary Castile Funding Coporation, Inc., which is approximately
99 percent owned by The Bank of Castile.
The Mahopac National Bank, which is approximately 70 percent owned by
the Company, and its subsidiary Mahopac Funding Corporation, Inc.,
which is approximately 99 percent owned by The Mahopac National Bank.
23 Consent of KPMG LLP
23.1 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
99.1 Independent Auditors' Report from PricewaterhouseCoopers LLP (as
auditors for Letchworth Independent Bancshares Corporation).
(b) REPORTS ON FORM 8-K
The Company filed no Current Reports on Form 8-K during the quarter
ended December 31, 1999.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TOMPKINS TRUSTCO, INC.
/s/ James J. Byrnes
----------------------
By: James J. Byrnes
Chairman of the Board and Chief Executive Officer
Date: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities indicated:
SIGNATURE CAPACITY
/S/ JAMES J. BYRNES Chairman of the Board
------------------------- and Chief Executive Officer
James J. Byrnes
/S/ JAMES W. FULMER President, Director
-------------------------
James W. Fulmer
/S/ RICHARD D. FARR Senior Vice President
------------------------- and Chief Financial Officer
Richard D. Farr
/S/ JOHN ALEXANDER Director
-------------------------
John E. Alexander
/S/ REEDER D. GATES Director
-------------------------
Reeder D. Gates
/S/ WILLIAM W. GRISWOLD Director
-------------------------
William W. Griswold
/S/ EDWARD C. HOOKS Director
-------------------------
Edward C. Hooks
/S/ BONNIE H. HOWELL Vice Chairman
------------------------- Director
Bonnie H. Howell
/S/ HUNTER R. RAWLING, III Director
-------------------------
/S/ Hunter R. Rawlings, III
/S/ THOMAS R. SALM Director
-------------------------
Thomas R. Salm
/S/ WILLIAM D. SPAIN Director
-------------------------
William D. Spain
/S/ CRAIG YUNKER Director
-------------------------
Craig Yunker
53
<PAGE>
[This Page Intentionally Left Blank]
54
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Tompkins Trustco, Inc.:
We consent to incorporation by reference in the Registration Statement No.
333-00146 on Form S-8 of Tompkins Trustco, Inc. of our report dated January 28,
2000, relating to the consolidated statements of condition of Tompkins Trustco,
Inc. as of December 31, 1999 and 1998, and the related consolidated statements
of income, changes in shareholders' equity, and cash flows for each of the years
in the three year period ended December 31, 1999, which report has been included
in the December 31, 1999 annual report on Form 10-K of Tompkins Trustco, Inc.
/s/ KPMG LLP
Syracuse, New York
March 27, 2000
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement No. 333-00146 on Form S-8 of Tompkins Trustco, Inc. of our report
dated January 22, 1999, relating to the consolidated statements of condition of
Letchworth Independent Bancshares Corporation as of December 31, 1998, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the years in the two year period ended December 31, 1998,
which report has been included in this Form 10-K.
/S/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Buffalo, New York
March 24, 2000
Exhibit 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
TO BOARD OF DIRECTORS AND SHAREHOLDERS
of Tompkins Trustco, Inc.:
In our opinion, the consolidated balance sheet as of December 31, 1998 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the two years in the period ended December 31, 1998 of
Letchworth Independent Bancshares Corporation and its subsidiary (not presented
separately herein) present fairly, in all material respects, the financial
position, results of operations and cash flows of Letchworth Independent
Bancshares Corporation and its subsidiary at December 31, 1998 and for each of
the two years in the period ended December 31,1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Letchworth Independent
Bancshares Corporation for any period subsequent to December 31, 1998.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Buffalo, New York
January 22, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM
DECEMBER 31, 1999 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001005817
<NAME> Tompkins Trustco, Inc.
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