SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-12709 TOMPKINS TRUSTCO INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) New York 16-1482357 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) The Commons, P.O. Box 460, Ithaca, NY 14851 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (607) 273-3210 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [ X ] No [ ]. Indicate the number of shares of the Registrant's Common Stock outstanding as of the latest practicable date: Class Outstanding as of November 2, 2001 ---------------------------- ----------------------------------- Common Stock, $.10 par value 7,402,221 shares
TOMPKINS TRUSTCO, INC. FORM 10-Q INDEX PART I -FINANCIAL INFORMATION PAGE ---- Item 1 -Financial Statements (Unaudited) Condensed Consolidated Statements of Condition as of September 30, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 5 Condensed Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 2001 and 2000 6 Notes to Unaudited Condensed Consolidated Financial Statements 7-11 Item 2 -Management's Discussion and Analysis of Financial Condition and Results of Operations 12-17 Item 3 -Quantitative and Qualitative Disclosures about Market Risk 18 Average Consolidated Balance Sheet and Net Interest Analysis 19 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 20 Item 2 - Changes in Securities and Use of Proceeds 20 Item 3 - Defaults on Senior Securities 20 Item 4 - Submission of Matters to a Vote of Securities Holders 20 Item 5 - Other Information 20 Item 6 - Exhibits and Reports on Form 8-K 20 SIGNATURES 21 EXHIBIT INDEX 22 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ---------------------------- <TABLE> <CAPTION> CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (In thousands, except share data) (Unaudited) As of As of ASSETS 09/30/2001 12/31/2000 ----------------- -------------- <S> <C> <C> Cash & noninterest bearing balances due from banks $ 46,351 $ 45,939 Interest bearing balances due from banks 112 0 Federal funds sold 3,925 19,425 Available-for-sale securities, at fair value 358,485 304,358 Held-to-maturity securities, fair value of $22,753 at September 30, 2001 and $26,147 at December 31, 2000 22,445 25,863 Loans/leases net of unearned income 864,310 845,758 Less: Reserve for loan/lease losses 10,420 9,824 - ------------------------------------------------------------------------------------------------------------------------ Net Loans/Leases 853,890 835,934 Bank premises and equipment, net 24,339 23,861 Corporate owned life insurance 20,189 18,581 Intangible assets 14,003 9,858 Accrued interest and other assets 20,668 21,075 - ------------------------------------------------------------------------------------------------------------------------ Total Assets $ 1,364,407 $ 1,304,894 ======================================================================================================================== LIABILITIES, MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing: Checking, savings and money market 441,734 406,081 Time 379,400 420,255 Noninterest bearing 224,470 208,565 - ------------------------------------------------------------------------------------------------------------------------ Total Deposits 1,045,604 1,034,901 Securities sold under agreements to repurchase and Federal funds purchased 92,738 72,231 Other borrowings 71,778 67,257 Other liabilities 22,339 14,020 - ------------------------------------------------------------------------------------------------------------------------ Total Liabilities $ 1,232,459 $ 1,188,409 - ------------------------------------------------------------------------------------------------------------------------ Minority interest in consolidated subsidiaries 1,526 1,490 Shareholders' equity: Common Stock - par value $.10 per share, authorized 15,000,000 shares Issued: 7,429,350 at September 30, 2001; and 7,344,813 at December 31, 2000 743 734 Surplus 44,955 44,182 Undivided profits 79,632 70,894 Accumulated other comprehensive income (loss) 5,662 (9) Treasury stock, at cost - 24,529 shares at September 30, 2001, and 24,886 shares at December 31, 2000 (466) (473) Unallocated ISOP/ESOP: 15,285 shares at September 30, 2001, 32,261 shares at December 31, 2000 (104) (333) - ------------------------------------------------------------------------------------------------------------------------ Total Shareholders' Equity $ 130,422 $ 114,995 - ------------------------------------------------------------------------------------------------------------------------ Total Liabilities, Minority Interest in Consolidated Subsidiaries and Shareholders' Equity $ 1,364,407 $ 1,304,894 ======================================================================================================================== </TABLE> See accompanying notes to unaudited condensed consolidated financial statements. 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Three months ended Nine months ended 09/30/2001 09/30/2000 09/30/2001 09/30/2000 ------------- ------------ ------------ ------------ <S> <C> <C> <C> <C> INTEREST AND DIVIDEND INCOME Loans $17,807 $18,110 $54,322 $51,850 Federal funds sold 75 170 403 552 Available-for-sale securities 5,304 4,969 15,497 14,451 Held-to-maturity securities 278 350 908 1,136 - ------------------------------------------------------------------------------------------------------------------------ Total Interest and Dividend Income 23,464 23,599 71,130 67,989 - ------------------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE Deposits: Time certificates of deposits of $100,000 or more 1,597 2,732 6,657 7,333 Other deposits 5,072 5,583 16,020 16,336 Federal funds purchased and securities sold under agreements to repurchase 899 1,098 2,571 3,025 Other borrowings 1,102 1,277 3,310 2,527 - ------------------------------------------------------------------------------------------------------------------------ Total Interest Expense 8,670 10,690 28,558 29,221 - ------------------------------------------------------------------------------------------------------------------------ Net Interest Income 14,794 12,909 42,572 38,768 - ------------------------------------------------------------------------------------------------------------------------ Less: Provision for loan/lease losses 401 301 906 815 - ------------------------------------------------------------------------------------------------------------------------ Net Interest Income After Provision for Loan/Lease Losses 14,393 12,608 41,666 37,953 - ------------------------------------------------------------------------------------------------------------------------ NONINTEREST INCOME Trust and investment services income 1,097 1,054 3,413 3,404 Service charges on deposit accounts 1,158 922 3,456 2,674 Insurance commissions and fees 1,205 0 3,234 0 Other service charges 988 928 3,090 2,830 Increase in cash surrender value of corporate owned life 272 271 786 668 insurance Other income 599 343 1,185 734 Net realized gain on available-for-sale securities 60 225 66 414 - ------------------------------------------------------------------------------------------------------------------------ Total Noninterest Income 5,379 3,743 15,230 10,724 - ------------------------------------------------------------------------------------------------------------------------ NONINTEREST EXPENSES Salary and wages 5,148 4,345 15,028 12,914 Pension and other employee benefits 1,289 994 3,760 3,057 Net occupancy expense of bank premises 673 579 2,071 1,800 Furniture and fixture expense 744 628 2,251 1,905 Amortization of intangible assets 414 278 1,259 775 Other operating expense 3,281 2,709 9,688 8,302 - ------------------------------------------------------------------------------------------------------------------------ Total Noninterest Expenses 11,549 9,533 34,057 28,753 - ------------------------------------------------------------------------------------------------------------------------ Income Before Income Tax Expense and Minority Interest in Consolidated Subsidiaries 8,223 6,818 22,839 19,924 - ------------------------------------------------------------------------------------------------------------------------ Minority interest in consolidated subsidiaries 34 174 100 534 Income Tax Expense 2,924 2,072 7,908 6,304 - ------------------------------------------------------------------------------------------------------------------------ Net Income $ 5,265 $ 4,572 $14,831 $13,086 ======================================================================================================================== Basic Earnings Per Share $ 0.71 $ 0.64 $ 2.00 $ 1.86 Diluted Earnings Per Share $ 0.70 $ 0.64 $ 1.98 $ 1.85 ======================================================================================================================== </TABLE> See accompanying notes to unaudited condensed consolidated financial statements. 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) <TABLE> <CAPTION> Nine months ended 9/30/2001 9/30/2000 ------------- ------------ <S> <C> <C> OPERATING ACTIVITIES Net income $ 14,831 $ 13,086 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan/lease losses 906 815 Depreciation and amortization premises, equipment, and software 2,110 1,813 Amortization of intangible assets 1,259 775 Earnings from corporate owned life insurance, net (624) (668) Net amortization on securities 185 94 Net realized gain on available-for-sale securities (66) (415) Net gain on sale of loans (244) (25) Proceeds from sale of loans 18,227 3,989 Net (gain) loss on sales of bank premises and equipment (43) 7 Issuance of treasury stock 10 31 ISOP/ESOP shares released for allocation 584 0 (Increase) decrease in accrued interest receivable 1,238 (473) (Decrease) increase in accrued interest payable (1,548) 587 Other, net 3,841 (2,482) - -------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 40,666 17,134 - -------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from maturities of available-for-sale securities 157,482 28,776 Proceeds from sales of available-for-sale securities 1,497 6,935 Proceeds from maturities of held-to maturity securities 7,973 12,138 Purchases of available-for-sale securities (162,431) (40,667) Purchases of held-to-maturity securities (4,569) (8,186) Net increase in loans (78,285) (71,660) Proceeds from sale of bank premises and equipment 53 33 Purchases of bank premises and equipment (2,149) (4,713) Purchase of corporate owned life insurance (885) (4,445) Net cash used in acquisitions (1,004) 0 - -------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (82,318) (81,789) - -------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net increase in demand, money market, and savings deposits 51,558 20,383 Net increase (decrease) in time deposits (40,855) 11,806 Net increase in securities sold under agreements to repurchase and Federal funds purchased 20,507 18,429 Net increase in other borrowings 4,193 25,422 Cash dividends (6,093) (5,796) Common stock repurchased and returned to unissued status (3,256) (3,442) Cash paid in lieu of fractional shares Letchworth common shares 0 (9) Net proceeds from exercise of stock options and related tax benefit 622 98 - -------------------------------------------------------------------------------------------------------------- Net Cash Provided by Financing Activities 26,676 66,891 - -------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (14,976) 2,236 Cash and Cash Equivalents at beginning of Period 65,364 54,788 Total Cash & Cash Equivalents at End of Period $ 50,388 $ 57,024 ============================================================================================================== Supplemental Information: Cash paid during the year for: Interest 30,107 28,634 Taxes 2,707 5,858 Noncash investing activities: Fair value of noncash assets acquired in purchase acquisition 1,504 60,034 Fair value of liabilities acquired in purchase acquisition 1,449 55,469 Shares issued for acquisitions 3,058 8,176 Securitization of loans 41,440 0 </TABLE> See accompanying notes to unaudited condensed consolidated financial statements. 5
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands, except share data) (Unaudited) <TABLE> <CAPTION> Accumulated Other Common Undivided Comprehensive Treasury Unallocated Stock Surplus Profits Income (Loss) Stock ISOP/ESOP Total =============================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> Balances at January 1, 2000 $ 710 $ 40,548 $ 61,078 ($ 4,745) ($ 525) ($ 442) $ 96,624 - ------------------------------------------------------------------------------------------------------------------------------- Comprehensive Income: Net Income 13,086 13,086 Other Comprehensive Income 1,845 1,845 --------- Total Comprehensive Income 14,931 ========= Cash dividends ($0.81/share)* (5,796) (5,796) Cash paid in lieu of fractional Letchworth common shares (9) (9) Exercise of stock options, and related tax benefit (7,397 shares, net) 1 97 98 Common stock repurchased and returned to unissued status (134,841) (13) (3,429) (3,442) Treasury stock issued (1,201 shares) 9 22 31 Stock issued for purchase acquisition of minority interest in The Mahopac National Bank (415,000 shares) 41 8,135 8,176 - ------------------------------------------------------------------------------------------------------------------------------- Balances at September 30, 2000 $ 739 $ 45,351 $ 68,368 ($ 2,900) ($ 503) ($ 442) $ 110,613 - ------------------------------------------------------------------------------------------------------------------------------- =============================================================================================================================== Balances at January 1, 2001 $ 734 $ 44,182 $ 70,894 ($ 9) ($ 473) ($ 333) $ 114,995 - ------------------------------------------------------------------------------------------------------------------------------- Comprehensive Income: Net Income 14,831 14,831 Other Comprehensive Income 5,671 5,671 --------- Total Comprehensive Income 20,502 ========= Cash dividends ($0.82/share) (6,093) (6,093) Exercise of stock options and related tax benefit (43,755 shares, net) 5 617 622 Common stock repurchased and returned to unissued status (110,937) (11) (3,245) (3,256) Treasury stock issued (357 shares) 3 7 10 Stock issued for purchase acquisitions (151,719 shares) 15 3,043 3,058 ESOP shares committed to be released for allocation (16,976 shares) 355 229 584 - ------------------------------------------------------------------------------------------------------------------------------- Balances at September 30, 2001 $ 743 $ 44,955 $ 79,632 $ 5,662 ($ 466) ($ 104) $ 130,422 =============================================================================================================================== </TABLE> See accompanying notes to unaudited condensed consolidated financial statements. 6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Business Tompkins Trustco, Inc. ("Tompkins" or "the Company") is a financial services holding company, organized under the laws of New York State, and is the parent company of Tompkins Trust Company (the "Trust Company"), The Bank of Castile, The Mahopac National Bank, and Tompkins Insurance Agencies, Inc. 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. 2. Basis of Presentation The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclose contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Amounts in the prior period's consolidated financial statements are reclassified when necessary to conform with the current period's presentation. In management's opinion, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year ended December 31, 2001. The unaudited condensed consolidated financial statements should be read in conjunction with the Company's 2000 Annual Report on Form 10-K. 3. Mergers and Acquisitions Letchworth Independent Bancshares Corporation On December 20, 1999, the shareholders of Tompkins Trustco, Inc. and Letchworth Independent Bancshares Corporation ("Letchworth") 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. The merger qualified as a tax-free reorganization and was accounted for as a pooling-of-interests. 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. In 1999, The Bank of Castile opened its first branch office in Monroe County. Immediately following the Letchworth merger, Tompkins owned 70.17 percent of The Mahopac National Bank outstanding common stock. As noted below, Tompkins subsequently purchased the additional remaining shares of The Mahopac National Bank, and currently owns all of The Mahopac National Bank outstanding common stock. The Mahopac National Bank is located in Putnam County, New York, and operates four bank branches in that county. The Mahopac National Bank recently opened a branch office in Hopewell Junction, located in Dutchess County. 7
The Mahopac National Bank 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, operating results for The Mahopac National Bank are not included for periods prior to June 4, 1999. Subsequent to June 4, 1999, net income of The Mahopac National Bank is included in Tompkins' net income based upon the percentage of Tompkins' ownership of The Mahopac National Bank . This transaction resulted in a core deposit intangible of $3.5 million, which is being amortized over a 10 year period, and goodwill of $2.5 million, which is being amortized over a 20 year period. Effective September 1, 2000, and early in 2001, Tompkins completed the purchase of the minority interest in The Mahopac National Bank, primarily in a stock-for-stock transaction accounted for as a purchase. Prior to September 1, 2000, the approximately 30 percent interest in The Mahopac National Bank, which was not owned by Tompkins, was shown as a minority interest in consolidated subsidiaries on the consolidated statements of condition. Subsequent to September 1, 2000, effectively all of the net income of The Mahopac National Bank is included in Tompkins' consolidated net income. The approximately 30 percent acquisition of The Mahopac National Bank resulted in a core deposit intangible of $1.9 million, which is being amortized over a 10 year period, and goodwill of approximately $3.2 million, which is being amortized over a 20 year period. The table below presents the pro forma combined results of operations of Tompkins and The Mahopac National Bank, as if Mahopac had been 100 percent owned for the period presented. <TABLE> <CAPTION> Three months ended Nine months ended (In thousands, except per share) September 30, 2000 September 30, 2000 ============================================================================================ <S> <C> <C> Net interest income: - -------------------------------------------------------------------------------------------- As reported $12,909 $38,768 Pro forma combined $12,909 $38,768 Net income: - -------------------------------------------------------------------------------------------- As reported $ 4,572 13,086 Pro forma combined $ 4,681 13,392 Basic earnings per share: - ------------------------------------------------------------------------------------------- As reported $ 0.64 $ 1.86 Pro forma combined $ 0.64 $ 1.81 Diluted earnings per share: - ------------------------------------------------------------------------------------------- As reported $ 0.64 $ 1.85 Pro forma combined $ 0.63 $ 1.80 ============================================================================================ </TABLE> The pro forma combined financial information does not reflect any potential cost savings or revenue enhancements that are expected to result from the acquisitions. Accordingly, the pro forma combined financial information may not be indicative of operations that would have been achieved had the acquisitions occurred on the dates indicated, nor do they purport to be indicative of the results of operations that may be achieved in the future. Tompkins Insurance Agencies, Inc. Effective January 1, 2001, the Company completed the acquisition of 100 percent of the common stock of Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc., in a cash and stock transaction accounted for as a purchase. The two agencies have been merged with and into Tompkins Insurance Agencies, Inc., a wholly-owned subsidiary of Tompkins. The agencies are expected to continue operating in their current western New York locations, which include Attica, Warsaw, Alden, LeRoy, Batavia and Caledonia. The excess of the purchase price over the fair value of identifiable assets acquired less liabilities assumed of $3.92 million has been recorded as goodwill and is being amortized on a straight-line basis over 15 years. The purchase agreements for the insurance agencies include provisions for additional consideration to be paid in the form of Company stock if certain income targets are met by Tompkins Insurance Agencies, Inc. in 2001 and 2002. The contingent consideration includes 25,093 shares, which are payable if the income targets are met, and an additional 8,333 shares which are payable if income targets are exceeded by 5 percent. 8
On June 22, 2001, Tompkins Insurance acquired the assets of Youngs & Linfoot of LeRoy, Inc. in a cash transaction accounted for as a purchase. The excess of the purchase price over the fair value of identifiable assets acquired less liabilities assumed of $287,000 has been recorded as goodwill and is being amortized on a straight-line basis over 15 years. 4. Earnings Per Share A computation of Basic Earnings Per Share ("EPS") and Diluted EPS for the three month periods ending September 30, 2001 and 2000, is presented in the table below. <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------- Weighted Per Three months ended September 30, 2001 Net Income Average Shares Share (In thousands except share and per share data) (Numerator) (Denominator) Amount - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Basic EPS Income available to common shareholders $ 5,265 7,399,600 $ 0.71 Effect of dilutive securities (Stock options) 116,030 Diluted EPS Income available to common shareholders plus assumed conversions $ 5,265 7,515,630 $ 0.70 - --------------------------------------------------------------------------------------------------------------------------- </TABLE> The effect of dilutive securities calculation for 2001 excludes weighted average options of 44,250 because the exercise price of the options was greater than the average market value during the period. <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------- Weighted Per Three months ended September 30, 2000 Net Income Average Shares Share (In thousands except share and per share data) (Numerator) (Denominator) Amount - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Basic EPS Income available to common shareholders $ 4,572 7,093,592 $ 0.64 Effect of dilutive securities (Stock options) 50,723 Diluted EPS Income available to common shareholders plus assumed conversions $ 4,572 7,144,315 $ 0.64 - --------------------------------------------------------------------------------------------------------------------------- </TABLE> The effect of dilutive securities calculation for 2000 excludes weighted average options of 32,035 because the exercise price of the options was greater than the average market value during the period. A computation of Basic EPS and Diluted EPS for the nine month periods ending September 30, 2001 and 2000, is presented in the table below. <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------- Weighted Per Nine months ended September 30, 2001 Net Income Average Shares Share (In thousands except share and per share data) (Numerator) (Denominator) Amount - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Basic EPS Income available to common shareholders $ 14,831 7,400,016 $ 2.00 Effect of dilutive securities (Stock options) 100,761 Diluted EPS Income Available to common shareholders plus assumed conversions $ 14,831 7,500,777 $ 1.98 - --------------------------------------------------------------------------------------------------------------------------- </TABLE> The effect of dilutive securities calculation for 2001 excludes weighted average options of 14,912 because the exercise price of the options was greater than the average market value during the period. <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------- Weighted Nine months ended September 30, 2000 Net Income Average Shares (In thousands except share and per share data) (Numerator) (Denominator) Per Share Amount - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Basic EPS Income Available to common shareholders $ 13,086 7,034,339 $ 1.86 Effect of dilutive securities (Stock options) 51,274 </TABLE> 9
<TABLE> <S> <C> <C> <C> Diluted EPS Income Available to common shareholders plus assumed conversions $ 13,086 7,085,613 $ 1.85 - --------------------------------------------------------------------------------------------------------------------------- </TABLE> The effect of dilutive securities calculation for 2000 excludes weighted average options of 14,188 because the exercise price of the options was greater than the average market value during the period. 5. Comprehensive Income (Loss) <TABLE> <CAPTION> Three months ended Nine months ended 09/30/2001 09/30/2000 09/30/2001 09/30/2000 - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net Income $ 5,265 $ 4,572 $ 14,831 $ 13,086 - -------------------------------------------------------------------------------------------------------------------------- Net unrealized holding gains during the period 4,204 2,776 5,711 2,093 Memo: Pre-tax unrealized net holding gain 7,007 4,627 9,518 3,488 Reclassification adjustment for net realized gain on available-for-sale securities (36) (135) (40) (248) Memo: Pretax Adjustment (60) (225) (66) (414) - -------------------------------------------------------------------------------------------------------------------------- Other Comprehensive Income 4,168 2,641 5,671 1,845 - -------------------------------------------------------------------------------------------------------------------------- Total Comprehensive Income $ 9,433 $ 7,213 $ 20,502 $ 14,931 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> 6. Recent Accounting Pronouncements ACCOUNTING FOR BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS: In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment at least annually. The Company is required to adopt the provisions of SFAS No. 141 immediately. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-SFAS No. 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of SFAS No. 142. SFAS No. 141 will require upon adoption of SFAS No. 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in SFAS No. 141 for recognition apart from goodwill. Upon adoption of SFAS No. 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to 10
test the intangible asset for impairment in accordance with the provisions of SFAS No. 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. In connection with the transitional goodwill impairment evaluation, SFAS No. 142 will require the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption, based upon the criteria in the statement. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of earnings. As of the date of adoption, the Company expects to have unamortized goodwill in the amount of $9.5 million, which will be subject to the transition provisions of SFAS Nos. 141 and 142. Amortization expense related to goodwill was $158,000 for the three and $460,000 for the nine months ended September 30, 2001. Because of the extensive effort needed to comply with adopting SFAS Nos. 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS: In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, that replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. The Company does not believe that there will be a material impact on the Company's financial condition or results of operations upon adoption of SFAS No. 144. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Company adopted the provisions of Financial Accounting Standards Board (FASB) SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those assets at fair value. Changes in fair value of the derivative financial instruments are reported as either net income or as a component of comprehensive income, depending on whether or not it qualifies for hedge accounting. Consequently, for those entities using derivative instruments, there may be increased volatility in net income and shareholders' equity as a result of accounting for derivatives in accordance with SFAS No. 133. Special hedge accounting treatment is permitted only if specific criteria are met, including a requirement that the hedging relationship be highly effective both at inception and on an ongoing basis. Results of effective hedges are recognized in current earnings for fair value hedges, and in other comprehensive income for cash flow hedges. Ineffective portions of hedges are recognized immediately in earnings and are not deferred. The adoption of SFAS No. 133 by the Company on January 1, 2001, did not have a material effect on the Company's consolidated financial statements. The Company does not currently use derivative financial instruments to manage interest rate risk. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities: In September 2000, The FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 replaces identically titled SFAS No. 125, and it carries forward most of SFAS No. 125's provisions without change. It does revise accounting standards for securitizations and certain other transfers of financial assets and collateral. The statement is generally applied prospectively to transactions and servicing activities occurring after March 31, 2001, although provisions with respect to collateral and certain disclosure requirements are effective for fiscal years ending after December 15, 2000. The adoption of this statement did not have a material impact on the consolidated financial statements of the Company. 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ---------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- OVERVIEW Tompkins Trustco, Inc. ("Tompkins" or "the Company") was organized in 1995, as the parent company of Tompkins Trust Company (formerly known as Tompkins County 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. Effective January 1, 2001, the Company completed the acquisition of 100 percent of the common stock of Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc., in a cash and stock transaction accounted for as a purchase. The two agencies have been merged with and into Tompkins Insurance Agencies, Inc. (Tompkins Insurance), a wholly-owned subsidiary of Tompkins. The agencies primarily offer property and casualty insurance to individuals and businesses in Western New York State. They are expected to continue operating in their current locations, which include Attica, Warsaw, Alden, LeRoy, Batavia and Caledonia. Further details pertaining to the mergers and acquisitions are presented in Note 3 to the unaudited condensed consolidated financial statements, included herein. 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 services through Tompkins Investment Services, a division of Tompkins Trust Company. Tompkins Investment Services provides a full range of money management services, including investment management accounts, custody accounts, trusts, retirement plans and rollovers, estate settlement, and financial planning. Financial services of Tompkins Insurance Agencies, Inc., primarily consist of property and casualty insurance for individuals and businesses, which complement the services offered through the Company's banking subsidiaries. The following discussion is intended to provide the reader with a further understanding of the consolidated financial condition and results of operations of Tompkins Trustco, Inc. and its operating subsidiaries. It should be read in conjunction with the Company's Form 10-K and related notes for the year ended December 31, 2000, and the unaudited condensed consolidated financial statements and notes included elsewhere in this report. Forward-Looking Statements This report may include forward-looking statements with respect to revenue sources, growth, market risk, and corporate objectives. The Company assumes no duty, and specifically disclaims any obligation, to update forward-looking statements, and cautions that these statements are subject to numerous assumptions, risk, and uncertainties, all of which could change over time. Actual results could differ materially from forward-looking statements. 12
RESULTS OF OPERATIONS Cash earnings for the third quarter of 2001 were $5.6 million, an increase of 17.1 percent over cash earnings of $4.8 million in 2000. Management believes that cash earnings, which excludes amortization of intangible assets (net of applicable tax benefit), is more reflective of the Company's core operating performance. Net income reported in accordance with Generally Accepted Accounting Principles (GAAP) was $5.3 million for the three months ended September 30, 2001, an increase of 15.2 percent over the same period in 2000. Cash earnings for the nine months ended September 30, 2001 were $15.7 million, an increase of 15.8 percent over cash earnings of $13.6 million in 2000. Diluted cash earnings per share were $0.74 for the third quarter of 2001, an increase of 10.4 percent over the same period in 2000. Diluted earnings per share reported in accordance with GAAP were $0.70 for third quarter of 2001, compared to $0.64 for the same period in 2000. For the year to date 2001, diluted cash earnings per share of $2.10 were up 9.4% over the same nine month period in 2000. On a GAAP basis, diluted earnings per share were $1.98, for the first nine months of 2001, compared to $1.85 for the same period in 2000. The Company's key performance ratios remain strong. Return on average assets (ROAA) for the first nine months of 2001 was 1.49 percent, up from 1.43 percent for the same period in 2000. On a cash basis, ROAA was 1.59 percent for the year to date 2001, compared to 1.48 percent for the same period in 2000. Return on average shareholders' equity (ROAE) for the first nine months of 2001 was 16.31 percent, compared to 17.59 percent for the same period in 2000. On a cash basis, ROAE was 17.18 percent for the nine months ended September 30, 2001, compared to 18.18 percent for the same period in 2000. The decline in ROAE in the current period is primarily due to increased average equity in 2001, which includes approximately $8.2 million related to the September 2000 acquisition of the approximately 30 percent minority interest in The Mahopac National Bank, and approximately $3.0 million related to the acquisition of Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc. Additionally, unrealized gains on available-for-sale securities have added $7.3 million to average equity in the current period, when compared to the same nine month period last year. The increased equity resulting from the acquisitions and unrealized gains on securities has been partially offset by common stock repurchased under the Company's common stock repurchase plan (the "Plan"), which was approved by the board of directors on August 15, 2000. The Plan authorizes the repurchase of up to 400,000 shares over a two year period. As of September 30, 2001, 241,161 shares had been repurchased at a total cost of $6.7 million. Net Interest Income As shown in the attached Average Consolidated Balance Sheet and Net Interest Analysis, the Company earned tax-equivalent net interest income of $44.1 million for the nine months ended September 30, 2001, an increase of 8.9 percent from the prior year. Net interest income benefited from growth in earning assets and an improved net interest margin. The net interest margin was 4.85 percent in the current year to date period, compared to 4.75 percent in the same period prior year. Average earning assets were $1.2 billion for the nine month period ended September 30, 2001, compared to $1.1 billion for the same period in 2000. Growth in average earning assets over the past 12 months was centered in the loan portfolio which grew by 7.7 percent to $846.9 million, including a $29.7 million increase in average real estate loans and $26.7 million in average commercial loans. The growth in average real estate loans was net of $41.4 million in residential mortgage loans that were securitized in 2001, and are now carried as available-for-sale securities. Asset growth was funded with a combination of core deposits (total deposits less time deposits greater than $100,000 and brokered deposits); and various non-core funding sources. Over the 12 month period ended September 30, 2001, average core deposits were up $42.0 million, average non-core deposits were up $16.7 million, average Federal funds purchased and securities sold under repurchase agreements were up $2.8 million, and average other borrowings were up $19.8 million. For the third quarter of 2001, tax-equivalent net interest income was $15.3 million, with a net interest margin of 4.91 percent. This compares to tax-equivalent net interest income of $13.5 million and a net interest margin of 4.59 percent for the third quarter of 2000. 13
Provision for Loan/Lease Losses The provision for loan/lease losses represents management's estimate of the expense necessary to maintain the reserve for loan/lease losses at an adequate level. The provision for loan/lease losses of $906,000 for the first nine months of 2001, is up slightly from $815,000 for the same period in 2000. Net charge-offs were $310,000 for the first nine month of 2001, compared to $462,000 in 2000. Net charge-offs in 2001 benefited from a $320,000 recovery in the first quarter. The reserve for loan/lease losses as a percentage of period end loans was 1.21 percent at September 30, 2001, and 1.16 percent at December 31, 2000. Noninterest Income Management continues to emphasize noninterest income as an important component of the Company's future revenue. Noninterest income for the first nine months of 2001, represented 25.7 percent of total revenue (tax equivalent net interest income, plus noninterest income), up from 20.9 percent for the same period in 2000. Noninterest income for the nine months ended September 30, 2001, was $15.2 million, an increase of 42.0 percent over the same period in 2000. The increase in 2001 included $3.2 million of insurance commissions and fees related to Tompkins Insurance, which became an active subsidiary of the Company effective January 1, 2001. Even without the revenue from Tompkins Insurance, the Company's noninterest income remained strong, increasing by 11.9 percent over the first nine months of 2000. For the third quarter, noninterest income of $5.4 million was up from $3.7 million in the third quarter of 2000. Income from trust and investment services remains the largest source of noninterest income. The Tompkins Investment Services Division of Tompkins Trust Company generates fee income through managing trust and investment relationships, managing estates, providing custody services, and managing employee benefits plans. Trends for new business in trust and investments services remain positive, although the general downward trend in national stock markets during the first nine months of 2001 caused earnings to be flat. Trust and investments services income was $3.4 million in the first nine months of 2001, relatively unchanged from the same period in 2000. The market value of assets managed by, or in custody of, Tompkins Investment Services was approximately $1.1 billion at September 30, 2001, also relatively unchanged from the prior year. Service charges on deposit accounts were $3.5 million for the first nine months of 2001, an increase of $782,000 over the same period in 2000. The growth in service charges reflects an increased volume of transaction accounts. Growth has been particularly strong at the Company's newest offices, the Chili Office of The Bank of Castile, and the Brewster Office of The Mahopac National Bank; however, the Company has seen growth in transaction account balances in most of its offices. Income from card services, included in other service charges on the consolidated statements of income, continues to be an important source of revenue. Card services products include traditional credit cards, purchasing cards, debit cards, and merchant card processing. Income associated with card services was $1.7 for the nine months ended September 30, 2001, an increase of 5.0 percent from the same period of 2000. Noninterest income for the first nine months of 2001 includes $786,000 relating to increases in the cash surrender value of corporate owned life insurance (COLI). This compares to $668,000 for the same period in 2000. The corporate owned life insurance relates to life insurance and other benefits provided to certain senior officers of the Company and its subsidiaries. The Company's average investment in COLI was $19.2 million for the nine month period ended September 30, 2001, compared to $15.7 million for the same period in 2000. Increases in the cash surrender value of insurance are reflected as noninterest income, and the related mortality expense is recognized as an noninterest operating expense. 14
Noninterest Expenses Total noninterest expenses were $34.1 million for the first nine months of 2001, compared to $28.8 million for the same period in 2000. The 18.4 percent increase in 2001, includes operating expenses related to Tompkins Insurance, and amortization of intangible assets related to the acquisition of the minority interest in The Mahopac National Bank in September 2000 and the acquisition of Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc. in January 2001. If these expenses are excluded from 2001 totals for comparison, growth in noninterest expenses would be 9.0 percent. For the quarter ended September 30, 2001, noninterest expense was $11.5 million, up from $9.5 million for the third quarter of 2000. Personnel-related expenses comprise the largest segment of noninterest expense, representing 55.2 percent of operating expense in the first nine months of 2001. The $18.8 million of personnel-related expenses for the first nine months of 2001 reflect an increase of $2.8 million over 2000, including $1.6 million related to Tompkins Insurance. Expense for premises, furniture, and fixtures increased from $3.7 million for the period ended September 30, 2000, to $4.3 million for the period ended September 30, 2001. The increase includes $312,000 related to Tompkins Insurance. Amortization expense increased from $775,000 in the first nine months of 2000, to $1.3 million in the first nine months of 2001. The increase reflects the additional intangible assets that resulted from the purchase of the approximately 30 percent minority interest of The Mahopac National Bank in September 2000, and the purchase of the Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc., in January 2001. The approximately 30 percent acquisition of The Mahopac National Bank resulted in a core deposit intangible of $1.9 million, which is being amortized over a 10 year period, and goodwill of $3.2 million, which is being amortized over a 20 year period. The purchase of the Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc., resulted in $3.92 million of goodwill, which is being amortized on a straight-line basis over 15 years. Income Tax Expense The provision for income taxes provides for Federal and New York State income taxes. The provision for the nine months ended September 30, 2001, was $7.9 million, compared to $6.3 million in 2000. The increased provision is primarily due to increased levels of taxable income. The effective tax rate for the first nine months of 2001 was 34.6 percent, compared to 31.6 percent for the same period in 2000. The increased effective tax rate in the current year is primarily due to a reduced level of tax exempt investments in municipal securities. FINANCIAL CONDITION The Company's total assets were $1.4 billion as of September 30, 2001, representing an increase of $59.5 million over total assets reported as of December 31, 2000. Asset growth is primarily the result of an increased volume of loan originations. Total loans of $864.3 million at September 30, 2001 were up a modest 2.2 percent million from December 31, 2000; however, the balance in the current year is net of $41.4 million in residential mortgage loans that were securitized in 2001, and are now carried as available-for-sale securities. Asset growth also included an increase in intangible assets from $9.9 million at December 31, 2000, to $14.0 million at September 30, 2001. The increase in intangible assets is primarily related to goodwill associated with the purchase of the Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc., in January 2001. 15
Capital Total shareholders' equity grew by approximately 13.4 percent during the first nine months of 2001 to $130.4 million. The increase in shareholders' equity includes an increase of approximately $3.0 million related to the purchase of the Austin, Hardie, Wise Agency, Inc. and Ernest Townsend & Son, Inc., which included the issuance of 151,156 shares of common stock. The increased equity resulting from the above acquisition was partially offset by 110,937 shares of common stock repurchased in the first nine months of 2001 under the Company's common stock repurchase plan, at a total cost of $3.3 million. Tangible book value per share increased from $14.36 at December 31, 2000, to $15.72 at September 30, 2001. Cash dividends paid in the first nine months of 2001 totaled approximately $6.1 million, representing 41.1 percent of year to date earnings. Per share cash dividends of $0.82 for the first nine months of 2001 is up from $0.81 paid in the first nine months of 2000. The Company and its banking subsidiaries are subject to various regulatory capital requirements administered by Federal banking agencies. Management believes the Company and its subsidiaries meet all capital adequacy requirements to which they are subject. The table below reflects the Company's capital position at September 30, 2001, compared to the regulatory capital requirements for "well capitalized" institutions. <TABLE> <CAPTION> REGULATORY CAPITAL ANALYSIS - September 30, 2001 - --------------------------------------------------------------------------------------------------------------------- Actual Well Capitalized Requirement (Dollar amounts in thousands) Amount Ratio Amount Ratio - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Total Capital (to risk weighted assets) $123,178 13.8% $88,981 10.0% Tier I Capital (to risk weighted assets) $112,758 12.7% $53,389 6.0% Tier I Capital (to average assets) $112,758 8.4% $66,793 5.0% - --------------------------------------------------------------------------------------------------------------------- </TABLE> As illustrated above, the Company's capital ratios on September 30, 2001 remain well above the minimum requirement for well capitalized institutions. As of September 30, 2001, the capital ratios for each of the Company's subsidiary banks also exceeded the minimum levels required to be considered well capitalized. Reserve for Loan/Lease Losses and Nonperforming Assets Management reviews the adequacy of the reserve for loan/lease losses in a detailed and ongoing basis, giving consideration to various risk elements that may affect the inherent risk of loss in the current loan/lease portfolio. Based upon management's review, the current reserve of $10.4 million is believed adequate with respect to the inherent risk of loss in the loan and lease portfolios. Activity in the Company's reserve for loan/lease losses during the first nine months of 2001 and 2000 is illustrated in the table below. <TABLE> <CAPTION> ANALYSIS OF THE RESERVE FOR LOAN/LEASE LOSSES (In thousands) - ------------------------------------------------------------------------------------------------------------ September 30, 2001 September 30, 2000 - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> Average Loans and Leases Outstanding Year to Date $ 846,866 $ 786,391 - ------------------------------------------------------------------------------------------------------------ Beginning Balance 9,824 9,228 - ------------------------------------------------------------------------------------------------------------ Provision for loan losses 906 815 Loans charged off (890) (777) Loan recoveries 580 315 - ------------------------------------------------------------------------------------------------------------ Net charge-offs 310 462 - ------------------------------------------------------------------------------------------------------------ Ending Balance $ 10,420 $ 9,581 ============================================================================================================ </TABLE> Recoveries for the current period included a recovery on a single loan in the amount of $320,000. Reserve coverage of nonperforming loans was 1.9x at September 30, 2001, compared to 1.7x at September 30, 2000. 16
The level of nonperforming assets at September 30, 2001 and 2000 is illustrated in the table below. Nonperforming assets of $5.5 million as of September 30, 2001, reflect a decrease of $289,000 from September 30, 2000. Nonperforming assets represent a modest 0.40 percent of total assets at September 30, 2001. <TABLE> <CAPTION> NONPERFORMING ASSETS (In thousands) - ------------------------------------------------------------------------------------------------ September 30, 2001 September 30, 2000 - ------------------------------------------------------------------------------------------------ <S> <C> <C> Nonaccrual loans $5,082 $4,197 Loans past due 90 days and accruing 369 1,344 Troubled debt restructuring not included above 0 0 - ------------------------------------------------------------------------------------------------ Total nonperforming loans 5,451 5,541 - ------------------------------------------------------------------------------------------------ Other real estate, net of allowances 45 244 - ------------------------------------------------------------------------------------------------ Total nonperforming assets $5,496 $5,785 ================================================================================================ Total nonperforming loans as a percent of total loans 0.63% 0.67% Total nonperforming assets as a percentage of total assets 0.40% 0.45% ================================================================================================ </TABLE> Deposits and Other Liabilities Total deposits were $1.0 billion on September 30, 2001, up approximately $10.7 million from December 31, 2000. Core deposits, which include demand deposits, savings and money market accounts, and non-brokered time deposits of less than $100,000 represent the primary funding source for the Company. As of September 30, 2001, core deposits of $904 million represented 73.3 percent of total liabilities. This compares to core deposits of $851 million, representing 71.6 percent of total liabilities at December 31, 2000. The Company uses large time deposits, brokered-deposits, securities sold under repurchase agreements, Federal funds purchased, and other borrowings as additional funding sources. Time Deposits of $100,000 and over decreased from $183 million at December 31, 2000, to $132 million at September 30, 2001. At September 30, 2001, the Company also had $10.0 million of brokered-deposits in denominations under $100,000. The Company had no brokered-deposits at December 31, 2000. Total securities sold under repurchase agreements and Federal funds purchased amounted to $92.7 million at September 30, 2001, compared to $72.2 million at December 31, 2000. Other borrowings, consisting of term borrowings from the Federal Home Loan Bank, increased from $67.3 million at December 31, 2000, to $71.8 million at September 30, 2001. Liquidity Liquidity represents the Company's ability to efficiently and economically accommodate decreases in deposits and other liabilities, and fund increases in assets. The Company uses a variety of resources to meet its liquidity needs which include cash and cash equivalents, short term investments, cash flow from lending and investing activities, deposit growth, securities sold under repurchase agreements, and borrowings. Cash and cash equivalents totaled $50.3 million as of September 30, 2001, down from $65.4 million at December 31, 2000. Short term investments, consisting of securities due in one year or less and Federal funds sold, declined from $52.5 million on December 31, 2000, to $29.1 million on September 30, 2001. Securities pledged to secure certain large deposits and securities sold under repurchase agreements were 66.1 percent of total securities as of September 30, 2001, compared to 79 percent as of December 31, 2000. The lower proportion of pledged securities compared to total securities in the current period reflects the benefit of $41.4 million in residential mortgage loans that were securitized in 2001, and are now carried as available-for-sale securities. 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 September 30, 2001, the unused borrowing capacity on established lines with the FHLB was $130 million. As members of the FHLB, the Company's subsidiary banks can use certain unencumbered mortgage-related assets to secure additional borrowings from the FHLB. At September 30, 2001, total real estate loans of the Company were $516 million, the majority of which are available as collateral for FHLB borrowings. 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------ Interest rate risk is the primary market risk category associated with the Company's operations. Interest rate risk refers to the volatility of earnings caused by changes in interest rates. Each month the Asset/Liability Management Committee estimates the likely impact on earnings resulting from various changing interest rate scenarios. The findings of the Committee are incorporated into the investment and funding decisions of the Company. The table below is a Condensed Static Gap Report, which illustrates the anticipated repricing intervals of assets and liabilities as of September 30, 2001. <TABLE> <CAPTION> Condensed Static Gap - September 30, 2001 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 $ 1,239,840 $ 374,284 $ 73,732 $ 154,674 $ 602,690 Interest-bearing liabilities 985,650 409,185 111,328 103,871 624,384 - --------------------------------------------------------------------------------------------------------------------------------- Net gap position (34,901) (37,596) 50,803 (21,694) - --------------------------------------------------------------------------------------------------------------------------------- Net gap position as a percentage of total assets (2.56%) (2.76%) 3.72% (1.59%) ================================================================================================================================= </TABLE> The Company's September 30, 2001, one-year cumulative rate sensitivity gap was a negative 1.59 percent of total assets, indicating a liability sensitive position. The analysis suggests earnings would benefit from a declining interest rate environment, and would be vulnerable to a rising interest rate environment. Consistent with the above analysis, as interest rates declined during the first nine months of 2001, the Company's net interest margin improved in comparison to the last two quarters of 2000. Based upon the Company's simulation analysis, management estimates that a 200 basis point rise in interest rates would result in a 0.3 percent decline in net interest income over a one year period, and a 3.1 percent decline over a two year period, assuming no management actions to reposition the balance sheet in reaction to a changing rate environment. Management believes the current interest rate risk exposure is not material given the Company's current level of earnings and capital. 18
TOMPKINS TRUSTCO, INC. Average Consolidated Balance Sheet and Net Interest Analysis <TABLE> <CAPTION> Quarter Ended Year to Date Period Ended Year to Date Period Ended Sep-01 Sep-01 Sep-00 - ------------------------------------------------------------------------------------------------------------------------------------ Average Average Average Balance Average Balance Average Balance Average (Dollar amounts in thousands) (QTD) Interest Yield/R (YTD) Interest Yield/Rate (YTD) Interest Yield/Rate - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> ASSETS Interest-earning assets Certificates of deposit with other banks $ 364 $ 0 0.00% $ 409 $ 2 1.94% $ 0 $ 0 0 Securities (1) U.S. Government Securities 278,421 4,475 6.38% 266,125 13,022 6.54% 243,900 11,958 6.55% State and municipal (2) 67,362 1,238 7.29% 68,730 3,847 7.48% 80,044 4,424 7.38% Other Securities (2) 25,576 323 5.01% 21,449 954 5.95% 13,957 861 8.24% --------------------------------------------------------------------------------------------- Total securities 371,359 6,036 6.45% 356,304 17,823 6.69% 337,901 17,243 6.82% Federal Funds Sold 8,748 75 3.40% 11,213 403 4.81% 12,516 552 5.89% Loans, net of unearned income (3) Real Estate 507,996 10,267 8.02% 508,871 31,178 8.19% 479,183 31,122 8.68% Commercial Loans (2) 213,573 4,385 8.15% 208,149 13,758 8.84% 181,486 11,763 8.66% Consumer Loans 113,443 2,802 9.80% 111,180 8,343 10.03% 108,447 7,985 9.84% Direct Lease Financing 19,087 383 7.96% 18,666 1,125 8.06% 17,275 1,022 7.90% --------------------------------------------------------------------------------------------- Total loans, net of unearned income 854,099 17,837 8.29% 846,866 54,404 8.59% 786,391 51,892 8.81% --------------------------------------------------------------------------------------------- Total interest-earning assets 1,234,570 23,948 7.70% 1,214,792 72,632 7.99% 1,136,808 69,687 8.20% --------------------------------------------------------------------------------------------- Other assets 116,118 111,591 87,360 ----------- ----------- ----------- Total assets $1,350,688 $1,326,383 $1,224,168 ----------- ----------- ----------- - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES & SHAREHOLDERS' EQUITY - ---------------------------------- Deposits Interest-bearing deposits Interest bearing checking, savings, & money market 428,873 1,942 1.80% 419,078 6,215 1.98% 413,513 7,661 2.47% Time Dep > $100,000 150,458 1,597 4.21% 174,936 6,657 5.09% 163,505 7,333 5.99% Time Dep < $100,000 236,423 3,012 5.05% 236,333 9,618 5.44% 218,421 8,675 5.31% Brokered Time Dep < $100,000 10,000 118 4.68% 5,311 186 4.68% 0 0 0 --------------------------------------------------------------------------------------------- Total interest-bearing deposits 825,754 6,669 3.20% 835,658 22,676 3.63% 795,439 23,669 3.97% Federal funds purchased & securities sold under agreements to repurchase 89,000 899 4.01% 72,699 2,571 4.73% 69,872 3,025 5.78% Other borrowings 76,690 1,102 5.70% 76,168 3,311 5.81% 56,353 2,527 5.99% --------------------------------------------------------------------------------------------- Total interest-bearing liabilities 991,444 8,670 3.47% 984,525 28,558 3.88% 921,664 29,221 4.23% Noninterest bearing deposits 215,466 202,764 184,276 Accrued expenses and other liabilities 17,405 15,972 12,992 ----------- ----------- ----------- Total liabilities 1,224,315 1,203,261 1,118,932 Minority Interest 1,509 1,514 5,885 Shareholders' equity 124,864 121,608 99,351 ----------- ----------- ----------- Total liabilities and shareholders' equity $1,350,688 $1,326,383 $1,224,168 ----------- ----------- ----------- Interest rate spread 4.23% 4.11% 3.97% Net interest income/margin on --------------- ------------------ ---------------- earning assets $15,278 4.91% $ 44,074 4.85% $40,466 4.75% - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> (1) Average balances and yields exclude unrealized gains and losses on available-for-sale securities. (2) Interest income includes the effects of taxable-equivalent adjustments using a blended Federal and State income tax rate of 40% to increase tax exempt interest income to a taxable-equivalent basis. (3) Nonaccrual loans are included in the average loans totals presented above. Payments received on nonaccrual loans have been recognized as disclosed in Note 1 to the Company's Annual Report on Form 10-K dated December 31, 2000. 19
PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - ------- ----------------- None ITEM 2. Changes in Securities and Use of Proceeds - ------- ----------------------------------------- None ITEM 3. Defaults on Senior Securities - ------- ----------------------------- None ITEM 4. Submission of Matters to a Vote by Security Holders - ------- --------------------------------------------------- None ITEM 5. Other Information - ------- ----------------- None ITEM 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibits None (b) Reports on Form 8-K None 20
SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 9, 2001 TOMPKINS TRUSTCO, INC. By: /s/ James J. Byrnes --------------------- James J. Byrnes Chairman of the Board, Chief Executive Officer By: /s/ Francis M. Fetsko ---------------------- Francis M. Fetsko Senior Vice President and Chief Financial Officer 21
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